The Illinois Supreme Court said a developer must honor its obligations under a development agreement with Hawthorn Woods, even though the high court agreed the village breached the contract first.
PML Development sued Hawthorn Woods in 2015, alleging the Lake County community violated part of a 2012 agreement concerning grading plans for a 62-acre parcel. According to court records, PML agreed to grade the land, adding no more than 1.2 million cubic yards of fill, then sell the entire parcel to the village for $1.
The lawsuit alleged Hawthorn Woods repeatedly required plan revisions form March 2013 through September 2014, not because of code or ordinance violations, but to conform with the village’s evolving municipal campus plans. The developer asserted the constant changes amounted to a breach of the development agreement.
Mary K. O'Brien
| illinoiscourts.gov
The village filed a counterclaim, alleging PML failed to pay property taxes and find a drawdown account, which had a deficit exceeding $58,000.
A Lake County Circuit Court judge ruled both parties breached the agreement, but said since the village did so first, PML was therefore excused from holding up its end of the deal.
Both parties filed appeals. The Illinois Second District Appellate Court reversed the Lake County ruling, saying neither party could recover damages with both partially at fault. The appeals court also noted PML continued working under the agreement after the initial breach.
PML then appealed to the Illinois Supreme Court, which issued its opinion June 15.
Rochford had served on the Lake County court bench as recently as 2022, when she won election to the state Supreme Court.
Since neither side challenged the lower courts’ findings that both PML and Hawthorn Woods committed a material breach, the Supreme Court “focused on the unique scenario … a question as to whether each party elected to continue performing despite the breach," O’Brien wrote.
Though that question is unique, O’Brien detailed the doctrine of partial breach, in place when one party to a contract “accepts the benefits of the contract despite the other party’s material breach. … This does not amount to a waiver of the right to damages for the first material breach, but the injured party may too be liable if it breaches the contract.”
Electing to continue under the terms of an agreement, rather than ceasing all work and suing for damages, has the legal effect of converting the offending party’s breach from material to partial, O’Brien continued, adding the underlying principle “is well rooted in Illinois law” although not yet explicitly adopted via Supreme Court opinion.
O’Brien said a challenge in resolving the dispute is that both PML and Hawthorn Woods were opposed to the argument of electing to continue performing under the agreement. The court said PML never asked to terminate the entire contract, it only wanted to escape the clause under which it would convey the site to the village. Hawthorn Woods, rather than terminate the contract when it denied PML’s grading permit, insisted on issuing a proper permit.
“So too, when the village interfered with PML’s means and methods by dictating where and how to work on the property, PML could have terminated the agreement,” O’Brien wrote. “And, when the village imposed terms not bargained for, PML could have terminated the agreement. Yet it continued to operate on the property, reaping significant economic benefits.”
O’Brien said the village, in arguing during the Lake County bench trial, demonstrated it wished to continue with the contract despite ultimately insisting otherwise. Notably, at a hearing on its own “motion for partial summary judgment, the village admitted that the parties would continue performing under the agreement until at least 2018. At the time of that hearing, the village already claimed that PML materially breached the agreement. The village could have made a claim to terminate the agreement. It did not.”
The village committed the first breach when it failed to issue the proper grading permit, O’Brien wrote, and also by imposing extracontractual terms. PML elected to keep working, converting the material breach to a partial breach. PML committed its own material breach by failing to convey the property, shorting the drawdown account and not rebuilding Kruger Road. But the village continued the contract, and PML’s breaches converted from material to partial. The end result being “each party had a viable breach of contract claim.”
As such, the Supreme Court remanded the case to circuit court. It restored that court’s judgment in favor of PML, ordered an additional judgment in favor of the village on its counterclaim, and said the court should calculate each party’s damages and offset the ultimate financial award. Because the appellate court held no party could recover damages, it didn’t address the circuit court’s calculation of damages for PML, so the Supreme Court said the circuit court should “enter a new judgment under the correct legal framework.”
In her special concurrence, Rochford added her belief the partial breach issue “is better understood as an election of remedies.” She said “partial” breaches don’t exist, only material or minor, and said the concept of conversion to partial is improper because “a material breach remains material regardless of the chosen remedy — the breach is not diminished by the election to continue the contract. Rather, the material breach is treated like a minor breach.”
PML has been represented in the case by attorneys Melinda Kollross and Don R. Sampen, of the firm of Clausen Miller, of Chicago.
Hawthorn Woods was represented by attorneys Timothy D. Elliott, Daniel J. Szczesny and Paris L. Smith, of the firm of Rathje Woodward, of Wheaton, and Patrick T. Brankin, Michael E. Kujawa and Nicholas D. Standiford, of Schain Banks Kenny & Schwartz, of Chicago.