nonpayment of real estate taxes is deemed to be waste, NASL will be entitled to judgment as a matter of law.
Relatively few courts have had occasion to consider whether waste includes nonpayment of real estate taxes by the mortgagor or life tenant. But Illinois courts have discussed waste in broad terms as occurring "when someone who lawfully has possession of real estate . . . neglects it so that the interest of persons having a subsequent right to possession is prejudiced in some way or there is a diminution in the value of the land being wasted." Pasulka v. Koob, 170 Ill. App. 3d 191, 524 N.E.2d 1227, 1239, 121 Ill. Dec. 179 (3d Dist.), appeal denied, 122 Ill. 2d 579, 530 N.E.2d 250 (1988). The Illinois Appellate Court also has rejected the notion that the common-law definition of waste was limited to physical deterioration of property, referring to that notion as "a historical observation rather than a rule of law." Hausmann v. Hausmann, 231 Ill. App. 3d 361, 596 N.E.2d 216, 220, 172 Ill. Dec. 937 (5th Dist. 1992). In Hausmann, the court held that a life tenant's failure to pay real estate taxes on the life estate could give rise to a cause of action for waste, citing the above-quoted language in Pasulka giving a broad construction to the common-law meaning of waste. Id., 596 N.E.2d at 219-220.
Citing Hausmann and Pasulka, Judge Kocoras recently held, in a decision affirmed by the Seventh Circuit without a published opinion, that Illinois' common-law definition of waste included a mortgagor's failure to pay real estate taxes. Capitol Bankers Life Ins. Co. v. Amalgamated Trust & Sav. Bank, 1993 U.S. Dist. LEXIS 6032, No. 92 C 4480, 1993 WL 594103, at *5 (N.D. Ill. May 6, 1993), aff'd, 16 F.3d 1225 (7th Cir. 1994).
This broad conception of waste appears to be part of an emerging legal trend with roots dating to the 19th Century. See Travelers Ins. Co. v. 633 Third Assocs., 14 F.3d 114, 123 (2d Cir. 1994) (applying New York law to hold that failure to pay real estate taxes constitutes waste, and citing, among other authorities, Hausmann, Caritol Bankers and Pike v. Wassell, 94 U.S. 711, 715, 24 L. Ed. 307 (1876)).
NASL urges this court to follow Capitol Bankers, and we see no reason not to do so, considering the Illinois courts' apparent unwillingness to adopt a narrow definition of waste. Hausmann, 596 N.E.2d at 220; Pasulka, 524 N.E.2d at 1239. The facts of Capitol Bankers are strongly on point, as the language in the relevant contractual provision in that case virtually mirrors the language in the Agreement.
II. The Parties Did Not Contract for a Narrower Definition of Waste.
Equest argues in the alternative that if the Illinois common-law definition of waste does include nonpayment of real estate taxes, the parties in this case contracted for a narrower definition of waste that did not include nonpayment of taxes.
Equest points to language in the mortgage requiring the mortgagor to "keep the Premises in good condition and repair, without waste, and free from mechanics' liens or claims for lien not expressly subordinated to the lien hereof . . . ." Complaint, Exh. 2 at P 1. Equest contends that because this paragraph places the conjunction "and" between the word "waste" and the word "liens," the mortgage envisioned that waste would be separate from liens and generally would be restricted to physical deterioration only.
Equest also points to two other paragraphs in the mortgage. One discusses taxes and the mortgagor's obligation not to create superior liens or encumbrances, but does not use the word "waste." Id. at P 26.1 The other includes the mortgagor's promise not to commit or permit waste and to keep the property free from "other liens or claims for liens not expressly subordinated to the lien hereof." Id. at P 26.4. This latter paragraph also includes the mortgagor's promise not to "do nor permit to be done anything to the Mortgaged Premises that may impair the value thereof." Id. Equest maintains that these paragraphs show that the contract treats "waste" and "liens" as discrete concepts. At minimum, Equest argues, the contract is ambiguous on the scope of "waste," and the ambiguity entitles Equest to a trial on the factual issue of the parties' intent.
The court disagrees with Equest's argument that the contract expressly limited waste to physical deterioration. Equest's contention that P 26.1 of the mortgage discusses taxes and liens "totally outside any concept of 'waste,'" Memorandum in Support of Response to Motion for Summary Judgment ("Response"), at 10, implies that the parties would have included a reference to waste in that paragraph had they intended unpaid taxes to be encompassed within the definition of waste. But P 26.4 of the mortgage does include a reference to waste in the same paragraph as the requirement that the mortgagor not do anything to impair the value of the mortgaged property. Again, the Illinois courts have defined waste as including acts resulting in "a diminution in the value of the land being wasted." Pasulka, 524 N.E.2d at 1239. As Judge Kocoras concluded after interpreting a mortgage provision identical to P 26.4, that paragraph indicates that "to the extent the parties have defined waste, the loan documents are consistent with the Illinois common law definition." Capitol Bankers, 1993 U.S. Dist. LEXIS 6032, *15, 1993 WL 594103, at *5 Because that definition includes tax liens, the mortgage contract's use of the conjunction "and" between "waste" and "liens" does not in itself provide a sufficient basis to construe the contract in derogation of Illinois' common-law definition of waste. See id. Nor does it render the contract ambiguous. Where the parties simply disagree as to the meaning of a contract term, the court will give the term a construction that comports with the common law rather than derogates it. Id.
III. Equest's Argument that NASL Effectively Waived its Right to Recover for Nonpayment of Taxes Presents No Genuine Factual Dispute.
Equest also argues that a disputed issue of material fact exists as to whether the parties orally modified the contract so as to release Equest from its liability for waste as it concerns the nonpayment of real estate taxes. The parties do not dispute that NASL agreed to relieve the Trust of its obligation to make monthly deposits into a tax escrow account.
NASL disputes Equest's contention that implicit in this verbal accord was an acknowledgement by the parties "that the taxes would not be paid when due," such that "even if failure to pay taxes is 'waste',' that failure is no longer actionable." Response at 16.
The court will analyze this argument in terms of whether there is a genuine dispute over whether NASL agreed or acquiesced in the notion that the Trust did not have to pay the real estate taxes when they became due. A dispute is "genuine" in the summary judgment context only when there is sufficient evidence upon which a reasonable jury could return a verdict in favor of the nonmovant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). The record contains ample evidence from Equest itself that the parties did not agree or acknowledge that the waiving of the monthly tax escrow deposits contemplated the release of the Trust's obligation under the mortgage to pay the real estate taxes when due. Rather, the agreement allowed the monthly deposit requirement to be reinstated if taxes went unpaid, as defendant Garafolo, one of Equest's general partners, testified in his deposition:
Q. Do you know how you requested that the letter include in the commitment letter a provision allowing a waiver of the tax impound provisions of the mortgage?
A. I believe initially it was verbally to Baird & Warner, the mortgage banker.