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Moushon v. Moushon

OPINION FILED SEPTEMBER 3, 1986.

CLARK J. MOUSHON ET AL., PLAINTIFFS-APPELLANTS,

v.

LYLE B. MOUSHON ET AL., DEFENDANTS-APPELLEES — MOUSHON CONSTRUCTION COMPANY, INC., PLAINTIFF-APPELLEE,

v.

CLARK J. MOUSHON ET AL., DEFENDANTS-APPELLANTS (THE HERGET NATIONAL BANK OF PEKIN, AS TRUSTEE, DEFENDANT).



Appeal from the Circuit Court of Peoria County; the Hon. Robert E. Manning, Judge, presiding.

JUSTICE BARRY DELIVERED THE OPINION OF THE COURT:

This appeal is the culmination of a family dispute involving nine brothers and sisters who share equally in the beneficial interest of a land trust established by their mother. The plaintiffs (five of the beneficiaries) are appealing from a judgment in favor of the defendants (the three manager/beneficiaries) in an equitable action wherein plaintiffs sought an accounting, damages, and the removal of defendants as fiduciaries of the trust. Plaintiffs also appeal from a judgment of foreclosure entered in a foreclosure action brought by Moushon Construction Company, Inc., against the Herget National Bank as trustee of the trust. The foreclosure suit was consolidated with plaintiffs' cause in the trial court. Defendants have cross-appealed from orders which disallowed claims for attorney fees and a trustee's fee.

Lester Moushon was a farmer who during his lifetime acquired more than 600 acres of real estate. Lester died in 1970, and his wife Mary became the sole owner of the land. Before Lester's death, Herbert Moushon (one of the couple's nine children) farmed the land under a lease arrangement with his parents, and Lyle Moushon (another son) extracted gravel from some of the land under an agreement whereby he paid 10 cents per ton royalty to his parents for all gravel sold. Both operations continued after the father died. In 1974, Mary Moushon placed title to all of the property except her residence in a land trust with Herget National Bank of Pekin as trustee and with Mary as the sole beneficiary.

On May 17, 1976, Mary sent a handwritten letter to her children stating her desire to name three of her sons as managers of the trust, as follows:

"On this 17th day of May 1976 I have decided to appoint three of my sons Lyle B., Herbert R., and Wayne R. to act as trustees of my land trust held by Herget National Bank of Pekin Illinois Trust No. TA 2717.

In 1972 I made some commitments to the City of East Peoria, Ill. to build a road thru part of my property which I could benefit in future development. This project has taken a while longer than I thot [sic]. I have reached an age I no longer want to be obligated with this type of duties. Therefor I have appointed the above three of my children to act on my behalf as trustees so I can spend more of my time in church activities, community work and travel.

The trustees can develop, lease, farm, sell, etc., to the best of their ability. All of my children will be given an equal share of my property held in the above mentioned trust and will be notified of such gifts. The trustees will place all profits from property in the Herget National bank or its successor to be divided equal among my children if living or their heirs. The trustees shall act for a period of ten years.

The trustees may mortage [sic] or sell property to pay my taxes, to pay development cost, farm cost, or any other cost that may arise in carrying out these wishes."

Further details of the gift from Mary to her children were spelled out in a letter from attorney Ronald L. Keyser to the children of Mary M. Moushon. The letter was dated May 28, 1976, and stated, in part:

"Your mother had entered into an agreement with the City of East Peoria involving certain expenditures to be made by her in connection with the improvement of Illini Drive. In pursuance of this agreement, Lyle Moushon advanced the funds necessary for the grading and the sewer, water and electrical therefor. This amounted to a total sum of $187,616.00, and prior to making the assignment of the beneficial interests in the land trust, your mother directed the Trustee to execute a note and mortgage payable five years from date thereof in said amount, with interest due thereon in the amount of 9% per annum, payable annually after date.

This mortgage has been signed solely by the land trustee and creates no personal liability on your mother, nor does it create any personal liability insofar as any of the beneficial owners of the land trust are concerned, as only the real estate in the land trust is liable for the indebtedness. It is contemplated that a portion of the premises along Illini Drive will be developed for subdivision purposes, and that from the sale of the lots, there will be first paid the sums of money necessary to reduce the unpaid balance of said mortgage as well as the development costs for said subdivision."

As attorney Keyser's letter states, the 1976 mortgage was a result of an agreement which Mary entered into in 1972 with the city of East Peoria and certain other land owners to provide for the construction of Illini Drive. Under the terms of the agreement, Mary Moushon would perform the excavation of 110,000 cubic yards of earth at a cost of $1.50 per yard in lieu of a special assessment against her property in the amount of $165,000. Lyle and Herbert Moushon performed the excavation work, and Mary Moushon's special assessment was marked "paid." Lyle and Herbert also installed a sewer and water line under the road at a cost of $22,616. These two items ($165,000 and $22,616) comprised the amount of the note and mortgage which Mary executed before she appointed Lyle, Herbert, and Wayne as managers of the trust. At the time of trial in July of 1983, the total principal and interest owed by the trust to Moushon, Inc., was $240,512.

On August 5, 1976, Lyle, Herbert and Wayne wrote to some of the beneficiaries to advise them that a gift tax would soon be due, that they proposed to either sell or mortgage a portion of the real estate in order to pay the gift tax, that they also proposed to execute a farm lease with Herbert and to proceed with the work necessary to complete the subdivision previously begun by Mary, and that they would direct the trustee to sell the lots and apply the proceeds to the payment of the mortgage note which Mary executed prior to the gift, to any other mortgages, to legal and accounting fees in connection with the gift taxes and subdivision work, and finally, any proceeds remaining would be distributed among the beneficiaries. The letter noted that the intended beneficiaries might choose to pay their share of the gift tax from personal funds or might refuse the gift altogether. The letter concluded, "If we do not hear from you by noon on August 14, 1976, we will pay the gift tax on your behalf." The record does not disclose any refusals by the beneficiaries.

Herbert, Lyle and Wayne Moushon proceeded with the development of a 21-lot, single-family subdivision. The development work was performed by Moushon, Inc., a corporation whose shareholders were Lyle (30%), his wife (30%), and their four children (10% each). The corporation installed water mains and sewers, did grading and filling, and provided gravel for streets. This work was done on a "time and material" basis at a cost of $83,300. Moushon, Inc., has sought a 20% profit (10% for overhead and 10% "true profit") in the amount of $16,700. Sixteen of the subdivision lots have been sold for a total of $248,485. Five lots remain to be sold, and ...


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