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Roosevelt F.s. & L. Ass'n v. Sugar H. Apts.

AUGUST 22, 1968.

ROOSEVELT FEDERAL SAVINGS AND LOAN ASSOCIATION OF ST. LOUIS, A CORPORATION OF THE UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,

v.

SUGAR HOLLOW APARTMENTS, INC., A DELAWARE CORPORATION, DEFENDANT-APPELLEE, RUSSEL J. LESPERANCE AND VIRGINIA K. LESPERANCE, DEFENDANTS-APPELLANTS, MORTGAGE ASSOCIATES, INC., A.J. CARGNINO CONSTRUCTION CO., INC., WELLERS, INC., CAPE PAINT AND GLASS, INC., AND UNKNOWN OWNERS, DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Jackson County, First Judicial Circuit; the Hon, C.E. WRIGHT, Judge, Presiding. Judgment affirmed.

MORAN, J.

Rehearing denied October 22, 1968.

Defendants, Russel J. Lesperance and Virginia K. Lesperance, appeal from decrees of foreclosure of two mortgages and security agreements on two separate dormitories for housing of students at Southern Illinois University at Carbondale and the furnishings in each. In its decrees of foreclosure of each mortgage and security agreement, the trial court ordered issuance of deeds upon the sale and approval of the sale of the mortgaged properties and adjudged defendant, Russel J. Lesperance, not to be a judgment or decree creditor of the mortgagor, Sugar Hollow Apartments, Inc. Appellants allege error in this last holding of the trial court and urge that Russel J. Lesperance is a judgment creditor of the mortgagor and pursuant to chapter 77, sections 18a and 20, Ill. Rev Stats, 1967, has a statutory right to redeem the foreclosed properties.

On March 3, 1967, appellee, Roosevelt Federal Savings & Loan Association, filed its complaints for foreclosure of two mortgages and two security agreements given as security for two notes in the principal sum of $306,000 each. Except for the legal description of the property described in the mortgages (two dormitories for the housing of students at Southern Illinois University), both cases are identical and were consolidated for the purpose of trial and appeal. In each case, Roosevelt Federal Savings and Loan Association, of St. Louis, is the mortgagee and Sugar Hollow Apartments, Inc., is the mortgagor. Each note was consigned by the mortgagor, Sugar Hollow Apartments, Inc., and by defendants Russel J. Lesperance and Virginia K. Lesperance, individually. Russel is president of Sugar Hollow Apartments, Inc., and he and his wife, Virginia, are the owners of all the stock of the corporation. The mortgagor waived its right of redemption in each mortgage.

The corporation cause to be built on land owned by it, three student dormitories which are involved in this litigation. Dormitory No. 3 is located at 506-510 South Hall Street, Carbondale, Illinois. Dormitory No. 4 is located at 502 South Hall on Lots 17, 18 and 19 in Bayless Field Addition to the City of Carbondale. Dormitory No. 5 is located at 503 South Graham Street, on Lots 28, 29 and 30 in Bayless Field Addition to the City of Carbondale.

Title to Dormitory No. 3 is held by the First National Bank of Murphysboro, Illinois, in an Illinois Land Trust designated Trust No. 86. Prior to certain assignments which will be discussed subsequently, the beneficial interest in the land trust was owned exclusively by Sugar Hollow Apartments, Inc. Russel Lesperance, individually, owned no interest in the land trust.

Although the fee title to Dormitory No. 4 and Dormitory No. 5 was held by Sugar Hollow Apartment, Inc., the property was mortgaged to plaintiff-appellee, Roosevelt Federal Savings and Loan Association to secure the two notes, each for $306,000, singed by the corporation and Russel Lesperance, individually.

On or about December 23, 1965, A.J. Cargnino Construction Company, Inc., entered into a contract with Sugar Hollow Apartments, Inc., to construct Dormitories No. 4 and No. 5. Dormitory No. 3 had previously been completed and transferred to the Illinois Land Trust.

Before construction was started on Dormitories Nos. 4 and 5, Russel Lesperance advised A.J. Cargnino and James Weller, President of Weller's, Inc., another contractor working on the construction of the buildings, that there would be a shortage of funds complete the dormitories. He requested that each contractor withhold $13,500 from their respective bills for construction on the dormitories. In lieu of payment, Russel Lesperance gave two personally signed notes for $13,500 each, to A.J. Cargnino Construction Company, Inc., and two additional personal notes in the individual amount of $13,500 to Weller's Inc., all four of which were to be paid upon completion of construction.

When the dormitories were completed in September, 1966, there were inadequate funds to pay all of the contractors, subcontractors, and materialmen, so Russel Lesperance exchanged the four notes signed by him individually for four new notes, each singed by Sugar Hollow Apartments, Inc., and by Russel J. Lesperance, individually, dated September 30, 1966. As security for these new notes, Sugar Hollow Apartments, Inc., executed a second mortgage on Dormitories No. 4 and No. 5 to A.J. Cargnino Construction Co., Inc., and Weller's Inc.

Sugar Hollow Apartments, Inc., and Russel and Virginia Lesperance then defaulted on their January 1, February 1 and March 1, 1967, installment payments to Roosevelt Federal Savings and Loan Association, who thereafter instituted foreclosure proceedings on the mortgage. After the foreclosure suits were filed, Cargnino, Weller and Russel Lesperance entered into an agreement on May 13, 1967, to replace two of the notes dated September 30, 1966, which were singed by Sugar Hollow Apartments, Inc., and Russel Lesperance, individually, for two new notes which the parties intentionally backdated to September 30, 1966, and which were singed only by Sugar Hollow Apartments, Inc. A.J. Cargnino and James Weller each transferred to Russel Lesperance one of the old notes for $13,500, and he in turn delivered to each of them a new note for the same amount signed solely by Sugar Hollow Apartments, Inc. Then, however, in consideration of an assignment to each contractor of 20% of the beneficial ownership of Land Trust No. 86 owned by Sugar Hollow Apartments, Inc., plus additional consideration, Cargnino and Weller surrendered the two new notes to Russel Lesperance, individually.

About the dame time, a similar transaction was conducted between appellant and Carl Jones, owner of Pioneer Wholesale Company, whereby 10% of the beneficial interest of the land trust was exchanged for a note held by Mr. Jones on an obligation from Sugar Hollow Apartments, Inc.

On May 15, 1967, Russel Lesperance secured judgments against Sugar Hollow Apartments, Inc., by confession on all three of the notes which had been assigned to him by A.J. Cargnino, James Weller and Carl Jones. Thereafter, defendants-appellants, Russel and Virginia Lesperance, set up an affirmative defense to the foreclosure suit based upon these judgments. Issue was joined in the trial court upon the question whether Russel Lesperance was a judgment creditor of Sugar Hollow Apartments, Inc. On July 12, 1967, the court entered its order foreclosing the mortgages and security agreements on Dormitories No. 4 and NO. 5 and finding that the judgments alleged in the affirmative defenses were not valid judgments and held that Russel J. Lesperance was not a judgment or decree creditor of Sugar Hollow Apartments, Inc.

Both Appellee and appellants agree that sections 18a and 20, chapter 77, Ill. Rev Stats 1967, govern the issues on the instant appeal. These sections provide that a judgment creditor of a corporation which has waived its rights of redemption may redeem from a mortgage foreclosure sale within three months after the sale. Further, appellee concedes that it is proper for a mortgagor to confess a judgment for the sole purpose of permitting redemption by the creditor, when the judgment is based upon a bona fide ...


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