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Wachta v. First Fed. Sav. & Loan Ass'n

OPINION FILED DECEMBER 31, 1981.

FRED WACHTA ET AL., PLAINTIFFS-APPELLEES,

v.

FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WAUKEGAN, DEFENDANT-APPELLANT.



APPEAL from the Circuit Court of Lake County; the Hon. TERRENCE J. BRADY, Judge, presiding.

JUSTICE NASH DELIVERED THE OPINION OF THE COURT:

Defendant, First Federal Savings and Loan Association of Waukegan, appeals from a judgment declaring that a proposed assignment by plaintiffs of their beneficial interest in a land trust would not be a conveyance of title which would entitle the lending institution to accelerate the due date of the entire indebtedness of the mortgage loan it made to plaintiffs.

Plaintiffs, Fred Wachta, Harold E. Brown, John Fritsch and Shelby Yastrow, owned certain property, and, on January 20, 1977, they entered into an agreement with the Bank of Waukegan whereby the property would thereafter be held in a land trust with the bank as legal and equitable title holder of the property and plaintiffs as owners of the beneficial interest in the land trust. In April 1977, plaintiffs made application to defendant for a $350,000 loan to finance construction of an apartment building. The loan commitment drawn by defendant stated that the loan would be made provided plaintiffs waived their right to have a redemption clause inserted in the mortgage; the property securing the loan would be held in trust; and plaintiffs executed an assignment of their beneficial interest in the land trust to defendant. A promissory note was signed in the amount of $350,000, and it was secured by a mortgage on the property executed at the direction of plaintiffs by the Bank of Waukegan. Plaintiffs later also signed a collateral assignment security agreement prepared by defendant as was required by the loan commitment.

Plaintiffs brought this action in the circuit court of Lake County seeking a declaratory judgment and injunctive relief. Plaintiffs alleged that they wished to assign their beneficial interest in the land trust to a third party and that defendant had informed plaintiffs that if such assignment was executed it would exercise its option to accelerate the balance due on the note and require immediate, full payment thereon. Plaintiffs sought a declaration that the proposed assignment was not within the scope of the clause in the mortgage, which provided:

"[A]t the option of the holders of the note * * * all unpaid indebtedness secured by this mortgage shall * * * become due and payable immediately upon conveyance by the Mortgagor of title, or execution by the Mortgagor of agreement to convey title, to all or any portion of the premises."

Plaintiffs further prayed that defendant be enjoined from declaring the balance due on the note immediately payable.

Defendant denied the material allegations of plaintiffs' complaint and interposed as an affirmative defense the pertinent provisions of the collateral assignment executed by plaintiffs, which provided:

"[The assignors] to secure their indebtedness * * * and in consideration of the extension of credit * * * assign to LENDER all of their right, title and beneficial interest in and to [the land trust created January 20, 1977] subject to the following terms and conditions:

2. Unless otherwise indicated * * * the sole power of direction under the trust shall be held by the LENDER * * *.

3. Except as otherwise provided in this assignment, ASSIGNORS shall have retained their right to manage the trust property and the right to retain the rents from that property.

5. The occurrence of any one of the following shall constitute an event of default * * * (e) the ASSIGNORS' failing to perform or observe any covenant, warranty or agreement herein * * * (g) the LENDER feeling insecure for any reason whatsoever."

Defendant maintained the proposed assignment would violate this collateral agreement because it had been granted the sole power of direction over the trust and once plaintiffs executed this document they owned nothing which was capable of being assigned to a third party.

Following a hearing the trial court entered judgment declaring that the assignment as proposed by plaintiffs would not be a conveyance of title within the contemplation of the due-on-conveyance clause in the mortgage. Plaintiffs' request for injunctive relief was denied on grounds that plaintiffs had not, as yet, provided defendant with sufficient documentation of the financial status of the proposed assignee and defendant had a right to receive such information. The trial court found there was no reason to delay enforcement or appeal of its order, and defendant thereafter filed its timely notice of appeal. No cross-appeal has been brought from that portion of the court's order denying injunctive relief, and it will not be addressed further. *fn1

We consider first defendant's contention that plaintiffs' proposed assignment of their beneficial interest in the land trust is precluded by the collateral agreement they executed. Defendant's argument is two-fold: (1) the collateral agreement signed by plaintiffs assigned the entire beneficial interest in the land trust to defendant as security for the loan and therefore plaintiffs now own ...


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