Board of Managers v. Bank of Ravenswood

No. 3--97--0230
_________________________________________________________________

IN THE APPELLATE COURT OF ILLINOIS

THIRD DISTRICT

A.D., 1998

BOARD OF MANAGERS OF THE ) Appeal from the Circuit Court
MEDINAH ON THE LAKE ) for the 18th Judicial Circuit,
HOMEOWNERS ASSOCIATION, ) DuPage County, Illinois
Plaintiff/ )
Counter-Defendant, )
)
v. )
)
BANK OF RAVENSWOOD as Trustee )
under Trust No. 25--10165, ) No. 90--L--1198
et al., )
Third Party Plaintiff/ )
Appellant, )
)
v. )
)
120 NORTH LAKEVIEW DRIVE )
CONDOMINIUM BUILDING, et al., ) Honorable
Third Party Defendants/ ) Robert Kilander
Appellees. ) Judge, Presiding
_________________________________________________________________

JUSTICE BRESLIN delivered the opinion of the court:
_________________________________________________________________

At issue is whether a purchaser of real property can develop
property as an assignee of a declarant of a planned unit
development (PUD) when it purchased the property through a
foreclosure sale and did not receive a written assignment of
rights. Based on the intent of the parties, we hold that the
purchaser, plaintiff Bank of Ravenswood (Ravenswood), is a valid
successor and assignee of the declarant and the developer.
Accordingly, we reverse and remand.
FACTS
In 1974, the Village of Bloomingdale approved a PUD of four
lots in the Medinah on the Lake Subdivision. Heritage Bank of
Addison (Heritage Bank) held title to the lots as trustee in trust,
and recorded a declaration of covenants, conditions and
restrictions (declaration). A.P. Ross Enterprises, Inc. (A.P.
Ross) was the sole beneficiary of the trust.
The declaration defined the term "developer" as A.P. Ross "and
its successors and assigns," and the term "declarant" as Heritage
Bank as trustee in trust "and its successors and assigns." The
declaration's preamble provided that the development tract would be
subject to all covenants and restrictions set forth in the
declaration and that these covenants ran with the property. It
also stated that the developer planned to construct a residential
community containing 360 residential units. Article II of the
declaration declared that a common area would be developed for use
as a clubhouse, swimming pool, tennis courts and miniature golf
course. At the time of this appeal, the common area remained
undeveloped. Article XIII of the declaration stated, in part, that
"[t]he Provisions of the declaration shall be liberally construed
to effectuate its purpose for creating a uniform plan of operation
for a first-class development."
According to the PUD, a structure containing 120 residential
units was to be constructed on each of three of the four lots. To
fund the development, Heritage Bank as trustee executed and
delivered a note to Exchange Bank for $850,000.00. A.P. Ross
guaranteed the note and signed a collateral agreement assigning
100% beneficial interest in the Heritage Bank trust to Exchange
Bank upon default. After developing lot two, known as Lakeview
Condominium (Lakeview), Heritage Bank and A.P. Ross became
insolvent, and the property was purchased by Exchange Bank through
a foreclosure proceeding. Eventually Ravenswood Bank acquired the
three undeveloped lots and held title as trustee.
Subsequently, the homeowners association created pursuant to
the declaration filed suit against Ravenswood to recover part of
the operating expenses for maintenance of the common areas.
Ravenswood filed a third-party complaint against Lakeview. In
response to a motion for summary judgment filed by Lakeview, the
trial court ruled that Ravenswood was not the declarant or the
developer and thus had no right to develop or erect any structure
on the property. Partial summary judgment was entered in favor of
Lakeview and Ravenswood appeals.
STANDARD OF REVIEW
Summary judgment is a drastic means of ending litigation.
Bellerive v. Hilton Hotels Corp., 245 Ill. App. 3d 933, 615 N.E.2d 858 (1993). Therefore, it should only be granted when the
pleadings, depositions, admissions and affidavits on file show that
there is no genuine issue of material fact and that the moving
party is entitled to judgment as a matter of law. Thompson v. Green
Garden Mutual Insurance Co., 261 Ill. App. 3d 286, 633 N.E.2d 1327
(1994). This court's review of an order granting summary judgment
is de novo. Johnson v. Owens-Corning Fiberglass Corp., 284 Ill.
App. 3d 669, 672 N.E.2d 885 (1996).

DISCUSSION
The sole issue on appeal is whether the trial court erred in
determining that Lakeview was entitled to judgment as a matter of
law.
The rights to construct and maintain structures reserved by a
declarant or a developer are personal rights. Fairways of County
Lakes Townhouse Ass'n v. Shenandoah Development Corp., 113 Ill.
App. 3d 932, 447 N.E.2d 1367 (1983). Personal rights are those
rights that can only be exercised by the one who created and
imposed the restrictions. Fox Lake Hills Property Owners Ass'n, v.
Fox Lake Hills, Inc., 120 Ill. App. 2d 139, 256 N.E.2d 496 (1970).
Because these rights are reserved by the creator, personal rights
do not run with the land. Fairways, 113 Ill. App. 3d at 936, 447 N.E.2d at 1370. Furthermore, the powers reserved by a declarant or
a developer in a declaration, including the right to develop, can
only be exercised by those parties specifically mentioned, or their
successors or assignees. Toepper v. Brookwood Country Club Road
Ass'n, 204 Ill. App. 3d 479, 561 N.E.2d 1281 (1990).
Rights as a successor accrue when there is a consolidation or
merger of two or more entities, and the purchaser is merely a
continuation of that entity. Fairways, 113 Ill. App. 3d at 937, 447 N.E.2d at 1370; Johnson v. Marshall & Huschart Machinery Co., 66
Ill. App. 3d 766, 384 N.E.2d 141 (1978). An assignee's rights are
established when the assignor transfers an identifiable property,
right, or claim to the assignee. In re Estate of Martinek, 140 Ill.
App. 3d 621, 488 N.E.2d 1332 (1986).
An assignment of a right is a manifestation of the assignor's
intention to transfer a particular right by which the assignor's
right to performance is terminated in whole or in part, and the
assignee acquires the right. Restatement (Second) of Contracts 
317(1)(1981); Season Comfort Corp. v. Ben A. Borenstein Co., 281
Ill. App. 3d 648, 655 N.E.2d 1065 (1995). The creation and
existence of an assignment is determined by the intent of the
parties. Service Adjustment Co., Inc. v. Underwriters at Lloyd's of
London, 205 Ill. App. 3d 329, 562 N.E.2d 1046 (1990). In the
absence of an applicable statute, the manifestation of intent
necessary for a valid assignment need not be in writing. 4 Corbin,
Contracts  879 (1963). When the assignment has not been reduced
to writing, the parties' intentions must be determined based upon
the instruments executed as well as the surrounding circumstances.
Rivan Die Mold Corp. v. Stewart-Warner Corp., 26 Ill. App. 3d 637,
325 N.E.2d 357 (1975). Once established, an assignment places the
assignee into the shoes of the assignor. Martinek, 140 Ill. App. 3d
at 629-30, 488 N.E.2d at 1337.
Initially, Ravenswood asserts that the declaration filed by
Heritage Bank constitutes a restrictive covenant running with the
land. Thus, it has the right to develop the property.
The language of the declaration reserved certain rights and
obligations to the developer and the declarant and their
"successors and assigns." This reservation established a personal
right in the declarant. Once title passed from the hands of
Heritage Bank to a purchaser, the power to develop the lots could
not be exercised by the purchaser without a succession or an
assignment. See Fox Lake Hills, 120 Ill. App. 2d at 145, 256 N.E.2d
at 499. Therefore, Ravenswood does not possess the power to
develop the lots unless it received the developer's rights as a
successor or an assignee.
Ravenswood asserts that it is both an assignee and a successor
of the declarant's and the developer's rights, giving it the right
to develop the remaining lots. Lakeview asserts that Ravenswood
does not possess the rights of an assignee, because the Bank of
Ravenswood does not possess a written assignment of interest from
Heritage Bank or the developer, nor a successor because the banks
did not engage in a merger.
We disagree with the contention that the Bank of Ravenswood is
not an assignee. While a written assignment is preferable, we are
not inclined to find that an effective assignment of rights must be
in writing. Instead, when the intention of the parties to assign
property rights is manifested in an executed instrument and the
surrounding circumstances, the transfer of some identifiable
property to the assignee will create an assignment. See Martinek,
140 Ill. App. 3d at 629, 488 N.E.2d at 1337 (it is well-established
that no particular words are necessary to create a valid
assignment).
Here, the declaration provides that the declarant and the
developer planned to build a total of 360 residential units and the
PUD provided that 120 units would be constructed on each lot. The
developer also agreed to provide the residence with a swimming pool
and other recreational facilities on the designated common areas
lot. Then, before the development plans were fully realized, the
declarant filed bankruptcy and the development corporation ceased
to exist. Taking Lakeview's argument to its logical conclusion,
the lots must now remain vacant for lack of a developer. But after
a detailed review of the record, we find this manifestation of
intent is not supported by the record.
Exchange Bank was granted a security interest in the
beneficial interest of the Heritage Bank trust. According to the
terms of the beneficial interest collateral agreement, A.P. Ross,
as beneficiary of the trust and guarantor of the note, assigned all
its rights powers and interest under the trust, without limitation,
as security. Upon default, Exchange Bank purchased the lots and
its own collateral as trustee of the Heritage Bank trust agreement.
The subsequent conveyances by deed in trust provided that the
successors in trust were fully vested with all the title, estate,
rights and powers of its predecessor in trust. Thus, it was the
intent of each subsequent purchaser of the lots to purchase all the
rights and obligations enjoyed by Heritage Bank as the declarant
and A.P. Ross as the beneficiary developer. Accordingly, based on
the intent of the parties as articulated in the mortgage agreement
and the deeds in trust, we hold that Ravenswood is an assignee of
the declarant and the developer.
We also find that Ravenswood has the right to complete
development of the condominium project as a successor. Clearly
Ravenswood is not a successor under the common law definition of a
successor. See Fairways, 113 Ill. App. 3d at 937, 447 N.E.2d at
1370. However, under the circumstances of this case, we think a
statutory analysis is more appropriate.
In Fairways 113 Ill. App. 3d 932, 447 N.E.2d 1367, and Fox
Lake Hills, 120 Ill. App. 2d 139, 256 N.E.2d 496, the court held
that a purchaser of title did not acquire the right to develop the
purchased property as a successor unless the purchaser was a
continuation of the prior titleholder. Both cases examined only
the common law prerequisites for a successor, which are derived
from common law principles of corporate law. Neither case reviewed
or analyzed the definition of a "developer" under the Illinois
Condominium Property Act (Act), 765 ILCS 605/1 et seq. (West 1996).
Section 2 of the Act states:
"'Developer' means any person who submits property
legally or equitably owned in fee simple by the
developer, ***, to the provisions of this Act, ***
including any successor or successors to such developers'
entire interest in the property other than the purchaser
of an individual unit." 765 ILCS 605/2(q)(West 1996).
The historical and practice notes to this section indicate
that the definition is much broader than a person who develops or
builds a building. 765 ILCS Ann. 605/2(q), Historical & Practice
Notes, at 16-17 (Smith-Hurd 1993). A successor "includes a lender
who succeeds to a developer's interest either by foreclosure or
otherwise." 765 ILCS Ann. 605/2(q), Historical & Practice Notes, at
17 (Smith-Hurd 1993). Although historical and practice notes are
not binding on this court, they can be used as persuasive
authority. Maercker Point Villas Condominium Ass'n v. Szymski, 275
Ill. App. 3d 481, 655 N.E.2d 1192 (1995); Litvak v. 115 Harbor
Drive Condominium Ass'n, Inc., 224 Ill. App. 3d 220, 614 N.E.2d 190
(1993).
In a foreclosure proceeding, the purchaser of the collateral
at the public sale takes title to the property subject to all prior
liens and encumbrances. South Side Bank & Trust Co. v. Sherlock
Homes, Inc., 6 Ill. App. 2d 138, 126 N.E.2d 742 (1955). It follows
that the buyer also purchases the rights and obligations of the
debtor as a successor owner. See Village of Orland Park v. First
Federal Savings & Loan Ass'n of Chicago, 135 Ill. App. 3d 520, 481 N.E.2d 946 (1985)(bank ruled successor owner and held responsible
for construction costs for improvements after purchasing property
through foreclosure sale); see also St.Paul Federal Bank For
Savings v. Wesby, 149 Ill. App. 3d 1059, 501 N.E.2d 707
(1986)(purchaser at foreclosure took interest in property subject
to condominium association's declaration and bylaws filed before
owner purchased property).
In this case, the notes provide a persuasive argument that the
legislature intended to include entities not contemplated under the
common law prerequisites for a successor in the statutory
definition of a "developer". The record reveals that the Bank of
Ravenswood obtained the property in question at a foreclosure sale
after Heritage Bank and the developer became insolvent. Through
the sale, Ravenswood acquired the original developer's rights and
obligations to complete construction of the condominium project.
Thus, Ravenswood became a successor developer.
We are mindful in reaching this decision that there are policy
implications when the corporate law definition of a "successor" is
applied outside its original context to the area of condominium
law. If commercial lenders are precluded from acquiring the
development rights necessary to complete condominium projects
through foreclosure proceedings, the availability of credit will be
greatly diminished. Conversely, the cost of such credit will soar
as lenders seek to be compensated for the greater risk and
potential losses they face when financing these projects. These
changes would seriously undermine the construction of new
condominium units in Illinois. Our finding that Ravenswood is a
successor developer pursuant to the Act, thus, has practical as
well as legal significance.
Last, Lakeview contends that consideration of the purchaser's
intent surrounding the issue of an assignment is contrary to the
law and should not be included in our analysis. In support of this
contention they rely on Fairways, 113 Ill. App. 3d 932, 447 N.E.2d 1367, and Toepper, 204 Ill. App. 3d 479, 561 N.E.2d 1281.
In Fairways, the court held that the purchaser was not a
successor of an initial developer. The court did not analyze
whether the purchaser had the powers and rights of the developer in
light of an assignment. Thus, the intent of the parties was not
considered. Fairways, 113 Ill. App. 3d at 936-37, 447 N.E.2d at
1370-71.
In Toepper, a seller assigned all its rights to develop under
a PUD declaration to a purchaser. Two years later it assigned all
its rights to develop the PUD to the defendants. The court
determined that because the developer had previously assigned its
development rights, it had no such rights to assign to the
defendants. Toepper, 204 Ill. App. 3d at 489, 561 N.E.2d at 1287.
While neither case discussed the intent of the parties to
create an assignment, a discussion of their intent was irrelevant
to the disposition of both cases. In this case, intent is relevant
and, in our opinion, controlling. Accordingly, the finding of the
trial court in favor of Lakeview is reversed, and we order that
partial summary judgment be entered in favor of Bank of Ravenswood.
In light of the above discussion, it is unnecessary for us to
consider Ravenswood's argument that the denial of its development
rights is an unreasonable restriction on the alienation of
property.
For the foregoing reasons the judgment of circuit court of
DuPage County is reversed, and this case is remanded to the trial
court for further proceedings consistent with this opinion.
Reversed and remanded.
HOLDRIDGE and LYTTON, JJ., concur.