West Suburban Bank v. Lattemann

                             No. 2--95--1545

________________________________________________________________

                                 IN THE

                       APPELLATE COURT OF ILLINOIS

                             SECOND DISTRICT

________________________________________________________________

WEST SUBURBAN BANK,             )  Appeal from the Circuit Court

                               )  of Du Page County.

    Plaintiff-Appellee,        )

                               )  

v.                              )  No. 91--CH--0538

                               )

GUNTER LATTEMANN; JUDITH        )

LATTEMANN; SPIRO RESEARCH BY    )

USA, INC.; OLD KENT BANK,       )

N.A.; A&B WIRE FORMS            )

CORPORATION; and UNKNOWN        )

OWNERS,                         )

                               )

    Defendants,                )

                               )  Honorable

(Costas Kappos, Intervenor-     )  Rodney W. Equi,

Appellant).                    )  Judge, Presiding.

________________________________________________________________

    JUSTICE GEIGER delivered the opinion of the court:

    The intervenor, Costas Kappos, was the purchaser at a sale

held pursuant to a judgment foreclosing a second mortgage on

residential real estate.  The plaintiff, West Suburban Bank, was

the mortgagee.  This court vacated the judgment and the sale as

void because the plaintiff failed to serve one of the mortgagors.

We also ruled that Kappos was entitled to the $80,000 he paid for

the property and remanded the cause for further proceedings.  West

Suburban Bank v. Lattemann, No. 2--94--0229 (1995)(unpublished

order under Supreme Court Rule 23).  

    On remand, the plaintiff tendered Kappos the $80,000 and moved

for a voluntary dismissal of its foreclosure complaint (see 735

ILCS 5/2--1009(a) (West 1994)).  Kappos moved for interest on the

$80,000 as part of the restitution to which he was entitled upon

the vacatur of the foreclosure judgment and sale.  The trial court

granted the voluntary dismissal and held that Kappos' demand for

interest was thereby moot.  Kappos timely appealed.

    Kappos argues that the trial court erred in refusing to award

him interest on the $80,000 the plaintiff was required to refund.

He argues that allowing the plaintiff to retain the interest it

earned on money to which it never had a right would deny him full

restitution, frustrating this court's decision and unjustly

enriching the plaintiff.

    We hold that the trial court erred in refusing to consider

Kappos' motion for interest on the refunded purchase price.

Because case law supports awarding interest in these circumstances,

insofar as it is equitable to do so, we reverse the denial of the

motion for interest and remand for a hearing thereon.

    We briefly recount the relevant facts.  On June 20, 1991, the

plaintiff filed its complaint to foreclose a second mortgage on the

property.  On July 16, 1992, the trial court entered a judgment of

foreclosure.  On August 25, 1992, Kappos bought the property for

$80,000 at the sheriff's sale; on September 2, 1992, the trial

court approved the sheriff's report of the sale.  

    In May 1993, Kappos filed his "motion to vacate" the September

2, 1992, order, asserting that the foreclosure sale was invalid.

He claimed that the plaintiff had perpetrated a fraud by getting a

federal district court to shorten the redemption period for the

first mortgage on the property.  As a result, the redemption period

expired before the foreclosure sale.  With no equity of redemption,

the second mortgage had no value.  Thus, according to Kappos, he

paid $80,000 for what the plaintiff knew (and he did not know) was

a worthless interest in the property.  The trial court dismissed

his motion, and Kappos appealed.  

    Without reaching Kappos' fraud claim, this court held that the

judgment of foreclosure was void because the plaintiff had failed

to properly serve one of the defendant mortgagors.   We vacated the

July 16, 1992, order of foreclosure and the September 2, 1992,

order confirming the sale to Kappos and remanded the cause to the

trial court "for proceedings not inconsistent with this opinion."

Lattemann, No. 2--94--0229, slip op. at 10.  On June 13, 1995, we

entered our mandate, which also stated that the two orders were

vacated and that the cause was remanded for further proceedings not

inconsistent with our order.

    On remand, the following events ensued.  On July 11, 1995, the

plaintiff moved for the voluntary dismissal of the foreclosure

suit.  The trial court allowed Kappos to file objections to the

motion and for the plaintiff to reply, and it continued the matter

to August 30, 1995.  On July 16, 1995, Kappos filed a motion for

interest on the $80,000, which had been in the plaintiff's custody

since the foreclosure sale.  He argued it would be inequitable for

the plaintiff to retain the benefit of money to which it had no

right.  He maintained that the restitution to which our order

entitled him would not be complete unless it included both the

$80,000 principal and the interest that accumulated while the

plaintiff improperly held the money.

    The trial court granted the plaintiff's motion for voluntary

dismissal and did not award Kappos any interest.  The trial court

found that the voluntary dismissal of the case mooted Kappos'

request for interest.  The trial court denied Kappos' motion to

reconsider, and Kappos appealed.

    We should also note that Kappos filed another suit against the

plaintiff, seeking damages for its allegedly fraudulent conduct.

The trial court dismissed the action as barred by res judicata

because of the foreclosure judgment, which was on appeal before

this court at the time.  However, this court reinstated the

complaint, explaining that the pending appeal meant the foreclosure

judgment was not final for res judicata purposes.  Kappos v. West

Suburban Bank, No. 2--94--0822 (2d Dist. April 13, 1995).  As of

the filing of the notice of appeal in this case, Kappos' fraud suit

was still before the trial court.  Both suits seek interest on the

purchase money, and Kappos acknowledges he may recover the

requested interest only once.

    Our order in the prior appeal of this case did not explicitly

state that Kappos was entitled to interest on the $80,000 that the

plaintiff was required to refund him.  Our order and mandate stated

only that the cause was remanded for proceedings "not inconsistent

with" our ruling.  However, Kappos maintains that this was

sufficient to require the plaintiff to pay interest on the sum due

because interest is inherent in full restitution.   

    Upon the reversal of a judgment, a party that has received

benefits from the erroneous judgment must make restitution.  Buzz

Barton & Associates, Inc. v. Giannone, 108 Ill. 2d 373, 381-82

(1985).  The trial court's power to order restitution is inherent

in its jurisdiction over the case (Watkins v. Dunbar, 318 Ill. 174,

178 (1925)), and the duty to enforce restitution does not depend on

any direct order from the appellate court (Williamsburg Village

Owners' Ass'n, Inc. v. Lauder Associates, 200 Ill. App. 3d 474, 483

(1990); Rhodes v. Sigler, 44 Ill. App. 3d 375, 378 (1976)).  The

purpose of restitution is to "restore, so far as possible, the

parties to their former position."  Watkins, 318 Ill. at 178; see

also Williamsburg, 200 Ill. App. 3d at 483; Robinson v. Robinson,

100 Ill. App. 3d 437, 444 (1981).  

    In arguing that full restitution includes interest for the

time he was deprived of the use of his money, Kappos relies on

neither statute nor contract but on equitable principles.  Several

Illinois cases do state, albeit mainly in dictum, that interest is

part of the restitution required upon the reversal of a judgment.

    In Thompson v. Davis, 297 Ill. 11 (1921), on which Kappos

relies, the appellate court reversed the foreclosure of a mortgage,

holding that the loan on which it was based was beyond the

authority of the corporate lender (the dock company).  The

appellate court remanded the cause and the mortgagor's trustee in

bankruptcy petitioned for restitution.  The trial court ordered the

dock company to pay the trustee the proceeds from the foreclosure

sale (to a third party) insofar as they were based on the invalid

lien.  The court also ordered the dock company to pay interest on

these proceeds.  The supreme court upheld the restitution order.

The court reasoned that, upon the reversal of the foreclosure

decree, the trial court was required to restore the parties to

their rights by ordering the lender to surrender the advantage it

had gained from the improper judgment.  Thompson, 297 Ill. at 15.

The court approved the award of interest, stating:

         "The [trial] court allowed interest from *** the date of

    the foreclosure decree.  The decree drew interest of which the

    dock company had the benefit, and a court of equity will allow

    interest in a proper case although not within the precise

    terms of the statute providing for interest.  It was equitable

    that the dock company should account for interest."  Thompson,

    297 Ill. at 21.

    Other decisions also uphold the award of equitable interest as

part of the restitution due a party upon the reversal of a

judgment.  In Hutson v. Wood, 263 Ill. 376 (1914), the supreme

court held that a mortgage foreclosure sale was void, entitling the

purchasers to the return of the amount they paid to redeem the

property plus interest from the date of the redemption.  As in

Thompson, it appears that the purchasers' entitlement to interest

on any money due them was not directly at issue.  The court also

held that the purchasers were entitled to be compensated for any

taxes and special assessments they paid and to receive interest

from the date of those payments.  Hutson, 263 Ill. at 393.

    In Erlinger v. Freed, 347 Ill. 588 (1932), a valid judgment

was the subject of an improper execution sale of property that was

protected by a homestead law.  The supreme court held that the

purchaser at the sale, who had in effect paid the judgment

creditor's lien for the owner, was entitled to restitution from the

judgment debtor.  Relying in part on Hutson, the court held (again

without the matter of interest being directly at issue) that,

before she could be declared the sole owner of the real estate, the

debtor had to pay the purchaser what he paid to redeem the

property, plus interest on that sum from the time of the

redemption.  Erlinger, 347 Ill. at 595; see also Bennitt v.

Wilmington Star Mining Co., 119 Ill. 9, 21 (1886).

    In more recent times, the appellate court has upheld the award

of equitable interest as part of restitution for an improper

judgment.  Ryan v. City of Chicago, 274 Ill. App. 3d 913 (1995),

arose out of an earlier appeal in which the city was ordered to pay

about $19 million in simple interest on money it had improperly

withheld from several municipal pension funds.  The city settled

with all but one of the pension funds; the remaining fund requested

not only the wrongfully withheld interest but compound interest--

interest on the interest--for the time before the initial judgment

when the city improperly generated this compound interest.  The

appellate court held that compound interest was proper not as

statutory prejudgment interest but as part of full restitution.

Ryan, 274 Ill. App. 3d at 919-20.  However, Ryan differs from this

case (and the cases just noted) in that, as the court emphasized,

the wrongful withholding was a breach of the city's fiduciary duty.

Ryan, 274 Ill. App. 3d at 919, relying in part on In re Estate of

Wernick, 127 Ill. 2d 61, 87 (1989).

    The doctrine of equitable interest has been sparsely applied

of late, at least absent a fiduciary duty.  Nonetheless, we believe

it is good law.  Hutson, Thompson, and Erlinger have never been

overruled or disapproved.  Their reasoning is sound, and we  are

reluctant to depart from it even if it is considered dicta.  Also,

the general rule elsewhere appears to be that interest is part of

restitution upon the reversal of an erroneous judgment.  See Globe

Indemnity Co. v. Puget Sound Co., 154 F.2d 249, 250 (2d Cir. 1946);

Muchmore Equipment, Inc. v. Grover, 334 N.W.2d 605, 608 (Iowa

1983); Alexander Hamilton Life Insurance Co. v. Lewis, 550 S.W.2d

558 (Ky. 1977); Lytle v. Payette-Oregon Slope Irrigation District,

152 P.2d 934, 940 (Or. 1944); Restatement of Restitution §74,

Comment d, at 307-08 (1937).

    In light of all of the foregoing, we hold that the trial court

erred in refusing to consider Kappos' request for interest on the

$80,000 that the plaintiff refunded him.  Although the amount of

equitable interest depends on all the circumstances and is thus

within the trial court's discretion (Thompson, 297 Ill. at 21;

Ryan, 274 Ill. App. 3d at 919), it was improper for the trial court

to refuse to exercise its discretion at all.  The trial court's

explanation that the voluntary dismissal mooted whether Kappos is

entitled to interest as part of his restitution is simply a non

sequitur.  The power to award interest is inherent in the power to

order restitution, and the plaintiff could not cut off any

preexisting right to full compensation by obtaining the voluntary

dismissal of the case.  The plaintiff cannot shelter a potential

windfall so easily; this would undermine our judgment on the first

appeal of this case.  Therefore, we remand the cause for a hearing

on how much equitable interest is due Kappos.

    The plaintiff argues that Kappos waived any right to interest

by failing to request it either in his original motion to vacate

the foreclosure judgment or in his first appeal to this court.  We

need not decide if this argument is well taken.  The waiver rule is

an admonishment to the parties, not a limitation on our

jurisdiction, and we may disregard waiver in the interests of a

just result and a uniform body of law.  Geise v. Phoenix Co. of

Chicago, Inc., 159 Ill. 2d 507, 514 (1994).  Also, the plaintiff

suggests various reasons that the equities of the case do not favor

awarding Kappos interest on the refunded purchase price.  These

arguments are more appropriately raised in the trial court, which

may consider them fully in the exercise of its discretion.

    We affirm the trial court's award of restitution of the

principal sum, but we reverse its holding that it need not consider

whether Kappos should receive equitable interest.  We remand for a

hearing on Kappos' right to equitable interest on his refunded

purchase money.  Because Kappos objects to the voluntary dismissal

of the foreclosure suit only insofar as it affects his right to

interest, the propriety of the order granting voluntary dismissal

is now moot.

    The judgment of the circuit court of Du Page County is

affirmed in part and reversed in part, and the cause is remanded.

    Affirmed in part and reversed in part; cause remanded.

    BOWMAN and RATHJE, JJ., concur.