REAL ESTATE LAW PRACTICE “KEYPOINTS”

(October, 2004)

 

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 2004 - All Rights Reserved)

 

 

In addition to encouragement from the Illinois Institute of Continuing Legal Education and the Illinois State Bar Association’s Real Estate Section Council,  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 from the perspective of a title company serving the public and the attorneys who represent their clients in real estate transactions.

 

 

1.      SPECIFIC PERFORMANCE; PROOF OF DAMAGES AND LOSS OF USE AND ENJOYMENT:

 

In Wilson v. DiCosola, (2nd Dist., September 14, 2004), http://www.state.il.us/court/Opinions/AppellateCourt/2004/2ndDistrict/September/Html/2030604.htm, the trial court entered judgment in favor of the Plaintiffs, Gregory and Susan Wilson in the sum of $78, 143.15 plus costs. The Defendant-builder appealed, contending that the damages were actually for “mental distress” rather than for loss of use,  were speculative, and not supported by the record. 

 

The dispute developed after DiCosola purchased the property adjacent to Wilson’s home in Hinsdale as a ‘tear down’;  i.e., with the intent to demolish the existing home to re-build a new residence. In the midst of construction, Defendant removed soil and a seven-foot-high masonry wall on the property that belonged to Wilson.  Afterwards,  the parties  entered into an agreement by which DiCosola agreed to restore soil and erect either a wrought iron fence or six foot high masonry wall,  according to Wilson’s choosing,  by a certain date.  The Wilsons chose a six foot masonry fence.  Nonetheless, DiCosola built a wrought iron fence, contending that the Village of Hinsdale ordinances prohibited the construction of a masonry fence.  Wilson brought an action for specific performance  to require DiCosola to build the masonry fence and sought damages for loss of use of their backyard patio in the interim based on  the lack of privacy provided by the wrought iron rather than masonry fence. 

 

At trial, Wilson testified that his property was valued at $2.5 million, and he sought damages in the sum of $25,000 per year, representing 1% of the value of his home, for the loss of use of the patio.  The trial court awarded $75,000 representing three year’s loss of use, finding that “the amount testified to by Mr. Wilson of $25,000 is not unreasonable given the value of this property.”

 

On appeal, while the Second District opinion agreed with the trial court that DiCosola knew Wilson had a privacy fence before he tore it down, knew they had chosen a solid masonry fence to replace it, and knew or should have know that the purpose in choosing the masonry fence was privacy. Nonetheless, the Court held that the damages to be awarded must be based on “a reasonable basis for computation”.  Here, the $25,000 per year for lost of use was “completely arbitrary and bore no discernible relationship to their use and enjoyment of the patio…We are aware of no authority that supports the contention that choosing a random percentage of a property’s value is an acceptable and reasonable  basis for measuring a plaintiff’s damages, even if that percentage is ‘de minimis’….Merely choosing a percentage of the property’s value, without more, does not meet this requirement. “  Although the Court’s research did not reveal any Illinois case addressing what a plaintiff must show to support an award of damages for loss of use and enjoyment, turning to a Connecticut case as “instructive”, the Second District discusses evidence of the number of days of loss of use and the daily value of the loss of use based on the daily value of use prior to the breach.  “When a party proves that it has the right to damages but fails to provide a proper basis for computing those damages, only nominal damages may be awarded.”

 

2.      CONDEMNATION; PARTIAL TAKING VALUATION ACCORDING TO THE “UNIT RULE” - AN ‘EXTENSION’ VS AN “EXCEPTION” OF THE RULE THAT SHOULD REPLACE THE METHOD OF VALUATION:

 

The Illinois Department of Transportation filed a complaint for condemnation to acquire 1.947 acres of land in order to widen an intersection in Plainfield, Illinois, in Department of Transportation v. Kelley, (3rd Dist., 9/23/2004), http://www.state.il.us/court/Opinions/AppellateCourt/2004/3rdDistrict/September/Html/3030282.htm.

 

The tract sought was part of a 289 acre parcel of land, which included a home valued at over $1,000,000, a second farm residence, farmland, and a small segment of wetlands along the DuPage River.  At the hearing to determine valuation, IDOT’s appraiser testified that he had analyzed the entire parcel’s value and arrived at his value for the condemned portion based on that process.  Kelley’s case on the issue of consisted of testimony of two appraisers, each of which assigned different square foot values to areas of the property according to the different highest and best use of different parts of the whole parcel. Accordingly, because the tract sought by IDOT was on the roadway and had commercial potential, one appraiser assigned a higher per unit value for that portion than to other portions of the parcel.  The other appraiser divided the 289 acre parcel into separate tracts based on three “zones of use” consisting of an 80 acre commercial use zone, a 201 acre residential subdivision/development  zone, and a 10 acre of residential use zone, also assigned differing values to the different zones.  IDOT contended that this process of assigning different values to different portions of the parcel violated the “unit rule” of valuation.  The “unit rule” was developed in the case of City of Springfield v. West Koke Mill Development Corp. , (2000) 312 Ill.App.3d 900, 904, and is reflected in Illinois Pattern Jury Instruction No. 300.44.  It provides that in partial takings, the tract taken must be valued as part of the whole, and not as a separate tract from the whole.   In DOT v. HP/Meachum Land Limited Partnership, (1993),  245 Ill.App.3d 242, 255,  the Court “extended” the unit rule to allow for tracts to be valued separately in partial takings if there are clearly cognizable different highest and best uses for different parts of the land and where different portions of the property are recognizably distinct from each other.   Noting that “The court permitted a narrow extension of the rule because it recognized the substantial differences in value between the wetland and on-wetland property” in the West Koke Mill case, the Court here did not find the same “clearly delineated boundaries” to justify employing the “extension”  of the rule despite the “zone of use” analysis.   “In partial takings such as the one here, a court may find that when different uses of the property are easily delineated, a separate valuation may be appropriate.  With a less certain standard, the unit rule unravels altogether, and just compensation becomes an increasingly difficult and fluid proposition to resolve.  We find no compelling reason to abandon the unit rule in this case.”

Just Holdridge concurred specially, noting that there is “no authority to establish that our supreme court has ever departed from the unit rule.”  The HP/Meachum case reasoning, Justice Holdridge, argues clearly contravenes the “unit rule” and should be characterized as an “exception” rather than an “extension”.  “The  unit rule almost never achieves that purpose [to provide just compensation].  Simply put, the “unit rule” ignores realities of land valuation and should give way. The approach articulated in HP/Meachum is not an extension of the unit rule, but an exception that should be allowed to swallow up the rule.  Our supreme court should revisit the issue.”

[Ed. Note:  This could get interesting !]

 

 

3.      PREMISES LIABILITY; DUTY TO PROVIDE A REASONABLY SAFE MEANS OF INGRESS AND EGRESS AND DEFECTIVE CONDITIONS THAT ALLOW UNNATURAL ACCUMLATIONS OF SNOW OR ICE:

 

In McLean v. Rockford Country Club, (2nd Dist., 9/29/2004), http://www.state.il.us/court/Opinions/AppellateCourt/2004/2ndDistrict/September/Html/2030887.htm, the Second District reverses a trial court ruling dismissing a complaint to recover for personal injuries sustained by a patron to a country club due to falling ice from a roof.  The trial court based its ruling upon an application of the “natural accumulation rule”.  That rule provides that a property owner has no duty to remove snow or ice that accumulates naturally on its premises.  Without a duty, there can be no liability.    Here, Charles McLean was struck by a large falling icicle near the entrance to the Country Club, and suffered extensive and severe injuries.  The Country Club’s motion to dismiss in the trial court was based on the fact that the icicle was the result of a “natural accumulation”,  and was granted.  In reversing, the Second District relies heavily upon two distinctions drawn by the decision in the only other similar Illinois case; one  dealing with a patron of a restaurant struck by falling ice while exiting a restaurant; Bloom v. Bistro Restaurant, Ltd. Partnership, (1999), 304 Ill.App.2d 707.  There, the Court made a distinction based on a property owner’s common law duty to provide a reasonable means of ingress and egress from its place of business for its patrons. The natural accumulation rule does not extinguish a property owner’s common-law duty to provide a reasonably safe means of  ingress and egress from its property, and this is a separate and distinct duty. Additionally, as provided in Bloom, while a property owner is not liable for injuries that result from falling  ice that has accumulated due to natural causes, if the accumulation occurs due to a design or construction defect, then there can be liability. Here, McLean alleged in his complaint that the country club’s roof was improperly designed, improperly pitched and sloped, and completed with improperly sized and hung downspout and gutters.  Finding that there is a duty imposed upon property owners to provide a reasonably safe means of ingress and egress to and from their places of business which is not abrogated by the presence of a natural accumulation of ice, snow or water, the Court also holds that the presence of defective conditions on the building which cause an unnatural accumulation of ice or waters can be the basis of liability, without regard to the natural accumulation rule because, but  for the defective condition, there would be no accumulation.

 

 

4.      THE PLAT ACT FROM THE TITLE INSURANCE PERSPECTIVE:

 

There are not a lot of cases out there that concern the Plat Act (765 ILCS 205/0.01 et seq.)  The recent case of Ruble v. Sturhahn, No. 4-03-0461 (4th Dist, May 2004) does, and what's more, it could have an interesting impact on the title insurance company.

In 1987 Mr. and Mrs. Ruble purchased a residential lot in Pittsfield, in a subdivision known as Rolling Meadows Third Addition.  In 1993 Mr. and Mrs. Booth purchased two residential lots in the same subdivision. In 1998 defendant Sturhahn purchased a thirteen acre tract in Rolling Meadows Third Addition.  Sturhahn then sought and obtained a zoning change from the zoning commission, which reclassified his property as B-3.  He then vacated his portion of the subdivision and replatted his thirteen acres into a new subdivision.  When he partially vacated the subdivision, he also removed a cul-de-sac of one street and reconfigured the layout of another street.

The plaintiffs argued that Sturhahn vacated his portion of the original plat without their consent, which was in violation of sections 6 and 7 of the Plat Act.

Section 6 provides that "any plat may be vacated by the owner of the premises at any time before the sale of any lot therein, by a written instrument to which a copy of the plat is attached, declaring it to be vacated. . . . When lots have been sold, the plat may be vacated in the manner provided in this section by all the owners of lots in the plat joining in the execution of the writing."

Section 7 states that "any part of a plat may be vacated provided in the preceding section, and subject to the conditions therein prescribed: Provided, such vacation shall not abridge or destroy any of the rights or privileges of other proprietors in such plat: And provided, further, that nothing contained in this section shall authorize the closing or obstructing of any public highway laid out according to law."

In other words, section 6 indicates that when someone owns the entire subdivision, that person can vacate the plat, but when lots have been sold, the other owners of the lots must consent to the vacation.  Section 7 details how just part of a subdivision can be vacated.

Here, the plaintiffs argued that they had a right to the continued maintenance of the original configuration of the platted streets.  Defendant Sturhahn maintained that he was within his right to vacate the streets because the plaintiffs suffered no special or peculiar damage to their legal rights.  That is, no public streets were closed and no public infrastructure was affected.

The appellate court sided with the plaintiffs, ruling that a party who purchases land in a subdivision with reference to a recorded plat acquires the right to have the streets and alleys remain open as they were platted!  The court stated that "even if no especial inconvenience or loss is shown, one who purchases in reference to a plat is entitled, under the law, to demand that, as between him and the author of the plat, and those claiming under the author, the representations made by the plat as to the streets thereon be preserved.  This rule equally applies to platted streets and roads not yet in existence."

Here, the Rubles' lot was immediately south of the Sturhahn property.  The Booths' two lots were southeast of the Sturhahn tract.

As a Plat Act junkie, I am familiar with the provisions of sections six and seven.  I have even referred customers to these sections from time to time. And although it makes sense now, after I have read this case, I would not have guessed that an owner of a lot in a subdivision could exert such control over another lot owner's use of his land and the street appurtenant to the street.  This is especially the case when it appears from the record that at least one plaintiff's property is not immediately contiguous to the defendant's property.

As an employee of a title insurance company, I often work with customers who wish to resubdivide larger lots into smaller ones.  Invariably they want to decrease the width of the building set back line.  I point out that once lots in a subdivision are sold, the right to an unaltered building line becomes fairly absolute; it cannot be changed unless, at the very least, adjoining lot owners consent.  See, too, in this regard, 65 ILCS 5/11-14-1, which states that "the corporate authorities in each municipality have power by ordinance to establish, regulate and limit the building or setback lines on or along any street. . . .[These powers] shall not be exercised so as to deprive the owner of any existing property of its use or maintenance for the purpose to which it is then lawfully devoted."    Ruble v. Sturhahn seems to be consistent with my building line philosophy.

In fact, the case suggests that ANY owner of a lot in a subdivision has the right to the enforcement of an unaltered building line on any other lot: "Where the owner of land lays it out in lots and blocks . . . the purchaser acquires as appurtenant to the lots every easement, privilege, and advantage which the plan represents as belonging to them as a part of the platted territory. . . .  An owner of land who purchases in reference to a plat acquires a private right in the plat's representations, which may not be abridged or destroyed by the author of the plat or his privies.  Such is the case even if no special damages to the owner of the land have been shown."

A few years ago I wrote in this column of the First District case, Vandelogt v. Brach, No. 1-00-3369 (2001).  I suggested that because of this case, the "change of neighborhood" theory of covenant elimination may be dead in Illinois.  (That is, because of the Vandelogt case and others like it, title companies may be loath to waive a recorded covenant from one lot just because there has been a change in the character of the neighborhood that affects another lot in the subdivision.)  Ruble v. Sturhahn is further proof of this.  That is, it is very apparent that Illinois courts are looking at the rights of lot owners incident to a recorded plat of subdivision as being vested rights that another lot owner (and not just an adjoining lot owner) cannot unilaterally abrogate, alter, abridge, or amend.

Just one more thing: Does this case have any impact on road vacations? Recall that Public Act 90-179 (effective July 23, 1997) amended the Illinois Municipal Code.  As amended, 65 ILCS 5/11-91-1 states as follows:

[An ordinance of vacation] may provide that it shall not become effective until the owners of all property or the owner or owners of a particular parcel or parcels of property abutting upon the street or alley, or part thereof so vacated, shall pay compensation . . . in an amount which . . . shall be the fair market value of the property acquired or of the benefits which will accrue to them by reason of that vacation . . . .  If the ordinance provides that only the owner or owners of one particular parcel of abutting property shall make payment, then the owner or owners of the particular parcel shall acquire title to the entire vacated street or alley, or the part thereof vacated."

Most title companies felt that this legislation was unconstitutional--that is, until the Illinois Supreme Court gave us Chavda v. Wolak, 188 Ill.2d 394, 721 N.E.2d 1137 (1999), which upheld the constitutionality of 65 ILCS 5/11-91-1, as amended.

Under the Chavda case, the entire width of a road can be vacated in favor of just one appurtenant landowner.  Is Ruble consistent with Chavda?  After all, Sturhahn was not permitted to modify a platted public right-of-way, but Chavda was able to obtain title to the entire width of a platted public right-of-way.

There is no inconsistency between the two cases.  In Ruble v. Sturhahn the court pointed out that there is a distinction between the vacation of a plat by a public authority and a vacation by the author of a plat and his privies.

Dick Bales

Chicago Title Insurance Company

Wheaton, Illinois

 

5.      MORTGAGE FORECLOSURE:  EVICTION OF “UNKNOWN OCCUPANTS” BY FORCIBLE ENTRY AND DETAINER 90 DAYS  AFTER CONFIRMATION OF SALE:

 

The recent case of Fairbanks Capital v. Coleman, (1st Dist., 9/3/2004), http://www.state.il.us/court/Opinions/AppellateCourt/2004/1stDistrict/September/Html/1033600.htm revisits the holding in Rembert v. Sheehan, (7th Cir., 1995), 62 F.3d 937, that provided that the Sheriff could not enforce orders of possession in mortgage foreclosure cases against persons not specifically named, or described generically as “occupants”  in a Court Order, inasmuch as this conduct violated the due process rights of those occupants.  In the 1995 case, the District Court entered an injunction prohibiting the Sheriff of Cook County from executing possession orders in foreclosure cases against persons not specifically named in those orders. On December 30, 2002, an Order was entered in the chancery division in a pending mortgage foreclosure case filed by Fairbanks Capital confirming the foreclosure sale and granting an order of possession against Celestine Moore only.  Thereafter, in March, 2003,  less than 90 days after the confirmation of sale in foreclosure, Fairbanks filed the instant case under the Forcible Entry and Detainer Act, and added Stanley Coleman, Stanly Walson and “Unknown Occupants” as parties against whom possession was sought in that proceeding. On April 8, 2003, the court entered an order of default finding that “unknown occupants” were properly named,  served by posting notice and entered an order of possession.  The Plaintiff placed the order with the Sheriff of Cook County for eviction. When the Sheriff attempted the eviction, two people were encountered who were not named in the possession order:  Stanley Walker and Michael McFadden.  The deputies were given a telephone bill and recent mail indicating McFadden and Walker actually lived at the property and therefore refused to complete the eviction.

 

Fairbanks then filed a rule to show cause why the Sheriff of Cook County should not be held in contempt for failure to execute the order and complete the eviction.   The Sheriff cited the policies and procedures developed as a result of the Rembert case,  (in which the Sheriff had also been found in contempt for violating the due process rights of occupants who were attempted to be evicted without being specifically named in an order of possession), as the basis for failing to complete the eviction;  noting that whenever a forcible entry and detainer case based on a prior mortgage foreclosure proceeding resulting in such an order, the Sheriff’s policy was to nonetheless refuse to evict persons not specifically named, or described generically as “occupants”.  The trial court found the Sheriff in indirect civil contempt for failing to carry out the evictions of the “unknown occupants”. The Sheriff appealed.

 

The First District opinion vacates the trial court’s order and remands the case.  Fairbanks argued on appeal that the Detainer Act applied to all forcible entry and detainer cases, regardless of whether the Plaintiff’s right to possession arose in a foreclosure deed.  In his brief, the Sheriff noted that the Detainer Act’s  authorizing possession orders against generically named occupants is inconsistent with the foreclosure law.  The Court’s decision follows the logic that: (a) Section 15-1508(g) of the Foreclosure Law prohibits eviction of generically named defendants based on the confirmation of sale order; (b) Section 15-1701(h) permits a supplemental petition to be filed within 90 days of the confirmation of sale that specifically names occupants against whom possession is sought following foreclosure; (c) these two provisions reflect the legislature’s intent to require foreclosing parties to identify unknown occupants and seek their removal through the foreclosure process within the 90 day period following confirmation; and (d) Section 15-1701(f), dealing with possession issues, provides that it shall “supersede any other inconsistent statutory provisions and thus controls this issue during the 90 day period following confirmation of sale.”  Accordingly, “while a claimant may seek possession under the Detainer Act against specifically named occupants at any time, his right to execute a possession order under the Detainer Act against generically named occupants on mortgaged property may only be exercised after 90 days have elapsed from the date of the initial order of possession in the foreclosure action.”; i.e., the date of the confirmation of sale.  Accordingly, the Sheriff was found to have been acting properly and the contempt order was vacated.

 

 

6.      MECHANIC’S LIEN; COMPLETION OF WORK  WITHIN THREE YEARS OF COMMENCEMENT AND LEGAL MALPRACTICE:

 

The legal malpractice case of Washington Group International, Inc. v. Bell, Boyd & Lloyd, P.C., 7th Cir., September 9, 2004),   http://www.ca7.uscourts.gov/op3.fwx?submit1=showop&caseno=03-2389.PDF is noteworthy because it points out two important things for practitioners in this area: (1) the little noted provision of the Illinois Mechanic’s Lien Act that bars a lien when the contract is not completed within three years of commencement, and (2) a holding that there is no cause of action for negligently failing to counsel a client relating to the effect of the three-year rule if there was no action the client could have taken to avoid the impact of the rule; i.e., the ‘no-harm-no-foul defense”.

 

Bell, Boyd & Lloyd was hired a counsel for the Plaintiff’s predecessor in the midst of a complex Chapter 11 Bankruptcy filed by the owner of the steel mill.  In November, 1998, the law firm filed a mechanic’s lien claim notice relating to the work its client performed at a cost of in  excess of $12 million in the construction of the steel mill pursuant to a contract entered into in 1994. The Bankruptcy Court ruled that the lien was invalid pursuant to the Illinois Mechanic’s Lien Act provision which requires completion of work within three years of commencement for a lien to be enforceable. (770 ILCS 60/6). Thereafter, the client’s successor brought this action against Bell, Boyd & Lloyd for malpractice claiming that the legal description of the property in the lien was incorrect and that the law firm was negligent in failing to advise it that the three-year rule would invalidate its lien.

 

The Seventh Circuit first holds that the previous decision by the Bankruptcy Court that the legal description was, in fact, sufficient under the Illinois Mechanic’s Lien Act,  dispositive of that portion of the claim of malpractice and affirmed the dismissal on that cause of action. Then, noting that Bell, Boyd & Lloyd was not retained “until close to the end of the three-year period”, at a time when the client “could not have taken any action based on Bell Boyd’s advice that would have prevented the application of the rule to its lien”, the decision holds that since there were no facts alleged that suggested that construction could have been completed within the three-year period when the law firm was hired, it could not be said that the law firm’s failure to alert its client to the effect of the rule was the proximate cause of any damage to entitle it to damages based on malpractice.

 

 

7.      ACCOUNTING; PROFITS, FIDUCIARY DUTY TO ACCOUNT AND PREVAILING PARTY:

 

Often, real estate practitioners are confronted with transactions in which the seller’s compensation has some relationship to the purchaser’s success in a subsequent development project on the property sold.  The accounting aspects can be a nightmare, and the evidence at trial is usually fraught with complexity.  R.J. Management Co. v. SRLB Development Corp., (2nd Dist.,  February 10, 2004) http://www.state.il.us/court/Opinions/AppellateCourt/2004/2ndDistrict/February/Html/2020842.htm, deals with just such issues and, after reading and re-reading a number of times, the decision is just too interesting not to include here.

 

 R.J. Management Co. sold 330 acres of land to SRLB Development Corp. for residential development for $5 million.  The contract provided that when the last unit on the property was sold, SRLB would do an accounting to determine its actual profits, and if the development of the land met a certain profit level, (approximately $11 million), SRLB would pay RJ an additional $250,000.  Over a period of ten years, SRLB built and sold 900 single family residences. It did not pay any additional sums to RJ, and RJ sued SRLB for an accounting and payment. At trial, SRLB executives  testified that the profits were in the range of $8 million, rather than $11 million.  During discovery and at trial, SRLB was unable to provide accounting source documents (ledgers, invoices and cancelled checks) as evidence because they were discarded during the ten year project, and relied upon the corporation’s tax returns.  The trial court refused to admit the tax returns into evidence.  One expert accountant testified that because so many of the source documents were missing, he was unable to render an opinion of the profitability of the project, and pointed out the differences between “financial net income” and “taxable income”. Another expert testified that he didn’t need to review the source documents and,  based on the available financial statements and tax returns, he was of the opinion that the project did not come close to meeting the threshold for the additional compensation bonus.  The trial court ruled that SRLB had failed to render an accounting as required by the contract, and because it had discarded its source documents and could not prove its profitability, all reasonable presumptions were drawn against SRLB. Nonetheless, the trial court believed the tax returns were sufficiently reliable to support SRLB’s expert’s conclusion that the project did not produce a profit sufficient to entitle RJ to its bonus, and therefore it did not owe the $250,000.

 

The Second District affirmed.

 

First, rejecting RJ’s argument that the trial court erred in failing to apply the adverse presumptions arising from SRLB’s destruction of its accounting records, the Court notes that the destruction of evidence presumption that it would be prejudicial to the party destroying the documents is not evidence, and while it shifts the burden of evidence, it does not shift the ultimate burden of persuasion. “…when contract evidence is produced, the metaphorical bubble bursts and the presumption vanishes entirely.” Accordingly, the trial court’s willingness to be persuaded by SRLB’s expert was not against the manifest weight of the evidence.  Additionally, event though the contract required SRLB to perform the accounting, this was not sufficient to create a fiduciary relationship.  Likewise, the implied covenant of good faith and fair dealing, while obligating the parties to refrain from acting in such a way as to destroy or injure the right of the other party to receive the benefit of the contract, does not create a fiduciary duty;   “It allows redress only for breach of contract...Thus, the contractual right to an accounting does not itself transform an arm’s length transaction into a fiduciary relationship…[and}the practical considerations of shifting a burden of proof to one in exclusive control of records and documents cannot serve to create a fiduciary relationship where one does not otherwise exist.”

 

Having concluded that no fiduciary relationship existed, the  standard of evidence required of SRLB less than clear and convincing, and “…the trial court properly examined the evidence and determined that SRLB came forward with sufficient evidence to support a finding of the nonexistence of the presumed fact.”  [Ed. What a great sentence…read that one again…the nonexistence of the presumed fact !]

 

Finally, while the contract provided for an award of attorneys fees to the prevailing party, and despite the fact that SRLB did breach the contract by not providing an accounting, since RJ did not prove any damages, it did not “prevail on a significant issue”; both parties prevailed on a significant issue and were not entitled to fees.

 

 

8.      REAL ESTATE CONTRACTS; FIRST RIGHT  OF REFUSAL AND THE ESSENTIAL ELEMENT OF A PRICE OR METHOD BY WHICH PRICE CAN BE DETERMINED:

 

In Crestview Builders, Inc. v. The Noggle Family Limited Partnership, (2nd Dist., October 2004),  http://www.state.il.us/court/Opinions/AppellateCourt/2004/2ndDistrict/October/Html/2040015.htm  , the Court was confronted with the issue of whether a first right of refusal to a builder was enforceable without a stated price being set forth. In March, 1997, the Plaintiff builder entered into a contract to purchase 220 acres of land from a family limited partnership (NFLP).  The contract provided that  there were to be three separate closings, each to convey a portion of the property with the seller retaining possession of the residence/homestead portion.  The contract contained a Rider which provided “At the first closing…[NFLP] agrees to execute and deliver to [builder] a recordable right of first refusal on [NFLP’s] retained homestead.”  In December, without any disclosure to the builder, NFLP conveyed the residence to Robert and Fern Noggle.  This was not discussed nor disclosed at the first and second of the three closings.  At the third closing on December 15, 2000, however, a statement was signed by the builder and NFLP stating “[NFLP]  agrees to comply with the requirements of [the original contract rider] by delivering a signed and recordable right of first refusal…by 12/30/00…” In January, 2001, the parties were still negotiating the terms of the right of first refusal and were unable to come to an agreement. In April, 2001,  the builder file suit seeking to obtain declaratory judgment that the right of first refusal was valid and binding.  The trial court granted summary judgment in favor of the builder and NFLP appealed.

 

On appeal NFLP contended that the first  right of refusal did not contain an essential element to enforcement;  there was no state purchase price or method by which the price could be determined set forth in writing.  The Second District agreed and reversed the judgment of the trial court.

“In order for a contract to be enforceable, its terms and provisions must enable the court to ascertain what the parties have agreed to do. Pritchett v. Asbestos Claims Management Corp., 332 Ill. App. 3d 890, 896 (2002). Price is an essential element of every contract for the transfer of property and must be sufficiently definite or capable of being ascertained from the parties' contract. Universal Scrap Metals, Inc. v. J. Sandman & Sons, Inc., 337 Ill. App. 3d 501, 505 (2003). However, a right of first refusal need not specify the price, as long as it provides a method whereby the price may be ascertained. Universal Scrap Metals, 337 Ill. App. 3d at 505; Kellner v. Bartman, 250 Ill. App. 3d 1030, 1035 (1993).”  Here, since the statements of the parties did not specify either a price or a method by which the price could be determined, the ‘agreement’ was uncertain and incomplete, so there was no enforceable first right of refusal.   While rights of first refusal often provide that there will be a right to purchase under terms offered by a third party, (and this has been held to be a “method” by which the price can be “determined”),  mere use of the term “right of first refusal” does not provide sufficient certainty or completeness.  Not every right of first refusal involves a third party buyer in an arm’s length transaction with purchase price and terms.  (In this case, it  actually appeared that the homestead was sold by the family limited partnership to members of the family rather than a ‘third party’.)  Citing cases, the Court’s decision holds that mere reference to a “right of first refusal” is not sufficient,  regardless of the Black’s Law Dictionary definition of a “potential buyer’s contract right to meet the terms of a third party’s offer if the seller intends to accept that offer” and the statements of the parties here were too indefinite to be enforced.

 

 

9.      NOTARY PUBLIC; SUGGESTIONS FOR IMPROVEMENT IN AN ERA OF TRANSACTIONAL FRAUD:

 

As noted in the opening paragraph of a recent articles by James K. Weston in the Illinois Bar Journal, (“A Better Way to Fight Fraud Is Under Your Thumb”, IBJ, October, 2004, Vo. 92., pg. 542),  http://www.isba.org/Member/oct04lj/P542.htm , “In recent years, the incidence of fraud in real estate and related transactions has risen dramatically.”  While many transactional-only attorneys may not be personally aware of this trend, most real estate litigators are painfully aware of this and the fact that the Illinois Notary Public Law (5 ILCS 312, et seq.) does not provide the level of protection or accountability that most of the public and attorneys think it does.  Compound garden variety fraud with the increased concern over identity theft and the “flipping schemes” that seem to be more common, Jim Weston says, and you have a clear need for a “simple  yet effective solution” that transcends suing lenders and closers, financial institutions and criminal investigations.  The solution is to amend the notary public law to require a detailed record of each and every act of  a notary and include the thumbprint of the person signing in the journal.  “California  has required thumbprints for more than 10 years.  Incidents of fraud have dramatically decreased.”  Jim admits that “Perhaps it’s just psychologically too close to he booking process at the police station…[but] The bottom line is that it has been proven effective.”  The article includes a discussion of two bills which would at least partially accomplished this result, but notes that both ended the last session in the House Rules Committee, and concludes with a call to arms.

 

 

10.   LANDLORD/TENANT:  THE RESIDENTIAL TENANTS’ RIGHT TO REPAIR ACT:

 

Public Act 093-0891, entitled the Residential Tenant’s Right to Repair Act ,  http://www.legis.state.il.us/legislation/publicacts/fulltext.asp?name=093-0891, will become effective with the New Year, January 1, 2005, and provides statutorily, (765 ILCS 742,  http://www.legis.state.il.us/legislation/ilcs/ilcs3.asp?ActID=2605&ChapAct=765%26nbsp%3BILCS%26nbsp%3B742%2F&ChapterID=62&ChapterName=PROPERTY&ActName=Residential+Tenants%27+Right+to+Repair+Act%2E)  what many consumers currently assume exists. The Act provides that if a tenant under a residential lease agreement performs a required repair that does not exceed the lesser of one-half of the monthly rent or $500.00, the landlord will be required to reimburse him or her. The Act does not apply to owner occupied apartment buildings with six or fewer dwellings, condominiums, public housing, or those covered under the Mobile home Landlord and Tenants Rights Act. There are some conditions, however.  The tenant must give the landlord prior notice in writing of the need for the repair by certified, registered, or other restricted delivery  mail to the address listed on the lease or the landlord’s last known address.  If the landlord does not perform the repair within 14 days of the notice, then the tenant can do the repair and deduct the amount paid from the rent by submitting a paid receipt.   The tenant does not have to wait 14 days in the event of an emergency; (one that would cause irreparable harm if not immediately repaired or that poses an immediate threat to health or safety of the occupants).  The repair can not be for a condition caused by the tenant, tenant’s family member or invitee which was a deliberate or negligent act or omission.  The repairs must be done by a licensed or certified repairman carrying proper liability insurance, and the tenant is responsible for any damages and ensuring the work is done in a workmanlike manner in compliance with all local laws. The Act specifically provides that repairs performed under the law will not be entitled to mechanic’s lien status as having been performed without authority or permission of the landlord, and no local, home rule governmental body can ‘diminish the rights of tenants under this Act.”.