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06/01/88 Home Federal Savings and v. Arthur Cook Et Al.

June 1, 1988

HOME FEDERAL SAVINGS AND LOAN ASSOCIATION OF CENTRALIA, PLAINTIFF-APPELLANT

v.

ARTHUR COOK ET AL., DEFENDANTS-APPELLEES



APPELLATE COURT OF ILLINOIS, FIFTH DISTRICT

525 N.E.2d 151, 170 Ill. App. 3d 720, 121 Ill. Dec. 345 1988.IL.856

Appeal from the Circuit Court of Marion County; the Hon. Richard H. Brummer, Judge, presiding.

APPELLATE Judges:

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

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE KARNS

Plaintiff Home Federal Savings and Loan Association of Centralia (Home Federal) brought an action in the circuit court of Marion County seeking a determination of the priorities of various lienholders to the proceeds of an insurance policy. The facts were stipulated by the parties and, after a bench trial, the court entered an opinion and judgment ordering that the proceeds be paid first to defendant Crain, Cooksey & Veltman, Ltd. (Crain), and the remainder to Home Federal. Home Federal appeals.

On September 29, 1978, Arthur and Ruth Cook, owners of a certain tract of land located in Marion County, executed a promissory note in favor of Home Federal in the amount of $28,400. The note was secured by a mortgage and mortgagor's supplemental agreement, which provided that the Cooks were to obtain an insurance policy on the premises, naming Home Federal as loss payee. This mortgage was recorded on October 2, 1978.

On February 20, 1980, the Cooks executed a promissory note in favor of Personal Finance Company in the amount of $5,669.57. This note was also secured by a mortgage which required the Cooks to obtain an insurance policy on the premises, naming Personal Finance Company as loss payee. This mortgage was recorded on February 28, 1980.

The Cooks obtained an insurance policy covering the premises from Economy Fire and Casualty Company (Economy), but failed to make the policy payable to either mortgagee. On or about October 27, 1984, the improvements located on the premises were destroyed by fire. Economy denied coverage, however, asserting an arson defense.

On December 14, 1984, Home Federal wrote to Economy stating that it had been inadvertently left off as loss payee and asserting its position as first mortgagee. Economy responded, acknowledging Home Federal's interest as first mortgagee, but refused to pay because Home Federal was not named as loss payee.

Subsequent to Economy's refusal to pay the Cooks, they retained the defendant law firm of Crain, Cooksey & Veltman (Crain) to enforce their rights under the policy. On April 18, 1985, the Cooks and Crain entered into a retainer agreement which provided that, in exchange for rendering legal services, the Cooks "agree to pay said attorneys a contingent fee of 40% of any monies recovered on my behalf by either settlement or jury verdict." On August 6, 1985, Crain filed suit on behalf of the Cooks against Economy in the circuit court of Marion County.

On September 10, 1986, the Cooks and Economy reached a settlement agreement which provided in part that Economy would pay the Cooks $42,500. On September 11, 1986, Crain sent a letter to Economy claiming an attorney's lien on "any and all proceeds" recovered for the Cooks. On September 12, 1986, Home Federal filed a complaint for injunction seeking to enjoin the Cooks and Crain from distributing the proceeds of the settlement until further order of the court. The injunction was granted and remained in effect until the Disposition of this case on February 6, 1987.

On September 18, 1986, Home Federal filed the present suit, naming the Cooks, Crain, Economy, and Personal Finance Company as defendants. All parties stipulated to the material facts and a bench trial was held on October 28, 1986. The trial court entered its opinion and judgment on February 1, 1987, ordering that $17,810.61 of the proceeds be paid first to Crain, the remaining $24,689.39 to be paid to Home Federal to be applied against the loan balance, with nothing remaining to be paid to Personal Finance Company or the Cooks.

On appeal, Home Federal argues that it had an equitable lien on the proceeds of the insurance policy based on the well-established principle of law that where a mortgaged premises is destroyed, the mortgagee is entitled to an equitable lien on the proceeds of any insurance policy. (Grange Mill Co. v. Western Assurance Co. (1886), 118 Ill. 396, 9 N.E. 274.) Crain does not contend otherwise, and we need not lengthen this opinion with an ...


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