COGSWELL v. CITIFINANCIAL MORTGAGE CO. (October 5, 2010)

In January 2001, the Patrick Group (PG) purchased a mortgage (and the underlying note) from CitiFinancial Mortgage Co. However, CitiFinancial could not locate the original note or mortgage. It gave PG a copy of the mortgage but could not locate even a copy of the note. PG ran into complications when it substituted for CitiFinancial in the pending foreclosure proceeding. A title search disclosed a gap in the recorded ownership of the mortgage. Because PG could not produce even a copy of the note, the court directed a verdict against PG. The appellate court affirmed. PG then brought suit for breach of contract against CitiFinancial. Judge Norgle (N.D. Ill.) granted summary judgment to CitiFinancial, concluding that the agreement did not require transfer of the note and that, even if it did, CitiFinancial’s failure to transfer was not the cause of PG's damages. PG appeals.

In their opinion, Judges Flaum, Ripple, and Sykes reversed and remanded. The Court first addressed whether the contract required the physical transfer of the note. The Court took issue with the district court's treatment of this as a question of law, as if it were a question regarding the existence of a contract. Here, there is no doubt that a contract exists. The only question concerns its terms -- and that is a question of fact. Relying on PG's offer letter, the contract itself, and an uncontested affidavit, the Court concluded that the contract was ambiguous. Although the district court's reading of the contract was plausible, it is not the only reasonable reading. The district court improperly resolved this factual dispute on summary judgment. It must go to a trier of fact. The Court turned to causation. Again, the Court disagreed with the district court and its holding that the failure to transfer was not the cause of damages because PG could have enforced its rights on alternative paths. The Court stated that Illinois applies a special rule to breach of contract cases when the alleged harm is a result of an adverse judicial outcome. In those cases, causation is a question of law and depends on an analysis of what a reasonable court would have done had the defendant not breached the contract. Here, the Court concluded that a reasonable Illinois court would have allowed PG to proceed with the foreclosure if it had a copy of the note. Thus, CitiFinancial's breach caused PG's damages. The Court also rejected CitiFinancial’s alternative paths argument, although it first re-categorized the arguments as "failed to mitigate," rather than failed to prove causation. It held that, under Illinois foreclosure law, a reasonable court would have ruled against PG on both the lost-note affidavit and the personal judgment theories.