23-25 Building Partnership v. Testa Produce

FIRST DIVISION
March 31, 2008
No. 1-07-0738
23-25 BUILDING PARTNERSHIP, an ) Appeal from the
Illinois Partnership, ) Circuit Court of
) Cook County.
Plaintiff-Appellee/ )
Cross-Appellant, )
)
v. )
)
TESTA PRODUCE, INC., an Illinois )
Corporation, and PETER W. TESTA, )
an Individual, )
) Honorable
Defendants-Appellants/ ) Brigid Mary McGrath,
Cross-Appellees. ) Judge Presiding.
JUSTICE WOLFSON delivered the opinion of the court:
The parties in this case owned units in the South Water
Market area in Chicago. An outside buyer agreed to purchase the
entire subdivision if all the unit-owners agreed to sell. The
defendants agreed to pay the plaintiff $50,000 as an inducement
to agree to the sale. After the sale was complete, the
defendants refused to pay the $50,000, contending the plaintiff
fraudulently misrepresented that it needed the money because it
was "upside down" in its mortgage.
Following a bench trial, the trial court entered judgment
for the plaintiff, holding the defendants could not rescind their
contract because they benefitted from the sale and because the
parties could not be returned to their pre-contract position.
The defendants appeal the trial court’s judgment. The plaintiff
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cross-appeals the part of the trial court’s order vacating the
award of attorneys’ fees.
We reverse the trial court’s judgment for the plaintiff and
affirm the court’s order vacating the award of attorneys’ fees.
FACTS
The South Water Market was a subdivision of real property
comprising 166 units for merchants of produce and other
foodstuffs. Sometime before July 2003, the City of Chicago
encouraged the merchants occupying the units to relocate to a new
site so the property could be redeveloped for residential use. A
new facility known as the Chicago International Produce Market
was established for the merchants.
The 23-25 Building Partnership (the "Partnership") rented
and managed the units located at 23-25 South Water Market. The
Partnership was owned by Edwin Roncone and his sons, Alan Roncone
and Paul Roncone, each of whom owned a one-third interest in the
partnership. From July 1993 to June or July 2003, legal title to
the property was held by LaSalle Bank, NA, successor to American
National Bank and Trust Company of Chicago, as Trustee, under
Trust Agreement dated July 1, 1993, and known as Trust Number
117154-06 (the "Land Trust"). Edwin, Paul, and Alan Roncone were
the beneficiaries of the Land Trust. In August 1994, the
individual beneficiaries assigned their beneficial interest in
the Land Trust to the Partnership.
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Testa Produce, Inc. ("Testa Produce") is in the business of
selling wholesale produce. Peter Testa is the president of Testa
Produce. Before June 2003, Testa Produce owned and occupied
three units in the South Water Market.
In January 2003, EDC Development Company ("EDC") agreed to
purchase the bulk of units 1-166 of the South Water Market,
pursuant to a Purchase and Sale Agreement (the "P&S Agreement").
The merchants were advised EDC would not buy the units unless it
could buy all of the units. If any owner did not agree to sell,
EDC would not purchase the property, and the other owners would
lose the benefit of the P&S Agreement. Most of the owners,
including Testa, quickly agreed to the terms of the agreement.
Peter Testa and other unit-owners promoted the P&S Agreement
among the other unit-owners. The Partnership did not initially
agree to the sale.
In or around December 2002 or January 2003, Peter Testa had
telephone conversations with Edwin Roncone seeking Roncone’s
consent to the P&S Agreement. According to Testa, Roncone told
him that in the event of the sale, the Land Trust would be
"upside-down," or $50,000 short, on its mortgage indebtedness.
Roncone denies making these statements and alleges he told Testa
he needed the additional $50,000 to pay other "obligations."
Following these conversations, Peter Testa prepared and
signed a handwritten memorandum stating: "Testa Produce, Inc.
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agree [sic] to pay $50,000 dollars towards the sale of Units 25 &
23 So. Water Mkt at Closing of said sale." Testa personally
handed the memorandum to Edwin Roncone. Roncone was not
satisfied with the handwritten document and asked his attorneys
to draft a document memorializing the agreement.
On February 17, 2003, Testa Produce and Peter Testa signed
and delivered to the Land Trust an agreement ("Inducement
Agreement") prepared by Edwin Roncone’s attorneys. Roncone
testified he signed the agreement and gave it to Testa. The copy
of the Inducement Agreement in the record is signed by Testa but
not signed by Roncone. It has a blank signature space for the
Land Trust.
In the Inducement Agreement, Testa promised to pay to "the
Land Trust or its order" $50,000 plus 12% interest per annum if
the trust entered into the P&S Agreement and sold the subject
property to EDC. The money was payable on the closing of the
sale of the property.
The Inducement Agreement included a provision awarding
attorneys’ fees and costs to the Land Trust if Testa failed to
pay the Inducement Amount at or within two days of the closing of
the sale of the subject property.
On February 17, 2003, the same day Testa signed the
Inducement Agreement, the Land Trust executed the P&S Agreement.
Testa alleges that in May or June 2003, before the closing
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of the Land Trust’s units, he learned the Land Trust would
receive sufficient funds at closing to pay off its mortgage debt.
In other words, the Land Trust was not "upside down" in its
mortgage obligations. Testa alleges he immediately informed
Roncone he would not pay under the Inducement Agreement. At
trial, Edwin Roncone admitted Peter Testa called him in June 2003
and accused him of lying about his mortgage indebtedness.
The closing of the sale of the Land Trust’s units occurred
on July 12, 2003. A June 13, 2003, letter from LaSalle Bank as
trustee directs that the net proceeds from the sale of the
property be paid to the Partnership.
Following the closing, the Partnership demanded payment of
the $50,000. Testa refused, contending the Partnership
fraudulently induced him to enter into the Inducement Agreement.
The Partnership filed a breach of contract suit against Testa and
Testa Produce.
The trial court entered judgment in favor of the Partnership
and against the defendants, in the amount of $50,000, plus
interest of $17,212.68, attorneys’ fees of $27,454.25, and costs
and expenses of $2,075.37, for a total of $96,742.30.
On reconsideration, the court affirmed the original judgment
but vacated the award of attorneys’ fees. The court held:
"Based on the evidence adduced at trial, and
considering both that the Defendants
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benefitted from the Plaintiff’s performance
of its obligations under the Inducement
Agreement, but that they had been
fraudulently induced into entering into that
Agreement, the Court, in its discretion,
agrees that it would defy common sense and
public policy to award attorneys’ fees to the
Plaintiff under the Inducement Agreement."
DECISION
Before we address the issues in this appeal, we briefly
comment on the woeful inadequacy of the briefs in this case.
Both parties’ briefs contain large portions of argument
unsupported by any relevant citations.
Supreme Court Rule 341(h)(7) requires appellants’ briefs to
include "[a]rgument, which shall contain the contentions of the
appellant and the reasons therefor, with citation of the
authorities and the pages of the record relied on." 210 Ill. 2d
R. 341(h)(7). " ‘[A] reviewing court is entitled to have the
issues on appeal clearly defined with pertinent authority cited
and a cohesive legal argument presented. The appellate court is
not a depository in which the appellant may dump the burden of
argument and research.’ " In re Marriage of Auriemma, 271 Ill.
App. 3d 68, 72, 648 N.E.2d 118 (1994), quoting Thrall Car
Manufacturing Co. v. Lindquist, 145 Ill. App. 3d 712, 719, 495
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N.E.2d 1132 (1986). Contentions unsupported by citation of
authority fail to meet the requirements of Supreme Court Rule
341(h)(7) and may be forfeited. Elder v. Bryant, 324 Ill. App.
3d 526, 533, 755 N.E.2d 515 (2001).
Though we do not find the issues forfeited, we caution the
parties to adhere to the Supreme Court Rules or risk dismissal of
their future appeals or the striking of their responsive briefs.
I. Standing
The defendants contend the Partnership lacked standing to
file its lawsuit because the Partnership was not a party to the
Inducement Agreement. The only parties to the agreement were the
defendants and the Land Trust.
In a land trust in Illinois, the trustee’s sole purpose is
to take and hold title to the trust res. Smith v. First National
Bank of Danville, 254 Ill. App. 3d 251, 264, 624 N.E.2d 899(1993). The trustee has no duties with respect to management and
control of the property. The beneficiary manages and exercises
all rights of ownership, with the exception of holding title to
the property. Smith, 254 Ill. App. 3d at 264. See Madden v.
University Club of Evanston, 97 Ill. App. 3d 330, 333, 422 N.E.2d
1172 (1981) (individual beneficiary of trust lacked standing in
action to foreclose mortgage on subject property because he did
not have legal title to the property).
The beneficiary of a land trust has standing in litigation
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involving his rights and liabilities with respect to management
and control, use, or possession of the property pursuant to the
trust agreement. Azar v. Old Willow Falls Condominium Ass’n, 228
Ill. App. 3d 753, 756, 593 N.E.2d 583 (1992). One test for
determining the beneficiary’s standing is whether the trustee can
protect the beneficiary’s interests. Azar, 228 Ill. App. 3d at
756-57. Standing is determined as of the date the lawsuit is
filed. CSM Insurance Building, Ltd. v. Ansvar America Insurance
Co., 272 Ill. App. 3d 319, 323, 649 N.E.2d 600 (1995).
The Partnership asserts its standing based on the fact that,
following sale of the only property held by the trust, the Land
Trust no longer existed. Therefore, the Partnership was the only
entity that could enforce the Inducement Agreement. A trustee’s
conveyance of all the property held by the trust terminates the
trust. National City Bank of Michigan/Illinois v. Northern
Illinois University, 353 Ill. App. 3d 282, 289, 818 N.E.2d 453(2004), citing Restatement (Second) of Trusts § 342 (1959);
Chicago Title & Trust Co. v. Steinitz, 288 Ill. App. 3d 926, 933,
681 N.E.2d 669 (1997) (trustee’s act of conveying entire corpus
terminated the trust).
Furthermore, the Trust Agreement in this case grants the
beneficiary the right to the "earnings, avails, and proceeds" of
the property, and the Land Trust directed that "proceeds" from
the sale be paid to the Partnership. Given the Partnership’s
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right to the property’s proceeds, and the fact that the trustee
could no longer protect the beneficiary’s interests following
termination of the trust, we find the Partnership has standing to
pursue its lawsuit against Testa.
A related issue is whether the Inducement Agreement is valid
where the trustee did not sign the agreement. Edwin Roncone
testified he signed the Agreement on behalf of the Land Trust,
but no copy of the agreement with Roncone’s signature is in the
record. The Trust Agreement prohibits a beneficiary from
entering into a contract in the name of the trustee ("[n]o
beneficiary hereunder shall have any authority to contract for or
in the name of the Trustee or to bind the Trustee personally.")
Not only was Roncone not the trustee, he owned only a one-third
interest in the Partnership; the Partnership was the sole
beneficiary of the Trust.
We agree with the trial court that neither the trustee’s nor
the beneficiary’s signature was necessary to bind the defendants.
If a document is signed by the party being charged, the other
party’s signature is not necessary if the document is delivered
to that party and it indicates acceptance through performance.
See Meyer v. Marilyn Miglin, Inc., 273 Ill. App. 3d 882, 891, 652
N.E.2d 1233 (1995). The parties stipulated that Testa signed the
Inducement Agreement and delivered it to the Land Trust. Because
the document was delivered to the trust, we presume the trust was
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aware of its existence. The evidence showed the Land Trust fully
performed the Inducement Agreement by entering into the P&S
Agreement and closing on the sale of the subject property. The
contract is not invalid based on the failure of the trustee to
sign the document.
II. Rescission
The trial court held the defendants established through
clear and convincing evidence that the Partnership induced them
to enter into the contract through its fraudulent
misrepresentation. Notwithstanding the fraud, the court held
rescission was not available to the defendants because the
parties could not be restored to their original positions.
A contract induced by fraud is not void but is voidable at
the election of the party claiming to have been defrauded. Zirp-
Burnham, LLC v. E. Terrell Associates, Inc., 356 Ill. App. 3d
590, 604, 826 N.E.2d 430 (2005). Although the perpetrator of the
fraud cannot enforce a voidable contract, the innocent party may:
(1) rescind the contract, or (2) waive the defect, ratify the
contract, and enforce it. Tower Investors, LLC v. 111 East
Chestnut Consultants, Inc., 371 Ill. App. 3d 1019, 1030, 864
N.E.2d 927 (2007).
The party seeking to prevent the enforcement of a contract
must promptly seek rescission of the contract. Zirp-Burnham, 356
Ill. App. 3d at 604. " ‘Rescission is the cancelling of a
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contract so as to restore the parties to their initial status.’"
Illinois State Bar Association Mutual Insurance Co. v. Coregis
Insurance Co., 355 Ill. App. 3d 156, 165, 821 N.E.2d 706 (2004).
A reviewing court will not disturb the trial court’s decision
granting or denying rescission unless it clearly resulted from an
abuse of discretion. Klucznik v. Nikitopoulos, 152 Ill. App. 3d
323, 327, 503 N.E.2d 1147 (1987).
Rescission is an equitable remedy. A party seeking
rescission must restore the other party to the status quo before
the contract took place. Coregis, 355 Ill. App. 3d at 165;
Martin v. Heinold Commodities, Inc., 163 Ill. 2d 33, 57-58, 643
N.E.2d 734 (1994); Peddinghaus v. Peddinghaus, 314 Ill. App. 3d
900, 907, 733 N.E.2d 797 (2000). Restoration of the status quo
requires the rescinding party to return any consideration it
received from the other party under the contract. Martin, 163
Ill. 2d at 57-58; Fogel v. Enterprise Leasing Co. of Chicago, 353
Ill. App. 3d 165, 173, 817 N.E.2d 1135 (2004).
Where restoration of the status quo is impossible, it does
not necessarily preclude rescission. "Restoration of the status
quo ante will not be required when restoration has been rendered
impossible by circumstances not the fault of the party seeking
rescission, and the party opposing the rescission has obtained a
benefit from the contract." International Insurance Co. v.
Sargent & Lundy, 242 Ill. App. 3d 614, 629, 609 N.E.2d 84211
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(1993), citing John Burns Construction Co. v. Interlake, Inc.,
105 Ill. App. 3d 19, 27, 433 N.E.2d 1126 (1982). See also Hakala
v. Illinois Dodge City Corp., 64 Ill. App. 3d 114, 120, 380
N.E.2d 1177 (1978), citing 77 Am. Jur. 2d Vendor and Purchaser §
565 (1975) (the party seeking rescission "is not required to put
the other party in the same situation in which he was before the
contract, where the latter has rendered it impossible by the
nature of his fraud or other act.")
Sometime between the Land Trust’s execution of the P&S
Agreement and the closing, Peter Testa discovered the Land Trust
was not upside-down on its mortgage loan and told Roncone he
would not pay the $50,000. Because the Land Trust had formally
agreed to sell the property to EDC, it was too late for
defendants to restore the Partnership to its pre-contract
position. The consideration for payment of the $50,000 was the
Land Trust’s execution of the P&S Agreement and the sale of the
subject property. Testa could not return the consideration to
the trust.
It became impossible to place the Partnership in the
position it was in prior to the sale of the property to EDC.
This impossibility is not attributable to defendants but to the
fraudulent misrepresentations made by Roncone. There is no
evidence the purchaser had any knowledge of the Inducement
Agreement. Accordingly, we hold rescission is an available
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remedy to defendants.
To establish an equitable claim for rescission on the basis
of fraud and misrepresentation, defendants must prove: (1) a
false statement of material fact; (2) known or believed to be
false by the party making it; (3) intended to induce the other
party to act; (4) acted on by the other party in reliance on the
truth of the representation; and (5) resulting damage. Fogel,
353 Ill. App. 3d at 171. A misrepresentation is "material" if
the recipient would have acted differently had he been aware of
the falsity of the statement, or if the person making it knew the
statement was likely to induce the recipient to engage in the
conduct in question. Kleinwort Benson North America, Inc. v.
Quantum Financial Services, Inc., 285 Ill. App. 3d 201, 209-10,
673 N.E.2d 369 (1996).
The trial court held Roncone made a fraudulent
misrepresentation when he told Testa the Partnership would be
short $50,000 on its mortgage in the event of a sale. Peter
Testa testified he would not have signed the Inducement Agreement
if Edwin Roncone had not told him he was "upside-down" on his
mortgage. Eugene Roffolo, another unit-owner, testified he
overheard the telephone conversation between Peter Testa and
Edwin Roncone. He heard Roncone say he was going to be short on
his mortgage if he sold his units to EDC. Edwin Roncone denied
being told that Roffolo was listening in on the conversation and
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denied telling Testa he was "upside-down" in his mortgage.
Where factual findings are based on determinations of the
witnesses’ credibility, we generally defer to the trial court.
The trial court, by virtue of its ability to observe the conduct
and demeanor of witnesses, is in the best position to assess
their credibility. In re Commitment of Sandry, 367 Ill. App. 3d
949, 980, 857 N.E.2d 295 (2006). The trial court’s finding that
the Partnership induced the defendants to enter into the
Inducement Agreement through a fraudulent, material
misrepresentation was not against the manifest weight of the
evidence.
An issue raised by the rescission cases is whether the
defendants are required to return the "benefit" they received.
Where restoration of the other party to the status quo is
impossible, the party seeking rescission generally must reimburse
the other party for the value of the benefit it received under
the contract. See Cummings v. Dusenbury, 129 Ill. App. 3d 338,
345-46, 472 N.E.2d 575 (1984) (rescission requires granting an
award to each party to the extent the contract has benefitted the
other); John Burns, 105 Ill. App. 3d at 27 (money damages are
appropriate where actual restoration to status quo is
impossible); Hakala, 64 Ill. App. 3d at 120 (same); Bucciarelli-
Tieger v. Victory Records, Inc., 488 F. Supp. 2d 702, 712-13
(N.D. Ill. 2007) (plaintiffs could not maintain rescission claim
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where they were unwilling to reimburse defendants for the
benefits plaintiffs derived under the agreement). In those
cases, however, rescission was based on unilateral or mutual
mistake, and there was no evidence the party objecting to
rescission committed fraud in inducing the other party to enter
into the contract. See Cummings, 129 Ill. App. 3d at 345-47(unilateral mistake); John Burns, 105 Ill. App. 3d at 25 (mutual
mistake); Hakala, 64 Ill. App. 3d at 119 (mutual or unilateral
mistake); Bucciarelli-Tieger, 488 F. Supp. 2d at 711 (no fraud on
the part of defendants).
There is no doubt the defendants received some benefit from
the Land Trust’s agreement to sell its property. The parties
agree the sale was an all-or-nothing deal. If all the unit-
owners had not agreed to sell, EDC would have withdrawn its
offer. The defendants received approximately $600,000 from the
sale of their units; we do not know the amount of their net
profit. The trial court’s resolution of this issue was to enter
judgment for the plaintiff on the Inducement Agreement but to
disallow any attorneys’ fees and costs. See Kleinwort, 285 Ill.
App. 3d at 216 (trial court has discretion to "fashion an
equitable remedy of rescission if the restoration of the status
quo is impossible.")
We do not believe that allowing the Partnership to collect
$50,000 under the Inducement Agreement is an equitable remedy.
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The Partnership was not short on its mortgage indebtedness as it
claimed. The Partnership would receive an unjust windfall if it
were to profit from its fraud. In addition, it is impossible to
calculate how much of the defendants’ profit was due to the
Partnership’s agreement to sell. All the owners had to agree to
sell; the collective group was responsible for the proceeds
received by individual owners.
We find the Inducement Agreement is invalid as a product of
the Partnership’s fraudulent misrepresentation. We reverse the
trial court’s judgment awarding $50,000 plus interest to the
Partnership.
Based on our holding invalidating the Inducement Agreement,
we find the Partnership is not entitled to attorneys’ fees and
costs pursuant to the agreement. We affirm that part of the
trial court’s order refusing to grant attorneys’ fees and costs
to the Partnership.
CONCLUSION
We reverse the trial court’s order entering judgment in
favor of the plaintiff and against the defendants. We affirm the
order vacating the award of attorneys’ fees.
Affirmed in part and reversed in part.
CAHILL, P.J., and GARCIA, J., concur.
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REPORTER OF DECISIONS - ILLINOIS APPELLATE COURT
(Front Sheet to be Attached to Each Case)
Please use 23-25 BUILDING PARTNERSHIP, an Illinois Partnership,
following form:
Plaintiff-Appellee/
Cross-Appellant,
Complete v.
TITLE
of Case TESTA PRODUCE, INC., an Illinois Corporation, and
PETER W. TESTA, an Individual,
Defendants-Appellants/
Cross-Appellees.
Docket Nos. No. 1-07-0738
COURT Appellate Court of Illinois
First District, 1st Division
Opinion
Filed March 31, 2008
JUSTICES JUSTICE WOLFSON delivered the Opinion of the court:
CAHILL, P.J., and GARCIA, J., concur.
APPEAL from the Lower Court and Trial Judge(s) in form indicated in margin:
Circuit Court of
Cook County; the Appeal from the Circuit Court of Cook County.
Hon.___________,
Judge Presiding. The Hon. Brigid Mary McGrath, Judge Presiding.
For APPELLANTS, Indicate if attorney represents APPELLANTS or APPELLEES and
John Doe, of include attorneys of counsel. Indicate the word NONE if
Chicago. not represented.
For APPELLEES, For Defendants-Appellants/Cross-Appellees: Ronald L.
Smith and Smith, Sandack and John N. Rooks, GAIDO & FINTZEN, of Chicago.
of Chicago.
(Joseph Brown, of For Plaintiff-Appellee/Cross-Appellant: James E.
counsel). Mahoney, GRIFFITH & JACOBSON, LLC, of Chicago.
Also add attor-
neys for third-
party appellants
and/or appellees.
(USE REVERSE SIDE IF NEEDED)
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