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10/30/87 West Chicago State Bank, v. John H. Rogers Et Al.

October 30, 1987





Bank, Third-Party Defendant-Appellee)

515 N.E.2d 1261, 162 Ill. App. 3d 838, 113 Ill. Dec. 954 1987.IL.1613

Appeal from the Circuit Court of Du Page County; the Hon. John S. Teschner and the Hon. Anthony M. Peccarelli, Judges, presiding.


JUSTICE WOODWARD delivered the opinion of the court. UNVERZAGT and DUNN, JJ., concur.


The defendants and counterplaintiffs, John and Bernice Rogers (Rogers), appeal from a jury verdict denying them damages on their counterclaim and third-party complaint against the plaintiff and counterdefendant, West Chicago State Bank.

John Rogers was a general contractor who from time to time purchased vacant properties and developed them with single-family residences, which he would then sell. Beginning in 1971, the Rogers established a banking relationship with West Chicago State Bank (hereinafter bank). On May 17, 1971, the Rogers entered into a trust agreement with the bank, which was dated May 17, 1971, and known as trust No. 260. Three vacant lots and one improved lot, collectively known as the "Norris" property, were conveyed into trust No. 260 at that time.

On December 12, 1972, Rogers conveyed lots 1, 2, 3, 4, and 5 of Rogers Resubdivision, which was known as the "Highlake" property, to the bank using the bank's regular form of deed in trust, conveying title to the bank as trustee under trust agreement dated December 12, 1972, and designated as trust No. 260. According to John Rogers, although he used trust No. 260, in so designating the trust agreement as one dated "December 12, 1972," he intended to have the Highlake property held in a separate land trust at the bank.

During 1976, Rogers purchased three more properties, referred to as the "Pearl Street" property, the "National Street" property, and the "Ray Street" property. Although the grantee on the deed was designated by Rogers as "West Chicago State Bank Trust No 260," Rogers had the deeds recorded but kept them rather than delivering them to the bank.

From 1971 to 1983, Rogers borrowed various sums from the bank to finance the construction of new residential developments. As these residential developments were sold by Rogers, notes with the bank were paid either with cash from the proceeds of sale or by substituting renewal notes for the unpaid amounts. According to John Rogers, as funds were needed to finance construction, he would go to the bank and talk to the president of the bank, who would tell him to go ahead with the work and that the bank would cover him financially for those particular jobs. The bank had given Rogers packets of blank notes. Rogers would bring in a note signed by both his wife and himself. The bank would fill in the rest of the note and deposit the money into Rogers' account. Between 1971 and 1983, Rogers signed as many as 80 to 90 such notes, following the same procedure each time. Occasionally, when a note came due and no funds were available to pay it, John Rogers would bring in another note, and the bank would either roll over the interest onto the principal of the new note, or, if the interest could be paid, then the old note would simply be extended.

The bank always inserted the interest rate after the note had been signed by the Rogers. The rates had started out at 8% and gradually increased to 16%. On one occasion, Rogers received back a note which had been at 10%. He complained to the president of the bank about the high rates, only to be told that since the prime rate was 22%, Rogers should not complain.

On June 20, 1974, Rogers executed an assignment to secure indebtedness in which Rogers assigned to the bank their interest in trust No. 260. The assignment identified trust No. 260 as being dated May 17, 1974, and not May 17, 1971, the date the trust agreement for trust No. 260 was actually executed.

Between June 3, 1981, and August 14, 1981, Rogers executed four notes to the bank, each one secured by trust No. 260. Three of the notes were renewal notes, as follows: (1) note dated June 3, 1981, in the amount of $156,483.75, due on November 1, 1981, at an interest rate of 16.22% per annum; (2) note dated August 14, 1981, in the amount of $93,825.85, due February 10, 1982, at an interest rate of 16% per annum; (3) note dated June 3, 1981, in the amount of $13,031.36, due November 30, 1981, at an interest rate of 16.22% per annum. The fourth was a new note dated June 25, 1981, in the amount of $13,000, due on December 22, 1981, at an interest rate of 16.22% per annum.

Rogers failed to pay the notes as they came due. In April 1983, Rogers received a notice of sale of collateral which informed Rogers that the bank would sell 100% of Rogers' beneficial interest in what was described as "Trust Order Agreement Dated May 17, 1971 and known as Trust No. 260."

On May 11, 1983, pursuant to section 9-504 of the Uniform Commercial Code (Ill. Rev. Stat. 1983, ch. 26, par. 9-504), the bank conducted a sale of Rogers' properties in trust No. 260. The bank was the only bidder at the sale and purchased the property for $243,300, basing its bid on the underlying appraisals of the properties less certain deductions. After the sale, John Rogers contacted the bank and advised John Rodelli, the bank's executive vice-president, that the Highlake property was not in a trust dated "May 17, 1971." Rodelli advised him to contact the bank's attorney. However, Rogers had neither appeared at the sale nor had he notified the bank prior to the sale that the Highlake property was not a part of trust No. 260 that was dated May 17, 1971, even though a description of the property was included in the notice of sale.

Following the sale, the bank first became aware that the Pearl, National, and Ray Street properties were a part of trust No. 260. Subsequently and without further notice to Rogers, the bank sold the Norris lots, the National and the Ray Street properties, and one-half of the Highlake property.

On September 1, 1983, the bank filed an action to recover a deficiency judgment against Rogers. The deficiency was based upon $360,043.89, the amount due on the four notes plus 16% interest calculated to apply to the deficiency from May 11, 1983, the date of the sale, less $243,300, the bank's bid at the sale. Rogers answered the complaint denying that any amount was due the bank and counter-claimed against the bank for the excess in value of Rogers' property, which had been appraised at $507,600, over the alleged amount of any indebtedness due the bank.

On December 17, 1984, the bank amended its complaint to include counts seeking to reform the deeds to the Pearl, National, and Ray Street properties to include the May 17, 1971, date of trust No. 260. The amended complaint also sought to have the deed to the Highlake property and the assignment reformed to reflect the proper date of trust No. 260, as dated May 17, 1971, not May 17, 1974.

On March 19, 1985, Rogers filed a third-party complaint against the bank, as trustee, alleging that the bank was guilty of a breach of trust and conversion of Rogers' property. The third-party complaint charged that the bank had violated its fiduciary duty owed to Rogers and converted Rogers' property, when without Rogers' consent, it sold certain parcels of land held by the bank as trustee for Rogers to satisfy notes owed by Rogers to the bank, since the notes were secured by an assignment of Rogers' interest a in nonexistent trust.

On April 10, 1985, the trial court ordered the proceedings bifurcated so that the issues regarding the reformation of the deeds and assignment could be determined by the chancery court. Subsequently, over the objections of Rogers, the chancery court preliminarily ruled that it would determine the issue of "commercial reasonableness."

At the Conclusion of the trial on the equitable issues, the chancery court found that the notice of sale was adequate as a matter of law, and that the bank had established a prima facie case on the issue of whether the sale was conducted in a commercially reasonable manner. The chancery court also found that the Pearl, Ray, and National Street properties were conveyed to the bank under trust No. 260 and became a part of the corpus of that trust regardless of the fact that Rogers did not notify the bank of the transaction or send it copies of the deeds. The chancery court reformed the deed to the Highlake property to reflect that trust No. 260 was dated May 17, 1971. The chancery court found that the date of December 12, 1972, found on the deed to the Highlake property and the May 17, 1974, date found on the assignment were "clearly erroneous." There was no subsequent amendment to the May 17, 1971, trust agreement, and, therefore, the May 17, 1971, date was controlling.

A jury trial was then commenced on the remaining issues, including the deficiency alleged by the bank and the damages sought by Rogers, inter alia, for violations of section 9-507 of the Uniform Commercial Code (Ill. Rev. Stat. 1983, ch. 26, par. 9-507) and for conversion and breach of trust by the bank. The bank presented evidence as to the indebtedness owed by Rogers to the bank. At the close of the bank's case in chief, Rogers moved for a directed verdict on the issue of reasonable notification and commercial reasonableness of the sale, which was denied. Rogers then presented evidence on the issue of the commercial reasonableness of the sale and the value of Rogers' properties, after which the bank put on rebuttal testimony on the issue of value and the calculation of the interest applied to the deficiency by the bank.

The jury returned a verdict for Rogers and against the bank on the bank's complaint for the deficiency, and against Rogers and for the bank on Rogers' counterclaim and third-party complaint. This appeal followed.

Rogers contend, first, that the trial court erred in giving certain jury instructions tendered by the bank. Rogers argue that bank's instructions Nos. 17 and 26 instructed the jury that Rogers' only claim against the bank was one of conversion, thus ignoring Rogers' causes of action under section 9-507 of the Uniform Commercial Code (Ill. Rev. Stat. 1983, ch. 26, par. 9-507) and for breach of trust. Bank's instruction No. 17 provides as follows:

John H. Rogers and Bernice E. Rogers, the defendants, have filed a cross-claim claiming that West Chicago State Bank has converted a portion of their property. The defendants have also claimed as an affirmative defense to West Chicago's action that West Chicago State Bank sold the real estate involved in this action in a manner which was commercially unreasonable."

Bank's instruction No. 26 provides as follows:

"The Defendants have alleged that the Plaintiff converted their property. A conversion is wrongful retention of someone else's property. A party claiming a conversion must show that he had:

(a) an absolute and unconditional right to the immediate possession of the property;

(b) that the party charged with conversion wrongfully assumed control, dominion or ownership over the property; and

(c) that the party charged with conversion refused to surrender possession of the property after the party claiming ...

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