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Home Savings & Loan Ass'n v. Schneider

OPINION FILED MAY 31, 1984.

HOME SAVINGS AND LOAN ASSOCIATION OF JOLIET, PLAINTIFF,

v.

ROY E. SCHNEIDER ET AL., DEFENDANTS (ERNEST L. HARRELSON ET AL., COUNTERPLAINTIFFS-APPELLEES,

v.

RICHARD H. HATABURDA ET AL., COUNTERDEFENDANTS-APPELLANTS).



Appeal from the Circuit Court of Will County; the Hon. Bruce D. Falk, Judge, presiding.

JUSTICE BARRY DELIVERED THE OPINION OF THE COURT:

Rehearing denied October 19, 1984.

The suit which is the subject of this appeal was initiated in the circuit court of Will County on December 1, 1981, by Home Savings and Loan Association, mortgagee of property at 725 Geneva Avenue, Romeoville. The financial institution's foreclosure cause of action sought to enforce a due-on-sale provision in its 1972 mortgage agreement against mortgagors, Roy and Sue Schneider, and their successors, Richard and Patricia Hataburda. Also included as party defendants were Ernest and Peggy Harrelson as possessors of the premises. According to the verified complaint, the Hataburdas entered into an agreement in 1976 to assume the Schneiders' liability on their mortgage loan. The Hataburdas then entered into a purchase-sale agreement with the Harrelsons for $47,500 on September 23, 1978, in violation of the due-on-sale terms of the note and mortgage agreement. The amount claimed due in the complaint was $18,170.42.

On December 28, 1981, the Harrelsons answered Home Savings and Loan's complaint and filed a verified cross-complaint in four counts against the Hataburdas for rescission of their purchase contract and for restitution, alleging that they, the Harrelsons, had been induced to enter into the agreement by fraud and negligent misrepresentations of the Hataburdas. (The cross-complaint was later amended to include four additional counts against the Hataburdas.) The Harrelsons contemporaneously filed a motion for the appointment of a receiver to accept their monthly payments under the contract with the Hataburdas pending the outcome of the lawsuit. The Hataburdas then filed a forcible entry and detainer suit against the Harrelsons to recover possession of the real estate at issue. That suit was consolidated with Home Savings and Loan's action and the Harrelsons' cross-complaint on motion of the Harrelsons.

On March 17, 1982, the trial court ordered the Harrelsons to pay their monthly installment payments of $438.97 to Home Savings and Loan, and ordered Home Savings and Loan to apply toward the mortgage an amount representing the Hataburdas' monthly obligation and to place the balance in an escrow account pending resolution of the lawsuit.

On August 27, 1982, on motion of Home Savings and Loan, the court dismissed the financial institution's foreclosure complaint, finding that the plaintiff had accepted payment by the Hataburdas in satisfaction of indebtedness due on the mortgage. Finally, on May 2, 1983, the matter was set for trial on the Harrelsons' cross-complaint against the Hataburdas for fraud and negligent misrepresentation and on the Hataburdas' forcible entry and detainer action against the Harrelsons. Counsel for the Harrelsons moved to dismiss the four counts of their complaint which prayed for rescission of the contract to purchase. The motion was allowed and the trial proceeded on the remaining counts for restitution.

At the conclusion of the Harrelsons' case in chief, counsel for the Hataburdas moved for a directed verdict, which was denied. Then, Hataburdas' counsel moved for a dismissal of the forcible entry and detainer suit. After entertaining arguments of counsel and an offer of proof, the court granted the motion and informed the jury accordingly. The Hataburdas proceeded with their defense case, closing arguments of counsel were presented, the jury received instructions, and deliberations began at 2:55 p.m. on May 5, 1983.

The record reflects that the jury returned its verdict in open court at 9:40 p.m., finding in favor of the Harrelsons on the fraud counts and awarding $32,000 in compensatory and $50,000 in punitive damages. The jurors were admonished, however, that their verdict was incomplete because no finding had been made with respect to the negligent misrepresentation counts. The jurors deliberated further, and at 10:25 p.m., they returned another verdict for the Harrelsons and awarded $15,000 compensatory damages for negligent misrepresentation.

In this appeal, the Hataburdas contend that the Harrelsons' cross-complaint against them failed to state a cause of action for fraud; that they failed to prove fraud by clear and convincing evidence; that they failed to state a cause of action for negligent misrepresentation; that the jury's verdict is unsupportable; and that punitive damages were improperly awarded.

The evidence presented at trial, although disputed, tended to establish the following facts. Richard and Patricia Hataburda acquired an interest in the real estate at 725 Geneva Street, Romeoville, in 1976 when they assumed the mortgage obligation on the property that Mr. and Mrs. Roy Schneider had executed with Home Savings and Loan Association of Joliet. The mortgage agreement contained a due-on-sale clause requiring the mortgagors to obtain the mortgagee's written consent before transferring their interest in the property.

In July of 1978, Patricia Hataburda advertised the property for sale. Peggy Harrelson answered the ad and, pursuant to Patricia's instructions, met Patricia at Bel Air Realty in Bolingbrook. According to Mrs. Harrelson, she was shown three homes and liked the one at 725 Geneva. Mrs. Harrelson took her husband, Ernest, a truck driver, to see the home, and the Harrelsons decided they were interested in purchasing it. The sale price of $47,500 was acceptable to the Harrelsons. Peggy made a $500 cash deposit and the closing was set for September 23, 1978, at the Hataburdas' home. On that date, the Harrelsons were invited into Patricia's "office" and handed a contract entitled "Articles of Agreement" for their signatures. Although the Harrelsons had previously made real estate purchases on contract without the guidance of legal counsel, Ernest suggested on reading the contract that perhaps they should have a lawyer. The Hataburdas assured them, however, that everything was legal, that both of them were "real estate people," and that an attorney would not be necessary.

Ernest asked when the home would be paid off according to the terms of the contract, and he was told by Patricia that it would be in 30 years. Ernest and Peggy signed the contract and paid $2,000 for the balance of the down payment. They also paid for the first month's installment under the contract.

In 1981, the Harrelsons hired a contractor to repair some damage done to the home. The insurer issued a check to the contractor with the Harrelsons' and Home Savings' names as payees as well. Home Savings refused to endorse the check and notified the Hataburdas and the Harrelsons that the due-on-sale clause in the mortgage agreement had been violated. The Harrelsons had no prior notice that the Hataburdas' mortgage included a due-on-sale clause. It was then discovered that the contract for purchase between the Hataburdas and the Harrelsons, under which the Hataburdas were ostensibly paying off a $45,000 balance (with interest at 9 3/4% per year) at the rate of $359.97 per month, would never result in a transfer of title to the purchasers because the monthly payment did not even cover the amount of interest that would be due each month under the terms of the contract.

At trial it was revealed that the Hataburdas had quit-claimed their interest in the property to Paula Hataburda, Richard's sister, in 1980 and recorded the transaction in January of 1983. It was also revealed that the Hataburdas had been dealing in real estate since 1974 and that several other contract sales, in which the Hataburdas purported to be sellers, had contained provisions similar to those in the instant case rendering a pay-off date impossible. Finally, evidence of income tax data provided by the Hataburdas to the Harrelsons for 1979 and 1980, indicating ...


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