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Lagrange Fed. Sav. & Loan v. Rock River Corp.

OPINION FILED JUNE 24, 1981.

LAGRANGE FEDERAL SAVINGS AND LOAN ASSOCIATION, PLAINTIFF-APPELLEE,

v.

ROCK RIVER CORPORATION, DEFENDANT-APPELLANT. — (ELMER P. BARNES, COUNTERPLAINTIFF-APPELLEE,

v.

ROCK RIVER CORPORATION, COUNTERDEFENDANT-APPELLANT.)



APPEAL from the Circuit Court of Du Page County; the Hon. BRUCE SCIDMORE, Judge, presiding. MR. PRESIDING JUSTICE SEIDENFELD DELIVERED THE OPINION OF THE COURT:

Following a mortgage foreclosure on the complaint of the LaGrange Federal Savings & Loan Association (LaGrange), the trial court imposed a deficiency judgment of $141,702.97 against Elmer Barnes and the Rock River Corporation (Rock River), granted Barnes' counterclaim for specific performance of his contract with Rock River concerning the mortgaged property, and ordered Rock River to indemnify Barnes with respect to the deficiency judgment pursuant to the contract. Rock River appeals.

The litigation originated in a 1975 sale to Rock River by Barnes of his interest in several subdivision developments, titles to which were held in land trusts. One of the trusts, known as the "Wheaton Trust," held title to real estate encumbered by a mortgage which had been made by LaGrange's predecessor. Barnes encountered difficulties in the funding of the three trusts and entered into a "Contract of Sale and Repurchase" (the Contract) with Rock River dated September 12, 1975.

Under the Contract Barnes sold his beneficial interest in the three trusts to Rock River but retained an option to repurchase. The option terminated without Barnes having exercised it. The contract provided that upon the termination of the option for any reason, Barnes would surrender possession of his residence (not located on the "Wheaton Trust" parcel) within 30 days and that Rock River would assume and pay the taxes, insurance, principal and interest payments on the mortgage as these expenses applied to the various parcels in the trusts.

On July 7, 1976, Barnes sued LaGrange and Rock River in Cook County seeking to have the Contract declared void and unenforceable, while Rock River filed a counterclaim alleging that the Contract was valid and enforceable and seeking to enjoin Barnes from continuing in the possession of his residence. The case was settled pursuant to a settlement agreement and release. An order was entered on January 28, 1977, in the Circuit Court of Cook County dismissing the suit and counterclaim. The agreed order provided that the Contract was valid and enforceable in all respects, that Barnes' option to repurchase had terminated, and that Barnes should deliver possession of the residence to Rock River immediately.

On May 31, 1977, LaGrange filed a complaint in the Du Page County Circuit Court seeking foreclosure of the mortgage on the parcel in the Wheaton Trust. Barnes filed a counterclaim against LaGrange and Rock River alleging that the Contract between Barnes and Rock River caused Rock River to assume the LaGrange mortgage liability.

In November of 1979, LaGrange amended its complaint to seek relief for any deficiency judgment from Rock River as well as Barnes. The mortgage sale at which LaGrange was the successful bidder resulted in the deficiency judgment.

On March 12, 1980, the claim for a deficiency judgment and Barnes' counterclaim for specific performance were tried, resulting in the orders from which the appeal is taken.

Rock River contends that Barnes' counterclaim for specific performance was barred by the Cook County judgment under principles of res judicata, or under the theory of "unclean hands"; and that Barnes was barred by the terms of the general release given as a part of the Cook County settlement from relief under his counterclaim. Rock River also contends that the failure of Barnes to give up possession of his residence within 30 days from the termination of his option to repurchase was a violation of a condition precedent to Rock River's assuming any obligation to pay Barnes' mortgage indebtedness; and that, in any event, LaGrange cannot look to Rock River for a deficiency judgment based on a contract as to which LaGrange was not a party nor shown to be a third-party beneficiary.

• 1 We must first consider the argument of Barnes and LaGrange that Rock River's defenses of res judicata, "unclean hands," release and failure of performance of a condition precedent have been waived by failure to plead them.

Facts constituting an affirmative defense which seeks to defeat a cause of action must be pleaded (Ill. Rev. Stat. 1979, ch. 110, par. 43(4)); and this applies also to raising the issue of a condition precedent (Ill. Rev. Stat. 1979, ch. 110A, par. 133). However, "[a]n objection that an issue was not raised in the pleadings may be waived by the conduct at the trial of the objecting party or by introduction of evidence on the issue." (Pioneer Trust & Savings Bank v. County of Cook (1978), 71 Ill.2d 510, 518.) In Pioneer, the court noted that the objecting party had not objected to the introduction of evidence that plaintiff had a vested right in a zoning classification because of reliance and substantial expenditures and therefore waived the pleading objection. 71 Ill.2d 510, 518.

Rock River raised all the defenses in its memorandum of law in opposition to the amended complaint and in opposition to the counterclaim of Barnes for specific performance; there is no indication that either Barnes or LaGrange refrained from introducing relevant evidence as to these defenses due to the pleading defect; the defenses present questions of law based on essentially undisputed facts; and the only objection at trial based on the pleadings was LaGrange's contention during trial that Rock River admitted the legal sufficiency of the complaint by its answer. Barnes stipulated to admitting the release into evidence. The agreed order claimed to have res judicata defect was attached to the pleadings early in the litigation. We therefore conclude that the rule of waiver should not apply to the defenses of release, res judicata and the claimed failure of a condition precedent. Moreover, the trial court ruled upon each of the issues. However, as to the defense of "unclean hands," we consider that to have been waived as the record is insufficient to meaningfully evaluate the contention and the trial court did not rule upon it.

We will therefore consider the merits of the defenses which we have held not to have been waived.

Res Judicata

Rock River contends that the agreed order in the Cook County litigation bars Barnes' counterclaim, since the issues in the counterclaim could have been ...


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