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Krug v. Machen

DECEMBER 18, 1974.

ALVIN W. KRUG, PLAINTIFF-APPELLEE,

v.

WILLIAM M. MACHEN ET AL., DEFENDANTS-APPELLEES. — (WILLIAM DIETER ET AL., THIRD-PARTY PLAINTIFFS AND THIRD-PARTY DEFENDANTS-APPELLANTS,

v.

THE FIRST NATIONAL BANK IN AMBOY, THIRD-PARTY DEFENDANT-APPELLEE.)



APPEAL from the Circuit Court of Lee County; the Hon. JOHN DIXON, Judge, presiding.

MR. JUSTICE GUILD DELIVERED THE OPINION OF THE COURT:

This action for declaratory judgment was brought by a judgment creditor, Alvin W. Krug, as plaintiff, in the circuit court of Lee County under the provisions of section 57.1 of the Civil Practice Act (Ill. Rev. Stat., ch. 110, par. 57.1). Krug sought to determine the rights and interests of the parties in a parcel of land which had been conveyed by the judgment debtor, Robert D. Clayton, to the third-party defendants, William and Irene Dieter, and subsequently conveyed to defendant William and Mary Machen. Prior to trial the Machens filed a third-party complaint against the Dieters, and the Dieters filed a complaint as third-party plaintiffs against the First National Bank in Amboy, which had recorded the various deeds involved in these transactions.

After a trial on the merits, the trial court, sitting without a jury, found that Krug had a first and prior lien on the property in the amount of his judgment; that the Dieters were liable to indemnify the Machens for their attorney's fees and for any losses in connection with the lien; and that the bank was not obligated to indemnify the Dieters for any losses in connection with the lien. The Dieters have appealed from this final order of the trial court.

On appeal, none of the parties challenges the trial court's finding that Krug has a first and prior lien upon the property. The question in this court is who must bear the loss in connection with the lien: the Dieters, the Machens, or the First National Bank in Amboy.

Some time prior to June, 1971, the Dieters contacted Francis Duffy, a real estate broker, in an attempt to purchase a piece of property around Amboy, Illinois. Through Duffy's efforts, the Dieters found a piece of property owned by the Machens (hereinafter referred to as the Machen property) and began negotiations to purchase the property.

At the same time the Machens, who were interested in acquiring another piece of property, located a piece of property in Amboy which they determined acceptable. The property (hereinafter referred to as the Clayton property) was owned by Claude and Thelma Reinhold and was subject to a contract to purchase by Robert D. Clayton. As the Machens were interested in selling the Machen property and acquiring the Clayton property, the Machens insisted upon a series of transactions which, they believed, would prevent them from recognizing any taxable gain upon the transfer of the Machen property to the Dieters. The scheme involved a purported sale of the Clayton property to the Dieters and subsequent exchange of the Clayton property for the Machen property.

Thus, on June 28, 1971, the Machens and Dieters signed an agreement entitled "Offer to Purchase" which provided that the Dieters would purchase the Machen property for $18,400. The terms of the "Offer to Purchase," however, contained the following terms:

"Mr. and Mrs. William J. Dieter are to purchase 47 acres from Robert D. Clayton which is located at South West edge of Amboy, Ill. and trade to Mr. and Mrs. William M. Machen for about 40 acres (the Machen property.) Mr. and Mrs. William M. Machen are to pay William Dieter a difference of $9,600."

The agreement was made contingent upon the signing of supplementary contracts by Clayton for the sale of the Clayton property.

Subsequently, in July, 1971, the Machens and the Dieters entered into a formalized agreement entitled "Articles of Agreement" which merely provided that the Dieters would buy the Machen property for $18,400, $2,000 of which being deposited in escrow at the First National Bank in Amboy. Also in July, 1971, Clayton and the Dieters entered into an agreement entitled "Articles of Agreement" which provided that the Dieters would buy the Clayton property for $28,000 of which $2,000 would be deposited in escrow at the bank and $9,600 would come from William M. Machen.

On August 6, 1971, the Dieters and Machens entered into an agreement, which provided that whereas the Dieters had contracted to purchase the Clayton property, and whereas the Machens were owners of the Machen property, and whereas the Machens had agreed to pay $9,600 of the consideration for the purchase of the Clayton property, that upon the acceptance of title to both of the parcels, the parties would agree to exchange without additional consideration the respective tracts of land.

A warranty deed from Robert Clayton conveying his interest in the Clayton property to the Dieters was signed and dated on September 22, 1971. On September 24, 1971, a judgment by confession was entered against Clayton and in favor of Krug for the amount of $6,812. A memorandum of this judgment was filed with the Lee County recorder of deeds on September 24, 1971.

On September 27, 1971, a closing was held at the First National Bank in Amboy. At the closing were Mr. and Mrs. Machen, Mr. and Mrs. Dieter, Robert Clayton and Claude Reinhold. Warranty deeds from the Reinholds to Clayton for the Clayton property, from the Dieters to the Machens for the Clayton property, and from the Machens to the Dieters for the Machen property were dated on September 27, 1971, the date of closing. Also dated September 27, 1971, were five checks written by William Machen, including one to Robert Clayton in the amount of $9,600. A check written by William Dieter payable to Robert Clayton in the amount of $14,400 was also dated September 27, 1971. The end result of the closing was that the Machens owned the Clayton property and the Dieters owned the Machen property.

After the closing, on September 27, 1971, the First National Bank in Amboy had in its possession all of the warranty deeds relative to this transaction. The bank sent the deeds to be recorded on the day after the closing, September 28, 1971, but they were returned to the bank due to some error in failing to notarize or pay a fee. Subsequently, the bank cashier read in the Lee County Credit Report that a judgment for $6,182 was entered against Mr. Clayton in favor of Krug, Clayton's brother-in-law, on a note executed over 8 years before judgment. When the cashier informed the bank's attorney, Mr. Sullivan, of this fact, Sullivan, after consulting with the ...


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