ILLINOIS REAL ESTATE CASE LAW UPDATE
ISBA LAW ED SERIES - REAL ESTATE LAW SECTION COUNCIL
November 8, 2002 – Chicago, Il. November 21, 2002 – Bloomington, Il.
Bank One Plaza – Bank One Bldg. The Radisson Hotel – 10 Brickyard Dr.
Dearborn & Madison Streets 10 Brickyard Drive
Chicago, Illinois Bloomington, Illinois
Steven B. Bashaw
Steven B. Bashaw, P.C.
Suite 1012 - 1301 West 22nd Street
Oak Brook, Illinois 60525
Tel. (630) 974-0104
Fax (630) 974-0107
1. ADJACENT LANDOWNERS: NATURAL FLOW OF WATER & INJUNCTION:
Every lawyer that has ever gone to a cocktail party has been confronted with the story of a homeowner whose neighbor has landscaped their property, and is now causing water to stand, pour into the basement, or flow into places it did not go before. In the recent case of Sparks v. Gray, (5th District, March 20, 2002,), http://www.state.il.us/court/Opinions/AppellateCourt/2002/5thDistrict/March/Html/5000382.htm, the Court gives us some insight on handling these questions….pass the olives?
Sparks and Gray owned adjacent property in Madison County, Illinois, which was in a triangle created by Route 255, Cahokia Canal and Horseshoe Lake Road. Horseshoe Lake Road was 417 feet above sea level, and appears to have acted as a "levy" of sorts. Accordingly, the City of Pontoon Beach required that any new construction in this triangle have a ground floor of at least 417 feet above sea level. The Sparks property was 423 feet above sea level, but Grays’ was below the 417 foot mark. In order to bring their property to the 417 foot level, Gray began placing fill on his property. According to expert testimony, between 5,300 and 9,000 cubic yards of fill were brought in by Gray, and another 6,945 cubic yards of fill were placed on the property adjacent to Gray. In a trial on Spark’s complaint for a Permanent Injunction, the trial court found that the fill reversed the natural flow of water and resulted in water accumulation on Sparks’ property. The permanent injunction against Gray did not require that they remove the fill, (based on Gray’s expert’s testimony that the fill to date was not significant when dealing with water flow), but did enjoin them from bringing in any more fill onto their property.
On appeal, the Fifth District majority opinion affirmed, finding that "an owner of a higher piece of property has the right to allow any surface water to follow the natural course of drainage onto the lower estate" and that Gray could not be allowed to elevate their property to reverse the natural flow of water.
Justice Welch dissented, however, stating that "This case is not about the owners of a lower piece of property elevating their property and thereby hindering the natural flow of water. This is a case about surface water "displacement", not flow." Relying on the fact that there were no improvements that impeded the natural flow of waters, but merely the "displacement" of flood waters by the volume of fill, the dissent reasoned that "When adding this volume to the volume of the floodwaters, the rise in the height of the floodwaters would be immeasurable, like that of children dumping sand from their beach buckets into the ocean and thereby causing the seas to rise." Believing that the logical conclusion" of the majority opinion would forbid a landowner from placing sandbags around their home in the time of a flood, Justice Welch held fast in his position that the facts in this case were about "displacement" not "hindering the natural flows.
So, we are left with the law that an owner can not "impede" the natural flow of water, or "reverse" the natural flow of water, but a little confused on the factual distinction relating to "displacement" and "natural flow".
2. ADJACENT LANDOWNERS; WATER FLOW AND DRAINAGE RIGHTS, DISPLACEMENT VERSUS IMPEDING THE NATURAL FLOW OF WATER:
There can be no question that controversies relating to water run-off onto adjacent properties in urban and suburban areas are becoming more prevalent. Landscaping which diverts the natural flow of water and affects neighboring property is common place. Large scale developments displace a great deal of land surface that once absorbed rainfall and runoff with concrete and parking areas. Real estate practitioners need to update their understanding of the problem and laws surrounding these issues. The recent case of Sparks v. Gray, (5th Dist., September 24, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/5thDistrict/September/Html/5000382.htm is a good starting point.
Sparks brought a suit against his neighbors, the Grays, due to a alterations Gray made to their property, seeking to enjoin the alteration of the natural flow of water which resulted in flooding on Sparks’ property. Sparks alleged that Gray placed dirt fill on their property raising the surface level, and constructed a levy/dam so that water flowed onto the Sparks’ parcel. They also complained that Gray’s actions affected the operation of "flap gates" in the ditches between the parcels which were designed to drain water into a canal constructed near the interstate highway. As a result of the fill and resulting water flow , the "flap gates" were overwhelmed and did not function, which then caused water to overflowed on to Sparks’ land.
The trial court granted the injunction and ordered that Gray no longer diverted water into the ditch at a time when the water would overflow onto Sparks’ property and enjoined defendants from placing further fill on their property. The Fifth District reversed on appeal.
The decision by Justice Welch notes that the parcels are in a low lying area known as the "American Bottoms" subject to retaining water and constituting a flood plain. The local ordinances condition granting building permits for new structures on a requirement that the ground floor of a new structure have an elevation of at least 417 feet above sea level; representing the height of the 100-year flood. Gray’s property lies below that level, and Sparks approximately 6 feet above. In order to meet the condition for building, Gray began placing a significant amount of fill on his parcel to raise the level to 417 feet. At the same time, there was a common ditch that drained from between the properties to a canal, and finally to a detention basin near the interstate highway. There were "flap gates" in the ditches whose purpose was to facilitate the drainage into the detention areas. When the ditch overflowed, however, the flap gates were held closed by the overflowing water and would not work properly to drain Sparks’ property to the same level in the canal and ditches, and water back-up would spread over the land.
Plaintiffs are entitled to a permanent injunction only where there is (1) a clear and ascertainable right in need of protection, (2) irreparable harm will occur without an injunction, and (3) there is no adequate remedy at law. Here, the Court held, Sparks did not have a clear and ascertainable right in need of protection. While Illinois law prohibits an owner of real estate from impeding the natural flow of surface water from a dominant to a servient estate, and the owner of a servient parcel can not interfere with the dominant parcel’s drainage rights, both Gray and Sparks were owners of estates servient to the drainage canal, rather than to each other. Gray’s action did not interfere with the natural flow of water to the canal by diverting water, causing it to back-up, or impounding the natural flow. Rather, Gray simply raised the level of his land with fill and thereby displaced water. The case is "about water displacement and not a case about impeding water’s natural flow or interfering with one’s drainage rights…The parties cite to no law, and we have found none, that prohibits a landowner from engaging in an act that merely results in water displacement while the same act does not impede the natural flow of water or interfere with one’s drainage rights….A finding to the contrary would produce absurd results. It would allow an upper landowner to sue a lower landowner for sandbagging around his or her home during the time of a flood because the lower landowner’s actions result in the displacement of water to the detriment of the upper landowner….In the instant case, because defendants’ actions only result in the displacement of water and do not resulting in impeding its natural flow, plaintiff’s have failed to show that they possess a clear and protectable interest thereby entitling them to an injunction.""
3. ADVERSE POSSESSION: PAYMENT OF TAXES OVER SEVEN YEARS AND ELEMENTS OF GOOD FAITH AND POSSESSION:
In Dotson v. Former Shareholders of Abraham Lincoln Land and Cattle Company, Inc., (4th Dist., August 9, 2002) 6/21/02), http://www.state.il.us/court/Opinions/AppellateCourt/2002/4thDistrict/August/Html/4010989.htm, the Court was confronted with a suite to quiet title over a parcel of real estate that once belonged to Abraham Lincoln. Attorney L. Stanton Dotson brought the case on behalf of his minor son, Joseph S. Dotson, in Coles County, claiming that since he had paid real estate taxes for seven years, the title to the real estate should be quieted in his name pursuant to Section 13-110 of the Code of Civil Procedure. That Section provides that one who pays real estate taxes with color of title on vacant land for seven successive years shall be deemed to be the legal title holder of the land. Dotson’s ‘color of title’ emanated from a deed to a 1/1,672,640th undivided interest, (approximately one square inch), in Lot 1 of the Abraham Lincoln Memorial Farm Plat. The deed was the contrivance of Raymond Phipps, who owned the 36 acres once part of the 40 acre Lincoln farm and established the Abraham Lincoln Land & Cattle Company, Inc. to sell nominal deeds as souvenirs to Lincoln history aficionados. He created the Farm Plat in 1975 consisting of a four acre portion designated as Lots 1, 2, 3 and 4, and then sold the miniscule interests as deeds to a portion of Lot 1. The scheme was initially more successful than one might think. Nieman-Marcus offered the deeds in its Christmas Catalog of unusual gifts in 1977, and L. Stanton Dotson purchase one of the deeds in 1976. Instead of being relegated to a memento drawer, the Dotson deed was recorded in the Coles County Recorders Office shortly after it was received. In the mid 1980s, Phipps’ scheme lost steam, the corporation was insolvent and dissolved by the Secretary of State. Dotson, however, discovered this and formed a new not-for-profit corporation with the same name upon learning of the dissolution. He conveyed his interest by deed to his wife. The deed, however, failed to note the fractional interest of the grantor and simply referred to Lot 1; thereby suggesting a conveyance of the entire parcel, and specified that future tax bills be sent to Dotson. In the coming years, Dotson paid the real estate taxes, (which never exceeded $40), for the tax years 1990 through 1996, and the title was conveyed by successive deeds to and from Dotson’s wives during divorces and through the second corporation known as the Abraham Lincoln Land & Cattle Company, Inc., until title was vested his son, Joseph, (the plaintiff). During this same period, Phipps continued to pay the taxes on the remaining Lots 2, 3 and 4 in the Abraham Lincoln Memorial Farm Plat, and was not aware that the taxes on Lot 1 were being mailed to and paid by Dotson.
In 1998, Dotson posted no trespassing signs on the south boundary of Lot one and strung a single, loose strand of barbed wire as a fence. This was the "possession" basis of his action to quiet title to the property. A three day trial resulted in judgment in favor of Dotson, finding that he had established "color of title, made in good faith" under the Limitations Act and sufficient possession of the parcel to support granting quiet title to him. On appeal, the Fourth District reversed.
After dealing with the procedural quagmire over the time within which a notice of appeal must be filed that was created when the trial court issued a memorandum opinion without a written final judgment, the decision turns to the elements of proving title under Section 13-110 as opposed to strict adverse possession. To the statutory elements requiring (1) color of title, (2) in good faith, (3) to vacant land, (4) with payment of real estate taxes for seven consecutive years, the Court noted (5) the "long-standing judicial construction requiring a person seeking to perfect title under section 13-110 also take possession of the property." The standard of review and proof of the elements was held to be by the same clear and convincing burden of proof adopted in adverse possession cases. The claimant is entitled to no presumptions in his favor, and all presumptions should be made in favor of the holder of legal title rather than the holder of mere color of title. The element of "good faith" is "defined negatively as the absence of an intent to defraud the holder of better title or as the absence of bad faith". While the decision held that the deed conveying more land than actually was owned by Dotson, (i.e., conveyance without reference to the fractional ownership in Lot 1), was sufficient to establish color of title under existing precedent, the deeds were not made in good faith. Stanton Dotson testified he prepared the deeds and at one point told his wife Judith "I will sell it to you, the whole acre, because they probably won’t pay taxes on it, and, if they don’t and you pay taxes and you go though the proper procedures, you will own it in seven or eight years." On this basis, the trial court’s finding that the Plaintiff had established good faith was reversed with the remark that "We conclude section 13-110’s good faith requirement is meant to protect innocent transferees from loss of their investment by misrepresentations of the transferor, rather than to provide a shortcut around the 20-year possession period required of an adverse possessor."
The Court also rejected the trial court’s determination that Dotson had established the requirement of taking possession of the property. The test, the decision holds, is the "community’s perception of the ownership" rather than an attempt to establish possession in a manner not visible to the public. Here the single strand fence strung along one side of the parcel with placement of no-trespassing signs was insufficient. "The critical aspect of possession is to provide notice to the community". Plaintiff failed to meet this burden, and testimony of neighbors that they believed Phipps continued in possession and had never seen Dotson on the property was to the contrary. Section 13-110 requires "visible possession" of the premises that is plain to the community.
4. AIR SPACE; FEDERAL PREEMPTION, STATE LAW and JURISDICTION:
In discussions of current events, there is the continual discussion of air travel safety, new airports, and "noise pollution" around O’Hare Airport, it is interesting to consider, as the Seventh Circuit recently did in Vorhees v. Naper Aero Club, Inc., (November 9, 2001) http://www.ca7.uscourts.gov/op3.fwx?submit1=showop&caseno=00-2545. The interplay between State law and Federal law in determining the extent of an owner’s rights to the air space above and around his real estate. Vorhees, the executor of the estate of Helen Brach, one of the owners of an interest in a 312 acre farm adjacent to a small private airport, brought suit in the Chancery Division in DuPage County seeking to permanently enjoin the defendants, (consisting of a not-for-profit and corporate flying clubs and individuals who either own the airport or were private pilots that use the airport), from using the runway adjacent to the farm. They claimed that the airplane’s use of the airspace over the farm to approach the landing strip was trespass and that the use of the airspace over the farm to approach the landing strip was trespass and that the airplane’s use of the airspace over the farm to approach the landing strip was trespass and that the use diminished the ability to develop the property. In a previously filed case, the estate had argued that the provisions of the Illinois Aeronautics Act that "No person may create or construct any airport hazard which obstructs a restricted landing area or residential airport…", (620 ILCS 5/49.1), amounted to a restriction that prohibited the development of high rise structures on the farm, and therefore constituted a "taking" of property without just compensation; (the argument was that the estate was "forced" to grant an easement over the land adjacent to the landing strip to the planes landing). The defendants filed a motion to remove the case to federal district court based on the Federal Aviation Act (49 USC 40103(a) ) provision that the "United States Government has exclusive sovereignty of airspace of the United States." The case was removed to Federal Court, and then the estate sought to have the case remanded to the Circuit Court of DuPage, arguing that federal preemption was not so complete as to preclude the application of state trespass laws. The Defendants moved to dismiss the complaint alleging that only the FAA has authority to affect air flight and travel in navigable airspace. The District Court agreed with Defendants, denied Vorhee’s motion, and dismissed the complaint.
On appeal the central question was whether there is an action under state law for trespass to airspace, or whether the Federal Aviation Act completely preempts state law. The Seventh Circuit reversed, finding that the United States has "complete and exclusive national sovereignty in the air space; but this does not completely extinguish all rights based on state laws….some state law claims relating to air flight may still have merit, notwithstanding the broad scope of the Federal Aviation Act. "
Noting that the Circuit Court of DuPage would still have to determine if the Federal Aviation Act preempts the estate’s claim, the decision warns; "At the same time, we encourage the plaintiff to think long and hard before pursuing the case in state court. Most issues of air flight and navigable airspace, probably including takes-offs and landings, are within the sovereign regulatory powers of federal government."
Judge Wood dissented, stating his belief that "the regulation of air flight is totally preempted by the federal government," Noting that "navigable airspace" includes the which is "needed to ensure safety in takeoff and landing", and Texas, Nebraska and Connecticut courts have held that states may not regulate air traffic, Judge Wood Stated eloquently: "Federal control is intensive and exclusive. Planes do not wander about in the sky like vagrant clouds. They move only be federal permission, subject to federal inspection, in the hands of federally certified personnel and under an intricate system of federal commands."
(How does all this fit into the local real estate community concerns about "Peotone", "O’Hare Expansion", and the definition of a fee simple as all of the rights to the surface of the land, below to the center of the earth, and above to the "mote in God’s eye"? This case is bound to be cited in the not so distant future.)
5. BANKRUPTCY; MODIFICATION OF STAY , SALES, AND MOOTNESS:
Bankruptcy, particularly the filing of a Chapter 13 Petition, is more frequently becoming the "defense of choice" to mortgage foreclosure litigation. The very brief and pointed decision of the Bankruptcy Appellate Panel for the Eight Circuit of In Re Gene E. Dudley, Sr., (8th Cir., February 15, 2002), No. 01-6054 WM, http://judicata.versuslaw.com/plweb-cgi/fastweb.exe?getdoc+view9+C08+76888+0++%28%28Dudley%20%29%29 gives a clear indication of the basis for modification of the stay to proceed with a foreclosure sale, as well as the fact that a sale, once completed, is not subject to modification on appeal unless a stay pending the appeal was also granted. Mr. Dudley was in prison in Texarkana, Texas when he filed his Chapter 13 petition in July , 2000 to stay a foreclosure sale that was to take place later that month. The lender prevailed on a motion to modify the stay based on the facts that Dudley had not filed a Chapter 13 plan, filed his schedules, and had no apparent source of income with which to make payments to the trustee. Section 1307 provides for relief of stay based on the failure to file a plan in and of itself. Although the "prison mail box rule" applied to Dudly’s filing of the notice of appeal so that his appeal should not have been dismissed for untimely filing, the fact that he did not secure a stay pending his appeal of the grant of the lender’s motion to modify and they proceeded to sale, his appeal was then rendered moot. Citing the law that "an appeal may be rendered moot when the occurrence of certain events prevent the appellate court from granting effective relief", the Eight Circuit found it need not reach the merits of the appeal since it could not "undo" the foreclosure sale that occurred in the absence of a stay. The modification of the automatic stay allowed the lender to proceed to sale. The failure to obtain a stay of the sale pending appeal rendered the appeal moot.
6. BANKS: FRAUDULENT MISREPRESENTATION, BANKS OFFICERS AND JUSTIFIABLE RELIANCE:
Schrager v. North Community Bank, (1st Dist., January 24, 2002), http://www.isba.org/1/1-99-3727.txt, presents a case in which a complaint was filed alleging negligence and fraud against North Community Bank, its chairman, president, and CEO based upon representations made to a real estate investor. Barry Schrader alleged that in a meeting on March 11, 1993, held at the Bank, he was told that the principals of the 1255 State Parkway Building Limited Partnership were "excellent real estate developers, very good customers of the bank, and very good businessmen" by the Bank officers. As a result, he invested in the partnership and became a guarantor on its mortgage loans with the bank. In fact, the officers knew that one of the principals was bankrupt at the time, the partnership account at the bank had been overdrawn on at least 57 occasions during the preceding year, and that there were significant disputes with the City of Chicago zoning department and the building’s condominium association which were impediments to the development. The trial court granted summary judgment for the bank, holding that the bank officer’s statements were mere nonactionable opinions, not statements of fact upon which Schrader could reasonably rely, and that there was no relationship between Schrader and the Bank which imposed a duty upon the Bank toward him relating to the representations.
On appeal, the First District opinion by Justice Cohen reversed, holding that whether the bank officer’s statements relating to the character and business acumen of the principals was a statement of mere opinion or one of material fact depends upon the entirety of the circumstances under which the representations were made, and therefore not the proper subject of a summary judgment ruling. Whether the statements were such that a reasonable man could rely upon them to be assurances of "a history of sound fiscal management, economic cusses and financial stability", when coming from the bank with which the partnership business was conducted on a daily basis, was an issue of fact, not law. The representations took place in the bank, during regular business hours, and related to an acknowledged customer of the bank. The bank possessed actual knowledge of the bankruptcy and financial difficulty of the principals and partnership, and the circumstances could reasonably support the inference that defendants were summarizing their detailed knowledge of the bank’s customer.
On the issue of fraudulent misrepresentation and concealment, the decision begins by noting that "As a general rule, no fiduciary relationship exists between a guarantor and a creditor as a matter of law.". The First District agreed with the trial court that there was no duty imposed by virtue of any fiduciary relationship between Schrader and the bank. Significantly, however, was the fact that as a result of the misrepresentations of the bank, Schrader became a guarantor of the loans upon which the bank held a mortgage. This, coupled, with the bank’s superior knowledge and experience in the matters of the financial circumstances of the partnership and its principals, placed the bank in a position of influence sufficient to warrant a fact finding rather than summary judgment.
Finally, on the issue of justifiable reliance, the decision notes that "Illinois law has long held that, where the representation is made as to a fact actually or presumptively within the speaker’s knowledge, and contains nothing so improbably as to cause doubt of its truth, the hearer may rely upon it without investigation , even though the means of investigation were within the reach of the injured party and the parties occupied adversary positions toward one another." Whether Schrader was reasonably able to rely upon the bank’s representation, without independent investigation, again is a question of fact under the totality of the circumstances..
7. BUILDING PERMITS, HISTORICAL LANDMARK STATUS, ANIMUS and EQUAL PROTECTION:
Villages do not always appear to be even-handed in the manner in which they deal with their citizens when it comes to building permits, and owners are sometimes less than forthcoming in the manner in which they attempt to complete their projects. Once the accusations begin to fly, the question often becomes whether the "animus" between the village officials and the owners rises to the level of a denial of equal protection under the law. In Nevel v. Village of Schaumburg, (7th Cir., 7/26/02), http://www.ca7.uscourts.gov/op3.fwx?submit1=showop&caseno=01-1966.PDF, the actions of the Village of Schaumburg did not meet the "totally illegitimate animus" test necessary for the owner to prevail; i.e., that the governmental action "was a spiteful effort to ‘get’ him for reasons wholly unrelated to any legitimate state objection.", and the homeowner lost; but the facts are pretty "close".
Marty and Laura Nevel purchased the Kern-Schmidt mansion. It was built in 1930 and designated a historic landmark by the Village while owned by their predecessor, Girard Kretzschmar. It was undisputed that the Village failed to send notice to Kretzschmar of the designation as required by the Village’s own Ordinance. Nonetheless, public notice of the designation hearing was published, and notice of the designation was recorded in the Recorder’s Office. When the Nevels later purchased the property they were aware it had historical significance, but claim that they did not know that it had been officially so designated. The recorded designation was discovered by their title insurer, and not reflected on their title insurance policy.
After purchase, the Nevels decided that they were going to remodel the property and cover the exterior with either ‘dryvit’ or siding because a potential lead paint hazard. On at least two occasions, Mr. Nevel discussed the siding with the Village Senior Planner, and he suggested vinyl siding. At no time did the Planner advise the Nevels that they would have to obtain approval of the village due to the historical designation. Nevel contracted with Nu-Concepts to install the siding and purchased $125,000 of material. Nu-Concepts then applied for, and was granted, a permit to install the siding. (Nu-Concepts did not know that Nevel received a telephone call the day before the permit issued from the Village historical commission relating to the necessity for Village approval of any exterior work, and the Village secretary who issued the permit followed the ordinary process in issuing the permit of only checking to see if the contractor was licensed and bonded; i.e., the process did not question the historical status of the property.) While Nu-Concepts was proceeding with installation of the siding, Nevel proceeded with a request before the Village to either approve the siding or revoke the historic designation.
When the Village Commission met to consider his requests, it voted unanimously to deny both the request to approve the siding and the request to revoke the designation.
Nevel, on the advice of his counsel, and based on the fact that the permit to install the siding had been issued and not revoked, directed Nu-Concepts to continue with its work. A month thereafter, when 85% of the work was complete, the Village Code Enforcement Department discovered the situation, posted stop-work orders, issued citations against Nevel, and ordered Nu-Concepts employees to ease work and leave the site or be arrested. Thereafter, the Village denied water and sewer service to the property, and Nevel was informed that he would be responsible for removing the siding that had been "illegally installed".
At a trial on the citations, following two days of evidence and testimony, the Circuit Court Judge granted a directed verdict in favor of Nevel finding that there had been no misrepresentations made in obtaining the permit, and that the Village was required to revoke the building permit before it could enforce a stop-work order. The matter did not end there, however, as the Village then refused to repair a broken water meter on the property unless Nevel signed an acknowledgment that the repair did not "waive the requirement that all exterior work conform to the prior decision of the Village Board". As a result, Nevel filed a three count complaint against the Village. The first count argued that the historical designation was void ab initio for failure to given notice to the then owner, Kretzschmar. The second count alleged that the Nevel’s equal protection rights had been violated in that they were treated differently, (i.e., more harshly), than similar individuals based on the "totally illegitimate animus toward the plaintiff by the defendant." (The third count was based on state law and both the District and the Circuit Court declined to exercised jurisdiction over this cause.).
The validity of the designation under the ordinance was summarily upheld despite the failure to provide notice to Kretzschmar. The Ordinance requires only "due notice", not personal, written notice, to the owner, and it was undisputed that there was publication notice prior to the designation. The Court also ruled that the notice provision in the ordinance was not "mandatory", and the failure of the Village to give personal notice to the owner was not a condition to the effectiveness of the designation: "While it is undisputed that the Village failed to comply with its own procedural ordinances, this failure is insufficient under Illinois law to justify invalidation of the designation". Most importantly, the Nevels were seeking to assert the "due process" rights of Kretzschmar and not their own; "The Nevels lack standing to raise a claim based on the due process rights of a third party."
Whether the Village acted with sufficient "animus" against the Nevels to rise to the level of a denial of equal protection was a larger issue. Citing the Village of Willowbrook v. Olech, (2000), 528 U.S. 562, for the law that an owner can proceed as a "class of one" for equal protection against a municipality where it can be shown they were (1) intentionally treated differently from other similarly situated individuals without any rational basis, or (2) the government treated them differently than similarly situated individuals differently based on a "totally illegitimate animus", the Court nonetheless upheld the summary judgment in favor of the Village. The Nevels contended that the Village denied their requests based not on historical preservation considerations, but in order to punish them for beginning the installation of the siding before approval was granted, and afterwards continued to punish them in spite of the trial court’s ruling in the owner’s favor on the citations. The Seventh Circuit affirmed, holding that "Even if he could be shown that the Board denied the Nevels’ request in order to punish them…this would not constitute a totally illegitimate animus", because "the Village Board has a legitimate interest in ensuring that its rules and regulations are upheld."
(hmmmm…the law is set forth; the facts seemed to fit to me; perhaps I’m just getting too ‘pro-owner’ in my later years.)
8. CONDOMINIUMS; CORPORATE OPPORTUNITY & BIDDING AT FORECLOSURE SALE:
Phillip and Cynthia Goldberg sued on behalf of themselves and the Glenstone Homeowners Association in Goldberg v. Howard W. Michael, et al, http://www.state.il.us/court/Opinions/AppellateCourt/2002/2ndDistrict/February/Html/2010016.htm alleging that the members of the Association’s Board and attorney had breached their fiduciary duties relating to the foreclosure sale of a lot for nonpayment of dues. The owners of the parcel fell behind in their assessments, and the Board instructed attorney Marshall Dickler’s firm to file a lien and commence foreclosure. The Complaint was actually verified by Phillip Goldberg as the treasurer of the Association at the time, and he later executed the affidavit of prove-up that lead to the entry of the judgment. The sale was set for a public auction pursuant to the foreclosure statute, at which time Howard Michael, a defendant in the case and a member of the Association’s Board of Directors at the time, purchased the parcel. (Three other members of the Board were either present, intended to bid, or actually did bid at the sale.) Thereafter, the Board issued a resolution alleging that Michael and three other members of the Board had "usurped the Association’s corporate opportunity", committed fraud, and breached their fiduciary duties by failing to inform the Association of their plans bid at the sale. (There is no clear statement of how these allegations could possibly have be actionable given the fact that the sale was a public auction at which anyone was able to bid and that Goldberg received regular updates and advice of the status of the foreclosure from attorney Dickler.) Following the resolution, the Board executed settlement agreements with two of the Directors, releasing them liability, and determined that it would not pursue the remaining Directors and Howard Michael. Attorney Dickler also filed suit for payment of his fees relating to the action, and the Association entered into a settlement agreement with him as well.
When Goldberg nonetheless filed this suite, the trial court granted the defendant’s motions to dismiss finding that Goldberg lacked standing, the Association had full knowledge of the foreclosure proceedings, and the settlement agreements released defendants. The Second District opinion by Justice Byrne affirmed, stating "we find plaintiffs’ arguments pointless." There was no "concealment" of the foreclosure action from the Association and the property was sold at a public auction. "Defendants’ status as board members did not place them in a better position to purchase…" The Association’s primary purpose was to maintain and administer the Association property, not purchase foreclosure property, and therefore that purchase at sale did not infringe on its "corporate opportunity" or purposes. The penalty for ignoring the fact that the sale was a matter of public record and the clear intent of the releases of the defendants was the imposition of sanctions in the form of attorney’s fees pursuant to Supreme Court Rule 375(b) for filing a frivolous and bad-faith appeal.
9. CONDOMINIUM ASSOCIATIONS; DEVELOPERS’ SURRENDER OF CONTROL
In a case which attorneys representing condominium associations against developers would do well to consider, the First District recently reversed the trial court’s determination that the developer had the right to grant easements after the control of the association had been turned over to the unit owners. LaSalle National Trust, N.A. v. Board of Directors of the State Parkway Condominium Association, (1st Dist., December 19, 2001), http://www.isba.org/1/1-00-2062.txt. The plaintiffs were unit owners who, after renovation and conversion discovered that the building’s electrical service was inadequate to provide power to their units. The building had already been turned over to the owners, but the developer nonetheless granted the plaintiffs nonexclusive easement to allow access to the existing electrical lines to provide them with electrical service. The easement provided that the unit owners would reimburse the Board for their power usage at the same rate paid by the Board plus 5% to cover the administrative costs. The plaintiffs then installed the necessary electrical equipment and paid the Board for their use at the industrial rate charged by Commonwealth Edison. Thereafter, however, the Board granted the plaintiffs a perpetual, nonexclusive easement for the electrical service from the common elements line, but the easement required the payment for service charged at the residential rate plus 5% administrative cost. Even though the Board paid for electrical power at the industrial rate, it demanded payment from the plaintiffs at the higher, residential rate, and the unit owners file suit for declaratory judgment. In reversing the trial court’s finding of summary judgment in favor of the unit owners, the First District found that construing the Condominium Property Act, Condominium Declaration and Bylaws as a whole, the developer no longer had a right to create easements after control of the property was turned over to the unit owners upon election of the first board of directors. The intention of the parties was that the control of the property would pass from the developer to the unit owners’ board upon election, and they would assume the powers formerly exercised by the developer. While the Declaration did grant the developer with easement rights, those rights were of limited duration for the purpose of construction and development and were extinguished once control was surrendered. "Finally, we are of the opinion that the provisions of the Act which require the transference of authority from the developer to the board of managers would be undermined if the developer were allowed to exercise the power to grant easements long after it ceased to have an interest n the property. See 765 ILCS 605/18.2."
10. CONDOMINIUMS: FORCIBLE ENTRY AND HOMESTEAD:
The Illinois Condominium Property Act, (765 ILCS 605/1 et seq.), specifically provides that in the event of a default by a unit owner in the payment of assessments, the association has the right to maintain an action for possession as set forth in the Forcible Entry and Detainer article of the Code of Civil Procedure; (765 ILCS 605/9.2; Article IX Code of Civil Procedure, 735 ILCS 5/9/101 et seq.) The Code of Civil Procedure, however, also provides for and governs the estate of homestead. In the recent case of Knolls Condominium Association v. Harms, (2nd Dist., November 26, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/2ndDistrict/November/Html/2000485.htm, Justice Geiger of the Second District opined on an issue of first impression relating to whether a condominium unit owner could assert her homestead as a defense to the association’s forcible entry and detainer action. Mary Harms’ assessments accumulated to $2,326.40, and the association filed a forcible entry against her. Judge Hollis Webster ruled that the estate of homestead does not constitute a defense to the action when Harms asserted that her homestead was a possessory right that cannot be divested by a forcible proceeding. In reversing, the Second District noted that Section 12-901 provides that "every individual is entitled to an estate of homestead to the extent of value of $7,500 of his or her interest in…a condominium…owned or rightly possessed by lease or otherwise and occupied by him or her as a residence’ and that the ‘homestead…is exempt from attachment, judgment, levy or judgment sale…except as provided in this Code…". Section 12-904 provides that a waiver of the homestead estate must be in writing and signed. Despite the fact that the Code of Civil Procedure specifically recognizes forcible entry and detainer as a remedy against unit owners who fail to pay assessments, ( See 735 ILCS 5/9-102(a)(7) and 735 ILCS 5/9-111(a) ), the Court’s interpretation was while that "the homestead statute specifies its own exceptions and one of the specified exceptions is the enforcement of a lien by a condominium association for the nonpayment of common expenses…" nonetheless, "The homestead statute does not provide for an exception to an estate of homestead with respect to a forcible entry and detainer action, including such an action brought by a condominium association".
Citing the principal of inclusio unius est exclusio alterius, (i.e., inclusion of one is exclusion of the other), Justice Geiger’s reasoning is that the legislature expressly made foreclosure of a lien by a condominium association an exception to the claim of homestead, (735 ILCS 5/12-903), but failed to create the same exception for a forcible entry and detainer, and therefore did not so intend; (i.e., making a distinction between a foreclosure action seeking to sell the unit to satisfy the lien, and a forcible action seeking possession of the unit based on the default.)
Justice Bowman dissented based on the result of the majority reasoning as producing "a statutory disharmony that the legislature could not have intended." Noting that the provision in the Forcible Entry and Detainer statute was added in 1972 with the "unique" and specific purpose of providing condominium associations with the remedy of eviction against a defaulting unit owner, which has resulted in "one of the better collection procedures found in any state", Justice Bowman does "not believe that where the legislature specifically provided for a procedure for evicting a unit owner who fails to pay her assessments, it then intended to eliminate this remedy by not specifically listing it in section 12-903 of the homestead statute as one of the exceptions to the applicability of an estate of homestead."
For the time being, it appears that attorneys presently using the forcible courts as a vehicle to collect assessments on behalf of their condominium associations should re-think this procedure; (….anyone need a foreclosure co-counsel?)
11. CONDOMINIUMS/HOMEOWNERS ASSOCIATIONS AND THE EFFECT OF DISSOLUTION:
In Scott v. York Woods Community Association, (2nd Dist., April, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/2ndDistrict/April/Html/2001319.htm, the pitfalls that result in allowing an incorporated homeowners association to be dissolved become abundantly clear. Harold Scott, Peter Spelson, and Timothy Mlsna brought an action to declare amendments to the declaration of the homeowners association invalid. The basis of their claim was an assertion that the current association was not the successor at law to the old association, and therefore could not amend its declaration. The old association was incorporated in 1963 pursuant to the "Declaration of Protective Covenants" recorded in 1962. The purpose of the association was to "insure high standards of maintenance and operation of all property in York Woods reserved by the Declarant for the common use of all residents…". The Declaration also provided for amending the covenants by a vote of ¾ of the owners during the first 10 years, and thereafter by a vote of 2/3 of the owners. In 1998, unbeknownst to the officers of the association, the Secretary of State dissolved the old association for failure to file a timely annual report. This was not discovered until 9 years later in 1997. In the interim, the association carried on business without regard to the dissolution. When the dissolution was discovered, the association’s attorney recorded new articles of incorporation. At the next annual meeting, the homeowners voted to approve the incorporation, but not by either 2/3 or ¾ vote. In the ensuing litigation, Mlsna contended that after its dissolution, the old association could only do what it needed to wind up its affairs, and this did not include a new incorporation. Accordingly, he argued, the association had thereafter been acting illegally on behalf of the homeowners. The association argued that the declaration required the homeowners to form a not-for-profit corporation, and that the association had acted in good faith for 9 years as an unincorporated entity and then merely "reincorporated".
Despite the fact that the "reinstatement by re-incorporation" did not occur within the statutory five year period required by 805 ILCS 105/112.45, the trial court held the new association property succeeded the old association and granted partial summary judgment in favor of the association. Scott and Spelson took the path that the incorporation of the new association with the approval of less than 2/3 of the homeowners did not ratify the new association by the vote required under the Declaration for amendments such as the formation of a new association. Again, the trial court ruled in favor of the association, finding that the re-incorporation was "mere formality" that did not require a 2/3 vote for approval.
On appeal the Second District reversed the trial court finding that the new association was not a valid successor to the old association because the re-incorporation was invalid. The Illinois Not-For-Profit Corporation Act requires that the association must obtain authorization "by the same procedure and affirmative vote of its voting members or delegates as its…fundamental agreement requires for an amendment …", and the articles of incorporation must reflect that the required vote has been obtained. (805 ILCS 105/102.35(a) ) Neither the requisite 2/3 vote or statement that the vote had been obtained occurred here, and therefore the "re-incorporation " was invalid. The "re-incorporation" was not a "mere formality".
The "lesson to be learned", of course, is to make certain that the homeowner’s association’s standing does not lapse at any time for fear of invalidating its actions on behalf of the owners.
12. DEMOLITION; DUE PROCESS AND CONSTITUTIONALITY:
In Village of Lake Villa v. Staokovich, (2nd Dist., October 29, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/2ndDistrict/October/Html/2000943.htm, the Second District has held the section of the Illinois Municipal Code (65 ILCS 5/11-31-1) that authorizes demolition of property which is dangerous and hazardous to the public health and safety unconstitutional. The first six pages of this nine page decision (as printed from the official Illinois Courts website), set forth a detailed and exhaustive recitation of the facts and testimony provided in support of demolition at the trial court. There is no question of fact that the property was rat-infested, without water service, plumbing, heat or electricity and generally in a dilapidated and deteriorated condition. Nonetheless, the trial court’s demolition order was reversed based on the fact that the statute does not provide the owner with an opportunity to repair the property and therefore is an unlawful taking without due process. The Second District opinion noted that the Supreme Court had previously declined to rule on the constitutionality of this particular section (5/11-31-1) in City of Aurora v. Meyer, (1967) 38 Ill.2d 131, but apparently had mandated the consideration "in the exercise of its supervisory authority directed us to vacate our affirmance of the judgment of the circuit court of Lake County ordering demolition and to address defendant’s claim that section 11-31-1 is unconstitutional." Taking up that task, the decision holds that Section 11-31-1 is unconstitutional because it (1) fails to allow a property owner a reasonable time within which to repair his property after receipt of a demolition notice, requiring repair of unknown conditions within 15 days, and (2) fails to provide a choice of repair to the owner based on the presumption that the municipality "may demolish" or "cause the demolition" of the property without offering the owner the alternative of repair. Citing the Supreme Court’s decision in City of Aurora v. Meyer that "The court should find from the evidence what the specific defects are which render the building dangerous and unsafe. If they are such as may readily be remedied by repair, demolition should not be ordered without giving the owners a reasonably opportunity to make the repairs", the Second District finds the statute does not provide the constitutionally mandated framework to provide that opportunity. Lacking that framework, the statute does not present the least restrictive means of protecting the public from unsafe buildings despite infringing upon a fundamental constitutional right of property ownership. California and Kentucky demolition statutes specifically provide that the owner of property determined to be unsafe shall have the choice of repairing or demolishing the structure within a reasonable and feasible time schedule, spending whatever it costs to bring the property into compliance with the local codes; "far be it from the City to say how a reasonable person should spend his/her money." (Does that include the cost of prosecuting these expensive appeals?)
How the Illinois Supreme Court will rule on this issue is not clear, but in the interim, it appears that all demolition actions based upon 65 ILCS 5/11-31-1 are currently constitutionally infirm.
13. EASEMENTS, ADVERSE POSSESSION AND QUIET TITLE ON PLATTED ROADWAYS:
Illinois District of American Turners, Inc. v. Rieger, et al., (2nd Dist., May, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/2ndDistrict/May/Html/2010008.htm, presents an overview of a controversy relating to roadway easements, adverse possession, and even a near 100 year old action quiet title in a dispute between cottage owners in a campground in McHenry County.
In June, July and August, 1915, N.B. Kerns purchased property on the Fox River in Algonquin, Illinois, and filed a plat of subdivision to create lots for sale in a recreational setting. On August 19, 1915, Kern filed a bill to quiet title in himself relating to this same land, and a judgment was issued in his favor in September, 1915. Thereafter, Kerns sold 10 of the lots to the predecessors of the Defendants in this action. Then, in 1919, Kerns sold the remaining 40 acres of land, but specifically excluding these 10 lots to the predecessors of the Plaintiffs in this case. The plat created by Kerns provided for four platted roadways; Park Way, Ridge Avenue, Oak Lane and Hill Crest Avenue. These roads were never dedicated to the public and not entirely developed. Plaintiff then developed the 40 acre parcel as a campground ("Turner Camp") for its members and promulgated rules relating to use. The rules do not affect the original 10 lots as outside of the Plaintiff’s ownership, although the owners of those lots were also members of the Turner Camp. Over the years, the Defendant refused to abide by rules promulgated by the Camp relating to the roads adjacent to their property by parking their vehicles along the road in front of their lots rather than in designated parking areas and one owner widened and paved the portion of Ridge Avenue in front of his lot for better parking and erected a "private parking" sign. In 1996, members of the camp formed the Kerns Subdivision Roads Association to foster access and use of the roads, parking and improvement of Ridge and Park Avenue, with an ultimate goal of paving the roads and qualifying them for maintenance by the township. In December of 1996, Plaintiff filed a declaratory judgment action seeking a finding that (1) the uninstalled roadways depicted on the N.B. Kerns Plat of subdivision had been abandoned and extinguished by adverse possession, (2) that Defendants had no easements or other rights in the uninstalled roadways, and (3) that Plaintiffs own the property on which the uninstalled roadways are depicted in the plat. The Defendants counterclaimed for declaratory judgment finding that (1) they had the right to improve and develop Ridge Avenue as depicted on the plat, (2) the roadways depicted on the plat shall be open for use of the public, and (3) Plaintiffs have no right to control or restrict access or improvement of the roadways. The trial court granted declaratory judgment in favor of Defendants on all counts of their counter-complaint and against Plaintiff on their complaint. The Second District affirmed.
One of the more interesting arguments of Plaintiff that was rejected related to the quiet title action brought by Kerns in 1915 after the recording plat of subdivision. The Plaintiffs argued that the quiet title action extinguished the plat of subdivision he had recorded only days earlier. The court disposed of this argument by reference to the basics of the law relating to quiet title actions. The proceeding is an action by a party that seeks to remove clouds on title imposed by liens which are unfounded and place title in doubt. A plat, however, which is a valid lien is not a cloud, and there was no adverse claim to the Kerns title. Accordingly, the bill to quiet title did not extinguish the plat roadways.
Likewise, the Court affirmed the trial court’s finding that the easements were not extinguished by adverse possession. The Plaintiffs were unable to prove that their use of the property was exclusive as a required element of adverse possession. "Any sort of joint possession with the owner is not sufficient to support title by adverse possession." The owner must be wholly excluded from possession by the claimant for the stated period. There was no exclusion of the Defendants, and they even maintained and developed the roads over the years, using them against the Plaintiff’s wishes and parking where they chose. Finally, noting that the owner of a roadway easement has the right to fully enjoy the use as long as there is no interference with the landowner’s use of the land, the court stated that the user has the right to use the entire width of the way, cut and trim trees, and grade the road in such a way as to make the necessary improvements to facilitate the use. For these reasons, the Plaintiff’s counts for negligence, gross negligence, and private and public nuisance relating to the removal of trees and shrubs in maintaining and improving the roadways were also dismissed. "It cannot be seriously questions that such an easement carries with it the right to enter upon any party of the way and improve it in a manner to render it available for its contemplated use, if in so doing there is no unreasonable interference with the co-owner’s rights."
14. EMINENT DOMAIN; GOOD FAITH NEGOTIATION REREQUISTE:
The City of Naperville appealed an Order of the Circuit Court of DuPage County dismissing its condemnation action in City of Naperville v. Old Second National Bank of Aurora, (2nd Dist., February 7, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/2ndDistrict/February/Html/2001482.htm. The issue was whether the trial court erred in dismissing the complaint based upon its finding that the City did not make a bona fide attempt to reach an agreement with the owners on the amount of compensation to be paid. Section 7-101 of the Code of Civil Procedure relating to condemnation actions provides that "private property shall not be taken or damaged for public use without just compensation, and Section 7-102 provides that a condition precedent to the exercise of the power is an attempt to reach agreement with the owners on the amount of compensation to be paid. (735 ILCS 5/7-101, 102). The subject premises here were adjacent to the DuPage River in Naperville, and sought to be acquired for improvements along the Naperville "River Walk". The property had been listed for $634,000 based upon a review of comparable property and using the income approach by a Realtor, and the City of Naperville had obtained an appraisal of $500,000. The City initially offered $200,000 for the property, and justified its offer with its concerns that there would be demolition costs and potential for environmental clean-up, but nonetheless included a due diligence contingency in its offer. The owners rejected the offer. The City Council approved condemnation, but also directed that negotiations continue. The City made two further offers of $325,000 and $425,000 with the same contingencies. This all played out against a backdrop of partnership litigation in Kane County between the owner-partners to wind-up the partnership, and an offer to purchase at $550,000 and $590,000 by a third party. This offer was presented to the Court in the partnership litigation for approval, but approval was denied when one of the partnership owners exercised a first right of refusal on the same terms and price.
The Second District affirmed the trial courts’ finding that the City, knowing there was litigation pending and difficulties between the owners, had an obligation to at least offer the appraised value of the property where there was no contradictory indication of value in order to comply with the good faith negotiation requirement. Noting that the nature of the negotiations between a condemning body and a private owner is intrinsically different than an arms length transaction in the marketplace, (i.e., an owner in condemnation does not have the luxury to simply walk away from an unacceptable price because if the owner does not agree to the offer made, he must absorb the cost of defending the ensuing condemnation proceedings), the Court held that "It is for this reason that the condemning authority must make a good-faith effort to negotiate prior to filing suit." The decisions notes that most cases clearly indicate a good faith effort where the condemning body offers the appraised value, and that in the only case discovered where the appraised value was not offered, the court had found the government had not negotiated in good faith. The burden of proof is on the government, and the arguments that the owners did not counteroffer and the City was under an obligation to the taxpayers to acquire the property for the lowest possible price were both rejected.
15. EMINENT DOMAIN; GOOD FAITH NEGOTIATION AND 60 DAY NOTICE PRIOR TO CONDEMNATION:
In the prior decision in City of Naperville v. Old Second National Bank of Aurora, (2nd Dist., February 7, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/2ndDistrict/February/Html/2001482.htm, the Second District held that the good faith negotiation requirement was not met where the condemnor offered only $425,000 for property which its own appraisal indicated had a value of at least $500,000. The Second District then added another, similar case decision in this area with DOT v. 151 Interstate Road Corporation, (2nd Dist., May, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/2ndDistrict/May/Html/2010870.htm. In the trial court, the Defendant-owners of the property sought to be condemned filed a traverse and motion to dismiss the Condemnation Complaint on jurisdictional grounds alleging that the DOT had (1) failed to negotiate in good faith as a statutory pre-condition to the filing of the complaint, and (2) not provided 60 days notice prior to filing the complaint after making an amended offer of settlement to the owners. The appeal was taken on an interlocutory basis pursuant to Supreme Court Rule 307, contesting the Plaintiff’s authority to condemn.
Noting that "It is well established that good-faith negotiation by the condemnor is a condition precedent to the exercise of the power of condemnation", the Second District opinion finds that whether the condemnor’s conduct constitutes negotiation in good faith is within the jurisdiction of appeals under Rule 307.
This particular condemnation deals with the taking of property on the corner of Lake Street and Addison Road in Addison, Illinois necessary to widen Lake Street. The appraiser employed by IDOT concluded that the property had a value of approximately $10.00 per square foot. Based on this valuation, the IDOT negotiator sent a "final offer" letter to the owners informing them of the proposed compensation, that IDOT was willing to continue to negotiate, that in the absence of an agreement, it intended to begin condemnation, and acknowledged that it could not begin litigation for a 60 day period following the final offer being tendered. (735 ILCS 5/7-102.1) Within the 60 day period, the owners contacted the IDOT negotiator, advised him that they were obtaining an independent appraisal and would not be able to respond to the final offer letter within 60 days. Thereafter, the IDOT negotiator sent a second offer letter to the owners with a revised offer that reduced the area of the property to be taken and reduced the compensation offered accordingly. No "final offer letter" was sent relating to this revised offer. The owner’s appraiser valued the property at $20.68 per square foot, (twice that of the IDOT appraiser), and based thereon, the owners made a counter-offer in writing. IDOT did not respond to this counter-offer, but filed its complaint 56 days after sending its revised offer.
At the evidentiary hearing in the trial court, numerous issues were raised relating to the IDOT appraiser’s opinion of value, and that value was contradicted by the owner’s appraiser.
In an opinion that begins with a good overview of the procedural aspects of condemnation cases and holds that the proper vehicle to challenge an agency’s right to condemn is a traverse and motion to dismiss, the Second District restates it prior holding in City of Naperville that good faith and bona fide negotiations are a pre-condition to filing the condemnation action. Finding that IDOT’s failure to respond to the owner’s counter-offer was not sufficient in and of itself to demonstrate an absence of good faith, the Court nonetheless found IDOT’s reliance on a "suspect appraisal, particularly in light of its "one-offer" method of negotiating, demonstrates IDOT failed to make a good faith attempt to reach an agreement…". Based on the fact that there were various "defects and inconsistencies" in IDOT’s appraisal, the decision finds that IDOT’s reliance on that report in making its offer demonstrates a lack of good faith negotiating, and that the owner’s appraisal of the property at twice the square footage in value "should have caused IDOT to scrutinize its own actions in this matter.". "IDOT’s reliance on a patently suspect appraisal shows a lack of good faith". Finally, the Court held that the owners were entitled to a full sixty day period to consider the revised offer received by IDOT, and the filing of the complaint only 56 days thereafter was premature. The case was reversed and remanded to vacate the order vesting title, fixing compensation, and most importantly "to address the issue of defendant’s fees and costs as provided in the Act."
16. EMINENT DOMAIN; HIGHEST AND BEST USE, FUNDAMENTAL FAIRNESS & MOTIONS IN LIMINE:
"In eminent domain cases, the only question for the jury to decide is the just compensation owed to the owner of the property to be condemned." So begins the decision in City of Quincy v. Diamond Construction Company, (4th Dist., January 16, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/4thDistrict/January/Html/4010328.htm where the issue was whether a second appraisal obtained by the City could should have been excluded by the trial court based on a motion in limine. The City of Quincy first indicated its intent to condemn the asphalt plant owned by Diamond Construction Company as part of its plan to extend 18th Street in September 1997. The taking would divide the property into two separate parcels, and the remaining property could not be used as an asphalt plant thereafter. Diamond, concerned that it would be required to move during the regular construction season, began communicating with the City on a regular basis to determine how to best accomplish its relocation. Two years later, in December 1999, Diamond received a letter offer of $462,000 from the City. The City had an appraisal of the entire parcel at $1,300,000, which indicated that the highest and best use of the property was as an asphalt plant, and that after division into two separate parcels, the property would no longer be suitable for that use. Diamond began the relocation process in order to survive the move and determined that it would take approximately one year to obtain machinery and set up a new plant. Throughout the winter, Diamond attempted to negotiate reimbursement for its relocation expenses and a low-interest loan from the City to no avail. On April5, 2000, Diamond formally rejected the City's offer of $462,000.
On April 6, 2000, the City filed a condemnation action to acquire the plant. In the process that followed, Diamond received a second appraisal from the City by the same appraiser, but dated on the filing date of the Complaint, listing the highest and best use of the property as vacant industrial land rather than an asphalt plant, and stating that $220,000 was the value of the entire tract, with $111,000 being just compensation for the taking. Diamond filed a motion in limine to exclude the second appraisal. The trial court granted the motion, finding that "fundamental fairness dictated the highest and best use of Diamond's property would be limited to that of an asphalt plant as in the City's first appraisal and before Diamond began its relocation process." Diamond's appraiser testified that the value of the entire parcel was $1,985,000, and the jury awarded a total of$1,558,640 to Diamond. The City appealed, contending that the trial court erred in granting the motion in limine.
Noting that " A trial court has broad discretion to grant or deny a motion in limine as part of it inherent power to admit or exclude evidence.", and will not be reversed absent a clear abuse of discretion, the Forth District affirmed. While the statute (735 ILCS 5/7-121) provides that just compensation is the value of the property at its highest and best use on the date of filing of the complaint to condemn, highest and best use is also the property's current use or any future use that may be anticipated with reasonable certainty. Moreover, Diamond had detrimentally relied upon the City's first appraisal and offer when it began its efforts to relocate and dismantled its asphalt plant. Accordingly, the City could not assert that the highest and best use was thereby rendered to be a vacant industrial site at only a fraction of the previous value. Diamond was required to act in order to assure the survival of its business, and the trial court's determination of fundamental fairness "did not contradict the well-settled rules of eminent domain law, i.e., the date of valuation is to be was determined on the date the condemnation complaint is filed", or undermine the principal that differences in opinion as to highest and best use and value are questions of fact for the jury.
17. GUARANTY; APPLICATION OF PROCEEDS :
In Emrick v. First National Bank of Jonesboro and Scott Wilkins, (5th Dist., September 18, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/5thDistrict/September/Html/5000434.htm, Mildred Emrick filed suit against the First National Bank of Jonesboro for breach of guaranty based upon the Bank’s application of the proceeds of the sale of collateral. In 1992, Emrick Trucking, which was owned and operated by Mildred’s son, Jeff Emrick, borrowed $421,000 from the Bank to consolidate debts. The Bank took a security interest in several trucks and other equipment in the event of a default, but also required Mildred to personally guaranty the loan upon to $150,000. To that end, she signed a guaranty, to which only she and the Bank were parties, secured by a mortgage upon her home. In 1994, Emrick Trucking borrowed an additional $30,000 from the Bank for operating expenses by an unsecured loan and to which Mildred was neither a party nor a guarantor. Thereafter, Emrick Trucking defaulted on both loans. The trucks, trailers and equipment pledged as collateral were sold by Jeff Emrick and the proceeds of $343,000 were tendered to the Bank and applied to reduce the debt. In the process of reducing the loan, the Bank applied the first $30,000 to the unsecured note, leaving a balance of $108,000 remaining from the total debt of $451,000. The Bank then instituted foreclosure proceedings against Mildred’s home to collect the deficiency. Mildred paid the balance and the foreclosure case was dismissed, but she then brought this action against the Bank, alleging that by paying the unsecured, $30,000 loan first, the Bank increased her risk and thereby released her guaranty. The Bank countered by arguing that the language of the first loan security agreement gave it the right to apply the proceeds form the sale of the collateral to "all other additional indebtedness or liabilities" of Emrick Trucking, and that the payment of the $108,000 by Mildred constituted an accord and satisfaction.
The trial court granted the Bank’s motion for summary judgment, and the Fifth District reversed, finding that because Mildred was not a party to the first loan security agreement containing the all-inclusive language, (she only signed the guaranty), and therefore the Bank could not increase the amount for which she was responsible by application of the proceeds to the second loan before it reduced the balance of the first loan. Noting that the agreement allowing the application of proceeds as the Bank saw fit is perfectly appropriate between the parties to the agreement under the UCC, (810 ILCS 5/9-204(2)(c) ), the Court nonetheless rejected the argument that Mildred could be bound by a "dragnet" clause in an agreement to which she was not a party. While there was language in the guaranty that Mildred signed indicating that "Indebtedness may be created and continued in any amount, whether or not in excess of such principal amount, without affecting or impairing the liability of …[Mildred] hereunder", the Court found in Mildred’s favor based on the rule requiring strict construction of a guaranty language where the impact is to vary or extend liability of the guarantor. Noting that the UCC provides that a guarantor to a secured party becomes subrogated to the Bank’s rights and duties relative to the collateral pledged, (810 ILCS 5/9504(5) ), the decision also holds that Mildred became subrogated to the Bank’s rights in the trucking company’s collateral and therefore it could not impair her rights by application of the proceeds. Finally, finding that there was no "meeting of the minds relative to having the intent to compromise", the Court rejected the Bank’s argument relating to an accord and satisfaction.
18. HABITABILITY (IMPLIED WARRANTY); THE MAGIC WORDS AND DISCLAIMER IN NEW CONSTRUCTION:
In Board of Managers of the Village Centre Condominium Association, Inc. v. Wilmette Partners, (Il. S. Ct., November 21, 2001), the Board brought suit against the builder for breach of the implied warranty of habitability. The complaint alleged that design and construction defects in the concrete garage floor left it unable to support the weight of vehicles, in danger of collapse, and unfit for use by the unit owners for its intended purpose under a stated cause of action for breach of the implied warranty of habitability. The builder filed a motion to dismiss pursuant to 735 ILCS 5/2-619(a)(9) citing disclaimers contained in the contracts for sale which specifically excluded the "warranties of fitness for particular purpose and merchantability". The trial court dismissed the Board’s complaint and the First District affirmed. The Illinois Supreme Court granted leave to appeal and reversed by Justice Thomas’ opinion.
The basis of the decisions in the trial and appellate district court were their interpretations of the Illinois Supreme Court’s language in the 1979 case of Peterson v. Hubschman Construction Co., (1979), 76 Ill.2d 31. In that case, the Court first recognized the implied warranty of habitability in contracts for the sale of new homes by builder-vendors in order to reduce the impact of caveat emptor and the doctrine of merger in new construction. Noting that the use of the term "habitability" was "unfortunate because that term implied that the warranty was satisfied where a house merely was capable of being inhabited.", Justice Thomas explains that "in order to clarify the implied warranty of habitability, we stated that the meaning of habitability in the context of a new home purchase might be more accurately be conveyed through language similar to that used in the Commercial Code warranties of merchantability or of fitness for a particular purpose." This did not mean, however, that these warranties (merchantability, fitness for particular purpose, and habitability), are "interchangeable". "Given that the implied warranty of habitability is distinct from other warranties by its very nature, we find any disclaimer that does not reference the implied warranty of habitability by name is not a valid disclaimer of that warranty. Consequently, because the disclaimer in this case did not refer to the implied warranty of habitability by name, that disclaimer was not effective to waive the warranty." The decision concludes with some (sort of) direction to those who would know how to draft the "magic words" by reference to the disclaimers published by the Chicago Bar Association in its article, The Waiver and Disclaimer of the Implied Warranty of Habitability, by T. Homburger, Chi. B. Rec. 364, Appendix I (May-June 1984), and as discussed in the case of Breckenridge v. Cambridge Homes, Inc., (1993), 246 Ill.App.3d 810, 813-14, as those which would "clearly identify the implied warranty of habitability, set forth the consequences of waiving the warranty, and establish that the disclaimer was the agreement of the parties."
19. JUDGMENTS AND ENFORCEMENT; TRUSTS AND PROBATE:
While the decision and facts in The Society of Lloyd’s v. Estate of John William McMurray, (7th Cir., December 11, 2001), http://www.ca7.uscourts.gov/op3.fwx?submit1=showop&caseno=01-1965 , may have little to do directly with real estate, the case is interesting from a number of points of view, (i.e., the explanation of the relationship between Lloyds of London and its "Names" post-9/11 alone is worthwhile), and is included here because so many real estate practitioners deal with trusts that have language similar to that which formed the crux of the decision in this case.
Lloyds obtained a money judgment against John McMurray for approximately a million dollars. While the suit was pending in England, McMurray died, but not before transferring substantially all of his assets into a revocable trust naming himself as the sole beneficiary and trustee. Lloyds registered its foreign judgment in the Northern District of Illinois just weeks after two years following McMurray’s death, and filed a citation to discover assets against Harris Bank as the executor of his estate and successor-trustee of the trust. The Magistrate found the English judgment valid and enforceable. The Citation against the estate was quashed because it was filed after the two year period for claims in the Illinois Probate Act, 755 ILCS 5/18-12(b). The Motion to quash the citation against the trust, however, was denied and a turnover order entered in favor of Lloyds and against the trust.
The trial court held that the trust assets were not part of the estate of McMurray, and therefore subject to the seven year limitation period for enforcing foreign judgments, (735 ILCS 5/12-620), rather than the two year claim period. Noting that the Illinois statutes provide broad authority for courts to permit discovery and then compel the turnover of assets, (735 ILCS 5/2-1402), the Seventh Circuit affirmed Judge Manning, finding that although the judgment was no longer enforceable against the estate, it could be enforced against the trust. The trust clearly provided, (in what is ‘standard language’ customarily included by drafters), that at McMurray’s death "the trustee shall pay from the residuary trust estate without reimbursement my legally enforceable debts." The Lloyd’s judgment was a "legally enforceable debt" upon entry in the English Courts. The trust did not require that collection efforts be undertaken before payment, but simply "directed the trustee to pay McMurray’s debts. It did not instruct the trustee to wait until McMurray’s creditors sued to collect. Nor did it instruct the trustee to hide behind legal technicalities in an attempt to avoid paying valid debts…This is not a situation in which a long-lost creditor seeks to enforce a forgotten debt years aft the decedent’s death, compromising the State of Illinois’ interest in swift resolution of the decedent’s affairs. Harris simply seeks to evade a valid debt of which it had prior and timely notice."
(How many of you are thinking about the last trust agreement you wrote, right now?)
20. LAND DEVELOPMENT; MUNCIPAL IMPACT FEES:
In a case certain to be of interest to real estate developers, Thompson v. Village of Newark, (2nd Dist., May, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/2ndDistrict/May/Html/2010542.htm, the Second District held that the ordinance assessing developmental impact fees for school construction was not authorized by statute and unconstitutional. The Village of Newark was non-home-rule municipality which passed an ordinance imposing school impact fees on new developments within the village when faced with rapid residential development in 1995. Thompsons owned a lot in the village an attempted to obtain a permit to build a single family residence. They were assessed fees totaling $3,924.54 by the village, which they paid and then brought this suit. In reversing the trial court’s decision in favor of the Village, the Second District notes that non-home-rule villages have only the powers specifically granted to them, and any exercise of a power outside of the Municipal Code, (65 ILCS 5/11-12-5), is void. The Municipal Code does provide that a village can implement ordinances relating to "school grounds", but held that this does not include the cost of the construction of improvements on the land. Citing the definition of "grounds" and noting that "Development exactions, or impact fees, are one of the most innovative and potentially burdensome mechanisms for funding public facilities made necessary by increased local growth…However the use of such funding devices remains quite controversial…subject to the criticism that, among other things, they ultimately drive up the cost of housing and unfairly burden newcomers to the area with providing public facilities for the entire community.", the Court held the ordinance invalid. The decision makes an interest distinction between "permissible and forbidden requirements" imposed upon developers: "the municipality may require the developer to provide the streets which are required by the activity within the subdivision but can not require him to provide a major thoroughfare, the need for which stems from the total activity of the community."
21. LAND TRUSTS AND CITATIONS TO DISCOVER ASSETS:
In Schak v. Blom, (1st Dist., September 25, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/September/Html/1011196.htm. Shak sought to collect on a judgment rendered against Blom by filing a supplementary proceeding under Section 1402 (735 ILCS 5/2-1402) against Chicago Title Insurance Company as Trustee under a land trust. The res of the land trust was the title to real estate which had at one time been the subject of an installment agreement to purchase between Blom and Cathy Riehs-Vlad whereby Blom was purchasing and Riehs-Vlad was selling. Prior to the service of the citation against Chicago Title, Riehs-Vlad declared a default under the contract, Blom vacated the property and assigned any interest he had in the land trust to Riehs-Vlad to resolve the default. Shortly after filing the third party citation against Chicago Title, Shak discovered there was a pending sale of the property by Riehs-Vlad, and filed an emergency motion to stop the sale or block the transfer of the proceeds, and the Court entered an order directing that a sum sufficient to satisfy Shak’s judgment be held in escrow with the title insurer at the closing. Shak then filed a motion to turnover the funds held in escrow. After the funds were turned over, Riehs-Vlad filed a motion to quash the turnover based on the fact that Blom had no interest in the property from which the citation could be satisfied and that she had not been served with notice of the motion for turnover.
The trial court granted the motion to quash, and the First District affirmed, giving us a good opinion setting forth the law on supplementary proceedings and land trust law.
When a debtor has an interest in a land trust, a citation to discover assets under Section 1402 served on both the trustee and the debtor creates a lien on any interest held the debtor in the land trust, and stays any disposition or distribution from the trust. While the beneficiary is the holder of equitable title, the trustee, as the holder of legal title, has power to direct the sale or transfer of the trust assets upon an order of the Court. Only if the third party (here the trustee) has assets of the debtor, however, can the Court enter a judgment against the third party in the supplementary proceedings. The jurisdiction of the Court is dependent upon the petitioner’s proof that the citation respondent (third party) has possession of assets of the debtor, and the burden is that of the petitioner. Here, the petitioner did not show that the debtor had an interest in the land trust, and therefore the Court lacked subject matter jurisdiction because the land trustee did not have possession of an asset of the judgment debtor. Accordingly, the turnover order was void. Moreover, the attorney’s fees incurred by one establishing rights in funds which are the subject of a "wrongful garnishment" are recoverable damages, and the Court granted attorney’s fees and interest on the funds turned over during the period of retention to Riehs-Vlad.
22. LANDLORD/TENANT: AMENDMENT, NOVATION, REAFFIRMATION AND REVIVAL OF A "GOLD CLAUSE":
In Nebel, Inc. v. The Mid-City National Bank of Chicago, (4th Dist. March 21, 2002) http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/March/Html/1011309.htm, the Court was confronted with interpreting not just a 99 year lease, but one with a clause that provided that the rent was to be paid in gold.
The lease began on May 1, 1906 and terminates on April 30, 2005. The monthly rent was $1,090 until 1911, and then increased to $1,333.33 and 1/3 cents until expiration; all payable "in standard gold coin of the United States, of not less than the present weight and fineness…twenty three and twenty-two hundreds ( 23-22/100s) grains Troy weight for each dollar." In 1933, the United States Congress passed a resolution (31 USC Section 463) that made all obligations requiring payment in gold unenforceable. In 1977, that resolution was amended to allow the enforcement of gold clauses…for obligations issued after October 27, 1977. Therein lay the "rub".
The subject lease was assigned four times from one lessee to another, and in 1976 the defendant, Mid-City National Bank became the tenant. In 1984, the Plaintiff, Nebel, Inc., purchased the property and became the lessor. Negotiations between the Plaintiff and Defendant ensued during 1988 in which the bank indicated it wanted Plaintiff to consent to its construction of pedestrian walkway from its parking lot and drive-thru banking facility to the west on to the property. The owner’s attorney drafted a "Lease Amendment" permitting the walkway construction, included Mid-City Bank as a party to the agreement, "reaffirmed" all of the provisions of the 1906 lease, provided that the bank would maintain the walkway and pay taxes on the improvement, indemnity the lessor for any loss related to the walkway or construction, and provided for reimbursement of the lessor’s expenses and costs in negotiating the Lease Amendment. The parties did not address the "gold clause".
On September 16, 1998, Nebel made a written demand upon Mid-City for payment "in gold coin, as provided by the lease". Defendant refused to pay in gold and Plaintiff brought a declaratory judgment action.
The central issue before the trial court was whether the Lease Amendment resulted to a new obligation "issued after October 27, 1977". The trial court found that no new obligation was undertaken by the Defendant after October 27, 1977, and therefore there was no novation that would allow the enforcement of the gold clause as one issued after that time, granting summary judgment in favor of Defendant. On appeal, the Plaintiff argued that the Lease Amended created new obligations as of that date, and therefore the gold clause was once again enforceable. Defendant argued that the language in the Lease Amendment that "all terms and provisions are reaffirmed and not modified by an amendment" is not tantamount to a novation reviving the gold clause under the federal regulation.
Surprisingly, there are cases which have held deal with and held that post-October 27, 1977 novations of a lease created a new contract-- rendering the gold clause enforceable. This case, however, is the first instance of a Lease Amendment being put forth for that position. The Court was required to determine the intent of the parties. The fact that there is a change in the terms of an agreement does not necessarily result in novation. The changes "must effect a material alteration of the parties rights and obligations before it can be said that the parties intended a new contract or agreement." In this case, the changes in the Lease Amendment were material to the parties’ contractual duties and obligations, and therefore the constituted a novation. The lessee was building a new walkway, insuring it, paying taxes on it, indemnifying the lessor and paying its attorney’s fees and costs, and being formally named in the agreement. "These changes significantly and materially altered the existing rights and obligations of both parties.", and therefore the Lease Amendment was a new obligation entered into after October 27, 1977 that revived the gold clause.
(Makes you wonder if the attorneys were really ‘asleep at the switch’, or trying to ‘out-smart’ each other, doesn’t it?)
23. LANDLORD/TENANT; DUTY TO MAKE REPAIRS AND THE VOLUNTARY UNDERTAKING THEORY OF LIABILITY:
You can’t help but wonder if the outcome would have been different had the landlord/defendant not been the Chicago Housing Authority, but McCoy v. The Chicago Housing Authority, (1st Dist., August 19, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/August/Html/1012937.htm, nonetheless sets forth some excellent law on the liability of a landlord for injury to a tenant based on failure to make repairs.
Tewanda McCoy was five years old when she fell seven stories from the window of the CHA apartment she lived in with her mother, Edna Jones. In her suit against the CHA, the mother alleged that it negligently caused her daughter’s injuries by failing to repair the window locks in the apartment. When she moved in, Edna Jones filled out a report complaining of the absence of window screens and locks on the windows. The CHA workmen "only came out one time to plaster the hole in the wall and around the bathroom. That was it. They didn’t come out for my windows and it was the main thing I need(ed)…" She then went to the building office at least once a month, and was told on several occasions that the CHA workman would come out to do the repairs. No one ever came. After a few months, she continued to complain, and then was advised that the CHA would not be able to make repairs because they had laid off workers and did not have any repairmen available. At the trial, a sworn statement from a former CHA employee was presented stating that there were several complaints requesting window locks be replaced or repaired, and "It was common knowledge to the staff at 5041 S. Federal that the window locks were bad."
The trial court granted the CHA’s motion for summary judgment, finding that it did not have a duty as a matter of law to prevent the injuries to Tewanda by making repairs to the window. The First District opinion by Justice Theis, concurred by Justice Hoffman and Hartman, affirmed the trial court.
Landlord/tenant law applied regardless of the fact that the CHA is the landlord. Under those principals, where the landlord retains control of a portion of the leased premises, it has a duty to use ordinary care in maintaining the safe condition of those premises. On the other hand, where the leased premises are in control of the tenant, the landlord has no duty to maintain or repair the portion under the tenant’s control. An exception occurs, however, where the landlord voluntarily undertakes to maintain or repair. The theory of voluntary undertaking requires both action by the landlord and reliance by the tenant so that the tenant forgoes other remedies or precautions against the risk presented by the condition of the property. Here, as in the prior case of Vesey v. CHA, the tenant failed to produce evidence of any reasonable expectation or reliance on the CHA to make repairs. Over a course of several years, the CHA failed to make the repairs requested, and as late as a month prior to the accident, a CHA official told Ms. Jones that there were no repairmen available to do the work. The Restatement (Second) of Torts, Section 324A also makes an increase in the risk that worsens the plaintiff’s position an element before liability will be imposed under the theory of voluntary undertaking. There was no "consistent practice of making repairs" upon which to rely, and any reliance under the circumstances would have been unreasonable. There was no promise by the CHA to repair that would have induced Ms. Jones to forgo other remedies such as fixing the window lock herself, getting someone else to fix it, or finding other housing, and the CHA did nothing voluntarily that increased the risk further. Without evidence of the existence of a duty and no evidence to support a voluntary undertaking or a reasonable reliance thereon, summary judgment in favor of the CHA was affirmed.
24. LANDLORD/TENANT: FIRE LOSS, INSURANCE AND TENANT LIABILITY:
In Towne Realty v. Shaffer, (4th Dist., 6/28/2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/4thDistrict/June/Html/4010591.htm, the Court was confronted with a suit by the Landlord against the Tenant to recover for property damage in an apartment caused by the tenant’s negligence in handling a lit candle or oil lamp that resulted in a fire. The lease was drafted by the landlord for a three month period and specifically included a "yield-back" provision that the tenant was to keep the apartment in good order and repair and yield up the premises in good condition and repair, ordinary wear and tear excepted. The lease also provided the tenant would be responsible for any damage except as is caused by normal wear and tear. There was no specific provision for responsibility in the event of damage by fire during the term of the lease. When the fire occurred, the Landlord filed suit for $671,463.95, alleging that the Tenant acted negligently and was responsible under the lease terms. The Tenant filed a motion to dismiss arguing that the intent of the parties under the lease was that the Landlord would maintain fire insurance upon the premises and should be limited to recovery under the policy. The Fourth district affirmed the dismissal and finding by the trial court that the Tenant was a co-insured under the Landlord’s policy and the Landlord failed to state a cause of action.
Looking to the "seminal case, Cerny-Pickas & Co v. C.R. Jahn Co., (1955), 7 Ill.2d 393, 131 N.E.2d 100, where the Illinois Supreme Court rejected "the construction urged by the lessor (because) it would be necessary for both parties to the lease to carry fire insurance if they are to be protected. The lessee would have to insure against fires due to his negligence, and the lessor against fires due to other causes.", the Fourth also noted "The ancient law has been acquiesced in, and consciously or unconsciously, the cost of insurance to the landlord, or the value of the risk, enters into the amount of rent." The presumption then, is that the landlord undertakes the obligation to obtain insurance and factors the cost of the premium into the rent charged. If the landlord’s policy were to exclude negligent acts of the tenant, the tenant’s only method of protecting himself would be to obtain a separate policy insuring against his own negligence. Customarily, insurance policies cover both accidental and negligent loss, and nothing in the lease here indicated that the parties presumed otherwise or intended the tenant be liable for any fire loss. The tenant presumes to contribute to the payment of insurance premiums by payment of rent, and to conclude otherwise would defeat the reasonable expectations of the parties. Therefore, under the instant lease, even though no mention was made relating to liability for loss due to fire, standard custom and usage would lead to a reasonable person to believe that the Landlord’s coverage would negate any intention to recover from the tenant. The provision in the lease that the Tenant would not do anything which would increase the risk of loss or increase the amount of premiums also was indicative of the intent of the parties that insurance proceeds were the source of recovery. Finally, "Where a landlord has drafted the lease, a court will not impose a responsibility upon the tenant unless the circumstances and the contract clearly indicate that the tenant intended to assume such responsibility…Prospective tenants ordinarily rely upon the owner of the dwelling to provide fire protection for the realty (as distinguished from personal property) absent an express agreement otherwise."
Justice Cook dissented. He reasoned that since both the maintenance-of–the-premises clause and the yield-back clause in the lease provide that the Tenant shall be responsible for any damage to the premises except that caused by ordinary wear and tear, fire damage must have been intended by the parties to be the responsibility of the Tenant; i.e., it is neither ordinary wear or tear for property to burn to the ground. Further, "Making individuals responsible for the damage they cause encourages individuals to act carefully. We should be cautious in destroying that incentive." Justice Cook notes that "if there were no insurance here, if this were simply a suit between the landlord and the tenant, the tenant would clearly be liable. There is no justification for changing that result when the parties have purchased insurance."
25. LANDLORD TENANT; OPTION TO PURCHASE & DEFAULT:
A case dealing with the rights of the tenant to exercise an option to purchase in the lease and a declaration of breach, Wolfram Partnership, Ltd. V. LaSalle National Bank, (1st Dist., December 19, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/March/Html/1002202.htm, offers some insight into the interrelationship between exercising an option and defaulting on a lease. The particular lease permitted subletting, but had a requirement that the tenant provide the landlord immediate written notice of any sublease. (It also required the tenant maintain insurance which adequately protected the landlord.) In the event of a default, the tenant was given an opportunity to cure within 30 days of receipt of notice from the landlord. A rider to the lease also gave the tenant the option of renewing the lease for a five year period, and an option to purchase during the original lease term and renewal period. The property was sublet by the tenant on a number of occasions over a number of years without written notice to the landlord. The tenant then notified the beneficiaries of the trust of an intent to exercise the option to purchase. The option required that the full purchase price of $250,000 be deposited in escrow. The tenant only deposited $50,000, but correspondence suggested that the parties may have agreed to this lesser sum provided that the deposit was non-refundable. Title and survey were ordered and a closing date set. Prior to the closing, however, the beneficiary notified the tenant of the breach of the lease for failure to give notice of the sublease and provide adequate insurance, and asserted a default. The tenant deposited the balance of the purchase price in escrow, and when the landlord refused to close, the tenant brought this action for declaratory judgment that it had materially complied with its obligations under the lease and had properly exercised its option. The landlord counterclaimed for declaratory judgment that the tenant had breached the lease and for forcible entry and detainer. Both parties moved for summary judgment.
The Appellate Court reversed in part and affirmed in part the trial court’s grant of summary judgment in favor of the landlord, finding that there were material issues of fact. Of interest in the decision is the discussion of the effect of the exercise of the option to purchase. The option, when exercised according to its terms, extinguished the lease and transformed the parties’ relationship from landlord-tenant to vendor-vendee. The rights of the parties are thereafter determined according to the terms of the option. The purchaser must exercise the option strictly in conformity with the terms, and failure to do so continues the landlord-tenant relationship. The proper termination of the lease by the landlord, however, extinguishes the option. Accordingly, the factual issue of whether the option was properly exercised by the deposit of funds into escrow prior to the termination of the lease was sufficient to require remand. (Because the lease was not drafted to require compliance with the terms of the lease as a condition to exercise the option, the tenant’s alleged default prior to the exercise of the option did not effect its right to purchase since no default had been declared – interesting drafting issue, eh?) There were also factual issues relating to whether the breach was material or had been waived , and the Court notes that "In the context of lessor-lessee relationships, our supreme court has stated ‘it has long been established that any act of a landlord which affirms the existence of a lease and recognizes a tenant as his lessee after the landlord has knowledge of a breach of lease results in the landlord’s waiving his right to forfeiture of the lease." Here, the record indicated that landlord knew of the sub tenancy six years before the declaration of a default and continuously accepted monthly rent. Whether this conduct amounted to a waiver was an issue of fact.
26. LANDLORD/TENANT; ORAL FARM LEASE TERMINATION BY LESS THAN ALL LANDOWNERS:
In Daugherty v. Burns, (4th Dist., May, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/4thDistrict/May/Html/4010795.htm the Fourth District tackles an issue of first impression which may have some interesting application to non-farm leases. Daugherty was a tenant farm under an oral share-crop lease on three parcels of farmland. He also happened to be a joint owner of all three tracts with his sister, brother and two aunts. Daugherty was not a majority interest owner. Although he had been farming at lease one of the tracts since 1988, on October 22, 1999, his brother, sister and one of the aunts served Daugherty with notice to terminate the leases and filed a partition suit on the three parcels. The court ruled in Defendant’s favor at the trial level, and Daugherty brought this appeal contended that the Defendants lacked the power to terminate his lease absent the consent of all joint owners, (he and one aunt did not consent), and that the notice was not effective because it was not served more than four months prior to the end of the lease as required by 735 ILCS 5/9-206.
The issue relating to the notice period was adjudicated in favor of Defendants. While the oral lease had no agreed upon date of termination from which to measure the four month statutory period provided by statute relating to farm land, Daugherty argued that the October 22, 1999 date was not effective because the lease payments were made during January of each year and therefore the notice was within only three months of the end of the term. The Defendants on the other hand prevailed on this issue by arguing that the oral lease did not have a stated period beginning and ending date and that custom and usage in farm leases in this area was for a period beginning on March 1, 2002 and thereby bringing their notice within the four month period.
The most interesting aspect of this decision relates to the issue of first impression relating to unanimous consent for termination of the lease. Looking first to the Nebraska and Iowa Supreme Court decisions, (which conflict in their holdings), the Fourth District settled on a rationale that inasmuch as a lease could not be created without the unanimous consent of all co-owners, once that unanimous consent to continue the tenancy no longer exists, the lease could not be renewed. This holding is with repeated reference to "the most sensible rule" and "most logical extension" in an effort to bolster a decision that could clearly have gone either for or against the Plaintiff. Having determined that a lease must have unanimity among co-owners to come into existence, it seems that it could have been just as logical to rule that unanimity would be required to terminate the lease. The Court, however, determined that unanimity was required to renew the lease, therefore the notice to terminate by less that a majority indicated an intent not to renew, and since the required unanimity, the lease was terminated. (Got that?) We are left with the law that where there are co-owners, there must be unanimous action to lease the property, but whether full consent of all owners is required depends upon whether the lease is being created, renewed or forfeited.
27. MECHANIC’S LIEN: PREVAILING PARTY’S ATTORNEYS FEES AND EXPERT WITNESS EXPENSES :
The decision in J.B. Escker & Sons, Inc. v. CLE-PA’s Partnership, (5th Dist. October 17, 2001)
http://www.state.il.us/court/Opinions/AppellateCourt/2001/5thDistrict/October/Html/5990811.htm considers the impact and result of a contractual fee-shifting provision relating to attorney’s fees and expert witness expenses. Esker filed a mechanic’s lien complaint against CLE-PA’s to recover $33,403.00 for concrete and paving construction at a store in Greenville, Illinois. The owner/defendant filed and answer, affirmative defenses and counterclaim alleging that the work was performed in an unworkmanlike manner and defective, resulting in costs to the owner to remediate of $26,145.00. During a six day trial, Defendant presented testimony of an expert structural engineer, Dr. Corley, and the trial court concluded with an award to the Owner on the Counterclaim of $26,145, and to Plaintiff on the complaint of $938 for curb repair provided as an extra at the owners’ request. The Court’s findings included a determination that while the contractor provided faulty concrete work, the owner requested the work continue despite its knowledge of the performance problems and therefore contributed to and failed to mitigate its damages. The Court was also critical of Dr. Corley’s testimony. Based on the contract provisions that "the prevailing party shall be entitled to recover reasonable attorney’s fees, costs, charges, and expenses expended or incurred" the Judgment ordered that the parties bear their own costs, awarded the owner attorney’s fees of $13,532 based on an itemized affidavit setting forth a total of $22,532, and denied the request for $22,662.07 for Dr. Corley’s expert witness fees.
On appeal Justice Goldenhirsh’s decision first determines that a "prevailing party" is "one that is successful on a significant issue and achieves some benefit in bringing suit." While a trial court may determine that there is no "prevailing party", no such determination was made here, and based upon the award of some attorney’s fees and costs to the owner, the trial court identified the defendant as the prevailing party. The Court also rejected the Plaintiff’s argument that because Defendant was not totally successful, (i.e., the trial court found that the owner failed to mitigate their damages), this was not a sufficient basis for the trial court to reduce the attorney’s fees requested and proven: "In this case, there was no justification for reduction in the award of attorney fees, based on the results obtained by defendant’s counsel…The relief obtained by defendant was substantial, and there was no reason for reducing the aware of attorney fees based on the result obtained." The plain language used in the fee-shifting paragraph "to recover reasonable attorney’s fees, costs, charges and expenses expended or incurred" was unambiguous, and despite the trial court’s statement that "I don’t think an expert—a $20,000.00 expert witness fee was contemplated between the parties when the contract was entered into.", the Fifth District holds that the terms "charges" and expenses" can "not be disregarded as surplusage, as it is presumed that language is not employed idly.". Noting that the word "expenses" in condemnation cases and under Supreme Court Rule 219 has been held to include expert witness fees, and the Third Restatement of Law Governing Lawyers defines expenses as including "ordinary and expert-witness fees", it was clearly foreseeable that expert witnesses would be a litigation expense. On the issue of payment of the expert witness fees, the decision states that "The test for whether the fees of an expert witness are to be paid in not based on the merit of the courtroom testimony, but on the value of his services in the course of conducting litigation", and the trial court’s criticism of the witnesses’ testimony is not a basis for denying reimbursement of the expense to the prevailing party.
28. MORTGAGES; ARBITRATION AND DOCUMENT CONSTRUCTION:
In Dannewitz v. Equicredit Corporation of America, (1st Dist., September 5, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/August/Html/1020858.htm, Douglas and Ellyn Dannewitz brought suit against Equicredit Corporation of America for imposing an allegedly unlawful prepayment penalty on their residential mortgage. Equicredit filed a motion to dismiss based upon the provision contained in the mortgage that "any Claim shall be resolved, upon the election of your or us, by binding arbitration pursuant to this Arbitration Agreement." The original mortgage was made by and between Dannewitz and HomeGold, Incorporated. HomeGold thereafter sold the note and assigned the mortgage to Equicredit. The issue before the trial court was whether Equicredit was entitled to elect arbitration as the assignee of HomeGold under the definition of "us" in the document. Equicredit argued that it fell within that definition as an assignee of HomeGold. Dannewitz argued that Equicredit was not defined as "us" in the agreement, and as an assignee of HomeGold, Equicredit could only compel arbitration if is was named as a co-defendant in an action against one of the entities defined as "us" in the document according to its terms. The trial court found that there was an inconsistency in the document between differing provisions of who could compel arbitration, resolved the inconsistency in favor of Dannewitz, and denied Equicredit’s motion to dismiss and compel arbitration.
The First District affirmed finding that there was an inconsistency in the mortgage provisions relating to who could compel arbitration under what circumstances and noted that "an ambiguity or inconsistency in the mortgage must be construed against the lender". The Court also rejected the argument that Equicredit was a third party beneficiary of the arbitration clause stating that "defendant is not an intended beneficiary…Here, the issue is whether plaintiffs can be compelled to arbitrate with the assignee of the entity with which they first agreed to arbitrate", and because of the inconsistency clouded the intent of the parties, the document must be construed against the lender, The trial court’s denial of the motion to dismiss was affirmed.
29. MORTGAGES; PAYOFF CHARGES AND FEDERAL PREEMPTION:
Marcia Noskowitz filed a class action suite in Cook County against Washington Mutual Bank based on the bank’s charging of a release fee when a mortgage is paid as a condition to providing the release. Marcia Noskowitz v. Washington Mutual Bank, F.A., (1st Dist., March 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/March/Html/1012982.htm. The basis for her cause of action was alleged to be the Illinois Consumer Fraud Act, (i.e., a pattern and practice of charging consumers undisclosed fees), and breach of contract. Washington Mutual filed its motion to dismiss pursuant to Section 2-619, contending that the Home Owners Loan Act of 1993, (12 USC Section 1461) expressly preempts stat law relating to regulated loan-related fees and charges. Noting that HOLA specifically authorizes the Office of Thrift Supervision to issue regulations of federal savings associations, and that this effectively preempts state law, the Court found the provisions of regulation of loan-related fees excluded the applicability of the Illinois Consumer Fraud Act. The OTS addressed this issue in two opinion letters relating to California and New York law. In California, the OTS concluded that demand statement fees are loan-related and state regulation is preempted. In New York, the OTS concluded that a state law requiring that an association must provide an initial payoff letter with out charge and may not charge more than twenty dollars for each subsequent letter was also preempted as a loan-related fee. Accordingly, in the Noskowitz case, the First District holds that "federal law preempts the Illinois Consumer Fraud Act to the extent it is used to regulate an association’s imposition of payoff statement fees." The Plaintiff’s argument that her cause of action for breach of contract should not have been dismissed inasmuch as the OTS regulations state that contract law is "not preempted to the extent that it only incidentally affects the lending operations of Federal savings associations…" was also rejected. The breach of contract cause is predicated on the alleged failure to disclose in the mortgage agreement that a release fee would be charged. The effect of a ruling in her favor would be to impose a mandate of disclosure of such fees in a federally regulated transaction based on state contract law. The OTS describes the payoff statement as "an integral part of the lending process" regulated and preempted by federal law, which is not to be circumvented by the application of state contract law.
30. MORTGAGE FORECLOSURE; FIXTURES AND TRADE FIXTURES:
Joseph Dietl took over operation of the family farm on his father’s death in 1978, and cared for his mother until her death in 1998. In 1997, as guardian of her person, Joseph obtained a loan secured by a mortgage on the family farm. The mortgage specifically provided that the security included all improvements and fixtures on the property. When Dietl defaulted on the mortgage, the lender filed a foreclosure action. In the proceeding, all notices and publications described the property as the land and including all improvements and fixtures on the land. A judgment was entered, and at the sale, Nokomis Quarry Company was the highest bidder and obtained a sheriff’s deed to the property. The deed did not specifically mention the fixtures, and at the sale, Joseph Dietl advised Nokomis that he was in possession of the property by virtue of a lease with his mother to farm the land. At the time of confirmation of the sale, by the agreement of the parties, the award of possession to Nokomis as the successful bidder was modified to acknowledge Joseph’s leasehold interest and provided that he could continue to farm the land until December 31st, at which time he would owe Nokomis $8,000 in rent and be required to vacate the property. In the seven month period between the confirmation of sale and December 31st, Joseph remove the tops of grain silos, a one-car garage building, an egg-house building, a storage building, and fencing.
Nokomis brought suit against Joseph for damages resulting from the removal of these items claiming that they were fixtures that were included in the sale. Joseph defended asserting that since they were used in the trade or business of farming and he was a tenant/farmer that the items were ‘trade fixtures’ and he could therefore remove them. The trial court ruled against Joseph. The Fifth District in Nokomis Quarry Company v. Dietl, (5th Dist., August, 2002). http://www.state.il.us/court/Opinions/AppellateCourt/2002/5thDistrict/August/Html/5010740.htm affirmed, finding that the fixtures were not ‘trade fixtures’ and properly foreclosed.
The tests for determining it an item is personal property or a fixture is (1) the intent of the annexor, (2) the method and nature of attachment, and (3) its adaptation to the premises. "Intent is the critical factor", and here there was no doubt that Joseph’s parents intended the items to become permanent improvements and affixed to the real estate. While a tenant can remove personal property he installs on property that would have otherwise become a fixture due to intent, annexation, or adaptation if the item is used in a trade or business, the property here pre-dated Joseph’s lease and was not installed by him as the tenant, but by his parents as the owners. Accordingly, the property constituted fixtures which were not trade fixtures. Finally, the mortgage which pledged all fixtures on the property pre-dated the lease. When Joseph obtained the lease from his mother, the fixtures at issue had already been pledged by the mortgage and, since Joseph could only obtain that which his landlord/mother retained, any interest he had in the fixtures as a tenant was subject to the mortgage of those fixtures. He could not obtain greater rights in either the real estate or the fixtures than his mother had. Because fixtures are conveyed as part of the real estate, the Sheriff’s deed need not specifically reference the conveyance of the fixtures. Conveyance of the land transfers the real estate and all fixtures, unless specifically excluded.
31. MORTGAGE FORECLOSURE; STIPULATION & CAVEAT TO DEFENSE COUNSEL:
No one who practices in the area of mortgage foreclosure can deny the fact that it is increasingly difficult to communicate with lenders in the event of a default and obtain any meaningful accounting of the sums due and owing. The frustration of that situation is compounded by the concern that should be generated by the recent case of Citizen’s Bank – Illinois, N.A. v. American National Bank and Trust Company of Chicago, (1st Dist., November 30, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/1stDistrict/November/Html/1003986.htm. There, the defendants, in response to a mortgage foreclosure complaint filed by Citzen’s Bank, filed a counter-complaint for breach of contract, an accounting, breach of obligation due to third party, and breach of fiduciary duty. The defendant had purchased the subject real estate consisting of a gas station and convenience food store from the original mortgagor under articles of agreement for deed. The plaintiff bank knew of and consented to the sale by express waiver of its rights under a due on sale clause in the original mortgage. Importantly, the bank contended, it did not enter into a formal relationship with the purchaser (i.e., a formal assumption of the loan), but merely "accommodated" the sale by waiving its right to declare the loan due on sale. The defendant purchaser, however, contended that the written consent/waiver of the due on sale acknowledged that it assumed the obligation of the original mortgagor and created a relationship. The importance of the possible existence of a relationship between the parties became apparent when the defendant demanded an accounting of the amounts paid into a tax escrow account and alleged that the bank misapplied funds and failed to pay taxes. Citizens "communicated freely" with the defendant regarding the loan, amounts necessary for taxes, and moving all of its banking business to Citizens. When the loan did mature, Citizens solicited the refinancing, but Defendant demanded a full and complete accounting on the loan. Citizens apparently could not account due to "software changes" and refused to account, contending that the Defendant was not entitled to an accounting as a "non-party" to the loan. Negotiations broke down, and Citizens filed foreclosure on February 11, 1999. On May 20, 1999, Citizen’s attorney provided Defendant with an itemized statement of the amount necessary to payoff the loan, including principal, interest, release fees, attorneys fees and costs and a credit for the balance stated to be on hand in the escrow account. On June 28, 1999, Defendant’s counsel tendered the sum pursuant to the itemization, and requested the foreclosure be dismissed upon acceptance of the funds. On March 9, 2000, Defendants, still unrequited in their quest for an accounting, filed their counterclaim, and thereafter, a dismissal of the foreclosure complaint by stipulation of the parties left only the counterclaim pending. The trial court dismissed the counterclaim pursuant to 735 ILCS 5/2-615 on Citizen’s motion and denied Defendant’s motion for leave to replead, holding that there was no set of facts upon which recovery could be had against the Plaintiff.
Justice Greiman affirmed noting that below "The court found that appellants did not have any form of contract with Citizens and that Citizens owed no fiduciary duty to the appellants, because ‘there is no is no fiduciary relationship between a mortgagor and a mortgagee.". Finding that the correspondence from Defendant’s attorney tendering payoff funds was "devoid of any indication that either (Defendant) or its counsel requested or even desired a further accounting or discovery of any of the obligations listed in the bank’s payoff letter.", the Defendant "relinquished any rights it may have had to demand an accounting or contest the figures provided in that payoff letter." The Defendant demanded an accounting, received an itemization, paid the itemization, but did not ask the bank to reveal the calculations behind the itemization, and thereby stipulated to the bank’s claim when the dismissal order relating to the foreclosure complaint was entered. The Defendant was no longer legally able to argue that the itemized amounts in the payoff letter were accurate. Mortgagee beware!
32. POWERS OF ATTORNEY; GUARANTIES AND THRID PARTY PROTECTION:
Last month Dick Bales "beat me to the punch" with his views on Amcore Bank N.A. v. Hahnaman-Alrecht, Inc., (2nd Dist., November 14, 2001), http://state.il.us/court/opinions/AppellateCourt/2001/2ndDistrict/November/Html/2001462.htm. We both agree that this is an extraordinarily important case. Dick sees it from the title company’s perspective, and last month discussed the implications the case has for him reviewing powers of attorney at transaction closings with the ultimate goal of insuring title. I see it as a case attorneys must understand and know about whenever they deal with guaranty and authority issues.
Hahnaman-Albrecht, Inc. was a grain elevator, storage and fertilizer sale operation located in Lee County, and had a long history of borrowing significant sums of money with local area banks. In 1994, it began anew banking relationship with Amcore Bank. The bank required that a $17 million line of credit be guarantied by the principal shareholders and founders of the company. One of the corporate principals was Thomas Conley. Mr. Conley had been suffering from Parkinson's disease since the mid-1970's, and began suffering from dementia in the early 1990's. In 1988, Conley created a trust as part of his estate plan naming himself as trustee and naming the predecessor to Grand Premier Trust and Investment, Inc. as his successor if he became unable act. In 1992, Conley's attorney reviewed the estate plan and prepared a durable power of attorney for Conley naming his son Kristopher as his attorney in fact. The letter forwarding the draft of the power to Conley for review stated that it was prepared with language that was NOT broad enough to allow a guaranty of any business debt inasmuch as "Those decisions I believer should be made only by Tom alone."
In January, 1994, Amcore made the loan to HAI, and Kristopher signed the guaranty on behalf of his father pursuant to the power of attorney. During the loan negotiations, Amcore was advised the Kristopher would sign pursuant to the power, and its loan officer called the Conley attorney by telephone, who advised him that the broad grant of authority "to perform every act of every kind and nature" in the power was sufficient to allow the guaranty to be executed by Kristopher. Amcore also spoke with their own attorney to confirm this opinion, but was told that research on the issue was "inclusive", and if it relied upon Kristopher's power, it could end up in litigation. An attorney for HAI also provided a letter of opinion stating that the guaranties were enforceable.
When the loan defaulted, Amcore sued Conley on the guaranty, and named his successor-trustee, Grand Premier, in order to collect against the trust assets. Grand Premier defended, alleging that the Conley guaranty was invalid as beyond the scope of Kristopher' s power of attorney because the document did not specifically grant the power to execute guaranties. The trial court granted summary judgment in favor of Grant Premier.
On appeal, the Second District opinion by Justice Callum presents a great deal of law succinctly and with unusual clarity, affirming the trial court. Turning first to actual authority, the case restates the law that a' catchall' provision in a power will not expand powers otherwise expressly limited in the document and will be "disregarded as meaningless verbiage". The law in Illinois is that a general grant of agency does not include the power to execute a contract of guaranty unless specifically granted. There was no express grant of authority to Kristopher in the power, (in fact, Conley gave the authority to guaranty trust assets to the trustee), and the facts indicated that there was no intent to give implied authority to sign a guaranty. Noting that "only the words and conduct of the alleged principal, not the alleged agent, establish the agent's authority", there was no finding of conduct by Conley that would support apparent authority to sign the guaranty. The Bank also argued that it relied in good faith upon the power of attorney and therefore should be "fully protected" as provided by the Power of Attorney Act, (755 ILCS 45/2-8). Noting that the legislature amended the Act in1997 following the decision In re Estate of Davis, 260 Ill.App.3d 252, (holding that a bank could not rely in good faith on a forged power), to provide that good faith reliance may be upon a document "purporting to establish an agency", Justice Callum nonetheless distinguishes the Conley power. This power was not a forgery, nor was it a fraud. It simply did not purport to give the power to execute a guaranty, and therefore there was no basis for the bank to make a good faith reliance claim because there was no stated authority to rely upon. The argument that there was ratification was also rejected. The ratification must be that of the principal. Here, the argument that the Trustee ratified was misplaced because the ratification argued was that of the Grand Premier and not the principal, Conley. "Only a principal can ratify this agent's actions."
33. PREDATORY LENDING: ADVERTISING AND "BAIT AND SWITCH":
If you look through your mail today, it is likely that you have received a flyer advertising a seminar, program or article dealing with "Predatory Lending". Exactly where the line is drawn between permissible activities in a "free commercial society" and illegal activities that are grouped under Predatory Lending is still developing, but some indication is given in Chandler v. American General Finance, Inc., (1st Dist., March 27, 2002) http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/March/Html/1012789.htm.
The Chandlers borrowed money from American General Finance and began making payments. They were then "bombarded" with opportunities to borrow more money by way of advertisements placed in with their monthly statements and direct mailings specifically addressed to them and their circumstances. The Chandlers finally took American General up on its offers. The transaction they were provided, however, was a "refinance" of their old loan rather than a "new loan", and at a significantly greater cost than had they received a new loan as implied throughout the solicitations. In the trial court, American General moved to dismiss the Chandler’s amended complaint for failure to state a cause of action brought under the Consumer Fraud and Deceptive Business Practices Act and the Consumer Installment Loan Act, and argued that the cause was barred by the lender’s compliance with Federal Truth in Lending at closing. The trial court dismissed the case, and on appeal the First District reversed.
The conduct of American General was identified as "loan flipping"; about which the Court specifically stated "We do not hold the ‘loan flipping’ is fraud, because the boundaries of the term are obscure." Conduct that implies that one is being offered a separate loan, which is then replaced by a refinance of the existing loan when the customer attempts to take advantage of the offer, without there being any intent to provide the offered loan, is a sufficient allegation of potential "deceptive practice" to withstand a motion to dismiss. The mailings represented that there was a "home equity loan" available which was never offered or discussed. The "home equity" offer was the "bait", and the refinance at significant expense was the "switch". "…an alluring but insincere offer to sell a product or service which the advertiser in truth does not intend or want to sell. Its purpose is to switch customers from buying the advertised merchandise, in order to sell something else, usually at a higher price or on a basis more advantageous to the advertiser." These are "a common thread" running through a number of deceptive practices cases in which unsophisticated consumers are attracted by solicitations for one product and then only delivered something different. No actual reliance is required to state a cause of action. Trust in Lending compliance is not a defense because the "deception" occurs before the closing, not at the closing where the disclosures are made, and extends beyond the loan agreement itself. While the Court makes it clear that the Chandlers still have a significant task before them on remand, this opinion is one in a growing collection of "Predatory Lending" decisions.
34. PREMISES LIABILITY; CONSTRUCTION SITES:
Most real estate lawyers represent at least one builder or developer. Invariably, the question of the nature and extent of liability to children injured on a construction site comes up in discussion. In the recent case of Jakubowski v. Alden-Bennet Construction Company, (1st Dist., January 11, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/January/Html/1004030.htm, the duty and liability of a landowner and contractor for injury to a minor child trespassing on a construction site are reviewed-- and refined relating to the principal of a duty by voluntary undertaking. The injured minor, Frank, was 13 years old and lived across the street from the construction site. He had been seen on the site before the accident and told by the contractor, his parents and the policy not go on to the property. One evening, after dark, Frank was walking around on the newly added second floor when he thought he saw a police car. In his haste to duck out of sight, he fell through an open stairway to the first floor .
The general rule is that an owner or person in possession of land has no duty to keep the premises safe for trespassers. They are not required to anticipate people will wrongfully enter the property and provide for their safety. A narrow exception exists where one knows or should know that young children are in the area and, because of their immaturity, are not able to appreciate the risks on the property, or are so distracted by the conditions present that they can not avoid the danger. A further condition of this exception is that the cost and inconvenience of making the area safe is slight compared to the risk presented. A litany of cases, however, have held that the exception should not be applied where the dangers are open and obvious Here, the open stairwell presented an open and obvious danger of falling, and neither the owner nor the contractor had a duty to protect Frank from the open and obvious danger.
The most interesting aspect of this decision, (for non-personal-injury lawyers), is the question presented by the fact that the contract between the owner/developer and contractor specifically sets forth that the contractor was responsible for taking safety precautions on the job site to prevent accidents. While Illinois does hold that a party to a contract may be liable for injury to a third party to whom he otherwise owes no duty by undertaking to protect such a third party in a contract, the theory of "voluntary undertaking" is narrowly construed by public policy. Here the contractor did not undertake any greater duty toward Frank than the owner would have had to the child as a trespasser injured by an open and obvious danger. "To so hold might inhibit parties who enter in to construction contracts from clearly spelling out their responsibilities in contracts." The contractor owned no duty to Frank based on its contractual duties and was not liable under the theory of voluntary undertaking.
35. PREMISES LIABILITY; DUTY TO TRESPASSERS & CONDITION OF PROPERTY AMOUNTING TO WILLFUL AND WANTON CONDUCTION:
In Salazar v. Crown Enterprises, (1st Dist., March 12, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/March/Html/1003590.htm, the issue was whether the disrepair and hazardous condition of the property constituted a danger sufficient to rise to the level of willful and wanton conduct required to impose liability on the owners for the death of a trespasser. Pedro Salazar was a homeless person criminally beaten to death while trespassing on the defendant’s property. The original complaint filed by the Administrator of the Estate against the owners alleged ordinary negligence and was dismissed for failure to state a cause of action. The fourth amended complaint alleged willful and wanton conduct of the defendants based on the fact that there were structural hazards, sanitary hazards, and social hazards on the property. The Defendants had been served with numerous complaints for code violations and knew the property was dangerous and hazardous because it was abandoned, vacant, vandalized and open. The property was the site of a great deal of garbage, debris and a common dumping site. There were frequent police and fire calls to the property, and trespassers were continually known to be on the premises. Accordingly, the plaintiff argued that the defendants knew or should have known of the hazards imposed by the building’s condition, and their failure to act demonstrated a lack of concern and indifference that amounted to "willful and wanton conduction" sufficient to support liability for the death of the decedent.
The First District decision affirming the dismissal of the complaint sets forth a good survey of premise liability. The Plaintiff is required to plead sufficient facts to establish a duty, breach of duty, and an injury proximately caused by the breach. A landowner’s duty to a person on his property is dependent upon the person’s status on the property. (There is a great listing of factual patterns for liability of landlords, tavern and restaurant owners, schools, hotels, etc in the text of this decision with case citations.) A landowner’s only duty to a trespasser is to refrain from willful and wanton disregard for their safety. This duty is imposed only after knowledge of the impending danger and an "utter indifference or conscious disregard" for the safety of another. Where an owner takes no action to correct a condition after being informed about it, and knew that others had been injured due to the condition, the failure to act may amount to willful and wanton conduct. Those cases, however, did not deal with trespassers or those injured by the criminal actions of others, as in this case. An owner generally does not owe a duty to protect people on his property from criminal actions of others unless there is some special relationship, (i.e., business invitee, passenger on a carrier, innkeeper and guest), and only then if there is a reasonably foreseeable danger that is relatively easy to remedy. Recent cases have held that owners of parking lots have no duty to protect customers from attack in the lots and ATM machine owners are not responsible even though the circumstances of money dispensing may "draw criminal attacks". While the property owners here allowed their property to fall into a complete state of disrepair over a number of years and had received numerous citations and complaints, yet did nothing, "based on the law as it exists today, no amount of notice or knowledge by a landowner that, because its property is in such a state of disrepair, vagrants live on it and commit criminal acts, would impose any duty upon the owner to protect individuals entered thereupon, irrespective of their entry status. This court, however, is not the proper forum to impose such a duty under the strictures of precedent." (Legislation anyone?)
36. PREMISES LIABILITY; SIDE WALK CAFES:
Over the last few years almost every restaurant and café with street frontage has bought a set of tables and chairs to set out front for summer night dinning. There are, of course, the issues relating to property lines and local ordinances governing outside dinning, but of interest this month is a case relating to premises liability for personal injury due to the condition of the sidewalk next to the café seating area. In Friedman v. City of Chicago, Main Street and Main Incorporated, d/b/a Red fish Restaurant and State and Kinzie Associates, (1st Dist., September 17, 2002), a suit was filed when Ms. Friedman fell on the sidewalk outside the Red Fish Restaurant at the corner of State and Kinzie Street in Chicago. The restaurant had erected a barrier for an outdoor eating area that took over a portion of the sidewalk. When the Plaintiff walked around the barrier, she fell on a cracked and uneven portion of the sidewalk. Her suit alleged that the restaurant and its owners were responsible due to an agreement with the City of Chicago to occupy, manage, and control the sidewalk area. The Plaintiff asserted that the Defendants assumed the duty to maintain and repair the sidewalk by contractually exerting control over the area. The trial court found that if the Defendants have a duty to maintain the sidewalk, that duty extended only to the portion of the sidewalk they were actually using and not to the entire sidewalk.
Noting that the restaurant was required to provide a reasonably safe means of ingress and egress, but ordinarily will not be responsible for injuries on a public sidewalk under the control of the city, the First District reversed nonetheless and remanded to the trial court. Because the sidewalk is used for ingress and egress, and the Defendants had appropriated a portion of the sidewalk for its business use, they were responsible to assure that their conduct did not place the public at a greater risk. Referring to cases in which a laundry increased the risk of slipping on snow and ice by dragging large laundry baskets across the sidewalk, a passerby tripped over a roll of wire mesh which fell on the sidewalk in front of her during construction, and a canopy on a building over a sidewalk and six feet into the street which obscured vision, the court held that "by building over the public sidewalk and street for their own business purposes, the defendants subjected themselves to the duty to act with reasonable care toward anyone lawfully on the street….To be clear, we are not imposing a duty upon defendants to repair or maintain the public sidewalk. We find that by sectioning off a portion of the sidewalk for use as an outdoor café’, the defendants subjected themselves to the duty to act with reasonable care toward anyone lawfully on the sidewalk." Whether the restaurant acted with that reasonable care was an issue of fact. The trial court’s ruling that, as a matter of law, the restaurant was not responsible for any resulting condition on the abutting sidewalk not being used was an error. Whether the restaurant breached its duty of reasonable care "should be left to a jury’.
37. QUIET TITLE; EASEMENTS, RIGHT-OF-WAY AND DEED CONSTRUCTION:
In Diaz v. Home Federal Savings and Loan Association of Elgin, (2nd Dist., October 10, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/2ndDistrict/October/Html/2011165.htm land formally used by the Union Pacific Railroad was subject to competing claims by the owners of parcels adjacent to the railroad’s right of way. The Diaz family owned a restaurant on one side of the right of way. The Savings and Loan owned the property adjacent on the other side of the rail right of way. Diaz purchased the property in 1994 and traced their ownership of "the north ½ of lot 3, lying east of the Chicago and Northwestern Railroad Company right-of-way" through a chain of title back to Erastus Tefft in 1850. The bank on the other hand claimed title by virtue of the purchase of the right-of- way from the railroad in 1999, and the railroad’s interest was traced back to 1849 when Tefft granted a right of way to the railroad’s predecessor over the land he owned at the time. The railroad ceased operating trains in 1997, removed the tracks in 1998, and conveyed its interest by quit claim to the bank in 1999. The bank had been using the parcel for ingress and egress pursuant to a licensing agreement with the railroad prior to the conveyance. Diaz had been using the parcel for ingress and egress, as well as employee parking and storage of a dumpster. The issue before the Court was whether the 1849 conveyance by Tefft to the railroad was of a fee interest or merely an easement. (i.e., if it was of a fee interest, then the 1999 deed to the bank by the railroad conveyed ownership of the parcel underlying the right-of-way, whereas if the 1849 conveyance by Tefft was merely an easement, then the abandonment of the right-of –way by the railroad in 1997 left title in Diaz as the successor in interest to Tefft of the fee simple, and Diaz was the owner of the parcel unburdened by the easement.)
An action to quiet title requires that a party prevail on the strength of its own title rather than merely based upon defects in another’s title, and a party is barred from maintaining an action where it can not show title in the property. The plaintiff’s title, however, need not be perfect, and in this case the ability of Diaz to trace his title back to the common grantor, Erastus Tefft was sufficient. The decision sets forth the rules of construction relating to deeds and concludes that it is only necessary to determine if the grantor (Tefft) intended to create an easement or a fee interest in the railroad when he granted it a right-of-way. Noting that the circumstances are unique in each conveyance and "each such transaction occurs in a different factual context", the Court held that here Tefft intended to create only an easement in the railroad and reserved a fee in the underlying land to himself; which then passed to Diaz as his successor.
In the process, the Court was also required to review the various statute of limitations relating to actions against real estate titles. It found that the statute which precludes reliance on documents more than 75 years old (735 ILCS 5/13-114) did not bar reliance upon the Tefft deed in 1850 to Diaz’ predecessors because in order to invoke the bar the party must be in possession of the property, and the bank was not in possession of the parcel. Likewise, the 40 forty year statute of limitation (735 ILCS 5/13-118) was determined to be inapplicable because the bar is of an action based on a claim arising more than 40 years ago, and the Diaz claim here did not arise until 1997 when the railroad ceased using the easement.
38. REAL ESTATE BROKERS; COMMERCIAL BROKER’S LIEN AND RELEASES:
In West Suburban Bank v. Attorneys’ Title Insurance Fund, Inc., (2nd Dist., December 19, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/2ndDistrict/December/Html/2001093.htm, Justice McLaren considered the assertion of Commercial Real Estate Brokers’ Lien under the Act, (770 ILCS 15/1 et seq.), and the ramifications of proceeding with a sale transaction based upon establishing an escrow under the provisions of the law. Section 15/20 of the Act provides that when a claim for lien has been recorded which prevents the closing of a transaction, an escrow account in an amount sufficient to release the claim for lien shall be established from the proceeds of the sale to be held until the written agreement of the parties, a court of law, or other process determines the rights of the parties. "Upon funds in the amount of the claimed lien being escrowed, a release of the claim for lien shall be provided by the broker claiming the lien." Accordingly, when the Lombard Moose Lodge was sold for a sum insufficient to satisfy all of the liens and pay it’s brokerage commission from the proceeds of sale, Coldwell Banker Stanmeyer recorded a notice of claim for lien. West Suburban Bank, the buyer, and seller all agreed to established an escrow sufficient to pay the Broker and closed the transaction. The Broker was not a party to this agreement. Western Suburban’s existing first mortgage was paid in full and it accepted a "short payoff" on its second mortgage lien. It was also the source of the financing for the new buyer, and released its existing mortgages at the time of closing predicated upon the establishment of the escrow and issuance of a title insurance policy insuring it as the first mortgage upon the property following the closing. Thereafter this declaratory action was filed by West Suburban Bank for recovery of the escrow and requesting an order directing the Realtor to release its lien. The Realtor argued that West Suburban’s release of its mortgage at closing extinguished its claim to the escrow funds, and asserted that it was not required to release its lien under the Commercial Real Estate Broker Lien Act under these circumstances.
Reversing the trial court’s grant of summary judgment in favor of West Suburban, the Second District decision begins by finding that the Realtor was entitled to a commission and properly recorded its claim, thereby establishing a valid lien prior to closing. Further, the statutory provision requiring a Realtor to release its lien upon the deposit of funds in escrow under the Act has a stated exception when "the proceeds from the transaction are insufficient to release all liens claimed against the commercial real estate". Here the sales price was insufficient to satisfy the mortgage liens of West Suburban Bank and the Realtor, so the exception applied and the release was not mandated by Section 15/20 of the Act. Because West Suburban released its mortgage liens, it extinguished any priority or interest it had in the real estate, despite the fact that generally "Prior recorded liens and mortgages shall have priority over a broker’s lien." (770 ILCS 15/15). Additionally, West Suburban was equitably estopped from claiming a right in the escrowed proceeds by virtue of the fact that it released its liens on the property in order to obtain title insurance from Attorneys’ Title. This case clearly illustrates the danger in blindly following a statutory process; misguided and premature recording of the mortgage releases not withstanding.
39. REAL ESTATE CONTRACTS; CONTINGENCIES AND IMPLIED DUTY OF GOOD FAITH:
In a case from the Court of Appeals of the Third Circuit applying Pennsylvania contract law to a lease of land, the Court nonetheless gives some worthwhile insight into a fairly common factual pattern here in Illinois. In Huang v. BP Amoco, (3rd Cir., November 9, 2001), http://vls.law.villanova.edu/locator/3d/Nov2001/003607.txt, the Huangs were the lessors and BP Amoco the lessee. The lease was for a term of 15 years for commercial property upon which to operate a gas station. No rent was to be due until the station become operational, and Paragraph 7 of the lease gave Amoco 180 days to obtain approvals from various governmental agencies for building the gas station, subject to thirty day extensions with the lessor’s agreement, and further provided that Amoco could terminate the lease if it were unable to obtain the approvals or if it were unable to enter into a satisfactory agreement with a third party for co-development of a fast food restaurant on the premises. During the initial 180 period, Amoco made no efforts to obtain the required approvals, and requested an extension. The Huangs agreed. After the expiration of the second approval period, without making any effort again, Amoco sought to terminate the lease. The Huangs brought suit on the lease. The District Court granted summary judgment in favor of Amoco. Interpreting the lease to provide that Amoco could terminate for either (1) failure to find a co-developer, or (2) obtain the approvals, the District Court ruled "that common sense dictates that Amoco would not have been required to apply for zoning permits, variances, or other Approvals until it had determined with specificity how it would develop and operate the property" and "any obligation on Amoco to pursue approvals was continent upon its success on procuring …third-party co-developers". Since Amoco was not able to obtain a third party co-developer for the fast food restaurant portion of the property, the District Court reasoned, it did not violate its duty of good faith and fair dealing implied in the lease.
The Third Circuit disagreed and reversed. Beginning with that statement that "one of the most important principals of contract law is the implied covenant of good faith.", and noting that "Because of the implied covenant of good faith, an approvals contingency clause does not give a lessee an absolute right to terminate the lease without penalty.", the opinion concludes that "whether a party has made a good-faith effort is a question of fact", not law. Taking the District Court to task, the Circuit Court determined that "the District Court made an unsupported factual assumption that colored its analysis. It assumed that BP Amoco could not seek the Approvals until it reached suitable agreements with third-party co-developers…it assumed that getting a suitable co-developer was the horse before the cart of taking even the first step in obtaining the Approvals…Relying on this assumption enabled the District Court to avoid the factual question that lies at the heart of this case; whether BP Amoco’s failure to seek the Approvals violated its covenant of good faith and fair dealing. By assuming the co-developer agreements must precede any effort to obtain Approvals, the District Court effectively rewrote the Lease to contain a condition precedent to BP Amoco’s obligation regarding those Approvals. In so doing, the Court gutted BP. Amoco’s good-faith obligation to seek Approvals…"
40. REAL ESTATE CONTRACTS; FRAUD IN THE INDUCEMENT, CONSUMER FRAUD, RESCISSION, ATTORNEY’S FEES, PUNATIVE DAMAGES AND PREJUDGMENT INTEREST:
It might not be hyperbole to say that "This case has it all" when it comes to real estate contract litigation.
David and Patricia Kleczek brought a suit against Robert and Anne Marie Jorgensen for fraud in the inducement, breach of express and implied warranty, common law fraud, and statutory fraud under the Consumer Fraud and Deceptive Business Practices Act, all relating to the sale of a home in Kleczek v. Jorgensen, (4th Dist., 4/16/2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/4thDistrict/April/Html/4010295.htm. Following the jury verdict in favor of the buyers, the trial court also ordered the sellers to refund the purchase price and declared a rescission of the contract, granted buyer’s request for attorney’s fees, but denied punitive damages and prejudgment interest. Then, after the judgment was entered, the buyers petitioned the court to modify the judgment in order to sell the home to a third party. The court granted the motion to modify the judgment to allow the sale of the home, but refused to award money damages equal to the difference in the ultimate sale price and the rescinded contract amount.
The sellers appealed contending that there was error in the award under the Consumer Fraud Act and granting the buyer’s attorney’s fees against them. The buyer appealed the denial of punitive damages, prejudgment interest, and contended that the judgment should have been modified as they requested to grant them the difference between the contract price and their sale price to a third party. The Fourth District, of course, affirmed in part, reversed in party, and remanded.
The background of the case revolved around the fact that the sellers were in the business of building new homes in Deer Run Estates, a subdivision they created on 42 acres of land. The particular home sold to plaintiffs in this case, however, was built with the avowed intention that it be Jorgensen’s primary residence. Mr. Jorgensen installed the plumbing, even though he was not a plumber, and was orally notified by the inspectors that he had done so defectively and would have to employ a licensed plumber to correct the problems. He did not do so; or at least the problems were not corrected. The next year, Jorgensen sold the house to Kleczek by a contract which contained a representation that no notice had been received of any code violations. Sellers did not disclose the oral advice from the inspectors relating to the plumbing problems or the letter they received prior to closing memorializing the inspectors visit and providing a detailed list of repairs that were necessary. After the closing, the plumbing sprang leaks causing water damage, the buyers discovered that a toilet was served by a hot rather than cold water line, and there was a strong odor of sewage in the basement. Initially, Jorgensen made some repairs under the one year builder’s warranty, but then refused to make any more repairs, and this case resulted.
Turning first to the issue of whether the Consumer Fraud Act applied to the subject sale, the Fourth District recounts the series of decisions including Zimmerman v. Northfield Real Estate and Anderson v. Stowell holding that the Act does not apply to the private sale of real estate by home owners of single family residences. The trial court’s finding that the Jorgensens were in the business of selling homes and in the course of developing this land supported the determination that this was a commercial rather than a private sale. The seller’s assertion that a distinction should be made because they "intended" to live in this particular home as their residence was rejected.
The seller’s also attempted argued that their representation in the contract was that there had been no "issuance" of a code violation notice at the time of the agreement because none had yet been received in writing. This was rejected as "quite literally true, but it left out a material qualifying fact: that the Department had found violations of the plumbing code. Without the addition of the highly germane fact, the representation in the contract was misleading…in that it created the false impression…" A statement which is technically true as far as it goes may nevertheless be fraudulent, where it is misleading because it does not state matters which materially qualify the statement as made.
The failure to honor the one year warranty by the builder, however, was held to not be a violation of Consumer Fraud. The Court draws a distinction, (as has the Second District), between a deceptive practice and merely failing or refusing to do that which one has promised to do in a contract. "That type of ‘misrepresentation’ occurs every time a defendant breaches a contract.", but is not necessarily a deceptive practice allowing the refused party to file a suit and turn a breach of contract into a consumer fraud action. Likewise, the trial court’s denial of the buyer’s request for punitive damages was affirmed. Section 10a of the Consumer Fraud Act allows punitive damages in the discretion of the trial court. "However, courts should award punitive damages only for conduct that is outrageous, either because the defendant’s motive was evil or the acts showed a reckless disregard of the rights of others. (Citation) The purpose of awarding punitive damages is to punish the wrongdoer and, in doing so, deter that party and others from committing similar wrongful acts. (Citation) Punitive damages are not favored in the law; thus courts should be careful never to award such damages improperly or unwisely. (Citatation)." Prejudgment interest is also a matter recoverable in the discretion of the trial court, when warranted by equitable considerations, and a judgment which the appellate courts will not ordinarily not disturb on appeal.
Most interesting is the final portion of the decision relating to the modification of the judgment relative to the rescission award. Noting an absence of case law, but resorting to 37 Am Jur 2d, the decision holds that "Seeking relief by rescission is not deemed an election so irrevocable as to preclude an amendment claiming damages for the fraud, although there is contrary authority." Except in default judgment cases where the plaintiff is precluded from relief outside the prayer in the complaint, the Court saw no reason why a complaint could not be amended at any time to request relief conforming to the proofs and upon terms that do not prejudice the adverse party by reason of surprise. Here the trial court indicated that it would grant relief outside of strict rescission, but only if the plaintiff filed their sixth amended complaint. The Fourth District held this was an appropriate step to assure the defendants were protected "against prejudiced by reason of surprise" and affirmed this condition.
41. REAL ESTATE CONTRACTS; LIQUIDATED DAMAGES, PREJUDGMENT INTEREST AND DAMAGES ON RESALE:
Jones filed suit seeking to recover earnest monies paid to Hryn Development to purchase a newly constructed house in Jones v. Hryn Development, Inc., (1st Dist., September 30, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/September/Html/1012856.htm. On two scheduled occasions, Jones failed to close the transaction due to problems with their lender. After the second attempt failed, Hryn Development sold the house to a third party for a sum greater than the purchase price in their contract with Jones. After the closing, Jones demanded the return of their earnest money and the additional funds they had paid for upgrades during construction. Hryn refused based upon a liquidated damages clause in the contract and refused to return any money. Jones’ suit sought declaratory judgment that the liquidated damages clause was unenforceable, recovery of all monies paid under theories of unjust enrichment and rescission, and prejudgment interest on those sums. The trial court agreed that the liquidated damages clause was unenforceable, but ruled against Jones on the remaining issues denying rescission, prejudgment interest, and awarded only a partial refund of the monies paid after deducting the "expenses" Hryn incurred in selling the house to the third parties. Jones appealed arguing that the trial court’s refusal to award a complete refund of their monies did not take into consideration that the sales price of the home to the third party was greater that the contract price to the Jones, and therefore there were no actual damages suffered by Hyrn.
The Appellate Court reversed and remanded with directions.
Where a liquidated damages clause in a contract is unenforceable, the non-breaching party is only entitled to actual damages. The goal of the law is to place the non-breaching party in the same position they would have been in had the contract been performed. Here, Hyrn Development sold the property for more than the Jones contract price and therefore had no actual damages. To award any damages would result in a "windfall recovery". Accordingly, the Jones were entitled to a complete return of their money.
Prejudgment interest is allowed to fulfill the equitable goal of making a recovering party whole, and will be awarded based upon "equitable considerations", and not allowed if the award does not "comport with justice and equity", as determined by the trial court in its sound discretion. If disallowing a party prejudgment interest will result in permitting the other party to benefit from the use of money it should not have retained in the first place, "Equitable interest may be awarded as part of restoration due a party…"
Here, the trial court erred by not ordering the return of all of the Plaintiff’s money inasmuch as Hryn had no actual damages, and to not award prejudgment interest would not be in accord with equitable considerations
42. REAL ESTATE CONTRACTS; MISREPRESENTATION, WAIVER AND MUTUAL RELEASES:
Robert Krilich’s developments have provided much fodder for newspapers as well as case law over the years. The decision in Krilich v. American National Bank, (2nd Dist., October 17, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/2ndDistrict/October/Html/2010921.htm deals not only with alleged misrepresentation between Krilich and his buyer on an underlying contract, but also includes an excellent discussion on the law of releases applied to an agreement between Krilich and his joint venturers; i.e., a "case-within-a-case".
The underlying cause of action was brought by Bongi Development against Krilich for fraud and misrepresentation relating to development and zoning. The property purchased consisted of 15 lots in a subdivision in North Barrington which Krilich knew Bongi intended to develop as single family residences. The contract provided that Bongi’s obligation to purchase was contingent upon its review of soil tests to assure the property could support improvements and septic systems within 10 days as well as final approval of the development plans by the Village. The sale closed in 1998 with Krilich taking back a promissory note for a portion of the purchase price. There were a number of modifications of the contract’s post-closing terms and the promissory note over a ten year period, but Krilich eventually sued for nonpayment on the note. Bongi counterclaimed for fraud and misrepresentation, stating that Krilich knew it would not be able to obtain the necessary Village approvals "as a routine matter" as represented. Krilich moved to dismiss Bongi’s counterclaim pursuant to Section 2-619 based on the assertion that the Bongi did not reasonably rely upon Krilich’s statements relating to the zoning because they were "statements of law, not fact", and "future fact" at that, (i.e., that the Village would approve zoning after the closing). The trial court granted the motion to dismiss and further found that inasmuch as Bongi had closed the sale, he had waived his contractual rights to terminate the agreement based upon review of the soil test and final approval of the development plans by the village. Bongi also filed affirmative defenses alleging that Krilich employed duress and business compulsion in negotiations with it because the parties had another, unrelated transaction which he threatened to breach if the North Barrington matter was not resolved. This affirmative defense was also dismissed. Bongi had the benefit of counsel throughout the negotiations, and a mere threat of breach of contract is not actionable economic duress.
Finally, Krilich filed a third-party complaint against his joint venturers for indemnification for any liability he might have to Bongi. The joint venturers responded with a motion to dismiss noting that the joint venture had been terminated by the parties and they had executed mutual releases of any indemnification obligation. Krilich replied asserting that inasmuch as the releases had been executed prior to the filing of the Bongi counter complaint, the joint venturers could not have anticipated or intended to release one another from this particular liability. The trial court granted this motion, and Krilich’s appeal was consolidated with those of Bongi in this case.
The Second District agreed with the trial court rulings on the Bongi issues and reversed on the release issues. Bongi had no right to rely upon Krilich’s representation relating to the "routine" nature of the zoning as a statement of law not fact, and the Court agreed that it was a statement of "future fact" as well. Moreover, the argument that Bongi had a contract provision which conditioned its obligation to close upon obtaining approvals and it closed the transaction nonetheless and before the approvals were granted constituted a waiver. The dismissal of the duress and business coercion were also affirmed. Duress requires a wrongful act or threat that removes one of the parties’ ability to exercise its free will, but this can be "moral" as well as criminally or tortuously wrongful conduct. "It is well settled that, where consent to an agreement is secured merely through hard bargaining positions or financial pressures, economic duress does not exist….Ordinarily, a threat to break a contract does not constitute duress, and to infer duress, there must be some probable consequences of the threat for which the remedy of the breach afforded by the courts is inadequate." Here, Bongi had adequate counsel, time to consider the alternatives during negotiation, and "We acknowledge that Bongi’s damages would have been substantial, but we disagree that all of the consequential and incidental damages of Krilich’s threatened breach could not have been recovered through judicial proceedings."
The last area covered by the opinion generated a good discussion of releases as well as a thoughtful dissent. Justice Byrne’s majority opinion (Justice Grometer concurred) held that the language of the mutual release and circumstances indicated that the parties had considered the possibility that claims such as Bongi’s might be brought after the joint venture was terminated and nonetheless mutually released the joint venturers’ duty to indemnify each other. The intention of the parties is determined from the language as well as the circumstances surrounding the release, and here the parties appeared to be willing and intending to include any and all future claims. The dissent by Justices O’Malley recites the law that "Exculpatory agreements releasing parties from future liability are not favored…Such agreements are strictly construed against the benefiting party and ‘must spell out the intention of the parties with great particularity.’ " Noting that "A claim not in existence when a release is signed is not extinguished absent a clear expression of intent to that effect…[A] general release does not apply to an unspecified claim if the releasing party is unaware of such claim when executing the release." The dissent, believing that whether the parties knew of Bongi’s potential claim when they executed the release and nonetheless intended to release themselves from that claim was a material issue of fact, would have reversed the trial court’s dismissal of Krilich’s third-party complaint against his joint venturers for indemnification.
43. REAL ESTATE CONTRACTS: TIME IS OF THE ESSENCE, EVEN A SINGLE DAY:
Beginning with the lyric from a 1959 Dinah Washington tune, ("What a diff’rence a day makes…twenty-four little hours"), and ending with a popular proverb, ("Never put off until tomorrow what you can do today."), the lengthy opinion of Judge Coffey in Arnhold v. Ocean Atlantic Woodland Corporation, (7th Cir., March 21, 2002), http://www.ca7.uscourts.gov/op3.fwx?submit1=showop&caseno=01-1611, requires a little page turning, but has a just about everything you would want to know about "time is of the essence" relating to closing dates and more. The facts are laborious, but suffice it to say that after a number of extensions of the closing date and intervening litigation, the Plaintiff/Sellers of 280 acres of farmland in Plainfield to Defendant/Buyers for $7.56 million. The Purchaser was to develop a residential subdivision of more than 700 home sites, and after a number of extensions for governmental compliance and such, the parties established a "drop dead" closing date of January 25, 2001. This negotiation took the form of a settlement agreement in the intervening litigation, and was memorialized by language including a statement that January 25, 2001 was intended by the Sellers and Purchaser to be "the absolute final date for closing" and "if for any reason" the closing did not take place for any reason other than Seller’s default, "Purchaser shall have no rights in the property", their attorneys even acknowledged Seller’s absolute right to terminate the contract in the event of a failure to close on the set closing date. The initial closing was to have been on November 15, 1997, and the history of delay and extensions lead to Seller’s mandate of a specific closing date and "time is of the essence" language. Although they had the right to close on any date from October 26, 2000 through the specific date of January 25, 2001, the Purchasers chose to schedule on January 24, 2001, "—a mere one day prior t the drop-dead date." Of course, their lender demanded additional documentation on the eve of closing which the Purchasers were unable to provide and January 25, 2001 came and went without closing. On January 26, 2001, the Purchasers announced they were ready to close, but the Sellers, who had been ready willing and able to close two days before, refused.
Affirming the magistrate’s fact finding and application of Illinois law, the opinion takes a step-by-step approach to the issues of closing dates and time is of the essence clauses.
Illinois law allows and will give effect to the intent of the parties that "time is of the essence", and performance by a party within the time frame specified is a condition precedent to require the other party to perform. Accordingly, a specific, absolute closing date, when material and the clear intent of the parties, is enforceable. Here there was clearly the intent and understanding of the parties that the absolute date of closing was the "sine qua non of the agreement"; i.e. of such a nature and such importance that the contract would not have been made without it." The "totality of the circumstances" was such that the doctrine of substantial performance (i.e., ability to close a day late), "does not extend to cases like the one before us, where the plaintiff insisted upon strict compliance with its conditions..", and the defendant agreed to them "absolutely". A material breach serves to excuse the other party’s performance, and thereby discharges the other party’s duty to perform…by specific performance as requested here or otherwise, and provided that the result is not unconscionable, gives an unfair advantage to one party, or is inequitable. While the Purchasers had invested $1.7 million in site plans and argued that to deny specific performance would be unconscionable when balanced against the Seller’s loss of a single day’s use of the funds, the Court noted that ‘parties "who have bargained for strict compliance with specific time requirements…inherently are prejudiced by noncompliance" with those deadlines’, and that the purpose of a contract is "to allocate the risks of the unexpected in accordance with the parties’ respective preference for or aversion to risk and their ability or inability to prevent the risk from materializing—" Here, the Purchasers had the ability to prevent the risk from materializing by not waiting until the last minute to close: "When parties wait until the last minute to comply with a deadline, they are playing with fire.", and can not then "attempt to find a scapegoat for its own lack of diligence." Even the argument that the Seller’s motivation in terminating the contract was to accept a better offer from another buyer left the Court unmoved: "Because the Sellers had the legal right to terminate the agreement, it is legally irrelevant whether they were also motivated by reasons which would not themselves constitute valid grounds for termination." The Sellers were awarded their attorney’s fees and costs pursuant to the ‘prevailing party’ provision of the agreement, and the Purchaser sent on their way with the admonishment that: "…neither law nor equity guarantees that a party may specifically enforce a contract if it fails to perform its material obligations thereunder."
44. REAL ESTATE CONTRACTS; RETURN OF EARNEST MONEY:
The case of Watson v. Johnson Mobile Homes, (5th Cir., February 27, 2002), http://www.ca5.uscourts.gov/opinions/pub/00/00-60768-cv0.htm is factually concerned with a deposit on mobile home contract , rather than earnest money a real estate purchase agreement, and comes from the Southern District of Mississippi. (Although it is noteworthy that Judge Mills, District Judge of the Central District of Illinois, was sitting on this panel by designation.) Nonetheless, in the current environment in which it seems the exception rather than the rule that earnest money is returned upon the property termination of a contract, and builders seems to be more inclined to "let ‘em sue" than refund deposits and earnest money, this is a decision that may come in handy.
Elnora Watson agreed to purchase a mobile home from Johnson Mobile Homes. The agreement provided that if the financing company refused Watson’s application, she would be entitled to a refund of her deposit of $4,000 towards a $22,995 purchase price. If she was approved but did not complete the purchase, she would forfeit the earnest money. Ms. Watson’s application for financing was denied, despite the fact that her daughter co-signed the application, because of a poor credit history. She and her daughter went to Johnson’s to get the deposit back. Her request was refused. Her son came to Johnson’s a few days later, but he too was denied. On a third attempt by her daughter-in-law on another occasion, the owner told her "to go get herself a lawyer."
When Watson filed suit and the case proceed to trial, the jury heard evidence of 45 other people whose deposits were also forfeited and awarded her $4,000 in actual damages and $700,000 in punitive damages.
Noting that Mississippi law requirements to sustain an award of damages for an intentional breach of contract include proof by a preponderance that the defendant acted with (1) malice or (2) gross negligence or reckless disregard for the rights of others rather than mere forgetfulness or oversight, the decision affirmed the finding that Watson had successfully established a separate tort of conversion or fraud by Johnson. Although punitive damages are disfavored , reserved for extreme cases, and then narrowly applied, the payment here of 17% of the purchase price as an "application fee" and subsequent refusal to refund coupled with attempts to restructure the deal on even less favorable terms was sufficient to uphold the jury’s award of punitive damages. The imposition of punitive damages under state law, however, is limited by the constitutional prohibitions against excessive fines and cruel and unusual punishments found in the Eight and Fourteenth Amendments. The factors to be considered in excessive awards are the defendant’s "reprehensibility of culpability", the relationship between the penalty and the harm caused, and the sanctions for like conduct in comparable cases. While taking advantage of a financially unsophisticated person such as Ms. Watson in an unequal bargaining position is "particularly deserving of rebuke", there was no violence or threats of violence; only economic harm. The Mississippi Consumer Protection Act provision for a civil penalty of $10,000 for each occurrence of fraudulent conduct was viewed as a sanction for like conduct in comparable cases. Accordingly, the $700,000 punitive award was "constitutionally infirm", and the Court gave Ms. Watson her option: "We remit punitive damages to $150,000, concluding that this amount is the maximum we could sustain in this case…At her option, Watson may refuse to accept the damages as remitted and instead have that issue tried anew."
45. REAL ESTATE TAX SALES; REDEMPTION UNDER PROTEST AND FAILURE OF NOTICE BY THE TAX BUYER:
At first blush, In the Matter of the Application of the County Collector, Petition of Mary H. Hancock v. Darco, Inc., (4th Dist., September, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/4thDistrict/September/Html/4000589.htm appears to be inordinately confusing, but is actually a matter of the property owner choosing the safe remedy of redemption under protest rather than defending against the issuance of the tax deed, and then looking for the wrong remedy at the end of the case as explained in the decision.
Mary Hancock purchased two properties owned by Darco, Inc. at a tax sale. Darco redeemed the properties under protest and then petitioned the Court to deny Hancock’s petition for tax deeds and refund its redemption monies upon a determination in its favor on the protest issues.
The basis for Darco’s redemption under protest was Hancock’s failure to serve timely "Take Notice" within five months of the sale pursuant to 35 ILC 200/22-5, and three months prior to the expiration of the redemption period pursuant 35 ILCS 200/22-10, as well as publish a notice of filing petition for tax deed three months prior to the expiration of the redemption period pursuant to 35 ILCS 200/22-30. The trial court’s finding relating to the sales were based on the statutory provision that if the court sustains a protest in whole or part, it may declare the sale to be a sale in error, (35 ILC 200/21-380), and it directed the county clerk to "make the appropriate refunds". Three days later, both Hancock and Darco filed written arguments with the Court in support a petition by each of them for a refund in total of the sums held by the county clerk. The trial court denied Darco’s motion for a full refund based on the fact that this would result in the taxes being unpaid, or force Hancock to pay Darco’s taxes if Hancock did not receive a refund of the amounts she paid at the sale.
Noting that 35 ILCS 200/21-380 does provide that "Upon a finding sustaining the protest in whole or in part, the court may declare the sale to be a sale in error…and shall direct the county clerk to return all or party o the redemption money or deposit to the party redeeming.", the Fourth District nonetheless noted that Darco could have defended against Hancock’s petitions for tax deeds without redeeming under protest because the defective notices precluded the issuance of the tax deeds. While this may seem to be a risky course, (and apparently was thought so by Darco), there is a distinct difference in the procedure and result where one redeems under protest rather than defending against the tax deed: "Once there has been a redemption under protest, however, the character of the petition for tax deed changes, with the tax purchaser attempting to obtain the statutory penalty interest and the delinquent taxpayer attempting to ward off the purchaser and recover some of the funds it has deposited with the county clerk." Here Darco redeemed under protest and thereby entered into the realm of determining whether the penalty and interest are due. The tax sales were valid, and Darco’s redemptions were valid; it was Hancock’s notices that failed to meet the statutory requirements for the issuance of a tax deed, and "Hancock should not receive any less after Darco’s redemption than she would receive if she were to obtain a refund pursuant to section 22-50 absent a redemption."; i.e., the provision that allows the tax purchaser to file a petition to recover the amount bid, without penalty interest or costs, if the purchaser has made a bona fide attempt to comply with the statutory requirements for a tax deed but fails.
While this is an interesting case that explains the difference between a redemption under protest and a challenge to a tax deed petition, it would seems that the prudent course was that taken by Darco to redeem under protest and then sort it out later. The inappropriateness of attempting to recover the entire tax payment, however, was foolish and not lost upon either the trial or appellate court.
46. REAL ESTATE TAXES; EXEMPTION AND LEASEHOLDS INTERESTS:
In a case that should make prospective lessees of public property take notice that what looks too good to be true probably is, the Second District affirmed the trial court’s determination that a lease of open space land was taxable and not exempt. In Dundee Township v. Department of Revenue, (2nd Dist., October 15, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/2ndDistrict/October/Html/2000835.htm, Dundee Township acquired a parcel of 70.34 acres of farm land pursuant to the open space preservation provisions of the Township Code, (60 ILCS 1/115-5). It renewed the lease to individual commercial farmers for an annual rent of $3,000, but then sought a property tax exemption for the entire parcel pursuant to section 115-115 of the Township Code, which provides for a real estate tax exemption of "all property acquired by any township for open space purposes pursuant to an open space program". The Department of Revenue took the position that the a leasehold assessment should be levied on the land, but the Township, relying on a strict reading of the exemption provision filed a complaint for administrative review before Judge Grometer in Kane County. The trial court, applying the rule that the limited review of the administrative proceeding by the trial court is to determine if the finds are against the manifest weight of the evidence, affirmed the Department’s decision and dismissed the complaint. On appeal the Second District’s decision by Justice McLaren affirmed noting that all property is presumed to be subject to taxation, and statutes granting exemptions are to be construed strictly in favor of taxation. The party claiming the exemption has the burden of proof that the exemption applies, and if leased by a taxing district to lessees for use other than public purposes, exempt property may nonetheless be taxed by assessment upon the lessee, and the lessee will be liable for those taxes. (35 ILCS 200/9-195). While Section 115-115 of the Township Code does provide for an exemption, that section must be read in conjunction with Section 9-195 of the Tax Code. The Township Code specifically provides that opens space property is exempt and that it may be leased for specific uses such as golf courses, swimming pools and campgrounds, but there is no mention of commercial farming. Here the lease of the open space property for a purpose other than that designated as an exempt use does not allow it to qualify for a tax exemption. The exemption of the property from taxation it was acquired for open space is not destroyed because of the farm lease, because the exemption applies to the fee interest in the property, and only the leasehold is taxable. Citing the City of Lawrenceville v. Maxwell for the proposition that when property is used for two purposes, one of which is exempt and one of which is not, a tax will be assessed against the nonexempt use, the decision states that the general statutory scheme of taxation allows the taxation of leasehold interests in real estate even though that same real estate may have a tax-exempt fee interest.
47. REAL ESTATE TAXES; EXEMPTION AND CHARITABLE USE:
It seems the Appellate Courts are besieged with cases relating to real estate tax exemptions, and Lena Community Trust Fund, Inc. v. Department of Revenue, (2nd Dist., June 13, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/2ndDistrict/June/Html/2000487.htm, is an opinion from a few months ago which was not reported here when it was first issued, but seems particularly well suited to be included in this month’s discuss following the Dundee Township decision.
The Lena Community Trust Fund, Inc. was incorporated as a non-for-profit entity in 1991 to collect and distribute money for charitable purposes, assist local charitable organizations, and manage a community center used for public purposes in the rural area around Lena, Illinois, population 3,000. The Trust was exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. In March, 1993, the Trust received a gift of 2.69 acres, and in 1995 built and began operating a community center consisting of a lower level meeting hall and smaller meeting rooms and an upper level main hall and kitchen. The space was used by various State, County, and church groups, hosted the high school prom and fire department dance, and was used as well for business meetings and private families for anniversaries and weddings. The Trust charged various fees for use of the space ranging from $5 per day for the small meeting rooms on the lower level to $350.00 for the upper hall and kitchen facilities. The Trust policy was to waive the use fees for individuals and organizations unable to pay, but none made such a request. In its first year of operation, 81% of the Trust revenues were derived from donations and 19% came from the community center rental fees.
The Trust applied for a charitable exemption for real estate taxes in 1995 but was denied. The Administrative Law Judge found that the Trust did not qualify because it charged fees for the use of the community center, the uses of the center were primarily for business meetings and private social events, and it failed to establish that its facilities were used exclusively for charitable purposes. The trial court reversed the Department’s decision, and the Second District affirmed the trial court.
The tests for a charitable organization are: (1) that the organization not have capital, capital stock, or shareholders, (2) that it earn no profits but derive its funding mainly from public and private charity and hold it in trust, and (3) that it dispense charity to all who need and apply and does not place obstacles in the way of those would avail themselves of the charitable benefits. Section 15—65 of the Property Tax Code also requires that a charitable organization’s exempt property must be used exclusively for charitable purposes. Noting, (as did the Court in Dundee Township), that the property claiming a tax exemption must prove clearly and convincingly it is entitled to it, and that all facts are to be construed in favor of taxation, Justice Geiger held that the Trust was a charity and that the community center was used exclusively for charitable purposes.
The charging of "not insignificant fees" for the use of the community center did not constitute an "obstacle in the way of those who would avail themselves" because "the dispositive issue is not the existence of a fee, but, rather, whether the institution makes a profit and/or the fees comprise a significant amount of the institution’s operating expenses." The Trust was operating at a loss and only 19% of its funding was attributable to the use fees in 1995. No request to use the center was denied, and the Trust had policy to waive the fees for those who were unable to afford them. The Department’s argument that the center was not used exclusively for charitable or beneficent purposes as required by the Tax Code was rejected based upon the Illinois Administrative Code provision that "a charitable purpose may refer to almost anything which promotes the well being of society", (86 Ill.Adm. Code Section 130.2005(i)(2) ). The community center was available for any community group, the business purpose uses were incidental to its primary use as a community resource, and there was no evidence that the Trust gave priority to business use over civic and community groups, but simply appeared to be attempting to maximize the center’s use "to improve the quality of life of its community members." Hence it qualified for tax exempt status.
48. REAL ESTATE T AX SALE REDEMPTIONS; STANDING TO REDEEM and CONVEYANCE MISNOMER:
In Application of the Cook County Collector v. 1MB. Inc., (1st Dist., January 25, 2002 ), http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/January/Html/1010570.htm, the unusual circumstances of a common name and redemption of taxes by a successor gives us some interesting law on the issue of redemptions, misnomers in deeds, mortgages, and conveyancing. The property sold for non-payment of taxes was sold by Odessa Bell in 1993 to Johnny C. Smith. The formal designation of the grantee in the deed was "Johnny Calvin Smith", whereas the future tax bills and the recorded instrument were to be mailed to "Johnny C. Smith". Thereafter, the real estate taxes were sold to Random Corporation, which on February 1, 1999 filed a petition for the issuance of the tax deed and served notice on Johnny C. Smith at with advice that the redemption period would expire on June 30,1999. On June 25,1999, Johnny C. Smith executed a quitclaim deed to IMG, Inc. for $300.00, and IMG, Inc. paid $10,095.98 to redeem the property prior to the expiration of the redemption period.
Random Corp. filed a petition to expunge the redemption alleging that IMG, Inc. did not have a valid interest in the property required to redeem because "Johnny C. Smith" had executed the deed to it, whereas "Johnny Calvin Smith" was the title holder. IMG filed a motion to dismiss Random Corp.'s petition and attached a copy of the quit claim deed from "Johnny C. Smith" as evidence that it was the owner and had an interest sufficient to allow it to redeem. The evidence before the trial court established that "Johnny C. Smith" lived at 525 West Eugenie, Chicago, Illinois, was a registered voter at that address with a birth date of April 27, 1951, and had a telephone number that corresponded to that listed in the name of June G. Edward at 525 West Eugenie, who was the mother, according to the birth certificate, of Johnny Calvin Smith, Jr., born on April 27, 1951. Random Corp. ' s notices relating to the tax deed were send to Johnny C. Smith at his 1993 address of 1141 North Noble, Chicago rather than the 1999 address on Eugenie.
The Appellate Court reversed the trial court's order granting Random Corp.'s petition to expunge the redemption and denying IMG's motion to dismiss. Noting that there was no indication in the record for the basis of the trial court's ruling, and therefore "We can only presun1e that the trial court concluded that Random Corp. met its burden of showing that Johnny C. Smith, the grantor of the quitclaim deed to IMG, Inc., is not the same person as Johnny Calvin Smith, the grantee in the 1993 deed. ..", the Court held that IMG, Inc. was entitled to redeem. First, of course, Illinois law encourages redemptions. Secondly, it was the burden of Random Corp. to show that IMG, Inc. had no legal or equitable interest sufficient to allow it to redeem. The right of redemption exists "in any owner or person interest in that property ...whether or not the interest in the property sold is recorded or filed." (35 ILCS 200/21-345) Case law has held that there is an interest in the property that permits redemption by an owner's title insurer, a contract purchaser even though the vendor had previously conveyed by deed to another who had not recorded that deed, and a shareholder of a dissolved corporation. The courts have considered misnomers and upheld conveyance to "an existing grantee but under a name other than the correct one", a misnamed corporation, and a mortgage where the named parties have been misstated. Not finding any evidence that the "Johnny C. Smith" in the 1999 quitclaim deed was not the same person as "Johnny Calvin Smith", there was an "unbroken chain of title" to IMG, Inc., and Random Corp. was held "unable to satisfy its heavy burden".
49. RESCISSION; DAMAGES AND AWARD CALCULATION
Todd and Lisa Gibson entered into a contract to purchase a home under articles of agreement (installment contract) from Anthony and Beverly Capasso in Gibson v. Belvidere National Bank and Trust Company, (2nd Dist., November 26,2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/2ndDistrict/November/Html/2000734.htm, The initial closing took place on January 29, 1999, Gibson discovered that there was a mistake regarding the size of the property in March, 1999, and returned possession of the property to Capasso on or about March 24, 2000. Gibson then filed suit for rescission to recover their installment payments and improvements to the property, alleging misrepresentation, fraud and breach of contract. Capasso counterclaimed alleging that Gibson failed to make all the installment payments under the agreement for deed, failed to pay for personal property purchased as part of the transaction, and committed waste while during possession. The trial court found that there was a mutual mistake regarding the actual number of acres conveyed and ordered rescission. It is in the calculation/determination (and review of the Appellate Court) of the damages and set-off necessary to place the parties into their pre-contract position that makes this opinion of interest to real estate practitioners.
In its first judgment, the court ordered Gibson deliver possession of the property to Capasso; pay $42,504 for use and occupancy of the property "through May 31, 200", and $2,400 as the balance due for personal property .The Capasso' s were ordered to refund the monthly installments actually paid by the Gibsons of $64,615.46, plus $1,450.17 as the value of improvements made to the property by the purchasers. In a post-judgment motion alleging the court miscalculated the use and occupancy based upon a May 31, 2000 surrender date when they actually surrendered possession on March 24,2000, the Gibson's sought a reduction in the award. Capasso also petitioned to reconsider the award, arguing that the Gibson' s should pay the additional sum of $668 per month of occupancy for real estate taxes. The Court amended the judgment accordingly. The second judgment was also the subject to further post-trial motions relating to the calculation of the award, and then Capasso appealed, arguing that the trial court miscalculated the sums owed by Gibson. (The primary focus of the opinion and dissent are the jurisdictional issues that arise when there are successive post-judgment motions -Judge Callum's dissent argues that the time for filing the appeal is not extended by successive motions.)
Beginning with the statement that when a court orders rescission, the parties must be restored to their status before contracting, (i.e., the purchaser must be refunded any consideration paid, and the seller must be paid consideration for the benefit received by the purchaser), Justice McClaren's opinion unravels the trial court's award with aplomb. The monthly "benefit" for use and occupancy was determined to be properly based upon the three monthly installments the Gibsons did pay to Capasso before discovering the mistaken acreage. This sum was then multiplied by the actual number of months in possession. (Here the trial court simply miscalculated the number of months) The appellate court affirmed the trial court's addition of a monthly sum for real estate taxes in the amended judgment. Noting that the Gibsons did not receive the personal property at issue, the Second District determined the Capassos were not entitled to a setoff for that sum. The result of these long and tedious calculations? The Capassos owed the Gibson's $7,804.63. (How much do you think the attorney's fees were?) The case, nonetheless, is a good exercise in the computation of damages and monetary results of rescission. (The decision and dissent are also worthwhile if your practice gives you a need to consider filing successive motions to reconsider a judgment and wonder just when the appeal time runs.
50. RESCISSION; TRUTH IN LENDING AND RETURN OF PRINCIPAL:
In Regency Savings Bank v. Chavis, (2nd Dist., September, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/2ndDistrict/September/Html/2011321.htm Sigmund J. Chavis and Harriet Chavis appealed the sale confirmation at the end of a long and tortured mortgage foreclosure. Initially, the trial court in Lake County found that Chavis was entitled to rescind the mortgage and note because they were not provided with documentation of the right of rescission under Truth in Lending. The trial court also held that rescission would be conditioned upon Chavis’ return of $349,572.00 to Regency Savings Bank as a refund of the principal loan amount. Defendants failed to make the tender within 29 days as originally ordered, and still did not tender the funds over a five month period during which post judgment motions were pending. The trial court then entered a judgment of foreclosure, and approved the sale which followed.
Defendant’s appeal contended that the trial court had no authority under Truth in Lending to condition the rescission on the return of the principal of the loan. The Second District rejected this theory. Truth in Lending, (15 U.S.C. 1635), provides that a security interest becomes void upon rescission, and "places the consumer in a much stronger bargaining position than the consumer enjoys under the traditional rules of rescission" because it alters the common law requirement that the rescinding party tender the property he has received before the contract is void and rescinded. Nonetheless, the statute provides for the return of the property to the creditor and expressly provides that "the procedures prescribed by this subsection shall apply except when otherwise ordered by a court." (15 USC 1635(b) ) The clear intention of the Congress is to return the parties to the position the had been in prior to the transaction following rescission. Additionally, Illinois Courts have previously held that the trial court has authority to order the defendant to return to the plaintiff all property which the defendant had received in the transaction as a condition of providing rescission as equitable relief "to avoid the perpetration of stark inequity". While Truth in Lending may be read to not impose return as a condition of rescission, this is "not a realistic recognition of the full scope of the statutory scheme", and while rescission itself may be complete at the time of notice, the courts have the power to "otherwise order" conditions for completion of the remedy. Here, the Court granted rescission, but given the equitable considerations required that the security interest remain in place until the principal was paid. When payment was not forth coming, (and the Defendants did not tender payment over the next five months during post trial motions), the court’s equitable powers allowed the entry of judgment and sale of the property.
51. RESIDENTIAL REAL PROPERTY DISCLOSURE ACT; FRUADULENT MISREPRESENTATION:
Add Rolando v. Pence, (2nd Dist., May, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/2ndDistrict/May/Html/2010099.htm, to the growing archive of cases under the Illinois Residential Real Property Disclosure Act. Here, Pence, an architect who designed and built the house he sold to Rolando, was sued for fraudulent misrepresentation based on the disclosure under the Act that there was no defects in the roof and fraudulent concealment of the defects. Pence testified that there were repeated and continual roof leaks which he repaired by the application of silicone to the affected areas over a ten year period. The Rolandos testified that when the leaking began shortly after they took possession, they found evidence of previous leaks and repairs throughout the home which were concealed by painting and not discovered by their home inspector. At the close of Rolando’s case in a bench trial, Pence moved for a directed finding based on the argument that the statements made pursuant to the Act could not constitute the basis for a cause of action for fraudulent misrepresentation. This decision by the Second District specifically finds under these facts that a statutorily mandated disclosure can be the basis for another claim at law. Section 45 of the Residential Real Property Disclosure Act specifically provides that it "is not intended to limit or modify any obligation to disclose created by any other statute or that may exist in common law in order to avoid fraud, misrepresentation, or deceit in the transaction." (735 ILCS 77/45) Accordingly, a purchase may seek recovery for fraudulent misrepresentation based solely on a disclosure made pursuant to the Illinois Residential Real Property Disclosure Act. Based on the factual finding of the trial court relating to the history of the leaking and Defendant’s unsatisfactory attempts to repair the leaks, the Appellate Court also affirmed the trial court finding that Pence could not have reasonably believed that the roof problems had been fixed.
52. RESIDENTIAL REAL PROPERTY DISCLOSURE ACT; EFFECTIVE DISCLOSURE:
Over the last few years a steady stream of decisions has interpreted the "actual knowledge" and "prevailing party" aspects of the Illinois Residential Real Property Disclosure Act. Now, in Hogan v. Adams, (4th Dist., August 19, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/4thDistrict/August/Html/4010974.htm, we have the first indications of what the Courts will consider a sufficient disclosure of facts relating to an issue disclosed on the Report.
The facts are the gravaman of this decision, and the Court begins by noting that between May, 1993, when Adams purchased the property, and May, 1998, when they sold it to Hogan, there were three specific instances of flooding in the house. The first instance occurred in 1995, when, after a tornado which caused a power outage disabling the sump pump, a large portion of the basement was flooded. Then, in 1996, another large rainfall occurred, significantly flooding the basement despite the fact that the sump pump was operating. The third instance occurred when an outside drain became clogged and a small amount of water entered the basement under a door. When Adams listed the property in April, 1998, they completed the Disclosure Report by noting that "yes" they were aware of flooding or recurring leakage problems in the crawl space or basement, and then writing below on the lines provided for explanation that "tornado in 1995 interrupted power for 3 hours[--]sump pump was unable to operate and water entered the lower [-] level well."
The Fourth District reversed the trial court’s finding in favor of the sellers. First, the decision notes that the Illinois Act, (unlike similar Alaska and South Dakota statutes), does not use "good faith" as a criteria for judgment of the effectiveness of the disclosure. Accordingly, the buyer need not prove the seller actively concealed the defect, or acted in ‘bad faith’ under the Act for liability to attach. In fact, what the seller’s reasonable belief or state of mind as to what was necessary to disclose "is not at issue in this case." as far as liability is concerned. (Although this may be an issue in awarding damages after liability is determined.) The Act requires the seller to disclose known defects and imposes liability for failure to do so. What is at issue is what the seller knows and the completeness of the disclosure to the buyer. Finding that the buyer is entitled to "rely on the truthfulness, accuracy, and completeness of the statements contained" in seller’s disclosure, the Court held that here the disclosure of only one of three instances of flooding was a violation of the Act rendering the seller liable to the buyer. The explanation of the seller on the Disclosure Report did not suggest or disclose the actual extent of the flooding in 1995, did not disclose the 1996 flood at all, and was "misleading because it suggests flooding would only occur if the sump pump was not properly functioning." The fact that the seller consulted with his Realtor before filling out the Disclosure Report, and believed that only an "example" of the flooding was necessary to comply with the Act was not a defense, either. "William knew Steward was a realtor, not an attorney. The disclosure report itself suggests a seller should consult an attorney before completing the disclosure report. See 765 ILCS 77/35."
The impact of this decision may be quite profound in residential real estate transactions. The reasoning holds that full and complete disclosure is necessary, and unequivocally states that consulting an attorney is appropriate to protect a seller’s interests. It makes one wonder what the result would have been had Adams indicated "yes" to a prior flooding issue and not provided any explanation at all. The current custom is that most sellers rely upon the Realtor’s judgment in disclosing defects and the extent of the explanation in the Disclosure Report at the time they list the property. A movement toward complete disclosure under the direction of an attorney may be necessary in the future.
53. RESIDENTIAL REAL PROPERTY DISCLOSURE ACT; MERGER AND ISSUES OF FACT:
In Coughlin v. Gustafson, (1st Dist., 6/21/02), http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/June/Html/1991691.htm, the First District once again examines post-closing residential real estate transaction issues in conjunction with the Residential Real Property Disclosure Act, negligence, breach of contract, and a doctrine of merger defense. Aspects of these issues have been previously raised in Neppl v. Murphy, (1st Dist., 2000), 316 Ill.App.3d 581, Lanterman v. Edwards, (3rd. Dist., 1998) 294 Ill.App.3d 350, and Woods v. Pence, (1999), 303 Ill.App.3d 573, but they are brought together in a somewhat complex factual situation here, and admirably presented in this decision by Justice Buckley.
The trial court entered summary judgment in favor of the seller, Gustafson, upon the buyer’s, (Coughlin), complaint alleging (1) breach of real estate sales contract, (2) violation of the Residential Real Property Disclosure Act, (3) negligence in removal of storage tanks, and (4) breach of implied warranty of habitability. The facts of the case indicate that at the time of an inspection pursuant to a home inspection rider, the buyer discovered that there were leaking fuel oil tanks in the crawl space beneath the home. The seller agreed to professionally remove the tanks and clean the contaminated areas. The contract also required that the seller certify that the roof and foundation were waterproof at the time of closing, and deliver a water and septic test indicating the water quality was good and the septic function properly. At the time of closing, the parties agreed that seller would place $1,000 in escrow to ensure repair of the septic system. Shortly thereafter, buyer received an estimate of $8,000 to $9,000 for this work. At the time of closing, seller did not yet have the roof and foundation certification because the roofer could not come out to the house before closing. The trial court’s grant of summary judgment was based on a finding that the buyers accepted the escrow deposit and elected to close when they were not obligated to do so and had knowledge of the condition of the property; "On this record it is clear that the contract has merged into the deed exchanged for good and valuable consideration."
The First District’s opinion reversing begins with the litany of cases holding that where there are executory agreements contained within the contract for sale that are separate and distinct from the provisions relating to the delivery of the deed and nature of title, (i.e., the condition of the heating system, Nepple v. Murphy , and Lanterman v. Edwards, and roof leaking, Woods v. Pence), that provision is collateral and independent to the provisions in the deed and therefore not merged by the closing. In this case, the fact that they agreed to place $1,000 into escrow further indicated the parties clearly intended to have the agreement to repair or replace the septic tank survive the closing. Turning to the issue of whether the closing served as a bar under the Residential Real Estate Disclosure Act the Court noted (1) "This court’s research, however has not turned up a case which applied the merger doctrine as a bar to a claim under the Disclosure Act", (and) (2) "Moreover the language of the Disclosure Act itself does not support such a conclusion. Section 60 of the Disclosure Act provides: ‘No action for violation of this Act may be commenced later than one year for the earlier of the date of possession, date of occupancy, or date of recording an instrument of conveyance…application of the doctrine of merger would operate as a bar certainly inconsistent with the express language of section 60…" Applying the previous ruling in Woods v. Pence, the Court also found that summary judgment was improper because there were material issues of fact: "There are questions as to the existence of defects, defendant’s alleged knowledge of the defects, and any good-faith belief that defendant may have had regarding whether the alleged defects had been corrected. Accordingly, we find that summary judgment is not appropriate." Finally, on the issue of negligence relating to the removal of the underground storage tanks, the participation in the removal by defendant created a sufficient issue of fact to make summary judgment inappropriate on this count as well.
There is nothing "new" in the law here, but it is good to see a number of previous decisions applied consistently in one set of somewhat complex facts.
54. RESIDENTIAL REAL ESTATE DISCLOSURE ACT; STATUTE OF LIMITATIONS AND SANCTIONS:
In Penn v. Gerig, (4th District, October 17, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/4thDistrict/October/Html/4010196.htm, the buyers brought an action against the sellers after discovering defects in the home quite some time after the closing. The Residential Real Property Disclosure Report expressly disclosed a crack in the foundation on the south side of the house and small settling cracks throughout. The buyers, however, were required to spend $17,900 to correct defects in the sewer system, roof, and foundation, and the complaint was filed on May 16, 2000. The sellers filed a motion to dismiss based on the one year statute of limitations contained in the Act (765 ILCS 77/60). It was uncontested that possession was delivered on November 28, 1997 and the deed recorded on December 4, 1997; two and a half years earlier. The Act provides that the one year limitation is measured from the earlier of the date of possession, date of occupancy, or date of recording an instrument of conveyance. The buyers responded that (1) the "discovery rule" should be applied to the Act to toll the running of the statute of limitations until the plaintiffs knew or reasonably should have known of the problem. In holding that the discovery rule should not be applied, the Fourth District decision by Justice Knecht acknowledges that the rule is applied to alleviate "harsh results" of a statute of limitations, but will not be invoked where there is a "contrary indication of legislature intent." The Residential Real Property Disclosure Act has indications of a contrary intention: (1) the Act in clear and unambiguous terms specifies three events that trigger the statute; possession, occupancy and recording, none of which relate directly to the discovery of a defect; (2) the provision that the measuring date is the earlier of the three events indicates the choice of a period which may even begin to run before the buyer even has an opportunity to discover a condition; i.e., where the buyer delays occupancy but the deed is recorded immediately following closing; and, (3) the choice of a relatively short, one year limitation period itself indicates legislative intent to restrict the cause of action to that period rather than the uncertainly of a "discovery rule" period. Finally, strict enforcement of the limitation period does not result in a "harsh result" because the buyer’s rights to proceed under common law fraud or misrepresentation are specifically preserved by the Act. (765 ILCS 77/45)
The second half of this case deals with attorney’s fees and sanctions. Affirming the trial court’s award of fees, (and granting sanctions for frivolous appeal under Rule 375 as well), the opinion of the Court incorporates the criteria of Rule 137 with the ruling in Bizzell v. Miller, (3rd Dist., 2000), 311 Ill.App.3d 971, 974, 726 N.E.2d 175, 177. Rule 137 requires that there be a pleading not well grounded in fact or warranted by existing law or the good faith argument for the extension, modification or reversal of existing law, or pleadings interposed for the purpose of delay or harassment. The Bizzell decision adds the criteria of the degree of bad faith, whether an award of attorney’s fees could deter others in similar circumstances, and the relative merits of the parties positions in the case. Here, the "time line" reconstructed by the Court, together with its holding that "for plaintiffs to argue for the application of the discovery rule in this case was entirely contradicted by the facts", lead it to uphold the award of attorney’s fees under the Act.
55. RESTRICTIVE COVENANTS; ENFORCEMENT, ACQUIESCENCE AND WAIVER:
The case of VandeLogt v. Brach, (1st Dist., October 15, 2001, http://www.state.il.us/court/Opinions/AppellateCourt/2001/1stDistrict/October/Html/1003369.htm, may, as suggested by my friend Dick Bales of Chicago Title Insurance Company in the note that follows, change the landscape title insurance relating to restrictive covenants.
VandeLogt brought suit against Michael and Susan Brach to enjoin them from constructing a two-story, three car garage on their property adjacent to his home. The restrictive covenants, conditions and restrictions in Sunny Mead Acres, a subdivision consisting of 48 one acre lots established in April, 1948, state that "No building shall be erected or permitted on any part of the premises except one single family dwelling and private garage of not more than two-car capacity appurtenant thereto on any Lot." In his complaint seeking to halt the construction of the garage and enforce the restrictive covenant, VandeLogt alleged that he would be damaged in that the over-sized structure will limit his view of the surrounding nature. In response, the Brachs alleged affirmatively that approximately 40% of the homes in the subdivision had garages larger than two cars, and argued that VandeLogt had "acquiesced in the violation of the restrictive covenant by failing to enforce the same as to other violators, and has thereby waived his right to enforce the restriction against Defendants." While Plaintiff admitted that there were garages in the subdivision larger than two cars, the actual number was alleged to constitute 18.5% of the garages, and none of the other, over-sized garages were visible from Plaintiff’s residence or located on the same block.
Justice Cousin’s opinion begins by noting that a "waiver" is an intentional relinquishment of a known right, and that acquiescence in prior violations of a restrictive covenant can constitute a waiver of the right to enforce the restriction. Restrictive covenants are to be strictly construed, will not be enforced if unreasonable, and will not be enforced when property owners have acquiesced in prior violations. Nonetheless the First District affirmed the trial court’s determination that Vandelogt’s failure to enforce the covenant against other offending owners did not constitute a waiver considering the proximity and location of the other violating properties relative to the plaintiff. Additionally, there was no evidence of changed neighborhood conditions sufficient to establish that the purpose of the restriction could no longer be accomplished and therefore should no longer be enforced. The trial court’s grant of the permanent injunction and direction make modifications to their garage to bring it into compliance with the restrictive covenants was affirmed.
56. RIPARIAN RIGHTS; ACRETION AND BOARDERING LAND OWNERS:
In Hasselbring and Balding v. Lizzo, (3rd Dist., August 8, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/3rdDistrict/July/Html/3010393.htm, the issues of riparian rights in a non-navigable pond were addressed. The pond was on the property in Iroquois County owned by Irene Lizzio. To the north of the parcel was land owned by Mike Balding and to the south was land owned by the Hasselbrings. The Balding property had a cabin facing the pond approximately 60 feet from the water’s edge, and over the years Mike Balding had installed a floating dock on which he fished and kept a boat. The Hasselbrings property had a stream which flowed between the pond and their home, and they built a bridge to access the pond in order to fish and canoe in the pond. Both Balding and Hasselbring believed their that property was adjacent and gave them access to the pond. In 1997, Lizzio began draining the pond in order to create a wildlife refuge. Balding and Hasselbring objected and then filed suite to prevent the draining and sought a permanent injunction against Lizzio, stating that they were entitled to riparian rights to use of the pond. Lizzio, in turn, filed a counter complaint seeking to quiet title to the pond and to enjoin his neighbors from trespassing. The focal issue at trial became the contradictory testimony of surveyors relating to whether or not the neighbor’s property lines were actually adjacent and contiguous to the shore of the pond. It was clear that the depth and area of the pond had changed over time, and, regardless of the current location of the edge of the pond relative to the boundaries of the various parcels, at one time the pond edge extended to the Balding and Hasselbring property lines.
Applying the doctrine of accretion and riparian rights, the Third District affirmed the decision of the trial court in favor of Balding and Hasselbring, enjoining Lizzio from interfering with their use of or draining the pond. Turning to the doctrine of accretion applied to navigable waters, (which holds that the owner of lands bounding the water acquires a right to any natural or gradual accretion formed along the shore in order to avoid litigation challenging the location of the original waterlines), the decision holds that (1) This doctrine applies to lakes and ponds regardless of how large or small they may be.", and (2) There is no requirement that a part of the description of these lots must include this lake for the doctrine apply." Since it was clear that at one time the edge of the pond extended to the neighbor’s property line, the fact that the water had receded did not deprive the neighboring owners of their riparian right to access to the pond, and the land created between their actual property line and the edge of the pond was the product of "accretion". The owner of lands bordered by water owns riparian rights to access to the water, and "The right to preserve his contact with the water is one of the most valuable of a riparian owner."
57. RIPARIAN RIGHTS; ADJACENT LANDOWNER ACESS FOR RECREATION:
While we are on the topic of the bundle of rights that constitute ownership of real estate other than the surface rights, the case of Roketa v. Hoyer, (5th Dist., January 25, 2005),
http://state.il.us/court/Opinions/AppellateCourt/2002/5thDistrict/January/Html/5000336.htm, dealing with a dispute over the right to use a lake is worth review. June Lake is a man-made lake in Effingham County, that was created Joseph Bohn and Joyce Bohn at a time when they owned all of the real estate surrounding the lake. In the 1980s, they subdivided the real estate into several parcels, each of which had lake frontage, and began selling the tracts. Bohn sold one parcel to Hoyer under a contract sale, and deposited the deed into escrow for delivery upon the payment of the final installment described the tract of land as bounded by the lake; but did not expressly convey the lake or any interest or easement for access to the lake, and was silent relating to the grantee’s use of the lake. Thereafter another deed to another parcel adjacent to the lake did include a grant of the right to use the lake for recreation, but prohibited any commercial use by that grantee. Later, by a deed in lieu of foreclosure Bohn conveyed title to the remaining unsold parcels, and including title to the lake, to Effingham State Bank. The bank’s title eventually was conveyed to Roketa "subject to the rights of other owners of land bordering on June Lake…".
Roketa began raising catfish in the lake, and when some of the catfish came up missing, Roketa told Hoyer he could not fish or boat in their lake, and then sought to enjoin Ralph Hoyer from using the lake. Hoyer counterclaimed arguing that since had had title to real estate along the shoreline of the lake, he had an easement to access and recreational use of the lake. The trial court granted summary judgment in favor of Hoyer. On appeal, the Fifth District affirmed.
The decision in this case sets forth the basic principals of riparian rights. The right to use the real estate to access adjacent water is presumed to be conveyed with all of the other "benefits and burdens that appear at the time of the sale". The grantor will be presumed to have intended to convey "the full benefit of the land conveyed, including all other things necessary to the enjoyment of the land granted…without requiring specific mention of the benefits or appurtenances." The open and visible benefit to the land of the lake front was "essential to the beneficial enjoyment of the tracts that boarder it", and therefore the conveyance included an easement appurtenant for access and recreational use of the lake to all grantees. That use, of course, was to be a "concurrent use, rather than an exclusive use", and therefore Hoyer could not interfere with Roketa’s catfish farm, (by removing the catfish just before dinner?), but Roketa could not expand the catfish farm or interfere with the recreational use of the lake by Hoyer. (Those folks in Southern Illinois DO take their catfish seriously, don’t they?)
58. ROADWAY DEDICATION; STATUTORY AND COMMON LAW FACTUAL ISSUES:
In General Auto Services Station v. Sam Maniatis, (1st Dist., March 8, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/March/Html/1010330.htm, an alley abutting some very valuable real estate takes the Court back 120 years to determine the intent of the parties to a subdivision and conveyance of law.
In 1882 George Healy subdivided land in what is now the "Gold Coast" region of Chicago setting forth a strip of land twelve feet wide that ends at Elm Street. The plat of subdivision named the public streets surrounding the property, but did not name or refer to the strip of land. In 1891, Healy conveyed the land to William Seymour, but this conveyance made no mention of the strip of land. Seymour then conveyed the land in 1899 by a deed that stated the grantee covenanted to "never join in any petition to vacate the public alley next west of those premises, but such alley shall forever remain a public alley situated in the City of Chicago." A later deed then referred to "the property on the south side of Elm Street next east of the public alley". Almost 100 years later, in 1985, a complaint was filed seeking a declaration that the alley was privately owned. The trial court dismissed the complaint finding that the provision in the 1899 deed was a restrictive covenant that barred the owner’s attempt to have the property declared a private alley. On appeal, the First District reversed, finding that the trial court erred in ruling that the complaint was an action to vacate a public alley and remanded for findings on the ownership of the alley. That case was nonsuited and the action refilled as a new case. In the second suit, the trial court granted summary judgment to the City. Deposition testimony of the adjacent landowner established that employees of the businesses adjacent to the alley parked their cars there regularly, the City plowed the snow , paved a portion of the alley, no taxes were paid on the alley property, and the public regularly walked into the alley at lunchtime to eat fast food, which required the area be cleaned. Accordingly, the court found "that the alley is public by way of common law dedication". As a result the fee ownership of the alley remained in the "donor", but an easement exists for the public right of way. Noting that a dedication can be either a statutory dedication by virtue of the recording of a plat of subdivision, or a common law dedication based on acts and conduct without a writing. A Common law dedication requires an intent to donate property for public use and acceptance by the public based on clear and unequivocal evidence. The City argued that the reference to the "public alley" in the deeds in the 1890s were sufficient evidence of a donative intent, and that acceptance by the public was established by including Healy’s Subdivision in its official maps, not assigning a permanent tax index number to the parcel, and maintenance of the property. The First District ruled that each of these elements created an issue of fact that would have to be resolved other than by summary judgment. The intent of the owners in the 1890s appeared to be an issue of fact, not unequivocally one of law. Acceptance must be within a reasonable amount of time, and can be revoked prior to acceptance, and the evidence of acceptance by the City did not cover the period of time from the plat to Healy’s death. All told, there simply were too many issues of fact to allow resolution by summary judgment.
59. ROADWAY DEDICATIONS; STATUTE OF LIMITATIONS AND EASEMENT BY PRESCRIPTION :
In Klose v. Mende. Commissioner of Highways, (3rd Dist., December 7,2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/3rdDistrict/December/Html/3010098.htm, there is presented a fairly full spectrum the law governing roadway rights between an owner and the county highway commission. Klose obtained title by a warranty deed in 1995 which described their property by metes and bounds, and included portions of the roadways commonly known as North 4550th Road and East l0th Road. The next year, the Commissioner of Highways sent a right of way agreement to Klose requesting that they grant a 66 foot right of way through their land to accommodate improvements planned for both roads. Klose refused. The Commissioner took the position that they could not refuse because the highways had actually been dedicated to and were owned by the Township. The only evidence of this was a ledger entry made in the township ledger in 1856 that referred to a dedication of the roadways as public highways. Klose filed a complaint for declaratory judgment to establish their fee title to the two roadways. The trial court held that the 1856 dedication was valid and the Township owned the right-of-way. The owners appealed.
In a decision that truly reflects the plaintiffs "historic research", Justice McDade's opinion reverses the trial court. Turning first to 1851 Ill. Laws 35, the opinion notes that the 1856 dedications were invalid for failure to comply with the statutory requires mandating an "order of dedication" with a petition, notice of and a date for a public hearing, survey report and plat attached. Drawing upon early Illinois Supreme Court decisions holding that the introduction of an order of dedication is prima facie evidence of a valid dedication and a valid order requires clearly stated courses and distances of the roadway to be valid, this modem-day decision notes that the 1856 dedication was not valid. There was nothing indicating compliance with the Township Act as it existed in 1856, and the mere notation of a dedication in the Township Ledger, without more, was not sufficient.
The owner's argument that the Township's claim to a fee interest by virtue of the dedication was also time barred by the 40-year statute of limitations relating to real estate was also endorsed by the Appellate Court. Although there is a public use exception to the limitations act so that it will not be applied to invalidate any encroachment on any street, highway or public waters, given the fact that the Township's dedication was invalid, no rights existed to be protected by the exception.
Even though it was not able to assert a fee interest based on the dedication, Township still has an easement by prescription over the road which is currently used by the public. The road had been openly, uninterruptedly, continuously and exclusively used for more than the twenty years-over 140 years, since 1856, actually. While the Township had an easement, however, it was unable to demand the right to make material alterations such as widening the roadway so as to place a greater burden on the Klose's property or interfere with their use or enjoyment of the property.
60. SLANDER OF TITLE & ATTORNEY’S LEIN:
In Chicago Title and Trust Co. v. David Levine, (3rd Dist., June, 2002),
http://www.state.il.us/court/Opinions/AppellateCourt/2002/3rdDistrict/June/Html/3010884.htm, a decision which is fairly limited to some very unusual circumstances nonetheless gives a good overview of the elements of slander of title to real estate.
David Levine, an attorney, filed an attorney’s lien under the Illinois Attorney’s Lien Act, (770 ILCS 5/1), for legal services provided to Thomas Cassidy and Television Cablecasting, Inc, (which was a corporation owned by Cassidy) in a case filed by Susan Fasse in Cobb County, Georgia to dissolve her common law marriage with Cassidy. Part of the property involved in the Georgia case was farmland located near Delavan, Illinois. While this case was pending, the parties and their agents were subject to an order of the Georgia Court not to encumber any property belonging to the parties. A year and a half after that order was entered, and one week prior to a jury awarding Fasse 100% of the stock of the corporation owning the farm, (Television Cablecasting, Inc.), Levine filed an attorney’s lien against the farm in the Office of the Recorder of Deeds of Tazwell County in the sum of $42,762.35. Levine also ‘backdated’ a letter by two years and sent it Fasse with a copy of his attorney’s lien, and filed an action against the corporation for his attorney’s fees in Georgia. Chicago Title, as the land trustee holding title to the farm, filed a slander of title action against Levine in Tazwell County, requested declaratory judgment that the lien was invalid, and prayed for an award of its attorney’s fees and punitive damages.
At trial, Chicago Title’s expert testified that an "attorney who performed a minimum amount of legal research would know that the lien was invalid". Levine only testified that he believed the lien was valid because his client, Cassidy, a Illinois Attorney, had told him it was.
Affirming the jury verdict in favor of Chicago Title awarding $3,929.60 in attorneys fees and $30,000 in punitive damages, the decision reviews the elements of slander of title: (1) a false and malicious publication, which (2) disparages title to property, resulting in (3) damages due to the publication, made (4) with malice in that the statements were known to be false, were made with reckless disregard of the truth or falsity , or despite a high degree of awareness of its probable falsity. Here, Levine admitted he did not independently research the law on attorney’s liens, no notice in writing was served and no client or party against whom the claim was made was identified in the lien as required by 770 ILCS 5/1. There was no itemization for the $40,000 of attorney’s fees claimed, and, of course, the recording of the lien violated the court order not to encumber the property of the parties during the pending proceedings. The lien resulted in additional attorney’s fees and a delay in the closing when a portion of the farmland was to sold while encumbered. This accounted for the $3,929.60 portion of the award. The Appellate decision held that there was sufficient evidence for the jury to determine that Levine acted with malice and disregard for the truth that the lien was an inappropriate encumbrance.
61. TAX DEEDS AND ADVERSE POSSESSION:
Real Estate Taxes are a primary lien, superior to all other liens. When real estate is sold and a tax deed issued, existing mortgages, judgments, and federal tax liens are all extinguished. What happens to other interests in land, such as title acquired in the interim by adverse possession? Killion v. Meeks, (Fifth Dist., September 18, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/5thDistrict/September/Html/5010924.htm confirms the superior nature of the lien of real estate taxes by holding that a tax deed extinguishes the rights of an adverse possessor.
Defendant Meeks acquired title to the real estate by a quitclaim deed from the Marion County trustee, who had acquired the land by a tax deed. Maurice and Nina Killion owned an adjacent parcel of land and claimed that they had acquired ownership of a 18 by 207.5 foot portion of defendant’s property by adverse possession, claiming to have been in open, notorious, and continuous use of the property for a period of more than 20 years.
In a case of first impression, the decision holding in favor of Meeks begins with a recitation of the history of legislative enactments and amendments affecting the title acquired by a tax deed. Section 266b added in 1965, (now 35 ILCS 200/22-70), provides that a tax deed shall not extinguish or affect easements, covenants, conditions, restrictions running with the land, or rights of way for utility or public service use. Nonetheless, there is a "strong public policy statement which the several amendments to the Revenue Act represent, in encouraging the recognition, validity[,] and commercial acceptability of tax deeds…" Section 22-55 of the Tax Code provides that tax deeds are intended to convey merchantable title and the law is to be liberally construed to that end. While the Code does provide that a tax deed will not extinguish easements and covenants that run with the land, there is no provision suggesting an intent to provide protection to one who claims by adverse possession from the impact of a tax deed. Accordingly, "the proper issuance of a tax deed extinguishes the claims of the adverse possessor."
62. TAX DEEDS; EXTENSION OF REDEMPTION PERIOD AND 1 YEAR RECORDING PERIOD LIMITATION:
Tax deeds are fraught with pitfalls…for both the owner who fails to pay taxes as well as the tax buyer. This is apparent from the recent case of In re Application of the County Treasurer, (1st Dist., August 2, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/August/Html/1013279.htm. Jerome Sirt, the assignee of the tax buyer, appealed the order of the Circuit Court finding that the deed was void and of no effect and vacating the prior order directing the issuance of the tax deed. There is some good discussion of the standing of parties in the proceeding, but the crux of the case turned upon the motion to vacate filed by the manager of the property sold for non-payment of taxes. That motion was based on the fact that the deed was not recorded within one year of the expiration of the redemption period. 35 ILCS 200/22-85 provides that unless the holder of the certificate of sale of the taxes obtains and records the tax deed within one year from the expiration of the redemption period, the certificate or deed shall "be absolutely void with no right of reimbursement." The facts of this case had an interesting twist in that the redemption period was extended as permitted by 35 ILCS 200/21-385. That section permits the purchaser to extend the redemption period at any time before the expiration not more than 3 years from the date of sale. The extension must be in a writing filed with the clerk and pursuant to notice. Here, however, there was a "gap" between the extensions of the redemption period, (i.e., the further extension was not within the time period of the prior extension and before its expiration). Accordingly, the Court held that there was no toll of the redemption period and the deed was not acquired and recorded within the one year period. The impact was, of course, devastating to Sirt because of the fact that he had no right to reimbursement of the amount of the sale under the statute. It was clear that there was no impediment to obtaining and recording the deed. The order to issue the deed was properly and timely entered, and then a motion to vacate was filed. The result was that the deed was void based on the failure to timely record, but the sale was not vacated and the bid amount not refunded.
63. TAX INCREMENT FINANCING DISTRICTS (TIF); STATUTORY PREREQUISITES:
During the discussion or consideration of almost any project of considerable size or cost these days, it is almost guaranteed that the subject of "TIFs" will come up at one time or another. Familiarity with and an understanding of Tax Incremental Financing through the establishment of a redevelopment district as a financing vehicle is a prerequisite for representation of many developers. In Board of Education v. Village of Robbins, (1st Dist., February 8, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/February/Html/1002704.htm, a somewhat lengthy opinion gives insight into the political interplay and interrelatedness of TIF districting. The Village of Robbins established a TIF district for a parcel of land upon which a waste incinerator was to be built. The local School District filed suit challenging the TIF due to the impact it would have on the District’s revenues from taxes. "Under the TIF Act and city ordinances, taxes on incremental increases in the equalized assessed value of property within the TIR district are to be collected by the county treasurer, remitted to the city treasurer, deposited into a special allocation fund and spend on statutorily approved expenses of the TIF district…In other words, the TIF Act authorizes municipalities to encourage redevelopment of blighted property by freezing real estate taxes and offering the developer the value of future incremental property taxes to be generated as a result of improvements to the property. As the trial court noted, ‘…[w]hile the TIF Act speaks in terms of depositing the incremental taxes in a special fund and using them to pay eligible project costs, the practical effect of using TIF is to cap - at pre-improvement levels - the real estate taxes on the property for up to 20 years."
The Board of Education filed a ten count complaint challenging the Village’s determination that the parcel was not subject to investment and growth by private investment and constituted an appropriate TIF district. In affirming the trial court’s dismissal of all ten counts, the First District’s decision specifically deals with the expert testimony of "TIF experts" that investors would not have otherwise been drawn to the project and the bond financing of the project required districting. Although the particular developers spent years planning the project, no other developers ever expressed any interest in this site, and the Village had no other commercial or industrial business developments that could provide growth and development through private enterprise investment without resort to the adoption of a redevelopment plan and districting. The developer did not have the finances or capability to complete the waste facility on its own. Robbins was clearly a blighted, economically depressed community and could not reasonably anticipate growth and development without the redevelopment plan and district, as required by statute; 65 ILCS 5/11-74.43-3(n)(J)(1). Under these circumstances, and despite the challenges that the treatment of waste is a municipal function rather than one for private enterprise and the subject parcel was being rented by the Village to the developer, the TIF district was upheld.
64. TENANCY BY THE ENTIRETY AND FEDERAL TAX LIENS; BECAREFUL OUT THERE:
The most talked and written about case from the United States Supreme Court relating to real estate of recent date is United States v. Craft, (U.S., April 17, 2002), 122 S.Ct. 1414. (See "Law Pulse", ‘Uncle Sam sidesteps tenancy-by-the entirety restrictions’, ISBA Bar Journal, Vol. 90, July 2002, pg. 341, and ISBA Real Estate Section Council Newsletter, "U.S. Supreme Court rules tax lien effective against half of tenancy by the entirety property", by Gary Gehlbach, July, 2002). This decision from our highest court may significantly restrict the "protection" afforded through tenancy-by-the-entirety relative to debts owed to the federal government.
The Court has held that a lien of the federal government against one spouse is not rendered unenforceable against property held in the entireties under state law: "As we elsewhere have held, ‘exempt status under state law does not bind the federal collector.’ " The entireties law at issue was that a Michigan, which is similar to the Illinois entireties statute, (735 ILCS 5/12/-112). The lien in question was a federal tax lien for $482,466 owed by the husband and which, pursuant to 26 USC 6321, attached to "all property and rights to property, whether real or personal, belonging to" him. The majority opinion focuses largely on the issue of whether or not the husband had "property" as a tenant by the entirety to which the lien attached. They determined that he did, under Michigan law, have property rights, and that therefore the lien attached pursuant to federal law to property rights created by state law. (This initially appears not to create a issue with Illinois property inasmuch as there is no question that a lien attaches to tenancy by the entirety property, it is simply unenforceable under state law.) Of important note is that the facts in this case are that the issue of whether the lien attached was raised after the property was sold out of the entireties and as an bill to quiet title brought by the wife relating to the proceeds of sale. Reading through the majority opinion, one is struck by the similarities of Michigan and Illinois law relating to the entireties, but it appears that the facts and conclusions in this case may not contrary to current thinking that a federal tax lien is unenforceable against Illinois entireties property as long as it remains in the entireties and is not sold.
This thinking, however, is undermined by the language in the last paragraph of the majority decision. Here the decisions notes that under Michigan law (as in Illinois), "Land held by husband and wife as tenants by the entirety is not subject to levy under execution on judgment rendered against either husband or wife alone.", but then notes "As we elsewhere held, ‘exempt status under state law does not bind the federal collector’", and the "Supremacy Clause ‘provides the underpinning for the Federal Government’s right to sweep aside state-created exemptions." Without this language, the argument could be made that the Craft decision is distinguishable to cases in which the entireties had been terminated by the sale of the property and the only holding by the court was that the lien had attached to the husband’s interest and became enforceable upon the termination; which would be consistent with current interpretation of Illinois entireties law. These last few lines, however are broad in their scope and characterization; broad enough that we must all now warn our tenancy by the entirety clients that their interest may not be immune from enforcement by "the federal collector".
Justice Thomas’ dissent emphasizes this distinction by noting that "The Court today allows the Internal Revenue Service (IRS) to reach proceeds from the sale of real property…" (emphasis added), which may support the interpretation that the decision relates only to proceeds not the ability of the IRS to proceed with enforcement while title continues in the entirety. There is a great deal of difference between the question of whether the IRS lien attaches to the entireties property and whether the IRS can enforce their lien while the tenancy exists in contravention to state law. The majority decision is a result based largely on the rejection of the view that Michigan’s "state law fiction" is that tenancy by the entirety property does not belong to the individual spouse, and therefore the taxpayer has no ‘property rights’. Illinois is distinct, however, in that the protection attempted to be afforded by our Civil Practice act is not based upon the fiction that there is no property right, but on a declaration that the lien is unenforceable while the tenancy is maintained. Justice Thomas completes his dissent thusly: "Just as I am unwilling to overturn this Court’s long-standing precedent that States defines and create property rights and forms of ownership, (cite), I am equally unwilling to redefine or dismiss as fictional forms of property ownership that the State has recognized in favor of an amorphous federal common-law definition of property."
65. TITLE INSURANCE; CONTRACT INTERPRETATION & REAL ESTATE TAX ESCROW:
In 1997, Premier Title Company acted as the closing agent and title insurer in a real estate transaction in which Duane Donahue was the purchaser. Premier Title Company v. Donahue, (2nd Dist., March 7, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/2ndDistrict/March/Html/2001076.htm. At the time of closing, it was determined that the 1995 real estate taxes had been sold, and that the first installment of the 1996 taxes were not yet paid. Accordingly, Donahue deposited $3,500 into an escrow with Premier for the payment of taxes, and Premier issued a title policy clear of exceptions relating to the taxes. Premier redeemed the 1995 taxes with funds from the escrow account. For some reason, however, it then returned the balance of the escrow funds to Donahue. When the 1996 taxes became due, Premier paid the first installment pursuant to the terms of the escrow and pursuant to its title policy. It then sought to recover $1,189.72 from Donahue for the funds advanced after disbursement of the escrow. Donahue refused to pay, and Premier brought a small claims action to recoup the taxes it had paid. The trial court granted Premier’s motion for summary judgment.
On appeal, Judge Grometer’s opinion offers a point-by-point review of the law of contract interpretation to the context of this escrow agreement. Defendant contended that the escrow agreement terminated when Premier disbursed the balance of escrow funds. Premier, on the other hand argued that the escrow provisions requiring Donahue to "forever defend and save…harmless" created an ongoing obligation that survived the disbursement and required reimbursement of the later paid taxes. Holding for Premier and affirming the trial court, the decision outlines the rules of contract interpretation: (1) Contracts are to be interpreted as a whole document, (2) attempting to determine which of two conflicting clauses most clearly expresses the chief objective and purpose of the contract, (3) assuring that none of the terms are regarded a mere surplusage as a result. Specific provisions are entitled to more weight than general in interpreting the intention of the parties, and the doctrine of merger does not apply where there are covenants that are distinct from the performance itself or to be performed afterwards. Finally, the rule that ambiguity in a contract should be resolved against the party who drafted the instrument is "at best a secondary rule of interpretation, a last resort which may be invoked after all the ordinary interpretive guides have been exhausted." Here, the Court determined that purpose of the contract was to assure that Donahue would be responsible for the payment of unpaid taxes from the funds in escrow, and imposing a continuing duty for loses arising out of the unpaid taxes was the intent of the parties. Accordingly, the escrow agreement was intended to provide for the payment of both year’s taxes and reimbursement if necessary.
66. ZONING: ALARM ORDINANCE, STATE PREMPTION & HEALTH, SAFETY AND WELELFARE:
The enforceability of the Village of Hinsdale Alarm Detection ordinance was challenged not by a village resident, but by the entity having the most business interest at stake, Alarm Detection Systems, Inc., in Alarm Detection Systems, Inc. v. The Village of Hinsdale, (2nd Dist., December 12, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/2ndDistrict/December/Html/2001393.htm. ADS provided fire alarm services to commercial and residential customers in a large number of communities, including Hinsdale. The Village enacted an ordinance amendment to its building code requiring that all commercial building alarms be directly connected to the Village fire department.. The purpose of the amendment, according to the Fire Chief’s testimony at trial, was to reduce the fire department’s response time to alarms, thereby saving lives, property, and promoting firefighter safety. ADS sought an injunction against the Village mandating direct connection by a specific date, arguing that the ordinance was beyond the scope of the Village’s authority as a non-home rule municipality, an illegal restraint on trade, (the Village had entered into an exclusive contract with Security Link/Ameritech to maintain and operate the fire board, and Security Link was a competitor of ADS), a de factor regulation of fire alarm services, deprived it of its rights without due process, and beyond the scope of it home-rule authority. The trial court found the ordinance a proper exercise of the Village’s police powers and rationally related to the community health, safety and welfare.
The Second District affirmed on appeal. Rejecting the home-rule argument, the Court noted that Illinois Courts have consistently held that the Municipal Code grants powers to regulate the construction and maintenance of existing buildings within municipal boundaries to protect the public health, safety & welfare. 65 ILCS 5/11 -- 30--4, 5/11 -- 8-- 2. Accordingly, having determined that the authority exists and a rational relationship to public health, safety and welfare was demonstrated, the issue became whether the ordinance was unduly burdensome upon private property owners or businesses. Noting that municipal ordinances often have a "secondary impact" on businesses, (and citing the case in which the Greyhound Bus Lines challenged the City of Chicago’s ban on pay toilets…unsuccessfully to a grateful public), the Court held that "the right of an individual to conduct business in a certain way is subordinate to the interests of public safety and welfare", and that the Hinsdale ordinance was not an illegal attempt to regulate the private alarm industry despite the existence of the regulatory powers set forth in the Private Detective, Private Alarm, Private Security, and Locksmith Act of 1993, 225 ILCS 446/1 et seq. (If you find yourself at odds reconciling this decision’s determination that a non-home rule municipality did not infringe upon the Alarm Act’s regulatory scheme, whereas the Olympia Fields case finds that the Village interpretation of its zoning ordinance did usurp the authority of DCFS relating to home day care centers, sit on this side of the room with me, and I suspect we’ll be lectured on the importance of public healthy, safety and welfare.) Finally, relating to the allegation that the Village engaged in an unreasonable restraint of trade, the Court notes that the Illinois Antitrust Act, (740 ILCS 10/1 et seq.) contains a specific exception for "activities of a unit of local government at Section 10/5(15).
67. ZONING; AMERICANS WITH DISABILITIES ACT HARDSHIP VARIANCE:
George and Astrid Dadian lived in their Wilmette home for over forty years and were in their 70’s when they decided to reconstruct their house and hired an architect to design a one-story residence with rooms and halls wide enough to accommodate a wheelchair due to Mrs. Dadian’s problems walking, osteoporosis and asthma. The design also included an attached, front access garage with a 30-foot driveway as an alternative to the an 80-foot rear entry garage to accommodate Ms. Dadian’s difficulty twisting and turning to drive down a long driveway. The Village ordinances allowed a permit for a front driveway when 50% of the homes on the block already had front or side driveways. The Dadian’s block contained 16 homes and only six of them had front drives. Accordingly, the Dadian’s petitioned the Village to grant a variance as requested under the hardship exception of the ordinance. The Village denied the request citing concerns that Mrs. Dadian’s problems would create a safety hazard to children on the block. The Dadians filed suit for discrimination under the Americans with Disabilities Act, 42 U.S.C. 12131, in federal court and obtained a jury verdict in their favor at trial. The Village appealed.
Focusing on the procedural difficulty of overturning the jury verdict, the 7th Circuit panel in a decision written by Judge Williams affirmed, Dadian v. Village of Willmette, (7th Cir., October 18, 2001), http://www.ca7.uscourts.gov/op3.fwx?submit1=showop&caseno=00-2674, and gives ample insight into the use of the ADA as a basis for requesting zoning variances as an accommodation for homeowners based on age or disability. http://www.ca7.uscourts.gov/op3.fwx?submit1=showop&caseno=00-2674.
A person is disabled under the ADA if they have a mental or physical impairment that substantially limits a major life activity. Mrs. Dadian’s osteoporosis is a degenerative disease which substantially limits here ability to walk and therefore qualifies. A public entity is required to make reasonable accommodations to a person with a disability by altering rules, policies , practices or availability of services when necessary under the ADA, and whether a requested accommodation is reasonable is "highly fact-specific, and determined on a case-by-case basis by balancing the cost to the defendant and the benefit to the plaintiff.", and a "showing that the desired accommodation will affirmatively enhance a disabled plaintiff’s quality of life by ameliorating the effects of the disability." In this case, the jury determined that the "cost" to the Village of granting the front driveway permit was out-weighed by the needs of Mrs. Dadian, and that the request was not at odds with the purpose behind the ordinance or cause a fundamental or unreasonable impact I the neighborhood. The Court also noted that the Fair Housing Amendment Act of 1988, 42 U.S.C. 3601, places the burden of proof on the public entity to prove that a direct threat exists to the health or public safety as a defense to a disability discrimination action.
The affirmation of the jury verdict in the trial court was a primary focus of the decision, but the case is well worth reading as a primer for attorneys representing an aging clientele in need of zoning variances to make accommodations in their residences due to disabilities.
68. ZONING; ANIMUS and EQUAL PROTECTION:
In a case that has a lot in common with the earlier discussed case of Nevel v. Village of Schaumburg, (7th Cir., 7/26/02), http://www.ca7.uscourts.gov/op3.fwx?submit1=showop&caseno=01-1966.PDF, the issues surrounding animus between and builder and a village, a resultant refusal to approve a subdivision plat, and a allegation of denial of equal protection were presented in Purze v. Village of Winthrop Harbor , (7th Cir., 4/9/2002), http://www.ca7.uscourts.gov/op3.fwx?submit1=showop&caseno=00-4155. Gilbert and Jerome Purze sued the Village of Winthrop when they were refused approval of several preliminary plats of a subdivision, alleging that the Village denied them equal protection of the law.
The Purzes’ property was zoned rural, (R-5), and they petitioned it be re-zoned to residential use, (R-3). There was strong opposition from the neighbors, who did not want the rural character of the area to be altered, and the re-zoning request was denied. The Purze brothers then employed an engineer, who prepared a resubdivision plat in an attempt to comply with R-5 zoning. The zoning board denied this plat because it failed to meet the minimal width and square footage requirements, the easements were less than the required 20 feet, and there were water runoff and detention, and traffic, ingress and egress issues. The Purzes then submitted another, revised plat, which was once again questioned because it contained two lots with less than the required square footage, the easements that were not sufficiently wide, and concerns voiced by the Police and Fire Chief relating to access for emergency traffic. Nonetheless, the zoning board approved this revised plan subject to adding an additional roadway and reconfiguration of the utility easement. The Village Board, however, rejected the plan, but agreed to waive the fee for the Purzes to submit another, further revised plat for consideration by the Village Board. The Purzes decided, however, to submit a new, revised plat to the zoning board. This plat also had a number of problems, but the board also approved this revised plat by a divided vote and sent it on the to Village Board for review. The Village Board noted that the second revised plat still had several lots that were too small, the maintenance easements were still to inadequate, and the requested new road for emergency access violated the restrictions on "road jogs". Rather than submit a third revised plat, the Purzes filed suit alleging that they had been denied equal protection of the law by the Village Board.
The trial court granted summary judgment in favor of the Village based on a finding that the Purzes had failed to present sufficient evidence to establish that similarly situated owners were treated more favorably and that the Village officials were motivated by personal ill-will or animus toward them. Affirming, the Seventh Circuit noted that "to make out a prima facie case the Purzes must present evidence that the defendant deliberately treated them differently from others in a similar situation and sought to deprive them of the equal protection of the laws for reasons of a personal nature unrelated to the duties of the defendant’s position." The Purzes’ comparison with three other developers in the Village to support their position that others were treated more favorably was rejected; the other individuals were not identically situated in all relevant aspects because these developers sought and obtained variances under different circumstances and conditions.
69. ZONING AND BUILDING PERMITS; MANDAMUS & VESTED RIGHTS:
An unusual set of circumstances in 1350 Lake Shore Associates v. Christopher Hill and City of Chicago, (1st Dist., November 29, 2001) http://www.state.il.us/court/Opinions/AppellateCourt/2001/1stDistrict/November/Html/1001119.htm resulted in the Appellate Court reversing Judge Nowicki’s denial of a petition for a writ of mandamus directing the City of Chicago Department of Planning to issue an approval letter as a precondition to the issuance of a building permit for the construction of a 40 story, 196 unit apartment building. The saga begins 23 years earlier, when 1350 Lake Shore Associates obtained an amendment to the property’s zoning to allow a residential planned development which would have allowed the construction of the apartment building. Over the next eighteen years, however, the Plaintiff chose not to proceed with development. In 1996, presumably based on the fact that the Chicago Zoning Ordinance provided that such a residential planned unit development must be undertaken within a period not to exceed 20 years, the developers sought an approval letter from the Department of Planning in order to proceed with construction. The Commissioner took no action, and did not respond to requests thereafter to issue the letter, and this suit was filed. The City argued that ordinance did not provide for a 20 year expiration period, but should be interpreted as requiring the landowner to develop property "contemporaneously". It also noted that in the interim, the Chicago City Council approved a "down-zoning" ordinance for the property which would not permit the project. The Plaintiff countered by arguing that the it had a vested right to the issuance of the approval letter which would lead to a permit, substantially changed its position in reliance on those rights, and therefore was entitled to the approval letter and permit despite any subsequent change in zoning. (The Plaintiff was actually seeking a "Part II Approval letter", which was a necessary prerequisite to a zoning certificate, which was necessary to obtain a building permit.) Finding that "a landowner is entitled to the issuance of a Part II Approval letter when his property is located within a planned development and the plans he submits meet all requirements of the applicable planned development ordinance", the Court noted that the ordinance did not state that the approval of a planned development expired upon a property owner’s failure to timely develop the property, and found that the Commissioner did not have a right to refuse or delay the issuance of the permit because there was a pending ordinance which would prohibit the use -- and could not await the outcome of the pending "down-zoning" ordinance before issuing the approval. Accordingly, the Plaintiff established (1) that it had a clear right to the issuance, (2) the Commissioner had a clear duty to issue, and (3) the Commissioner had the clear authority to issue. A mandamus is an extraordinary remedy used to require the performance of office duties by a public officer where there is no exercise of discretion on his part involved, and, where the party seeking the writ establishes an absolute right to the performance, it should be awarded as a matter of judicial discretion.
70. ZONING; DOWN-ZONING AND RELIANCE UPON THE CLASSIFICATION OF PROPERTY:
Howard and Craig Wakefield were developers in Champaign-Urbana who saw great potential for profit by building apartments near the campus for rental to students. Accordingly, after building a six-unit apartment building in the 800 block of Main Street, in October, 1986, they bought three lots next to the apartment building , intending future development. The lots had older homes in various stages of disrepair which had been converted to rental property by the prior owners. The Wakelands testified that they intended to tear the homes down in three to four years and redevelop the lots as apartment buildings. In the interim, they continued to rent the properties, did not proceed with any drawings or designs, or apply for any permits to redevelop the lots. In May, 1995, one of the structures burned down, and the Wakelands took no action to build anything in its place after receipt of the insurance proceeds. As the years past, however, the City formed a planning commission to study the area in 1988, and following public hearings and investigation, the Commission issued its "Downtown to Campus Plan" calling for down-zoning many properties to lower the density of the area and preserve the area’s single family dwelling qualities. As a result, the Wakeland’s property was down-zoned from an R4 (which would allow apartment buildings) to an R2 area that resulted in their buildings being non-conforming uses and prohibited multifamily development. The Wakelands filed suit challenging the re-zoning as unconstitutional as applied to them, presented evidence that the value of their property diminished from $320,000 to $68,000 as a result of the down-zoning, and argued that there were properties of higher density and mixed uses within a few blocks surrounding their lots. The trial court upheld the re-zoning ordinance, and Wakeland appealed. The Fourth District affirmed. Wakeland v. The City of Urbana, (4th Dist., July 31, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/4thDistrict/July/Html/4010991.htm.
An attack upon a zoning ordinance by a property owner requires that the plaintiff prove by clear and convincing evidence that the application of the ordinance to his particular property is unreasonable, arbitrary, and does not bear a reasonable relationship to the public health, safety and welfare. The elements to be considered by the court are (1) the uses and zoning of nearby properties, (2) the extent to which the zoning diminishes the property value, (3) the public good which is promoted by the zoning, (4) the benefit to the public compared to the hardship upon the owner, (5) the suitability of the property to the zoning purpose, (6) the time period in which the property has remained vacant as zoned, (7) the community need for the zoning, and (8) the care and consideration given to the overall planning and land use in arriving at the zoning restriction. The burden on the challenger of the zoning ordinance is great because a municipality is presumed to have the right to regulate land use within its purview.
The Wakeland’s provided evidence that there were more intense uses within blocks of their property to appeal to the Court’s concern that the zoning be in conformity and uniform with surrounding existing uses. The decision found that "A more intense use of land nearby does not necessarily determine the character of an area. For example, a residential area and commercial area can exist across the street from one another and yet be separately identifiable." Likewise, the reduction in the value of their property by virtue of the re-zoning was not a persuasive argument; "…it is not determinative that the property would be worth more if the zoning were not reclassified because this would be true in virtually all reclassified cases." The ‘public good’ versus "owner hardship" was also a balancing test that the Wakelands lost. "Density is a legitimate concerned in a zoning case and an adequate basis for classification." The public good includes "preserving historical continuity, limiting congestion and restricting burdens on existing infrastructure", and the historical element does not require formal designation of specific houses or streets as historical landmarks to uphold an ordinance aimed at protecting the historical appearance or ambience of an area. "If a city can make an aesthetic judgment that large signs are undesirable in an area of commercial and residential buildings, (citation), we see no reason why it cannot make an aesthetic judgment that building a row of modern apartment buildings on a street of old, architecturally ornate houses is undesirable."
Most importantly, the decision holds that under these facts, the Wakelands did not have a vested right in the continuation of the R4 zoning classification that existed at the time they purchased the lots. While prior decisions, (including the Pioneer Trust case, 71 Ill.2d 522, 377 N.E.2d 26), have held that a party has a vested property right in a zoning classification where they have in good faith substantially changed their position or expended funds in reliance on a building permit or probability of its issuance, the good faith element requires that they take some action within a reasonable time. Here, the Wakelands purchased the lots and then did not begin construction or take any action to that end. When the one building was destroyed by fire, they took no steps to build on the empty lot. "A buyer cannot count on an indefinite continuance of a zoning classification….To come within the rule of Pioneer Trust , the buyer must take action to develop the property within a reasonable time, or else zoning ordinances would effectively nonamendable."
71. ZONING; EXCLUSORY ZONING AND STATE PREEMPTION
Hawthorne v. Village of Olympia Fields, (1st Dist., February 8, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/February/Html/1010447.htm, deal with a challenge by a homeowner of the Olympia Fields prohibition against her use of her home as a day care center. Two important facts in this case are that (1) the Village of Olympia Fields is a non-home rule municipality, and (2) Sonia Hawthorne had obtained a license from the State of Illinois to operate a day care facility in her home prior to the Village denying her request for a variance of the local zoning ordinance relating to her "home occupation" use of her property. Hawthorne alleged that the Village prohibition constituted exclusionary zoning and was preempted by state law from exercising its land use control over licensed home day care centers. The trial court ruled in favor of Hawthorne, and the Village appealed.
On appeal, the First District affirmed the trial court and denied the Village’s motion for a stay. There were a number of amici curiae briefs filed by not-for-profit organizations interested in day care and women’s businesses. While the Village had a comprehensive zoning ordinance permitting "home occupations" in residential areas, it took the position that because Hawthorne was employing a non-family member to assist her, had a separate kitchen facility, parents would be dropping off and picking up as many as 14 children, and the back yard was to be used as an outdoor play area, the residential character of the home was altered beyond that of one merely used in a "home occupation". Hawthorne argued that the Village exceeded its authority by wholly excluding home day care from the Village, and that the state licensing of her home preempted the prohibition. The Illinois Child Care Act, (225 ILCS 10/1), requires a license or permit by the DCFS and sets forth minimum standards for facilities. In a case of first impression, the Court ruled that "Under Dillion’s Rule, a non-home rule municipality only possesses those powers which are specifically conferred by the Illinois Constitution or by statute." ("Dillon’s Rule" refers to the treatise Dillion, Municipal Corporations, (5th ed., 1911), where, at page 448-50, the Court cites, as have other decisions referenced in the opinion that "It is a general and undisputed proposition of law that a municipal corporation possesses and can exercise the following powers, and no others: First, those granted in Express words; second, those Necessarily or fairly implied in or Incident to the powers expressly granted; third, those Essential to the accomplishment of the declared objects and purposes of the corporation, --not simply convenient, but indispensable. Any fair, reasonable, substantial doubt concerning the existence of power is resolved by the courts against the corporation, and the power is denied.") The Village’s citation to case law from other jurisdictions in support of its position that was exercising its valid police powers to regulate and limit the use of property within its jurisdiction to preserve "residential tranquility" was distinguished as interpreting an ordinance to "infringe upon the spirit of the State law or are in repugnant to the general policy of the State". Adopting Hathorne’s argument that "nowhere does the legislature grant to municipalities the power to wholly restrict a lawful business from their boundaries", the Court found that the Village here engaged in "exclusionary zoning" which was preempted by the Child Care Act empowering only one state agency, DCFS, with the administrative, regulatory, oversight and licensing authority to deal with day care facilities.
Justice Quinn, specially concurring in part and dissenting in part, disagreed with the majority holding that the Child Care Act preempts the Village in to the extent that it could not affect the use of residential property by zoning ordinances. Villages, Justice Quinn argues, have the right to regulate and limit the intensity of use, classify and regulate the location of residential property, trades and businesses, and divide the Village into districts for different uses. While he agrees that the Village can not exclude all day care homes by its zoning ordinances, or limit the use of play areas in residential districts so as to thwart compliance with the DCFS requirement of these facilities in licensed centers, he does believe that restrictions prohibiting non-family members from employment in the day care are rationally related to the Village police powers.
72. ZONING; EXPANSION OF AN EXISTING NONCONFORMING USE:
In Fisher v. Burstein, (2nd Dist., September 24, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/2ndDistrict/September/Html/2010661.htm, neighbors of the Chestnut Mountain Resort in Galena, Illinois, sought declaratory and injunctive relief against the resort to prohibit the expansion of the facility for the operation of a new snowboarding and "Village Ski Center" area on the east side of the mountain. The resort was originally opened as a ski resort in 1959. In 1995, the Joe Daviess County zoning ordinance limiting the use of structures on the property became applicable, with the exception that "Uses lawfully established on the effective date of this Ordinance may be continued…". The neighboring landowners took the position that the term "continued" as applied to the Defendant’s nonconforming use, did not permit the expansion of the use for the snowboard trails and center, but only allowed the existing uses to be "temporally" continued or maintained, not "spatially" developed or expanded. The trial court disagreed and Second District affirmed.
A governmental body may restrict a nonconforming use to prohibit extension or expansion for public health, safety or welfare reasons, but must do so expressly by legislation. The Jo Daviess zoning ordinance did not contain a prohibition of the expansion of a nonconforming use. "Under the principal of inclusio unius est exclusio alterius, the enumeration of an exclusion in a statute or ordinance is construed as the exclusion of all other others…While the county could have imposed some similar restriction on the expansion of nonconforming uses, it did not do so, and we will not impose such a restriction on our own accord….In the absence of any explicit restriction on the expansion of a nonconforming use in the ordinance, we conclude that such expansion was not prohibited as a matter of law." The ordinance allowed nonconforming uses to continue, but did not expressly limit their expansion or development, and therefore did not prohibit the snowboarding park and Village Ski Center.