Legal Case Studies September 2013

Legal Case Studes

Requirement to disclose defects in “walls” of the property under the Residential Real Property Disclosure Act does not include disclosing defects in windows or doors  Kalkman v. Nedved, 2013 Ill.App.3d (120 800) (June 2013). Defendants were selling their home. Pursuant to the Residential Real Property Disclosure Act (“Act”), the Defendants completed a disclosure report. In the report, the Defendants responded that they were unaware of any material defects or conditions in the home, responding “No” as to each question on the report. Before purchasing the home, the Plaintiff/Buyers were allowed to spend a weekend at the lakefront property. In addition, the Buyers had a routine mold inspection and a home inspection. The home inspection revealed no material defects, but did make note of a potential issue with the windows. The mold inspection revealed mold, but the parties agreed to reduce the purchase price in order to cover remediation costs. Item 6 of the disclosure report states, “I am aware of material defects in the walls or floor.”  The Defendants’ response was “No.”  After the Buyers moved into the property they soon discovered significant leaks in the doors and windows of the home and in the roof of the garage. The leaks resulted in saturated carpets, floors, and walls. The Buyers also found windows that did not close correctly because they had been warped by the elements or were not installed correctly. One of the issues that Buyers focused on at trial was whether Item 6 on the report (regarding walls and floors) included the duty to disclose defects in windows and doors. The Buyer argued that windows and doors (which were not separately addressed in the disclosure report) should be treated as part of the walls for the disclosure report purposes. The Trial Court sided with the Buyers. The Trial Court reasoned that the doors and windows served the same purpose as a wall, i.e. “to protect the interior of the building from the elements. . . .”  Doors and windows “are not specifically excluded from the disclosure report and therefore defects to doors and windows must be reported.” 

The Trial Court awarded the Buyers actual damage for remediation of defects at a total cost of $25,478.00 plus attorney’s fees of $11,500.00. The Defendants appealed and argued that there is no requirement to disclose material defects in windows or doors under the Act. The Appellate Court noted the absence of doors and windows from the report and the absence of a catch-all item, which the Trial Court referred to as a “gap in the statute . . ..”  This was the first time this issue had been before an Illinois Appellate Court. Because there was no guidance from previous cases, the Court turned to the Random House Dictionary of the English Language. The Court found that the definition of “wall” did not seem to include doors or windows, and because the Act, itself, did not refer to doors and windows, the Court held that windows and doors are not “walls,” and therefore there is no duty to disclose defects regarding the doors and windows in Item 6 of the disclosure report. (Note that although the Residential Real Property Disclosure report does not address doors and windows, Sellers must remember that there can be a common law action for fraud or misrepresentation in a situation where the Sellers are aware of a material defect in the windows or walls but they hide the defect or otherwise do not disclose it to the Buyers by a means other than the Residential Real Property Disclosure report). In its reasoning, the Court relied upon the statutory maxim that “Expression of one thing is the exclusion of another.”  Thus, the proper statutory interpretation is that, “when certain things are enumerated in a statute, that enumeration implies the exclusion of all other things even if there are no negative words of prohibition.” 

The Court held that the statutory language of the disclosure report only covers the items specifically listed in the disclosure report, and is not intended to be a report of all material defects in a property. Interestingly, one of the three justices presiding over the appeal wrote a special concurring opinion directed to the Illinois legislature, stating “I write separate to question whether the legislature intended to include windows and/or doors in the Act. Since the language of the Act is narrow, our narrow interpretation of the statute is the correct one. If, however, the intent was to avoid situations like the one in this case, where a Seller is aware material defects in the windows and doors, and does not disclose them, the issue should be called to the attention of the legislature for its review. If the law is amended, I believe that the original intent of the Act will be more fully realized.”

Ignoring advice of their attorney and architect and relying on the statements of the Seller can defeat your claim of fraud. Siegel Development, LLC v. Peak Construction LLC, 213 Ill.App. (1st), 111973, June 2013. In this case, the Buyers entered into a purchase contract for the purchase of a building to be rehabbed, creating a four unit condominium. The Buyers then sued the alleged contractor, Peak Construction, and several individuals for conspiracy to commit fraud and fraud that resulted in Buyers’ paying a substantially higher price than fair market value. The Buyers alleged that fraud was made up of false representations, including statements, (1) that the only repairs and remodeling required for its successful condominium conversion were included on a spreadsheet provided to Buyers prior to executing a sales contract, (2) that the roof, walls, and foundation of the building were in good working condition and structurally sound, (3) that Peak Construction was willing to perform the work listed in the spreadsheet and listed in the draft construction contract for $183,200.00, and (4) that a “repair and replace” permit was all that was needed to perform the necessary repair and remodeling work. Buyers sought damages of $500,000.00 plus punitive damages of $1,000,000.00. The central point of the Buyers’ allegations was that because of the misrepresentations, they believe that the construction work that Peak Construction was to perform was part of a “packaged deal” that went along with the underlying sales contract. Over the course of many months in 2006 a contract for sale of the property was negotiated and eventually signed. Defendants made numerous representations that Peak Construction would enter into a construction remodeling contract for $183,000.00, and further, that all the work could be done under a “repair and replace” permit rather than obtaining a full permit for construction from the City. Numerous oral statements that were made to Buyers included repeated statements that a “repair and replace” permit was all that was needed based on the Defendants extensive experience with similar projects; that Peak Construction had agreed to make the repairs and replacements that Buyers sought for a price of $183,200.00; and even though the construction contract had not been signed, Peak Construction had agreed to its terms; that Peak Construction was ready to begin work right after the closing of the sale; that there was no need for the Buyers to obtain an independent building inspection because that would just increase costs; that Buyers did not need an architect because this too would simply run up costs; and that the building was structurally sound. After closing of the sale, the Buyers learned that Peak Construction had not agreed on a construction contract and in fact demanded a significantly higher price to complete the necessary work. Buyers also learned that the City would require a full construction permit rather than just a “repair and replace” permit. Buyers also learned that the foundation, floor and walls of the building were not structurally sound and needed extensive repair, and learned that the spreadsheet attached to the sale contract that generally referred to work needed along with a price estimate, grossly underestimated the actual cost and work needed to rehab and remodel the building.
The Court granted Defendants’ Motion for Summary Judgment in favor of Defendants, holding that Buyers failed to prove fraud. The Court stated that in order to establish a successful claim for fraud, five elements must be present:  (1) all statement of material facts; (2) by one who knows or believes it to be false; (3) made with the intent to induce action by another in reliance on the statement; (4) actions by the other in reliance of the truthfulness of that statement; and (5) injury to the other resulting from the reliance. Plaintiff’s claim failed because Buyers’ reliance on the Defendants’ statements was not “reasonable reliance.”  The report found that the Buyers’ reliance was unreasonable because the Buyers were aware of the facts that should have warned them of the issue. The Court stated that a Plaintiff cannot close its eyes to available information and blindly rely on the other party’s representations. The Court pointed out that at the time of execution of the sale contract and at the time of closing of the sale contract, Buyers knew that Peak Construction had not yet agreed in writing to the terms of construction contract, and further, that in response to the draft construction contract the Buyers’ attorney drafted his own contract with modifications which was never signed. The Court found that Buyers were aware that its architect had put the Buyers on notice that a full permit was needed and that a repair and replace permit would not be sufficient. The Court also felt that Buyers should have known that the spreadsheet attached to the sale contract was not specific enough to constitute a construction contract. Finally, the Court also pointed out that with regard to the structural condition of the property, the Buyers should have listened to their attorney’s advice and hired an inspector to conduct an inspection. The Court ruled in favor of the Defendants.

Requirement that property owners lease fire alarm transmitters and devices, and contract with the Fire Protection District for installation, service, and maintenance was beyond the power of a non-home rule entity. ADT Security Services v. Lisle-Woodridge Fire Protection District, 672 F.3d 492 (7th Cir. 2012). The Lisle-Woodridge Fire Protection District passed an ordinance that required commercial buildings and multi-family residences to use fire alarms equipped with wireless radio technology that sent an alarm to a central monitoring board operated by the District. The District contracted with one private alarm company to provide and service the signaling equipment. Prior to the ordinance, property owners could choose among other private alarm companies for providing equipment, installation, and service. Existing contracts with other private companies, under the ordinance were void, according to the city. The ordinance also required renting equipment from the Fire Protection District and contracting with the Fire Protection District’s selected private alarm company to provide service and signaling equipment. The court held that the Fire Protection District could not require commercial and multi-family buildings to use these fire alarm transmitter devices from the District, nor could the District require that owners contract with the District for installation, service, and maintenance of such devices. The Court looked at the Fire Protection District’s authority to enact ordinances. A Fire Protection District is not a home rule unit of government and therefore does not have home rule powers, but instead, has only the powers specifically granted to it by the state legislature. The Court found no such power supporting the ordinance under the Fire Protection District Act. A Fire Protection District could mandate that commercial and multi-family buildings have fire alarm systems that communicated directly with the District monitoring board, but requiring owners to lease and obtain equipment from the Fire Protection District and contract with the District for service and maintenance from one private alarm company that the District chose, went beyond the District’s statutory powers. Therefore, the Court did not allow the District to control the transmitter of the system. Additionally, the Court found that the District enacting an ordinance with an exclusive provider went beyond the authority of the District. The Court sided with the Plaintiff, ADT Security Services (an alarm equipment and service provider that was not the company chosen by the District). 