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Jacobsen v. National Bk. of Austin







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


This cause was initiated on a (second amended) counterclaim and third-party complaint for reformation and rescission of contracts relating to real estate which arose from an action to foreclose a mortgage on a certain tract of land consisting of 20 acres held in Trust No. 3679 by the National Bank of Austin, as trustee. The foreclosure action has been settled and, therefore, it is no longer an issue among the parties. In a prior appeal this court held that the counterclaim and third-party complaint of Lee and Barbara Romano (husband and wife) stated a cause of action and remanded the matter for trial on the merits. In deciding the case, the court stated:

"The Romanos contend their allegations claiming they were persuaded by their attorney [Robert Carey, Sr.] to transfer substantial interests [in Trust No. 3679] to members of the attorney's family for inadequate consideration state a cause of action. The law in Illinois is well settled that when an attorney deals with his client, the burden of proof is on him to show fairness. (Jennings v. McConnel (1855), 17 Ill. 148; Vrooman v. Hawbaker (1944), 387 Ill. 428.) In Vrooman, the court said:

`Where this relation of attorney and client exists and the attorney receives anything of benefit thereby, either by purchase from the client or by acquiring interests contrary to the interests of his client, the burden of proof rests upon the attorney to show the fairness of the transaction, that it was equitable and just, that it did not proceed from undue influence, and that the property so acquired does not belong constructively to the client.'

Also, see Gromer v. Hahn (1968), 97 Ill. App.2d 276.

In the instant case the Romanos have alleged sufficient facts to place the burden on Carey to prove the fairness of the dealings." (Jacobsen v. National Bank of Austin (1972), 8 Ill. App.3d 135, 139, 289 N.E.2d 253.)

The Romanos' allegations were fully stated in the court's prior opinion and will not be restated here. See 8 Ill. App.3d 135, 136-39.

Trial was had in the Chancery Division of the Circuit Court of Cook County between April 14, 1975, and May 22, 1975. On July 31, 1975, the court issued its findings and entered judgment in favor of the counterdefendants and third-party defendant, and against the Romanos. The transcript of the proceedings before the trial court consists of 1290 pages, including 45 pages which report the court's findings and the colloquy which ensued therefrom. The Romanos appeal from the judgment entered in the trial court, seeking a reformation of the agreement which distributed the beneficial interests in Trust No. 3679 and the rescission of two subsequent agreements by which the Romanos transferred two additional 6 2/3% interests in the land trust to Jane Lyons Ford, Carey's sister-in-law, and to Carey himself.

The Romanos contend that the evidence fails to support the proposition that the transactions with Carey and the counterdefendants were fair. This contention is presented in terms of the lawyer's failure to carry the burden of proof as to fairness. In support of this position the Romanos point to three factors: (1) the documents evidencing the transactions do not reflect the entire agreements between Lee Romano and Carey; (2) the agreements were not supported by adequate consideration, and (3) the Romanos did not have independent legal advice prior to entering into the transactions and signing the documents.

• 1 On the other hand, Carey and the counterdefendants contend that the judgment entered in the trial court was correct for the reasons given by the judge. In the alternative they seek to support the circuit court's judgment by asserting the defenses of release of claims, laches and ratification of contracts. Carey also seems to suggest that the lack of an attorney-client relationship with the Romanos concerning the acquisition of the 20 acres, the distribution of the interests in Trust No. 3679, and the transfer in 1965 of the two 6 2/3% interests in the land trust, somehow diminishes his responsibility concerning the proof of fairness of the dealings. This suggestion, however, is of no consequence, since a lawyer's burden of demonstrating fairness applies to all transactions between attorney and client, "and is not confined to particular property about which the attorney may have been employed." (Jennings v. McConnel (1855) 17 Ill. 148, 150.) Carey and the Romanos maintained an attorney-client relationship with respect to other matters at the time that they entered into the transactions which gave rise to the present controversy. Furthermore, it is apparent from the record that the Circuit Court treated the cause as one involving transactions between an attorney and his clients. Under these circumstances, it is not necessary to determine the degree, if any, to which Carey represented the Romanos in the acquisition of the 20 acres.

Since the Romanos have contested the written terms of the transactions with Carey and the counterdefendants, it was necessary for the trial court to determine whether the documents evidencing the transactions actually reflected the intended agreements of the parties. In contradiction to the documents, the Romanos purported to show their entitlement to as much as an 80% interest in the land trust, and that the later transactions, involving the two 6 2/3% interests, were loans and not sales.

The report of proceedings for July 31, 1975, clearly reveals that the court determined the terms of the agreements by its findings as to the credibility of the witnesses. Concerning the agreement of November 13, 1962, by which the 20 acres were acquired by Trust No. 3679, and the beneficial interests therein were distributed, the court noted:

"[I] would find on the basis of the evidence I heard and the witnesses I observed that the transaction was not as urged by Mr. Romano, a situation where he was promised one thing and then at the last minute was coerced into another transaction on the basis of undue influence or the improper use of the attorney-client relationship by Mr. Carey.

I am persuaded from the evidence in this case that Mr. Romano was aware of the transaction, was aware of the November 13th agreement at the time he signed it and that it did not come as any shock or surprise to him and that when he executed it he knew what it was and he understood it, and I would find that to be a fact based on the evidence I heard."

In connection with the February 1965 and March 1965 transactions involving the 6 2/3% interests, the following observation of the trial court was recorded:

"The evidence indicates that Romano went to Carey seeking to sell these things, that they discussed and negotiated a price and that Romano, a person who knew precisely what he was dealing ...

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