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March 20, 1996


Appeal from the Circuit Court of Du Page County. No. 92-ED-35. Honorable Robert K. Kilander, Judge, Presiding.

Rehearing Denied April 29, 1996. Released for Publication April 29, 1996.

Presiding Justice McLAREN delivered the opinion of the court: Geiger an Rathje, JJ., concur.

The opinion of the court was delivered by: Mclaren

PRESIDING JUSTICE McLAREN delivered the opinion of the court:

After a hearing, the trial court granted Burke & Ryan's petition to withdraw attorney fees from a condemnation fund. On appeal the mortgage lien holder, Arthur G. Jaros, Sr., argues that the trial court erred in granting Burke & Ryan's motion to withdraw attorney fees because: (1) the fund doctrine does not apply to the facts of this case; (2) the appellant has a superior lien on the fund; and (3) compelling equities do not outweigh the first-in-time priority lien rule. We agree with the mortgagee and reverse.

The following facts are taken from the record. As memorialized in four separate loan agreements, the mortgagors, Barbara and Bernard Mulder, borrowed $460,000 from the mortgagee, appellant, Arthur Jaros, Sr., for the purchase and improvement of a warehouse located in the Village of Clarendon Hills (Village). The loan agreements were executed between September 25, 1990, and September 19, 1991, and were separately secured through recorded trust deeds. The loan agreements provided that, in the event of default or foreclosure, the Mulders agreed to pay the mortgagee's attorney fees. In May 1990, the Village of Clarendon Hills offered the Mulders $600,000 for the property, to be paid over 10 years in installments at 10% a year, for a total of $897,000. The Mulders rejected the offer and instead listed the property for sale.

By May 1991, the Mulders fell delinquent in their mortgage payments, and by September 20, 1991, the Mulders stopped making mortgage payments. In addition, although Mr. Mulder continued to collect rents from commercial tenants, he stopped paying the general real estate taxes and allowed the liability and casualty insurance to be cancelled for nonpayment of premiums. The mortgagee paid the real estate taxes and insurance premiums at a cost of $47,407.23. On August 22, 1991, the mortgagee sent a letter to the Mulders which stated that they were delinquent on their loans and requested a response. Mr. Mulder assured the mortgagee that he would repay the loans through the proceeds of a condemnation suit. Mr. Mulder asked the mortgagee not to interfere with negotiations with the Village regarding the condemnation of the property. In May 1992 the Mulders refused an offer from the Village of $585,000. Also in May 1992, the Mulders secured a $290,566.13 settlement from a former tenant.

In June 1992, the Village filed suit to condemn the property. At the time, the Mulders owed the mortgagee not more than $520,000 on the promissory notes. The Village named the mortgagee a defendant in the condemnation suit and served the mortgagee with a summons. However, someone deleted the instructions to file an answer contained in the summons. The summons merely instructed the mortgagee to appear. In July, the mortgagee appeared pro se. However, for the next 2 1/2 years, neither counsel for the Village nor counsel for the Mulders served the mortgagee with copies of the pleadings, discovery, notices of motions or orders, or any other documents indicating the status of the condemnation suit.

In August 1992, the Mulders hired Burke & Ryan (Burke) to represent them in the condemnation suit. The Mulders agreed to pay Burke one-third of the condemnation award over $585,000, as a contingency fee. The fee agreement was not recorded. Burke conducted and participated in discovery, motions, and hearings and provided other services relating to the condemnation suit. After July 1992, the mortgagee received no notice regarding the suit until December 13, 1994, when he received a copy of the Mulders' motion to default him. The trial court granted the motion to default the mortgagee, but later vacated the order. In anticipation of a settlement between the Village and the Mulders, the mortgagee's counsel filed a motion to distribute funds pursuant to his interest in the property on December 23, 1994. The mortgagee alleged that, under the terms of the four recorded loan agreements, the Mulders owed him $879,532.35 in principal, interest (calculated at the default rate), real estate taxes, insurance premiums, and default fees.

Subsequently, the Mulders accepted a settlement offer from the Village for $800,000. The mortgagee did not object to the settlement agreement. On January 17, 1995, the trial court entered an agreed judgment order, and the Village placed the $800,000 on deposit with the Du Page County Treasurer's office. Accordingly, title to the property vested in the Village. On February 14, 1995, the mortgagee filed another motion for distribution of funds pursuant to his interest in the condemned property. The Mulders objected to the motion and filed a counterclaim.

On March 2, 1995, Burke petitioned the court for a distribution of $109,704.12 for attorney fees and costs. Although the mortgagee objected to Burke's motion, the trial court granted it under its authority to distribute the just compensation deposited with the county treasurer "among all persons having an interest in the property according to the fair value of their legal or equitable interests." 735 ILCS 5/7-127 (West 1994). The trial court found that the mortgagee "sat on his rights," "took no action," and benefitted from Burke's efforts. Applying the common fund doctrine, the trial court ordered the Du Page County Treasurer to distribute $109,704.12 to Burke for attorney fees and costs. Subsequently, the mortgagee and the Mulders entered into a settlement agreement whereby the Mulders received $40,295.78 and the mortgagee received $650,000. The Mulders, the State Bank of Caledonia (a creditor of the Mulders), and the mortgagee released each other from all prior claims. However, the settlement agreement provided that the mortgagee reserved the right to appeal the trial court's order allowing Burke to withdraw attorney fees and costs from the condemnation award. The mortgagee filed this timely appeal.

Initially, we address Burke's claim that the mortgagee waived his right to appeal. Burke asserts that the mortgagee waived his right to appeal the apportionment of the condemnation award because the mortgagee and the Mulders entered into a settlement and release of claims against each other. We disagree and, after reviewing the language of the settlement agreement, we find Burke's assertions disingenuous at best. The settlement agreement provides:

"[The mortgagee] reserves the right to appeal the award of attorney's fees to Burke & Ryan from the just compensation on deposit with the Du Page County Treasurer; and nothing in this order shall operate to prevent [the mortgagee] from recovering and receiving said attorney fees on appeal."

Because the mortgagee expressly reserved his right to appeal the trial court's order granting Burke's motion to withdraw, we determine that the mortgagee did not waive his right to appeal by ...

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