January-February Vol. 5, No. 1

Casenotes

Illinois

Taxation

Karimi v 401 North Wabash Venture LLC, 2011 IL App (1st ) 102, 670, 952 NE2d 1278, 352 Ill Dec 52 (1st D, 2011).

Facts: On September 25, 2003, plaintiff Farid Karimi entered into a purchase agreement with defendant 401 North Wabash Venture (NWV) to purchase a condominium and three parking spaces at the Trump International Hotel and Tower. The purchase price was $2,188,464. Pursuant to the purchase agreement, Karimi deposited $328,269 (15% of the purchase price) as earnest money with NWV.

On September 5, 2008, NWV notified Karimi that they were ready to close on October 6, 2008. Karimi was unable to obtain financing and the closing date was extended to May 15, 2009. Karimi failed to close on that date. On July 6, 2009, NWV sent a letter to Karimi stating that because the closing date had lapsed, Karimi was in default and NWV terminated the purchase agreement. NWV retained the earnest money and earned interest as liquidated damages. In November 2009, NWV sold the unit and two of the parking spaces to a third party for $2.5 million.

Paragraph 12(a) of the purchase agreement stated in part: "In the event of a default or breach of this Purchase Agreement by Purchaser, Seller shall notify Purchaser of such breach or default and of the opportunity…to remedy such breach or default with twenty days after the date such notice was received. If Purchaser fails to remedy such breach or default ... Seller may terminate this Purchase agreement and, as its sole and exclusive remedy upon termination, retain as liquidated damages from Purchaser an amount equal to the sum of (i) the amount set forth ... required to be paid as an Earnest Money deposit...."

Karimi filed a seven-count complaint against NWV. NWV filed a motion to dismiss, which the trial court granted. Karimi appealed, claiming that the trial court erred in dismissing Counts 1-6 of his complaint. Karimi sought declaratory judgment (1) that the purchase agreement with NWV was still in effect when NWV sold the condominium to a third party, (2) for breach of contract, (3) for return of the earnest money and earned interest. Karimi also claimed (4) the liquidated damages provision in the purchase agreement is unenforceable. Finally, Karimi alleged (5) unjust enrichment and (6) conversion.

Holding: Affirmed. First, the appellate court found that the declaratory judgment for counts 1-3 were not proper motions for breach of contract allegations. Declaratory judgments allow a court to address a controversy after a dispute arises but before steps are taken that give rise to a claim for damages. In this case, NWV had already terminated the purchase agreement and sold the condominium to a third party. Therefore, the court properly dismissed the motion for declaratory judgments because Karimi was seeking to enforce his rights after the fact. Moreover, on the merits, Karimi failed to state a cause of action upon which relief could be granted. Based on the facts, NWV had properly terminated the purchase agreement before selling the condominium. Therefore, the purchase agreement was not in effect (Count 1), there was no breach of contract (Count 2), and NWV did not have to return the earnest money and earned interest (Count 3).

Next, unjust enrichment (Count 5) does not apply where a specific contract (the purchase agreement) governs the relationship between the parties. Therefore, dismissal of this Count was proper. In Count 6, Karimi alleged conversion for wrongful possession and ownership of the earnest money. "Money may be the subject of conversion, but only if it is shown that the money at all times belonged to the plaintiff and that the defendant converted it to his own use." However, the purchase agreement stated that the earnest money was "held for the mutual benefit of Seller and Purchaser." Therefore, because the earnest money did not belong to Karimi at all times, conversion does not apply and dismissal of this claim was proper.

Finally, the court addressed Count 4, where Karimi claimed that the liquidated damages provision was an unenforceable penalty. "The purpose of a liquidated damages provision is to provide parties with a reasonable predetermined damages amount where actual damages may be difficult to ascertain." The amount may or may not exceed actual damages, but the parties knew of the risk when they entered the agreement. Additionally, liquidated damages in the amount of the earnest money, fixed at 15% of the purchase price, was reasonable and therefore enforceable.

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