Allen, Thomas K. v. Cedar Real Estate ( 2001 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 99-4090
THOMAS K. ALLEN, JR.,
Plaintiff-Appellant,
v.
CEDAR REAL ESTATE GROUP, LLP,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Indiana, Hammond Division.
No. 98 C 633--James T. Moody, Judge.
Argued September 6, 2000--Decided January 3, 2001
Before Manion, Kanne, and Diane P. Wood, Circuit
Judges.
Kanne, Circuit Judge. Thomas Keith Allen, an
Indiana citizen, made a written offer to Cedar
Real Estate Group, LLP ("Cedar"), an Iowa
Partnership, to purchase a 6.2 acre parcel of
land for $360,000. Cedar made a counteroffer
which minimally changed the terms of the original
offer, and Allen accepted. After an environmental
audit revealed unexpected soil and groundwater
contamination, the parties negotiated
unsuccessfully for approximately four months in
an attempt to allocate the costs of environmental
remediation. Eventually, due to the parties’
inability to reach an agreement, Cedar terminated
the agreement and informed Allen that it was
placing the property back on the market. In
response, Allen notified Cedar that the parties
had a binding agreement and insisted on closing
the transaction. When Cedar refused, Allen filed
suit against Cedar in federal district court,
properly alleging diversity jurisdiction and
asking for damages and/or specific performance of
the land sale contract. Because we find that no
contract existed, we affirm the district court’s
grant of summary judgment for the defendant-
appellee, Cedar Real Estate Group.
I. History
At the center of the dispute in this case is a
6.2 acre parcel of real estate located in Lake
County, Indiana ("the property") owned by Cedar.
In May of 1998, Cedar listed the property for
sale with Richard E. Weiss, a real estate agent.
A large trucking company, CRST International,
used the property as a terminal prior to its
placement on the market. At that time, CRST
International used five underground storage tanks
ranging in volume from 500 to 10,000 gallons to
store fuel and heating oil on the property. In
1990, the four largest of these tanks were
removed from the property. The smallest tank was
left in place and filled with concrete. As
required by Indiana state environmental
regulations, CRST International filed a closure
report with the Indiana Department of
Environmental Management ("IDEM") detailing the
removal and closure of the underground storage
tanks.
On June 4, 1998, through his real estate agent,
Howard Cyrus, Allen offered to purchase the
property from Cedar for $360,000. Allen made his
offer on a preprinted purchase agreement that
contained standard boilerplate contract
provisions concerning the method of payment,
taxes and assessments, and the risk of loss. The
purchase agreement also specified that the sale
of the property was "as is" and that "time
periods specified in this Agreement expire at
midnight on the date stated unless the parties
agree in writing to a different date and/or
time."
In addition to the preprinted purchase
agreement, a typewritten page entitled "FURTHER
CONDITIONS" was attached to Allen’s offer. In
pertinent part, this additional page provided the
following:
This offer to purchase is subject to
purchaser[’]s approval of the following:
1) After purchaser[’]s review of the
Environmental Disclosure Document for Transfer of
Real Property (see attached), at purchaser[’]s
option, a current Phase 1 and Phase 11
Environmental Audit with soil borings will be
ordered. Cost not to exceed $5,000 and to be
split on 50/50 basis between purchaser and
seller. Audits to be completed within thirty (30)
day period after acceptance of this proposal by
sellers, with a reasonable extension of time, if
needed. Seller shall provide completed copy of
Disclosure Document with accepted copy of
purchase agreement[.] In addition, sellers agree
to provide purchasers with all existing
environmental data and underground tank closure
documents from the State of Indiana relating to
the subject property.
The bottom of the additional page also contained
the following footnote referring to the above
paragraph, "Regarding #1--Mr. Allen will not
request environmental audit if he is satisfied
with the contents of the disclosure document. Mr.
Allen will make the decision after it is
reviewed." Although the purchase agreement
specifically gave Allen the right to investigate
the property to determine the existence of
environmental contamination, it did not specify
how such a discovery would affect the agreement
to sell the property. The purchase agreement
named July 15, 1998 as the closing date but also
allowed a reasonable extension of time "for
correcting defects in the Property noted in any
inspection report."
On June 9, 1998, Cedar made a written
counteroffer to Allen. The counteroffer modified
the first paragraph of the further conditions to
provide that:
[w]ithin five (5) business days after this
Counter Offer is accepted by Purchaser, Seller
shall provide Purchaser with a completed copy of
the Environmental Disclosure Document for
Transfer of Real Property and provide purchaser
with all existing documentation, environmental
data and underground tank closure documents from
the State of Indiana regarding the subject
property which Seller has in its possession.
Purchaser shall then have three business days to
review the information received from Seller and
to exercise its option as provided in paragraph
(1).
On June 12, 1998, Cyrus delivered Allen’s signed
acceptance of the counteroffer to Weiss.
In accordance with the agreement, Cedar
delivered the appropriate environmental
disclosure documents to Allen. After reviewing
these documents, Allen decided to exercise his
option to order an environmental audit. He
engaged the services of Enviro Solutions, Inc.
("ESI") to perform an environmental assessment of
the property. ESI representatives visited the
property on June 19 and July 14, 1998. ESI also
reviewed documents, spoke with a representative
of CRST International, and interviewed personnel
from various state and local governmental
agencies. On July 29, 1998, ESI issued its
environmental assessment of the property. ESI
concluded that:
[t]he property does exhibit adverse environmental
issues in the form of apparent diesel fuel
contamination in the general area of the former
site of two 10,000 gallon diesel fuel tanks. Both
soil and groundwater are impacted. The full
extent of the contamination is not known. A
realistic estimate of potential clean up costs
can not be prepared based on available
information. ESI recommends that additional
investigatory actions take place in order to
further delineate the extent of the
contamination. At that point, it may be possible
to estimate the potential clean up costs.
After receiving this memorandum from ESI, Allen
submitted it to Cedar. On August 7, 1998, Cyrus
sent a memorandum to Weiss stating that Allen was
"prepared to close th[e] transaction within
thirty (30) days after receipt of an acceptably
clean environmental report for the entire
property indicating it meets state standards."
The memorandum said that Allen was willing to pay
fifty percent of the costs of further
environmental investigation up to $5,000 and
fifty percent of the costs of remediation up to
$10,000. The memorandum also stated that:
I cannot stress enough, that Mr. Allen wants
this property and is willing to accommodate the
owner in terms of the time necessary to solve
these problems plus his contribution toward their
solution.
At this time, we believe that all
responsibility for future investigations,
remediation, and preparation of a final
environmental report is the owner’s, or his agent
(you).
Upon receipt of this memorandum, Weiss contacted
John M. Smith, one of Cedar’s partners, to
determine Smith’s position with respect to
sharing remediation costs with Allen. Smith told
Weiss that he had not changed his position and
that sale of the property would be "as is."
In an attempt to save the deal, Weiss brought
in Environmental Restoration Systems ("ERS"), an
environmental contractor with whom he had worked
in the past. On August 18, 1998, a meeting was
held between Cyrus, Allen, Weiss, and a
representative of ERS. The purpose of this
meeting was to attempt to determine the potential
costs of further site investigation and eventual
remediation. A few days after the meeting, ERS
tentatively estimated that further investigation
and remediation would cost $30,335.
After receiving this information from ERS, Weiss
faxed a letter to Cyrus reiterating that the sale
of the property would be "’as is’ with the buyer
to address the environmental condition." In the
letter, Weiss suggested that Allen should
consider revising his offer. A week later, on
September 4, Weiss softened his position. He
wrote another letter to Cyrus, this time
indicating that Cedar would agree to sell the
property as specified in the purchase agreement
"with the provision that the cost of the
environmental clean-up be split equally." The
letter stated that a mutually acceptable
remediation agreement would be prepared and
become part of the purchase agreement.
On September 15, Weiss informed Allen that
Cedar was looking into dealing with other parties
"due to the unresolved contractual issues
associated with the Purchase Agreement of June 4,
1998." The next day, Cyrus faxed a note to Weiss
proposing that Allen contribute fifty percent of
the costs of remediation work up to a total of
$25,000. In response, Weiss opined that "[t]his
is the type of approach that the Smiths will
understand" and inquired whether Allen would
agree to increase the remediation cap to $35,000.
Cyrus responded that Allen would be willing to
offer to pay one half of any remediation work
that needed to be done up to $35,000.
A few days after Allen had offered to pay half
of the remediation costs up to $35,000, Cyrus
sent a letter advising Cedar "for information
purposes only" that Allen had obtained a legal
opinion which concluded that Cedar had certain
obligations under Indiana law as a result of the
discovery of possible environmental contamination
on the property. Weiss replied that Cedar’s
preference was to sell the property "as is" with
the buyer being responsible for the entire cost
of remediation. Weiss also informed Allen that
Cedar had received three offers on the property
and that he had instructed potential buyers to
communicate their "final and best offer" to Cedar
by noon on October 2, 1998. On October 1, 1998,
in response to this communication, Allen’s
attorney advised Cedar that there was an existing
contract between Cedar and Allen. The letter
stated:
It is the position of Mr. Allen that the
purchase agreement remains in full force and
effect and is a viable contract between the
parties. The effort by Cedar Rapids Realty Group
to breach this agreement by entering into
agreements of sale with other parties will be
resisted.
In the meantime, Mr. Allen remains ready,
willing and able to complete the inquiry and
determine the significance, if any, of the
existing environmental defect.
Upon receipt of this letter, Cedar immediately
informed Cyrus that the agreement was terminated
and directed him to return Allen’s earnest money.
Almost four weeks later, on October 28, 1999,
Allen’s attorney wrote to Cedar’s attorney
indicating that Allen was ready to close the
transaction for the original purchase price of
$360,000. According to the letter, the property
would be submitted to the Voluntary Remediation
Program of the Indiana Department of
Environmental Management, and the costs of such
remediation would be forwarded to Cedar. Cedar
never responded to this letter, and Allen filed
suit in federal district court. The district
court granted summary judgment for the defendant,
finding that Allen’s approval of the
environmental audit was an unsatisfied condition
precedent to the existence of a contract.
II. Analysis
A. Standard of Review
On appeal, Allen argues that the district court
erred in granting summary judgment for Cedar by
finding that no contract existed between Allen
and Cedar. We review de novo the district court’s
grant of summary judgment. See Matney v. County
of Kenosha, 86 F.3d 692, 695 (7th Cir. 1996).
Summary judgment is proper when "the pleadings,
depositions, answers to interrogatories, and
admissions on file, together with the affidavits,
if any, show that there is no genuine issue as to
any material fact and that the moving party is
entitled to a judgment as a matter of law."
Fed.R.Civ.P. 56(c); see also Celotex Corp. v.
Catrett, 477 U.S. 317, 322-23, 106 S. Ct. 2548,
91 L. Ed. 2d 265 (1986). In determining whether
a genuine issue of material fact exists, we must
construe all facts in the light most favorable to
the non-moving party and draw all reasonable and
justifiable inferences in favor of that party.
See Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 255, 106 S. Ct. 2505, 91 L. Ed. 2d 202(1986). If, however, the record as a whole "could
not lead a rational trier of fact to find for the
non-moving party, there is no ’genuine issue for
trial.’" See Matsushita Electric Industrial Co.
Ltd. v. Zenith Radio Corporation, 475 U.S. 574,
586, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986);
see also Lindemann v. Mobile Oil Corp., 141 F.3d
290, 294 (7th Cir. 1998).
B. Contract Interpretation
In a diversity case, we apply federal
procedural law and state substantive law. See
Erie R.R. v. Tompkins, 304 U.S. 64, 78, 58 S. Ct.
817, 82 L. Ed. 1188 (1938). Rules of contract
interpretation are treated as substantive. See
Bourke v. Dun & Bradstreet, 159 F.3d 1032, 1036
(7th Cir. 1998). The parties agree that Indiana
law governs our interpretation of the purchase
agreement.
According to Indiana law, the construction of
an unambiguous written contract is a question of
law for the court. See Bicknell Minerals, Inc. v.
Tilly, 570 N.E.2d 1307, 1311 (Ind. Ct. App.
1991). If a contract is ambiguous or uncertain,
its meaning is to be determined by extrinsic
evidence, and its construction is an issue of
fact. See id. If, however, an ambiguity arises
because of the language used in the contract and
not because of extrinsic facts, its construction
is purely a question of law to be determined by
the court. See id.; First Federal Savings Bank v.
Key Markets, Inc., 559 N.E.2d 600, 603 (Ind.
1990); see also Keating v. Burton, 617 N.E.2d
588, 592 (Ind. Ct. App. 1993) (holding that the
question of whether an undisputed set of facts
establishes a contract is a matter of law).
Allen claims that, because the contract does
not explicitly lay out the consequences of an
unfavorable environmental report, it is ambiguous
and thus an issue for the fact finder. This
argument fails for two reasons. First, a contract
is not ambiguous "simply because a controversy
exists between the parties, with each favoring a
different interpretation." Abbey Villas
Development Corp. v. Site Contractors, Inc., 716
N.E.2d 91, 100 (Ind. Ct. App. 1999) (citing
Stevenson v. Hamilton Mut. Ins. Co., 672 N.E.2d
467 (Ind. Ct. App. 1996)). A contract is
ambiguous only when it is susceptible to more
than one interpretation. See id. As will become
evident from the discussion in Part II.C below,
reasonable persons could not disagree about the
contract in this case. Secondly, even if a
contract is ambiguous, its interpretation is
still a question of law if the ambiguity exists
because of the language used in the agreement and
not because of extrinsic facts. See, First
Federal Savings Bank, 559 N.E.2d at 604 (Ind.
1990). In this case, where there is no dispute
about the extrinsic evidence, any ambiguity is a
result of the language used in the contract.
Thus, the determination of the existence of a
contract is a matter for the court.
C. Condition Precedent
Allen argues that the contract to sell the
Cedar property contained all essential terms and
was complete and binding from the time that he
signed and accepted Cedar’s counteroffer. The
district court, however, found that the agreement
was not complete when signed because of the
language that Allen inserted in the contract
making Allen’s "offer to purchase . . . subject
to purchaser[’]s approval of the following." The
district court held that the insertion of this
language in the purchase agreement created a
condition precedent that needed to be fulfilled
before the agreement became an enforceable
contract.
A condition precedent is "either a condition
which must be satisfied before an agreement
becomes a binding contract or a condition which
must be fulfilled before the duty to perform an
already existing contract arises." See Dvorak v.
Christ, 692 N.E.2d 920, 924 (Ind. Ct. App. 1998);
Worell v. WLT Corp., 653 N.E.2d 1054, 1057 (Ind.
Ct. App. 1995). Allen argues that the clause that
made his offer "subject to Purchaser’s approval"
is not a condition precedent to contract
formation but rather a condition precedent to
performance of the contract. We disagree.
Contracts must be interpreted to give effect to
the intentions of the parties as expressed in the
four corners of the instrument. See Fetz v.
Phillips, 591 N.E.2d 644, 647 (Ind. Ct. App.
1992); see also First Federal Sav. Bank of
Indiana v. Key Markets, Inc., 559 N.E.2d 600, 603
(Ind. 1990). We attempt to determine the intent
of the parties at the time the contract was made
by examining the language that the parties used
to express their rights and duties. See I.C.C.
Protective Coatings, Inc. v. A.E. Staley Mfg.
Co., 695 N.E.2d 1030, 1034 (Ind. Ct. App. 1998).
In this case, the contract language--language
inserted by Allen--shows his intent to condition
his offer on an acceptable environmental report.
First, the paragraph that gives Allen the right
to order an environmental audit is entitled
"Further Conditions." In addition, the paragraph
begins by noting that, "this offer to purchase is
subject to Purchaser’s approval of the
following:" (emphasis added). Allen’s choice of
the word "offer" is telling. This language makes
it clear that Allen conditioned his offer on the
right to order an environmental audit. The only
reasonable interpretation of this language is
that Allen intended to be able to opt out of the
agreement if the property turned out to be
contaminated.
In addition, contracts are to be read as a
whole to harmonize all provisions. See Peoples
Bank & Trust Co. v. Price, 714 N.E.2d 712, 717
(Ind. Ct. App. 1999). When interpreting a
contract, a court must "make all attempts to
construe the language in a contract so as not to
render any words, phrases, or terms ineffective
or meaningless." Whitley County Teachers Ass’n v.
Bauer 718 N.E.2d 1181 (Ind. Ct. App. 1999). The
District Court found that the only way to
harmonize Allen’s inclusion of the phrase "this
offer is subject to purchaser[’]s approval" with
the provision allowing Allen to order an
environmental audit is by understanding Allen’s
approval of the environmental audit to be a
condition precedent to the formation of the
contract. We agree. The right to order an
environmental audit would be rendered completely
meaningless if Allen had an obligation to
purchase the property regardless of the results.
Thus, we hold that Allen’s approval of the
environmental investigation is a condition
precedent to the formation of the contract.
Because the agreement contained a condition
precedent to the formation of the contract, an
enforceable contract only exists if the condition
precedent was met. We hold that it was not. On
August 7, after receiving the results of the
environmental audit conducted by ESI, Allen’s
agent sent a memorandum to Cedar stating that
Allen was willing to close on the property within
thirty days of an "acceptably clean"
environmental report. Although the memo stressed
that Allen was still interested in the property,
it also stated that "[a]t this time we believe
that all responsibility for future
investigations, remediation, and preparation of
a final environmental report is the owner’s, or
his agent (you)." By sending this memorandum,
Allen made it clear that the condition precedent-
-an acceptable environmental report--had not been
met. Allen was not willing to accept the property
in an "as is" condition without changing other
terms of the agreement. Allen again showed his
refusal to accept the contract as written in his
letter of September 21, 1998. The letter informed
Cedar that Allen had obtained a legal opinion
that concluded that Cedar was at least partially
liable for the contamination on the property.
Although Allen claims that this letter advised
Cedar of its remedial obligations with respect to
the property for "information purposes alone,"
the letter made it very clear that Allen was not
willing to purchase the property "as is."
All of the subsequent communications between
Allen and Cedar were simply offers and
counteroffers that never resulted in a new
contract. Under Indiana law, an acceptance that
differs from the terms of an offer--a
counteroffer--is considered a rejection. See
Kokomo Veterans, Inc. v. Schick, 439 N.E.2d 639,
644 (Ind. Ct. App. 1982) (citing Uniroyal, Inc.
v. Chambers Gasket & Mfg. Co., 380 N.E.2d 571(Ind. Ct. App. 1978)). Such a counteroffer must
be accepted by the original offeror in order to
form a contract. Id. No such counteroffer was
accepted here.
Allen argues that liability for environmental
contamination is determined by state law and was
not at issue in the contract. He argues that the
negotiations that took place after the discovery
of environmental contamination were simply
secondary discussions to allocate the cost of
environmental responsibility that would have
otherwise fallen on Cedar. Allen argues that as
a previous owner/operator, Cedar was at least
partially liable for remediation costs under
Indiana environmental law even if the property
was sold pursuant to an "as is" contract.
Although he does not explicitly say this, Allen
seems to be arguing that the "as is" portion of
the contract (as Cedar understood it) would not
have been enforceable under Indiana Environmental
law. Thus, he would have been in a better
position if he had simply closed on the property
and then filed with IDEM to force Cedar to pay
for remediation.
Section 13-23-13-10(a) of the Indiana Code,
pertaining to underground storage tanks, does
provide that, "an indemnification agreement, a
hold harmless agreement, or other similar
agreement or conveyance is not effective to
transfer the liability imposed under section
eight of this chapter." Ind. Code (1998). While
Allen is correct that section 13-23-13-10(a)
prevents the transfer of liability for
underground storage tanks, section 13-23-13-10(b)
does allow agreements to insure, hold harmless,
or indemnify. We express no opinion as to whether
the purchase agreement signed by Allen and Cedar
would have been considered an agreement by Allen
to indemnify Cedar from rehabilitation costs. It
is not relevant here, as Allen explicitly made
his offer "subject to purchaser’s approval" of an
environmental audit. There are many reasons why
a purchaser would be hesitant to buy a piece of
property that was environmentally contaminated,
even if another party was responsible for the
remediation costs. Whether Allen had one of these
reasons in mind when he inserted the condition
precedent or whether he was misinformed about
Indiana environmental law is immaterial. Allen
specifically inserted the condition precedent
requiring his approval of the environmental audit
into the contract, and now he must accept the
consequences of his decision.
D. Waiver
Allen correctly points out that a condition
precedent in a contract that exists solely for
one party’s benefit can be waived by that party.
See Salcedo v. Toepp, 696 N.E.2d 426, 435 (Ind.
Ct. App 1998) (citing Terre Haute Regional
Hospital Inc. v. El- Issa, 470 N.E.2d 1371, 1379
(Ind. Ct. App. 1984)). A party may waive a
condition precedent expressly or by conduct. See
id at 435; Parrish v. Terre Haute Savings Bank,
431 N.E.2d 132, 135 (Ind. Ct. App. 1982). It is
undisputed that Allen never expressly waived the
condition, and nothing in his conduct suggested
that he was willing to waive it. Allen makes much
of the fact that he never threatened to walk away
from the deal, but this by itself is not enough.
Although Allen’s conduct showed that he was still
interested in the property, he never suggested
that he was willing to waive the condition
precedent by purchasing the property "as is."
Allen’s offer on October 28, 1998 to purchase the
property "as is" and let Indiana environmental
statutes determine who would bear remediation
costs was too little, too late to constitute
waiver. This offer not only came four weeks after
Cedar notified Allen that the contract was
terminated, but it still did not agree to
purchase the property "as is."
Allen does not argue that he waived the
condition precedent. Instead, he argues that
because he had the option to waive the condition
precedent, Cedar improperly terminated the
agreement. Allen’s theory is that when he
received the environmental report, he had two
choices: accept the property in its current
environmental state or walk away from the deal.
According to Allen, because he had not yet
decided which of these two courses of action to
pursue, the agreement was still in force. There
are two problems with this argument. First, it is
inaccurate. As discussed above, Allen already
made clear that he was not willing to accept the
contaminated property "as is." Second, even if we
were to accept Allen’s contention that he had not
yet determined whether he was willing to waive
the condition precedent, his argument still
fails. If the agreement remained in force until
Allen affirmatively rejected the agreement, Cedar
would be required to wait indefinitely. We can
not accept this construction of the parties’
agreement. By the time Allen offered to close on
the property, the closing date had long since
passed. Although the contract provided that a
reasonable time would be allowed to correct
defects in the property, no extension was made.
Allen argues that both parties assumed that the
date of closing had been extended. It is
uncontroverted, however, that no extension was
made in writing as required by the purchase
agreement. Thus, although Allen did at one point
have the right to waive the condition precedent
to the formation of the contract, all indications
suggest that Allen was not willing to waive it.
III. Conclusion
Because we find that no enforceable contract
existed between the parties, the judgment of the
district court granting the motion for summary
judgment is AFFIRMED.