Court Opinion

ID: 3147093
Source: CourtListenerOpinion
Date Created: 2015-10-22 18:26:10.600424+00
Date Added: 2024-06-11T15:07:41.853357
License: Public Domain

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
1-07-0738

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 842

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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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