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In re Phillips Construction Co.

decided: July 14, 1978.

IN THE MATTER OF PHILLIPS CONSTRUCTION COMPANY, INC., BANKRUPT. EDWARD LIMPERIS, TRUSTEE, PLAINTIFF-APPELLANT,
v.
THOMAS MARTINECK AND CATHERINE MARTINECK, ET AL., INCLUDING VILLAGE OF CARPENTERSVILLE, A MUNICIPAL CORPORATION, DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 74-B-3481 - Alfred Y. Kirkland, Judge.

Before Fairchild, Chief Judge, Castle, Senior Circuit Judge, and Cummings, Circuit Judge.

Author: Fairchild

Appellant Edward Limperis (hereinafter referred to as "the Trustee"), as trustee in bankruptcy of Phillips Construction Company, Inc. (hereinafter "the Bankrupt"), appeals from a judgment of the district court which reversed an order of the Bankruptcy Court directing the Village of Carpentersville (hereinafter "the Village") to permit the construction and occupancy of homes upon eleven residential lots which are assets of the bankrupt estate.

The Bankrupt was in the business of real estate development and construction. As one of its undertakings, the Bankrupt developed the Rivers End Subdivision in Carpentersville, Illinois. The subdivision contains approximately 200 homesites. Prior to bankruptcy, homes had been completed and occupied on approximately 199 of the homesites. In order to record the final plot under the Village ordinance, the Bankrupt proposed plans for and agreed to install extensive public improvements in the subdivision including streets, sidewalks, driveways, and storm and sanitary sewers for use by all the homes in the subdivision. Many of these improvements remain uncompleted.*fn1

The Trustee, pursuant to his desire to liquidate the Bankrupt's estate, has attempted to sell the eleven lots which are presently unoccupied.*fn2 Because of the unfinished state of the public improvements in the subdivision, however, the Village refused to issue building or occupancy permits which are necessary for construction or occupancy of any homes on the eleven lots.*fn3 As a result of this action by the Village, the eleven lots have become unmarketable and therefore the Trustee has been unable to sell the lots to any prospective purchasers.

The Village contends that its actions were authorized by its ordinance governing subdivisions and constituted a reasonable exercise of its police power to protect the health and welfare of its citizens. The Village further asserts that it can withhold permits from the Trustee because the Trustee has no greater rights than those of the Bankrupt or any other owner of lots.

The Trustee, on the other hand, contends that the actions of the Village were not authorized by the Village ordinance. The Trustee also argues that the actions of the Village frustrated his right to liquidate the Bankrupt's estate guaranteed under the Bankruptcy Act and are therefore invalid under the Supremacy Clause, U.S.Const., Art. 6, Clause 2. Finally, the Trustee asserts that the refusal of the Village to issue permits conflicts with section 70(b) of the Bankruptcy Act, 11 U.S.C. ยง 110(b), which gives the Trustee the power to reject executory contracts.

After hearing oral argument, the Bankruptcy Court entered an order directing the Village to permit the Trustee and his purchasers to enter upon the eleven lots, complete construction of residences, and thereafter permit occupancy of said residences. The district court then reversed the Bankruptcy Court and held in favor of the Village.

Because we agree with the Trustee that the withholding of permits was not authorized by the Village ordinance, we reverse the judgment of the district court.

I. THE VALIDITY OF THE WITHHOLDING OF PERMITS UNDER THE VILLAGE ORDINANCE

The Village argues that it had the right to withhold permits under its police power to protect the health and welfare of its citizens as embodied in its ordinance governing subdivisions. The position of the Village is simply that it should not be compelled to accept eleven additional homes under the unsafe and undesirable conditions caused by the absence of required public improvements. Under this theory, the Trustee is in no different position than any other owner of lots within the subdivision.*fn4 To evaluate this claim by the Village, it is necessary to examine in some detail the provisions of the Village ordinance.*fn5

Construction within the Village is governed by several sections of the Village ordinance. Section 2(a) of the ordinance prohibits the subdivision of land, the making of improvements to the land, and the laying of streets until a proposed plan has been approved by action of the Board of Trustees of the Village. Section 2(b) prohibits the sale or offer of sale of any lot, tract or parcel of land within any subdivision until such subdivision plans are officially approved by the Board of Trustees of the Village. Section 2(c) provides that no improvements such as sidewalks or drainage facilities shall be made until the plans for such improvements have been formally recommended by the Plan Commission and approved by the Board of Trustees.

Section 6 of the ordinance sets forth items which must accompany the recordation of the final plat of the subdivision. Subparagraph (a) of section 6 requires plans and specifications for public improvements previously approved by the Village engineer. Subparagraph (b) requires an agreement executed by the owner and subdivider to make, install and turn over to the Village the improvements provided for in the ordinance. Subparagraph (c) requires a bond in the amount of the estimate of the Village engineer of the cost of the installation of the improvements "with good and sufficient surety thereon," to be approved by the Board of Trustees, conditioned upon installation within two years of approval.

Section 7 of the ordinance lists the required land improvements which must be made. The section also provides that final plans of the subdivision must be accompanied by a written statement signed by the Village engineer certifying that the improvements described in the ...


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