Lobo IV, LLC v. V Land Chicago Canal, LLC
138 N.E.3d 824
Ill. App. Ct.2019Background
- Lobo IV, LLC contracted to buy two under-construction retail properties from V Land (Canal: $9.5M, Bloomingdale: $4.2M) as part of a §1031 exchange; buyer’s loan appraisals (Old Second) returned values below contract prices and buyer sought price adjustments.
- Contracts contained (1) a purchase-price adjustment triggered by a “Permanent Lender” appraisal and (2) a financing contingency defining a “Permanent Lender” with specific loan-term requirements.
- V Land refused to close in December 2005, Lobo sued for specific performance and damages, and recorded lis pendens; Lakeside later loaned funds to V Land and recorded mortgages after lis pendens and intervened claiming subrogation/priority.
- After a bench trial the court awarded Lobo specific performance at the reduced contract prices ($8M and $4M) and monetary damages (~$6.37M), but later held Lakeside’s mortgages (to the extent they refinanced prior construction loans) had priority by conventional/equitable subrogation.
- Trial court ordered closing with (a) Lobo to pay Lakeside certain payoff sums and (b) remaining purchase-price balances abated by V Land’s obligations to Lobo; Lobo objected when pro forma title policies delivered on closing day added new exceptions (including Lakeside’s liens).
- Appellate court: affirmed specific performance and damages; reversed trial court’s denial of relief when buyer refused to close due to newly presented title exceptions (remanding to set a new closing); held Lakeside has priority by conventional subrogation for amounts used to pay prior construction loans but that V Land (not Lobo) must bear unpaid mortgage shortfalls — Lobo may set off its full judgment against the purchase price but cannot take title free of Lakeside’s liens unless paid or seller cures.
Issues
| Issue | Plaintiff's Argument (Lobo) | Defendant's Argument (V Land / Lakeside) | Held |
|---|---|---|---|
| 1) Was Lobo entitled to specific performance and price adjustment based on Old Second appraisals? | The financing contingency was for buyer’s benefit and could be waived; Old Second’s appraisal qualified as a "Permanent Lender" appraisal to trigger §3 price adjustment. | Old Second did not meet paragraph 8’s defined loan-term requirements for a “Permanent Lender,” so appraisal could not trigger adjustment; buyer breached. | Court: Buyer could unilaterally waive financing contingency; Old Second qualified; specific performance at lower prices affirmed. |
| 2) Could Lobo recover monetary damages in addition to specific performance? | Damages (lost §1031 tax benefit and lost rents) were equitable compensation needed to make Lobo whole. | Contracts limited remedies (paragraph 16[b]) to earnest money, out-of-pocket expenses, or specific performance. | Court: Remedies in ¶16(b) were not exclusive; equitable damages incidental to specific performance allowed; damages awarded affirmed. |
| 3) Did Lobo terminate its right to specific performance by not closing on court-set date when presented with revised pro forma title exceptions? | Lobo objected to new exceptions presented on closing day and had the contractual right to require seller cure before electing to close or terminate—thus failure to close did not effect termination. | Seller/Lakeside: Buyer had to either waive unpermitted encumbrances and close or terminate; buyer’s inaction = termination. | Court: Trial court erred to deem contract terminated; buyer should have been allowed to object and seller an opportunity to cure; remanded to set new closing date. |
| 4) Do Lakeside’s mortgages (post-lis pendens) have priority over Lobo’s equitable title; who must pay payoff shortfalls at closing? | Lobo: As equitable owner with lis pendens notice, its rights are superior; any lender taking later did so subject to Lobo’s interest; Lobo should be able to abate full judgment against purchase price. | Lakeside: Paid off prior construction loans with agreement for first-priority liens; conventional (and equitable) subrogation grants Lakeside priority for amounts used to retire prior mortgages; buyer must tender payoffs per court order. | Court: Conventional subrogation applies — Lakeside has first priority to extent it refinanced prior construction loans; equitable subrogation also available. But mortgages are V Land’s obligations; buyer is not required to personally pay amounts beyond the abated purchase price — seller must satisfy liens or buyer may take subject to them or terminate. |
Key Cases Cited
- Eychaner v. Gross, 202 Ill. 2d 228 (bench-trial factual findings reviewed for manifest weight / legal conclusions de novo)
- Douglas Theater Corp. v. Chicago Title & Trust Co., 266 Ill. App. 3d 1037 (equitable compensation vs. legal damages in specific performance actions)
- Mandel v. Hernandez, 404 Ill. App. 3d 701 (trial court discretion to award damages incidental to specific performance)
- La Salle Bank, N.I. v. First American Bank, 316 Ill. App. 3d 515 (conventional subrogation in refinancing context)
- Union Planters Bank, N.A. v. FT Mortgage Cos., 341 Ill. App. 3d 921 (elements for conventional subrogation)
- Aames Capital Corp. v. Interstate Bank of Oak Forest, 315 Ill. App. 3d 700 (limits on subrogation where original lien released prior to new mortgage recordation)
- Shay v. Penrose, 25 Ill. 2d 447 (doctrine of equitable conversion)
- Industrial Steel Construction, Inc. v. Mooncotch, 264 Ill. App. 3d 507 (abatement of purchase price as equitable adjustment incident to specific performance)