1550 MP Road LLC v. Teamsters Local Union No. 700 , 2019 IL 123046 ( 2019 )

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1550 MP Road LLC v. Teamsters Local Union No. 700, 2019 IL 123046Caption in Supreme 1550 MP ROAD LLC, Appellee, v. TEAMSTERS LOCAL UNION
Court: NO. 700, Appellant.
Docket No. 123046
Filed March 21, 2019
Decision Under Appeal from the Appellate Court for the First District; heard in that
Review court on appeal from the Circuit Court of Cook County, the Hon.
Raymond W. Mitchell, Judge, presiding.
Judgment Judgments reversed.
Cause remanded with directions.
Counsel on Richard J. Prendergast, Michael T. Layden, Deirdre A. Close, Brian
Appeal C. Prendergast, and Collin M. Bruck, of Richard J. Prendergast, Ltd.,
and Sherrie E. Voyles and Brandon M. Anderson, of Jacobs, Burns,
Orlove & Hernandez, both of Chicago, for appellant.
Richard K. Hellerman, of Law Office of Richard K. Hellerman P.C.,
of Chicago, for appellee.
Justices JUSTICE BURKE delivered the judgment of the court, with opinion.
Chief Justice Karmeier and Justices Thomas, Kilbride, Garman, Theis,
and Neville concurred in the judgment and opinion.
OPINION
¶1 The Property of Unincorporated Associations Act (Act) (765 ILCS 115/2 (West 2010))
requires a labor union to notify its members and obtain their approval prior to entering into an
agreement to lease or purchase real estate. At issue in this case is whether a union’s failure to
follow these requirements rendered a real estate agreement executed by its representative
unenforceable. Applying the analysis set forth in K. Miller Construction Co. v. McGinnis, 238
Ill. 2d 284 (2010), the circuit court of Cook County concluded that the agreement is enforceable
on the grounds that the Act is silent as to the consequences of noncompliance. The appellate
court affirmed. 2017 IL App (1st) 153300. This court allowed defendant’s petition for leave to
appeal. Ill. S. Ct. R. 315(a) (eff. Nov. 1, 2017). For the reasons that follow, we reverse that part
of the lower courts’ judgments pertaining to the enforceability of the agreement and remand
the cause to the circuit court with directions.
¶2 BACKGROUND
¶3 At the time of these events, Teamsters Local Union No. 726 (Local 726) was a voluntary
unincorporated association chartered by, and a local affiliate of, the International Brotherhood
of Teamsters. In 2009, Local 726 represented approximately 4500 members in the state of
Illinois. On May 2, 2008, Thomas Clair, the secretary-treasurer of Local 726, signed and
executed a lease and purchase agreement (LPA) on behalf of the union with plaintiff, 1550 MP
Road LLC. The LPA was prepared by plaintiff’s attorney and signed by two individuals—
Clair and Matthew Friedman, one of plaintiff’s managers.
¶4 The LPA obligated Local 726 to occupy and pay rent on commercial property at 1550
South Mount Prospect Road in Des Plaines, Illinois, for 15 years. The monthly base rent was
$12,549 per month in the first year of the lease, gradually increasing to $16,559 per month in
year 15 of the lease. In addition to the base rent, Local 726 was obligated to pay plaintiff an
amount equal to the operating expenses incurred by plaintiff and the real estate taxes for each
calendar year. The LPA functioned as a “lease” agreement only for the first five years. At the
end of the fifth year, Local 726 was obligated to purchase the property for the amount of
$2,145,371. If Local 726 failed to purchase the property within five years, it was required to
pay plaintiff an amount equal to 200% of the base rent for the remainder of the lease term
(double-rent penalty). This provision would require Local 726 to pay plaintiff approximately
$3,583,000 over 10 years without obtaining title to the property.
¶5 The LPA also contained a liquidated-damages provision in the event of tenant default.
Under this provision, if Local 726 defaulted by failing to pay rent, it would be liable to plaintiff
in the amount of the total rent owed for the remainder of the lease term. The liquidated-
damages provision did not require an offset for the fair-market rental value of the property. In
other words, if the fair-market rental value exceeded the amount owed under the liquidated-
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damages provision, plaintiff was not required to apply the excess value toward the amount
owed by Local 726.
¶6 Pursuant to the LPA, Local 726 took possession of the property in January 2009 and paid
rent until August 2009. At that time, Local 726 went into emergency trusteeship as a result of
an investigation into its finances by the International Brotherhood of Teamsters (International).
From September to November 2009, Local 726’s trustees attempted to reach a new lease
agreement with plaintiff but were unsuccessful. Local 726’s last rental payment was made to
plaintiff in December 2009 for the month of January 2010. In December, International voted
to revoke the charters of Local 726 and Teamsters Local Union No. 714 (Local 714) and to
charter a new union, Teamsters Local Union No. 700 (Local 700). Accordingly, on December
31, 2009, Locals 726 and 714 were dissolved, and Local 700 was chartered.
¶7 As of December 31, 2009, the membership rolls, assets, and liabilities of Locals 726 and
714 were transferred to Local 700. From January 1, 2010, to April 30, 2010, Local 700
occupied the property formerly occupied by Local 726. In February 2010, Local 700 proposed
a “rent/standstill” agreement to plaintiff. Under the proposed agreement, Local 700 would
occupy the property on a month-to-month basis and pay rent equal to the amounts set forth in
the LPA, while plaintiff would not waive any of its rights regarding the enforcement of the
LPA. Plaintiff never responded to that proposal.
¶8 On or about March 10, 2010, plaintiff began advertising the property to potential renters
and/or buyers by placing a sign on the front lawn. On April 30, Local 700 vacated the premises
and moved its operations to another property. On May 12, plaintiff served Local 700 with a
notice of default demanding rent payments, real estate taxes, insurance payments, and late
charges for the months of February through May 2010. When Local 700 failed to respond,
plaintiff formally terminated the lease.
¶9 Plaintiff subsequently filed a 22-count verified amended complaint seeking damages
related to Local 700’s alleged failure to perform according to the terms of the LPA. Count I,
the sole count at issue in this appeal, alleged breach of contract against defendant, Local 700. 1
The claim alleged that defendant was liable for Local 726’s breach of the parties’ agreement
under a theory of corporate successor liability. Plaintiff requested damages under both the
liquidated-damages provision and the double-rent penalty. The case proceeded to a bench trial
in September 2014.
¶ 10 Clair testified that he worked for the City of Chicago for 28 years, retiring in 2003. His
education consisted of two years at community colleges. In 1971, while working as a truck
driver for the City, he became a member of Local 726. In 1995, he attained the position of
business agent for Local 726, and in 1996, he became the recording secretary. In 2003, he was
appointed as Local 726’s secretary-treasurer, a position he maintained until his retirement from
the union in 2009. Clair testified that he had no background in real estate. He testified that, as
the secretary-treasurer and principal officer of Local 726, he had the authority to negotiate and
sign leases on behalf of the union.
1
Counts II and III alleged violations of the Uniform Fraudulent Transfer Act (740 ILCS 160/5(a),
6(a) (West 2012)) against Local 700. The remaining counts alleged tortious interference with contract
against various defendants not involved in this appeal.
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¶ 11 Clair stated that he signed a lease renewal agreement for Local 726’s former premises on
December 30, 2003. That lease and the LPA were the only lease agreements he had signed for
the union. Clair testified that, in late 2007 or early 2008, the union was in the market for new
office space. He testified that he unilaterally negotiated the LPA with Friedman and Mick Bess,
plaintiff’s comanager. Clair admitted that he did not seek advice from an attorney or real estate
agent during the negotiations of the LPA. He also admitted that Local 726’s membership did
not receive notification of the LPA before he signed it, nor was a vote taken of the members to
authorize the agreement. Clair testified that he thought the members would be notified when it
came time for Local 726 to purchase the property pursuant to the terms of the LPA.
¶ 12 Friedman testified that he had been involved in the construction and the commercial real
estate and development industries since 1984. He had worked for two or three companies
before starting his own company doing commercial development and construction. He testified
that, over the course of his career, he had been involved in over 250 commercial real estate
transactions. Friedman stated that he thought Clair had the authority to sign leases on behalf
of Local 726. He testified that, following negotiations with Clair, he asked his attorney, Jeffrey
Rochman, to draft a lease agreement memorializing the terms agreed to by the parties.
¶ 13 According to witness testimony, on May 8, 2008, six days after Clair signed the LPA, he
met informally with some of the members of the executive board. No minutes were taken. At
this meeting, five of the seven board members, including the president, signed a document
titled “Unanimous Consent of the Executive Board in Lieu of Meeting of the Executive Board
of Teamsters Local Union Number 726.” The document was drafted by Rochman. It purported
to authorize the union’s secretary-treasurer, president, and/or secretary, acting together or
alone, to lease the property at 1150 South Mount Prospect Road in Des Plaines, Illinois, from
plaintiff. The document did not reference any specific terms of the LPA, nor did it mention
Local 726’s obligation to purchase the property. Michael Marcatante, a trustee of Local 726
who was present at the meeting, testified that he had not seen a copy of the LPA and was
unaware of its terms before signing the document. He also was unaware that Clair had already
signed the lease prior to their meeting.
¶ 14 Local 726’s bylaws were entered into evidence. The bylaws stated, in relevant part: “[t]he
principal officer, *** together with the President shall sign all official documents, deeds,
mortgages, bonds, contracts, or other instruments, *** and perform such other duties as the
International Constitution, these Bylaws or law may require of him.” The bylaws also stated:
“The Local Union Executive Board, in addition to such other general power
conferred by these Bylaws, is hereby empowered to: *** (8) Lease, purchase or
otherwise acquire in any lawful manner for and on behalf of the organization, any and
all real estate or other property, rights and privileges, whatsoever deemed necessary for
the prosecution of its affairs, and which the organization is authorized to acquire, at
such price or consideration and generally on such terms and conditions as it thinks fit,
and at its discretion pay therefor either wholly or partly in money or otherwise; specific
authorization at a membership meeting shall be required for such expenditures,
excepting for routine expenditures not of a substantial nature ***.” (Emphasis added.)
¶ 15 During his testimony, Clair admitted signing an affidavit stating that plaintiff was provided
with a copy of the bylaws and acknowledged receipt of them. Clair testified, however, that he
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had no specific recollection of providing the bylaws or to whom they were given. Friedman
testified that he did not recall seeing Local 726’s bylaws before signing the LPA.
¶ 16 The evidence was undisputed that the members of Local 726 did not receive notice of the
LPA or vote to authorize the agreement prior to its execution. Becky Strzechowski, the
appointed trustee of Local 726 after it went into emergency trusteeship, testified that she had
doubts about Clair’s authority to sign the LPA because the union’s bylaws required two
signatures. She stated that she informed Friedman and his attorney of her belief that the LPA
was not properly authorized. Strzechowski testified that she reviewed the minutes from Local
726’s executive board meetings and membership meetings from the end of 2007 through
August 2009. She testified that there was no discussion or authorization of the LPA or related
expenditures in any of the minutes she reviewed. According to Strzechowski, the only
references to the property were a possible announcement about moving to a new facility and a
comment by a member who was unhappy with the new location.
¶ 17 The parties stipulated that none of the minutes from the meetings of the general
membership or the executive board for the period of January 2007 through July 2009 reflected
a request for authorization from the members to lease or purchase the property or to expend
funds for the purpose. The parties also stipulated that none of these minutes showed any Local
726 officer or executive board member disclosing the terms of the LPA to the membership.
¶ 18 At the conclusion of trial, the trial court found that the LPA was valid and enforceable and
that defendant was liable to plaintiff for Local 726’s breach of the agreement under a theory of
successor liability. In a written order, the court held that Clair had apparent authority to execute
the LPA on behalf of Local 726 without a vote from the membership or authorization from the
executive board. The court also held that the executive board ratified the LPA by signing a
“unanimous consent resolution” approving the agreement. “More importantly,” the court
found, “Local 726 moved into the property and paid rent for seven months without any
objection by the Executive Board or the membership, thereby retaining the benefit of the
parties’ agreement.”
¶ 19 Pursuant to the liquidated-damages provision, the court entered judgment for plaintiff on
count I in the amount of approximately $2.3 million. The damage award included
approximately $300,000 in attorney fees and costs, pursuant to a provision in the LPA that
obligated Local 726 to pay all attorney fees and costs incurred by plaintiff in enforcing the
terms of the agreement. However, the circuit court rejected plaintiff’s argument that it was also
entitled to damages pursuant to the double-rent penalty. The court held that this provision “not
only requires Local 726 to pay significantly more than the fifth-year purchase price of the
property and more than double the plaintiff’s loan amount, but also allows the plaintiff to retain
ownership of the property.” The court reasoned that “[t]his recovery far exceeds any potential
actual damages Plaintiff could foreseeably incur, and enforcement of the clause results in an
unenforceable windfall for the plaintiff.” Citing evidence that plaintiff intended the double-
rent provision as a penalty in the event of default, the court concluded that contract provisions
that are penal in nature or intended to secure performance of an option through a threat are
unenforceable as a matter of public policy.
¶ 20 Defendant filed a posttrial motion to reconsider the trial court’s order and vacate the
judgment. In the motion, defendant argued for the first time that the LPA was void ab initio
and unenforceable because it failed to comply with the Act (765 ILCS 115/0.01 et seq. (West
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2010)). According to defendant, the LPA failed to satisfy the Act’s requirements because it
was not signed by at least two board members and was never authorized by a vote of the
members at a regular meeting after at least 10 days’ notice. Id. § 2. Defendant also argued that
the LPA violated Local 726’s own bylaws, which mirrored the requirements in the Act.
¶ 21 The trial court denied defendant’s motion. Applying the analysis set forth in K. Miller, 238
Ill. 2d 284, the court found that the Act does not explicitly state whether noncompliance with
the statutory requirements renders a real estate contract unenforceable. In light of the Act’s
silence on this issue, the court held that the public policy favoring the enforcement of contracts
should prevail. On appeal, the appellate court affirmed in part and reversed in part the trial
court’s judgment. 2017 IL App (1st) 153300. 2 As to count I, the appellate court agreed with
the trial court that the lease was valid and enforceable and that defendant was liable to plaintiff
as the successor to Local 726. The appellate court also affirmed the award of damages pursuant
to the liquidated-damages provision in the LPA. Id. ¶ 90.
¶ 22 This court allowed defendant’s petition for leave to appeal under Illinois Supreme Court
Rule 315(a) (eff. Nov. 1, 2017).
¶ 23 ANALYSIS
¶ 24 On appeal to this court, defendant first argues that the LPA is void ab initio and
unenforceable because it was not executed in compliance with the Act or Local 726’s bylaws.
The determination of whether a contract is void ab initio is a question of law subject to de novo
review. Dowling v. Chicago Options Associates, Inc., 226 Ill. 2d 277, 285 (2007); Alliance
Property Management, Ltd. v. Forest Villa of Countryside Condominium Ass’n, 2015 IL App
(1st) 150169, ¶ 26.
¶ 25 Under the common law, voluntary unincorporated associations, such as labor
organizations, were not legal entities distinct from their individual members. See American
Federation of Technical Engineers, Local 144 v. La Jeunesse, 63 Ill. 2d 263, 265-66 (1976);
Butler Manufacturing Co. v. Department of Finance, 383 Ill. 220, 228 (1943). Accordingly,
absent express statutory authorization, unincorporated associations have no right to sue or be
sued, acquire or hold title to real property, or enter into contracts in their own names. Chicago
Grain Trimmers Ass’n v. Murphy, 389 Ill. 102, 107 (1945); 3 Ill. L. and Prac. Associations § 5
(Feb. 2019 Update); 6 Am. Jur. 2d Associations and Clubs § 11 (Jan. 2019 Update).
¶ 26 In 1949, the Act went into effect, establishing an exception to the common-law rule for
unincorporated associations in Illinois. The Act expressly empowers unincorporated
associations to lease and own real estate in their names and to sue and be sued on such real
estate. 765 ILCS 115/1, 3 (West 2010). In order to execute a valid real estate conveyance,
lease, or mortgage, an unincorporated association must follow certain procedures:
“The presiding officer of such lodge or subordinate body, together with the secretary
or officer keeping the records thereof, may execute mortgages and execute or receive
conveyances or leases of any real estate by or to such lodge or subordinate body when
authorized by a vote of the members present at a regular meeting held by said lodge or
subordinate body, after at least ten days’ notice has been given to all members of said
2
The appellate court reversed the circuit court’s judgment in favor of plaintiff on counts II, III, and
VIII. These counts are not at issue in the appeal before us.
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lodge or subordinate body by mailing a written notice of said proposed action to the
last known address of all such members.
All conveyances, leases or mortgages executed hereunder shall be in the name of
the lodge, attested by the presiding officer and secretary or other officer in charge of
the records, and shall have affixed the seal, if any, of such lodge or subordinate body.”
(Emphasis added.) Id. § 2.
¶ 27 Defendant contends that a lease agreement entered into by an unincorporated association
that fails to comply with the statutory requirements is void as a matter of law. There is no
dispute that Local 726 did not satisfy at least two of the statutory prerequisites for executing a
lease and purchase agreement involving real property. First, prior to the execution of the LPA,
the members of Local 726 did not receive written notice of the proposed agreement. Second,
the members never voted to authorize the LPA at one of their regular meetings. The question
is whether Local 726’s failure to comply with these statutory requirements renders the LPA
void ab initio and unenforceable by a court of law. We hold that it does.
¶ 28 Where a party lacks the legal authority to form a contract, the resulting contract is void
ab initio. McGovern v. City of Chicago, 281 Ill. 264, 283 (1917); Illinois State Bar Ass’n
Mutual Insurance Co. v. Coregis Insurance Co., 355 Ill. App. 3d 156, 164 (2004). For example,
where a municipality exceeds its statutory authority in entering into a contract, the
municipality’s act is ultra vires, and the resulting contract is void ab initio. See, e.g., Grassini
v. Du Page Township, 279 Ill. App. 3d 614, 620 (1996); Nielsen-Massey Vanillas, Inc. v. City
of Waukegan, 276 Ill. App. 3d 146, 152-53 (1995). “[A] contract that is void ab initio is treated
as though it never existed; neither party can choose to ratify the contract by simply waiving its
right to assert the defect.” Illinois State Bar Ass’n Mutual Insurance Co., 355 Ill. App. 3d at
164. Accordingly, a party without authority to enter into a contract may avoid enforcement of
the contract as void even if the other contracting party has performed satisfactorily. Elk Grove
Township Rural Fire Protection District v. Village of Mount Prospect, 228 Ill. App. 3d 228,
234 (1992); Village of Lisle v. Village of Woodridge, 192 Ill. App. 3d 568, 576 (1989).
¶ 29 The Act governs an unincorporated association’s authority to enter into a lease or purchase
agreement for real estate. In the absence of compliance with the statutory prerequisites, an
unincorporated association has no power to execute a valid real estate contract. See American
Federation of Technical Engineers, Local 144, 63 Ill. 2d at 265-66; Chicago Grain Trimmers
Ass’n, 389 Ill. at 107. Although the Act does not expressly state that the failure to comply with
its provisions renders a contract unenforceable, the statute is in derogation of the common law.
American Federation of Technical Engineers, Local 144, 63 Ill. 2d at 265-66. As such, it must
be strictly construed “in order to effect the least—rather than the most—alteration in the
common law.” Rush University Medical Center v. Sessions, 2012 IL 112906, ¶ 16; see also
Williams v. Manchester, 228 Ill. 2d 404, 419 (2008).
¶ 30 In this case, Local 726 indisputably failed to comply with section 2 of the Act (765 ILCS
115/2 (West 2010)) at the time it executed the LPA. Clair signed the agreement purportedly on
behalf of Local 726 despite the fact that the members had not been notified and had not voted
to authorize the agreement at a regular meeting. There is no question that Local 726 did not
fulfill the clear statutory conditions for executing a lease and purchase agreement of real
property. In construing a statute, it is this court’s obligation to ascertain and give effect to the
intent of the legislature. Home Star Bank & Financial Services v. Emergency Care & Health
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Organization, Ltd., 2014 IL 115526, ¶ 24. In doing so, we may not depart from the plain
statutory language by reading into it exceptions, limitations, or conditions that conflict with
the clearly expressed legislative intent. Id.¶ 31 The legislature’s intent is evident in the plain language of the Act. Pursuant to the Act, an
unincorporated association’s members must receive notice of proposed real estate contracts
and must have the opportunity to vote in favor of or against entering into such contracts. This
language clearly expresses a public policy to protect the individual members of an association
from liability arising out of contracts entered into by its leadership. 3 An interpretation of the
statute that allows an organization to ignore these requirements would render the express
statutory language meaningless. This we may not do. See Sylvester v. Industrial Comm’n, 197
Ill. 2d 225, 232 (2001) (the court “must construe the statute so that each word, clause, and
sentence, if possible, is given a reasonable meaning and not rendered superfluous [citation],
avoiding an interpretation which would render any portion of the statute meaningless or void
[citation]”). To hold for plaintiff in this case would suggest that the legislature intended to
allow a union to bind its members to a real estate contract for more than $2 million without the
members’ knowledge or consent. This interpretation is at odds with the clear statutory
language. We hold, therefore, that the LPA is void ab initio and unenforceable on the grounds
that Local 726 lacked the statutory authority to enter into the agreement. 4
¶ 32 Despite the clear defects in the formation of the LPA, the appellate court below held that
the agreement was valid and enforceable based on the analysis set forth in K. Miller, 238 Ill.
2d 284. Relying on K. Miller, the appellate court examined the statutory language and found
no evidence that the legislature intended that noncompliance with the Act render a contract
unenforceable. 2017 IL App (1st) 153300, ¶ 18. The court then weighed the competing policy
considerations and concluded that the public policy embodied in the Act did not outweigh the
public policy of “enforcing otherwise legal private contracts entered into for legitimate
purposes.” Id. ¶ 21. We reject this reasoning because the analysis set forth in K. Miller is
inapposite.
¶ 33 The issue in K. Miller was whether a party’s failure to comply with a statute rendered the
contract entered into by the parties unenforceable “as a matter of public policy.” See K. Miller,
238 Ill. 2d at 291. In that case, a contractor entered into an oral agreement for home remodeling
work over $1000, in violation of a provision of the Home Repair and Remodeling Act (815
ILCS 513/15 (West 2006)) that required such contracts to be in writing. K. Miller, 238 Ill. 2d
at 286-87. To determine whether the statutory violation rendered the oral contract
unenforceable, this court looked to section 178 of the Restatement (Second) of Contracts
(1981), which stated, in part:
“ ‘§ 178 When a Term Is Unenforceable on Grounds of Public Policy
(1) A promise or other term of an agreement is unenforceable on grounds of public
policy if legislation provides that it is unenforceable or the interest in its enforcement
3
It is important to note that the Act protects not only members of labor unions but members of
“[a]ny unincorporated lodge or subordinate body of any society or order which is duly chartered by its
grand lodge or body” (765 ILCS 115/1, 2 (West 2010)), including, e.g., social or fraternal organizations,
lodges, societies, or clubs.
4
In light of the clear violations of the statute’s membership-related requirements, we need not reach
the issue of whether two signatures were necessary to render the agreement enforceable.
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is clearly outweighed in the circumstances by a public policy against the enforcement
of such terms.’ ” K. Miller, 238 Ill. 2d at 293 (quoting Restatement (Second) of
Contracts § 178 (1981)).
After applying the Restatement’s analysis, we concluded that there was “no public policy
requiring that oral contracts for home remodeling over $1,000 be held unenforceable.” Id. at
301.
¶ 34 In contrast to K. Miller, the contract in this case is void and unenforceable because one of
the contracting parties lacked the legal authority or capacity to enter into the contract. As we
have explained, at common law, an unincorporated association was legally incapable of
owning or leasing property. The Act changed the common-law rule by setting forth specific
conditions that, if satisfied, permit an unincorporated association to own or lease real property
in Illinois. Thus, the Act was the sole source of Local 726’s power to enter into the agreement
with plaintiff. Because Local 726 failed to fulfill the statutory prerequisites for executing a
lease and purchase agreement, the LPA was void ab initio. See McGovern, 281 Ill. at 283 (a
contract entered into without authority is ultra vires and void); Grassini, 279 Ill. App. 3d at
620 (where a contracting party exceeds its statutory authority in entering into a contract, the
contract is void ab initio).
¶ 35 Plaintiff concedes that Local 726 failed to satisfy the Act but argues nonetheless that
equitable considerations compel enforcement of the parties’ agreement. Specifically, plaintiff
argues that (1) defendant judicially admitted the validity of the LPA, (2) Local 726 and
defendant ratified the LPA through their course of conduct and, thus, are estopped from
arguing the LPA is unenforceable, (3) the rule in Schnackenberg v. Towle, 4 Ill. 2d 561 (1954),
compels this court to uphold the enforceability of the LPA, and (4) Clair had apparent authority
to execute the LPA. We reject each of these arguments as untenable based on our holding that
the contract was void at its inception as a matter of law.
¶ 36 Plaintiff first contends that defendant judicially admitted the validity of the LPA in its
verified answer and affirmative defenses. Specifically, one of the affirmative defenses alleged
that, on or about September 30, 2009, defendant advised plaintiff that it could not afford to
comply with the LPA’s provisions. It further alleged that the parties entered into negotiations
to modify the LPA and that the negotiations “resulted in a meeting of the minds relating to a
modification of the Lease.” According to plaintiff, these allegations constitute a judicial
admission by defendant that the LPA was valid at the outset, since only a valid lease is capable
of being modified. Plaintiff’s argument is unavailing.
¶ 37 Judicial admissions are defined as “deliberate, clear, unequivocal statements by a party
about a concrete fact within that party’s knowledge.” In re Estate of Rennick, 181 Ill. 2d 395,
406 (1998) (citing Hansen v. Ruby Construction Co., 155 Ill. App. 3d 475, 480 (1987)).
Judicial admissions are conclusively binding on a party and, thus, may not be contradicted in
a motion for summary judgment or at trial. Id. at 406-07. It is well established that legal issues
cannot be judicially admitted and, instead, are questions for the court to decide. Id. at 406; see
also Knauerhaze v. Nelson, 361 Ill. App. 3d 538, 557-58 (2005) (“judicial admissions ‘are
formal concessions in the pleadings in the case or stipulations by a party or its counsel that
have the effect of withdrawing a fact from issue and dispensing wholly with the need for proof
of the fact’ ” (citing 2 John W. Strong, McCormick on Evidence § 254, at 142 (4th ed. 1992))).
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¶ 38 The question of a contract’s validity is a matter of law for the court to decide. See Alliance
Property Management, Ltd., 2015 IL App (1st) 150169 ¶ 26 (the interpretation of a contract to
determine whether it is void ab initio is a question of law). Even if the allegations in
defendant’s affirmative defenses could be construed as an admission that the LPA was a valid
contract, this would not constitute a judicial admission because it is a legal conclusion. See
In re Marriage of Osborn, 206 Ill. App. 3d 588, 594 (1990). Consequently, plaintiff’s argument
that defendant judicially admitted the validity of the LPA is without merit.
¶ 39 Plaintiff next argues that both Local 726 and defendant effectively ratified the LPA and
waived the protections of the Act through their course of conduct. In other words, plaintiff
contends that defendant is estopped from asserting that the LPA is unenforceable. In support
of this contention, plaintiff directs our attention to the following facts. Prior to the execution
of the LPA, Clair had unilaterally signed leases on the union’s behalf without complying with
the Act. None of Local 726’s members objected to the LPA either before or after the union
took possession of the premises. Moreover, members of Local 726’s executive board signed a
consent resolution approving the LPA after its execution. Local 726 subsequently paid rent on
the property for seven months pursuant to the LPA. After Local 726 was placed into
trusteeship, both it and Local 700 proceeded as though the LPA was a valid agreement, even
while objecting to its terms. Finally, neither Local 726 nor Local 700 asserted that the LPA
was invalid pursuant to the Act until after the trial had concluded and a judgment was entered
in favor of plaintiff.
¶ 40 Plaintiff’s argument fails to recognize that equitable doctrines such as ratification and
equitable estoppel do not apply to a contract that is void ab initio. See Alliance Property
Management, Ltd., 2015 IL App (1st) 150169, ¶ 29 (“ ‘[r]atification is impossible if there is
no power to contract’ ” (quoting Granzow v. Village of Lyons, 89 F.2d 83, 85 (7th Cir. 1937)));
State Bar Ass’n Mutual Insurance Co., 355 Ill. App. 3d at 164 (“a contract that is void ab initio
is treated as though it never existed; neither party can choose to ratify the contract by simply
waiving its right to assert the defect”); Nielsen-Massey Vanillas, Inc., 276 Ill. App. 3d at 152-
53 (holding that a contract entered into by a party in the absence of authority is void ab initio
and cannot be enforced by estoppel). Accordingly, this argument also fails.
¶ 41 Plaintiff next argues that the rule in Schnackenberg, 4 Ill. 2d 561, is controlling. This rule
states, “where a contract is illegal or against public policy a court of equity will not, at the
instance of one of the parties who participates in the illegal or immoral intent, either compel
the execution of the agreement or set it aside after it has been executed, because to give relief
in such a case would injure and counteract public morals.” Id. at 565. The rule applies to “those
situations where to allow recovery would permit a party to benefit from conduct in
contravention of public policy.” Laleman v. Crombez, 6 Ill. 2d 194, 198-99 (1955). Only illegal
contracts or those against public policy are subject to the rule. See Vine Street Clinic v.
HealthLink, Inc., 222 Ill. 2d 276, 299 (2006); Aydt v. De Anza Santa Cruz Mobile Estates, 763
F. Supp. 970, 974 (N.D. Ill. 1991) (holding that the Schnackenberg rule applies to contracts
whose subject matter is illegal, e.g., transactions in violation of usury statutes, blue sky laws,
rent control ordinances, and anti-gambling statutes). Plaintiff cites no case, and we have found
none, to support its claim that Schnackenberg applies to a contract entered into by a party who
lacks the legal authority to form the contract.
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¶ 42 Plaintiff’s final argument for the enforceability of the LPA is that Clair had apparent
authority to execute the agreement, thus binding Local 726 to the agreement. The doctrine of
apparent authority stems from an agency relationship. Gilbert v. Sycamore Municipal Hospital,
156 Ill. 2d 511, 523-24 (1993). Under this doctrine, “where a principal has created the
appearance of authority in an agent, and another party has reasonably and detrimentally relied
upon the agent’s authority, the principal cannot deny it.” Patrick Engineering, Inc. v. City of
Naperville, 2012 IL 113148, ¶ 35 (citing Petrovich v. Share Health Plan of Illinois, Inc., 188
Ill. 2d 17, 31 (1999)). Like the doctrine of equitable estoppel, apparent authority is rooted in
equitable principles. Id. ¶¶ 34-35.
¶ 43 The apparent authority doctrine is not relevant here. A contract that is void ab initio is
treated as though it never existed and, thus, cannot be enforced by either party. Illinois State
Bar Ass’n Mutual Insurance Co., 355 Ill. App. 3d at 164 (“stating where ‘a contract is void
ab initio, or where it becomes void by the terms and conditions therein expressed and agreed
to by the parties, no action can be maintained thereon by either party’ ” (quoting Smith v.
Hunter, 171 Ill. App. 30, 36 (1912))). The contract is unenforceable because the statutory
requirements for an unincorporated association to enter into the contract were not fulfilled. If
the principal has no authority to enter into a contract, it stands to reason that an agent of the
principal has no authority to bind the principal to the contract. Thus, even if Local 726 held
out Clair as having apparent authority to sign real estate contracts on its behalf, this would not
render the contract legally enforceable.
¶ 44 CONCLUSION
¶ 45 Because we hold that the LPA is void ab initio and unenforceable, it is not necessary to
address defendant’s alternative arguments that the trial court erroneously imposed successor
liability and enforced the liquidated-damages provision. We therefore reverse the part of the
judgments of the circuit and appellate courts pertaining to count I of the amended complaint.
The cause is remanded to the circuit court with directions to vacate the judgment for plaintiff
and enter judgment for defendant on count I.
¶ 46 Judgments reversed.
¶ 47 Cause remanded with directions.
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