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03/22/89 Tompkins State Bank, v. Donald R. Niles Et Al.

March 22, 1989

TOMPKINS STATE BANK, APPELLANT

v.

DONALD R. NILES ET AL., APPELLEES (MONMOUTH GRAIN AND DRYER COMPANY, APPELLANT)



SUPREME COURT OF ILLINOIS

537 N.E.2d 274, 127 Ill. 2d 209, 130 Ill. Dec. 207 1989.IL.378

Appeal from the Appellate Court for the Third District; heard in that court on appeal from the Circuit Court of Knox County, the Hon. Daniel J. Roberts, Judge, presiding.

APPELLATE Judges:

JUSTICE WARD delivered the opinion of the court. JUSTICE CALVO took no part in the consideration or decision of this case.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE WARD

The plaintiff, Tompkins State Bank (the Bank), filed suit in the circuit court of Knox County to foreclose a mortgage on certain real estate. Donald and Mary Ellen Niles were named defendants as mortgagors. Donald was also named a defendant in his capacity as executor of his mother's estate. Monmouth Grain and Dryer Company (Monmouth) was also joined as a defendant because it claimed a lien on the allegedly mortgaged premises by virtue of a judgment against Donald. Other named defendants were persons who might have an interest in the premises covered by the mortgage if a devise of those premises to Donald from his mother, Mildred L. Niles Peterson, was ineffective.

Monmouth filed a cross-complaint against Donald and Mary Ellen, seeking to foreclose its purported judgment lien on the mortgaged premises. Donald and Mary Ellen moved to dismiss the Bank's complaint and Monmouth's cross-complaint, arguing that they had effectively disclaimed any interest in the mortgaged property. The trial court denied their motion to dismiss and ordered foreclosure and sale, concluding that the defendants' attempt to disclaim their interest in the devised realty was barred by section 2-7(e) of the Probate Act of 1975 and was a fraudulent conveyance within the meaning of section 4 of the Statute of Frauds (Ill. Rev. Stat. 1985, ch. 59, par. 4). The appellate court reversed (160 Ill. App. 3d 226), holding that the disclaimers were not barred by the Probate Act and were not fraudulent conveyances. We granted Monmouth's and the Bank's petitions for leave to appeal (107 Ill. 2d R. 315).

The facts in this case are not in dispute. On August 8, 1977, Mildred L. Niles Peterson (hereafter, testator), as owner of the real estate that is the subject of this litigation, entered into a contract to sell it to her son, Donald Niles, and his wife, Mary Ellen Niles. On April 25, 1983, the Niles executed and delivered to the plaintiff, Tompkins State Bank, an instrument which purported to mortgage the property described in the real estate contract, and four other tracts of land apparently owned by Donald, to secure several outstanding notes. In the mortgage instrument, the Niles assigned all of their interest in the real estate contract to the Bank as security for all obligations due to the Bank. On February 28, 1985, the testator declared Donald and Mary Ellen Niles in breach of the contract for the sale of the real estate, on the ground that they, by purporting to mortgage their interest to the Bank, violated a provision of the contract prohibiting assignments without the consent of the vendor, and thereby forfeited their interest in the contract. The parties do not dispute the validity of this forfeiture and agree that Donald, Mary Ellen and all persons claiming through them lost all interest in the contract at the time of the declaration of forfeiture.

On June 7, 1985, the testator died having made a will naming Donald as her executor and leaving him all of her property. The will further provided that in the event that Donald predeceased the testator, the property would be placed in trust for the benefit of Mary Ellen and the couple's children. The will was admitted to probate on July 25, 1985, and on July 26, 1985, Donald filed a disclaimer with the Knox County circuit court and the recorder of deeds. Mary Ellen filed a disclaimer on March 6, 1986. Meanwhile, on July 30, 1985, defendant Monmouth Grain and Dryer Company obtained a judgment against Donald, which it filed with the Knox County recorder of deeds on October 7, 1985.

On February 10, 1986, the Bank filed suit in the circuit court of Knox County to foreclose its mortgage on two of the four tracts of property described in the mortgage instrument. Donald, Mary Ellen, Monmouth and others who might have an interest in the property were joined as defendants. Monmouth filed a cross-complaint against Donald, Mary Ellen and others, seeking to enforce its purported lien on the real estate. In response, the Niles filed a motion to dismiss the Bank's complaint and Monmouth's cross-complaint insofar as they related to the property described in the real estate contract and subsequently devised to Donald. At the hearing on the motion to dismiss, the Niles argued that their disclaimers terminated any interest they had in this property, that the disclaimers were not barred under section 2-7(e) of the Probate Act and were not fraudulent conveyances within the meaning of the Statute of Frauds (Ill. Rev. Stat. 1985, ch. 59, par. 4). On this appeal the property at issue is that described in the real estate contract and subsequently devised to Donald. The other four tracts which Donald owned and mortgaged are not involved.

Upon the trial court's denial of their motion to dismiss, the Niles stood on their motion and refused to plead over. The court declared them in default and, after a hearing, entered a decree: (1) establishing the Bank's mortgage as a first lien on the property in the amount of $365,354.04; (2) establishing Monmouth's judgment as a second lien in the amount of $10,044.63; and (3) ordering foreclosure and sale. Donald, in his individual capacity and as executor, Mary Ellen and others with an interest in the property filed appeals to the appellate court.

The appellate court, with one Judge Dissenting, reversed. (160 Ill. App. 3d 226.) The court first held that section 2-7(e) of the Probate Act did not bar Donald and Mary Ellen from disclaiming their interest in the property. Relying on In re Estate of Aylsworth (1966), 74 Ill. App. 2d 375, the court stated that the legislature enacted section 2-7(e) to facilitate transfers and other transactions with regard to devised property in a reasonable time following a testator's death when a devisee may exercise his right to disclaim, and it was not for the benefit of or to assure fairness to creditors of the person disclaiming. The court therefore concluded that section 2-7(e) barred disclaimer only when the devisee conveyed, encumbered or otherwise transferred the interest being disclaimed after it had passed by devise, inheritance or otherwise to the person or entity attempting to disclaim. Because the Niles had encumbered the property before it passed by devise to them, the court concluded that their disclaimers were not barred under section 2-7(e). The appellate court also concluded that the disclaimers were not fraudulent conveyances within the meaning of the fraudulent conveyance statute (Ill. Rev. Stat. 1985, ch. 59, par. 4). Because the court decided for the defendants on the above-stated grounds, it did not address their argument that, contrary to the Bank's contention, the after-acquired-title doctrine did not apply under the facts of this case. This court granted the Bank's and Monmouth's petitions for leave to appeal (107 Ill. 2d R. 315.)

The questions presented are: (1) whether the disclaimers executed by the defendants, Donald and Mary Ellen Niles, are barred by the disclaimer provisions of section 2-7(e) of the Probate Act of 1975 (Ill. Rev. Stat. 1985, ch. 110 1/2, par. 2-7(e)) and (2) whether the disclaimers were fraudulent conveyances within the purview of the Statute of Frauds (Ill. Rev. Stat. 1985, ch. 59, par. 4).

We first consider whether section 2-7(e) of the Probate Act (Ill. Rev. Stat. 1985, ch. 110 1/2, par. 2-7(e)) bars Donald from disclaiming his interest in the devised property. That statute provides:

"Waiver and Bar. The right to disclaim property or a part thereof or an interest therein shall be barred by (1) a judicial sale of the property, part or interest before the disclaimer is effected; (2) an assignment, conveyance, encumbrance, pledge, sale or other transfer of the property, part or interest, or a contract therefor, by the disclaimant or his representative; (3) a written waiver of the right to disclaim; or (4) an acceptance of the property, part or interest by the disclaimant or his representative." (Ill. Rev. Stat. 1985, ch. 110 1/2, par. 2-7(e).)

The Bank argues that the mortgage, containing covenants of title, which Donald and Mary Ellen Niles executed in the Bank's favor in April 1983, regarding the four tracts and the property contracted for sale, constitutes an "encumbrance" on the devised real estate within the meaning of section 2 -- 7(e) of the Probate Act and bars Donald from disclaiming his interest in the devised property.

The Bank concedes that Donald did not have legal title to the property at the time he executed the mortgage and that Donald's interest in the property, and the interests of all claiming through him, were forfeited by the vendor when Donald breached the contract. The Bank argues, however, that title to the property vested in Donald as the devisee, upon the testator's death, and that its mortgage lien ...


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