All About Illinois Land Trusts

The Seventh Circuit recently provided a good primer on Illinois land trust property ownership in Stable Investments Partnership v. Vilsack, 2015 WL 55466 (7th Cir. 2015).

There, the court agreed with the Northern District and found that an Illinois land trust beneficiary wasn’t an “owner” under a Federal farm subsidy program operated by the U.S. Department of Agriculture.

Land Trust Basics

Affirming summary judgment for the government defendant, the Seventh Circuit highlighted some key elements of an Illinois land trust:

– In a land trust, the trustee holds both legal and equitable title to the land trust property;

– The land trust beneficiary holds a personal property interest in the trust proceeds and has the exclusive power to direct the trustee in its dealings with the property;

– Since the beneficiary’s land trust interest is personal property (e.g. like a car, bank account, anything moveable), that interest can be freely sold, assigned or transferred by the beneficiary;

– While the trustee is held out to the world as the property owner, it is the beneficiary who exercises the powers of ownership;

– Two main advantages of land trust ownership over competing methods include: (1) Anonymity: identity of trust beneficiaries are shielded from public knowledge – one must usually file suit to ID a land trust beneficiary; and (2) interests in the property can be pledged, assigned or sold easier than with other ownership methods;

– A land trust beneficiary is the real party in interest concerning issues involving management and control of the land. By contrast, a land trust trustee is the dominant party for issues involving property title and public record filings a third party would likely consult when faced with a property dispute.

(**1, 4)

Citing Illinois case law and these principles, the Court found that the USDA properly exercised its discretion in ruling that the land trust beneficiary was not a statutory “owner” under the farm subsidies program.

Additional Land Trust Features

The Illinois Department of Professional Regulation (“IDPR”) echoes and amplifies some of the key land trust features on its Web page. Here are some land trust traits singled out for special mention by the site:

– A land trust may be created by anyone capable of entering into a contract–an individual; a group of people, a joint venture or a business association;

– Since the beneficiary retains complete control of the real estate, he can end the trust or add more property to it anytime he wants;

– The trustee executes deeds and mortgages and deals with the property only if directed in writing by the beneficiary.

– When the property is held in a land trust, a judgment against one beneficiary doesn’t lien the real estate (see http://paulporvaznik.com/land-trust-beneficial-interest-personal-property-related-realty-cant-liened-creditor-il-law/6540);

– A land trust is uniquely suited to disposing of only a partial interest in realty. Since the beneficial interest can be transferred by assignment, no deed is required. This flexibility feature is important when real estate is held by multiple parties

– To create a land trust, you execute a trust agreement at the time the real estate is purchased or after it has been acquired. The agreement gives the beneficiary power to direct a corporate fiduciary (the trustee) to hold title to the real estate. The beneficiary can then dictate to the trustee who has authority to manage and control the property, whether and when the property can be sold and to whom and who becomes owner upon your death.

See http://www.idfpr.com/banks/consumer/tips/TRUSTS.ASP

Afterwords:

With land trust ownership seemingly gaining in popularity, Illinois real estate professionals – be they buyers, sellers, realtors or attorneys – should have a working knowledge of the basic attributes and effects of land trust ownership.

← Back

Thank you for your response. ✨

Amended Complaints and Quantum Meruit – Some Illinois Reminders

Earlier (http://paulporvaznik.com/quantum-meruit-basics-illinois-law/1367) I discussed how quantum meruit is a valuable fallback or “Plan B” theory of recovery when a client has done work for someone, hasn’t been paid and there is no governing express contract between them.  Quantum meruit (translation: “as much as he deserves”) ensures that my client at least gets something where his  services have benefitted a defendant who welcomed the services or stood silently as my client performed them.

Blietz v. System Integration, 2014 IL App (1st) 132270-U examines the pleading elements of quantum meruit and the importance of assigning a monetary value to the services that form the basis for the quantum meruit suit.

There, the Plaintiff sued his former employer – an architecture firm – to recover about $300K in unpaid compensation for accounting and marketing services the plaintiff rendered for the firm.  He brought claims for breach of contract, a statutory wage payment and collection act claim and an alternative quantum meruit action.

The trial court dismissed the claims for lack of factual specifics and the architect appealed.

Held: Affirmed

Q: Why:

A: The appeals court affirmed dismissal of the plaintiff’s breach of contract and wage payment claim on purely procedural grounds.  When a plaintiff files an amended complaint, he waives objections to the court’s ruling on prior complaints.  Where an amendment is complete in itself and doesn’t refer to or adopt the prior pleading, the prior pleading ceases to be part of the record and it’s viewed as abandoned.  A party only needs to reference an earlier pleading in a footnote or a single paragraph to preserve it for appellate review.

Here, by failing to adopt or reference his breach of contract and wage count claims in his most recent pleading, these claims were abandoned and unappealable.

The court also affirmed plaintiff’s quantum meruit dismissal.  To recover in quantum meruit, the plaintiff must plead (1) he performed services, (2) that benefitted a defendant, (3) that it’s unjust for the defendant to reap the benefits of the plaintiff’s services without paying the plaintiff. 

The quantum meruit plaintiff has the burden to show the defendant received the plaintiff’s services and that it would be unjust for the defendant to retain the services without paying for them.  Critically, the plaintiff must prove his services were of “measurable benefit” to the defendant.  (¶25).

The plaintiff’s quantum meruit claim failed on its face.  The plaintiff didn’t monetize the value of his unpaid work but did say he was paid over $96K during his tenure with the defendant.  By doing so, plaintiff had to plead that he performed work that had a value over and above the $96K paid to him.  Because the plaintiff couldn’t plead work that exceeded the $96K paid him, he failed to allege that he conferred a measurable benefit on the defendant.

Plaintiff’s bare allegations that he “created value” for defendant and “greatly increased” the defendant’s company value during plaintiff’s tenure were too nebulous to survive a motion to dismiss.  Under Illinois fact-pleading rules, these bare bones allegations with no factual support didn’t provide a calculable amount of the claimed services.  As a result, plaintiff’s quantum meruit claim failed.  (¶ 29).

Afterwords:

A.  To preserve your right to appeal a dismissed count, you should reference it in the amended pleading – otherwise the count is abandoned and can’t be appealed;

B.  Quantum meruit only applies where there is no express contract or a contract formation defect (e.g. uncertain price term, duration, etc) that makes a basic breach of contract claim impossible;

B.  The quantum meruit plaintiff must do more than nakedly plead that he performed services that benefitted a defendant.  He must instead allege he provided quantifiable value to the defendant and also plead surrounding facts that show it’s unfair for the defendant to enjoy the fruits of the plaintiff’s services without paying him.

 

 

Statute Of Frauds Doesn’t Prevent Guaranty Claim Where Main Purpose Is To Benefit Guarantor- IL First Dist.

66381928 Photo credit: www.template.net (1.21.15)

 

I’m surprised at how often I see contracts where it’s unclear whom the parties are.  Sometimes, a contract’s main text will say it’s between two companies but it’s clearly signed by two individuals. I’ve also experienced the reverse: the contract body says it’s between two individuals but the signature block provides that it’s signed by corporate agents on behalf of their corporate employers.  When the contract is breached, it becomes a challenge to sort out who’s entitled to sue and who should be named as defendant.

Sullivan & Crouth Holdings, LLC v. Ceko, 2014 IL App (1st) 133028-U examines the impact of conflicting language in a promissory note and how textual contradictions affect the note’s enforceability.

Plaintiff sued the guarantor defendant for breach of a $100K promissory note (“Note”). The Note was between an LLC borrower and a lender but the Note body provided that the individual defendant (the LLC’s manager) will personally guarantee payment of the Note.

The Note signature line read:

 “MGT Lottery, LLC”

 By: [Peter Ceko]

 Peter Ceko, One of Its Managers

The defendant moved for summary judgment on the basis that he signed the Note purely in his capacity as LLC manager – as reflected by the “one of its managers” notation in the signature line.  He also argued that plaintiff’s claim was barred by the Statute of Frauds, 740 ILCS 80/1 (“SOF”) provisions that require a writing to enforce a promise to pay another’s debt (example: a guaranty).  The trial court agreed and entered summary judgment for the defendant and the plaintiff appealed.

Held: Reversed.

Q: Why?

A: There was a facial inconsistency between the Note and its signature line. The Note clearly reflected the intent for the defendant to personally guaranty the LLC borrower obligations yet the defendant clearly signed the Note as LLC manager.

In Illinois, where language in the body of a contract clashes with the apparent representation by the officer’s signature, it’s  an issue of fact for a jury or judge to decide.

The court found that based on its conflicting language, the Note was ambiguous – it was reasonably subject to differing interpretations.  The murky Note, then, required the parties to submit additional evidence of their intent.

The Court also found there was a question of fact as to whether the SOF defeated the plaintiff’s claim.  The SOF requires the promise to pay the debt of another to be in writing.  An exception to this rule is where the “main purpose” or “leading object” of the promisor is to advance his own business interest.  Whether a promisor’s main purpose is to further his personal interest (as opposed to benefit the promisee) is a fact question that defeats summary judgment. 

The court found the record too sparse to discern the LLC manager’s main reason for signing the Note.  As a result, more evidence was needed and summary judgment was improper.

Afterwords:

– Parties to a contract should take pains to specify whether it’s a corporate or individual obligation;

– Where there is a clash between the body of a written contract and its signature block, this will likely signal a fact question that defeats summary judgment;

– The requirement that a promise to pay a third party’s debt be in writing can be tempered where the promisor is signing a contract to advance his own economic interest. 

← Back

Thank you for your response. ✨