Appeal from the Chancery Division of the Circuit Court of Cook
County; the Hon. CORNELIUS J. HARRINGTON, Judge, presiding.
MR. JUSTICE MCCORMICK DELIVERED THE OPINION OF THE COURT.
Rehearing denied April 14, 1967.
In the case of Lawn Savings and Loan Association, plaintiff, v. Howard B. Quinn and La Salle National Bank, as trustee, under trust No. 28563, et al., defendants (our No. 50,419), a judgment was entered in the Circuit Court of Cook County in favor of the plaintiff, Lawn Savings and Loan Association, against defendants, Howard B. Quinn and La Salle National Bank.
In the case of Howard B. Quinn and Charlotte J. Quinn, plaintiffs, against Lawn Savings and Loan Association, La Salle National Bank, as trustee, under trust No. 28563, and Federal Savings & Loan Insurance Corporation (our No. 51,000), a judgment was entered against the plaintiffs and in favor of the defendants. The two cases were consolidated in this court, and we will first discuss Lawn Savings and Loan Ass'n v. Howard B. Quinn and La Salle National Bank, as trustee, our No. 50,419.
The appeal arises out of orders entered in the course of a proceeding to foreclose a real estate mortgage. No evidence was introduced. The defendant, Howard B. Quinn (hereinafter called Quinn), was the holder of a certificate of beneficial interest under a trust agreement in which the defendant, La Salle National Bank (hereinafter called La Salle), was the trustee of a land trust of which Quinn was the beneficiary. La Salle executed a mortgage note and mortgage to plaintiff, Lawn Savings and Loan Association (hereinafter called Lawn); when the Lawn mortgage went into default Lawn filed a complaint to foreclose against La Salle, Quinn, and a number of unpaid mechanics' lien claimants. The certificate of beneficial interest had been pledged by Quinn to Beverly Savings and Loan Association (hereinafter called Beverly), a party defendant, as security for a loan. Beverly was also the lessee of a portion of the premises which had been constructed on the trust res. Beverly assigned its interest in the lease and its interest in the certificate of beneficial interest to Federal Savings and Loan Insurance Corporation (hereinafter called Federal), which association was in possession of the property demised by the lease. Federal filed a counterclaim in the foreclosure suit, alleging that the mortgage sought to be foreclosed was fraudulent and unlawful, and asked that Federal's right in the property be decreed to be superior to Lawn's mortgage. Trial of the difficult issues raised by the counterclaim was avoided by a stipulation between Lawn and Federal. Thereafter the court entered a decree on the counterclaim and the stipulation. The instant appeal is taken from an order confirming the sale of the beneficial interest and from an order overruling Quinn's objections to the decree on the counterclaim.
It appears that La Salle held title in a land trust to the property located at 8001-8025 South Western Avenue, Chicago. The certificate of beneficial interest which was designated only as personal property, was held by Quinn. On September 27, 1961, La Salle executed a mortgage note and a mortgage to Lawn for $2,100,000. The mortgage waived the right of redemption. Quinn thereupon undertook the construction of a 9-story commercial building on the property. On February 6, 1962, Beverly entered into a lease with La Salle for half of the basement and the first three floors of the building. At this time Quinn was the owner of a large majority of the permanent reserve shares of Beverly, and was chairman of its board of directors. On July 18, 1963, Quinn signed a note payable to Beverly for $500,000, and pledged as collateral his beneficial interest in the trust at La Salle.
A default occurred in the mortgage payments and Lawn filed its complaint to foreclose its mortgage on September 13, 1963. On October 15, 1963, an order was entered designating Lawn as mortgagee in possession. Lawn demanded payment of $12,500 monthly rental from Beverly, the lessee. The lease was for a term of 20 years. Beverly became financially involved, and on October 25, 1963, adopted a plan of voluntary liquidation, and Federal acquired its assets and assumed its liabilities under its deposit insurance agreement.
On February 28, 1964, Federal filed a counterclaim in Lawn's foreclosure suit. In Count I it alleged that Quinn had fraudulently disbursed $1,187,325.36 of Beverly's funds toward the construction and that Lawn knew, or should have known, of the fraudulent disbursements. This count prayed that Federal be declared entitled to a lien upon the real estate, or that the real estate be impressed with a trust in its favor for such advance. Count II of the counterclaim alleged that Quinn, by reason of his ownership of the beneficial interest in the La Salle trust and his domination and control of Beverly, had fraudulently caused Beverly to execute the lease of February 6, 1962, and prayed that the lease be set aside. On March 18, 1964, Lawn filed its answer to Federal's counterclaim.
On October 2, 1964, Lawn moved the court for leave to file its stipulation with Federal providing for the entry of a decree on Federal's counterclaim. This stipulation provided: 1) that Federal be decreed to have no lien on the property in the foreclosure and not to be entitled to have the said property impressed with a trust in its favor as sought by Count I of its counterclaim; 2) that the lease between La Salle and Beverly, dated February 6, 1962, be decreed to be of no further legal effect; 3) that Federal continue in possession of the property under the terms set forth in the stipulation; and 4) that Federal should be declared to have succeeded to all interests of Beverly in the property.
The court entered an order granting leave to all parties to file their objections to the motion of the plaintiff for the entry of the decree pursuant to this stipulation. Neither Quinn nor La Salle were parties to the stipulation. On October 7, 1964, Quinn and La Salle filed objections to the termination of the lease pursuant to the stipulation and to the entry of the decree in accordance with the stipulation.
On October 14, 1964, Quinn and La Salle filed a petition setting forth the execution by Quinn of his July 18, 1963, note to Beverly for $500,000, and the collateral pledge of his beneficial interest in the La Salle trust, asserting the present ownership of the note and collateral by Federal. The petition requested the court to enter an order that in the event of the aforesaid beneficial interest being offered for sale, Federal give five days' notice of the proposed sale to La Salle, Quinn, and Robert Irmiger, attorney. The court ordered that the notice asked for in the petition in the event of the sale of the beneficial interest by Federal should be given.
On October 22, 1964, Federal filed a written motion to strike the answer of Quinn and La Salle to its counterclaim and to strike the objections of Quinn and La Salle to the entry of a decree on the counterclaim, alleging as a basis, the refusal of Quinn to testify to a discovery deposition proceeding. In support of this motion Federal filed a transcript of the testimony of Quinn at a discovery deposition in which Quinn declined to answer all questions regarding the matters in issue upon the ground that his answer might incriminate him. This transcript does not appear in the record on appeal. It was, however, presented to and considered by the court as stated in the court's order of October 23, 1964.
At the hearing on October 22, 1964, Quinn's ownership of the beneficial interest in the La Salle trust was urged in support of his objection to the entry of a decree terminating the Beverly lease pursuant to the stipulation. In order to obviate the objection, counsel for Federal asked Judge Harrington to conduct a collateral sale of this beneficial interest in accordance with the pledge in Quinn's $500,000 note. Judge Harrington agreed to conduct the sale, and the following morning, October 23, 1964, an order was accordingly prepared and entered. This order set the sale of the beneficial interest for November 5, 1964, and continued the objections to the entry of a decree on the stipulation "for hearing immediately after the conclusion of such sale."
On October 30, 1964, Solomon Sachs and Samuel E. Hirsch substituted for Robert Irmiger as attorneys for Quinn and La Salle. On November 2, 1964, Quinn and La Salle filed a written motion to vacate the order of October 23, 1964, and were granted leave to file an amended answer to Federal's counterclaim.
On November 4, 1964, Quinn and La Salle filed an "amended answer regarding petition of plaintiff seeking to sell defendant Howard B. Quinn's beneficial interest under trust agreement dated September 26, 1961 between Quinn and La Salle National Bank, trustee under trust No. 28563." On the same day Quinn and La Salle filed "amended answer and objections to the proposed stipulation sought to be entered into between the plaintiff herein and the counterclaimant herein, seeking to cancel a written lease dated February 6, 1962." The answer asked the court to deny the petition and motion of Lawn and Federal to enter the proposed stipulation, and that an order be entered declaring the lease to be valid. Also on the same day, Quinn and La Salle filed an amended answer to Federal's counterclaim, denying and putting in issue the allegations of the counterclaim.
On November 5, 1964, the following steps were taken before Judge Harrington:
First: After a determination that the certificate of beneficial interest was personal property as opposed to an interest in real estate, an order was entered denying Quinn's motion to vacate the order of October 23, 1964.
Second: After some discussion between the court and Quinn's attorney, who did not make any formal objection, there was a sale of the beneficial interest, ...