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Codo v. Union Nat'l Bk. & Trust of Joliet





APPEAL from the Circuit Court of Lake County; the Hon. LLOYD A. VAN DEUSEN, Judge, presiding. MR. JUSTICE BOYLE DELIVERED THE OPINION OF THE COURT:

Norman F. Codo, hereinafter "plaintiff," and Richard F. Janko, hereinafter "defendant," entered into an oral partnership arrangement in the spring of 1972. The partnership purchased approximately 20 acres of undeveloped real estate in Round Lake, Illinois, for $120,000. Each partner's contribution was $60,000 in cash, and this unencumbered real estate was then conveyed to the Union National Bank and Trust Company of Joliet, hereinafter "the bank," as an asset in Land Trust No. 1278, hereinafter "trust," with the bank as trustee. The partnership also purchased some real property in Watseka, Illinois, which was also conveyed to the trust as an asset. Both plaintiff and defendant were the owners of an undivided one-half interest in this trust.

On July 2, 1973, both plaintiff and defendant directed the trustee to execute a note (in the nature of a mortgage) for $125,000 and a trust deed to secure it on the previously unencumbered Round Lake real estate. The note directed the trust to pay out of the trust estate $1,250 a month, beginning August 2, 1973, until July 2, 1976, when the entire principal and interest at 12 percent was due, to plaintiff and defendant. The parties by this transaction, as can be seen, in effect, mortgaged the property to themselves, and the plaintiff was named trustee under the trust deed.

In September of 1974, the parties decided to terminate their partnership arrangement, and defendant paid plaintiff $115,000 of which $80,000 was payment for plaintiff's one-half beneficial interest in the Round Lake property of this trust. Plaintiff resigned as trustee under the trust deed securing the note, and the defendant was appointed the successor trustee. The parties, in terminating plaintiff's one-half interest in the trust, however, did not mention the $125,000 note.

In February of 1975, plaintiff brought this foreclosure action on the $125,000 note and sought $62,500 plus accrued interest. No cash was ever paid on this note and no demand for payment was ever made until this action was brought. At this time the property had a fair market value of $120,000, and the property was still vacant. After lengthy preliminary discovery matters, both sides moved for summary judgment. The trial judge granted defendant's motion for summary judgment and specifically found that the only apparent purpose of this note was to create a lien priority over other possible creditors. The trial judge also found that there was no debt created by the trust deed and note and said, "There being no debt — and certainly a trust deed and a mortgage are incidental to the debt — there being no debt, there never was a mortgage in this case. There was a nullity. There was a nothing." The trial judge also refused to award costs to either party, noting that neither plaintiff nor defendant was particularly clean in this transaction. Plaintiff's motion to reconsider was denied by the trial court, and he appeals.

Plaintiff presents five issues on appeal: (1) Whether the trust deed and note are supported by valid consideration? (2) Whether defendant is estopped from raising the defense of lack of consideration? (3) Whether the trial court's decision fails to recognize the distinctions between the trustee of the land trust and its beneficiaries? (4) Whether the trial court's granting of summary judgment to defendant was proper? and (5) Whether the principles of summary judgment prevent its application here? The trial court rejected each of these contentions, and we affirm.

The plaintiff contends first that the note and trust deed in the nature of a mortgage are valid because they are supported by valid consideration. The plaintiff points to the following contributions which were made by both parties to the development of the Round Lake real estate as constituting valid consideration:

(1) Preparation of an option agreement, easement agreement, and deeds:

(2) Negotiations for obtaining sewer permit, access, and water-retention pond;

(3) Contacting potential purchasers; and

(4) Arranging the financing sellers needed to consummate sale of property to plaintiff and defendant.

Plaintiff admits that some of this work was performed by plaintiff, some by defendant, and some by the mutual effort of both, but still contends that the performance of these activities constitutes valid consideration. We disagree.

• 1, 2 It is well settled that consideration for a mortgage may consist of either some interest, a right, or benefit conferred to the mortgagor, or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the mortgagee. (Riddle v. La Salle National Bank (1962), 34 Ill. App.2d 116, 180 N.E.2d 719.) It is also clear that the burden of proving the validity of the affirmative defense of want of consideration is clearly upon the party asserting it. (Insurance Company of North America v. Knight (1972), 8 Ill. App.3d 871, 291 N.E.2d 40, appeal dismissed (1973), 414 U.S. 804, 38 L.Ed.2d 40, 94 S.Ct. 165.) In the instant case, defendant has met that burden by establishing that there were no monthly mortgage payments of $1,250 ever made, requested, or intended to be made on this mortgage. Defendant further established that the mortgage was in default for over a year and a half prior to the institution of this foreclosure action. The evidence also conclusively demonstrates that this mortgage was perpetuated by the parties solely to give them lien priority over subsequent creditors. In fact, plaintiff's counsel, when questioned as to the possible purpose of this transaction, could only suggest one purpose: lien priority over other possible creditors.

We also do not believe that the services of the parties constitute a consideration on this record for a note of $125,000. Both plaintiff's and defendant's services were performed in their fiduciary capacities as beneficiaries of this trust and partners in this real estate transaction. These duties appear to be normal entrepreneural activities of partners in real estate and do not constitute consideration based on this record.

• 3 Plaintiff argues that the facts establish both by definition and by the specific terms of the note that the indebtedness was supported by consideration. Although we do not disagree with plaintiff's general statements, we note that it is well established that the validity of consideration for the instrument in question must be evaluated as it relates to the entire record and not as perceived in a vacuum of either terms or definitions. (Rago v. Cosmopolitan National Bank (1967), 89 Ill. App.2d 12, 232 N.E.2d 88.) Our review of the entirety of the evidence adduced clearly sustains the trial court's determination that there ...

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