Paper Lace In The House: Court Invalidates $5M Plus Contract to (Sort Of) Use Someone’s Last Name

hello-my-name-isI promise there will be no ‘What’s In a Name?’ (the Bard), “What’s My Name?” (Snoop Dogg) or “I’ve Got a Name” (the late great Jim Croce) references.  And while I’m on the subject – is there anything MORE 1970s AM-JAM or K-Tel then Jim Croce?  I don’t think so.  Well maybe that weird “Billy Don’t Be A Hero” song Ms. Sauer made us sing in third grade music class. (The video is even weirder!  the band members are clad in Civil War garb.  I S thee not!)  Maybe I’m projecting but there always seemed something vaguely dark and unnerving about that song.

No idea where I’m going with this. But consider: would you pay someone $5.5M at your death just because that someone promised to use your last name as a tack-on middle name for his sons?

The First District definitely would not in Dohrmann v. Swaney, 2014 IL App (1st) 131524 (1st Dist. 2014), where the Court entered summary judgment against a plaintiff who sued a former neighbor’s estate to recover about $5.5M in money and assets under a written contract.

In the 1980s, the plaintiff – then a 40-year-old surgeon with a wife and two kids – befriended his elderly neighbor – Mrs. Rogers – a widow who was in her early seventies.  In 2000, when Mrs. Rogers was 89 and the plaintiff was in his mid-fifties, Mrs. Rogers signed a contract drafted by the plaintiff’s estate planning attorney where Mrs. Rogers agreed to transfer at her death, her million-plus dollar apartment, its furnishings and a cool $4M in cash to the plaintiff all for – get this – the plaintiff’s promise to use the widow’s last name (Rogers) by adding it to plaintiff’s son’s middle names and for “past and future services.” That’s It. 

Mrs. Rogers’ stated reason for the transfer (according to plaintiff) was to perpetuate her family name which would provide her with psychological Comfort.

After Mrs. Rogers signed the contract, the plaintiff legally changed his sons middle names to include the Rogers reference.

Over the course of the next several years, Mrs. Rogers transferred the home into a trust and slid further into dementia and a guardian was eventually appointed to manage her affairs.

The plaintiff sued in the Circuit Court to enforce the agreement.  Mrs. Rogers’ (who died while lawsuit was pending) executor defended on the basis that the contractual consideration was grossly inadequate and shocked the conscience.  The trial court agreed and entered summary judgment for the estate.

Held: Affirmed

Reasoning:

The Court found that contractual consideration was lacking and the evidence showed a disparity in bargaining power and over-reaching by the plaintiff.

The black letter contract elements are (1) offer, (2) acceptance and (3) consideration.

Consideration consists of some right, interest or benefit flowing to one party and some corresponding forbearance, detriment or loss from the other.  Any act that benefits one side and disadvantages the other is generally considered sufficient consideration to form a binding contract.  But, where the consideration is so grossly inadequate as to “shock the conscience”, the contract fails.  (¶ 23).

A conscience-shocking failure of consideration is usually found in situations involving fraud and  blatantly one-sided (unconscionable) or oppressive contracts.  If there is a gross disparity in bargaining power or a blatant inequality of value exchanged, the Court will closely scrutinize the agreement and delve into the sufficiency of its consideration.  (¶ 23).  Where there is a complete failure of consideration, the Court can invalidate the entire transaction.  (¶ 24).

Here, the Court found that the contractual consideration was shockingly absent on its face.  For assets totaling $5.5M, all plaintiff had to do was file name change proceedings for his two adult (now) sons who promised to use the Rogers name as part of their name.  But in their depositions, the sons testified that their use of the Rogers name was sporadic at best: they only used it on certain applications and documents through the years.

The First District found that only staggered and unverified name use can hardly qualify for valid consideration: it was an illusory promise. (¶¶33-34).

The other plus-factor cited by the court was the glaring disparity in bargaining power between the parties.  Illinois courts will consider a contracting parties age, education and commercial experience when deciding whether to set aside a contract.

The plaintiff here was the stronger party in every way – physically, mentally and financially.  (¶¶ 37-39).  This obvious disparity  added support for the court’s finding of unfairness.

 

Pawn Broker Wins Priority Dispute Against Creditor Involving Debtor’s Harley Davidson Motorcycle

In Coal City Red-Mix Company v. Kavanaugh, 2014 IL App (3d) 130332-U, two competing creditors – a judgment creditor and a pawn shop – each claimed superior rights to the debtor defendant’s Harley Davidson motorcycle (the “Bike”).  The plaintiff got a default money judgment against the defendant in February 2012 and issued post-judgment citation proceedings to discover whether the defendant had assets to apply to the judgment.  About seven months later, and before he appeared in response to the citation, the defendant secretly pawned the Bike to a local pawn shop for a $3,500 loan.  The pawn shop took possession of the Bike but didn’t take title to it.  The defendant kept the Bike’s title.

When the plaintiff discovered that the defendant pledged the Bike, the plaintiff served a third-party citation on the pawn shop and sought a court order requiring the pawn shop to turn the Bike over to the plaintiff.  After an evidentiary hearing, the Court ruled that the plaintiff had a superior interest in the Bike and the pawn shop appealed.

Held: Reversed.  The pawn shop’s interest in the Bike trumps the plaintiff’s.

Rules/Reasoning:

In finding for the pawn shop, the Court noted that under Illinois judgment collection rules, a creditor like the plaintiff can issue a citation not only to the debtor but also to a third party (like the pawn shop) who has property belonging to the debtor  in its possession.  735 ILCS 5/2-1402(m)(1)-(2).  Once a citation is served, it become a lien on a debtor’s non-exempt personal property.  But a citation lien doesn’t impact the rights of respondents in property prior to service of a citation, and it also doesn’t affect the rights of bona fide purchasers or “lenders without notice” of the citation.  735 ILCS 5/2-1402(m).

Here, the plaintiff properly directed a third party citation to the pawn shop since it had personal property – the Bike – that belonged to the debtor in its possession.  The pawn shop argued that it was a bona fide purchaser since the debtor signed a power of attorney that allowed the pawn shop to transfer title to the Bike if the debtor failed to repay the pawn shop loan.  Illinois law defines a bona fide purchaser as someone “who takes title in good faith for value without notice of outstanding rights or interests of others.”  (¶ 15).  The parties’ intent (and not formalistic labels) determines whether ownership in personal property is transferred.  In this case, the Court found that the pawn broker wasn’t a bona fide purchaser since it had only a possessory interest in the debtor’s Bike.  It never “took title” to it.  (¶¶ 16-17).

But the pawn shop still won the priority dispute.  That’s because it was a  “lender without notice” under Code Section 2-1402(m).

The Illinois Pawnbroker Regulation Act, 205 ILCS 510/0.01 (the Pawnbroker Act)  specifically defines a pawnbroker as an individual or entity that lends money on the deposit or pledge of physically delivered personal property (among other things). (¶23).  A pawn transaction is viewed as a “super secured loan transaction” where the lender (pawn shop) holds a borrower’s personal property as security for a loan.

Here, the pawnbroker was clearly covered by the Pawnbroker Act and so it met the statutory definition of a lender.  The pawn shop also lacked notice of the plaintiff’s prior citation lien since it didn’t find out about plaintiff’s judgment until the plaintiff served the third-party citation and sought the Bike’s turnover.

Since the pawn shop met the statutory definition of a “lender” and because it lacked notice of plaintiff’s prior judgment, it was a “lender without notice” under  Code Section 2-1402(m).  As a result, the plaintiff’s citation lien on the defendant’s property – including the Bike – didn’t affect the rights of the pawn shop.  The pawn shop had superior rights to the Bike over the plaintiff.

Take-away: I can relate to how frustrated the plaintiff creditor must have been in this case.  It followed the supplementary proceedings rules to the letter yet still lost out to a competing (and unwitting) claimant.  If I was in plaintiff’s position,  I think I would now focus my energies on trying to freeze the defendant’s bank account (if he has one), on serving a wage deduction summons on defendant’s employer (if he has a job) or attempting to levy on any of the defendant’s non-exempt personal property.  Either way, this case illustrates how arduous a task it is for a creditor to collect on a money judgment.