APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, THIRD DIVISION
535 N.E.2d 940, 180 Ill. App. 3d 219, 129 Ill. Dec. 175 1989.IL.184
Appeal from the Circuit Court of Cook County; the Hon. Anthony J. Scotillo, Judge, presiding.
JUSTICE WHITE delivered the opinion of the court. FREEMAN, P.J., and RIZZI, J., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE WHITE
Defendant, CenTrust Trust (hereinafter CenTrust), appeals from a judgment and decree of foreclosure entered by the circuit court of Cook County on May 8, 1987, and from orders entered by the court on July 24, 1987, and October 29, 1987, respectively, denying CenTrust's motion to vacate or modify the judgment and decree of foreclosure and confirming the foreclosure sale. *fn1 CenTrust maintains that plaintiff, Chemical Bank, was equitably estopped from asserting the priority of its mortgage liens in the mortgage foreclosure action. CenTrust also maintains that the circuit court erred in confirming the foreclosure sale because: (1) the court incorrectly calculated the interest due Chemical Bank; (2) the foreclosure sale took place while CenTrust's motion to vacate or modify the judgment and decree of foreclosure was pending; and (3) the foreclosure sale took place while mechanic's lien claims were pending. We find that these contentions are without merit, and we affirm the rulings of the circuit court.
In 1979, David L. Paul formulated a project to redevelop a large commercial building, located at 666 Lake Shore Drive, Chicago. The project was to convert the commercial building into condominiums, offices, retail and garage space. 666 Associates, an Illinois limited partnership, was formed in 1979 to redevelop the building. Financing for the project was obtained from the Abacus Mortgage Investment Company (hereinafter Abacus), which made a $70 million loan to American National Bank and Trust Company of Chicago (hereinafter American National Bank) as trustee *fn2 and 666 Associates. On November 20, 1980, American National Bank as trustee and 666 Associates executed a mortgage note whereby they promised to pay the sum of $70 million to Abacus. The note was secured by a mortgage of even date whereby American National Bank conveyed to Abacus all its rights, title and interest in the property, building and improvements at 666 North Lake Shore Drive (hereinafter the property).
On May 24, 1982, Abacus made an additional loan of $20 million to American National Bank as trustee and 666 Associates. The loan was evidenced by a mortgage note whereby American National Bank as trustee and 666 Associates agreed to pay the sum of $20 million to Abacus. The note was also secured by a mortgage whereby American National Bank as trustee conveyed to Abacus all of its rights, title and interest in the property.
Abacus was the nominal lender in the loan transactions. Chemical Bank provided most of the money for the loans and later purchased the interest of Abacus in the loans. Hereinafter, all references to these loan transactions will describe Chemical Bank as the lender and mortgagee.
The project experienced financial difficulties because interest rates increased between the late 1970s and the early 1980s and the condominium market collapsed. By letter dated March 8, 1983, Mr. Paul proposed a "business plan" to deal with the project's financial problems. The "business plan" consisted of four parts: (1) 666 Associates would syndicate the West Tower apartments in the building; (2) 666 Associates would arrange a loan on the office, retail and garage sections of the building; (3) 666 Associates would sell individual units in the east section of the building as condominiums; and (4) 666 Associates would sell individual units in the south section of the building as condominiums. Chemical Bank agreed to this program. Consequently, in 1983, 666 Associates sold the West Tower apartments in the building. Chemical Bank released its mortgage on that portion of the building, and, in return, received $10 million and a pledge of a $13,500,000 purchase money note. 666 Associates was also successful in obtaining a loan from Homestead Savings Bank on the office and commercial space in the building. The loan was in the principal amount of $11 million. However, under the loan agreement, 666 Associates could obtain extensions of the loan up to $25 million. *fn3 The loan was secured by a first mortgage in the office, retail and commercial garage portions of the property. *fn4
In May 1983, Mr. Paul requested that Chemical Bank apply the proceeds from condominium sales first to the payment of interest on the Chemical Bank loans and second to the payment of principal. *fn5 Chemical Bank agreed to this arrangement. However, officers of Chemical Bank testified that this arrangement was to be at Chemical Bank's discretion.
Also in early 1983, Chemical Bank and David L. Paul discussed the need for an additional investment in the project by 666 Associates. By letter dated April 15, 1983, Chemical Bank advised Mr. Paul that the loan to 666 Associates was "out of balance," and this condition would trigger a default under the loan documents unless 666 Associates contributed additional funds to the project. Mr. Paul approached the limited partners of 666 Associates, including the Westport Company, *fn6 the predecessor to CenTrust, for additional funds, either in the form of an investment or a loan. The limited partners refused to invest additional monies in the project. However, the Westport Company agreed to make a loan to 666 Associates, subordinate to the loans from Chemical Bank. The minutes of the Westport Company trustees meeting of May 20, 1983, reflect that the trustees approved a loan to 666 Associates on that date. Mr. Paul did not vote on the loan because of his position with 666 Associates and the possible conflict of interest. The loan documents from the Westport Company were formally executed on August 15, 1983. They provided that the Westport Company would make a loan of $7,300,0007 to 666 Associates, to be repaid in August 1985. Interest was to be charged at the rate of prime plus 4% per annum until the date of maturity, and, thereafter, at a rate equal to the lesser of (1) 20% per annum or prime plus 4% per annum, whichever is higher, and (2) the highest rate of interest then permitted by law. The loan was secured by a junior mortgage on the premises. All proceeds from the loan were disbursed by March, 1984.
In early 1983, Mr. Paul and the shareholders of the Westport Company proposed to acquire Dade Savings & Loan Association. The acquisition contemplated that, with the approval of the Federal Home Loan Bank Board, the shareholders of the Westport Company would exchange their stock for stock of Dade Savings & Loan Association. The Westport Company would then become a subsidiary of Dade Savings & Loan Association.8 In July 1983, Mr. Paul had several conversations with officers of Chemical Bank regarding the acquisition. Mr. Paul testified that he was concerned that an officer of Chemical Bank had made certain remarks indicating that Chemical Bank was having problems with the loan to 666 Associates. Chemical Bank denied that any of its officers had made such comments. Also in July, Mr. Paul requested that Chemical Bank provide a letter to the Federal Home Loan Bank Board regarding the status of the loan to 666 Associates. By letter dated July 21, 1983, Chemical Bank informed the Federal Home Loan Bank Board that the loan to 666 Associates was not in default and that 666 Associates and Mr. Paul were valued customers of Chemical Bank. Mr. Paul testified that a copy of this letter was sent to the Westport Company trustees.
In spite of the additional monies from the loans and syndication of the West Tower Apartments, the project's financial difficulties persisted. In late 1983 or early 1984, Mr. Paul recommended additional syndications of portions of the project. The syndication proposals were rejected by Chemical Bank because they provided for low or no down payments and required Chemical Bank to take a cash flow mortgage at less than market interest rates.
666 Associates fell behind in its payments to Chemical Bank, and on August 29, 1984, Chemical Bank declared the $70 million and $20 million loans in default. On December 7, 1984, Chemical Bank commenced foreclosure proceedings. 666 Associates then filed a petition for bankruptcy. The foreclosure action was automatically stayed under section 362(a) of the Bankruptcy Code (11 U.S.C. § 362(a) (1984)). However, on April 25, 1985, Chemical Bank moved for relief from the automatic stay. After trial before the bankruptcy Judge, an order was entered directing that the stay be lifted as to any party and interest seeking to enforce its lien rights in or against the property. Chemical Bank then proceeded with the foreclosure action, obtained a judgment and decree of foreclosure, and a sale of the property.
CenTrust asserts that "[at] the time it9 agreed to make its loan, and while it was funding the loan, [it] reasonably believed, and was induced by Chemical to believe, that Chemical would follow the practices it had adopted in the business plan -- using cash proceeds for interest and improvements -- which were critical if the Project was to survive." CenTrust maintains that Chemical ...