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First Security Bank v. Bawoll





Appeal from the Circuit Court of Du Page County; the Hon. John S. Teschner, Judge, presiding.


Plaintiff, First Security Bank of Glendale Heights, appeals from that part of the trial court's judgment which, after a bench trial, held for defendant, Madlyne Bawoll, and refused to set aside a conveyance of real property by defendant in trust for her children, despite plaintiff's allegation that the conveyance defrauded it as a creditor of defendant. Defendant cross-appeals from that part of the judgment which found her liable upon two notes to plaintiff and awarded plaintiff $15,097.52 plus costs.

Plaintiff raises the single issue of whether defendant's voluntary conveyance of her only asset into a land trust for the benefit of her children for no consideration, regardless of intent, constitutes a fraud on her creditors and should be voided. On cross-appeal, defendant contends that the trial court's judgment in the amount of $15,097.52 against her is against the manifest weight of the evidence in two respects: (1) the amount was erroneously calculated; (2) the trial court erred in finding that defendant was not under duress when she signed one of the two notes.

Plaintiff filed a complaint which alleged, inter alia, that defendant and her husband executed two notes on which they subsequently defaulted and that defendant then transferred real estate into a land trust for the benefit of her children which worked to defraud her creditors. Defendant, in her amended answer, neither admitted nor denied the indebtedness on the notes but raised the affirmative defense of duress as to the second of the two notes.

At trial, Deborah Sons, vice-president of plaintiff's loan department, identified two notes that defendant and her husband, William Bawoll, had executed. The first was an installment note, executed in 1978 for the purchase of a motor home, for $8,500 with an interest rate of 10.73% which had not been paid according to schedule. The motor home was later sold for $4,000, which was applied to the amount outstanding. Sons testified that as of January 20, 1981, $8,031.33 plus accrued interest was due on that note. The second was a demand note, executed in March 1980 and due in May 1980, for $5,100 which had an unpaid balance of $4,966.21 as of January 1, 1981, with interest accruing at $2.72 per day. Sons stated that she had witnessed defendant sign her name on at least 10 occasions, and identified the signature on the two notes as that of defendant.

On cross-examination, Sons testified that although defendant signed the first note in her presence, she did not see defendant sign the second note. She admitted that the words "under duress" appeared beneath defendant's signature on the second note. Referring to the bank's records of the motor home account, Sons stated that the records did not reflect payments of $250 on March 15, 1980, and $200 on May 22, 1980.

Defendant, testifying as an adverse witness for the plaintiff, denied that she had signed the first note. Plaintiff's attorney read from defendant's deposition, wherein defendant had admitted that the signature on the first note was hers. She acknowledged that she had given that answer at the deposition. She further testified that when she signed the second note in June 1980, her husband and Stanley Walton, a bank officer, were present. She said "I wrote `under duress' because Mr. Walton threatened to put Bill into jail because he always signed my signature." She testified that Walton said he could put her husband in jail for forgery. She complained that Walton had previously called her on the phone and had been "nasty" with her. She had wanted to talk to her attorney, but she testified that Walton told her he had already talked to her attorney and she had better sign the note. At the time she signed the second note, her husband had recently had a heart attack, she had been in the hospital, and she said she was very nervous. Defendant claimed to have transferred her real estate, a family residence, into a land trust for her two minor children after she found out that she had cancer and did not know that she owed the bank any money. She said that her children did not give her anything for the property and admitted that after the transfer she did not own anything.

Testifying on her own behalf, defendant stated that she had discussed transferring her property to her children with an attorney, Thomas O'Connor. Defendant said she told O'Connor that her husband was going out with someone else and she wanted to give her house to her children. As a result of that discussion, defendant's husband transferred his interest in the house to her in 1975. In 1978 or 1979, she talked to another lawyer, Philip Locke, and voiced the same concerns that she had discussed with O'Connor. She said that she was trying to protect the interests of her son, who was a child from a previous marriage, and that Locke put the house in trust for the children in 1980.

Attorney Thomas F. O'Connor testified that defendant was concerned about protecting her first child, who was of another marriage. He advised her to have the house put in her name. Although they discussed putting the property into a land trust, he had explained that annual costs were involved and the matter was dropped. Defendant had wanted to put her son's name also on the deed, but O'Connor advised against it because it would be impractical since the boy was still a minor.

Attorney Philip F. Locke testified that defendant consulted him in 1979 because she wanted to protect her home from her husband's creditors. Locke said he suggested that the property be placed in a land trust. He completed the arrangements sometime in 1980. Defendant was the beneficiary as guardian on behalf of her two minor children. Locke said that defendant did not have any creditors that he knew of when the property was transferred into the land trust.

Defendant's husband, William Bawoll, testified that while he did not think defendant signed the first note, she did sign the second note after she got out of the hospital in June 1980. He signed the note in March 1980, and while it was due in May 1980, it was not paid at that time. He said that Walton knew that he, defendant's husband, had signed defendant's name to the first note and that Walton pressured defendant to sign the second note. He said Walton told defendant that her husband had signed her name and that was fraud or forgery. He stated that he had made cash payments on the motor home note and identified copies of receipts for those payments.

On cross-examination, William Bawoll admitted signing defendant's name on the first note. Plaintiff's attorney read from William Bawoll's deposition, wherein Bawoll identified the signature on the first note as being that of defendant. Bawoll acknowledged that he gave that answer at the deposition.

Although plaintiff filed its complaint against both defendant and her husband, as well as the Du Page Bank and Trust Company, as trustee of the land trust, the trial court dismissed William Bawoll as a party because of the discharge of his debts in bankruptcy proceedings. The trial court refused to set aside the conveyance, finding that defendant's health and marital problems provided sufficient justification for the transfer. Judgment on both notes was granted in favor of plaintiff, and defendant was found to owe $12,142.67 as principal and $2,954.85 as interest for a total of $15,097.52. While acknowledging that the testimony was contradictory, the trial court found that defendant signed the first note and that she merely did not like signing the second note and that "such duress was not sufficient to make it unlawful."

Plaintiff's primary contention on appeal is that the trial court erred in considering defendant's intent when deciding whether the conveyance of her residence in trust for the benefit of her children was fraudulent. While Illinois statutory law operates to void conveyances "made with the intent to disturb, delay, hinder or defraud creditors * * *" (Ill. Rev. Stat. 1979, ch. 59, par. 4), case law distinguishes between conveyances that are fraudulent in law and those fraudulent in fact. Fraud in law will be found where the conveyance is made for inadequate or no consideration. (Wilkey v. Wax (1967), 82 Ill. App.2d 67, 70, 225 N.E.2d 813.) Fraud is presumed in these circumstances (Harris v. Aimco, Inc. (1978), 66 Ill. App.3d 60, 62, 383 N.E.2d 631), and intent is immaterial. (Birney v. Solomon (1932), 348 Ill. 410, 415, 181 N.E. 318; Till v. Till (1967), 87 Ill. App.2d 358, 361, 231 N.E.2d 641.) On the other hand, in fraud in fact cases, actual consideration has been given for the ...

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