Tag: personal property

Real Estate Not Subject To Conversion Claim – IL 2nd Dist.

The Illinois Second District recently reversed a trial court’s imposition of a constructive trust and assessment of punitive damages in a conversion case involving the transfer of real property.

In In re Estate of Yanni, 2015 IL App (2d) 150108, the Public Guardian filed suit on behalf of a disabled property owner (the “Ward”) for conversion and undue influence seeking to recover real estate – the Ward’s home – from the Ward’s son who deeded the home to himself without the Ward’s permission.

The trial court imposed a constructive trust on the property, awarded damages of $150K (the amount the Ward had contributed to the home through the years) and assessed punitive damages against the defendant for wrongful conduct. Defendant appealed.

Reversing, the appeals court held that the trial court should have granted the defendant’s Section 2-615 motion to dismiss since a claim for conversion, by definition, only applies to personal property (i.e. something moveable); not to real estate.

The court first addressed the procedural impact of the defendant answering the complaint after his prior motion to dismiss was denied. Normally, where a party answers a complaint after a court denies his motion to dismiss, he waives any defects in the complaint.

An exception to this rule is where the complaint altogether fails to state a recognized cause of action. If this is the case, the complaint can be attacked at any time and by any means. This is so because “a complaint that fails to state a [recognized] cause of action cannot support a judgment.”

However, this exception allowing complaint attacks at any time doesn’t apply to an incomplete or deficiently pled complaint – such as where a complaint alleges only bare conclusions instead of specific facts in a fraud claim. For a defendant to challenge a complaint after he answers it, the complaint must fail to state a recognized theory of recovery.

Here, the trial court erred because it allowed a judgment for the guardian on a conversion claim where the subject of the action was real property.  In Illinois, there is no recognized cause of action for conversion of real property. A conversion claim only applies to personal property.

Conversion is the wrongful and unauthorized deprivation of personal property from the person entitled to its immediate possession. The conversion plaintiff’s right to possess the property must be “absolute” and “unconditional” and he must make a demand for possession as a precondition to suing for conversion. (¶¶ 20-21)

The court rejected the guardian’s argument that the complaint alleged the defendant’s conversion of funds instead of physical realty.  The court noted that in the complaint, the guardian requested that the home be returned to the Ward’s estate and the Ward be given immediate possession of it.

The court also pointed to the fact that the defendant didn’t receive any funds or sales proceeds from the transfer that could be attached by a conversion claim. All that was alleged was that the defendant deeded the house to himself and his wife without the Ward’s permission. Since there were no liquid funds traceable to the defendant’s conduct, a conversion claim wasn’t a cognizable theory of recovery.

Afterwords:

This case provides some useful reminders about the nature of conversion and the proper timing to attack a complaint.

Conversion only applies to personal property. In an action involving real estate – unless there are specific funds that can be tied to a transfer of the property – conversion is not the right theory of recovery.

In hindsight, if in the plaintiff guardian’s shoes, I think I’d pursue a constructive trust based on equitable claims like a declaratory judgment (that the defendant’s deeding the home to himself is invalid), unjust enrichment and a partition action.

 

Plaintiff Loses Bid to Repossess Dog Gifted to Ex: Illinois Replevin, Personal Property and Gift Law Basics

Koerner v. Nielsen, 2014 IL App (1st) considers the parameters of an inter vivos gift (a gift made during a giver’s lifetime) as they pertain to the question of who owns a dog after the break-up of a romantic relationship.

The plaintiff gave her then-boyfriend (the defendant) a dog (a Stig) for Christmas.  About fourteen months later, the parties’ broke up and the defendant moved out, taking the dog with him.  Plaintiff filed a replevin suit to get the dog back.

A two-day bench trial culminated in a judgment for the defendant. Plaintiff appealed.

Held: Affirmed.  Plaintiff made a gift of the dog to the defendant, defendant accepted the gift, and plaintiff failed to show that the gift was revoked.

Under Illinois personal property and gift law, where a defendant asserts that he owns something based on a gift from a plaintiff, he must prove, by clear and convincing evidence, donative intent: that the owner departed with “exclusive dominion and control over the subject of the gift” and delivered the property to the donee (the party claiming he is the gift’s recipient).

Donative intent is determined at the time of the transfer of property, and is based on what was done or said at the time of transfer, not at some later date.  The delivery element of a gift is satisfied where the parties live together (like here).

A gift in contemplation of marriage (e.g. an engagement ring) is a conditional gift.  If the condition (the marriage) never materializes, the property reverts back to the gifting party.

The court rejected plaintiff’s argument that she never delivered the dog to the defendant.  The plaintiff claimed that since she maintained insurance on the dog at all times and was listed as the owner on the dog’s registration papers, she never relinquished control of the dog.

The court found “documentary title is not conclusive of ownership” and noted that all that is required is that the donor part with exclusive dominion and control.

Since the plaintiff could point to no evidence that showed the gift of the dog to defendant was conditional on a later marriage or continuing the relationship, the court found that the defendant conclusively established that the dog was an unconditional gift to him and that he was the rightful owner.

Take-away:  This case is post-worthy for its discussion of a somewhat arcane legal topic (in the sense that inter vivos gifts are not often the subject of published opinions) in a commonplace fact setting.

The case holds practical relevance for lawyers and non-lawyers alike as it highlights the potential complications that arise when romantic cohabitants break up and there is no formal marital union to neatly divide their personal property upon dissolution.

Land Trust Beneficial Interest is Personal Property; Related Realty Can’t Be Liened by Creditor (IL Law)

It’s easy to robotically parrot the “beneficial interest in a land trust is personal property” rule but First Clover Leaf Bank v. Bank of Edwarsville, 2014 WL 6612947 (5th Dist. 2014) actually examines the rule’s impact against the factual backdrop of a judgment creditor trying to lien a debtor’s residence.

The creditor plaintiff obtained a $400,000-plus judgment against a husband and wife (the “Shareholders”) on various commercial guaranties they signed.  A corporation that the Shareholders each held a 50% stake in was the beneficiary of a land trust that held title to the Shareholders’ home (the “Property”).

When plaintiff learned that the Shareholders were trying to sell the Property for over $700,000, it recorded a lis pendens based on its earlier breach of guaranty judgment.  The lis pendens filing dissuaded the Property’s contract purchaser from closing and a lender later sued to foreclose on the Property.

The plaintiff then filed suit against the land trust, the corporate beneficiary (the Shareholders’ company) and the Shareholders to impose a constructive trust over the foreclosure sale proceeds.  The trial court granted plaintiff’s summary judgment motion and imposed a constructive trust on the proceeds.  The court also held that the corporate beneficiary was the alter ego of the Shareholders and so plaintiff was entitled to a constructive trust on each Shareholder’s equitable interest in the foreclosure sale proceeds.  The land trust appealed.

Held: reversed.  Land trust beneficial interest is personal property; not real property.  As a result, the lis pendens recording didn’t affect the corporate beneficiary’s interest in the Property.

Rules/reasoning:

– A beneficiary’s interest in a land trust is personal property and is not considered real estate;

– To create a security interest in personal property, a creditor must look to Article 9 of the UCC;

– Assignment of a beneficial interest in an Illinois land trust transfers an interest in personal property and does not give the assignee a direct interest in the real estate subject to the trust;

– A lien on a beneficial interest is not a lien on the real estate itself;

– A corporation will be deemed an alter ego of a controlling shareholder where the corporation is inadequately capitalized, doesn’t issue stock or observe corporate formalities, fails to pay dividends, is insolvent, has no records and nonfunctioning officers;

– Illinois has a general reluctance to pierce the corporate veil and a party seeking to pierce must make a substantial showing on all these factors;

– A lis pendens notice can only be filed when real estate is involved (735 ILCS 5/2-1901); it is not proper to file in connection with a personal judgment against someone

(¶¶ 15-18)

Here, the Shareholders had no legal interest in the Property.  They were shareholders in a corporation that was a beneficiary of the land trust that held title to the Property.  The corporate beneficiary’s interest in the land trust was personal property.  Because of this, the Shareholders interest in that corporate beneficiary was also personal property.

The net effect: plaintiff could not impress a lien against the Property in efforts to enforce its guaranty judgments against the Shareholders. Instead, Plaintiff should have filed a UCC financing statement (in the Secretary of State’s office) to lien the beneficial interest in the land trust.  Since the shareholders had no definable legal interest in the Property (it was owned by the land trust), plaintiff couldn’t assert a constructive trust against the Property foreclosure sale proceeds.

Take-away:  A factually convoluted and tortured case that illustrates the challenges creditors face trying to untangle complex webs of corporate protection to reach a controlling individual’s assets.  If in the creditor’s position, in addition to filing a UCC statement, I think I would issue third-party citations on the land trust entity and the corporate beneficiary.  Then, I would try to impress a lien or seek a turnover order as to any of the Shareholders interests in either the land trust or the corporate beneficiary.