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Pearce v. Desper





APPEAL from the Circuit Court of La Salle County; the Hon. J.P. WILAMOSKI, Judge, presiding.


After a trial the circuit court of La Salle County dismissed a complaint to foreclose a trust deed recorded as a second lien on approximately 240 acres of farm land owned by Jessie Desper, herein referred to as the defendant, and granted affirmative relief to defendant upon her counterclaim. Defendant had executed two notes and the trust deed securing them incident to a transaction in which she sold to plaintiffs' nominee a 160-acre tract, part of a farm, of which the 240 acres carrying the lien in question constituted the remaining portion. The court found, upon defendant's counterclaim, that the entire transaction was fraudulently induced by plaintiffs, declared void the trust deed, the notes it secured and the warranty deed conveying the 160-acre tract, and decreed restitution. Plaintiffs and a counterdefendant, La Salle National Bank, have appealed.

Since the questions presented turn largely upon the facts it is necessary to review them in some detail. Early in 1950, the defendant Jessie Desper was in financial difficulties. Her 400-acre farm, consisting of the 160-acre tract which she later conveyed to plaintiffs' nominee, and a 240-acre tract which she retained, was subject to a first mortgage to Prudential Insurance Company of America, on which $32,000 was owing, and a second mortgage in the amount of $11,500, held by the plaintiffs, M. Ray Pearce and Frank Koob. In addition, defendant owed Pearce and Koob approximately $5000 which they had advanced to her from time to time. Plaintiffs filed a complaint to foreclose their mortgage of $11,500, through their attorney, Clyde Mitchell.

After the filing of this complaint defendant relied largely upon her brother, Ralph Desper, to handle the negotiations which culminated in the present action. Ralph called on Mitchell, who had previously acted for the Despers in various matters, and was advised that his best course would be to sell the 160-acre tract. He then got in touch with Leonard Travis, a potential purchaser. The evidence shows that early in 1951 Travis declared himself willing to purchase the tract for $40,000. At the same time, Ralph Desper contacted Harold Brennan who offered to take a first mortgage on the remaining 240-acre tract for $15,000.

The plan was to sell the 160-acre tract to Travis and from the proceeds to pay Prudential $32,000 plus a penalty, which was variously stated in the testimony to be $700, $900, or $1100. It was also planned to mortgage the remaining 240 acres to Harold Brennan and pay plaintiffs their claim of approximately $16,500. Plaintiffs argue that this plan was not feasible because, in addition to the obligations that have been mentioned, defendant admitted other debts aggregating $6000, and would have to pay a commission on the sale of the land, and perhaps on the Brennan mortgage.

There is no evidence, however, as to how pressing the other debts were at that time. Moreover, Travis testified that he might have paid more than $40,000 for the 160 acres. After obtaining the offers from Travis and Brennan, Ralph Desper contacted Mitchell. An agent of Prudential was notified to secure the company's assent to the sale. The agent said that he would have to check Travis's credit and obtain a release from the head office in New York. Ralph Desper testified that a few days later the agent told him that Travis was "O.K." and that he was simply waiting for the release from the head office.

Soon thereafter, Mitchell informed Ralph Desper that Travis had "checked out of the picture," but that Pearce and Koob, plaintiffs, would offer $38,000 for the 160 acres. On March 22, 1951, Jessie Desper executed a warranty deed conveying the 160-acre tract to Alice Otorepec, plaintiffs' nominee. The deed recited that the consideration for the conveyance is ten dollars and that the conveyance is "subject to" the Prudential mortgage. Concurrently with the execution of the deed, Jessie signed a receipt for $1000, which the plaintiffs had made out for her. That receipt reads: "This will acknowledge receipt of one thousand dollars ($1,000.00) earnest money from Alice Otorepec as nominee for the purchase of my S.W. 1/4- 31- 34- 2. Balance due thirty-seven thousand dollars ($37,000.00)." It is not disputed that in addition to the $1000 for which she gave this receipt, Jessie Desper received only $5000 in cash for the conveyance. No further payments were made by plaintiffs or by their nominee.

On April 4, 1951, Jessie Desper signed a trust deed and two notes, each in the amount of $8500, giving plaintiffs a second lien on the 240 acres remaining to her. The papers were given to Ralph Desper by Mitchell with instructions that they be signed. Ralph Desper, accompanied by a notary, Henry Siekierka, went to Jessie Desper's home to have her sign them. Both she and Ralph Desper testified that neither understood that these papers were intended to place a second lien on the remaining 240 acres for the $16,500 owed by Jessie Desper to plaintiffs, but that they believed that they were making a mortgage to a third party to raise the additional sum needed to pay off the Prudential mortgage. Both testified that at the time Jessie Desper signed the papers they were blank. Henry Siekierka testified: "Jessie objected to signing them and she and Ralph were wrangling about something. I was standing on the sidelines and didn't get all the conversation. There was some wrangling between Jessie and Ralph about blank papers but I didn't see it, I couldn't prove it. I didn't look at the papers * * *." Frank Koob testified that he was in Mitchell's office when the papers were prepared prior to their signing by Jessie Desper and that they were all complete.

Defendant's counterclaim alleged that the agreement between plaintiffs and defendant for the sale of the 160-acre tract was that plaintiffs would pay $38,000 cash, but would receive credit for the $16,500 which she owed them; that on the faith of this representation she signed the warranty deed; that she signed the trust deed and notes in blank believing that they were a mortgage to some third party on the remaining 240 acres to raise the additional money needed to pay off Prudential; that plaintiffs had only paid $6000 cash for the 160 acres and had refused to pay the balance as agreed. The counterclaim prayed that the warranty deed, trust deed and notes be cancelled for fraud and misrepresentation.

It is well settled that where the chancellor has heard the testimony of witnesses in open court, his findings of fact are entitled to great weight and will not be disturbed by this court unless clearly against the weight of the evidence. (Seifert v. Demaree, 380 Ill. 283, 290.) While both parties devote much attention to the question whether Mitchell was acting as defendant's attorney in this transaction, and whether defendant may obtain relief upon this ground, since it was not asserted in her pleadings, we do not think that these questions are material. We do not see how Mitchell's alleged breach of a fiduciary duty to defendant can affect plaintiffs' position unless it is shown that he acted as their agent in perpetrating a fraud upon defendant. The question, therefore, is whether there was sufficient evidence to support the court's finding that plaintiffs had themselves or through an agent induced defendant to execute the documents through fraud or misrepresentation. On this issue, the burden remains with defendant.

We think that defendant has discharged this burden and that the court's finding of fraud on the part of plaintiffs is sustained by the evidence. We reach this conclusion after considering the whole record, but in particular upon the following salient facts: Mitchell, as plaintiffs' attorney, knew that defendant was looking for a purchaser who would pay cash for the 160-acre tract. He informed defendant that Travis's offer of $40,000 had been withdrawn. Travis testified that after making the offer he went to Florida; that he never personally withdrew this offer, but that he heard from his attorney that "the deal had fallen through." We need not surmise what occurred to cause this communication. It is sufficient to note that plaintiffs' theory of the understanding reached between themselves and defendant concerning the sale of the 160-acre tract to them, and the execution of a second mortgage on the 240-acre tract, requires an abrupt change of plan on the part of defendant. Defendant and her brother strongly denied having made any such change. Against this denial, plaintiffs are able to point only to their own assertions that they made no attempt to hide the true nature of the transaction from defendant and that defendant well knew the effect of the documents signed by her.

The documents, prepared by plaintiffs, speak a different story. The warranty deed of March 22, 1951, by which defendant conveyed title in the 160-acre tract to plaintiffs' nominee is silent on the question whether plaintiffs or their nominee assume the Prudential mortgage. The words "subject to" do not indicate an understanding that the mortgage was to be assumed. (Crawford v. Nimmons, 180 Ill. 143, 145.) After Ralph Desper made repeated demands upon Mitchell for payment of the balance of the consideration in cash, Mitchell sent a document to Jessie for her signature, which for the first time, clearly set out an agreement that the $38,000 was to be paid, $6000 in cash and the balance by assuming the Prudential mortgage. Defendant refused to sign this document. The receipt for $1000 tendered by plaintiffs stated, "Balance due thirty-seven thousand dollars." That statement is inconsistent with any theory that the balance was to be paid by assumption of a mortgage, whether it was to be assumed by the plaintiffs or by their nominee.

There is enough evidence in this record to show that defendant understood and was meant to understand that the balance would be paid in cash. In our opinion the court was justified in believing defendant's and Ralph Desper's testimony that the trust deed and notes were presented to them in blank and that their understanding was that they were meant to effect a mortgage on the 240-acre tract remaining, which would bring them additional cash to pay off the Prudential mortgage.

Plaintiffs argue, however, that even if there were misrepresentations made by them defendant has failed to show in what way her resultant position is less desirable than the one she had in mind — that she has failed to show any damage. They argue that defendant is relieved of the Prudential mortgage which they are now willing to assume if they have not already done so, and that defendant's mortgage to them is not more onerous than the mortgage she intended to execute to Brennan. But plaintiffs cannot fraudulently substitute themselves for the intended mortgagee and maintain that they have placed defendant in an identical situation to that which would have obtained had the mortgage been made as intended. It is well settled that a contract can be avoided as against one who through misrepresentation on his part or on the part of his agent has become a party to it knowing that someone else was intended, or knowing merely that he was not intended to be a party. (Heart of ...

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