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Brandenberry Park E. Apartments v. Zale

OPINION FILED JULY 26, 1978.

BRANDENBERRY PARK EAST APARTMENTS ET AL., PLAINTIFFS-APPELLANTS AND COUNTERDEFENDANTS-APPELLEES,

v.

EDWARD ZALE ET AL., DEFENDANTS-APPELLEES AND COUNTERPLAINTIFFS-APPELLANTS.



APPEAL from the Circuit Court of Cook County; the Hon. WALTER P. DAHL, Judge, presiding.

MR. JUSTICE SIMON DELIVERED THE OPINION OF THE COURT:

Fifteen buildings in Arlington Heights containing 92 apartments, known as Brandenberry Park East Apartments, were sold by the defendants, Edward and Albert Zale (hereinafter jointly referred to as "the Zales"), under articles of agreement for warranty deed. The purchaser was the predecessor of the plaintiff. This dispute arose as a result of the sale and subsequent dealings which culminated in a settlement agreement between plaintiffs, an Illinois limited partnership, and defendants.

Shortly after the sale, the plaintiffs were unable to meet the second payment due the Zales under the purchase agreement. The Zales suggested to the investors that the Zales assume management of the property instead of repossessing the property and forfeiting the investors' interests. The limited partnership accepted this suggestion and agreed to pay all on-site expenses and to pay the Zales a management fee of 3 1/2% of the gross rental revenue. The Zales assumed management in the early part of December 1973.

At about the same time, Joseph Iacovo and his wife Maxine became the general partners. On January 12, 1974, the limited partnership, acting through the Iacovos, and the Zales entered into another agreement. This agreement provided for payment by the limited partnership of a portion of the arrearage on the purchase price, deferment of the balance of the installment then in default, and the Zales' continued management of the buildings.

In the months following this agreement, a series of disagreements developed. These disputes concerned whether the Zales had authority to give rent concessions in leasing vacant apartments, or authority to pay delinquent bills incurred by the partnership prior to the Iacovos' association with the limited partnership.

After extensive discussions between the Zales and the Iacovos, defendants were offered a two-page agreement dated July 15, 1974. The document, prepared by plaintiffs' attorney, recited that it was "a Settlement Agreement taking precedence over all other and prior agreements." The settlement provided that the limited partnership was to immediately pay the Zales a sum which included the principal and half the interest owing in satisfaction of the purchasers' obligation under the purchase agreement; the Zales were to assign title to the apartment buildings to the partnership; the partnership was to pay the Zales their unpaid management fees; the Zales were to relinquish management in an orderly fashion; the limited partnership was to assume all debts incurred during the period of the Zales' management with the right to review and approve or disapprove all bills; and the limited partnership and the Zales then were to agree within 30 days on a plan for payment of priority creditors in the settlement.

Although the Zales accepted the settlement, it was only partially performed. Plaintiffs paid the amount covering the principal on the purchase price and half the accrued interest, and management was turned over to plaintiffs. However, plaintiffs refused to approve the Zales' accounting, pay management fees to the Zales, or pay certain bills the Zales incurred as managers. The Zales, in turn, refused to pay real estate taxes of $26,672 for the year 1969, or to release their interest in the real estate.

Plaintiffs sued for specific performance of the articles of agreement for sale of the real estate, claiming that they were entitled to have legal title to the real estate transferred to them free and clear of 1969 real estate taxes. Plaintiffs sought damages, claiming the Zales usurped management and were guilty of fraud, conspiracy, theft, negligence and other misconduct during the management period. Plaintiffs claimed that the Zales were liable for defects in the buildings they sold which violated municipal ordinances, requiring expenditures by plaintiffs to bring the buildings in compliance with the ordinances. Plaintiffs also sought to recover the management fees they had paid the Zales, alleging that the Zales were not entitled to such payments because they had no real estate broker's license. The Zales counterclaimed to require plaintiffs to pay unpaid management fees which the Zales contended they had earned, and to require plaintiffs to assume and prepare a plan to pay bills of 49 third-party creditors to whom plaintiffs had become indebted. Zale Construction Co., a corporation owned by the Zales, and two other contractors filed petitions to foreclose liens.

After a non-jury trial, the circuit court held that defendants were indebted to plaintiffs for the 1969 real estate taxes, that plaintiffs were indebted to the Zales for management fees because plaintiffs' claim based on mismanagement and misconduct was without substance, and that plaintiffs, rather than the Zales, were liable for any valid and outstanding third-party bills. In addition, plaintiffs were required to indemnify the Zales against those bills. The decree also ordered the Zales to release all interest in the real estate, and the trial judge transferred the petitions to foreclose mechanics liens to the Land Title Section of the circuit court. The circuit court awarded the Zales $2,438 in damages under section 41 of the Civil Practice Act (Ill. Rev. Stat. 1973, ch. 110, par. 41) after finding that some of plaintiffs' allegations were untrue and made in bad faith without reasonable cause. Plaintiffs appealed and the Zales cross-appealed from the respective provisions of the circuit court decree unfavorable to them.

• 1, 2 Management Fees: Although plaintiffs agreed by the settlement to pay the Zales management fees, they now claim the Zales cannot enforce this agreement because they did not have a real estate broker's license. We disagree. A property manager who shows apartments for lease in the property he is managing is not required to have a real estate broker's license. The Real Estate Brokers and Salesmen License Act (Ill. Rev. Stat. 1973, ch. 114 1/2, par. 101 et seq.) does not refer to property management, and the parties have cited no decisions which require a person who engages in property management to have a broker's license. Although plaintiffs contended that the Zales were being compensated for renting apartments, rather than for managing the complex, no evidence supports that conclusion. The trial court found that plaintiffs hired Zale as a manager, and this finding is not against the manifest weight of the evidence.

• 3 Moreover, section 6 of the Real Estate Brokers and Salesmen License Act (Ill. Rev. Stat. 1973, ch. 114 1/2, par. 106) specifically provides that the act is inapplicable to any person who as owner or lessor does anything incident to the management of property. As contract sellers under the articles of agreement, the Zales were the owners of an interest in the real estate and therefore exempted by the act from any requirement of a license. Thus, we affirm the trial court's finding that plaintiffs are liable to pay management fees as agreed upon in the settlement.

• 4 Plaintiffs' contention that defendants forced plaintiffs to turn management over to them: This contention is not supported by the evidence, which established that late in 1973 the Zales were in a position to take the property back because of the purchasers' default. The evidence showed that Edward Zale told the purchasers that he preferred to help them restore the property so they could meet their payments and still retain the property, and that he was willing to assume the management of the property in an effort to "turn the property around." The trial judge found that the plaintiffs hired the Zales as the manager and that the Zales did a competent job of managing the real estate; this finding is not against the manifest weight of the evidence.

• 5 Plaintiffs' contention that defendants mismanaged the property, were guilty of fraudulent conduct in managing the property, and as agent breached a fiduciary duty to the plaintiffs in connection with the property: This claim is not supported by the evidence. The trial judge repeatedly put the plaintiffs on notice that they had failed to introduce evidence to support these allegations. Notwithstanding these admonitions, the plaintiffs were unable to introduce satisfactory evidence on these issues. It would unnecessarily increase this opinion's length to discuss the instances of mismanagement which the plaintiffs claimed but did not prove. However, the court's findings that the Zales competently managed the real estate and that they did not put their interests above those of the plaintiffs are not against the manifest weight of the evidence.

• 6 Plaintiffs attempt to apply the rule that when an agent occupies a fiduciary position and profits thereby, a presumption of fraud arises, which the agent has the burden of rebutting by clear and convincing proof that he has not betrayed the confidence reposed in him. (Doner v. Phoenix Land Bank (1942), 381 Ill. 106, 114, 45 N.E.2d 20.) However, this general rule, while valid, does not assist plaintiffs here because of the trial court's findings that the Zales did not improperly profit from managing the apartment complex and that they did not deal independently of plaintiffs' interests to further their own personal gain. (See Blanchard v. Lewis (1953), 414 Ill. 515, 524, 112 N.E.2d 167.) In any event, the instances of mismanagement, fraud and misconduct to which the plaintiffs referred in the ...


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