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Monday, September 12, 2022

Court Reverses Award of Damages to Developer in Case of Mutual Breach of Contract

Earlier this summer, an Illinois Appellate Court issued a decision finding that both the municipality and the developer had materially breached a redevelopment agreement. Because neither party had complied with the terms of the agreement, the Court decided that neither party was entitled to damages for the other’s breach. PML Development LLC v. Village of Hawthorn Woods.

In 2012, the parties entered into a redevelopment agreement that provided, among other things, that the developer would import fill and bring to grade a large piece of property it owned in the Village. The agreement required the developer to pay taxes on the property until the project was completed, at which point it would donate the land to the Village. The development project faced several obstacles early in the term of the agreement, including a number of changes to the project, including the amount of fill on the site, the sequencing of the project, and the company’s ability to sell certain materials. 

According to the breach of contract lawsuit filed against the Village, the developer argued that these changes presented major challenges to its ability to complete the project on time. The Village also claimed the developer had  breached its obligations under the agreement by not paying property taxes, which resulted in multiple tax liens being placed on the property. The trial court ruled in favor of the developer, finding that the developer's obligations were excused because of the Village's breach and awarding the developer damages for the breach.

On appeal, the Appellate Court found that neither party should have received any damages for breach of contract. The Court agreed with the trial court that the Village’s unilateral changes to the contract terms and working conditions for the company constituted a material breach, finding that under industry standards, the developer should have maintained control and discretion over the “means and methods” for developing the parcel. However, the Court did not find that the Village’s breach excused the developer from its contractual obligation to pay taxes on the property. Because the developer had promised to deliver a deed to the property without any liens or title issues, its failure to pay taxes undermined its ability to comply with that term in the agreement. The Court relied on a foundational principle of contract law to come to its conclusion: “[I]f both parties are in default (breach) there can be no recovery on the contract by either against the other" and reversed the trial court's damages award to the developer

Authored by Erin Monforti & Julie Tappendorf, Ancel Glink


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