Opinion
No. 1-14-2398
09-23-2015
MARTOM PARTNERS, Plaintiff-Appellant, v. U.S. BANK, N.A., Defendant-Appellee.
NOTICE: This order was filed under Supreme Court Rule 23 and may not be cited as precedent by any party except in the limited circumstances allowed under Rule 23(e)(1).
Appeal from the Circuit Court of Cook County
No. 09 L 13089
Honorable Patrick J. Sherlock, Judge Presiding.
PRESIDING JUSTICE MASON delivered the judgment of the court.
Justices Lavin and Pucinski concurred in the judgment.
ORDER
¶ 1 Held: Defendant entitled to summary judgment on fraud count where plaintiff failed to show it reasonably relied on defendant's alleged misrepresentations regarding condition of purchased property.
¶ 2 Plaintiff-appellant Martom Partners filed a complaint alleging breach of contract and fraud against defendant-appellee U.S. Bank, N.A., from whom it purchased certain real property in February 2008. Specifically, Martom alleged that U.S. Bank made several misrepresentations as to the condition of the property in the real estate contract, upon which Martom relied to its detriment. The circuit court granted summary judgment in favor of U.S. Bank, and Martom appeals. We affirm.
¶ 3 BACKGROUND
¶ 4 In February 2008, Martom Partners offered to purchase a multi-family residential property located at 2921 North Albany Avenue in the city of Chicago, which was under foreclosure by U.S. Bank. Thomas M. Jacobs, the principal of Martom Partners who holds a 97% interest in the partnership, is a licensed attorney. According to Jacobs, the partnership was in the business of acquiring and reselling or leasing foreclosed properties and had completed 60 such transactions at the time of its offer to purchase the property.
¶ 5 Martom's real estate contract-offer included the pre-printed provision that the seller "represents that he has not received written notice from any Governmental body or Homeowner association of [ ] zoning, building, fire or health code violations that have not been corrected."
¶ 6 U.S. Bank accepted Martom's offered price of $210,000, but added a counter-offer and several addenda that were included in the final contract. One addendum, entitled "Acceptance of Property 'As Is,' " is particularly relevant, and we reproduce it at some length here:
"Buyer acknowledges and agrees that the Property . . . is to be sold and conveyed to, and accepted by Buyer, in an "as is" condition with all faults as of the date of the above referenced agreement. * * *
Buyer is aware that Seller likely acquired the Property by way of foreclosure, deed in lieu of foreclosure, forfeiture or similar process and consequently, Seller has little or no direct knowledge regarding the condition of the Property. . . . Buyer acknowledges that it is entering into this agreement and purchasing the Property on the basis of Buyer's own investigation of the Property, and Buyer assumes the risk that adverse physical, environmental and other conditions may not have been or may not be revealed by Buyer's own investigation. By closing the transaction, Buyer acknowledges that Buyer is satisfied with and accepts the results of such investigation.
Buyer further acknowledges that Seller . . . [has] made no representation or warranty of any kind in connection with any matter relating to the condition, value, fitness, suitability or zoning of the Property, including the presence or absence of hazardous or toxic substances, upon which Buyer has relied directly or indirectly for any purpose. * * *
Buyer . . . hereby waives, releases, remises, acquits and forever discharges Seller . . . of and from any claims, actions, causes of action, demands, rights, damages, costs, expenses or compensation whatsoever, direct or indirect, known or unknown, foreseen or unforeseen, which Buyer now has or which may arise in the future on the account of or in any way growing out of or connected with the physical conditions of the Property, any law or regulation applicable thereto, or any personal property that may be included in the sale.
* * *
THE CLOSING OF THIS TRANSACTION SHALL CONSTITUTE AN ACKNOWLEDGMENT BY BUYER THAT BUYER HAS INVESTIGATED, TO THE EXTENT BUYER DEEMS NECESSARY, THE CONDITION OF THE PROPERTY . . . AND THAT THE PROPERTY . . . WAS ACCEPTED WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND OR NATURE AND IN AN 'AS IS' CONDITION WITH ALL FAULTS BASED SOLELY ON BUYER'S OWN INSPECTION.
The terms and conditions set forth in this addendum shall supersede and replace any inconsistent terms or conditions contained elsewhere in the agreement of which this addendum is a part. * * *."
Martom and U.S. Bank signed and dated the contract, including this addendum, on February 14 and 18, 2008, respectively.
¶ 7 In the weeks prior to closing, Jacobs and his associate viewed the property on two occasions and observed that the three units in the building were in some stage of deconstruction or reconstruction. Several walls throughout the property had been opened, many of the walls that remained were unpainted drywall, doors were missing, and wires and pipes were exposed. In addition, the kitchen spaces and bathrooms in the units were not fully outfitted. Martom planned to remediate these and other conditions
prior to leasing the property and engaged a general contractor to walk through the building before closing.
¶ 8 Approximately one month after closing on February 29, 2008, Martom applied for permits for HVAC and electrical work. It then discovered that the property was subject to code violations and the city of Chicago had issued a "stop work" order on the property in 2006. The order was issued because the owner at the time (on whom U.S. Bank later foreclosed) failed to obtain any permits prior to removing plaster and lathe on the first and second floors. The order had been affixed to the building for a period of time, but when Jacobs viewed the property in February 2008, it was no longer posted. According to Martom, because of the code violations and the order, the City subjected its permit applications to a greater degree of oversight, in turn causing Martom to exceed its budget for renovations to the property.
¶ 9 In November 2009, Martom filed a complaint against U.S. Bank alleging breach of contract, later amended to include a claim of fraudulent inducement. The fraudulent inducement count - the only count at issue on appeal - alleged that U.S. Bank was aware of the code violations and the stop work order, which rendered false the statement in the contract-offer that it had not received notice of any uncorrected building code violations, as well as the statement in the "as is" addendum that it "has little or no direct knowledge regarding the condition of the Property." In addition, Martom alleged that U.S. Bank's failure to disclose the code violations and the stop work order materially misled Martom and induced it to make an offer to purchase the property.
¶ 10 U.S. Bank filed a motion for summary judgment arguing that pursuant to the terms of the contract, Martom expressly waived claims relating to the property's
condition (and any laws applicable thereto) and took possession of the property "as is." Further, U.S. Bank pointed out that the contract disclaimed any warranties regarding the condition of the property, and Martom acknowledged it had not relied on such warranties or representations. The circuit court granted the motion, and Martom timely appealed.
¶ 11 ANALYSIS
¶ 12 Summary judgment is proper when the pleadings, depositions, and affidavits demonstrate that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law. 735 ILCS 5/2-1005(c) (West 2014); State Farm Mutual Automobile Insurance Co. v. Coe, 367 Ill. App. 3d 604, 607 (2006). In making this determination, the record materials must be viewed in the light most favorable to the non-movant. Federal Insurance Co. v. Lexington Insurance Co., 406 Ill. App. 3d 895, 897 (2011). We review de novo an order granting summary judgment. Hall v. Henn, 208 Ill. 2d 325, 328 (2003).
¶ 13 While the circuit court entered summary judgment in favor of U.S. Bank on both counts of Martom's complaint, Martom challenges the court's order only with respect to the fraudulent inducement count. The elements of a claim for fraud include (1) a false statement of material fact, (2) by one who knows of its falsity, (3) made with the intent to induce another to act in reliance on the statement, (4) action by the other in reliance, and (5) damages resulting from that reliance. JP Morgan Chase Bank, N.A. v. East-West Logistics, LLC, 2014 IL App (1st) 121111, ¶ 67. Importantly, the reliance on the alleged misrepresentation must be justifiable. Siegel Development, LLC v. Peak Construction LLC, 2013 IL App (1st) 111973, ¶ 114. That is, "'a person may not enter into a transaction with his eyes closed to available information and then charge that he has been
deceived by another.'" Id. (quoting D.S.A. Finance Corp. v. County of Cook, 345 Ill. App. 3d 554, 561 (2003)).
¶ 14 Martom alleges two misrepresentations, the first of which was contained in Martom's contract-offer and reads "seller represents that he has not received written notice from any Governmental body or Homeowner Association of [ ] zoning, building, fire or health code violations that have not been corrected." But the contract, when read in its entirety, effectively nullified this representation. Specifically, the "as is" addendum, which supersedes "inconsistent terms or conditions contained elsewhere in the agreement," explicitly states that U.S. Bank "made no representation or warranty of any kind in connection with any matter relating to the condition, value, fitness, suitability, or zoning of the property," and reiterates more generally that the property was "ACCEPTED WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND OR NATURE." This plainly contradicts the language in Martom's contract-offer, and pursuant to the terms of the contract, the former controls over the latter.
¶ 15 To be sure, an "as is" clause, standing alone, does not necessarily vitiate a claim of fraud. See, e.g., Bauer v. Giannis, 359 Ill. App. 3d 897, 908 (2005); Zimmerman v. Northfield Real Estate, Inc., 156 Ill. App. 3d 154, 164-65 (1986). But the language in the contract here goes beyond a mere "as is" clause disclaiming representations as to the condition of the property. First, it specifically provides that the disclaimer "supersede[s] and replace[s] any inconsistent terms or conditions contained elsewhere in the agreement." And more significantly, the disclaimer also contains a non-reliance clause missing from the agreements in Bauer and Zimmerman: Martom expressly acknowledged that U.S. Bank made no representation regarding the condition or suitability of the
property on which it relied. We have held that such non-reliance clauses go far towards establishing that reliance on a defendant's misrepresentation is unjustified. Schrager v. Bailey, 2012 IL App (1st) 111943, ¶ 27; Greer v. Advanced Equities, Inc., 2012 IL App (1st) 112458, ¶ 9 ("[I]t is hardly justifiable for someone to rely on something they have agreed not to rely on, and without justifiable reliance there can be no fraud."); see also Benson v. Stafford, 407 Ill. App. 3d 902, 927 (2010) (citing non-reliance clause as evidence that reliance was unjustified and distinguishing Zimmerman on ground that "as is" disclaimer did not contain non-reliance language). This is particularly true here, where Martom was an experienced real estate investor that could not have failed to appreciate the import of this clause. See Benson, 407 Ill. App. 3d at 928 (considering sophistication of parties in concluding that plaintiff could not prove justifiable reliance in face of contractual non-reliance clause). Thus, the "as is" and non-reliance clauses combine to defeat Martom's claim that its reliance on U.S. Bank's representation that it did not have notice of uncorrected building code violations was reasonable. See Siegel Development, 2013 IL App (1st) 111973, ¶ 114 (question of whether reliance was reasonable may be determined as matter of law where facts point to only one conclusion).
¶ 16 The second alleged misrepresentation to which Martom points is found in the "as is" addendum, where U.S. Bank maintained that it had "little or no direct knowledge regarding the condition of the property." According to Martom, this was untrue because U.S. Bank was in fact aware of the stop work order and building code violations. But it is difficult to discern how Martom relied on this "no direct knowledge" statement to its detriment. Presumably in reliance on this statement, Martom undertook its own investigation prior to purchasing the property. But Martom does not seek to recoup costs
related to that independent investigation; rather, it seeks recovery of costs related to U.S. Bank's alleged failure to disclose the existence of a stop work order. These costs did not stem from Martom's reliance on U.S. Bank's statement that it had no direct knowledge of the condition of the property, but on reliance on the opposite - that U.S. Bank represented there was no issue related to the condition of the property. And as we discussed above, this reliance was unreasonable. Accordingly, Martom's fraud claim fails as a matter of law.
¶ 17 It bears noting that at the time Martom offered to buy the property, Martom was undeniably aware that in its present condition, the property contained numerous code violations and was, in fact, uninhabitable. Walls and doors were missing, wiring and pipes were exposed, and appliances and fixtures in kitchens and bathrooms had been removed. In this context and particularly in light of the numerous provisions in the contract disclaiming any representation or warranties regarding the condition of the property, we find specious Martom's claim that had it known of the stop work order and code violations, it would not have agreed to purchase the property.
¶ 18 Finally, because we agree that the terms of the contract refute Martom's claim of fraud and support the grant of summary judgment, we need not address U.S. Bank's arguments relating to damages and principal-agent liability as alternative grounds for affirmance.
¶ 19 CONCLUSION
¶ 20 For the reasons stated, we affirm the circuit court's order granting summary judgment in favor of defendant.
¶ 21 Affirmed.