Bankers Trust Co. v. Chicago Title & Trust Co.

• Decision Date: 28 October 1980
• Docket Number: Nos. 79-1816,80-700,s. 79-1816
• Citation: 89 Ill.App.3d 1014,412 N.E.2d 660,45 Ill.Dec. 309
• Court: United States Appellate Court of Illinois
• Parties: , 45 Ill.Dec. 309 BANKERS TRUST COMPANY and Reo Resources, Inc., Plaintiffs-Appellants, v. CHICAGO TITLE & TRUST COMPANY et al., Defendants, v. Leonard HARTENFELD, Intervenor-Appellee.

Page 660

412 N.E.2d 660

89 Ill.App.3d 1014, 45 Ill.Dec. 309

BANKERS TRUST COMPANY and Reo Resources, Inc., Plaintiffs-Appellants, v. CHICAGO TITLE & TRUST COMPANY et al., Defendants, v. Leonard HARTENFELD, Intervenor-Appellee.

Nos. 79-1816, 80-700.

Appellate Court of Illinois, First District, Second Division.

Oct. 28, 1980.

Douglas F. Fuson and Kathryn E. Korn of Sidley & Austin, Chicago, for plaintiffs-appellants.

Hinshaw, Culbertson, Moelmann, Hoban & Fuller, Chicago (D. Kendall Griffith, Dennis J. Horan, George W. Spellmire, Chicago and Leonard Hartenfeld, of counsel), for intervenor-appellee.

HARTMAN, Justice:

Leonard Hartenfeld (hereinafter "Hartenfeld" or "intervenor"), over objection, was permitted to intervene in a mortgage foreclosure proceeding alleging that he was entitled to an equitable lien on the subject land or its proceeds in payment of attorney's fees incurred by his client, Lee Romano. In a bench trial the court recognized the asserted equitable lien in the amount of $150,000 and entered judgment thereon against Bankers Trust Company, the mortgagee and also the purchaser at the foreclosure sale, and its subsidiary, Reo Resources, Inc., to which the land was transferred after the purchase (hereinafter collectively "Bankers"). Bankers assigns error in the allowance of intervention by Hartenfeld and in the imposition of the equitable lien. For the reasons set forth below, we reverse.

Schaumburg Planet Project Corporation (hereinafter "Planet") was the beneficial owner of sixty-six acres of unimproved land located in Schaumburg, Illinois held in trust, and Chicago Title and Trust Company (hereinafter "CT& T") as trustee was the legal owner. In October of 1973, Planet borrowed $7,622,956.71 from Bankers, securing the loan by a first mortgage on that land. The loan was also personally guaranteed by Romano, the president and sole shareholder of Planet, and by his wife, Barbara, who owned no interest in Planet. In October of 1975, Planet defaulted on the loan and Bankers instituted foreclosure proceedings against CT&T and unknown owners. Romano was neither a named defendant nor made a party to this action.

On December 4, 1976, Hartenfeld filed his petition to intervene asserting a $150,000 equitable lien on the land for the following reasons. On February 12, 1973, Hartenfeld and Romano entered into a written agreement drafted by Hartenfeld, attached to the petition, whereby Hartenfeld was to receive $200,000 for performing legal services for Romano. The contract provided, inter alia, that "whenever during 1973, you (Romano) successfully accomplish a new land loan on any of your parcels of real estate, I will be paid immediately all fees then owed me under this letter agreement. In any event, however, all fees owed to me under this letter agreement shall be paid to me by no later then the end of 1973." Planet was not a party to this letter agreement and did not enter into any other agreement with Hartenfeld. The letter agreement was never recorded with the Recorder of Deeds. The fee arrangement set forth in the February 12, 1973 letter was orally extended to cover services rendered by Hartenfeld to Romano in 1974 except that payment for fees would be from proceeds of mortgage financing executed in 1974. The petition concludes that: the loan Planet received from Bankers in 1973 was in fact a loan to Romano, covered by the above agreement; Hartenfeld was not paid from this loan, which entitled him to an equitable lien on the loan proceeds; the equitable lien in the proceeds can be traced to the subject land; and the land value was far in excess of Bankers' approximately 6.7 million dollar superior lien, establishing a residual fund from which to satisfy his equitable lien. Intervenor conceded his subordinate position to Bankers' lien.

On February 8, 1977, after notice to all interested parties, the subject land was sold at a sheriff's sale to Bankers, the sole bidder, for $7,662,956.71, the principal amount of the loan. On February 14, 1977, the trial court granted Hartenfeld's petition to intervene over Banker's objections. On March 3, 1977 the trial court "approved, ratified and confirmed" the sheriff's report of the sale, specifically finding that: the sale "in every respect proceeded in due form of law"; Bankers duly purchased the land for $7,622,956.71; Bankers was entitled to a deficiency judgment of $1,146,647.76 for interest and attorney's fees; the sheriff was to immediately execute and to deliver to Bankers a deed, which would entitle it to immediate possession; and the court retained jurisdiction of the subject matter and parties for the enforcement of the order and all matters in connection therewith. CT&T and Planet waived their statutory right to redemption.

During the hearing on intervenor's petition on June 7, 1979, Hartenfeld testified that Romano had interests in 100 to 150 pieces of property. Romano, not Planet, retained him as counsel. Other than the written agreement of February 12, 1973, he had never discussed taking a secured position with respect to any property. When Romano failed to pay him the fees, he brought a separate action against Romano resulting in a consent judgment of $150,000 entered on June 17, 1977. He never attempted execution of this judgment against Romano. Planet was not a party to this action. Over Bankers' objection that an inadequate foundation had been laid, intervenor testified that the fair market value of the sixty-six acres was far in excess of the 7.6 million dollars paid at the 1977 sheriff's sale. On cross-examination he admitted that the planned unit development zoning restrictions applying to the subject property had expired. He was unaware of what use could be established on the property under the then current zoning, nor was he aware of recent sales of comparable property or any other facts tending to establish his expertise as an appraiser of property values. Bankers' motion to strike intervenor's opinion as to property value was denied as was its subsequent offer to prove through witnesses that the sale price reflected the fair market value of the property at the time of sale.

On June 14, 1979, the trial court declared the existence of a $150,000 equitable lien on the subject property, and against the proceeds of any sale thereof, "subservient only to the amount bid in by Bankers Trust (Reo Resources) at the Sheriff's sale on February 8, 1977 in the amount of $7,622,956.71." On February 13, 1980, the parties stipulated to the court that the land had recently been sold to a third party for 10.2 million dollars, the sale to be consumated on February 14, 1980. The order notes that the parties also stipulated that intervenor's claimed lien would be superior to the claimed developmental expenses of the subject property, sales commissions, costs of funds, or any other expenses in excess of $7,622,956.71, staying the enforcement of such order pending an appeal without bond. Judgment in the amount of $150,000 in favor of Hartenfeld was then entered. From the foregoing, this appeal proceeds.

Bankers first contends that an equitable lien on the subject property or proceeds from its sale could not exist because the employment agreement between Hartenfeld and Romano failed to set forth the intent to create a security interest in the proceeds of Bankers' loan to Romano. Further, and in any event, Bankers claims if the agreement could be given such a construction, the loan was not made to Romano but to Planet; therefore the putative lien provision was inapplicable. Intervenor responds that the agreement demonstrated the intent to create a security interest and that the loan to Planet must be construed as a loan to Romano under a "reverse" piercing of the corporate veil.

An equitable lien can arise under quite different circumstances. For example, if an express contract sufficiently manifests the intention that some particular property or fund is to be security for a debt, then an equitable lien may be imposed upon the property or fund so identified. Under other circumstances an equitable lien may be imposed upon particular property or fund as a result of general equitable considerations in the absence of a contractually created security agreement. (Watson v. Hobson (1948), 401 Ill. 191, 201-02, 81 N.E.2d 885; Oppenheimer v. Szulerecki (1921), 297 Ill. 81, 87-88, 130 N.E. 325; 1 Bogert, Trusts and Trustees Sec. 32 (2d ed. 1965); 4 Pomeroy's Equity Jurisprudence Sec. 1239 (5th ed. 1941); Dobbs, Remedies Sec. 4-3 (2d ed. 1976).) Bankers argues that the written contract of February 12, 1973 did not create a security interest in the property but instead was merely an agreement to pay a debt out of proceeds from an anticipated fund, citing Hibernian Banking Association v. Davis (1920), 295 Ill. 537, 129 N.E. 540. There the court held that the contractual intent to create a security interest in a particular piece of property must affirmatively appear in the instrument before an equitable lien will arise. Under the facts of that case, a promise to pay a debt from a specific source did not show the intention to create a security interest. Similarly worded contracts have been given the same interpretation. See, e. g., City of Chicago v. Carpenter (1968), 95 Ill.App.2d 81, 238 N.E.2d 70; 59 Am.Jur.2d, Liens § 26, 29.

A close reading of the contract drafted by Hartenfeld indicates no intention within its terms to create a security interest in the proceeds of Bankers' loan to Planet. No ambiguities in that contract language exist which require construction of the language; if there were any, inferences would have to be resolved against intervenor Hartenfeld, an attorney of many years experience and legal advisor in commercial transactions who had full knowledge of the various entities and transactions involved in Romano's affairs. (Weiland Tool & Manufacturing Co. v. Whitney (1969), 44 Ill.2d 105, 116, 251 N.E.2d 242; Pescaglia v. Gianessi (...