REAL ESTATE LAW PRACTICE KEY POINTS

(February 2001)

 

By Steven B. Bashaw

McBride Baker & Coles

10th Floor - One MidAmerica Plaza

Oakbrook Terrace, Illinois  60171-4710

Tel.: (630) 954-7588

Fax.: (630) 954-7590

e-mail:  SBashaw @MBC.COM

(Copyright 2000 - All Rights Reserved)

 

 

(EDITOR’S NOTE: Last month’s Keypoints began with an apology for the fact that there was no December installment, and noting that there just didn’t seem to be a lot of interesting cases being reported.  Well… I thought it was just me, but it wasn’t… in early January, I received the following note from the publisher of one of the electronic case law services I receive:

 

“To all my faithful subscribers:

 

My late opinion notices to you are not the fault of the recent [computer problems]. My last case notice update to you was on Dec. 15, 2000. I am advised that the Chicago Daily Law Bulletin of Dec. 29 reported about 75-80 end-of-quarter opinions by the Appellate Court, so we are

backed up big time! The Supreme Court Reporter of Decision's Webmaster changed jobs in

December, 2000 but was rehired and expects to start soon with the uploaded opinions to the court site.  He is resolving some software compatibility issues between his site and the court's.  As soon as I get the opinions, I shall get you my summaries and notices. Thank you for your patience.

 

DAVID   A.    YOUCK   < < < < < < < < < < < < <   Please Reply To

909 South Poplar Street, PO Box 95  Central Standard Time (UTC-6)

Onarga, Illinois 60955-0095 (USA) Tel: (815) 432-6965 or 268-7713

mailto:dayouck@prairienet.org  http://www.prairienet.org/~dayouck

 

It’s just good to know “why” sometimes…..)

 

In addition to my firm’s support, that of the Illinois State Bar Association’s Real Estate Section Council,  and the Illinois Institute of Continuing Legal Education, it should be noted that Chicago Title Insurance Company helps underwrite the monthly production of these real estate law Keypoints. Chicago Title is committed to the role of attorneys in real estate transactions and their continuing education in this area. Its staff attorneys are pleased to offer their view points on various developments in the law as set forth below.)

 

 

1. REAL ESTATE CONTRACTS:  FORMATION, EARNEST MONEY, AND LIQUIDATED DAMAGES:

 

In Catholic Charities of Archdiocese of Chicago v. Thorpe, (1st Dist, December 12, 2000), the first issue was whether there was a contract in existence before the earnest money was deposited, and the second was the enforceability of a liquidated damages clause relating to that earnest money.

 

The purchaser, Thorpe, entered into a contract on April 29, 1996 to purchase property at 1300 South Wabash in the City of Chicago from Catholic Charities. The contract called for the immediate payment of $10,000 earnest money to be increased to $25,000 upon acceptance of the contract by Seller.  The initial $10,000 earnest money was deposited by personal check that was returned NSF.  When the original closing date was extended from June 6, 1996 to June 25, 1996, and then the purchaser did not appear at the closing, the seller sold the property to a third party and brought suit for the earnest money as liquidated damages under the contract.

 

The purchasers first argument was that the payment of the earnest money was a condition precedent to the formation of the contract, and since the earnest money was never paid, no contract was formed; and, therefore, the sellers were not entitled to  judgment on the contract.  The sellers, of course, argued that the payment of earnest money was not a condition precedent to the formation of the contract, but merely a condition precedent to the seller’s obligation to perform the contract itself, and noted that they were ready, willing, able, and appeared at closing.  The trial court and the First District both agreed with the seller on this issue.  Citing cases from the D.C. Court of Appeals and Texas before turning to the language of the contract, the Court states very clearly that: “All the Illinois cases which our research has disclosed which found a condition precedent to the formation of a contract contain express language on the face of the contract to support that construction.”  There was no language in this contract to support the position that it was the intent of the parties that the payment of the earnest money was a condition precedent to their agreement, but only that the earnest money was to be increased upon the formation of the contract. “Moreover, even assuming that the payment of the earnest money is a condition precedent to the formation of the contract, performance of that condition by Buyer was waived by the Seller.  A party to a contract may waive performance of a condition by the other party where the condition precedent is intended for the benefit of the waiving party.” Since the payment of the earnest money was intended to benefit the seller, Catholic Charities was able to unilaterally waive the payment and the Thorpe’s attempts to take advantage of their own failure to perform as the basis for avoiding further liability under the agreement was rejected.

 

Turning to the next argument, the Court recognized that the buyer’s interpretation of the liquidated damages clause was based on their decision in Grossinger Motorcorp, Inc. v. American National Bank & Trust Co., (1st Dist. 1992), 240 Ill.App.3d 737, 670 N.E.2d 1337.

 

In Grossinger, the Court held that an optional remedy provision, including liquidated damages in a contract, “which allows defendant to seek actual damages or alternatively retain the earnest money as liquidated damages is unenforceable”.  Since the concept of liquidated damages requires an agreement by the parties that the earnest money is to be fixed as the sum recoverable under the contract in the event of a breach, if a party retains the ability to reject that remedy and pursue actual damages, how can it be said that the parties had reached an agreement?  “We reasoned that this scheme (preserving the option to pursue actual damages while stating an agreement to be limited to liquidate damages) distorts the very essence of liquidated damages…The preservation of an option to alternatively seek the recovery of actual damages reflects that the parties did not have the mutual intention to stipulate a fixed amount of their liquidated damages…  Such a clause ‘is no settlement at all’ as it ‘permits the seller to have his cake and eat it too.”  Affirming the reasoning in Grossinger, the Court remanded the case for a finding of actual damages based on the unenforceability of the liquidated damage judgment in the trial court.

 

 

2.  REAL ESTATE CONTRACTS: FORMATION, ENVIORNMENTAL AUDIT AND WAIVER:

 

Although Thomas K. Allen, Jr. v. Cedar Real Estate Group, LLP, (7th Cir., January 3, 2001), applies the substantive law of Indiana, its discussion relating to the distinction between a condition precedent to the formation of a real estate contract versus a condition precedent to performance of the contract, as well as the issues of waiver of a condition in a contract for one party’s benefit, make it a perfect case to follow Catholic Charities of Archdiocese of Chicago v. Thorpe.

 

Allen made a written offer to Cedar Real Estate Group to purchase a 6.2 acre parcel of land in Lake County, Indiana which had previously been used as a trucking terminal. The site had five underground storage tanks ranging in volume from 500 to 10,000 gallons to store fuel.  Four of the largest of the tanks had been removed and the fifth was left in place, filled with concrete, and a “closure report” was filed with the State of Indiana. Allan made his offer on a preprinted form that specified that the property was to be sold “as is”,  and a typewritten page entitled “Further Conditions” was attached which stated “This offer to purchase is subject to purchaser’s approval of the following:…purchaser’s review of the Environmental Disclosure Document…a current Phase I and Phase II  Environmental Audit with soil borings…Cost not to exceed $5,000 and to be split on 50/50 basis between purchaser and seller.”  Although the agreement as drafted gave Allen the right to investigate the environmental contamination, it did not provide how the discovery would affect his obligation to buy or the seller’s obligation to sell.  Cedar made a minor change in the offer as drafted and Allen accepted.  The parties then entered into a four month period of audits and reviews, Cedar taking the position that the sale would be “as is”, and Allen offering to pay as much as half of  the remediation costs.   After a number of rounds, Cedar informed Allen that it had received three other offers, and that all buyers were to communicate their “final and best offer” to Cedar by noon on October 2, 1998.  On October 1, 1998, Allen’s attorney advise Cedar by letter that there was an existing contract between the parties and than any attempt to breach the agreement “by entering into agreements of sale with other parties will be resisted.” Cedar directed its Broker to terminate the agreement and return Allen’s earnest money.  Allen indicated that he was ready to close according to the terms of the contract and that the property would be submitted to the Voluntary Remediation Program of the Indiana Department of Environmental Management, with the costs to be forwarded to Cedar.  Allen file suit in federal district court when Cedar did not respond. 

 

The district court granted summary judgment in favor of Cedar, finding that Allen’s approval of the environmental audit was an unsatisfied condition precedent o the existence of a contract.  The Court of Appeals affirmed.  Allen’s insertion of language that  his “offer to purchase…subject to purchaser’s approval of the following:”,  and setting forth the environmental audit process,  created a condition precedent that needed to be fulfilled before an enforceable agreement was formed.  The language used by Allen indicated a clear intent to condition his offer on an acceptable environmental report.  The Court felt that “Allen’s choice of the word ‘offer’ “ in the “Further Conditions” was telling of his intent and the frame of mind of the parties: “The only reasonable interpretation of this language is that Allen intended to be able to opt out of the agreement if the property turned out to be contaminated.”…”The right to order an environmental audit would be rendered completely meaningless if Allen had an obligation to purchase this property regardless of the results.”  Allen was not willing to purchase the property “as is” and the negotiations between the parties indicates that there was no agreement.  Even Allen’s argument that the “as is” provision of the contract was meaningless because under Indiana law a previous owner/operator could not relieve itself of liability for clean-up was “not relevant” to the decision of the Court. Noting that there are many reasons a party would not purchase contaminated property even if the prior owner was responsible, and whether Allen was misinformed about Indiana law was immaterial, the Court returned to the fact that “Allen specifically inserted the condition precedent requiring his approval of the environmental audit into the contract, and now he must accept the consequences of his decision.”

 

Finally, turning to the issue of waiver, the Court found that it was undisputed that Allen never expressly waived the condition of his approval of the environmental audit. Accordingly, although he had the right to waive the condition precedent as one solely for his benefit, there was no indication that he was willing to or did waive.  The condition precedent was neither waived nor satisfied, and therefore there was no enforceable contract.

 

 

3. RESIDENTIAL REAL PROPERTY DISCLOSURE ACT; NO ACTUAL ‘TRANSFER’ NECESSARY: 

 

There aren’t many cases in the appellate decisions that end with a mandate that affirms in part, reverses in part, vacates in part, and remands for further proceedings to the trial court, but just this occurred in Justice Rapp’s decision in the recent case of Provenzale v. Forister, (2nd Dist. January 23, 2001), adding to the accumulating law in the area of post-closing real estate transactional law and the Illinois Residential Real Estate Disclosure Act.

 

The Provenzales filed a complaint after their contract to purchase residential real estate from the Foristers failed to close.  In October 1994, the Foristers executed a Residential Real Property Disclosure that stated that the property was not in a flood plain.  It appears that the Realtor put that disclosure form in the file and held on to it until May, 1996, when it was given to the Provenzales as prospective purchasers.  (Another fine example of a Realtor following the form but certainly not the substance of a disclosure law’s intent.)  In July, 1996, relying on the disclosure, the Provenzales entered into a contract for the purchase of the property.  When and exactly why the transaction did not close isn’t clear, (although there is reference in the opinion to the fact that Mr. and Mrs. Forister had separate attorneys, and this implies that they may have been involved in a divorce), but it didn’t close, and after the Provenzales filed their third amended complaint, the trial court entered an order dismissing all counts on a mixed 2-615 and 2-619 motion.  The order also granted Ruth Forister’s motion for forfeiture of the earnest money, and awarded attorneys fees of $30,483.74 and $13,123.25, respectively, to Ruth Forister and Harold Forister respectively. 

 

As the pleadings grew in the trial court, there were a number of factual allegations that Harold Forester knew that the property flooded, stated so orally to the Provenzales, and so admitted in filings challenging the property’s tax assessment before the county board.  Nonetheless, the ultimately successful motion to dismiss at the trial level was based on the proposition that since there was no transfer, (remember the contract never closed), there was no violation under the Disclosure Act.  Section 10 of the Act states that it applies to “any transfer”, and therefore Forister argued that an actual transfer of the property was a necessary element for a cause of action.  In support, the Foristers noted that the beginning of the one year statute of limitation period in Section 60 of the Act ties directly to the date of possession, occupancy, or recording of  a conveyance – requiring a “transfer”.  Since there could be no limitation on an action without an actual transfer, they reasoned,  a cause of action must be predicated on the occurrence of an actual transfer.  The Provenzales, in rebuttal, argued that the Act requires the sellers deliver the disclosure report prior to the signing of the contract, imposes obligations irrespective of the actual transfer, and therefore “the trial court misinterpreted the word ‘transfer’ as a verb rather than a noun…”

 

The Second District opinion begins by adopting the position that if actual transfer was intended as an element of a cause of action under the Act, the provisions requiring the delivery of the disclosure report prior to the contract becoming effective  would be meaningless because this is a pre-transfer duty. Additionally, while “ordinarily the buyer discovers the material defect after the property is conveyed.”, the decision notes that the buyer’s remedies under Section 55 of the Act belong to the “prospective buyer of real property who discovers false information on the disclosure report before closing the transaction even though the property was never transferred.”  The Court dismisses the enticing argument that using “transfer” as a measuring date for limitation purposes is meaningless unless a sale is closed, by noting that even though there is no measuring date for limitations without closing, the Code of Civil Procedure provides a general limitation that all civil actions be commenced within five years after the cause of action accrued, and therefore these types of situations would not be in limbo indefinitely.

 

The decision also reiterates the law that “an individual who casually sells his or her own single-family home is not subject to liability under the Consumer Fraud Act”,  and chides the mixing of 2-165 and 2-619 motions, and concludes by reversing the award of earnest money and attorneys fees.

 

 

4. DEMOLITION, NOTICE,  AND DUE PROCESS:

 

The City of Marseilles successfully appealed the LaSalle County Circuit Court’s dismissal of its complaint for demolition filed against the land trustee holding title to the subject real estate in City of Marseilles v. Union Bank, (3rd Dist., December 22, 2000).  The property was the former Washington School building, which City officials investigated after receiving numerous complaints, and found to be dangerous, a nuisance, and a fire hazard.  Based on the reports of its investigators, the City Council passed a resolution declaring the property to be a hazard to the community, and the next day the city attorney issued a notice by certified mail advising the legal title holder, Union Bank, as trustee u/t/a No. 1046, that the property constituted a public nuisance as a structure so in need of repair as to be a danger to the community, was an invitation and endangerment to children in the area, and a fire hazard due to its condition.  The letter ended with a statement that unless the nuisance was abated within 15 days, the City would petition the Court for appropriate relief, and solicited the owner of the building to give immediate attention to the matter and contact the city attorney if there were any questions. This letter was sent to  the trustee, Union Bank,  by certified mail, which, in turn, forwarded the letter to its beneficiaries by certified mail.  The trustee’s certified letter was returned undelivered.  When the nuisance was not abated within the 15 day period, the City filed a complaint for injunctive and other relief.  A summons and complaint was served upon the trustee, and when the trustee failed to file and an answer, a default judgment was entered.  Union Bank thereafter vacated the judgment based on pleadings that alleged that the beneficiaries of the trust, upon learning of the condition of the property, began to abate the nuisance and attempted to contact the city attorney to determine if the steps they had taken were sufficient, but never received a return telephone call.  The trial court vacated the judgment and dismissed the case, finding that the 15 day notice sent as required of the City by the Municipal Code,  (65 ILCS 5/11-31—1(a)),  was deficient because it failed to specify the defects that rendered the property a public nuisance and enumerate the requisite remedies.

 

In reversing the trial court, the Third District began by noting that the Municipal Code,  Section 11—31—1(a),   grants the municipality authority to apply to the Circuit Court if the owners of the building, including the lien holders of record, after at least 15 days written notice by mail, fail to put the building in a safe condition or demolish it.  The plain language of the statute does not mandate that either the defects be stated or that the remedies be listed.  Minimal due process requires only that notice be provided and that an opportunity to be heard, appropriate to the nature of the case, be granted. The parties in interest have to be afforded advice of the pendency of the action and an opportunity to be heard and object.  Here, the city met these standards by first notifying the trustee that it would be filing suit, and then serving summons and complaint.  “Nothing more needed to be done to satisfy due process requirements of the Illinois and United States Constitution.”

 

 

5. INSURANCE COVERAGE; ECONOMIC RATHER THAN PHYSICAL DAMAGE TO REAL ESTATE :

 

An interesting, although perhaps specifically fact oriented decision, that may be of use in a claim against or on behalf of an insurer of improvements on real estate is the recent Illinois Supreme Court decision in Travelers Insurance Company v. Eljer Manufacturing, Inc., (Il. S.Ct., December 2, 2000, NOTE: These Keypoints were written and released before a rehearing was allowed on January 29, 2001 and a new opinion was not posted until September 2001, upon which the case was sent back to the circuit court for further hearings).  (Get out your “Moorman Doctrine Hats” and “Thinking Caps” for this one!)

 

The appeal arose out of four declaratory judgment actions filed by insurance companies against Eljer Manufacturing and others for a determination of their duty to indemnify policyholders for damages caused to their homes due to the installation of a residential plumbing system known as Qest from 1979 to 1990.  There were allegations that after the systems were installed, thousands of homeowners filed claims against those involved in the manufacture of the systems for damages due to leaks. Additionally, some homeowners, whose systems did not leak, also filed claims seeking damages for the cost of replacing non-leaking systems and for the diminution of the value of their homes solely because of the installation of the Qest system in those homes.  Several of the insurance companies moved for summary judgment contending that they had no duty to indemnify the policyholders for claims by homeowners whose systems did not leak during the policy period, even though the installation of the system diminished the value of the homes and some homes were physically damaged by the homeowners in the process of replacing non-leaking Qest systems.

 

In an elegantly brief (3 pages) opinion, the decision provides that “An insurer’s duty to indemnify arises only when the claimed loss or damages actually falls within the policy’s coverage”, and then notes that a portion of the policies (pre-1982) were governed by New York law interpreting the language of the policies (coverage for “injury to tangible property”), whereas another portion (post-1981) were governed by Illinois law in defining the scope of coverage under those policies, (coverage for “physical injury to or destruction of tangible property”). The language in the pre-1982 policies was considered to determine whether the damage alleged constituted “physical injury to tangible property” under New York law. In a holding in New York’s “highest court, interpreting an insurance policy with language identical to the policy in the instant case”, (I can never remember what they call the “highest court in New York…), the Illinois Supreme Court held that mere installation of the Qest system in a home, (i.e., the incorporation of a defective product into a larger entity), can constitute “injury to tangible property”.  Accordingly, for the pre-1982 policies, the installation of a potentially defective plumbing system, which resulted in a reduction in the value of the real estate that was greater than the value of the system installed, was a physical injury to tangible property that was covered under the policy by virtue of the application of New York law.  Under Illinois law, however, and using slightly different policy language providing for coverage for “physical injury to tangible property”, the Illinois Supreme Court found that: “Affording the unambiguous terms of the policy their plain, ordinary, and popular meaning, no ‘physical injury to tangible property’ occurred when the Qest systems were installed in the homes which did not experience leaks.”  (I have an intuitive feeling this is the same thought process that confounds so many of us when we examine the “Moorman Doctrine”!)  Since the systems did not leak, there was no “physical injury to tangible property”; (i.e., ‘physical’ vs. ‘economic’ loss??).

 

Finally, noting that insurance coverage only extends to “fortuitous occurrences”, the court held that damage caused by a homeowner replacing a system that did not leak does not result in a covered occurrence under the policies.

 

 

6. TENANCY BY THE ENTIRETY; FROM THE TITLE INSURANCE PERSPECTIVE:

 

Regular readers of the minutes of the ISBA Real Estate Section Council meetings, (doesn’t’ everybody?), will know that one of our legislative initiatives this last year has been support of a bill to amend the tenancy by the entirety law to remove the “magic language”; i.e., the necessity that the deed specifically state the marital status of the grantees and negate tenancy in common and joint tenancy in order to be effective.  The Section Council is of the position that the current requirements are a “malpractice case waiting to happen”.  Part of our discussions on this topic also range over the results of a death or divorce of one spouse once a tenancy by the entirety is properly created.  It never ceases to amaze us how complex this simple form of conveyance can be, but, as usual, my friend, Dick Bales, has an interesting viewpoint, so I offer you his thoughts:

 

FROM THE TITLE INSURANCE COMPANY PERSPECTIVE

 

I read this month of a pending bill that would modify our tenancy by the entirety statute (765 ILCS 1005/1c), eliminating the requirement that any deed vesting title as tenants by the entirety must include the magic language, "not as joint tenants or tenants in common but as tenants by the entirety."   I had always somewhat inwardly scoffed at the idea that any deed must include this EXACT statutory language.  After all, it has been clear in Illinois for dozens of years that even though 765 ILCS 1005/1 states that in order to create a joint tenancy, the land must be declared to "pass not in tenancy in common but in joint tenancy," case law provides that this exact language is not necessary.  The deed need only indicate that the parties intended that a joint tenancy be created.  See Engelbrecht v. Engelbrecht, 323 Ill. 208 (1926).

 

Of course, now I don't scoff so much anymore, after reading Travelers Indemnity Company v. Engel, 81 F.3d 711 (1996), which held that a tenancy by the entirety was NOT created because the deed failed to meet the statutory requirement that the grantees be expressly identified as husband and wife.  Note that this was the finding of the court, even though the grantees were indeed married.

 

Which brings me to the subject of this month's column--tenancy in common.  In just four hours I received two phone calls concerning tenancy in common--specifically, problems that have developed because title was held as tenancy in common when apparently the parties thought otherwise.  The first phone call was extremely intriguing.

 

Husband and Wife held property as tenants by the entirety.  They recently were divorced.  The dissolution of marriage order says only that they should put the property up for sale and that the proceeds be divided equally.  But before they sell the property, Husband dies.  Husband and Wife had two children, ages 13 and 16.

 

As this story unfolded over the telephone, I first thought about that classic title insurance question, "does a dissolution of marriage sever a joint tenancy?"  There are several cases that cover that, but that is a subject for future discussion.  But if interested, see  In Re Marriage of Dowty, 146 Ill. App. 3d (1986), In Re Marriage of Dudek, 201 Ill. App. 3d 995 (1990), and Sondin v. Bernstein, 126 Ill. App. 3d 703 (1984).

 

But the problem is much more severe.  Remember that the tenancy by the entirety statute states that upon dissolution of marriage, "the estate shall, by operation of law, become a tenancy in common until and unless the court directs otherwise."  (See 765 ILCS 1005/1c).  Here the dissolution of marriage order was silent as to the tenancy, and thus, after the dissolution of marriage, Husband and Wife held title to their home as tenants in common.  Now, before they could sell the home, Husband dies, leaving Wife owning a half interest and their children, both of whom are minors, owning a half interest.  See 755 ILCS 5/2-1(a).

 

So the above case law I mentioned that deals with joint tenancy would be inapplicable in this situation.  Wife still wants to sell the home.  What are the options?   The attorney for Wife will now need deeds from both the wife and the children.  (See 755 ILCS 5/2-1(a).  Since the children are minors, a guardian will have to be appointed for them, and the attorney will need a court order, approving the sale.  See 755 ILCS 5/11-1 et seq., especially 755 ILCS 5/11-13( c ).  Another option might be to probate the estate of Husband.

 

Is there any other way to close this transaction?  Well, I toss this out for consideration.  Since the judge in a dissolution of marriage proceeding retains jurisdiction over the parties, could the judge issue a revised dissolution order, nunc pro tunc, indicating that title is to be vested in joint tenancy?  (In this regard, I note that both children still live at home, and that the proceeds of the sale are going to be used for the purchase of a new home in which the children will live.)

 

And one more question: How many attorneys, representing a spouse in a dissolution of marriage proceeding, would remember to ask how title to the spouse's home is held?

 

 

Dick Bales

Chicago Title

Wheaton, Illinois

 

 

7. OIL AND GAS LEASE; TERMINATION FOR NONPRODUCTION:

 

Maschhoff v. Klockenkemper, (5th Dist., December 7, 2000), probably seems pretty straight forward to most of the practitioners who deal with oil and gas leases on a regular basis, but for those of us in the northern part of the state, it seems both somewhat factually complex and foreign; (but then again, maybe all of our friends in Cairo and Metropolis don’t understand testing for radon gas beneath ranch homes in Northbrook, either…)

 

Ruth Maschhoff brought a suit against Edward Klockenkemper under the Illinois Oil and Gas Release Act (765 ILCS 535/0.01) seeking a judgment finding that his lease on her property be released as terminated by its terms for non-production.  There were actually two leases relating to oil and gas on the real estate.  The first in 1954 was executed by Ruth’s parents and was the subject of litigation filed by Klockenkemper in August 1977, to determine its validity.  The second lease was executed by Ruth, her husband, and her parents in May 1977, and ran to Klockenkemper relating to the same real estate.  The 1977 lease specifically provided that it was for a term of one year, but would continue as long thereafter as oil or gas products was produced, and that if production should cease from any cause the lease would not terminate if the lessee commenced additional drilling or reworking operations within 60 days.  The parties agreed that although equipment and four well bores remained on the property, no oil or gas was produced from the real estate after 1987. Nonetheless, Klockenkemper alleged as his affirmative defense to the complaint that the lease could not terminate because of non-production while he was engaged in litigation to establish the validity of his lease.  He had been engaged in litigation since the filing of the 1977 case and through and including 1997 relating to the 1954 lease. At one point, on June 6, 1980, the Circuit Court in the 1977 case granted Klockenkemper permission to operate the wells on the real estate, and although this order was later vacated, Klockenkemper did not commence drilling or reworking operations because “he did not want to expend the funds unless he knew for certain that his oil and gas lease was valid”.  The Appellate Court affirmed the trial court’s ruling that Klockenkemper execute a release of the lease, based upon non-production, awarding a judgment of attorney’s fees in favor of Maschhoff against Klockenkemper, and ordering him to remove his equipment from the leasehold.  Distinguishing two other cases, (Greer v. Carter Oil Co. based on a failure to record and give constructive notice, and Brookens v. Peabody Coal Co. based on an express agreement relating to the impact of litigation between the parties), the Fifth District found that: “Pursuant to the lease, defendant failed to perform his obligations. The fact that defendant was also engaged in litigation…is of no consequences”

 

 

8. MECHANIC’S LIENS; MILLER ACT:

 

The following case summary and commentary was received by e-mail from Attorney Elias M. Gordan, of Palos Park, Illinois.  Elias and I spoke on the telephone about the case and what it stands for to practitioners.  Other than to provide you with the url address so you can read it yourself, (http://www.ca7.uscourts.gov/op3.fwx?submit1=showop&caseno=00-2112),  I offer Elias’ comments as they came to me:

 

“FEDERAL APPEALS COURT SIDES WITH INDIANA SUB-SUBCONTRACTOR

 

The Seventh Circuit Court of Appeals sided in favor of a sub-subcontractor this past Wednesday, January 10th (case number 00-2112). The case pitted S&G Excavating against the Seaboard Surety Company. S&G was a sub-subcontractor on a post office project in Terre Haute, Indiana. They were retained to do foundation work on the new postal facility by EUI Corp., a subcontractor to Austin Corp., the general contractor on the project. S&G finished its work in April, 1997, but was not paid for their work by EUI. In May of 1997, they filed, in the Vigo County Recorder’s office, a notice of their intent to hold a mechanic’s lien against the Postal Service property. They sent Austin Corp. a copy of their notice, and a bill for the unpaid $73,000, detailing their work for EUI. They apparently did not include a request for Austin to directly pay them the money, or to hold back the money from EUI’s payment. S&G then sued to collect on Austin’s Miller Act payment bond from Seaboard. S&G lost at the District Court level, on the grounds that they did not demand payment from Austin. The trial judge noted that five federal judicial circuits (the 1st, 2nd, 5th, 9th, and 11th Circuits) require an express or implied demand for general contractor payment, even though it is not specifically required under the Miller Act (the case citation is 93 F. Supp. 2d 968, S.D. Ind. 2000).

 

The 7th Circuit reversed the decision of the trial judge on January 10th, 2001, and sent the case back for further proceedings. Judge Easterbrook noted that the Miller Act, 40 U.S.C. §270b (a), only requires three conditions for obtaining payment from a Contractor payment bond:

 

The Judge also noted, "S&G Excavating could have saved itself a lot of trouble and expense by sending Austin a cover letter making clear what the notice and bill implied" (i.e., they should have told the general contractor they wanted the $).  To quote Judge Easterbrook, “if the statute sets out three conditions to payment, than a notice meeting all three is sufficient. Judges are not authorized to add requirements of their own devising.” He also noted that the Miller act was a remedial act, which should be read charitably to subcontractors (and, presumably, subcontractors). He also noted that the 10th Circuit, in the McWaters and Bartlett case, 272 F.2d 291, 295 (1959), “got this right” . There are two interesting points to consider:

 

            Hope this is of interest to you.

            Sincerely Yours,

 

            Elias M. Gordan, Attorney at Law

            Law Office of Elias M. Gordan

            Post Office Box 60

            Palos Park, Illinois 60464-0060

            ph. 708.923.9735

            fax 708.923.9736

            email gordanlaw@att.net

            WEBSITE www.gordanlaw.com (to be upgraded 2/2001)

            Construction Law, Intellectual Property Law (IL, IN)

            Registered Civil Mediator (IN)

=============================================================

 

 

9.  LAND USE AND DEVELOPMENT:

 

If your practice includes land use and development issues, you'll want to read "SB 1028--Citizens Equal Access to Justice Bill of 1999-- a developer's dream and a local government nightmare" in the January, 2001 issue of the ISBA's Local Government Law section newsletter.  The author says that if enacted, this federal bill will allow developers or citizens whose private property rights have allegedly been "adversely affected" by an action or inaction of a local authority, to file a lawsuit under 42 U.S.C. section 1983 without having first exhausted available state remedies. The bill is alive and has been referred to the Senate Judiciary Committee where it will be considered in February of 2001 (though it will be assigned a different number).  Read the article at http://www.isba.org/sections/Local/1-01a.htm#gen5; you can read the text of the bill at http://thomas.loc.gov/.

 

 

10.  REAL ESTATE TAXES AND MORE GUANO:

 

Following last month’s keypoint relating to payment of real estate taxes by “particular specification”, I received the following comments of interest and information:

 

First, from Doug Karlen of Chicago Title:

 

“Dear Steve,

 

I enjoy your monthly round up of real estate law very much.  Two items caught my attention in the January installment.

 

First, your item 10, payment of real estate taxes by legal description. Section 20-210 of the Property Tax Code, 35 ILCS 200/20-210, is one of the least known provisions of real estate tax law.  It is difficult to find because its section heading is misleading, bearing no relation to the text. (Ed. Boy is that true!)  Until recently, it has not been discussed much.  I recently heard of a discussion of the section at the Lake County Bar, and, also recently, the Cook County Treasurer has published a handout entitle Payment by Legal Description (PBL).  This handout describes the statute and lists the items a property owner must furnish to the Treasurer in order to obtain a tax bill as to a specified legal description.  This is an extremely valuable handout which we at Chicago Title have been giving to our Cook County customers who face the kinds of problems you discuss.  The PBL handout could serve as a guide to owners in other counties who need to pay by legal description. You can add to the list of property owner nightmares.  What if an owner wishes to sell or refinance while underlying taxes are still delinquent? How can a title insurer insure over the underlying tax delinquency?  After all, it would not be fair to ask one lot owner to deposit enough funds at the title company to pay the entire liability.  The answer can be PBL.  A word of caution, though, is in order.  Time is of the essence.  One can only PBL prior to the tax sale.  The Property Tax Code has no provision for partial redemptions from tax sales or forfeitures.  Thanks again for publicizing a useful statute.

 

Douglas M. Karlen

Associate Regional Counsel

Chicago Title Insurance Company

Chicago, Illinois”

 

 

Then, on the ISBA Discussion Listserv, the following inquiry/message emphasized the impact on condominiums, (I had only thought of single family dwellings and townhomes):

 

“Steve: Would this statute be available to condominium owners when the division of the underlying property into separate units for real estate tax purposes has not yet taken place? I am aware of a number of condo associations that are finding themselves in a situation where the developer has collected a proration at closing and/or otherwise promised to pay the real estate taxes on the pre-division property, but, has not, for whatever reason. Owners trying to sell or refinance their units in the period prior to division and resolution of the situation with the developer are being asked to put up TIs that are 150% of the underlying undivided taxes. This amount is usually many times more than the unit's individual tax bill will be. Any thoughts?

Mark R. Rosenbaum

e-mail: mrosenbaum@fischelkahn.com

 

And, from one of the most well known of  real estate tax practitioners, Bruce M. Buyer:

 

“Dear Steve:

 

I read your recent Real Estate Law Practice Flashpoints and especially number 10, with great interest.  You recall that number 10 dealt with payment of real estate taxes by “particular specification”. For years this has been a little known obscure section of the Property Tax coed (and before that the Revenue Act) of which most people were not aware.  It is, at best, a cumbersome procedure as currently administer by the present Collector.  I recently accomplished such a payment successfully, but not without problems…Fortunately everything worked out fine.  I have used this method of tax payment, albeit infrequently, for many years.  I agree with you, it will become more common with the increased pace and continuing residential movement outward.

 

Bruce M. Buyer

Buyer and Rubin

205 West Wacker Drive

Suite 805

Chicago, Illinois  60606-1212

(312) 263-5282”

 

Need to get a real estate assessment on one or more properties?  For some counties, you can do it in the comfort of your own law office, on line.  Go to http://www.people.virginia.edu/~dev-pros/Realestate.html for a list of assessment offices across the country, including Cook, McHenry, and LaSalle Counties in Illinois.  (Note: This link has become invalid since the release of these Keypoints.)

 

Finally, it is no secret to anyone that my favorite case last month was “The Guano Case”, William A. Warren v. United States of America, (Dist. D.C., 12/26/2000), http://pacer.cadc.uscourts.gov/common/opinions/200012/00-5130a.txt; this case has *everything* bird droppings, murder, intrigue, betrayal and topical locations for movie rights…. The keypoint ended with the rumination that “One can only wonder what will become of Navassa Island now that there is no one to mine or remove the guano in the future.”  Well, Greg Sultan, of Skokie, Illinois, forwarded an article from the December 10, 2000, New York Times Magazine about a remote Pacific island named Nauru.  The tiny island, 1,200 miles east of New Guinea was largely a destination limited “mainly to Australian engineers who work at the island’s nearly depleted phosphate mines” until the country “found its niche by learning a different kind of trade – money laundering.”    Author Jack Hitt notes, “For a million years, migrating birds took a bathroom break on this coral sanctuary, leaving the island’s interior hummock composting rich veins of dense phosphate. For a time, exports of this key fertilizer ingredient made Nauruans among the richest people per capita in the world. ” (This man *is* a poet.) Today, the Nauru Agency Corporation is the focal point of its off-shore banking industry and can be accessed on the world wide web at www.anti-taxes.com where one is greeted with the statement of the company’s vision: “a site dedicated to: small and medium entrepreneurs, free thinking individuals and all those who want to protect their welfare and goods from public and private predators.”  Along with a number of news articles and investment services, according to the Web Site on the island of Nauru, you can “improve your image by owning your own bank”, while hiding your money from ‘a vindictive ex-spouse’, and urging those entrepreneurs who are ever-vigilant to “Seize your assets before your creditors event think of it,”….  (Just stop, now for a moment, and think of * that *, eh?)  Doesn’t anyone want to take me out to lunch to talk about the movie rights on this story??  <smile>