Johnson v. Maki & Associates

No. 2--96--0533

________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT
________________________________________________________________

JEANNE JOHNSON, ) Appeal from the Circuit Court
) of Lake County.
Plaintiff-Appellant, )
)
v. ) No. 95--L--2045
)
MAKI AND ASSOCIATES, INC., )
and LARRY DESMOND, ) Honorable
) Jane Drew Waller,
Defendants-Appellees. ) Judge, Presiding.
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PRESIDING JUSTICE GEIGER delivered the opinion of the court:
The plaintiff, Jeanne Johnson, appeals from the April 3, 1996,
order of the circuit court of Lake County dismissing her complaint
for breach of fiduciary duty against the defendants, Maki &
Associates, Inc., and Larry Desmond (collectively referred to as
Maki). The trial court dismissed her complaint after finding that
she had signed a valid release which relinquished all her claims
against Maki. On appeal, she argues (1) that the trial court erred
in finding that the release was valid; and (2) that the trial court
erred in finding that the release had not been procured by fraud.
We reverse and remand.
Our review of the record reveals the following facts. On
October 28, 1994, the plaintiff executed a listing agreement with
Maki to sell her home in Beach Park. On December 31, 1994, the
plaintiff entered into a real estate contract with Tim Ganley and
Virginia Phillips (the buyers) to sell her home. The buyers
deposited $2,000 in earnest money which was held by Maki in an
escrow account. The real estate contract provided that Maki would
not disburse the earnest money unless it was provided a written
demand to do so by both the buyers and the seller.
Prior to closing, the plaintiff and the buyers could not reach
agreement over which repairs the plaintiff would make to the home.
On January 13, 1995, the buyers declared that they would not go
through with the purchase and requested the immediate return of the
earnest money. On May 25, 1995, after the plaintiff had refused to
return the earnest money, the buyers filed suit. After several
months of litigation, the plaintiff agreed to return the earnest
money, and the buyers dismissed their suit.
On October 13, 1995, the plaintiff sent a letter to Maki
directing it to return the earnest money to the buyers. Maki
refused, demanding that the plaintiff sign a document entitled
"Cancellation Agreement For Contract to Purchase Real Estate" (the
cancellation agreement) before it would return the earnest money.
The cancellation agreement contained a general release provision
which provided as follows:
"The Buyer and Seller shall indemnify, save, and hold
harmless Broker and Broker's agents from all claims,
litigations, judgments, and costs arising from the
cancellation of the Contract."
On October 13, 1995, the plaintiff signed the cancellation
agreement.
On December 29, 1995, the plaintiff filed suit against Maki
alleging that Maki had breached its fiduciary duty to her (1) by
making false misrepresentations regarding the buyers' ability to
obtain financing; and (2) by misrepresenting the operation and
effect of the home inspection contingency. The plaintiff also
alleged that Maki had breached its duty of loyalty to her by
instructing her to have her tenants vacate the home even though
Maki should have known that the closing would not occur. The
plaintiff alleged that, as a result of Maki's conduct, she lost
rents, incurred unnecessary repair and inspection expenses, and had
to pay attorney fees in connection with the aborted sale.
On February 28, 1996, Maki filed a motion to dismiss pursuant
to section 2--619 of the Code of Civil Procedure (the Code) (735
ILCS 5/2--619 (West 1994)). Maki argued that the plaintiff's
action was barred by the release contained in the cancellation
agreement. The plaintiff responded that the release was invalid
because it was not supported by consideration and because it had
been procured through fraud.
On April 3, 1996, the trial court granted Maki's motion and
dismissed the plaintiff's action with prejudice. The trial court
found that the release in the cancellation agreement was valid and
that the plaintiff had not demonstrated that the release was
otherwise unenforceable. The plaintiff filed a timely notice of
appeal.
On appeal, the plaintiff argues that the trial court erred in
granting Maki's motion to dismiss. The plaintiff argues that the
release, like any other contract, requires consideration to be
enforceable. She contends that, because she received no
consideration from Maki in return for her promise not to sue, the
release contained in the cancellation agreement is invalid.
In determining the propriety of a motion to dismiss, the trial
court must construe all pleadings and supporting documents in the
light most favorable to the nonmoving party. Bishop v. Lakeland
Animal Hospital, P.C., 268 Ill. App. 3d 114, 116 (1994). The trial
court should grant the motion only if the plaintiff can prove no
set of facts that would support a cause of action. Bishop, 268
Ill. App. 3d at 116. As this process does not require the trial
court to weigh facts or determine credibility, the appellate court
is not required to defer to the trial court's determination and may
review the matter de novo. Bishop, 268 Ill. App. 3d at 116.
A release is a contract whereby one party abandons claims
against another, and its interpretation is governed by the
principles that govern contract law. Farm Credit Bank v. Whitlock,
144 Ill. 2d 440, 447 (1991); Central Production Credit Ass'n v.
Hans, 189 Ill. App. 3d 889, 899 (1989). Our supreme court has held
that a release, like any other contract, requires consideration to
be valid. Toffenetti v. Mellor, 323 Ill. 143, 148 (1926). The
supreme court explained this requirement as follows:
"A valid release must be based upon a consideration before it
can be efficacious in a court of law. Where the promisor
receives no benefit and the promisee suffers no detriment the
whole transaction is in its nature a nudum pactum."
Toffenetti, 323 Ill. at 148.
See also White v. Village of Homewood, 256 Ill. App. 3d 354, 356
(1993).
In reliance upon Aqua-Aerobic Systems, Inc. v. Ravitts, 166
Ill. App. 3d 168, 172 (1988), Maki contends that a release does not
require consideration to be valid. In Aqua-Aerobic, the parties
entered into an employment termination agreement which included a
provision releasing the defendant from a covenant not to compete.
166 Ill. App. 3d at 169. The defendant's former employer later
sued to enforce the covenant not to compete, alleging that the
release was invalid because it lacked consideration. Aqua-Aerobic,
166 Ill. App. 3d at 172. The trial court dismissed the action in
reliance on the release. Aqua-Aerobic, 166 Ill. App. 3d at 170.
On appeal, this court affirmed the trial court and held that a
release from a restrictive covenant need not be supported by
consideration. Aqua-Aerobic, 166 Ill. App. 3d at 172, 173. We
explained our holding as follows:
"[W]e are persuaded that a requirement of consideration for
releases of restrictive covenants is inappropriate. Courts
favor fair competition in business. [Citation.] Thus,
restrictive covenants have long been disfavored by the courts.
[Citation.] Because the courts disfavor restraint covenants,
we are of the opinion that disentanglement from them should be
easily obtainable, especially where both parties to the
agreement desire the abolition of such promise. Where, as
here, the employer has given a written release we can see no
reason to make consideration a requirement of that release.
We therefore hold that a written release of a promise not to
compete is valid absent consideration." Aqua-Aerobic, 166
Ill. App. 3d at 172.
We find Aqua-Aerobic to be distinguishable from the instant
case. In Aqua-Aerobic, the release at issue was a release from a
restrictive covenant. 166 Ill. App. 3d at 169. Because
restrictive covenants are disfavored by law, we determined that it
would be inappropriate to require consideration for releases from
such agreements. Aqua-Aerobic, 166 Ill. App. 3d at 172. In the
instant case, however, the plaintiff signed a release that
effectively relinquished her right to sue Maki for any reason. Not
only does the release protect Maki from liability for releasing the
escrow money, but it also insulates Maki from any claim arising out
of the cancellation of the contract. The right to sue is
significant and cannot be released absent valuable consideration
given in return. See Toffenetti, 323 Ill. at 148; White, 256 Ill.
App. 3d. at 356-57. We therefore hold that the release contained
in the cancellation agreement required consideration to be
valid.
We now turn to the issue of whether Maki provided
consideration in return for the plaintiff's release. The plaintiff
contends that Maki was acting as an escrowee and therefore had a
preexisting legal obligation to return the earnest money to the
buyers at her directive. She concludes that this preexisting legal
obligation cannot constitute consideration for the release. Maki
argues that the cancellation agreement had been made part of the
underlying real estate contract and that, therefore, the release
was supported by the same consideration as the rest of the
contract.
Consideration for a contract consists either of some right,
interest, profit, or benefit accruing to one party or some
forbearance, detriment, loss of responsibility given, suffered, or
undertaken by the other. De Fontaine v. Passalino, 222 Ill. App.
3d 1018, 1028 (1991). The preexisting duty rule provides that
where a party does what it is already legally obligated to do,
there is no consideration because there has been no detriment.
Gavery v. McMahon & Elliott, 283 Ill. App. 3d 484, 489 (1996).
An escrowee has been described as a "trustee" of both the
party making the deposit of property and the party for whose
benefit it is made and, therefore, has a duty to act impartially
toward all parties. Meyers v. Rockford Systems, Inc., 254 Ill.
App. 3d 56, 64 (1993). Like a trustee, the escrowee owes a
fiduciary duty to act only in accordance with the terms of the
escrow instructions. Meyers, 254 Ill. App. 3d at 64. Where money
is deposited in escrow in pursuit of a contract and no enforceable
contract is reached, the escrowee must return the money to the
buyer or depositor. Columbia Homes, Inc. v. Sirois, 115 Ill. App.
3d 651, 653 (1983). Further, any transaction between a fiduciary
and its principal, such as a release, is subjected to the closest
scrutiny by the courts. McCormick v. McCormick, 118 Ill. App. 3d
455, 466 (1983). Our review of the record indicates that Maki was
acting as an escrowee on behalf of the plaintiff and therefore owed
a fiduciary duty to act in accordance with the terms of the escrow
instructions.
The underlying real estate contract provided as follows:
"There shall be no disbursement of earnest money unless
Escrowee has been provided written agreement thereto from
Buyer and Seller."
Pursuant to these instructions, the plaintiff and buyers needed
only to tender a written request to Maki in order for the earnest
money to be disbursed. We find that the obligation to release the
escrow money was a preexisting legal duty under the original real
estate contract and could not constitute consideration for the
release contained in the cancellation agreement. See Columbia
Homes, Inc., 115 Ill. App. 3d at 653. Moreover, we do not believe
that the consideration for the release flowed from the original
contract. A review of the real estate contract indicates that such
a release goes beyond the scope of the bargain agreed to between
the plaintiff and Maki. Nowhere in the original contract does the
plaintiff relinquish her rights to sue Maki. Therefore, the
original real estate contract could not have been the basis for
providing consideration for the release.
For these reasons, we find that the release in the
cancellation agreement lacked consideration and was therefore
invalid. Consequently, we hold that the trial court erred in
dismissing the plaintiff's action. As our resolution of this issue
is dispositive, we need not address the plaintiff's remaining
argument on appeal.
For the foregoing reasons, the judgment of the circuit court
of Lake County dismissing the plaintiff's action is reversed, and
the cause is remanded for further proceedings consistent with this
decision.
Reversed and remanded.
RATHJE and HUTCHINSON, JJ., concur.