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08/12/87 First National Bank, As v. S.O.Y. Investment Group Et

August 12, 1987

FIRST NATIONAL BANK, AS TRUSTEE, ET AL., PLAINTIFFS-APPELLEES

v.

S.O.Y. INVESTMENT GROUP ET AL., DEFENDANTS-APPELLANTS



APPELLATE COURT OF ILLINOIS, FIFTH DISTRICT

512 N.E.2d 121, 159 Ill. App. 3d 599, 111 Ill. Dec. 217 1987.IL.1163

Appeal from the Circuit Court of Jackson County; the Hon. Bill F. Green, Judge, presiding.

APPELLATE Judges:

JUSTICE HARRISON delivered the opinion of the court. KARNS, P.J., and WELCH, J., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE HARRISON

Defendants Richard V. Evans, Thomas E. Evans and Dan Keane appeal from a judgment of the circuit court of Jackson County finding them and others jointly and severally liable to plaintiffs in the amount of $35,791.51. The judgment against defendants was premised on section 1.1 of "An Act in relation to security deposits . . ." (the Act) (Ill. Rev. Stat. 1985, ch. 80, par. 101.1), which governs liability for prepaid rent and security deposits paid by tenants of residential real property where that property has been sold or has otherwise changed hands. For the reasons which follow, we reverse.

Defendants Evans, Evans and Keane were among the limited partners of S.O.Y. Investment Group , an Illinois limited partnership formed to "engage generally in the real estate business." (Certificate of Limited Partnership, par. 2.) On September 1, 1979, S.O.Y. purchased an apartment building known as the Garden Park Apartments from plaintiff First National Bank of Springfield (the bank), as trustee, under a contract for deed. That contract provided, inter alia, that S.O.Y. was to make monthly payments to the bank for a specified term. When the full purchase price was paid, the bank would then convey title to the property to S.O.Y. If the payments were not made as provided in the contract, the bank had the right to declare a forfeiture, recover possession of the premises and retain whatever payments it had received.

The Garden Park Apartments, S.O.Y.'s only major asset, were located in Carbondale and were apparently rented out, for the most part, to students who attended college there. Responsibility for managing S.O.Y. and its apartments was vested in Robert L. Dare, S.O.Y.'s sole general partner. The record indicates that during the 1982-83 academic year, Dare collected prepaid rent and security deposits totaling about $11,500 from students renting the apartments. Dare also collected an additional $34,500 in prepaid rent and security deposits from students who were to rent the apartments for the 1983-84 academic year. These amounts were never refunded to the students by S.O.Y. In April of 1983, the limited partners of S.O.Y. learned that Dare had misappropriated a significant amount of money from the partnership, including the sums collected from the students for prepaid rent and security deposits.

Thereafter, the limited partners removed Dare as general partner and authorized William J. Brush, himself a limited partner, to act on their behalf. The financial records of the partnership were obtained, an audit was conducted, a new bank account was opened over which Dare had no control and an appraisal was made of the property. In addition, some effort was made to renegotiate the terms of the contract for deed.

A determination was ultimately made that an infusion of additional capital would be necessary if the partnership were to remain viable. In June of 1983, the limited partners met and decided to make no such further investment. When this happened, the contract for deed became delinquent; the bank, as trustee, declared a forfeiture of the contract; and it then retook possession of the apartments.

After taking back the apartments, the bank, as trustee, credited $10,400 to the accounts of former tenants for the security deposits and prepaid rent which those tenants had previously paid to S.O.Y. for the 1982-83 school year. The bank later sold the apartments to plaintiff Sangamon Fund III under a contract for deed. The purchase price was adjusted to reflect the $34,500 in prepaid rent and security deposits collected by Dare on behalf of S.O.Y. for the 1983-84 school year. Sangamon Fund III itself subsequently credited this amount to the accounts of or repaid it to the tenants. This litigation followed.

In their complaint, as amended, plaintiffs sought recovery from S.O.Y., Dare, and the limited partners of S.O.Y. for the security deposits and prepaid rent which they had so credited to the accounts of or repaid to the tenants after forfeiture of S.O.Y.'s contract for deed. Plaintiffs contended that they were required to pay back the prepaid rent and security deposits and that they were entitled to obtain indemnification from S.O.Y. for such sums pursuant to section 1.1 of the Act (Ill. Rev. Stat. 1985, ch. 80, par. 101.1), which provides:

"In the event of a sale, lease, transfer or other direct or indirect Disposition of residential real property, other than to the holder of a lien interest in such property, by a lessor who has received a security deposit or prepaid rent from a lessee, the transferee of such property shall be liable to that lessee for any security deposit, including statutory interest, or prepaid rent which the lessee has paid to the transferor. Transferor shall remain jointly and severally liable with the transferee to the lessee for such security deposit or prepaid rent."

Plaintiffs further alleged that the limited partners, including Evans, Evans and Keane, should be held jointly and severally liable for the sums in question because they had assumed sufficient management and control of S.O.Y. after Dare's misappropriation of funds was discovered to be considered as general ...


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