Intent and Principles of Contract Construction Weigh in Favor of Closing Agent

Author:Ms Amy McShane
Profession:Holland & Knight LLP

The intent of the parties and basic principles of contract construction set right a sale gone wrong. The Appellate Court of Illinois, Second District, recently handed down a decision that serves as a reminder to consider carefully the intent of the parties to a contract when crafting its language. In Premier Title Company v. Duane Donahue, No. 2-00-1076 (Ill. App. Ct. March 1, 2002),, the Court considered a situation in which two parties to a contract each reasonably relied upon a different portion of that contract to support their positions. The task before the Court was to decide which provision would give effect to the intent of the parties.

Defendant was the seller in a real estate transaction for which the plaintiff was the closing agent. The transaction closed on August 8, 1997, at which time the 1995 real estate taxes on the subject property remained unpaid, as well as the first tax installment of 1996. Because the buyer would not accept these exceptions to title, the closing agent and the seller entered into an indemnity agreement under which the seller was required to place $3,500 in escrow with the closing agent, which sum the closing agent would use to pay the overdue taxes. According to the agreement, the closing agent was required to remove the exceptions by August 21, 1997, and upon their removal was to disburse the remaining funds to the seller.

The closing agent redeemed the 1995 taxes, reimbursed itself from escrow, and then returned the balance of the escrow funds to the seller. The closing agent then paid the outstanding 1996 tax payment, and requested reimbursement from the seller. The seller, however, refused to pay.

The closing agent filed a small claims action, both parties moved for summary judgment, and the seller made an additional motion for sanctions. The closing agent's motion was granted while the seller's motions were denied. The seller appealed.

Each party relied on a different clause in the indemnity agreement to support its position. The seller pointed to a provision that stated that if the agreement was not terminated within 30 days of a particular date, the closing agent would charge an annual service fee to be paid out of the deposit. According to the seller, this provision proved that the primary intent of the parties was to create a relationship that would terminate within 30 days, and that the disbursal of the...

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