Otter Creek Shopping Center v. NE Capital Group BSD, LLC , 2024 IL App (3d) 230162-U ( 2024 )

NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent except
in the limited circumstances allowed under Rule 23(e)(1).
2024 IL App (3d) 230162-UOrder filed February 29, 2024
____________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
THIRD DISTRICT
2024
OTTER CREEK SHOPPING CENTER, LLC, ) Appeal from the Circuit Court
an Illinois Limited Liability Company, ) of the 18th Judicial Circuit,
) Du Page County, Illinois,
Plaintiff-Appellant, )
) Appeal No. 3-23-0162
v. ) Circuit No. 20-L-785
)
) Honorable
NE CAPITAL GROUP BSD, LLC, ) Neal W. Cerne,
a New York Limited Liability Company, ) Judge, Presiding.
)
Defendant-Appellee. )
____________________________________________________________________________
JUSTICE ALBRECHT delivered the judgment of the court.
Justices Holdridge and Peterson concurred in the judgment.
____________________________________________________________________________
ORDER
¶1 Held: On cross-motions for summary judgment, where the seller alleged buyer breached
the parties’ purchase and sale agreement in a commercial real estate transaction,
the buyer was entitled to summary judgment when the parties failed to procure
consent from the loan lender which was a condition of the parties’ agreement.
¶2 Plaintiff, Otter Creek Shopping Center, LLC (Otter Creek), brought suit against
defendant, NE Capital Group BSD, LLC (NE Capital), alleging breach of contract for the failure
to close their real estate transaction. The circuit court granted NE Capital’s cross-motions for
summary judgment concluding that defendant appropriately exercised its right to terminate the
parties’ purchase agreement. Otter Creek appeals the circuit court’s decision to grant summary
judgment in favor of NE Capital. We affirm.
¶3 I. BACKGROUND
¶4 Otter Creek owns a large lot at 260 South Randall Road in Elgin, Illinois. A string of
retail stores occupy the lot, and the property is collectively known as the Otter Creek Shopping
Center. On November 23, 2016, NE Capital, a private equity investment group, entered into a
purchase and sale agreement with Otter Creek for the property. The purchase price in the original
purchase and sale agreement was $20.5 million. The contract also called for the
contemporaneous execution of an earnest money escrow agreement that required NE Capital to
submit $200,000 in funds.
¶5 At the time the parties entered the contract, Otter Creek had pledged the property as
security for a loan from Wells Fargo Bank, N.A. (Wells Fargo). Accordingly, NE Capital was to
assume the loan as a condition of purchase. Section 4.1 of the purchase and sale agreement
obligated Otter Creek to notify Wells Fargo of the prospective buyer so that it may provide
application requirements for NE Capital to assume the loan. “Lender’s Consent,” a phrase simply
indicating Wells Fargo’s agreement to allow NE Capital to assume the loan, was defined in this
provision as:
“Lender’s Consent shall be deemed to have been given when Lender
indicates in writing that it has completed its underwriting of the Property and
Purchaser and has approved the Loan Assumption by Purchaser subject to the
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execution of the final Loan Assumption Documents (as hereinafter defined) by
Lender, Seller and Purchaser.”1
¶6 Section 4.2 imposed a corresponding obligation on NE Capital to “use commercially
reasonable efforts to effectuate the Loan Assumption *** provided that Purchaser shall not be
required to agree to any modifications to any of the existing Loan Documents ***.” (Emphasis in
original.) The ability for the parties to close their real estate transaction, as explained in section
4.4 of the purchase and sale agreement, was “expressly contingent upon Purchaser obtaining
Lender’s Consent (including the release of all existing guarantors under the Existing Loan) and
the Loan Assumption occurring and closing.” Under section 10.1(d), Otter Creek was obligated
to maintain the property “in its present order and condition *** [and] make all necessary repairs
and replacements thereto, including those repairs and replacements which are the Seller’s
responsibility pursuant to the Leases[.]”
¶7 The purchase and sale agreement was subsequently amended twice. The effective date of
the first amendment was January 30, 2017. The second amendment was executed by the parties
on October 17, 2018, and increased the purchase price to $21.4 million. The second amendment
aimed to facilitate the lender’s consent process. To do so, the parties retained Draper & Kramer,
Inc., a mortgage banking and residential management firm to assist in the loan assumption
process with Wells Fargo. The second amendment also revised section 4.5 to state that in the
event lender’s consent was not procured within 180 days after the second amendment’s
execution, NE Capital was afforded the right to terminate the agreement upon notice to Otter
Creek. If this was the means of termination, the second amendment further directed return of the
1
Section 4.4(ii) of the purchase and sale agreement defined “Loan Assumption Documents” as
“loan assumption agreements and other documentation as Lender shall reasonably require to effectuate
the Loan Assumption ***.”
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earnest money to NE Capital if it was not solely responsible for the “material failure to comply
with the timeline of this Amendment[.]”
¶8 In early January 2019, Wells Fargo commissioned an inspection of the property. On
March 25, 2019, a Wells Fargo commercial mortgage representative, Harold Hammond, sent a
four-page letter to NE Capital’s CEO 2 approving its assumption of the loan subject to certain
conditions. Provision 15 in the letter focused on the rundown state of the shopping center’s
parking lot and informed NE Capital that repairs were needed through the following language:
“Proposed Borrower to correct the major deferred maintenance identified
in Lender's January 4, 2019 inspection report within 120 days of closing. The
deferred maintenance includes: (a) potholes in the asphalt driveways which pose
trip hazards (30% prevalent) (life safety), and (b) alligatoring asphalt with worn
striping on the parking and driveway surfaces (60% prevalent), ***. Proposed
Borrower shall delivery [sic] to Lender satisfactory evidence of the completion of
the repairs promptly after work is completed.”
¶9 Wells Fargo attached pictures depicting the potholes and “alligatoring” asphalt to the
letter, designating the attachment as “deferred maintenance.” Provision 15 concluded, “[f]ailure
to timely cure/repair the Deferred Maintenance, subject to [Wells Fargo’s] satisfactory review,
will result in an Event of Default under the Loan documents.” The letter would remain valid for
60 days but would terminate thereafter.
¶ 10 The record establishes that the parties were unclear who would undertake the repair
responsibility. Stelios Aktipis, Otter Creek’s principal, testified that near the time of the January
2
The letter identified the proposed borrower as OC Partners BH LLC, which the record reveals
was the legal entity designated to assume the loan and somehow affiliated with NE Capital.
4
4, 2019, inspection, Wells Fargo asked Otter Creek to “do some maintenance” on the parking lot.
Aktipis stated that Otter Creek addressed the pothole concern, but at some point he
communicated to Wells Fargo that Otter Creek would not be correcting the “alligatoring”
asphalt. In the weeks that followed Wells Fargo’s conditional approval letter, Otter Creek and
NE Capital corresponded several times with regards to the state of the parking lot. In a March 28,
2019, email, an Otter Creek representative wrote to NE Capital “[w]ith regard to the bid for the
parking lot. [Aktipis] would like you to speak directly with the contractor,” adding that “[h]e
would like you to satisfy yourself that the bid they have given is sufficient to cover the issues
noted by the lender.”
¶ 11 The record further reveals that on April 3, 2019, Otter Creek received a quote from a
paving company that estimated $248,000 for parking lot restoration utilizing non-union labor. A
different paving company provided a quote to NE Capital later that month for an estimated total
repair price of $346,000. An Otter Creek representative sent another email on April 8, 2019,
updating the representatives from Otter Creek, NE Capital, and Draper & Kramer, Inc. on the
state of the sale. The email provided that,
“One of the conditions in the [conditional approval] letter addresses the
parking lot. Going back to the original discussions between Seller and Buyer
when the property was put under LOI (2016), Buyer had indicated it would not
seek a price reduction if the deferred maintenance on the property was found to be
$250k or less. This was discussed and further on in the transaction there were
emails/amendments which addressed this. Fast forward to today, we understand
the Buyer wants to confirm that lender required repairs do not exceed $250k.
Seller has already performed maintenance on the property to address potholes
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discussed by the lender. Seller has a proposal from a reputable contractor to
address remaining parking lot issues. Proposal has been shared with Buyer. Seller
would like [to] give Buyer an opportunity to get on the phone with the contractor
to confirm the scope of work, pricing etc.”
¶ 12 The April 8, 2019, email referred to NE Capital’s initial statements concerning the
parking lot, which was reduced to writing in an August 25, 2016, email. There, NE Capital’s
CEO addressed the condition of the parking lot, stating “I will accept parking lot and roof in ‘as
is’ condition but we shouldn’t have more then [sic] $250,000 of year one repairs in the property
condition report we’ll order.”
¶ 13 Following the April email, discussions between the parties continued to flounder. Otter
Creek sent a default letter to NE Capital on June 25, 2019. Six days later, Otter Creek sent a
letter to NE Capital and its representatives claiming there was a material failure on NE Capital’s
part to comply with the second amended agreement timelines and directing payment from the
escrow. The next day, on July 2, 2019, NE Capital sent a letter to Otter Creek claiming Otter
Creek had failed “to maintain the parking lot in violation of Section 10.1 of the Purchase
Agreement,” a deficient condition recognized in the Wells Fargo conditional approval letter, and
terminated the contract.
¶ 14 On July 23, 2020, Otter Creek filed a single-count complaint against NE Capital alleging
breach of contract. Within its pleading, it alleged Wells Fargo gave notice of its consent to NE
Capital and NE Capital’s failure to close constituted a breach of their agreement. NE Capital
filed its answer, affirmative defenses, and counterclaims. Within its pleading, NE Capital alleged
Otter Creek had breached its obligations under the contract by failing to make all necessary
repairs and sought declaratory judgment.
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¶ 15 Otter Creek filed a motion for summary judgment on May 19, 2021, maintaining that NE
Capital breached the agreement through its default in the loan assumption process and there
remained no genuine issue of material fact on whether NE Capital had defaulted. Following the
court’s denial of NE Capital’s motion for continuance to conduct further discovery pursuant to
Illinois Supreme Court Rule 191(b), NE Capital filed a cross-motion for summary judgment on
September 8, 2021. Ill. S. Ct. R. 191(b) (eff. Jan. 4, 2013). After briefing and arguments, the
court denied both motions on November 10, 2021.
¶ 16 Thereafter, Otter Creek filed a second and third motion for partial summary judgment.
The second motion, filed on May 9, 2022, sought judgment on whether NE Capital obtained
lender’s consent from Wells Fargo to assume the loan. The third motion, filed on June 2, 2022,
sought judgment on whether NE Capital waived its counterclaim of breach by relinquishing
specific rights to terminate the agreement. NE Capital filed corresponding cross-motions for
summary judgment on these issues.
¶ 17 Two depositions primarily supported the parties’ summary judgment motions. Aktipis
testified that from 2016 through the beginning of 2019, Otter Creek routinely maintained the
parking lot “every spring” by “go[ing] through and fill[ing] up potholes.” The routine
maintenance did not involve fixing the “alligatoring” pavement. He estimated annual parking lot
repairs to range between $20,000 and $50,000. Aktipis divulged that in October or November
2020, Otter Creek repaved the parking lot at a cost of “$500,000 almost, 450[,000]” and made
further repairs to its roof for “a couple of hundred thousand dollars.”
¶ 18 Hammond testified concerning Wells Fargo’s conditional approval letter. He stated that
lender’s consent was provided on this assumption request, later characterizing it as “conditional
approval.” He clarified that it was immaterial who completed the repairs between NE Capital and
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Otter Creek, so long as they were done. According to Hammond “for us to close this loan, the
borrower, the proposed borrower would have to sign an assumption agreement agreeing to all
these conditions,” adding “we would not have closed without them agreeing to these conditions.”
Hammond explained there was little concern over the deferred maintenance requirement because
there was money ($254,995.92) set aside in the reserve to cover the repairs. However, he later
agreed that he did not know how much it would cost to repair the parking lot issues for this
instance. On May 17, 2019—a week prior to the conditional approval letter’s termination date—
NE Capital’s CEO requested a 30-day extension. After payment of a $5000 fee to extend, Wells
Fargo granted NE Capital’s request. Hammond later added at his deposition, “I have never seen a
deal not close[ ] because of deferred maintenance.” When pressed, Hammond described the
appearance of a deferred maintenance obligation in a lender’s consent letter as “typical.”
¶ 19 A hearing commenced on August 2, 2022, to address lender’s consent. There, the court
surmised that because paragraph 15 of the lender’s conditional approval letter required repair of
the parking lot for NE Capital to assume the loan, the letter created a new condition that was not
in the original terms of the parties’ agreement. The court classified paragraph 15 of the
conditional approval letter as a “modif[ication] *** [that] was providing an acceleration of that
which is not part of the loan.” It denied Otter Creek’s partial motion and granted NE Capital’s
cross-motion, finding that lender’s consent was not provided as required by paragraph 4.1 of the
purchase and sale agreement.
¶ 20 A hearing on the parties’ cross-motions concerning the affirmative defense of waiver
proceeded on September 7, 2022. Following arguments, the court reiterated its interpretation of
Wells Fargo’s conditional approval letter. The letter “was not really an assumption of the
mortgage. It was an assumption. But it also included an additional term” in reference to the
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deferred maintenance parking lot repairs. The court found that NE Capital acted in good faith to
resolve the additional term through discussions and negotiations. It also found that NE Capital
did not waive any conditions of the contract and the contract was properly terminated “because
there was no lender’s consent ***.” Thereby, it denied Otter Creek’s partial motion and granted
NE Capital’s cross-motion. In a contemporaneous written order, the court concluded that “no
further substantive issues appear to remain, as the PSA was properly terminated, and if any funds
are being held in escrow, they should be returned to Defendant.”
¶ 21 Otter Creek brought a motion to reconsider the court’s orders under the premise that the
court had not reviewed the loan documents 3 and genuine issues of material fact remained about
whether the lender’s consent letter modified such. Indeed, as argued within its motion, Otter
Creek identified certain provisions in the 2013 loan document that addressed a borrower’s
general maintenance requirement and therefore, the maintenance request from the lender’s
conditional approval letter was not a modification. After a hearing held on March 21, 2023, the
court denied the motion to reconsider, explaining that for assignment of the loan Wells Fargo
required “that the parking lot had to be finished.” The inclusion of the requirement to repair the
parking lot within 120 days is an “additional term” and “a change in the loan agreement.”
¶ 22 Otter Creek timely appealed.
II. ANALYSIS
¶ 23 On appeal, Otter Creek argues that the circuit court erred in denying its summary
judgment motion and in granting NE Capital’s summary judgment motion because the court did
not review the loan documents prior to finding that Wells Fargo’s conditional approval letter
3
At the conclusion of the August 2, 2022, hearing, Otter Creek’s counsel conceded that it did not
attach the original loan documents (executed by Otter Creek and Wells Fargo in 2013) to support its
motions for summary judgment.
9
modified the underlying loan documents. Further, Otter Creek claims that the conditional
approval letter did not modify the loan documents and contends summary judgment in its favor
is warranted.
¶ 24 Summary judgment should be granted only where the pleadings, depositions, admissions,
and affidavits on file, when viewed in the light most favorable to the nonmoving party, show that
there is no genuine issue as to any material fact and that the moving party is clearly entitled to
judgment as a matter of law. 735 ILCS 5/2-1005(c) (West 2022). Disposing of a case through
summary judgment is a drastic measure, one which “ ‘should be allowed only when the right of
the moving party is clear and free from doubt.’ ” Beaman v. Freesmeyer, 2019 IL 122654, ¶ 22
(quoting Adams v. Northern Illinois Gas Co., 211 Ill. 2d 32, 43 (2004)).
¶ 25 “Construing the language of a contract is a matter of law appropriate for summary
judgment.” Matter of Estate of Bresler, 159 Ill. App. 3d 535, 539 (1987). The primary goal of
contract construction is to “ascertain and give effect to the intention of the parties at the time the
contract was formed.” Matthews v. Chicago Transit Authority, 2016 IL 117638, ¶ 77. We look to
the instrument itself to determine the intention of the parties to a contract. Farm Credit Bank of
St. Louis v. Whitlock, 144 Ill. 2d 440, 447 (1991). “Where the terms of an agreement are clear
and unambiguous, they will be given their plain and ordinary meanings, and the parties' intent
must be determined from the language of the agreement alone.” State Farm Fire & Casualty Co.
v. Watts Regulator Co., 2016 IL App (2d) 160275, ¶ 27. We review a circuit court’s “grant of
summary judgment [citation], as well as its interpretation of a contract [citation]” de novo. WLM
Retail Trust v. Tramlaw Remainderman Ltd. Partnership, 2018 IL App (1st) 170819, ¶ 16.
¶ 26 A. Lender’s Consent
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¶ 27 A threshold issue before reaching Otter Creek’s contention that the conditional approval
letter did not modify the loan documents is whether Wells Fargo provided lender’s consent for
the assumption of the loan. We conclude that Wells Fargo did not provide lender’s consent as
defined in the parties’ agreement. After commissioning inspection of the Otter Creek Shopping
Center, Wells Fargo sent a letter on March 25, 2019, addressed to NE Capital’s CEO which
identified deficient conditions that needed repair in order for its subsidiary to assume the loan.
Hammond testified that Wells Fargo would not close on the loan without the prospective
borrower “agreeing to the conditions” stated in the letter. As indicated by its very title, the
conditional approval letter was not an unqualified approval to assume the loan. Rather, Wells
Fargo’s conditional approval is analogous to a party’s conditional acceptance such that no
approval to assume the loan was conferred at all. Loeb v. Gray, 131 Ill. App. 3d 793, 799-800
(1985) (“[W]hen one accepts an offer conditionally *** no acceptance occurs; rather, there is a
counterproposal requiring acceptance by the offeror before a valid contract is formed.”); see
Anand v. Marple, 167 Ill. App. 3d 918, 920 (1988). Therefore, before consideration as to whether
the requirement to repair the deficient conditions within the letter modified the prospective
borrower’s obligations under the loan documents, we determine that we cannot interpret the
letter as approval of loan assumption.
¶ 28 The agreement clearly sets out when lender’s consent is deemed given. It required the
lender to indicate in writing that it completed its underwriting and approved the loan assumption
by the purchaser. Because this did not happen and lender’s consent was not obtained, the parties
could not close pursuant to the agreement. Furthermore, NE Capital was authorized by the
second amendment to terminate the parties’ agreement in the event that lender’s consent was not
procured. NE Capital exercised this option through its July 2, 2019, letter to Otter Creek.
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¶ 29 While the circuit court focused on modification, it came to the same conclusion that we
do here when it denied Otter Creek’s partial motions for summary judgment and granted NE
Capital’s cross-motions. The lack of lender’s consent is an adequate independent means to grant
summary judgment in NE Capital’s favor. We may affirm the circuit court’s summary judgment
award “on any basis appearing in the record whether or not the court relied on that basis or its
reasoning was correct.” Ray Dancer, Inc. v. DMC Corp., 230 Ill. App. 3d 40, 50 (1992).
¶ 30 B. Modification of Loan Documents
¶ 31 Otter Creek argues that the maintenance and repair responsibilities required by the lender
in its conditional approval letter were already in place through its loan documents and therefore,
the letter did not modify the loan documents. While we have held that no lender’s consent was
procured, which is an independent basis to affirm the circuit court, a plain reading of the
agreement and its amendments seeks to apportion or absolve fault from the purchaser to
determine which party receives the earnest money. Because the issue of contract modification is
central to this determination, it warrants our consideration.
¶ 32 Contract modification occurs “when there is a change in one or more aspects which
introduces new elements into the contract's details but leaves its general purpose and effect
undisturbed.” In re Marriage of Frank, 2015 IL App (3d) 140292, ¶ 13; see Schwinder v. Austin
Bank of Chicago, 348 Ill. App. 3d 461, 468 (2004) (“Modification *** normally occurs when the
parties agree to alter a contractual provision or to include additional obligations,” while leaving
the thrust of the original agreement intact). Here, we are not tasked with determining the validity
of a contract modification, but rather must decide whether provision 15 in the lender’s
conditional approval letter modified the underlying loan documents. Paragraph 4.2 of the
purchase and sale agreement provides that NE Capital as the new borrower, “shall not be
12
required to agree to any modifications to any of the existing Loan documents.” As already
addressed, if the parties failed to procure lender’s consent, NE Capital was entitled to terminate
the agreement. The second amendment to the purchase and sale agreement further provided that
if termination was accomplished by this means, as long as NE Capital was not solely responsible
for the “material failure to comply with the timeline of this Amendment” it was entitled to the
return of its earnest money downpayment.
¶ 33 The March 25, 2019, conditional approval letter placed a 120-day deadline on correcting
the deficient state of the Otter Creek Shopping Center’s parking lot. Also, the letter stated that
failure to timely repair the identified deficiencies would “result in an Event of Default under the
Loan documents.” Although the circuit court ruled that the 120-day repairment requirement was
a modification without the benefit of reviewing the loan documents, our de novo review of the
records, including the loan agreement, confirms the circuit court’s conclusion that the “loan
agreement doesn’t say fix the parking lot within 120 days.” There is no such temporal limitation
or threat of default reflected in the loan documents.
¶ 34 Otter Creek calls our attention to several provisions within the 2013 loan agreement that
refer to the borrower’s repair obligations. Section 4.12.1 of the agreement places a mandatory
obligation on the borrower to “promptly repair, replace or rebuild any part of the Property that
becomes damaged, worn or dilapidated” and shifts the cost responsibility of repair to the
borrower. Section 6.2 obligated Otter Creek to complete required repairs identified by Wells
Fargo “on or before the respective deadline for each repair” as separately identified. In a
document attached to the 2013 loan agreement, Wells Fargo identified two items that required
repair, concrete retaining walls and street railings, and placed a repair deadline of 90-days after
closing. These provisions do not address a 120-day deadline to repair a deficient condition. A
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failure to comply with these repairs did not threaten an event of default or an acceleration of loan
repayment as provision 15 of the conditional approval letter did.
¶ 35 By including provision 15 within the conditional approval letter, Wells Fargo conditioned
loan assumption on the additional obligation to repair the Otter Creek Shopping Center’s parking
lot within 120 days of closing. Failure to abide by this deadline threatened default. These
requirements are consistent with the definition of a modification. See Richard W. McCarthy
Trust Dated September 2, 2004 v. Illinois Casualty Co., 408 Ill. App. 3d 526, 534 (2011).
¶ 36 Furthermore, NE Capital’s purported willingness to pay for up to $250,000 in repair from
the August 25, 2016, email correspondence created no obligation to coordinate and pay repairs
for the property. A merger clause in the agreement, as executed in November 2016,
“supersede[d] any other previous agreement, oral or written, between the parties.” What
remained was Otter Creek’s obligation pursuant to section 10.1(d) of the agreement to maintain
the property and “make all necessary repairs and replacements thereto[.]” This responsibility
extended to the lender’s identified deficiencies as the ongoing borrower of the loan.
¶ 37 Having considered the interplay between the purchase and sale agreement, its
amendments, and the 2013 loan agreement, we come to the conclusion that (1) the contractually
defined lender’s consent was not procured; (2) the provisions within the conditional approval
letter modified the loan documents to which NE Capital did not have to assent; and (3) based on
the language of the purchase and sale agreement, Otter Creek was contractually obligated to
repair the deficient conditions required by the lender for loan assumption. Therefore, NE Capital
was not solely responsible for the material failure to comply with the second amendment’s
timelines, and the trial court correctly entered summary judgment in its favor.
¶ 38 III. CONCLUSION
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¶ 39 The judgment of the circuit court of Du Page County is affirmed.
¶ 40 Affirmed.
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