REAL ESTATE LAW PRACTICE “KEYPOINTS”

(May, 1999)

 

By Steven B. Bashaw

Steven B.  Bashaw, P.C.

Suite 1012

1301West 22nd Street

Oak Brook, Illinois  60523

Tel.: (630) 472-9990

Fax.: (630) 472-9993

e-mail:  sbashaw @bashawlaw.com

(Copyright 1999 - All Rights Reserved)

 

 

1. PROMISSORY ESTOPPEL REQUIRES ADDITIONAL CONSIDERATION AND DETRIMENTAL RELIANCE IN ADDITION TO CONDUCT INCONSISTENT WITH ENFORCEMENT OF A CONTRACTUAL RIGHT:

In this case the First District Illinois Appellate Court applied North Carolina law to a contract by which Parkside Senior Services, LLC and National Development and Consultants, LTD agreed to jointly develop 215 acres in Greensboro, North Carolina as a health care complex for senior citizens. The parties entered into an indemnity agreement which provided the Parkside would withdraw its 50% share of funds deposited within 40 days of the execution of the contract. There was no dispute that Parkside did timely exercise its right but its deposit was not returned. National contended that Parkside's conduct in participating in the development of the property for at least six months after it requested return of its funds constituted a waiver by estoppel or promissory estoppel. The parties each moved for summary judgment, and on appeal summary judgment in favor of National was reversed based on a finding that mere conduct inconsistent with the enforcement of a contractual right is not sufficient to establish promissory estoppel. There must also be some additional consideration to support the waiver and/or detrimental reliance upon the conduct and a change of position or condition where detriment could only be avoided by enforcement of promissory estoppel. Mere inconsistent conduct does not establish waiver by estoppel. Here, on remand, the First District directed that if there was a consequential loss of money and/or resources after Parkside's conduct following the demand of it deposit, (i.e., forming additional consideration and detriment), then judgment should be entered for National; otherwise, judgment for Parkside. While this case is based upon interpretation of North Carolina law to the contractual rights of Illinois parties, the reasoning and application to Illinois law seems clear as well. Parkside Senior Services, L.L.C. v. National Development and Consultants, Ltd., (1st Dist, 3/23/99), No. 1-98-0943; http://www.state.il.us/court/Opinions/AppellateCourt/1999/1stDistrict/March/HTML/1980943.htm

 

2. MECHANIC'S LIENS: SECTION 34 DEMAND TO FILE SUIT WHILE GENERAL CONTRACTOR IS IN BANKRUPTCY:

The use of Section 34 of the Mechanic's Lien Act, (770 ILCS 60/34, which provides that upon written demand of the owner...served upon the person claiming the lien...requiring suit to be commenced to enforce the lien or an answer to be filed in a pending suit...suit shall be commenced or answer filed...or the lien shall be forfeited), seems to be getting a lot of attention these days. (See the prior "Flashpoints" note dealing with Krzyminski v. Dziadowiec, (1998), 695 N.E.2d 1275.) The timing of Mechanic Lien can be fairly complex to begin with, and, when coupled with issues relating to necessary parties (the general contractor) and bankruptcy stays, (See Garbe Iron Works v. Priester, (1983), 457 N.E.2d 422), this all becomes downright confusing....but not really. In this case, the owner filed a Section 34 demand on the electrical subcontractor in a pending declaratory judgment action and while the general contractor was in bankruptcy. The trial court found in favor of the owner over the objection of the electrical subcontractor that it could not file suit to enforce its lien because the general contractor was a necessary and the automatic stay in bankruptcy prevented the filing. On appeal the Court reversed and adopted the Defendant's position that the law in the Garbe case that a mechanic's lien statute of limitation was tolled during the pendency of a bankruptcy stay was applicable and determinative of Section 34 filing deadlines as well. Chicago Whirly, Inc. v. Amp Rite Electric Company, Inc., (1st Dist. 3/30/98) No. 1-97-3713, http://www.state.il.us/court/Opinions/AppellateCourt/1999/1stDistrict/March/HTML/1973713.htm.

 

3. THE DISTINCTION OF A LAND TRUST:

More and more people are using the vehicles of inter vivos trusts and land trusts to hold title to real estate these days. Some times the distinctions between the two are blurred. In Re Estate of Jeanette Mendelson, (1st Dist. 1998), 298 Ill.App.3d 1 *, however makes for some good, quotable findings of law relating to the nature of land trusts. In this case, the beneficial interest in the land trust was held by the decedent with percentage interests passing to named individuals on her death. One of the individuals predeceased Jeanette. Finding that interest lapsed on the individual's death and became part of the decedent's estate, the court's decision contains some basic findings about the nature of a land trust: A land trust is not a conventional trust. Both legal and equitable interests pass to the trustee to be held for the benefit of the beneficiaries. Since the land trust converted the beneficiary's interest from real to personal property, the interest did not pass until death. No vested interest was created in the designated individual until death.

 

4. MORE FORGERY; FRAUDULENT ACT BY ONE PARTNER WITHIN SCOPE OF PARTNERSHIP IMPUTED TO OTHER PARTNERS:

In a decisions which specifically "reconsiders" the court's prior decision in Pioneer Bank & Trust Co. v. Austin Bank, (1st Dist., 1996), 664 N.E.2d 182, the First District has held that all partners are liable when one partner commits forgery for the benefit of the partnership, citing Saikin v. New York Life Insurance Co., (1977) 360 N.E.2d 413, and the provisions of the Illinois Uniform Partnership Act, 805 ILCS 205/13. In this case, a general partner forged guarantee signatures on a partnership note, and then had the signatures improperly notarized. The note and guarantees were made in order to secure a purchase money mortgage to purchase real estate in the ordinary course of the partnership business. The court found that the clear and unequivocal pronouncement of Section 13 of the Illinois Uniform Partnership Act is that a partnership is liable for the wrongful acts of a partner committed in the ordinary course of the business of the partnership. The decision reversed the trial court's dismissal of the complaint pursuant to 735 ILCS 5/2-615 and held that to the extent there were negligent violations of the Notary Public Act by the parties swearing under oath that they witnessed the signing of the guarantees when, in fact, they did not , the forgery was with the express or implied authority of the co-partners and this was imputable to all partners pursuant to the Illinois Uniform Limited Partnership Act.

Shelter Management XIX v. Much Shelist, Freed Deneberg and Ament, (1st Dist. 4/16/99) No. 1-97-0163 consolidated with 1-97-3324, http://www.state.il.us/court/Opinions/AppellateCourt/1998/1stDistrict/December/HTML/1970163.htm.

 

5. ATTACHMENT OF REAL ESTATE; INTENT TO HINDER OR DELAY CREDITOR AND REGARDLESS OF JOINT DEBTOR'S ABILITY TO PAY:

Defendant Dean Hamilton, President of HAI, Inc., guaranteed two promissory notes of the corporation along with others. Amcore Bank brought an action against the corporation and the guarantors on the notes. The Bank filed a prejudgment attachment against only Hamilton when it discovered that just prior to the filing of the complaint Hamilton had (a) conveyed an Arizona condominium he owned by quitclaim deed to his daughter for no consideration, (b) conveyed a remainder interest in his home to his stepdaughter for no consideration while retaining a life estate for himself and his wife, (c) conveyed a remainder interest in another Arizona condominium to his daughter for no consideration while reserving a life estate for himself and his wife, (d) transferred an investment interest to his daughter, and (e) purchased a substantial annuity for his wife. The trial court denied the request for attachment. While it specifically found that the plaintiff would probably prevail, Hamilton had fraudulently conveyed his assets with in two years, and as a result the Plaintiff would be hindered or delayed, the trial court noted that there were other guarantors who would also be responsible for the full amount and may have been able to pay the Plaintiff. Accordingly, the trial court reasoned, if the other guarantors were able to pay the debt, the Plaintiff would not be hindered no matter what Hamilton did, and the Bank had failed to meet its burden under the attachment statute. (735 ILCS 5/4-101 et seq.) On appeal the Second District ruled that the fact that the Plaintiff might be able to obtain payment from the other guarantors had no bearing on the attachment action, and the relevant inquiry was whether Hamilton's actions were with the intent to hinder or delay his creditors. Even though the other guarantors had not been served with summons of the attachment, this did not deprive the trial court of jurisdiction. Noting that there is dearth of modern case law concerning attachments and the "hinder or delay creditors" language, the decision holds that the Plaintiff was not required to show that it actually was hindered or delayed and notes sternly that "Applying the trial court's interpretation of the statute would allow a fraudulent debtor to escape liability as long as he had joint debtors that did not fraudulently dispose of their assets, thereby rewarding a debtor for his dishonesty at the expense of his honest joint debtors, a result we do not care to encourage. Amcore Bank, N.A. Rock River Valley v. Hahnaman-Albrecht, Inc., (2nd Dist. 4/9/99) No. 2-98-0675, http://www.state.il.us/court/Opinions/AppellateCourt/1999/2ndDistrict/May/HTML/2980675.htm.

 

6. FAIR DEBT COLLECTION PRACTICES ACT AND COLLECTION ON A FORGED MORTGAGE:

Most real estate litigators are now accustomed to the Fair Debt Collection Practices Act "Miranda-type" warnings on mortgage foreclosure pleadings announcing that the complaint, summons, lis pendens, affidavits of military service and unknown owners are "attempts to collect a debt." In a recent case Transamerica Financial Services, Inc. v. Mary E. Sykes v. Ira T. Nevel, (N.D. Il. 3/25/99) No. 98-2586, 1999 WL 157652, the Plaintiff's attorney in the foreclosure action was the subject of a FDCPA counterclaim brought by the mortgagor who claimed that the mortgage was a forgery and that she owed no money to the Plaintiff. The case was removed by Sykes from State to Federal Court to prosecute her federal counterclaims, and the District Court granted summary judgment to Transamerica and Nevel, remanding the case to state court. Sykes appealed only the summary judgment on the Fair Debt Collection Practices Act issues. In affirming summary judgment, the Court noted that the pertinent section of FDCPA applies to circumstances where there are attempts to collect a fee or charge for which the contract itself does not provide or is not authorized by law; (i.e., the collection of forced placed auto insurance premiums not authorized by the agreement as in Jenkins v. Heintz, 124 F.3d 824, or attempted collection of a time barred debt as in Kimber v. Federal Financial Corp., 668 F.Supp. 1480). In this case, the mortgage authorized the collection efforts undertaken by the attorney, and the Court reasoned that the forgery had no bearing, given the fact that none of the documents given to Nevel by Transamerica suggested a forgery and Nevel had no notice that the debt instruments might be forgeries.

 

7. "FAMILY EXPENSE" DOCTRINE NOT APPLICABLE TO MONEY LOANED TO SPOUSE:

Although this case is not actually in the arena of "real estate law", it may be of interest to you in your practice, and might interest you generally. Most lawyers come across an attempt or a threat to collect a debt incurred solely by one spouse against another spouse, (yes...sort of like the tenants by the entirety issue we've noted recently...), based on the Illinois Rights of Married Persons Act, (Commonly referred to as the Family Expense Act, 750 ILCS 65/15(a)(1). That act, passed in 1874, provides that the expenses of the family and of the education of the children shall be chargeable upon the property of both the husband and wife, or either of them, in favor of creditors, and has been held to include items such as hospital and medical bills, rent, and necessities. As noted in this case, however, the term 'family expense' has never been clearly defined and does not extend to payment of a promissory note. North Shore Community Bank and Trust Company v. Kollar, (1st Dist. 3/31/99) No. 1-98-2456, 1999 LS 176860, http://www.state.il.us/court/Opinions/AppellateCourt/1999/1stDistrict/March/HTML/1982456.htm. Here, the husband borrowed $150,000.00 from the bank, signed the promissory note himself, and died leaving a balance of $148,777.19. The funds were deposited in the joint account of the husband and wife, and were used for "family expenses" such as the payment of taxes and other joint expenses, according to the complaint filed by the bank. The wife sought and received a dismissal for failure to state a cause of action against her for the debt on the note, and the bank appealed seeking a reversal of the trial court's ruling that the family expense doctrine did not apply. The wife also appealed the trial court's denial of her request for attorney's fees and court costs pursuant to Section 15(a)(3) of the Act, which provides "Any creditor who maintains an action in violation of this subsection for an expense other than a family expense...shall be liable...for costs, expenses and attorney's fees incurred in defending the action."

The appellate court ruled, as a matter of first impression, that borrowed money obtained from a bank and secured by a promissory note does not constitute a family expense regardless of the money's ultimate use, and therefore the wife cannot be held liable for payment under the Act. The decision reasoned that there has been a historical distinction between application of the act to recover directly for payment the purchase of goods, articles and services, and the attempt to extend it here to the payment of a promissory note: "...cash is fungible, in contrast to specific goods, articles and services...To hold otherwise would open up every loan to minute dissection, tracing every dollar to its ultimate use." (But, beware of trying to extend this reasoning to your credit cards because, "Credit card expenditures would seem to present a closer case based on the more immediate nexus between the item purchased and the debt incurred.") Additionally, the language of the section relating to an award of attorney's fees and costs incurred in defending the action was found to be mandatory, not discretionary, ("shall" versus "may"), and the trial court's denial of the wife's request was reversed and remanded for a determination of the appropriate amount due to her.

A ruling which should give plaintiff's attorney's pause to consider before invoking the family expense act and hearten protectors of the downtrodden family members.

 

8. ZONING PRIMER:

The recent case of Zietz v. Village of Glenview, (1st Dist. 4/5/99), No. 1-97-4323, http://www.state.il.us/court/Opinions/AppellateCourt/1999/1stDistrict/April/HTML/1974323.htm, provides a good background and primer of the most the essential elements required to mount an attack, (although unsuccessful here), against a village for blocking development of land with zoning. In this case, the plaintiffs sought to develop 10 acres of vacant, densely forested, vacant land into 10 home sites. They presented a development plan to the village based on one acre sites under the zoning that existed at the time options had been initially entered into, even though they knew the property was in an "overlay zone" and subject to a sophisticated and comprehensive master plan as an environmentally sensitive area. Thereafter, the village rezoned the area to require a minimum of two-acre sites. Affirming the trial court's denial of plaintiffs actions seeking to have the re-zoning declared invalid, damages for inverse condemnation, and improper taking of the property, the decision rests on the black-letter law that there is no vested right in the continuation of a zoning ordinance. The decision also outlines the rights of home rule units to adopt and enforce zoning ordinances, discussed the rare circumstances under which a public body can be equitably estopped, and enumerates the elements necessary to challenge a presumptively valid ordinance as arbitrary, unreasonable and without substantial relationship to the health, safety and welfare of the community; i.e., examination of (1) the existing uses and zoning of nearby property, (2) extent to which property values are diminished by the zoning, (3) the extent to which the destruction of the value of the property promotes the health, safety and welfare of the public, (4) the relative gain to the public compared to the hardship imposed upon the individual, (5) the suitability of the property for the zoned purposes, and (6) the length of time the property has been vacant in the context of development in the vicinity.

 

9. ENVIRONMENTAL LIABILITY OVERVIEW:

The feature article in the March, 1999, edition of "the ATG concept", Vol. 23, entitled "What Property Owners Should Know About Environmental Liability" notes that because of the costs and potential strict liability of environment clean-up, attorneys and their clients should not only physically inspect the land being purchase, but also be familiar with the web of federal and state laws that govern the area. This article has a concise, if not terse review of the Federal environmental legislation, CERCLA, (Comprehensive Environmental Response, Compensation and Liability Act, 42 USC 9601), RCRA, (Resource Conservation and Recovery Act, 42 USC 6901), TSCA, (Toxic Substances Control Act, 15 USC 2601), CAA, (Clean Air Act, 42 USC 7401) and CWA, (Clean Water Act, 42 USC 300f), the current Illinois statutes, IEPA, (Illinois Environmental Protection Act, 415 ILCS 5/1), IRPTA, (Illinois Responsible Property Transfer Act, 765 ILCS 90/1), and quick overviews of the statutory defenses under CERCLA, the Illinois Site Remediation Act, (415 ILCS 5/58), and environmental audit concerns. Anyone who regularly practices in this area will probably know the citations and references by heart, but to a real estate lawyer who only tangentially brushes up against these issues, this overview is a good place to start.

10. "GET A LIFE"

I found my way to my favorite article this month from Bonnie McGrath's last entry in the April 1999 Illinois Bar Journal column, "The Lawyer's Journal: "In case you forgot what life is all about, take a quick look at the November issue of the General Practice, Solo and Small Firm newsletter and find out how to have a successful law practice. And a life." The article by Linda Ravdin offers 61 ideas to obtain happiness and fulfillment while practicing law. Among them are (1) write a mission statement, ("What me worry?"), (12) keep your desk clean, ("Now THAT would make me worry!"), (20) use a telephone headset, ("Do that...but it makes people think you are crazy and talk to yourself..."), (38) eat lunch out, ("With or without a cell phone?"). Copies of ISBA Section Newsletters are available to any ISBA member for $6.50 per issue by calling the Publications Department at 800-252-8908...and....some are now on-line in the Sections area of the ISBA website, isba.org.