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Gairdner Realty v. Dovenmuehle





APPEAL from the Circuit Court of Cook County; the Hon. DAVID J. SHIELDS, Judge, presiding.


Gairdner Realty Investors, Ltd. (plaintiff), brought this action against Dovenmuehle, Inc. (defendant), to recover a deposit which had been paid to defendant for a loan commitment. Defendant filed an amended counterclaim which plaintiff answered. Defendant withdrew certain defenses to plaintiff's claims. The trial court held that defendant was entitled to judgment on its amended counterclaim as a setoff against plaintiff's claim. Plaintiff has appealed.

Plaintiff is a mortgage broker doing business in Canada. In January 1976, Rocca Group, Ltd. (Rocca), also a Canadian firm, retained the services of plaintiff to obtain a first mortgage loan commitment. Plaintiff communicated with defendant. They agreed that defendant would attempt to obtain such a loan for a fee of 2 percent with one-half payable forthwith and the other half when the commitment was tendered. Rocca paid defendant $43,250 for the first-half payment. On February 4, 1976, Rocca and defendant entered into a written agreement for obtaining the loan and payment of a total standby deposit to defendant by Rocca of $86,500. The remaining sum of $43,250 was to be paid to defendant when the commitment had been obtained.

It appears from the briefs that plaintiff and Rocca have taken the position that it was the duty of defendant under the written contract to obtain the mortgage commitment within 30 days from the contract date. Quite to the contrary, defendant urges strongly that under the written contract the period for obtaining the commitment was 90 days. That issue was not decided by the trial court and has yet to be considered.

After the 30-day period had elapsed, Rocca demanded return of its standby deposit of $43,250 from defendant. Defendant rejected this demand. On May 4, 1976, Rocca gave plaintiff a written assignment of all of Rocca's rights under the mortgage loan application which included all rights to any refund of the standby deposit previously made by Rocca to defendant. On July 7, 1976, plaintiff filed this suit as assignee of Rocca seeking recovery of the standby deposit. Plaintiff alleged defendant had persisted in its refusal to make the refund.

On April 1, 1977, defendant brought suit against Rocca only in the United States District Court for the Northern District of Illinois. Defendant claimed it was entitled to 90 days after it had received all pertinent information from Rocca within which to obtain the mortgage commitment. Defendant thus claimed an anticipatory breach of the contract by Rocca and sought recovery from Rocca of the balance of the standby payment in the sum of $43,250 plus interest and costs.

Rocca failed to appear in the Federal Court. On June 29, 1978, a default judgment was entered in that court in favor of defendant and against Rocca for $47,948.25 which included interest at the rate of 5 percent from April 26, 1976, to date of judgment.

In the trial court in the instant case, defendant stood upon its amended counterclaim. The theory of this counterclaim was that defendant was entitled to a final and conclusive setoff against plaintiff by virtue of the Federal Court judgment in favor of defendant and against Rocca. The trial court entered judgment in favor of plaintiff on count I of its complaint in the amount of $51,832.29. But the trial court also allowed a setoff in favor of defendant and against plaintiff for the full amount of the judgment in favor of defendant and against Rocca in the Federal Court.

It is plaintiff's contention that the Federal Court judgment in favor of defendant and against Rocca is not binding upon plaintiff because plaintiff was not a party to that suit and was not in privity with any party. Defendant contends the trial court's ruling was correct in that defendant had a valid setoff against plaintiff's claim as assignor predicated upon the Federal Court judgment.

The briefs before us are commendable for their brevity. Each party relies principally upon one decision. Defendant cites Salt Fork Coal Co. v. Eldridge Coal Co. (1912), 170 Ill. App. 268. There, Salt Fork sold coal to Eldridge under a written contract. Salt Fork assigned its contract rights to plaintiff bank. Thereafter, Salt Fork breached its contract. The bank, as assignee, contended Eldridge, as buyer, could not set off the breach of contract by Salt Fork against the amount due under the contract because the breach took place subsequent to the assignment. The trial court directed a verdict in favor of Eldridge and against the bank and the appellate court affirmed. The reviewing court pointed out that the amount which would become due to the bank depended upon whether or not Salt Fork as assignor continued to perform its contract. In addition, the bank received its assignment with full notice of the right of Eldridge to recoup in the event it suffered damages by reason of a breach of contract by Salt Fork. 170 Ill. App. 268, 274.

Defendant cites section 22(1) of the Civil Practice Act (Ill. Rev. Stat. 1979, ch. 110, par. 22(1)), with particular reliance upon the last sentence thereof:

"The assignee and owner of a nonnegotiable chose in action may sue thereon in his own name. He shall in his pleadings on oath allege that he is the actual bona fide owner thereof, and set forth how and when he acquired title. The action is subject to any defense or setoff existing before notice of the assignment."

We find a distinction between Salt Fork Coal and the instant case. Defendant contends the above statute has reference to "any defense or setoff existing before notice of the assignment." Defendant seeks to apply this to any defense which defendant may have against the attempt to recover from defendant the sum of $43,250 paid by Rocca to defendant. We cannot agree with this interpretation. In our opinion, the cited statute is equally applicable to the claim existing in favor of Rocca, and now in favor of plaintiff as Rocca's assignee, to recover the sum of $43,250 from defendant.

This conclusion is based upon the fact defendant had full knowledge of the assignment shortly after it came into being. When the within suit was filed against defendant on July 7, 1976, some 9 months before defendant filed its own suit in the Federal Court, defendant had full knowledge of the assignment. The problem is that the dispositive issue between these litigants has never been decided. It is a prerequisite to a proper determination of the rights of these parties that each of them have their day in court so that the central question of who breached the written contract between them may be determined. In our opinion, this issue ...

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