The 7th Circuit Court of Appeals affirmed a District Court ruling in favor of two Indiana companies that were involved in a Tennessee hotel project that failed to develop.
Coachmen Industries Inc. and All-American Homes LLC were involved in a proposed hotel development in Pigeon Forge, Tenn., that would be built with modular components that All-American was to design and provide and that Coachmen was to finance.
A broad development agreement was executed in 2004 between the Indiana companies and Winforge Inc. in North Carolina and Mod-U-Kraf Homes LLC of Virginia to build a hotel, but the project proceeded in “fits and starts,” according to court records.
After a protracted period of planning, the city of Pigeon Forge rejected the building permit for the project because its sewer system lacked capacity. Ten days later, Coachmen notified Winforge that it was in default on a loan agreement. Its two principals had drawn loans of about $1.2 million – more than 40 percent of the total project cost.
Coachmen foreclosed on the property and purchased it for $1.8 million in March 2006. Less than a year later, it was sold at auction for $283,142.79.
The 7th Circuit rejected Winforge’s arguments that the District Court erred in concluding the contract was not a valid contract, or that the defendants were not in breach. The court found that Winforge had not met its obligations under the development agreement, which prevented modular units from being built.
“The district court reasonably concluded that the Mod-U-Kraf’s failure to construct any modular units did not constitute a breach of the contract because its failure to do so was due to Winforge’s deficient performance of its obligations under the contract, not Mod-U-Kraf’s or All-American’s deficiencies,” Judge Sue Myerscough, of the Central District of Illinois, wrote in a unanimous opinion.