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Harris Bank v. Weber

September 24, 1998

HARRIS BANK ST. CHARLES, PLAINTIFF,
v.
RAY WEBER, DEFENDANT AND COUNTER-DEFENDANT-APPELLEE AND CROSS-APPELLANT (BRUCE DENT; MIDWEST WEBCO, INC.; THEODORE R. RANNEY, INDIV.; MARGARET A. RANNEY; GALLAND HENNING NOPAK, INC.; UNKNOWN OWNERS; AND NON-RECORD CLAIMANTS, DEFENDANTS; THEODORE R. RANNEY, AS TRUSTEE OF THE THEODORE R. RANNEY TRUST DATED JANUARY 4, 1979, DEFENDANT AND COUNTERPLAINTIFF-APPELLANT AND CROSS-APPELLEE).



The opinion of the court was delivered by: Justice Bowman

Appeal from the Circuit Court of Kane County

No. 93--CH--0332

Honorable Melvin E. Dunn, Judge, Presiding.

On February 14, 1994, the trial court entered an agreed judgment of foreclosure against three parcels of property at 33 W 749 Reed Road in Geneva, Illinois. The proceeds from the judicial sale of the property were insufficient to satisfy the claim of defendant-counterplaintiff, Theodore R. Ranney, as trustee of the Theodore R. Ranney Trust (Trust), the holder of a junior mortgage given by defendants Ray Weber and Bruce Dent. On September 20, 1994, the Trust obtained a deficiency judgment of $320,708.24 against Weber and Dent. In October 1996, Weber filed a motion to strike the sheriff's sale of his home to satisfy this judgment, asserting that, on April 13, 1994, he had transferred the home into tenancy by the entirety with his wife.

The Trust appeals the trial court's April 14, 1997, order striking the sheriff's sale. Weber has filed a cross-appeal challenging the trial court's order granting the Trust's motion to strike his answer to the Trust's request for admission of facts and finding all facts contained in the request to be deemed admitted. We reverse the order striking the sheriff's sale but affirm the order striking Weber's answer to the request for admission of facts.

The facts relevant to this appeal are as follows. In 1989, defendants Margaret and Theodore Ranney loaned Ray Weber and Bruce Dent $333,591.05 in exchange for a junior mortgage on the Reed Road property. Around the same time, they loaned defendant Midwest Webco, Inc., of which Weber and Dent were principal shareholders, $200,000 in exchange for a note for that amount and a security interest in the corporation's assets. Weber and Dent also gave the Ranneys a security interest in these assets to secure their junior mortgage. In November 1990, the Ranneys transferred their interest in the mortgage on the Reed Road property to the Theodore R. Ranney Trust and transferred their interest in the $200,000 note to the Margaret A. Ranney Trust.

On August 6, 1993, Midwest Webco, Inc., assigned its assets for the benefit of its creditors to Jerome Frett, who was to liquidate the assets. On October 14, 1993, an auction was held at which these assets were sold. According to Weber, he did not become aware of the amount or distribution of the proceeds until June 1994.

On September 16, 1993, plaintiff Harris Bank, the holder of the senior mortgage on the Reed Road property, filed a complaint for foreclosure of its mortgage. The trial court gave the Trust leave to intervene in this action as a defendant and to file a counterclaim against the defendants (other than the Ranneys) for foreclosure of its junior mortgage.

On February 14, 1994, the trial court entered an agreed judgment of foreclosure and sale of the Reed Road property. The court found that Harris Bank's mortgage lien was superior to all others and that the Trust's mortgage lien was second in priority. It ordered the property to be sold and the proceeds of the sheriff's sale to be distributed according to this priority.

On March 19, 1994, Weber married Jane Kaufmann. At the time, title to his home in Batavia, Illinois, was in his name only. On April 13, 1994, he transferred title in his home to himself and Kaufmann as tenants by the entirety.

On May 27, 1994, Harris made a successful bid for the Reed Road property at the sheriff's sale. Its bid was equal to the amounts owed to it plus the sheriff's fees and commission. Consequently, there were no funds from the sale to satisfy the Trust's lien on the property. On June 3, 1994, the trial court entered an order approving the sale and distribution of the proceeds. On that same day, the Trust filed a motion for a deficiency judgment against Weber and Dent.

On September 20, 1994, the trial court entered a deficiency judgment in favor of the Trust and against Weber and Dent in the amount of $320,708.24. Thereafter, the Trust filed a memorandum of this judgment in Kane County, and a sheriff's sale of Weber's home was scheduled.

A few days before the sheriff's sale was to take place, Weber filed a motion to strike the sale. In his motion, he claimed that his home could not be sold to pay the Trust's deficiency judgment because the home had been transferred into tenancy by the entirety in April 1994. In support of his motion, Weber relied on the decision in E.J. McKernan Co. v. Gregory, 268 Ill. App. 3d 383 (2d Dist. 1994), in which this court held that a judgment debtor's transfer of property into tenancy by the entirety in order to shield that property from the judgment creditor cannot violate the Uniform Fraudulent Transfer Act (740 ILCS 160/1 et seq. (West 1992)).

The Trust responded that the case should be governed by In re Marriage of Del Giudice, 287 Ill. App. 3d 215 (1st Dist. 1997), in which, contrary to E.J. McKernan, the first district held that a judgment debtor who attempts to avoid a judgment creditor by transferring property into tenancy by the entirety after a judgment has been entered may violate the Uniform Fraudulent Transfer Act. According to the Trust, Weber's transfer of the property was fraudulent under the Uniform Fraudulent Transfer Act because it occurred after the judgment of foreclosure was entered; he knew that the proceeds from the sheriff's sale and auction of the corporate assets would be insufficient to satisfy the Trust's claim; he received no consideration for the transfer to his wife; the transfer was of substantially all of his assets; and he continued to maintain control over the property after the transfer.

After a hearing on March 14, 1997, the trial court granted Weber's motion. It found that it was required to follow E.J. McKernan Co. v. Gregory, 268 Ill. App. 3d 383 (1994), because this was the controlling authority in its district. Based on E.J. McKernan, the court struck the sheriff's sale.

The Trust raises two contentions on appeal: (1) the trial court erred in holding that Weber's transfer of title to his home to tenancy by the entirety did not violate the Uniform Fraudulent Transfer Act, and (2) the trial court was required to follow Del Giudice, the most recent appellate court decision, rather than E.J. McKernan, the decision of the appellate court in the district where it was located.

The trial court correctly found that it was bound to follow our decision in E.J. McKernan. See Aleckson v. Village of Round Lake Park, 176 Ill. 2d 82, 92 (1997). Effective August 22, 1997, however, the tenancy by the entirety provision contained in the Code of Civil Procedure was amended. See 735 ILCS Ann. 5/12--112 (Smith-Hurd 1998). The parties have failed to discuss the effect of this amendment in their briefs. However, we find it necessary sua sponte to address this issue, which we find dispositive. See Barnett v. Zion Park District, 171 Ill. 2d 378, 389 (1996); Hux v. Raben, 38 Ill. 2d 223, 224 (1967). Based on this amendment, we hold that E.J. McKernan and Del Giudice are no longer valid, we reverse the judgment of the trial court, and we remand the cause for further proceedings consistent with the amended language of the statute.

We begin our Discussion of the amendment with a description of its background. Under the Joint Tenancy Act (765 ILCS 1005/0.01 et seq. (West 1992)) a husband and wife may hold property as tenants by the entirety (765 ILCS 1005/1c (West 1992)). Prior to the 1997 amendment, the Code of Civil Procedure provided, without qualification, that, when a husband and wife hold property as tenants by the entirety, the property may not be attached by a creditor of one spouse: "Any real property held in tenancy by the entirety shall not be liable to be sold upon judgment entered on or after October 1, 1990 against only one of the tenants." 735 ILCS 5/12--112 (West 1992).

Although the tenancy by the entirety statutes permit married individuals to protect their property from creditors of one spouse by transferring it into tenancy by the entirety, the Uniform Fraudulent Transfer Act prohibits transfers with the intent to defraud a creditor: "(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the ...


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