Wachta v. First Federal Sav. and Loan Ass'n of Waukegan

• Decision Date: 31 December 1981
• Docket Number: No. 81-130,81-130
• Citation: 430 N.E.2d 708,103 Ill.App.3d 174,58 Ill.Dec. 676
• Parties: , 58 Ill.Dec. 676 Fred WACHTA, Harold E. Brown, John Fritsch and Shelby Yastrow, Plaintiffs- Appellees, v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WAUKEGAN, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 708

430 N.E.2d 708

103 Ill.App.3d 174, 58 Ill.Dec. 676

Fred WACHTA, Harold E. Brown, John Fritsch and Shelby Yastrow, Plaintiffs- Appellees, v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WAUKEGAN Defendant-Appellant.

No. 81-130.

Appellate Court of Illinois, Second District.

Dec. 31, 1981.

Diver, Bollman, Grach & Quade, Thomas W. Diver and Robert M. Bollman, Waukegan, Giffin, Winning, Lindner, Newkirk, Cohen & Bodewes, John L. Swartz, Springfield, for defendant-appellant.

Wasneski, Kuseski, Flanigan & Dixon, Waukegan, Richard J. Biondi and Shelby Yastrow, Gen. Counsel, Oak Brooke, for plaintiffs-appellees.

NASH, Justice:

Defendant, First Federal Savings and Loan Association of Waukegan, appeals from a judgment declaring that a proposed assignment by plaintiffs of their beneficial interest in a land trust would not be a conveyance of title which would entitle the lending institution to accelerate the due date of the entire indebtedness of the mortgage loan it made to plaintiffs.

Plaintiffs, Fred Wachta, Harold E. Brown, John Fritsch and Shelby Yastrow, owned certain property, and, on January 20, 1977, they entered into an agreement with the Bank of Waukegan whereby the property would thereafter be held in a land trust with the bank as legal and equitable title holder of the property and plaintiffs as owners of the beneficial interest in the land trust. In April, 1977, plaintiffs made application to defendant for a $350,000 loan to finance construction of an apartment building. The loan commitment drawn by defendant stated that the loan would be made provided plaintiffs waived their right to have a redemption clause inserted in the mortgage; the property securing the loan would be held in trust; and plaintiffs executed an assignment of their beneficial interest in the land trust to defendant. A promissory note was signed in the amount of $350,000, and it was secured by a mortgage on the property executed at the direction of plaintiffs by the Bank of Waukegan. Plaintiffs later also signed a collateral assignment security agreement prepared by defendant as was required by the loan commitment.

Plaintiffs brought this action in the circuit court of Lake County seeking a declaratory judgment and injunctive relief. Plaintiffs alleged that they wished to assign their beneficial interest in the land trust to a third party and that defendant had informed plaintiffs that if such assignment was executed it would exercise its option to accelerate the balance due on the note and require immediate, full payment thereon. Plaintiffs sought a declaration that the proposed assignment was not within the scope of the clause in the mortgage which provided:

"(A)t the option of the holders of the note * * * all unpaid indebtedness secured by this mortgage shall * * * become due and payable immediately upon conveyance by the Mortgagor of title, or execution by the Mortgagor of agreement to convey title, to all or any portion of the premises."

Plaintiffs further prayed that defendant be enjoined from declaring the balance due on the note immediately payable.

Defendant denied the material allegations of plaintiffs' complaint and interposed as an affirmative defense the pertinent provisions of the collateral assignment executed by plaintiffs, which provided:

"(The assignors) to secure their indebtedness * * * and in consideration of the extension of credit * * * assign to LENDER all of their right, title and beneficial interest in and to (the land trust created January 20, 1977) subject to the following terms and conditions:

2. Unless otherwise indicated * * * the sole power of direction under the Trust shall be held by the LENDER * * *.

3. Except as otherwise provided in this assignment, ASSIGNORS shall have retained their right to manage the trust property and the right to retain the rents from that property.

5. The occurrence of any one of the following shall constitute an event of default * * * (e) the ASSIGNORS' failing to perform or observe any covenant, warranty or agreement herein * * * (g) the LENDER feeling insecure for any reason whatsoever."

Defendant maintained the proposed assignment would violate this collateral agreement because it had been granted the sole power of direction over the trust and once plaintiffs executed this document they owned nothing which was capable of being assigned to a third party.

Following a hearing the trial court entered judgment declaring that the assignment as proposed by plaintiffs would not be a conveyance of title within the contemplation of the due-on-conveyance clause in the mortgage. Plaintiffs' request for injunctive relief was denied on grounds that plaintiffs had not, as yet, provided defendant with sufficient documentation of the financial status of the proposed assignee and defendant had a right to receive such information. The trial court found there was no reason to delay enforcement or appeal of its order and defendant thereafter filed its timely notice of appeal. No cross-appeal has been brought from that portion of the court's order denying injunctive relief and it will not be addressed further. ¹

We consider first defendant's contention that plaintiffs' proposed assignment of their beneficial interest in the land trust is precluded by the collateral agreement they executed. Defendant's argument is two-fold: (1) the collateral agreement signed by plaintiffs assigned the entire beneficial interest in the land trust to defendant as security for the loan and therefore plaintiffs now own nothing capable of assignment; and (2) defendant was given the sole power of direction over the trust.

An Illinois land trust is an arrangement under which, pursuant to statute (Ill.Rev.Stat.1979, ch. 29, par. 8.31), legal and equitable title to real property is held by a trustee and the interest of the beneficiary is personal property. (First National Bank of Barrington v. Oldenburg (2d Dist. 1981), 101 Ill.App.3d 283, 427 N.E.2d 1312.) The owner of the beneficial interest in a land trust is accorded four basic powers: (1) to possess, manage and physically control the real estate; (2) to receive all income generated by the property; (3) to direct the trustee in dealing with title to the real estate; and (4) to receive the proceeds of any sale of the property made pursuant to the power of direction. (Dorman v. Central National Bank in Chicago (1981), 97 Ill.App.3d 429, 432, 52 Ill.Dec. 810, 422 N.E.2d 1019, 1021-22; In re Application of County Treasurer of DuPage County (1974), 16 Ill.App.3d 385, 390, 306 N.E.2d 743, 748.) The owner of the beneficial interest also is empowered to transfer all or any number of the incidents of his beneficial ownership and may do so by a general assignment of the beneficial interest, excepting therefrom that which he seeks to retain. Dorman v. Central National Bank in Chicago (1981), 97 Ill.App.3d 429, 433, 52 Ill.Dec. 810, 422 N.E.2d 1019, 1022; Rudolph v. Gersten (1968), 100 Ill.App.2d 253, 264, 241 N.E.2d 600, 605; see also Schwinn v. Northern Trust Co. (1966), 75 Ill.App.2d 88, 220 N.E.2d 867, leave to appeal denied.

The collateral agreement by which plaintiffs assigned their beneficial interest to defendant was prepared by it and specifically excepted from the assignment certain incidents of beneficial ownership which plaintiffs retained: the right to manage the property and to receive the income it would produce. Defendant's assent to the retention of these rights by plaintiffs is consistent with its apparent belief that the additional security for the loan it made to plaintiffs would be provided by the assignment to it of the power to direct conveyance of legal title to the property by the trustee and the further right to receive the proceeds of any such sale in satisfaction of plaintiffs' outstanding indebtedness to it. It is apparent that plaintiffs retained some incidents of the beneficial interest in the land trust which could be assigned to a third party.

Nor does the fact plaintiffs assigned the power of direction over the trustee aid defendant. The power of direction held by defendant is the right to order the trustee to convey or otherwise deal with legal title to the property, the land trust res, but the underlying land trust arrangement is not disturbed by a change in the ownership of the power of direction. Plaintiffs retained a portion of their beneficial interest when they assigned their power of direction to defendant, and defendant did not thereby acquire a right to control the proposed assignments of such interest by plaintiffs. See In re Application of County Treasurer of DuPage County (1974), 16 Ill.App.3d 385, 306 N.E.2d 743; Robinson v. Chicago National Bank (1961), 32 Ill.App.2d 55, 176 N.E.2d 659; Kenoe, Land Trusts §§ 2.18, 2.19, at 2-27, 2-28 (4th ed. 1981).

We conclude the trial judge correctly determined that the collateral assignment security agreement did not bar a further assignment of the incidents of beneficial ownership specifically retained by plaintiffs in that document.

We now turn to defendant's principal contention that the trial court erred in determining that the due-on-conveyance clause of the mortgage would not apply to accelerate payment on assignment of the beneficial interest in the trust retained by plaintiffs.

The leading case considering due-on-conveyance clauses in Illinois is Baker v. Loves Park Savings & Loan Association (1975), 61 Ill.2d 119, 121, 333 N.E.2d 1, 2, where the mortgage gave the mortgagee certain rights in the event of a "sale, assignment or transfer of any right, title or interest in and to (the) property or any portion thereof" by the property-owner mortgagor. In Baker the mortgagor had entered into a contract for the sale of the subject property which would require him to convey legal title. The supreme court stated that while such clauses are restraints upon the free alienation of property they will be upheld as they are reasonable. The cases...