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Fidelity Fed. S. & L. Ass'n v. Grieme





Appeal from the Circuit Court of Knox County; the Hon. Stephen C. Mathers, Judge, presiding.


Plaintiff filed a complaint to foreclose a real estate mortgage in the circuit court of Knox County. Defendants filed motions to dismiss under section 45 of the Civil Practice Act (Ill. Rev. Stat. 1979, ch. 110, par. 45). The trial court allowed the motions and dismissed the suit with prejudice. This appeal followed.

The parties have represented to us, and our own research has confirmed, that no precise Illinois precedent exists for the question presented here: Is an agreement for deed, made by a mortgagor without the consent of the mortgagee, for the mortgaged premises, a "change in ownership" so as to trigger the due-and-payable clause in the mortgage?

Since the case was dismissed on motion, there is no evidentiary record. A short form complaint (Ill. Rev. Stat. 1979, ch. 95, par. 23.6) was filed by plaintiff on January 11, 1982, with copies of the mortgage, the note, and a supplemental agreement attached. In addition to the formal allegations, the complaint alleged upon information and belief that the mortgagors (Grieme) had entered into an agreement for deed with defendant Lange; that the plaintiff mortgagee (Fidelity) had not consented to the execution of the agreement; that Fidelity had notified Grieme that it intended to enforce its rights; and that Grieme had refused to make satisfactory arrangements.

At issue is the construction of paragraph 7 of the supplemental agreement which provides:

"7. That in the event the ownership of said property or any part thereof becomes vested in a person other than the Mortgagor, the Mortgagee may, without notice to the Mortgagors, deal with such successor or successors in interest with reference to this mortgage and the debt hereby secured in the same manner as with the Mortgagor, and may forbear to sue or may extend time for payment of the debt, secured hereby, without discharging or in any way affecting the liability of the Mortgagor hereunder or upon the debt hereby secured; however, if there shall be any change in the ownership of the premises covered hereby without the consent of the Mortgagee, the entire principal and all accrued interest shall become due and payable at the election of the Mortgagee, and foreclosure proceedings may be instituted thereon."

As indicated, the defendants filed a motion to dismiss which the trial court allowed with prejudice, finding that the agreement for deed did not constitute a change in ownership under paragraph 7 of the supplemental agreement and hence the payment of the entire principal and accrued interest was not accelerated.

The motion to dismiss admitted the execution of the agreement for deed, but nowhere in the record does there appear anything indicating what the terms of that agreement might be.

Both parties cite considerable authority from other jurisdictions. Fidelity relies largely upon mortgage cases which construe "due-on" clauses. Grieme argues as analogous insurance cases construing clauses in policies which voided insurance in the event of change in ownership of the premises without notification to the company. He also argues that any ambiguity should be construed in his favor and against Fidelity, since the instruments show on their face that they were prepared by Fidelity.

We find neither the mortgage cases cited by Fidelity nor the insurance cases cited by Grieme particularly helpful. We are dealing here with the phrase "change in ownership." The mortgage cases from other jurisdictions which sustained the acceleration clause dealt with much more specific language. Some examples will suffice to demonstrate the difference.

In Tucker v. Lassen Savings & Loan Association (1974), 12 Cal.3d 629, 632, 526 P.2d 1169, 1170, 116 Cal.Rptr. 633, 634, the provision was, "sell, convey or alienate the property * * * or any part thereof, or any interest therein * * *." In Baltimore Life Insurance Co. v. Harn (1971), 15 Ariz. App. 78, 79, 486 P.2d 190, 191-92, it was, "upon the conveyance of Mortgagor's title to all or any portion of said mortgaged property and premises, or upon the vesting of such title in any manner in persons or entities other than, or with, mortgagor." In Mutual Federal Savings & Loan Association v. Wisconsin Wire Works (1973), 58 Wis.2d 99, 104, 205 N.W.2d 762, 765, the provision was, "convey away said mortgaged premises or if the title thereto shall become vested in any other person or persons in any manner whatsoever * * *."

The distinctions in semantics are obvious. The only case called to our attention which construes "change in ownership" is Century Federal Savings & Loan Association v. Van Glahn (1976), 144 N.J. Super. 48, 364 A.2d 558. We note first of all that it is a trial court decision only. More importantly, the court relied to some extent on the fact that in the event of loss, it would fall upon the contract purchaser. There is no such indication in the instant case. As previously indicated, we know nothing of the terms of the contract for deed from Grieme to Lange. The allocation of loss argument becomes irrelevant and unpersuasive. As between a contract purchaser and contract vendor, the risk of loss may depend on the Uniform Vendor and Purchaser Risk Act (Ill. Rev. Stat. 1979, ch. 29, par. 8.1), if the terms of the contract are known, but nothing in the Act affects the obligation of a mortgagor to pay the note in full.

The insurance cases cited by Grieme (Hill v. Cumberland Valley Mutual Protection Co. (1868), 59 Pa. (9 P.F. Smith) 474; Great American Insurance Co. v. Merchants & Manufacturers Mutual Insurance Co. (6th Cir. 1970), 423 F.2d 1143; Alexander v. Hanover Fire Insurance Co. (Tex. Civ. App. 1961), 346 S.W.2d 667) all discuss "change in ownership" as it applies in the insurance context, a matter quite different from liability on a mortgage note. In general, they state only the familiar principle of law that one may not have insurance unless he has an insurable interest, i.e., protection against gambling policies. These cases indicate that a contract vendor who retains legal title would have such an interest and hence there would be no "change in ownership" within the meaning of a policy. However, as with the mortgage cases discussed above, the bare allegation of the existence of an agreement for deed tells us nothing.

• 1 Both parties have dwelt on the definition of "ownership" while tending to ignore its companion in this case, "change." The mortgage, which incorporates by reference the note and the supplemental agreement, states on its face, "This instrument prepared by Fidelity Federal Savings and Loan Association, Galesburg, Illinois." Thus is brought into play the familiar rule of construction that the instruments are to be construed most strongly against ...

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