APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, FIFTH DIVISION
Management, Inc., et al., Defendants and
520 N.E.2d 660, 165 Ill. App. 3d 725, 117 Ill. Dec. 309 1987.IL.1921
Appeal from the Circuit Court of Cook County; the Hon. George Higgins, Judge, presiding.
JUSTICE PINCHAM delivered the opinion of the court. HARTMAN and RIZZI, JJ., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE PINCHAM
This is an appeal by Dr. Harold McGrath from the dismissal of his counterclaim for alleged fraud, misrepresentation, and unjust enrichment against First Security Bank of Glendale Heights (First Security) and Manning Savings and Loan Association (Manning). In the companion case between these parties, McGrath v. Fahey (1987), 163 Ill. App. 3d 584, we reversed the trial court's dismissal of McGrath's complaint, which charged the defendants with the infliction of emotional distress upon McGrath by the defendants' intentional and reckless refusal to release McGrath's funds on deposit at First Security. We also reverse the trial court's order dismissing McGrath's counterclaim.
The summary of the allegations of McGrath's counterclaim follows. McGrath and his real estate management company, Terrace Management, Inc. (Terrace), held second mortgages on 92 condominium units in a complex of 16 buildings in Orland Park, Illinois. The first mortgages on these condominium units were held by either First Security or Manning. In September 1983, First Security initiated foreclosure proceedings upon the first mortgages it held on the condominium units, the ultimate consequence of which was to defeat McGrath's interest in the second mortgages. McGrath, in November 1983, filed a 96-count counterclaim against First Security, Manning, the Federal Savings and Loan Insurance Corporation (the FSLIC), as Manning's receiver, and the purchasers of the condominium units. McGrath's counterclaim alleged damages for fraud, violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (Ill. Rev. Stat. 1985, ch. 121 1/2, par. 261 et seq.), and alleged unjust enrichment. The counterclaim also sought equitable and injunctive relief.
More specifically, McGrath's counterclaim alleged that prior to 1982, McGrath and Terrace constructed 16 apartment buildings. First Security was in the business of providing mortgage financing to purchasers of real estate. James Elliot was the president, the majority shareholder, a director, and a member of the loan committee of First Security. Kevin D. Kehoe, Elliot's brother-in-law, was an officer, a director, and a member of First Security's loan committee. The remaining directors and members of First Security's loan committee were relatives of Elliot's. Elliot controlled First Security.
Manning was also in the business of providing mortgage financing to purchasers of real estate. Harold Ticktin controlled Manning as its president, as one of its directors, and as a member of its loan committee. Before McGrath filed his counterclaim, Manning went out of business and the FSLIC became Manning's receiver.
In 1982, McGrath informed his accountant that he wanted to sell the 16 buildings. McGrath's accountant knew Elliot from another real estate transaction and introduced Elliot to McGrath. Elliot told McGrath that he and his brother-in-law, Kehoe, would locate persons financially qualified to purchase the buildings; that First Security, under the direction of Elliot, and Manning, under the direction of Ticktin, would provide the necessary financing to the purchasers; and that through Elliot, Kehoe, and Ticktin, First Security and Manning had recently successfully financed another similar purchase and resale of apartment buildings.
Thereafter, First Security and Manning, by and through Elliot, Kehoe, and Ticktin, developed a scheme to cheat and defraud McGrath. The scheme was that First Security and Manning would purchase the buildings, convert them into condominiums, and sell the condominium units as investment rental property. The purchasers of the units would not make down payments on the purchase price, but, rather, First Security or Manning would hold a first mortgage for a portion of the purchase price, and the balance was to be secured by second mortgages held by McGrath. First Security and Manning would charge the purchasers closing fees and interest at higher than market rates. The scheme further provided that First Security and Manning would deposit $10,000 as a part of the purchase price of each unit into non-interest bearing escrow accounts at First Security and Manning, from which payment of each purchaser's monthly first and second mortgage installments were to be paid. First Security and Manning, through Elliot, Kehoe, and Ticktin, presented the scheme to prospective purchasers of the condominium units, and specifically told the purchasers that they were not required to repay McGrath's second mortgages. To induce McGrath to sell his buildings, Elliot, Kehoe, and Ticktin assured McGrath that First Security and Manning would sell the units only to financially qualified purchasers whose creditworthiness First Security and Manning would investigate and ensure. Additionally, First Security and Manning promised McGrath that they would manage the condominiums, rent the condominium units, and collect the rents for deposit into the escrow accounts and that if the $10,000 and the rents collected in the escrow accounts were insufficient to pay the monthly installments to First Security and Manning, and the second mortgage installments to McGrath, then the purchasers would be required to make the payments due to McGrath with their own funds.
After McGrath sold his buildings to First Security and Manning, First Security and Manning converted them into condominiums and sold the units to the purchasers. McGrath then learned that he had been defrauded. Neither First Security nor Manning had the units appraised to determine their fair market value, and First Security and Manning did not determine that the purchasers were credit-worthy. Neither First Security nor Manning ever intended to manage the condominiums, rent the units, or collect the rents for the repayment of McGrath's second mortgages; the purchasers did not make their second mortgage payments because they were not financially able, nor did they intend to repay the second mortgages with their own money; and First Security and Manning specifically informed the purchasers that they would not be required to repay the second mortgages. As a result of the fraud, McGrath ...