Grot v. First Bank of Schaumburg

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SIXTH DIVISION
September 5, 1997

No. 1-96-3792
ZIGGY GROT, ) Appeal from the
) Circuit Court of
Plaintiff-Appellant, ) Cook County.
)
v. )
)
FIRST BANK OF SCHAUMBURG, ) Honorable
) John W. Gustafson,
Defendant-Appellee. ) Judge Presiding

PRESIDING JUSTICE GREIMAN delivered the opinion of the

court:

Ziggy Grot (plaintiff) alleges in count II of his complaint
that First Bank of Schaumburg (defendant or the bank), as land
trustee, breached a fiduciary duty owed to plaintiff by executing
a note and mortgage encumbering the trust property pursuant to an
allegedly forged letter of direction generated by plaintiff's
business partner, Mark Andrzejewski (Andrzejewski).
The trial court entered summary judgment in defendant's
favor, finding that, regardless of any breach, plaintiff suffered
no damages cognizable at law. Plaintiff appeals, contending that
issues of material fact exist that require reversal of the trial
court. For the reasons that follow, we affirm.
Plaintiff's complaint alleges that on January 3, 1992,
plaintiff and Andrzejewski conveyed real property commonly known
as 5153 West Fullerton Avenue in Chicago (Fullerton property) to
the bank as trustee under a trust agreement that required the
signatures of both to direct the trustee. On May 5, 1995,
Andrzejewski delivered a letter to the bank directing the bank to
execute a note in the amount of $70,000 and a mortgage securing
the note in favor of Gerhard Beinhauer (Beinhauer). The letter of
direction bore the signatures of Andrzejewski and plaintiff.
Plaintiff, however, maintains that his signature was forged by
Andrzejewski. The bank executed the note and mortgage (the
Beinhauer loan documents) and the mortgage was thereafter spread
of record.
Count I of plaintiff's complaint stated a cause of action
against Andrzejewski for fraud. Count II alleged that the bank's
execution of the Beinhauer loan documents constituted a breach of
its fiduciary duty and sought damages as a result of the breach.
The bank answered that it did not know whether plaintiff's
signature was forged and denied that the signature did not match
plaintiff's signature on file with the bank. Consequently, the
bank denied that it acted negligently or breached any fiduciary
duty owed plaintiff.
The deposition testimony established that plaintiff and
Andrzejewski began a real estate development partnership in 1991
with their joint purchase of two vacant lots in Chicago.
Achieving modest success with their initial venture, the two
acquired the Fullerton property for $200,000 shortly thereafter.
They financed the acquisition with $80,000 in cash and the
remainder through a jointly executed promissory note secured by a
mortgage granted by an unrelated financial institution. The
partners then executed and delivered a warranty deed conveying
title to the Fullerton property to the bank as trustee.
In 1993, they refinanced the note and mortgage with a
$150,000 loan. During the next two years, plaintiff and
Andrzejewski became involved in several additional projects,
including the California Subdivision Project and the Alexandria
Subdivision Project. Financial difficulties arising from the
California Subdivision Project ultimately caused the need for
additional funds.
To address their financial difficulties, plaintiff and
Andrzejewski signed an application for a letter of credit, dated
May 23, 1994. As security for the letter of credit, plaintiff and
Andrzejewski, as president and vice-president of Property
International (the name of the entity that developed the
property) and individually, along with two newly acquired
partners, executed a $140,000 promissory note payable to the
bank.
Beinhauer held 100% beneficial interest and power of
direction in the land trust that owned the Alexandria subdivision
property. Following completion of the Alexandria project, and in
an effort to solve the financial problems associated with the
California Subdivision Project, Andrzejewski entered into an
agreement with Beinhauer to borrow $70,000 of Beinhauer's profits
from his sale of two of the Alexandria lots. The loan was to be
secured by a promissory note, mortgage and assignment of rents in
favor of Beinhauer on the Fullerton property. The bank, as
trustee, was directed to execute the note and mortgage by a
letter of direction signed by Andrzejewski and which allegedly
bore plaintiff's forged signature. It was the act of executing
these security documents that plaintiff claims was a breach of
the bank's fiduciary duty owed to him as a joint beneficiary
under the land trust.
The $70,000 proceeds of the loan were placed in a money
market account in Property International's name. To cover their
share of the existing $140,000 note, plaintiff and Andrzejewski
pledged the money market account to the bank. At some point after
the above events, plaintiff claimed that he first learned of the
Beinhauer loan documents.
On August 22, 1995, plaintiff, armed with knowledge of the
note and mortgage secured by the Fullerton property, executed
with Andrzejewski a letter of direction to the bank as trustee
conveying the Fullerton property to CIB Bank under trust number
90-5039. Plaintiff and Andrzejewski subsequently agreed that
Andrzejewski would release his interest in the Fullerton property
in exchange for plaintiff's interest in Property International's
stock, thus giving each party all of the interest in the
respective property assigned or conveyed to him. In September
1995, plaintiff filed the instant complaint.
Thereafter, plaintiff refinanced the Fullerton property and
used some of the proceeds to satisfy the $150,000 mortgage with
the bank and to pay the Beinhauer loan. Plaintiff retained the
balance of $5,142.
Following the depositions of plaintiff and Andrzejewski, the
bank filed its motion for summary judgment, attaching transcripts
of the depositions. The trial court granted the bank's motion
upon its finding that plaintiff suffered no damages because the
Beinhauer loan documents were void to the extent they were based
on a forgery.
Summary judgment is proper when the pleadings, depositions,
and admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact and
that the moving party is entitled to judgment as a matter of law.
735 ILCS 5/2-1005 (West 1994); Addison v. Whittenberg, 124 Ill. 2d 287, 294 (1988). An order allowing summary judgment will be
reversed on appeal if the reviewing court determines that a
genuine issue of material fact exists. Addison, 124 Ill. 2d at
294. Our review of a grant of summary judgment is de novo.
Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 102 (1992).
The trial court entered summary judgment for the bank based
on its findings that plaintiff's signature was forged and, as a
result, the note and mortgage created in favor of Beinhauer were
void ab initio. Specifically, the trial court ruled:
"Plaintiff incurred no damage by reason of Trustee's
[bank's] acceptance of the alleged forged letter of
direction and execution of the Note, Mortgage and
Assignment of rents in that any payment to Beinhauer by
Plaintiff was unnecessary to remove the lien of the
mortgage on the Property because the mortgage was void.
Had Plaintiff incurred expenses to quiet title to
the Property by reason of the cloud on title created by
the recorded voided mortgage, such damages would have been
recoverable upon proof of the forgery, and the Trustee's
negligence in failing to detect it."
Initially, as to the relationship between beneficiaries and
trustees under a land trust, land trusts are to be treated no
differently from any other trust. Home Federal Savings & Loan
Ass'n v. Zarkin, 89 Ill. 2d 232 (1982). Land trustees in Illinois
are, therefore, subject to the fiduciary duties imposed by law on
all trustees. Zarkin, 89 Ill. 2d at 239.
When a trustee breaches a trust agreement, whether wilfully,
negligently, or by oversight, he is liable for any loss to the
estate resulting from the breach and must place the beneficiaries
in the position they would have held had the breach not occurred.
Progressive Land Developers, Inc. v. Exchange Nat'l Bank, 266
Ill. App. 3d 934, 942 (1994). Specifically, a trustee in
violation of the trust is chargeable with (1) any loss or
depreciation in value of the trust property as a result of the
breach; or (2) any profit made by him as a result of the breach;
or (3) any profit which would have accrued to the trust had there
been no breach. Progressive, 266 Ill. App. 3d at 942-43.
The trial court's decision was influenced by the bank's
citation and reliance on Chrystyan v. Feinberg, 156 Ill. App. 3d
781 (1987). The issue in Chrystyan was whether a letter of
direction containing the forged signature of the plaintiff was
legally sufficient to sever a joint tenancy. Chrystyan, 156 Ill.
App. 3d at 784. In Chrystyan, the trust agreement authorized the
trustee to deal with the property only "on the written direction
of [both joint tenants]." Chrystyan, 156 Ill. App. 3d at 785. The
trustee received a letter of direction purportedly signed by both
joint tenants directing the trustee to convey the property to the
defendant joint tenant individually, thus severing the joint
tenancy. The trustee made the instructed conveyance. Chrystyan,
156 Ill. App. 3d at 784.
The appellate court found that since the letter of direction
contained the forged signature of the plaintiff joint tenant, the
trustee's "conveyance was void because it did not adhere to the
terms of the trust instrument and thus, was unable in law to
effect a severance." Chrystyan, 156 Ill. App. 3d at 786. The
court defined "void" as "'null; ineffectual; nugatory; having no
legal force or binding effect; unable, in law, to support the
purpose for which it was intended'". Chrystyan, 156 Ill. App. 3d
at 784, quoting (Black's Law Dictionary 1411 (5th ed. 1979)); see
also D'Wolf v. Hayden, 24 Ill. 525 (1860) (a forgery can pass no
title, even to an innocent party).
The bank adopts this argument, contending that, since the
Beinhauer loan documents bore plaintiff's forged signature, the
note and mortgage in favor of Beinhauer were "void." That is,
Beinhauer never received a valid mortgage on the Fullerton
property. Consequently, the bank argues, "[plaintiff] suffered no
damages arising from the Trustee's purported breach of fiduciary
duties" and plaintiff is unable to establish a cause of action
for which damages are available.
While we agree that summary judgment for the bank was
proper, our reasons differ from those of the trial court.
Chrystyan, however, is easily distinguished from the instant case
and must be considered on its narrow facts. That case deals with
the original parties, or those taking under them, rather than a
bona fide purchaser for value without notice of any infirmities.
We are reluctant to use the term "void" where the rights of an
innocent third party have intervened. This is particularly the
case when we consider that the actual documents (the note and
mortgage) are not forgeries and there is no way for the grantee
or mortgagee to determine the forgery of documents between the
trustee and its beneficiaries. While we need not address the
issue directly, as between a bona fide purchaser without notice
and one who has established a trust that dispenses with the
necessity of his signature being acknowledged and spread of
record, the equities would seem to be with the bona fide
purchaser.
We review the grant of summary judgment de novo and may
affirm the decision on any ground in the record, regardless of
whether the trial court relied on that ground or whether the
court's reasoning was correct. Pepper Construction Co. v.
Transcontinental Insurance Co., 285 Ill. App. 3d 573 (1996);
Werckenthein v. Bucher Petrochemical Co., 248 Ill. App. 3d 282
(1993). In the present case, plaintiff cannot, as a matter of
law, support his claim of damages where plaintiff enjoyed the
benefit of the partnership borrowing and apparently divided
partnership assets with knowledge of the encumbrance.
The undisputed facts show that plaintiff directly benefitted
from the Beinhauer loan as the proceeds from the loan were
applied to satisfy obligations on the California Subdivision
Project for which plaintiff was personally liable. Moreover,
plaintiff and Andrzejewski agreed to divide partnership assets,
plaintiff retaining the trust property, with knowledge of
Beinhauer's mortgage, while Andrzejewski received 100% of
Property International's stock.
A party that accepts the benefits of an agreement is
estopped from denying its existence or from performing
obligations under the agreement. Wasserman v. Autohaus on Edens,
Inc., 202 Ill. App. 3d 229, 238-39 (1990); Cashman v. Shinn, 109
Ill. App. 3d 1112, 1117 (1982). Additionally, plaintiff's act of
accepting the trust property subject to indebtedness operates as
a ratification of the Beinhauer loan agreement at least as far as
any liability of the bank. See Old Security Life Insurance Co. v.
Continental Illinois National Bank & Trust Co., 740 F.2d 1384,
1392 (7th Cir. 1984) (a principal ratifies a contract made by an
agent when, with knowledge of all material facts, it either
expresses its assent to the contract or fails to disaffirm the
contract within a reasonable time and accepts benefits under it);
Peskin v. Deutsch, 134 Ill. App. 3d 48 (1985).
Most importantly, when a trustee breaches a trust agreement,
whether wilfully, negligently, or by oversight, he is liable for
any loss to the estate resulting from the breach and must place
the beneficiaries in the position they would have held had the
breach not occurred. Progressive Land Developers, 266 Ill. App.
3d at 942. Here, plaintiff benefitted from the bank's "breach"
and ratified the agreement based on the alleged forgery.
Moreover, plaintiff's act of acquiring the trust property from
Andrzejewski and transferring that property into a new trust
account with another lender, left the bank without recourse or
even jurisdiction over the trust corpus.
We express no opinion as to the ramifications of such
estoppel in the action against Andrzejewski where the issue of
that defendant's fraud, at worst, or unauthorized action, at
least, are under consideration.
For these reasons, we agree that the bank is entitled to
judgment as a matter of law and, accordingly, affirm the trial
court's entry of summary judgment.
Affirmed.
THEIS, J., and QUINN, J., concur.

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