George Street Acquisitions, LLC v. Parikh Family Companies , 2024 IL App (2d) 230096-U ( 2024 )

2024 IL App (2d) 230096-UNo. 2-23-0096
Order filed March 14, 2024
NOTICE: This order was filed under Supreme Court Rule 23(b) and is not precedent
except in the limited circumstances allowed under Rule 23(e)(1).
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
SECOND DISTRICT
______________________________________________________________________________
GEORGE STREET ACQUISITIONS, LLC, ) Appeal from the Circuit Court
5M RE, INC. d/b/a 5M Real Estate, Inc., ) of Lake County.
and MARK J. REITER, )
)
Plaintiffs and Counterdefendants- )
Appellants, )
)
v. ) No. 19-CH-626
)
PARIKH FAMILY COMPANIES, )
ELMHURST LAKE APARTMENT, LLC, )
PARK TERRACE PARTNERSHIP )
APARTMENTS, LLC, KERNEL PARIKH )
PROPERTIES, LLC-GPS I SERIES, )
VIRENDRA PARIKH PROPERTIES, LLC- )
GPS I SERIES, KERNEL PARIKH )
PROPERTIES, LLC-ROYAL CLUB SERIES, )
VIRENDRA PARIKH PROPERTIES, LLC- )
ROYAL CLUB SERIES, P & S PARTNER- )
SHIP, INC., REGENCY VILLAGE PART- )
NERSHIP, INC., REGENCY HOMES & )
DEVELOPMENT CO., and PARIKH )
FAMILY INVESTMENT MANAGEMENT )
CORPORATION, )
) Honorable
Defendants and Counterplaintiffs- ) Janelle K. Christensen,
Appellees. ) Judge, Presiding.
______________________________________________________________________________
JUSTICE SCHOSTOK delivered the judgment of the court.
Justices Hutchinson and Mullen concurred in the judgment.
2024 IL App (2d) 230096-UORDER
¶1 Held: In this case involving a real estate transaction that never closed, the trial court did
not err in denying the plaintiffs’ claims for specific performance and breach of the
covenant of good faith and fair dealing, or in granting damages in favor of the
defendants for the violation of the contract’s confidentiality provision.
¶2 In 2018, the parties entered a real estate contract to purchase multiple parcels of real estate.
The transaction never closed. In April 2021, the plaintiffs, George Street Acquisitions, LLC
(George Street), 5M RE Inc. d/b/a 5M Real Estate Inc. (5M Real Estate), and Mark Reiter, filed a
multi-count complaint for, in relevant part, specific performance and breach of the covenant of
good faith and fair dealing. The defendants, Parikh Family Companies, Elmhurst Lake Apartment
LLC, Park Terrace Partnership Apartments LLC, Kernel Parikh Properties LLC-GPS I Series,
Virendra Parikh Properties LLC-GPS I Series, Kernel Parikh Properties LLC-Royal Club Series,
Virendra Parikh Properties LLC-Royal Club Series, P & S Partnership Inc., Regency Village
Partnership Inc., Regency Homes & Development Co., and Parikh Family Investment
Management Corporation, filed a counterclaim, in relevant part, for breach of the contract’s
confidentiality provision. Following a bench trial, the trial court entered an order finding in favor
of the defendants on all these claims. The plaintiffs appeal from this order. We affirm.
¶3 I. BACKGROUND
¶4 Mark Reiter and his brother, Marty, are the owners of 5M Real Estate and George Street.
George Street was created solely for the transactions at issue and became a legal entity on
September 25, 2018. Reiter was a licensed real estate broker. Kernel Parikh (KP) and Virendra
Parikh (Raja), who are brothers, are the owners of all the defendant entities. These entities owned
an expansive portfolio of real estate, including apartment buildings. KP had been in the business
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2024 IL App (2d) 230096-Uof developing, building, managing, and selling apartment units for 35 years. KP had a master’s
degree in architecture and Raja was a licensed professional engineer.
¶5 In 2018, Reiter approached KP with a potential buyer for the Regency Village apartments,
an apartment complex in Elmhurst. KP later advised Reiter that he wanted to sell all of the
apartment buildings in his portfolio. Reiter’s buyer was not interested in the entire portfolio.
¶6 In August 2018, Reiter sent KP a proposed agreement offering $70 million for KP’s entire
portfolio. The contract identified the purchaser as George Street. KP and Raja ultimately agreed
to sell their portfolio for $75 million. Reiter, as the broker of 5M Real Estate, and KP, as president
of the Parikh Family Companies, executed a commission agreement which provided that, if a sales
contract was signed within a specified time frame, 5M Real Estate would receive a 3% commission
at closing. Reiter intended to place this commission into the deal as the plaintiffs’ equity
contribution. They later executed a supplement to the commission agreement. The supplement
provided that the commission was dependent on the sale closing within a certain time frame and
that Reiter agreed to obtain prior written consent from KP before disclosing any rent rolls or
financial information to any other party.
¶7 A. The Agreement
¶8 On October 5, 2018, the parties executed a purchase and sale agreement (the Agreement)
for the subject properties. The Agreement identified the buyer as George Street and Reiter as a
member of George Street. It was structured as an equity deal, meaning that the plaintiffs would
be purchasing an entity that owned the real property at issue, rather than directly transferring
ownership of each individual property.
¶9 Section 1.1(h) of the Agreement provided:
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2024 IL App (2d) 230096-U“(h) Due Diligence Period: The period ending ninety (90) days after the Date of
this Agreement. At or during any date or time of the Due Diligence Period, Seller(s) may
alter the corporate or LLC ownership of the subject sale properties, for Seller’s tax and/or
family ownership purposes, prior to Closing. Attached, for information of the Parties
hereto, is a preliminary draft of Seller’s estate and tax attorney’s "Parikh - Outline of Plan
to Sell the Real Estate Portfolio", attached hereto as Schedule 1.3 (consisting of 3 pages).
The allocation between the various Properties of the Purchase Price by Seller’s estate and
tax counsel may be assigned or directed at any time before Closing, subject to Purchaser’s
approval, which shall not be unreasonably withheld, conditioned, or delayed. Purchaser
may extend the Due Diligence Period for one (1) period of thirty (30) days, provided
Purchaser deposits an additional $100,000.00 (One Hundred Thousand and 00/100 Dollars)
with the Escrow Agent not later than two (2) days after the expiration of the Due Diligence
Period.”
Section 1.1(g) of the Agreement defined earnest money as “$50,000.00 (Initial Earnest Money),
and any additional deposit of Earnest Money Required herein, plus interest thereon.” Section 1.1(i)
stated that the financing period was the period ending 90 days after the date of the Agreement.
Section 1.1(j) stated that the closing date was to be held 30 days after the expiration of the due
diligence period.
¶ 10 Section 1.3 of the Agreement provided:
“Earnest Money. The Initial Earnest Money, in immediately available federal
funds, evidencing Purchaser’s good faith to perform Purchaser’s obligations under
this Agreement, shall be deposited by Purchaser with the Escrow Agent not later
than two (2) business days after the full execution of this Agreement. Upon
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2024 IL App (2d) 230096-UPurchaser’s satisfactory conclusion of the Due Diligence Period, as may be
extended as set forth in Article 1.1(h), Purchaser shall deposit with the Escrow
Agent, as Additional Earnest Money, the sum equal to an amount which will
increase the total Earnest Money to 2% of the Purchase Price (in Par. 1.1(f) hereof),
being $1,500,000.00. The Earnest Money shall be applied to the Purchase Price at
Closing. In the event that Purchaser fails to timely deposit the Initial Earnest
Money, or the Additional Earnest Money, if applicable, with the Escrow Agent,
this Agreement shall be of no force and effect. If this Agreement terminates prior
to the deposit of the Additional Earnest Money, pursuant to any express right of
Seller or Purchaser to terminate this Agreement, (subject to Par. 2.5 hereof) the
Earnest Money shall be refunded to Purchaser immediately upon request, and all
further rights and obligations of the parties under this Agreement shall terminate.
However, upon deposit of the Additional Earnest Money, and absent any breach of
this Agreement by Seller, all of the Earnest Money (i) shall then be non-refundable
in the event of a termination, breach or default of this Agreement by Purchaser, and
(ii) shall then be Sellers’ funds as (a) a part of the Purchase Price paid by Purchaser
at Closing, or (b) as liquidated damages payable to Seller, if Purchaser does not
proceed to Closing. ***.”
While this final version of the Agreement did not give a specific day when the additional earnest
money had to be paid, one earlier draft stated that it was to be paid on the 60th day of the due
diligence period and another draft stated that it was due on the 90th day of the due diligence period.
¶ 11 Section 2.2 of the Agreement provided that the parties agreed that the property information,
such as the rent rolls, would be maintained in strict confidence. It further stated that the buyer and
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2024 IL App (2d) 230096-Useller acknowledged, in the event of a breach of confidentiality, “that there may be no adequate
remedy at law and that either Party shall have the right to seek injunctive relief.” It further provided
that:
“The Purchaser shall be entitled to disclose confidential information to potential investors
and financing sources, provided each such investor or financing source executes a non-
disclosure agreement.”
This section also included a liquidated damages clause such that if the broker violated the terms
and conditions of confidentiality, and the transaction did not close, the broker would pay the sum
of $25,000 as liquidated damages to be split equally between buyer and seller.
¶ 12 Section 2.5 of the Agreement provided that buyer could terminate the Agreement during
the due diligence period and receive a refund of its earnest money, minus half the cost for any
preliminary title commitments and surveys. Section 8.2 provided that if the seller defaulted, the
buyer could seek return of its earnest money or pursue a claim for specific performance but could
not pursue a claim for damages. Section 10.9 of the Agreement provided that time was of the
essence in the performance of the Agreement.
¶ 13 The Agreement had schedules attached. Schedule 1.2 listed all the properties for sale and
the corporate entities that owned each property. Schedule 1.3 outlined the structure of the equity
sale and included a diagram of the transaction. Specifically, Schedule 1.3 identified the entities
that owned the subject property, provided that those entities would transfer their interests in the
properties to a new entity, Parikh Holding LLC, and that the members of Parikh Holding would
then sell their membership interest in Parikh Holding to George Street. The sale proceeds would
be transferred into a new entity, Parikh Investments, LLC.
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2024 IL App (2d) 230096-U¶ 14 On December 6, 2018, the Agreement was split into two separate contracts. The first
contract, which we will still refer to as the “Agreement,” was for $74.5 million and involved the
equity sale of the apartment buildings owned by the defendants. The second contract (the ancillary
contract) was for $500,000 and involved the sale of all the remaining real property, which included
land and some houses. The purpose of the split was to allow the plaintiffs to obtain financing.
The defendants’ attorney, Don Russ, needed to prepare a new Schedule 1.3 for each of the split
contracts. He provided those on December 29, 2018. The record demonstrates that, in a December
10, 2018, email from the defendants’ attorney, James Bakk, to KP and Raja, Bakk wrote “And, the
issue regarding the non-refundability of the $1.35 earnest money after the expiration of the Due
Diligence period” has been made clear in both of the contracts.
¶ 15 B. Post-Agreement Actions and Correspondence
¶ 16 Also on December 6, 2018, the plaintiffs executed a term sheet with their lenders, Pensam
Funding, Inc. (Pensam) and Equitrust Life Insurance Company (Equitrust). The term sheet
contained preliminary terms and conditions of the loan in response to 5M Real Estate’s loan
application for $72.4 million. The term sheet stated that it did not represent a formal or binding
agreement by the lender. Ray Cleeman was the contact for Pensam and Brad Feine was the contact
for Equitrust. The loan included about $9 million to finance the plaintiffs’ plan to renovate the
properties. 5M Real Estate’s equity partner in this transaction was Castlerock. Sebastian Barsh
was the contact person for Castlerock. Castlerock and 5M Real Estate’s joint venture was called
5M Rock Holdings, LLC. The record indicates that 5M Rock Holdings was planning to provide
about $15 million in equity and the rest of the purchase price for the transaction was being financed
through the lenders.
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2024 IL App (2d) 230096-U¶ 17 On December 31, 2018, the plaintiffs exercised the one time right, under section 1.1(h) of
the Agreement, to extend the due diligence period for 30 days and made the requisite $100,000
earnest money deposit. At that point, the due diligence period was to end on February 5, 2019.
On January 10, 2019, the plaintiffs advised the defendants that its’ lenders wanted to use a different
structure for the equity sale of the properties. It essentially made modifications to how the entities
would be transferred upon closing. On January 17, 2019, the defendants agreed to the new
structure and Russ was to update the Schedule 1.3s accordingly.
¶ 18 By January 28, 2019, Russ had not provided the updated schedules. On that date, however,
the plaintiffs’ attorney, Cory Faulkner, sent a proposed amendment to the Agreement that included,
in part, new changes to how the entities would be transferred upon closing and a new provision
whereby KP and Raja would provide personal indemnity for any claims related to the subject
properties being sold. The amendment also included an “additional contingency” that essentially
allowed the plaintiffs to back out of the deal at any time up to the closing date if the plaintiffs could
not obtain financing on terms that would permit what was contemplated by paragraph 4 of the
proposed amendment. It also added a place to the signature pages of the Agreement for KP and
Raja to sign “individually” under a statement that “the undersigned herby join in this Amendment
to evidence their agreement to the terms of the ‘Indemnity’ Paragraph of this Amendment.” In the
email, Faulkner requested another two week extension to the due diligence period, such that it
would end on February 19, 2019 (rather than February 5).
¶ 19 On January 31, 2019, Bakk sent Faulkner an email with the updated Schedule 1.3s attached.
Bakk also stated:
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2024 IL App (2d) 230096-U“Insofar as the amendment #1 to the contracts *** Don Russ advises that this amendment
would undo everything in the Schedule 1.3 Outlines + Charts to the contracts, which I can
assure you would not be acceptable to my clients.
To allow for some discussion (including Don Russ), my clients accept your requested
extension of the Due Diligence/Financing period to 2/19/19.”
The record shows that on February 5, 2019, Bakk emailed Faulkner a written and executed
extension to the due diligence period, extending it to February 19.
¶ 20 On February 4, 2019, Faulkner sent a revised amendment via email. He agreed that the
closing should take place in accordance with the revised schedules sent on January 31. He stated
that he removed the provisions from the proposed amendment that he believed were objectionable.
This revised amendment essentially removed language that Faulkner believed would conflict with
the new Schedule 1.3s but also expanded the personal indemnity language.
¶ 21 On February 7, 2019, Faulkner sent a follow-up email to Bakk and Russ asking whether
the revised amendment addressed their concerns and stating that, if not, “please feel free to redline
any language you would like removed or changed.” Having no response, Faulkner sent another
email on February 11 stating, “We need to have the amendment agreed to and executed before we
can finalize everything with our lender, as a significant portion of the loan items *** are dependent
on the sale structure.” Faulkner received an email response from Russ stating that he was out of
town for a meeting and that he would “get with [Bakk] later this week.”
¶ 22 On February 12, 2019, Faulkner sent a third email requesting a response to the amendment
and stating, “We are running up against our financing contingency date on [February 19], and we
cannot finalize the loan documents, until the amendment is agreed to and executed. *** We are
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2024 IL App (2d) 230096-Uusing our best efforts to get this closed, but we are in a difficult position while the terms of the
amendment remain outstanding.”
¶ 23 On February 14, 2019, Faulkner sent a fourth email, which stated, “Everyone on our side
is ready to push to the finish line when we have the signed amendment, but at this point, we are
going to need beyond Tuesday to finalize the loan.” He then requested another two-week extension
of the due diligence and financing contingencies. Bakk responded by email that same day. He
sent a revised amendment. In relevant part, it removed the language related to personal indemnity
and eliminated the additional contingency, which allowed the plaintiffs to cancel up until the
closing date with no penalty if appropriate financing was not obtained. It also removed the
signature lines where KP and Raja were supposed to sign “individually.” The email closed with:
“This revised Amendment is acceptable to Sellers, so let me know if it’s good to go ***.” Bakk
did not respond to the request for another extension.
¶ 24 On February 15, 2019, at 4:46 p.m., Bakk forwarded additional changes to the amendment
that Bakk received from Russ. There was again no response to the request for another extension
of the due diligence or financing contingencies. Russ had made minor additional changes to the
revised amendment. The changes were shown on the clean copy of the revised amendments that
Bakk had sent to Faulkner. However, the place for KP and Raja to sign “individually” reappeared
on Russ’s version of the revised amendment.
¶ 25 On February 18, 2019, at 4:45 p.m., Faulkner sent Bakk an email asking him to extend the
due diligence period for two weeks—until March 5, 2019. At 6:42 p.m., Faulkner sent an email
to Bakk and Russ with another revised amendment. Faulkner’s revisions added the personal
indemnity language back into the amendment.
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2024 IL App (2d) 230096-U¶ 26 On February 19, 2019, at 7:42 a.m., Bakk sent Faulkner an email that stated any extensions
or amendment requests needed to be handled by Russ. At 5:49 p.m., having been unable to contact
Russ, Faulkner sent Bakk and Russ the following email:
“Please note that buyer reserves all rights to terminate the contract and receive a full refund
of its earnest money in the event an extension is not agreed to hereafter.
It remains our intention to proceed with the contract, if the extension is granted, and this
shall not be taken as our expression of intent to terminate the contract while the proposed
extension is pending.”
The due diligence period ended that day and the plaintiffs did not deposit the additional earnest
money as called for by section 1.3 of the Agreement.
¶ 27 On February 20, 2019, Faulkner sent an email to Bakk and Russ still pursuing an extension
to the due diligence period and noting that the plaintiffs had been acting in good faith to resolve
the issues related to the amendment. Faulkner stated that, “We need a resolution of the extension
request to determine how to move this transaction forward.” Later that day, Bakk sent the
following response:
“Regarding your client’s [third] extension request *** the sellers have not and will not
grant another extension ***. The Sellers thereby accept your client’s termination of the
subject $74.5M and $500K contracts. Sorry things did not work out.”
¶ 28 The record indicates that, thereafter, the plaintiffs did not try to get a refund of the earnest
money already paid. Rather, on February 24, 2019, the plaintiffs, the lenders, and the equity
partners had an “all hands on deck meeting.” They determined that they could close the transaction
without an amendment. The transaction never closed and the plaintiffs filed this suit.
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2024 IL App (2d) 230096-U¶ 29 On April 9, 2021, the plaintiffs filed their first amended six-count complaint. The plaintiffs
alleged claims for specific performance (count I), damages for lost rent and income (count II), and
fraud (count VI). The plaintiffs also alleged three claims for breach of contract. Count III sought
damages for breach of the Agreement and the ancillary contract. Count IV alleged a breach of
contract based on a breach of the implied covenant of good faith and fair dealing. Count V alleged
a claim for breach of the commission agreement.
¶ 30 As is relevant to the arguments raised on appeal, we note that, in count I, the plaintiffs
alleged that they were entitled to specific performance because the defendants improperly
terminated the Agreement on February 20, 2019, the defendants waived the time is of the essence
provision, and because the plaintiffs were ready, willing, and able to perform their obligations
under the Agreement and ancillary contract. In count IV, the plaintiffs alleged that the defendants
acted in bad faith in failing to negotiate the proposed amendment to the Agreement in a reasonable
manner and in failing to notify the plaintiffs within a reasonable time that they would not grant
another extension to the due diligence period. The plaintiffs further alleged that, had they been
informed that there would be no extension and that the defendants did not agree to Faulkner’s
February 18th redline changes to the proposed amendment, they would have been able to timely
deposit the additional earnest money and proceed to closing. In count V, the plaintiffs alleged that
the defendants breached the Agreement and the ancillary contract to avoid paying Reiter his
commission and that, because Reiter fully performed under the commission agreement, the
defendants were still required to pay it. In count IV of the counterclaim, the defendants alleged
that the plaintiffs breached section 2.2 of the Agreement, the confidentiality provision, and that
they were entitled to damages.
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2024 IL App (2d) 230096-U¶ 31 The defendants filed an answer, affirmative defenses, and counterclaims. As
counterclaims, the defendants alleged that the plaintiffs breached: the implied covenant of good
faith and fair dealing (count I); fiduciary duties (count II); the Consumer Fraud and Deceptive
Business Practices Act (815 ILCS 505/2 (West 2018) (count III); and the confidentiality provisions
of the Agreement and ancillary contract (count IV). The defendant also requested specific
performance of the contractual requirement to return all confidential documents since the closing
did not occur (count V). Count V of the counterclaim was later withdrawn because the documents
were returned.
¶ 32 On July 6, 2021, following a hearing on the parties cross-motions for summary judgment,
the trial court granted summary judgment in favor of the defendants on all of the plaintiffs’ claims
and summary judgment in favor of the plaintiffs on all of the defendants’ counterclaims except
count IV, alleging a breach of the Agreement’s confidentiality provision. On September 30, 2021,
the trial court granted the plaintiffs’ motion to reconsider and reinstated count I (specific
performance), count IV (breach of the covenant of good faith and fair dealing), and count V (breach
of the compensation agreement) of the plaintiffs’ complaint. The matter proceeded to trial on those
counts and on count IV (breach of confidentiality) of the defendants’ counterclaim.
¶ 33 C. Trial Testimony
¶ 34 A two-week bench trial commenced on August 15, 2022. At trial, Faulkner testified that
the Agreement was split into two contracts to accommodate financing. Faulkner acknowledged
sending a revised amendment on February 4, 2019, that included more with regards to
representations and warranties based on the equity nature of the transaction. It also included
personal indemnification from KP and Raja to indemnify the purchasers and the related entities
from any liabilities that might pass to the purchasers after closing. Faulkner testified that he never
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2024 IL App (2d) 230096-Ureceived any subsequent communications informing him that KP and Raja would never agree to
personal indemnification or reiterating that time was of the essence.
¶ 35 Faulkner further testified that, in addition to his emails, he also left a voicemail for Russ
on February 11. He was trying to get the amendment resolved. Faulkner requested another two-
week extension to the due diligence period. On February 14, he received redlines to the
amendment from Bakk but there was no response as to extending the due diligence period.
Faulkner testified that the email did not express that the defendants refused any kind of personal
indemnification. Faulkner acknowledged that Bakk’s redlines eliminated any language regarding
personal indemnity and removed the signature lines at the end of the amendment designated for
KP and Raja to sign individually. Faulkner testified that he never received a response from the
defendants regarding his request for another extension to the due diligence period.
¶ 36 Faulkner acknowledged that Russ had also sent revisions to the amendment on February
15. Russ’s version included the signature lines for KP and Raja to sign individually. Faulkner
believed that, because Russ did not remove the signature lines, the defendants had essentially
agreed to personal indemnification.
¶ 37 Faulkner testified that, when he was granted previous extensions to the due diligence
period, it was handled by Bakk. However, on February 19, he received an email from Bakk stating
that any amendment or extension requests needed to be handled by Russ. Faulkner sent Russ a
couple emails that day but received no response from Russ. He received a response from Russ’s
assistant that stated Russ was out of town on the 18th and 19th and would be in meetings all day
on those days. The assistant also said that she sent Russ an email explaining the urgency of the
extension request. Faulkner testified that he was contacting everyone to try to reach Russ to
resolve the amendment and extension request prior to February 19 but he was unsuccessful. On
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2024 IL App (2d) 230096-Uthe evening of February 19, he sent an email stating that the plaintiffs reserved the right to cancel
the contract and receive a full refund of the earnest money if the defendants did not agree to a due
diligence extension.
¶ 38 Faulkner testified that he sent two more emails on February 20, expressing that the
plaintiffs still wanted to proceed with the transaction. Bakk sent a response stating that the
defendants would not grant an extension and that the “Sellers thereby accept your client’s
termination” of the Agreement and the ancillary contract. Thereafter, Faulkner and Reiter
continued to try to reach out to the defendants to resolve the issues and proceed with the
transaction. Faulkner, Reiter, and the lenders had an “all hands on deck” conference call on
February 24, 2019. After discussions, everyone agreed, including the lenders, to proceed with the
closing of the Agreement as it was written and to forgo the requested amendment. Faulkner
testified that if the defendants had timely denied the extension request and any amendments, the
plaintiffs could have had the “all hands on deck” conference call sooner and proceeded to close.
¶ 39 Faulkner testified that he did not believe the defendants had the right to terminate the
contract on February 20. He believed that the additional earnest money was not due until a
reasonable time after the conclusion of the due diligence period. However, the record also shows
that, on December 10, 2018, Faulkner wrote an email to Bakk, which stated, in part, that “[w]e are
all in agreement that the full amount of the earnest money will become non-refundable after the
Due Diligence Period” and that “the full $1,500,000 will be non-refundable as of the last day of
the Due Diligence Period.”
¶ 40 Reiter testified that the plaintiffs were ready and able to pay the additional earnest money
on February 19, 2019. Reiter stated that, in February 2019, the defendants never told anyone that
that KP and Raja would never agree to personal indemnity. Reiter said there were multiple phone
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2024 IL App (2d) 230096-Ucalls and emails trying to get a response from the defendants about the amendment. By February
18, they still had not received a response. Reiter tried to call KP and Raja multiple times on
February 19 to get a response but they did not answer.
¶ 41 Reiter further testified that the plaintiffs had an operating agreement with Castlerock and
Castlerock was going to provide the additional earnest money. Castlerock’s attorney told him
multiple times that Castlerock had access to the necessary funds. Reiter testified that the
understanding between all the parties was that the additional earnest money was due within a
reasonable time after the conclusion of the due diligence period. Reiter identified an email he
received from his equity partner, Sebastian Barsh, on January 31, 2019, wherein Barsh stated that
the additional earnest money was ready for deposit. Reiter acknowledged that Barsh also stated
that the additional earnest money was conditioned on the plaintiffs being squared away with their
loans and an operating agreement.
¶ 42 On February 22, 2019, in a text message exchange with Barsh, Reiter suggested that they
wire the additional earnest money to keep the Agreement and ancillary contract enforceable. Barsh
responded that he was not sure whether there was an enforceable contract and he did not deposit
the additional earnest money. Reiter further testified that, on February 28, 2019, plaintiffs and
their equity partners exchanged multiple emails and reached a strategy for closing without any
amendment. He also acknowledged that he provided information regarding the Agreement to
multiple individuals when he was trying to find lenders and equity investors. When doing so, he
was acting in his capacity as a buyer, not a broker. He could not recall whether he procured any
non-disclosure agreements before he provided the information.
¶ 43 Sebastian Barsh testified that he was the owner of Castlerock Properties. Castlerock
developed and invested in real estate. Castlerock did not have any assets. Castlerock entered into
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2024 IL App (2d) 230096-Uan operating agreement for a joint venture with 5M Real Estate to purchase the subject property
owned by the defendants. He had two investors, Ryan Daube and Owen Schnaper, who were also
supplying funds through Castlerock to purchase the subject property. He acknowledged that, under
the operating agreement with 5M Real Estate, Castlerock was responsible for supplying the
additional earnest money ($1.35 million). Daube specifically was supplying the additional earnest
money. Daube had supplied the $100,000 of earnest money that was paid when they exercised the
contractual right to extend the due diligence period for 30 days. He testified that, as of January
31, 2019, it was Castlerock’s intention to move forward with depositing the additional earnest
money and that the money was available. The additional funds Castlerock was supplying at closing
were also available.
¶ 44 Barsh acknowledged that he received an unexpected email from Bakk on February 20,
2019, saying that the deal was off. He testified that everyone involved in the purchase was
surprised and trying to figure out what was going on. After the email from Bakk, he sent an email
to the plaintiffs stating that he would not be depositing the additional earnest money. Barsh
testified that this was because he was worried that if the deal was in limbo, the earnest money
could get stuck. He believed the defendants were not acting in good faith. At the time of his
testimony, he was still interested in being an equity partner in the transaction.
¶ 45 On cross-examination, Barsh acknowledged that he did not have anything in writing from
Daube or Schnaper stating that either agreed to be personally responsible for depositing the
additional earnest money. Castlerock, Barsh, Daube, and Schnaper could have walked away from
the deal at any time. They had no obligation. At any point, they could have decided not to deposit
the additional earnest money. Initially, he did not pay the additional earnest money because it
seemed like the deal would not move forward unless the defendants signed an amendment and he
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2024 IL App (2d) 230096-Udid not want the money to be held up in escrow for a long time. After receiving the Bakk email
terminating the Agreement, he did not want to deposit the additional earnest money because he
was again worried that he would not get it back if the deal did not close. Barsh acknowledged that
Castlerock was to deposit $12.5 million in an escrow account to be used to fund the subject deal.
The money was never deposited in an escrow account.
¶ 46 Barsh identified a January 4, 2019, email he sent to Reiter. In that email he wrote that they
were almost through the due diligence period and there was nothing from the lenders showing that
they were aware it was an equity deal or that the lenders would even allow it. He wrote, “If we
didn’t know the lender had no clue or hasn’t given express written consent to permit the equity
deal we probably wouldn’t have wired the 100k already.” Barsh also identified a January 9, 2019,
email he sent to Reiter. In that email, he stated that the lenders were opposed to closing in an
equity structure. Barsh testified that he learned this from Cleeman, who was the only person from
the lender’s side with which he spoke.
¶ 47 Barsh acknowledged that he received an email from Reiter on November 9, 2018, that
included an attachment called “Lake County Confidential Offering Memorandum.” Reiter
informed him that he had sent the information about the deal to over 100 groups. Barsh
acknowledged that he received the agreement without signing a nondisclosure agreement (NDA).
Barsh spoke with a couple others about the deal and he also did not obtain NDAs before doing so.
In 2020, after the deal was no longer alive, Reiter asked Barsh to sign and back date an NDA.
Barsh signed one but did not back date it. Barsh acknowledged that, on February 20, 2019, Reiter
sent him an email stating that the Agreement could be kept enforceable if the additional earnest
money was paid. Barsh responded that he was not sure they had something that was enforceable
in court and that they needed to figure out what was really going on.
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2024 IL App (2d) 230096-U¶ 48 The record indicates that the joint venture between Castlerock and 5M Real Estate was
called 5M Rock Holdings, LLC. On February 18, 2019, Castlerock and 5M Real Estate executed
an operating agreement for 5M Rock Holdings. The operating agreement did not identify which
equity member was responsible for paying the additional earnest money. In an email chain dated
February 28, 2019, Barsh wrote that it was inconceivable that Bakk did not understand why the
buyers needed personal indemnification but that he was still willing to deposit the additional
earnest money if Reiter provided personal indemnity that would cover any potential risk associated
with moving forward on the transaction.
¶ 49 Bakk testified that he was involved with the original negotiation of the Agreement. It was
originally an asset transaction but, at the request of the defendants, it became an equity transaction.
An equity transaction involved the sale of the entities that owned the subject real estate and it saved
the defendants millions of dollars in federal recapture taxes. Bakk acknowledged that, although
the Agreement was signed on October 5, 2018, the initial earnest money was not deposited until
October 11, 2018, because the escrow account was not set up in time to meet the contractual two-
day deadline and the defendants agreed to the extension. The original 90-day due diligence period
ended in the beginning of January. The plaintiffs exercised their contractual right to one 30-day
extension of the due diligence period and timely deposited the required additional $100,000 of
earnest money. The extension included the financing contingency too. Bakk acknowledged that
the first two extensions of the due diligence period were agreed through communication between
him and Faulkner.
¶ 50 On January 10, 2019, Bakk received a request from Faulkner to make some modifications
to the equity structure of the deal. Russ and the defendants agreed on January 17, 2019, to the
requested modification. The requested modification required Russ to redo the Schedule 1.3s. In
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2024 IL App (2d) 230096-UBakk’s mind, no other changes were needed before closing. However, on January 28, 2019,
Faulkner sent an email stating that the plaintiffs needed another extension to the due diligence
period because they still had not received revised schedules from Russ. Bakk replied three days
later that the defendants agreed to a two-week extension, to February 19, 2019. Bakk prepared a
document stating as such, had it signed by the defendants, and emailed it to Faulkner. Bakk
testified that the extension was agreed to because the defendants were negotiating in good faith
and attempting to close on both contracts.
¶ 51 Bakk testified that Faulkner’s January 10 email also requested other modifications to the
Agreement, specifically, personal indemnification from KP and Raja, and for an extension on the
closing date. Bakk testified that Faulkner had tried to include a personal indemnity provision in
one of the original drafts of the Agreement. At that time, which was prior to October 5, 2018,
Bakk told Faulkner that KP and Raja would never agree to personal indemnity. Bakk responded
to Faulkner on January 31, 2019, stating that the new proposed amendment to the Agreement was
not acceptable. He informed Faulkner on January 31, February 4, and on February 14, that the
defendants would not accept an amendment that included personal indemnity. Faulkner told him
that the plaintiffs needed the proposed amendment in order to get financing.
¶ 52 Bakk testified that, on February 14, 2019, he sent an email with a redlined and clean copy
of the proposed amendment to which the defendants would agree. He sent another email on
February 15 with changes proposed by Russ. The February 15 version included the signature lines
for the indemnity provisions even though the signature lines were crossed out on the February 14
version Bakk sent. Bakk stated that he forgot to remove the signature lines from the February 15
version. (The record shows that Russ also testified at trial and corroborated that the inclusion of
the personal indemnity signature lines was an oversight.) Thereafter, Faulkner continued to seek
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2024 IL App (2d) 230096-Upersonal indemnity and an extension to the due diligence period. Bakk testified that when Faulkner
sent another revised amendment on February 18, 2019, Faulkner had changed most of the
provisions back to what was sent on February 4, which Bakk had already told him were
unacceptable.
¶ 53 Finally, Bakk testified that, as of February 14, 2019, he did not know if the defendants
would have agreed to another extension of the due diligence period because he did not know
whether the plaintiffs were going to agree to redlined amendment that was acceptable to the
defendants. The defendants were intending to close up until the end of the day on February 19,
2019, as long as the plaintiffs paid the additional earnest money. Bakk testified that the additional
earnest money was nonrefundable at the conclusion of the due diligence period.
¶ 54 Brad Feine testified that Equitrust did not issue written loan commitments. Equitrust
generally finalized loans about one or two days before closing. Feine acknowledged that, on
February 19, 2019, he sent an email to Pensam which stated, “They are waiting on execution of
the first amendment to the [Agreement] before they put [earnest] money down hard. Likely won’t
be today.” He was referring to the buyers and the sellers. Putting money down hard meant that
once you put the earnest money down, you could not get it back—it was nonrefundable. Feine
acknowledged that, as of February 19, 2019, there was an open item on Equitrust’s loan checklist—
equity verification. Since the lenders were only providing funding of $63.5 million, Equitrust
needed to verify that the plaintiffs had the remaining necessary funds to provide at closing.
Equitrust had requested financial statements from the plaintiffs but had not received them.
¶ 55 D. Trial Court’s Ruling
¶ 56 At the close of trial, the trial court requested that each side provide a statement of facts and
written closing arguments. On February 23, 2023, the trial court entered a written memorandum
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2024 IL App (2d) 230096-Uopinion and judgment. The trial court first addressed whether the additional earnest money was
due prior to the expiration of the due diligence period or within a reasonable time following the
expiration. The contractual language stated that “[u]pon purchaser’s satisfactory conclusion of the
Due Diligence Period *** purchaser shall deposit” the additional earnest money. The trial court
determined that the word “upon” was ambiguous because various dictionary definitions included
“on” and “immediately,” but also “thereafter” or “very soon after.” The trial court thus turned to
parole evidence to determine when the additional earnest money was due. The trial court noted
that email communications between the parties during the period that the contract was pending all
indicated that the additional earnest money would be non-refundable after the due diligence period.
The trial court also noted that, under the Agreement, the initial earnest money was due two days
after the Agreement was signed, and the contractual right to extend the due diligence period for 30
days required an earnest money payment of $100K within two days after the expiration of the due
diligence period. The trial court noted, however, that the provision requiring the payment of the
additional earnest money of $1.35 million did not include any similar two-day provision. The trial
court concluded that “if the earnest money is non-refundable after the Due Diligence period
expired on February 19th, logic dictates that Buyer had to deposit the additional earnest money on
or before the expiration of the Due Diligence period.” The trial court thus held that “upon” meant
that the additional earnest money was to be paid no later than February 19, 2019.
¶ 57 The trial court denied the plaintiffs’ claim for specific performance, finding that the
plaintiffs had not shown they were ready, willing, and able to deposit the additional earnest money
on February 19, 2019. The trial court found that the plaintiffs did not disclose the equity structure
of the Agreement to the lenders until January “and then the lenders baulked [sic] and demanded
an amendment to the [Agreement] to cure their perceived defect.” Barsh elected not to pay the
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2024 IL App (2d) 230096-Uadditional earnest money because he was not sure whether the parties would reach an agreement
regarding the amendment and thus whether the lending would come through. Further, the trial
court noted that Barsh and the other lenders were not contractually bound to provide the equity or
financing. The trial court noted that Daube and Schaper did not testify at trial and there was no
evidence that they had committed to providing the additional earnest money. The trial court also
noted that the lenders’ decision to finance the transaction without an amendment five days after
the due diligence period was irrelevant as the additional earnest money was due on February 19th
and was not paid.
¶ 58 The trial court then addressed the plaintiffs’ argument that the defendants waived the
contractual time is of the essence clause and thus waived the February 19 due diligence deadline.
The trial court found this argument to be without merit. The trial court noted that the parties agreed
to the two-day extension for payment of the initial earnest money because the escrow account had
not been set up. The trial court also noted that the plaintiffs exercised the contractual right to one
30-day extension of the due diligence period and paid another $100,000 in earnest money. The
trial found that, if the plaintiffs really believed that the defendants waived the time is of the essence
by allowing the two-day extension for the initial earnest money, they would not have paid the extra
earnest money. The trial court also found that the defendants did not waive the time is of the
essence clause of the contract by granting an additional two-week extension, from February 5 to
February 19. The trial court noted that the defendants did not let the due diligence period lapse,
and then grant an extension. Rather, the defendants timely granted the request for the extension
and set the new due date of February 19. The trial court stated that if the plaintiffs really believed
the defendants waived the time is of essence clause, they would not have continually reached out
seeking agreement to an extension. The trial court also found telling that, after the additional
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2024 IL App (2d) 230096-Uearnest money was not paid on February 19, the defendants terminated the Agreement the next
day. The trial court concluded that the defendants did nothing to lull the plaintiffs into believing
that it would grant another due diligence extension.
¶ 59 The trial court denied the plaintiffs’ claim for breach of the covenant of good faith and fair
dealing. The trial court found credible Bakk’s testimony that he told the plaintiffs when
negotiating the original October 2018 Agreement that the defendants would never agree to
personal indemnity. The trial court also noted that Barsh’s January 4, 2019, email indicated that,
as of that date, Reiter had not informed the lenders that the sale was structured as an equity deal.
The trial court found that this was why “the lenders balked which caused [the plaintiffs] to
scramble to try and renegotiate the [Agreement] terms.” The trial court found that the plaintiffs
were on notice that personal indemnity was not acceptable as of January 31, 2019, when Bakk
informed them of this. The trial court found that the plaintiffs should have had their “all hands on
deck call” at this time and not five days after the due diligence period ended. The trial court
concluded that the defendants exercised the discretion to not extend the due diligence period
reasonably and with proper motive.
¶ 60 The trial court acknowledged that the defendants never responded to the request for an
extension but found that this was not a breach of the covenant of good faith as the plaintiffs were
well aware by February 19 that the defendants would not agree to personal indemnity. The trial
court noted that the deal did not end because the defendants did not respond to the requests for an
extension. Rather, the deal ended because the plaintiffs failed to pay the additional earnest money
to secure the right to move forward with the deal. The trial court found that, even if the defendants
were ultimately happy that the deal fell through, the termination of the deal rested on the plaintiffs’
failure to timely secure proper financing from its lenders.
- 24 -
2024 IL App (2d) 230096-U¶ 61 The trial court also denied the plaintiffs’ claim for breach of the commission agreement.
The trial court found that Reiter was not entitled to the commission because the deal fell through
and the defendants did not act in bad faith.
¶ 62 As to the defendants’ counterclaim for breach of the confidentiality of the Agreement, the
trial court noted that the Agreement clearly required Reiter to obtain non-disclosure agreements
from potential lenders and investors before providing confidential information. The trial court
found that Reiter failed to comply with this requirement and even requested one lender to postdate
a confidentiality agreement. The trial court thus found in favor of the defendants and awarded
$25,000 in damages. Following the trial court’s ruling, the plaintiffs filed a timely notice of appeal.
¶ 63 II. ANALYSIS
¶ 64 A. Specific Performance
¶ 65 The plaintiffs’ first contention on appeal is that it was entitled to specific performance of
the subject contracts for two reasons: (1) the defendants breached the Agreement; or (2) the
plaintiffs were ready, willing, and able to perform on the Agreement but were prevented from
doing so by the defendants’ actions. “Generally, a party will be entitled to specific performance
of a contract for conveyances of real estate only upon establishing either that the party has
performed according to the terms of the contract or that the party was ready, willing and able to
perform but was prevented, and thus excused from doing so by the acts or conduct of the other
party.” Omni Partners v. Down, 246 Ill. App. 3d 57, 63 (1993). Specific performance is an
equitable remedy that may only be “exercised upon consideration of all the facts and circumstances
of a particular case.” Id. at 62. A trial court’s decision to grant or deny such relief will not be
disturbed absent an abuse of discretion. Id.¶ 66 1. Breach of the Agreement
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2024 IL App (2d) 230096-U¶ 67 The plaintiffs argue that they were entitled to specific performance because the defendants
breached the Agreement by improperly terminating it when the additional earnest money was not
paid on February 19, 2019. Paragraph 1.3 of the Agreement provided that the additional earnest
money was due “[u]pon [the plaintiffs] satisfactory conclusion of the Due Diligence Period.” The
trial court found that the term “upon” was ambiguous and interpreted it to mean that the additional
earnest money was due on or before February 19. On appeal, the plaintiffs concede that the term
“upon” is ambiguous but argue that the parole evidence does not support the trial court’s
interpretation of that term.
¶ 68 In so arguing, the plaintiffs cite an email from Bakk to KP and Raja, wherein he wrote,
“And, the issue regarding the non-refundability of the $1.5 earnest money after the expiration of
the Due Diligence period has been clear in Par, 5.2(e) [of the ancillary contract] and in Par. 5.2(d)
[of the Agreement].” (Emphasis added.) The plaintiffs argue that this email meant that the
additional earnest money was not due until after the due diligence period expired. The plaintiffs
also point out that preliminary drafts of the Agreement specified that the additional earnest money
was due on the 60th day of the due diligence period and another specified that it was due on the
90th day of that period. The plaintiffs assert that since the final version of the Agreement did not
list a specific due date, the parties intended that the additional earnest money would be due within
a reasonable time after the expiration of the due diligence period. Accordingly, the plaintiffs argue
that the defendants breached the Agreement by terminating it on February 20th rather than
allowing the plaintiffs a reasonable amount of time to pay the additional earnest money and that
the only equitable remedy is specific performance.
¶ 69 In construing a contract, our primary objective is to give effect to the intent of the parties.
Thompson v. Gordon, 241 Ill. 2d 428, 441 (2001). If the provisions of a contract are unambiguous,
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2024 IL App (2d) 230096-Uwe ascertain the parties’ intent from the language chosen in the contract. Id. However, if the
contract language is ambiguous, a court can consider extrinsic evidence to determine the parties’
intent. Id. A contract is ambiguous if it can reasonably be interpreted as having more than one
meaning or its language is indefinite in expression. West Bend Mutual Insurance Company v.
Athens Construction Company, Inc., 2015 IL App (1st) 140006, ¶ 27. The determination of
whether a contract is ambiguous is a question of law for a court to decide. Meyer v. Marilyn
Miglin, Inc., 273 Ill. App. 3d 882, 888 (1995). If a contract is ambiguous and the trial court uses
extrinsic evidence to determine the parties’ intent, the interpretation of the language is a question
of fact (Chicago Principals Association v. Board of Education, 84 Ill. App. 3d 1095, 1099 (1980)),
and, as a result, the trial court’s decision will not be reversed unless it is against the manifest weight
of the evidence (Chicago Investment Corp. v. Dolins, 107 Ill. 2d 120, 124 (1985)).
¶ 70 In the present case, we agree that the contract is ambiguous because its language regarding
the due date of the additional earnest money is indefinite in expression. The Agreement specified
that the initial earnest money was due two days after the execution of the Agreement, and another
$100,000 in earnest money was due two days after the expiration of the due diligence period if the
plaintiffs exercised the contractually provided one-time extension. However, with respect to the
$1.35 million in additional earnest money due at the expiration of the due diligence period, there
was no definite time frame set forth in the Agreement as to when it is due other than stating it was
due “upon” the satisfactory conclusion of the due diligence period. We agree with the trial court
that the word “upon” is ambiguous. As noted by the trial court, dictionary definitions of upon
include both “thereafter” (Merriam-Webster Online Dictionary, https://www.merriam-
webster.com/dictionary/upon (last visited Feb. 20, 2023)) as well as “on,” “immediately,” and
“very soon after” (Dictionary.com, https://dictionary.com/browse/upon (last visited Feb. 20,
- 27 -
2024 IL App (2d) 230096-U2023)). As we agree that there is an ambiguity, we review the trial court’s resolution of the
ambiguity under the manifest weight standard. Chicago Investment Corp., 107 Ill. 2d at 124.
¶ 71 Here, the trial court’s resolution was not against the manifest weight of the evidence. Email
communications between the parties indicated that the additional earnest money would be non-
refundable at the expiration of the due diligence period. In a December 10, 2018, email, Bakk
wrote that the earnest money was non-refundable after the expiration of the due diligence period.
In an email on that same date, Faulkner wrote that the additional earnest money would be non-
refundable “as of the last day” of the due diligence period. If the earnest money was non-
refundable at these times, that necessarily implied that it was required to be paid prior to the last
day of the due diligence period or before that period ended. The earlier drafts of the Agreement,
specifying that it was due on the 60th day or the 90th day of the due diligence period, support this
interpretation. Both of those time frames were within the due diligence period, not a reasonable
time after it ended. The failure to include a specific day could reasonably be interpreted to mean
that the additional earnest money could be paid at any time during the due diligence period but
that it was not non-refundable until after the due diligence period expired. Prior to that time, the
plaintiffs could terminate the Agreement under the conditions of paragraph 2.5 and receive a full
refund of the earnest money.
¶ 72 Moreover, we agree with the trial court’s reasoning that, since the Agreement specified
two-day windows for payment of the initial earnest money and the earnest money for the
contractually provided 30-day extension, the parties’ failure to include a specific due date after the
expiration of the due diligence period for payment of the additional earnest money shows that it
was to be paid during the due diligence period. If it was to be paid within a certain time after the
due diligence period expired, the parties could have written that explicit term into the Agreement.
- 28 -
2024 IL App (2d) 230096-UThe plaintiffs cite to an email dated October 5, 2018, from Faulkner to Bakk in which Faulkner
wrote that the earnest money was to increase to $1.5 million “after the expiration of the Due
Diligence Period.” However, this conflicts with the above correspondence relating to when the
earnest money became non-refundable. It is the trial court’s responsibility to resolve conflicts in
the evidence (Williams v. Cahill, 258 Ill. App. 3d 822, 825 (1994)) and even based on the October
2018 email, we cannot say the trial court’s determination was against the manifest weight of the
evidence.
¶ 73 2. Ready, Willing and Able
¶ 74 The plaintiffs next argue that they were entitled to specific performance because they were
ready, willing, and able to pay the additional earnest money but were prevented from doing so by
the defendants’ silence and deception in not responding to the plaintiffs’ request for an extension
to the due diligence period. The plaintiffs also argue that the testimony at trial established that
Castlerock was contractually obligated to provide the funds for the additional earnest money and
that the additional earnest money and the funds needed for closing were available as of the end of
January 2019.
¶ 75 In determining whether a party was ready, willing, and able to perform its obligations under
a contract, this court has held:
“A buyer is financially “able” if he is shown to have sufficient funds on hand or the ability
to command the necessary funds within the required time. *** A purchaser is not shown
to have financial ability if he is depending upon third persons who are in no way bound to
furnish the funds. *** Nor is it sufficient if the purchaser merely contemplates a scheme
or plan to raise the needed funds, if the plan is “wholly problematical.” Nelson v. Bolton,
72 Ill. App. 3d 519, 525-26 (1979).
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2024 IL App (2d) 230096-UGenerally, the standard of review applied regarding a judgment from a bench trial is whether the
order or judgment is against the manifest weight of the evidence. Reliable Fire Equipment Co. v.
Arredondo, 2011 IL 111871, ¶ 12. “A decision is against the manifest weight of the evidence only
when an opposite conclusion is apparent or when the findings appear to be unreasonable, arbitrary,
or not based on the evidence.” Eychaner v. Gross, 202 Ill. 2d 228, 252 (2002).
¶ 76 In the present case, the evidence supports a determination that the plaintiffs were not ready,
willing, and able to pay the additional earnest money. Barsh testified that there was nothing in
writing obligating Castlerock, Daube, or Schnaper to pay the additional earnest money. Barsh also
testified that he did not want to pay the additional earnest money when he learned that the plaintiffs
were still finalizing the loan documents to include an amendment requested by the lenders. In that
regard, Faulkner’s emails requesting personal indemnity from KP and Raja indicated that
finalizing the loan depended on the execution of the amendment. Bakk testified that when the
Agreement was originally negotiated he informed Faulkner that the defendants would never agree
to personal indemnity. Further, the amendment sought by the plaintiffs included an additional
contingency, such that if the plaintiffs could not secure financing, they had until the date of closing
to terminate the Agreement and receive a full refund of all the earnest money. The inference is
that the plaintiffs were still unsure if they could secure financing. Accordingly, the evidence
showed that, as of February 19, 2019, the plaintiffs were still requesting changes to the Agreement
and the financing was dependent on the requested modifications. In the absence of a final
amendment that satisfied the lenders, Barsh was not ready to pay the additional earnest money.
Based on this evidence, we cannot say the trial court’s determination, that the plaintiffs were not
ready, willing, and able to execute the Agreement, was against the manifest weight of the evidence.
- 30 -
2024 IL App (2d) 230096-U¶ 77 In so ruling, we note that the plaintiffs rely on Barsh’s testimony that, as of January 31,
2019, Castlerock had the funds to pay the additional earnest money and intended to do so.
However, this ignores Barsh’s later testimony, that when the parties were not reaching agreement
on the requested amendment, Barsh did not want to pay the additional earnest money because he
feared he would lose it if the Agreement fell through. The plaintiffs also cite to the February 15,
2019, operating agreement of 5M Rock Holdings. However, while the operating agreement stated
that the “equity member” was responsible for paying the additional earnest money, the equity
member was not identified in that agreement. Further, the plaintiffs cite evidence of the “all hands
on deck call” where the lenders and the plaintiffs agreed that they could move forward on the
Agreement in the absence of an amendment. However, this call was five days after the additional
earnest money was due and was, therefore, too late.
¶ 78 The plaintiffs next argue that the defendants’ actions excused them from performing under
the Agreement. Specifically, the plaintiffs contend that the defendants’ failure to inform them that
they would not agree to personal indemnity and would not extend the due diligence period left
them in limbo which was why they did not pay the additional earnest money. This argument is
unpersuasive. We agree with the trial court that the defendants made it very clear that KP and
Raja would not agree to the request for personal indemnity. Bakk testified that he informed
Faulkner during the initial contract negotiations that the defendants would not agree to personal
indemnity and, at trial, he testified that he again refuted the requests for personal indemnity on
January 31, February 4, and on February 14. Further, the absence of any response to a request for
an extension, especially as the due diligence period was coming to an end, was essentially
indicative that the defendants would not agree to an extension. At that point, the trial court’s
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2024 IL App (2d) 230096-Ufinding that the plaintiffs needed to pay the additional earnest money to secure their right to move
forward with the agreement was not against the manifest weight of the evidence.
¶ 79 Moreover, the contract was signed on October 5, 2018, and the contract was originally
structured as an equity transaction. There was no evidence from the plaintiffs as to why they were
proposing changes to the Agreement to accommodate the equity structure over three months later.
In fact, in an email dated January 4, 2019, Barsh stated that he was unhappy with Faulkner because
this was an equity deal, the term sheet with the lender did not support that, and it was unclear if
the lender would even allow it. On January 9, Barsh sent an email indicating that the lender was
opposed to closing in an equity structure. Clearly the last-minute need for contract amendments
cannot be placed at the feet of the defendants.
¶ 80 The plaintiffs argue that they were misled because Bakk knew as of February 14 that the
defendants would not agree to an extension of the due diligence period. However, Bakk did not
specifically testify to this. He testified that, “in practical terms,” as of February 14, 2019, the
defendants would not agree to an extension because he did not know if the plaintiffs were going
to agree to the proposed amendment as modified by the defendants. The implication was that if
the plaintiffs had agreed to the defendants’ modifications of the proposed amendment (to exclude
personal indemnity), the defendants may have agreed to an extension.
¶ 81 In arguing that they were misled by the defendants’ failure to respond to the extension
request, the plaintiffs cite Omni Partners v. Down, 246 Ill. App. 3d 57 (1993). In Omni, the parties
entered a written real estate contract that provided closing would take place by March 1, 1989. Id.
at 58. On March 6, 1989, the seller forwarded a survey to the buyer and requested that they arrange
for a closing on the property. Id. at 59. Thereafter, the buyer repeatedly requested that the parties
set a closing date. Id. at 60, 64. The closing never occurred and the buyers filed a complaint for
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2024 IL App (2d) 230096-Uspecific performance of the contract. Id. at 58. The trial court granted the request for specific
performance and this court affirmed. Id. We held that the seller waived the March 1 closing date
when she, rather than sending a letter of default, sent a letter on March 6 requesting to set a closing
date. Id. at 64. Based on the plaintiff’s repeated requests thereafter to set a closing date, this court
held that the trial court’s determination that the buyer was ready, willing, and able to consummate
the transaction was not against the manifest weight of the evidence. Id. This court held:
“We believe that, in failing to demand strict performance on March 1 and in failing
to give [buyer] a specific closing date while [buyer] was willing to close at all relevant
times after the March 6 letter indicating waiver of the condition, [buyer] was prevented
from performing and should be legally excused from doing so. [Seller’s] overall conduct
by silence, accommodation or acquiescence lulled [buyer] into a false sense of security,
and therefore [buyer] could not be in material breach of the contract.” Id. at 65.
¶ 82 The plaintiffs’ reliance on Omni is unpersuasive. The defendants in the present case did
not lull the plaintiffs into a false sense of security. The evidence showed that the plaintiffs were
repeatedly informed that the defendants would not agree to KP and Raja providing personal
indemnity. Further, previous requests for extensions were agreed to by the parties and timely
granted. The evidence showed that Bakk wrote an email on January 31, 2019, granting an
extension of the due diligence period from February 5th to the 19th. As February 19 approached,
the failure to have a response or written extension should not have lulled the plaintiffs into a false
sense of security. Rather, it should have been clear that an extension was not being granted. In
Omni, the seller made affirmative representations that it still wanted to close on the contract. Here,
unlike Omni, the defendants did not make any affirmative representations that they would agree to
the amendment as written by the plaintiffs or that they would extend the due diligence period.
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2024 IL App (2d) 230096-UAccordingly, the evidence does not support a finding that the plaintiffs were lulled into a false
sense of security.
¶ 83 3. Waiver of “Time is of the Essence” Provision of the Agreement
¶ 84 The plaintiffs next argue that the defendants waived the time is of the essence provision of
the Agreement because they had waived the timing provisions more than once. The plaintiffs note
that the defendants allowed for a late deposit of the original earnest money and they also agreed to
extend the due diligence period to February 19, 2019. The plaintiffs assert that the defendants’
silence as to the request for another extension was thus deceptive and that the defendants should
not be allowed to enforce the provision.
¶ 85 “The extent to which a ‘time is of the essence’ provision in a contract will be strictly
enforced depends upon the intention of the parties as determined primarily by the language used
viewed under the circumstances surrounding the agreement as they reflect on the meaning of the
words.” Hart v. Lyons, 106 Ill. App. 3d 803, 805 (1982). A “time is of the essence” clause can be
waived if the parties’ conduct is inconsistent with enforcement of the provision. Id. “The mere
extension of [a deadline], absent some evidence of modification of the ‘time is of the essence’
provision, does not [generally] operate to waive that clause in a contract.” Id. at 806. A trial
court’s determination on this issue will be reversed only if it is against the manifest weight of the
evidence. Id. at 805.
¶ 86 In the present case, the trial court’s conclusion that the defendants did not waive the time
is of the essence clause was not against the manifest weight of the evidence. It is true that the
original earnest money was paid two days late. However, Bakk testified that this was because the
escrow account had not been set up on time and that the two-day extension was by agreement of
the parties. Further, when the plaintiffs exercised their right to a one-time extension of the due
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2024 IL App (2d) 230096-Udiligence period, the contractually required payment of $100,000 of earnest money was timely
paid. Finally, when the parties agreed to another extension of the due diligence period, to February
19, 2019, the parties agreed to that extension on January 31 and Bakk sent an email to Faulkner
specifically granting the requested extension. All the extensions were thus contractually provided
or by agreement of the parties. As noted by the trial court, it is also significant that the previous
extensions were agreed to prior to end of the due diligence period. The defendants did not let the
due diligence period lapse and then grant extensions. Accordingly, nothing in the defendants’
conduct amounted to an express or implied waiver of the deadline on the due diligence period or
the time is of the essence clause.
¶ 87 B. Breach of the Covenant of Good Faith and Fair Dealing
¶ 88 The plaintiffs next argue that, even if not entitled to specific performance, they are entitled
to damages for the defendants’ breach of the covenant of good faith and fair dealing. As a related
matter, the plaintiffs argue that the trial court erred in finding that the exculpatory clause in the
Agreement limiting damages to specific performance (paragraph 8.2), precluded monetary
damages for the defendants alleged breach. The plaintiffs assert that exculpatory clauses are not
enforceable when one of the parties has acted in bad faith. Accordingly, the plaintiffs assert that
if we hold that the trial court erred in finding no bad faith, that we should also hold that the
Agreement does not preclude monetary damages.
¶ 89 A covenant of good faith and fair dealing is implicit in every contract as a matter of law.
The Reserve at Woodstock, LLC v. City of Woodstock, 2011 IL App (2d) 100676, ¶ 42. The
obligation of good faith and fair dealing “is essentially used as a construction aid in determining
the intent of the parties where an instrument is susceptible of two conflicting constructions.”
Resolution Trust Corp. v. Holtzman, 248 Ill. App. 3d 105, 112 (1993). “Disputes involving the
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2024 IL App (2d) 230096-Uexercise of good faith arise when one party is given broad discretion in performing its obligations
under the contract.” Id. Under this doctrine, a party with contractual discretion must exercise the
discretion reasonably and with proper motive, not arbitrarily, capriciously, or in a manner that is
inconsistent with the parties’ reasonable expectations. Id.¶ 90 The meaning of “good faith” can vary depending on the context. Schwinder v. Austin Bank
of Chicago, 348 Ill. App. 3d 461, 474 (2004) (citing Restatement (Second) of Contracts § 205,
comment a, at 100 (1981)). Good faith is acting in a way that is consistent with the justified
expectations of the other party. Bad faith can be characterized as conduct that “ ‘violate[s]
community standards of decency, fairness or reasonableness.’ ” Id. A trial court’s factual finding
as to whether a party performed in good faith on a contract will not be reversed unless it is against
the manifest weight of the evidence. See Midwest Television, Inc. v. Oloffson, 298 Ill. App. 3d
548, 558 (1998) (applying manifest-weight standard to trial court’s determination of good-faith
performance on a contract).
¶ 91 In the present case, the plaintiffs argue that the defendants acted in bad faith in refusing to
agree to an indemnity provision and in refusing to respond to the request for an extension of the
due diligence period. The plaintiffs assert that by failing to respond to the extension request, the
defendants led them on and prevented them from making an informed decision as to how to
proceed with the contract. The plaintiffs assert that the defendants had the discretion to extend the
due diligence period and to agree to personal indemnity but the defendants exercised such
discretion in bad faith.
¶ 92 At the outset, we note that the plaintiffs have failed to cite any part of the Agreement that
is ambiguous or unclear with respect to the issues of indemnity or extensions to the due diligence
period. Absent such ambiguity, the implied covenant is inapplicable. Resolution Trust Corp., 248
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2024 IL App (2d) 230096-UIll. App. 3d at 112; see also Seip v. Rogers Raw Materials Fund, L.P., 408 Ill. App. 3d 434, 444
(2011) (duty of good faith and fair dealing is not an independent source of duties to a contract’s
parties but is rather used as a construction aid in determining the parties’ intent where an instrument
is susceptible to two conflicting constructions). Moreover, the discretion to amend the Agreement
to include personal indemnity or grant an extension to the due diligence period is generally not the
type of discretion that gives rise to the implied covenant of good faith and fair dealing. Id.¶ 93 Nonetheless, even if the implied covenant could be applied, we cannot say that the trial
court’s determination was against the manifest weight of the evidence. The record belies the
plaintiff’s assertion that the defendants led them on in order to run out the clock on the due
diligence period. Bakk testified that, during the original contract negotiations, he informed the
plaintiffs that the defendants would never agree to a personal indemnity provision. When Faulkner
sent them the proposed amendment, which included personal indemnity, such provisions were
struck out by Bakk and Russ. Faulkner sent another revision that continued to include the personal
indemnity provision. As of February 15, Faulkner was on notice that the personal indemnity
provision was again being stricken. Instead of accepting this fact, Faulkner sent another revised
amendment on February 18 that added the personal indemnity language back into the Agreement’s
proposed amendment. The evidence demonstrates that the defendants made it clear on numerous
occasions that personal indemnity was not acceptable to them.
¶ 94 Moreover, the record supports the trial court’s determination that the last-minute request
for an amendment to include personal indemnity was due to the plaintiffs’ delay in notifying their
lenders. A January 4, 2019, email written by Barsh indicated that the plaintiffs had failed to inform
the lenders of the equity structure of the Agreement. When the lenders expressed disapproval, the
plaintiffs needed to renegotiate the contract terms. Thus, the evidence supports a conclusion that
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2024 IL App (2d) 230096-Uthe defendants did not lead the plaintiffs on. Rather, the plaintiffs were trying to force an issue
that was clearly not acceptable to the defendants. As noted by the trial court, the plaintiffs could
have had an “all hands on deck call” prior to the expiration of the due diligence period and accepted
the amended contract without personal indemnity.
¶ 95 The plaintiffs also argue that the defendants acted in bad faith when, on the last day of due
diligence period, Bakk directed Faulkner to contact Russ to discuss the extension. When Faulkner
reached out to Russ, Russ never responded. While this is true, we still cannot say that the trial
court’s determination that this did not constitute bad faith was against the manifest weight of the
evidence. The trial court found, and the evidence supported, that the plaintiffs were unable to
secure financing with their lenders and were thus trying to renegotiate the contract at the last
minute. The plaintiffs could have accepted the defendants’ final version of the amendment, paid
the additional earnest money, and secured the right to move forward with the deal. Bakk
essentially testified that, had the plaintiffs agreed to the amendment, it was possible the defendants
would have granted an extension. But in the absence of an agreement, there was no point in
granting an extension. It is well settled that the trier of fact is in a superior position to observe
witnesses, judge their credibility, and determine the weight their testimony should receive.
Battaglia v. 736 N. Clark Corp., 2015 IL App (1st) 142437, ¶ 23. The trial court specifically found
Bakk’s testimony credible and we decline to disturb its determination. The evidence supports the
trial court’s determination that the defendants exercised discretion not to extend the due diligence
period reasonably and with proper motive. As we affirm the trial court’s finding that the
defendants did not breach the covenant of good faith and fair dealing, we need not address the
plaintiffs’ contention that the Agreement did not preclude monetary damages.
¶ 96 C. Liquidated Damages
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2024 IL App (2d) 230096-U¶ 97 The plaintiffs’ final contention on appeal is that the trial court erred in finding that Reiter
violated the confidentiality provision of the Agreement and awarding the defendants $25,000 in
liquidated damages. The plaintiffs argue that the confidentiality provision in the Agreement only
allowed for liquidated damages when the violation was by a broker. The plaintiffs assert that
Reiter was acting in his role as buyer and that the only remedy under the Agreement was injunctive
relief. Alternatively, the plaintiffs argue that, because the Agreement provided that liquidated
damages would be split evenly between the buyer and the seller, the defendants were only entitled
to $12,500 in liquidated damages.
¶ 98 The defendants argue that Reiter wore two hats in this transaction. He was identified as
the principal of 5M Rock Holdings, which was identified as the “Broker” in the agreement. He
was also the principal of George Street. The defendants argue that the evidence showed that Reiter
did not always obtain non-disclosure agreements before providing confidential information and
that it did not matter who he was acting on behalf of. The defendants also argue that Reiter’s
wrongdoing does not entitle him to half of the liquidated damages and that the trial court’s ruling
should be affirmed.
¶ 99 The resolution of this issue requires us to interpret section 2.2 of the Agreement. The
interpretation of any contract is a question of law and is subject to de novo review. Gallagher v.
Lenart, 226 Ill. 2d 208, 219 (2007). As stated above, the primary goal of contract interpretation is
to give effect to the intent of the parties. Thompson, 241 Ill. 2d at 441. In determining the intent
of the parties, a court must consider the document as a whole and not focus on isolated portions of
the document. Premier Title Co. v. Donahue, 328 Ill. App. 3d 161, 164 (2002). If the language
of a contract is clear and unambiguous, the intent of the parties must be determined solely from
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2024 IL App (2d) 230096-Uthe language of the contract itself, which should be given its plain and ordinary meaning, and the
contract should be enforced as written. Thompson, 241 Ill. 2d at 441.
¶ 100 In the present case, there was substantial evidence that Reiter sent out confidential
information without first obtaining non-disclosure agreements. Barsh testified that he received
confidential information related to the properties being sold and that, after the Agreement fell
through, Reiter attempted to have him back date a non-disclosure agreement. Further, the record
shows that when Reiter sent the confidential information to Barsh via email, Reiter also stated in
the email that he had sent the information to “+100” groups and that Barsh had the green light to
send it to any others that might be interested. At trial, Reiter did not deny sending out confidential
information to potential lenders, he testified only that, when he did so, it was in his role as buyer,
not as broker.
¶ 101 The plain language of section 2.2 of the Agreement states that, in the event of a breach of
the confidentiality provision, buyer and seller agree that “there may be no adequate remedy at law”
and that either party shall have the right to seek injunctive relief. We disagree with the plaintiffs’
assertion that this language limits damages for the buyer or seller to injunctive relief. Rather, this
language merely provides that injunctive relief is an available option if there is no adequate remedy
at law. Section 2.2 of the Agreement also stated that if a broker violated the confidentiality
provision, the buyers and sellers were entitled to $25,000 as liquidated damages, to be divided
evenly between them. This language shows that the parties contemplated that a reasonable award
of damages for breach of the confidentiality provision was liquidated damages of $25,000. A
liquidated damages provision provides parties with a reasonable predetermined damages amount
where actual damages may be difficult to ascertain. Hickox v. Bell, 195 Ill. App. 3d 976, 987-88
(1990).
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2024 IL App (2d) 230096-U¶ 102 In the present case, the plaintiffs do not argue that $25,000 was not a reasonable amount
of damages. They argue only that because Reiter acted in his role as buyer, the damages were
limited to injunctive relief. We hold that Reiter clearly violated the confidentiality provision of
the Agreement, that the provision did not limit recovery to only injunctive relief, and that the
parties, when making the contract, contemplated that $25,000 was a reasonable amount of
damages. Here the trial court awarded that amount based on Reiter’s breach. While the plaintiffs
argue that the Agreement required the liquidated damages to be split between the parties, it is well
settled that “[a] party who materially breaches a contract cannot take advantage of the terms of the
contract that benefit him.” MHM Services Inc. v. Assurance Company of America, 2012 IL App
(1st) 112171, ¶ 48 (citing James v. Lifeline Mobile Medics, 341 Ill. App. 3d 451, 455 (2003)).
Accordingly, we affirm the trial court’s damages award.
¶ 103 III. CONCLUSION
¶ 104 For the reasons stated, we affirm the judgment of the circuit court of Lake County.
¶ 105 Affirmed.
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