YPI 180 N. LaSalle Owner v. 180 N. LaSalle II

• Court: Appellate Court of Illinois
• Decided: July 19, 2010
• Docket: 1-09-1797 Rel
• Status: Published

Opinion

First Division July 19, 2010

1-09-1797

YPI 180 N. LaSALLE OWNER, LLC, a ) Appeal from the Delaware Limited Liability ) Circuit Court Company, ) of Cook County. ) Plaintiff-Appellant, ) ) v. ) No. 09 CH 6451 ) 180 N. LaSALLE II, LLC, a ) Delaware Limited Liability ) Company, ) Honorable ) William O. Maki, Defendant-Appellee. ) Judge Presiding.

PRESIDING JUSTICE HALL delivered the opinion of the court:

This appeal arises from the grant of a motion to dismiss

brought under section 2-615 of the Illinois Code of Civil

Procedure (Code) (735 ILCS 5/2-615 (West 2006)). The overarching

issue before the court concerns the right of an assignee of a

contract to rescind the contract on the ground of impossibility

of performance. For the reasons that follow, we affirm.

The appeal focuses on two common-law doctrines of contract

law: impossibility of performance, which is an affirmative

defense to a breach of contract claim (Radkiewicz v. Radkiewicz,

353 Ill. App. 3d 251, 260, 818 N.E.2d 411 (2004)); and equitable

rescission, which allows a party to rescind or abandon a contract

based on, among other things, the impossibility of performance.

See (30 R. Lord, Williston on Contracts §77:95, at 593 (4th ed.

2007) ("Impossibility of performance, as a ground for rescission

of a contract, refers to those factual situations where one party No. 1-09-1797

to a contract finds that the purposes for which a contract was

made have become impossible to perform on one side")).

BACKGROUND

On August 12, 2008, defendant-appellee, 180 N. LaSalle II,

LLC (LaSalle), as seller, and Younan Properties, Inc. (Younan),

as purchaser, entered into a purchase agreement (contract), for

the sale and purchase of commercial property located at 180 North

LaSalle Street, Chicago, Illinois. The purchase price was $124

million. The purchase price (less earnest money) was to be

deposited with an escrow agent two business days prior to

closing. Pursuant to the contract, Younan deposited initial

earnest money of $2.5 million into an escrow account.

Between August 29, 2008, and September 30, 2008, LaSalle and

Younan executed three amendments to the contract. The first

amendment extended the time in which Younan could evaluate and

then terminate the contract if it decided to do so. In the

second amendment, LaSalle and Younan acknowledged that the time

to terminate the contract had expired, and as a result, Younan

deposited an additional $2.5 million in earnest money with the

escrow agent.

In the third amendment, LaSalle provided Younan with a

$500,000 credit against the purchase price, and Younan deposited

an additional $1 million in earnest money with the escrow agent.

LaSalle and Younan also directed the escrow agent to release $1

million of the earnest money to LaSalle and agreed that the

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released earnest money would be credited against the purchase

price at closing but was "hereby deemed earned by Seller and

shall be non-refundable to Purchaser for any reason whatsoever

except in the event of a default by Seller of Seller's

obligations to close the sale or a failure of a condition to

Purchaser's obligation to close the sale."

On October 9, 2008, Younan assigned all of its rights,

title, and interest in the contract to plaintiff-appellant, YPI

180 N. LaSalle Owner, LLC (YPI). The assignment provided that

Younan remained liable under the contract.

In early October 2008, Younan received notice that one of

its lenders, Allied Irish Bank, had pulled out of the financing

arrangement on the ground that economic conditions in Ireland

beyond the bank's control or anticipation had forced it to

withdraw from the credit markets.

Between October 15, 2008, and December 9, 2008, LaSalle, and

this time YPI, executed additional amendments to the contract.

On October 15, 2008, pursuant to the fourth amendment to the

contract, LaSalle and YPI directed the escrow agent to release

the remaining earnest money to LaSalle and also agreed that the

earnest money would be credited at closing and was deemed earned

by seller and non-refundable, except in the event of default by

seller of seller's obligations to close the sale. In return, the

parties extended the closing date to December 17, 2008.

Also in the fourth amendment, LaSalle and YPI acknowledged

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the assignment and agreed that Younan would be jointly and

severally liable with YPI for buyer's obligations under the

contract. Younan joined in execution of the fourth amendment.

On November 20, 2008, LaSalle and YPI executed a fifth

amendment to the contract. Under this amendment, LaSalle agreed

to reduce the purchase price by $4 million, and YPI waived the

option to extend the closing date beyond December 17, 2008.

Younan joined in execution of the fifth amendment.

On December 9, 2008, LaSalle and YPI executed a sixth and

final amendment to the contract. Under this amendment, the

parties agreed to extend the closing date to no later than

February 18, 2009. Younan also joined in execution of this sixth

amendment.

When Younan failed to close on purchase of the commercial

property, LaSalle terminated the contract and retained the

deposited earnest money as its sole remedy for breach of the

contract.1 Shortly thereafter, YPI filed the underlying

complaint against LaSalle seeking to rescind the contract and

recover $6 million in earnest money retained by LaSalle.

YPI argued that pursuant to the contract-law doctrine of

impossibility of performance, it was excused from performing

1 Pursuant to section 13.3 of the contract, LaSalle waived

its rights to seek any additional damages from Younan or YPI for

their failure to close the sale.

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under the contract due to the 2008 global credit crisis which it

claimed prevented it and Younan from obtaining the commercially-

practical financing contemplated when the contract was originally

formed.

Following a hearing, the trial court granted LaSalle's

section 2-615 motion to dismiss, striking YPI's complaint with

prejudice and without leave to amend. This timely appeal

followed.

ANALYSIS

The threshold question before the court is whether YPI, as

an assignee of the contract, has the right to rescind the

contract. We answer in the affirmative.

Rescission is an equitable remedy that seeks to restore the

contracting parties to their precontract positions. See Horan v.

Blowitz, 13 Ill. 2d 126, 132, 148 N.E.2d 445 (1958)

("'[R]escission' is the cancelling of a contract so as to restore

the parties to their initial status ***"). When a contract is

rescinded, it is as if the contract never existed in the first

place. See Puskar v. Hughes, 179 Ill. App. 3d 522, 528, 533

N.E.2d 962 (1989) ("[w]here a contract is rescinded, the rights

of the parties under that contract are vitiated or invalidated").

A trial court's decision granting or denying a request to rescind

a contract is within the sound discretion of the court, whose

ruling will not be disturbed absent an abuse of that discretion.

Farmer v. Koen, 187 Ill. App. 3d 47, 50, 542 N.E.2d 1326 (1989).

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An assignment is the transfer of some identifiable property,

claim, or right from the assignor to the assignee. Buck v.

Illinois National Bank & Trust Co., 79 Ill. App. 2d 101, 106, 223

N.E.2d 167 (1967); Bishop v. Village of Brookfield, 99 Ill. App.

3d 483, 490, 425 N.E.2d 1113 (1981). The assignment operates to

transfer to the assignee all of the assignor's right, title or

interest in the thing assigned, such that the assignee stands in

the shoes of the assignor. Community Bank of Greater Peoria v.

Carter, 283 Ill. App. 3d 505, 508, 669 N.E.2d 1317 (1996).

Because of the equitable and personal character of the right

to sue for rescission, mere naked claims for rescission are

generally not assignable. Banque Arabe Et Internationale

D'Investissement v. Maryland National Bank, 850 F. Supp. 1199,

1214 n.7 (S.D.N.Y. 1994), citing Soderberg v. Gens, 652 F. Supp.

560, 565 (N.D. Ill. 1987). However, ordinary business contracts,

other than those requiring purely personal services, are

generally assignable. In re Estate of Frayser, 401 Ill. 364, 372,

82 N.E.2d 633 (1948). Moreover, executory contracts for the

purchase of real estate, such as the one at issue in this case,

may be assigned. See In re Estate of Martinek, 140 Ill. App. 3d

621, 630, 488 N.E.2d 1332 (1986).

In the instant case, LaSalle contends that Younan, the

assignor of the contract, waived its right to seek rescission of

the contract and that therefore, YPI, as assignee of the

contract, lacks standing to seek rescission of the contract.

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LaSalle contends that after Younan entered into the contract and

learned of the 2008 global credit crisis, it nevertheless

reaffirmed the contract by assigning the contract to YPI and then

executing amendments to the contract. LaSalle maintains that

Younan consequently waived its right to seek rescission of the

contract, and that YPI, as an assignee of the contract, lacks

standing to rescind the contract. We disagree.

The right to rescind a contract must be exercised promptly

on discovery of facts that confer the right to rescind, otherwise

the right is waived. See Gibson Electric Co., Inc. v. State of

Illinois, 27 Ill. Ct. Cl. 60 (1970); Mound City Distilling Co. v.

Consolidated Adjustment Co., 152 Ill. App. 155, 159 (1909); see

also Vincent v. Vits, 208 Ill. App. 3d 1, 7, 566 N.E.2d 818

(1991) ("A right to rescission must be exercised promptly"). In

this case, there is nothing in the record to suggest that at the

time Younan or YPI executed the amendments to the contract, that

they possessed knowledge of the 2008 global credit crisis

sufficient to justify rescission of the contract. As a result,

we find that YPI, as an assignee of the contract, has standing

and the right to rescind the contract.

The next question is, if YPI does in fact have standing and

the right to rescind the contract, is the contract rescindable on

the ground of impossibility of performance under the facts and

circumstances of this case? We must answer in the negative.

Impossibility of performance as a ground for rescission of a

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contract refers to those factual situations where the purposes

for which the contract was made have, on one side, become

impossible to perform. See 30 R. Lord, Williston on Contracts

§77:95 (4th ed. 2004). The doctrine of impossibility of

performance in contract was recognized by our supreme court in

Leonard v. Autocar Sales & Services Co., 392 Ill. 182, 187, 64

N.E.2d 477 (1945). See Mouhelis v. Thomas, 95 Ill. App. 3d 181,

183, 419 N.E.2d 956 (1981); Joseph W. O'Brien Co. v. Highland

Lake Construction Co., 17 Ill. App. 3d 237, 241, 307 N.E.2d 761

(1974).

The doctrine excuses performance where performance is

rendered objectively impossible due to destruction of the subject

matter of the contract or by operation of law. Leonard, 392 Ill.

at 187; see also 407 East 61st Garage, Inc. v. Savoy Fifth Avenue

Corp., 23 N.Y.2d 275, 281, 296, 244 N.E.2d 37, 41, 296 N.Y.S.2d

338, 343-44 (1968) ("impossibility of performance is limited to

the destruction of the means of performance by an act of God, Vis

major, or by law"); Seaboard Lumber Co. v. United States, 308

F.3d 1283, 1294 (Fed. Cir. 2002) (performance of contract only

excused under doctrine of impossibility when it is objectively

impossible). This doctrine has been narrowly applied "due in

part to judicial recognition that the purpose of contract law is

to allocate the risks that might affect performance and that

performance should be excused only in extreme circumstances." Kel

Kim Corp. v. Central Markets, Inc., 70 N.Y.2d 900, 902, 519

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N.E.2d 295, 296, 524 N.Y.2d 384, 386 (1987).

The party advancing the doctrine must show that the events

or circumstances which he claims rendered his performance

impossible were not reasonably foreseeable at the time of

contracting. Illinois-American Water Co. v. City of Peoria, 332

Ill. App. 3d 1098, 1106, 774 N.E.2d 383 (2002). Where a

contingency that causes the impossibility might have been

anticipated or guarded against in the contract, it must be

provided for by the terms of the contract or else impossibility

does not excuse performance. See Leonard, 392 Ill. at 187

("subsequent contingencies, not provided against in the contract,

which render performance impossible, do not bring the contract to

an end"); see also United States v. Winstar Corp., 518 U.S. 839,

905, 116 S. Ct. 2432, 2469-70, 135 L. Ed. 2d 964, 1010 (1996)

("'[i]f [the risk] was foreseeable there should have been

provision for it in the contract, and the absence of such a

provision gives rise to the inference that the risk was

assumed'"), quoting Lloyd v. Murphy, 25 Cal. 2d 48, 54, 153 P.2d

47, 50 (1944).

In this case, YPI argues that its performance under the

contract was made impossible due to the 2008 global credit

crisis, which it claimed prevented it and Younan from obtaining

the commercially-practical financing contemplated when the

contract was originally made. YPI's argument is misplaced.

Even if the global credit crisis made it difficult, to

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nearly impossible, to procure the sought-after commercial

financing, this is not the relevant issue. The primary issue is

whether it was foreseeable that a commercial lender might not

provide Younan and YPI with the financing they sought. See Ner

Tamid Congregation of North Town v. Krivoruchko, 638 F. Supp. 2d

913, 928 (N.D. Ill. 2009). Even without the global credit crisis

of 2008, it was foreseeable that a commercial lender might not

provide Younan and YPI with the financing they sought. See Ner

Tamid Congregation of North Town, 638 F. Supp. 2d at 928

(contracting party's failure to obtain commercial financing in

connection with purchase of property was not a ground to rescind

contract under doctrine of impossibility of performance since it

was foreseeable, for any number of reasons, that a lender might

not provide the sought after financing).

The potential inability to obtain commercial financing is

generally considered a foreseeable risk that can be readily

guarded against by inclusion in the contract of financing

contingency provisions. Ner Tamid Congregation of North Town, 638

F. Supp. 2d at 928. If the inability to obtain commercial

financing, standing alone, were sufficient to excuse performance

under the doctrine of impossibility of performance, then the law

binding contractual parties to their agreements would be of no

consequence. See, e.g., Northern Illinois Gas Co. v. Energy

Cooperative, Inc., 122 Ill. App. 3d 940, 952, 461 N.E.2d 1049

(1984) ("If changed prices, standing alone, constitute a

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frustrating event sufficient to excuse performance of a contract,

then the law binding contractual parties to their agreements is

no more").

In addition, the doctrine of impossibility of performance

does not apply to excuse performance "as long as it lies within

the power of the promisor to remove the obstacle to performance."

Felbinger & Co. v. Traiforos, 76 Ill. App. 3d 725, 733, 394

N.E.2d 1283 (1979). The underlying complaint alleged that

Younan's current assets exceeded $1.6 billion. Nothing in the

record indicates that Younan lacked sufficient assets or equity

to pay the contract purchase price. To the extent its resources

were not liquid, nothing in the record suggests it would have

been impossible for Younan to convert its nonliquid assets to

liquid assets in order to pay the contract purchase price.

We find that under the facts and circumstances of this case,

as a matter of law, Younan's and YPI's failure to obtain the

commercially-practical financing they sought was not an adequate

ground to rescind the contract under the doctrine of

impossibility of performance.

A section 2-615 motion to dismiss attacks the legal

sufficiency of the complaint and should be granted if, after

viewing the allegations in the light most favorable to the

plaintiff, the complaint fails to state a cause of action on

which relief can be granted. McCready v. Secretary of State, 382

Ill. App. 3d 789, 794, 888 N.E.2d 702 (2008); McHenry County

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Defenders, Inc. v. City of Harvard, 384 Ill. App. 3d 265, 280,

891 N.E.2d 1017 (2008). The grant of a section 2-615 motion to

dismiss presents a question of law, which is reviewed de novo.

McHenry County Defenders, Inc., 384 Ill. App. 3d at 280.

In the instant case, we find that the trial court properly

struck YPI's complaint with prejudice and without leave to amend

pursuant to section 2-615 of the Code, on the ground that the

complaint failed to allege sufficient facts warranting rescission

of the contract under the doctrine of impossibility of

performance.

Accordingly, for the reasons set forth above, the judgment

of the circuit court of Cook County is affirmed.

Affirmed.

PATTI and LAMPKIN, JJ., concur.

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