YPI 180 N. LaSALLE OWNER LLC. v. 180 N. LaSALLE II LLC.

403 Ill.App.3d 1

933 N.E.2d 860

342 Ill.Dec. 879

YPI 180 N. LaSALLE OWNER, LLC, a Delaware Limited Liability Company, Plaintiff-Appellant,

v.180 N. LaSALLE II, LLC, a Delaware Limited Liability Company, Defendant-Appellee.

No. 1-09-1797.

Appellate Court of Illinois,First District, First Division.

July 19, 2010.

COPYRIGHT MATERIAL OMITTED.

Michael D. Sher, Athanasios Papadopoulos, Jason A. Frye, Neal, Gerber & Eisenberg LLP, Chicago, IL, for Appellant.

Robert N. Hermes, Andrew D. Shapiro, Butler, Rubin, Saltarelli & Boyd, LLP, Chicago, IL, for Appellee.

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, 288 Ill.Dec. 723, 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 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 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 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 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, 127 Ill.Dec. 880, 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, 134 Ill.Dec. 819, 542 N.E.2d 1326 (1989).

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, 54 Ill.Dec. 896, 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, 218 Ill.Dec. 791, 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, 94 Ill.Dec. 939, 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. 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, 152 Ill.Dec. 941, 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...