At issue in the case was the building at 1038 W. Waveland Ave., which has a rooftop overlooking the Friendly Confines. On April 1, 2004, the defendants — Jonathan Arnold, Anita W. Garten, Steven Samuels and Michael Kaufman — agreed to sell the building to BJB Partners, corporate ancestor of named plaintiff Beyond the Ivy II. Two weeks later, the defendants also sold to BJB their interest in Skybox on Waveland, the business that managed the rooftop operation.
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The deal, worth about $4.1 million was supposed to be “free and clear of liens and encumbrances.” But a year after closing, the city and state notified Beyond The Ivy the sellers miscalculated the amount of amusement tax due on the business from 2000-2004, leaving a gap of $151,012.57.
Beyond The Ivy management contacted the defendants about paying the taxes, and after the defendants refused, Beyond The Ivy filed an amended breach of contract complaint. The parties filed cross motions for summary judgment; Cook County Circuit Court Judge Joan E. Powell granted in favor of Beyond The Ivy for the $151,012, as well as legal fees of $56,657 and costs of $9,216.
The defendants asked the court to reconsider, arguing the covenant against encumbrances applied to the building itself and not the Skybox business. They further argued the circuit court gave the word “encumbrance” a broader definition than state law provides, rendering the contract ambiguous. The circuit court denied the motion to reconsider, emphasizing a lack of ambiguity.
The matter landed in the state’s First District Appellate Court, which sided with Beyond The Ivy and upheld the circuit court’s ruling in an unpublished order issued under Supreme Court Rule 23. Such orders can only be cited as precedent under limited circumstances cited in the rule. Justice Shelvin L.M. Hall authored the order, with justices Mary K. Rochford and Thomas E. Hoffman concurring.
Hall said his court rejected the argument the “encumbrance” clause applies only to real estate and not personal property. The defendants, he explained, “ignore the fact that in drafting the contract, they themselves specifically chose to use the term ‘encumbrance’ outside the context of real property and in relation to the sale of the membership interests in the Skybox business.”
Since parties can negotiate on any terms that do not contradict public policy, and since the “defendants have not argued or presented any evidence that the use of the term encumbrance in the contract violates public policy,” Hall wrote, the court has little room to intervene.
Further, the justices rejected the ambiguity assertion “because the context in which defendants used the term ‘encumbrance’ in the contract clearly indicated that it was used in relation to the sale of the membership interests in the Skybox business.”
As such, he continued, “the taxing authorities claims for amusement taxes did in fact reduce the value” of the building and Skybox business. That the issue of the underpaid taxes did not surface until a year after closing “does not take away from the fact that the presale underpaid taxes were an encumbrance on the Skybox business at the time of sale.”
Further, Hall explained the contract’s clear division of pre- and post-sale expenses and revenue related to the business puts the obligation of fully paying the taxes on the party that operated the business during the years the taxes were underpaid.
According to Cook County court records, Beyond the Ivy was represented in the action by attorneys with Jerome H. Torsen Ltd, of Chicago.
The defendants were represented by attorneys with the Gair Law Group, of Chicago.