West Suburban Bank v. Lattemann

No. 2--95--1545

________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT
________________________________________________________________

WEST SUBURBAN BANK, ) Appeal from the Circuit Court
) of Du Page County.
Plaintiff-Appellee, )
)
v. ) No. 91--CH--0538
)
GUNTER LATTEMANN; JUDITH )
LATTEMANN; SPIRO RESEARCH BY )
USA, INC.; OLD KENT BANK, )
N.A.; A&B WIRE FORMS )
CORPORATION; and UNKNOWN )
OWNERS, )
)
Defendants, )
) Honorable
(Costas Kappos, Intervenor- ) Rodney W. Equi,
Appellant). ) Judge, Presiding.
________________________________________________________________

JUSTICE GEIGER delivered the opinion of the court:

The intervenor, Costas Kappos, was the purchaser at a sale
held pursuant to a judgment foreclosing a second mortgage on
residential real estate. The plaintiff, West Suburban Bank, was
the mortgagee. This court vacated the judgment and the sale as
void because the plaintiff failed to serve one of the mortgagors.
We also ruled that Kappos was entitled to the $80,000 he paid for
the property and remanded the cause for further proceedings. West
Suburban Bank v. Lattemann, No. 2--94--0229 (1995)(unpublished
order under Supreme Court Rule 23).
On remand, the plaintiff tendered Kappos the $80,000 and moved
for a voluntary dismissal of its foreclosure complaint (see 735
ILCS 5/2--1009(a) (West 1994)). Kappos moved for interest on the
$80,000 as part of the restitution to which he was entitled upon
the vacatur of the foreclosure judgment and sale. The trial court
granted the voluntary dismissal and held that Kappos' demand for
interest was thereby moot. Kappos timely appealed.
Kappos argues that the trial court erred in refusing to award
him interest on the $80,000 the plaintiff was required to refund.
He argues that allowing the plaintiff to retain the interest it
earned on money to which it never had a right would deny him full
restitution, frustrating this court's decision and unjustly
enriching the plaintiff.
We hold that the trial court erred in refusing to consider
Kappos' motion for interest on the refunded purchase price.
Because case law supports awarding interest in these circumstances,
insofar as it is equitable to do so, we reverse the denial of the
motion for interest and remand for a hearing thereon.
We briefly recount the relevant facts. On June 20, 1991, the
plaintiff filed its complaint to foreclose a second mortgage on the
property. On July 16, 1992, the trial court entered a judgment of
foreclosure. On August 25, 1992, Kappos bought the property for
$80,000 at the sheriff's sale; on September 2, 1992, the trial
court approved the sheriff's report of the sale.
In May 1993, Kappos filed his "motion to vacate" the September
2, 1992, order, asserting that the foreclosure sale was invalid.
He claimed that the plaintiff had perpetrated a fraud by getting a
federal district court to shorten the redemption period for the
first mortgage on the property. As a result, the redemption period
expired before the foreclosure sale. With no equity of redemption,
the second mortgage had no value. Thus, according to Kappos, he
paid $80,000 for what the plaintiff knew (and he did not know) was
a worthless interest in the property. The trial court dismissed
his motion, and Kappos appealed.
Without reaching Kappos' fraud claim, this court held that the
judgment of foreclosure was void because the plaintiff had failed
to properly serve one of the defendant mortgagors. We vacated the
July 16, 1992, order of foreclosure and the September 2, 1992,
order confirming the sale to Kappos and remanded the cause to the
trial court "for proceedings not inconsistent with this opinion."
Lattemann, No. 2--94--0229, slip op. at 10. On June 13, 1995, we
entered our mandate, which also stated that the two orders were
vacated and that the cause was remanded for further proceedings not
inconsistent with our order.
On remand, the following events ensued. On July 11, 1995, the
plaintiff moved for the voluntary dismissal of the foreclosure
suit. The trial court allowed Kappos to file objections to the
motion and for the plaintiff to reply, and it continued the matter
to August 30, 1995. On July 16, 1995, Kappos filed a motion for
interest on the $80,000, which had been in the plaintiff's custody
since the foreclosure sale. He argued it would be inequitable for
the plaintiff to retain the benefit of money to which it had no
right. He maintained that the restitution to which our order
entitled him would not be complete unless it included both the
$80,000 principal and the interest that accumulated while the
plaintiff improperly held the money.
The trial court granted the plaintiff's motion for voluntary
dismissal and did not award Kappos any interest. The trial court
found that the voluntary dismissal of the case mooted Kappos'
request for interest. The trial court denied Kappos' motion to
reconsider, and Kappos appealed.
We should also note that Kappos filed another suit against the
plaintiff, seeking damages for its allegedly fraudulent conduct.
The trial court dismissed the action as barred by res judicata
because of the foreclosure judgment, which was on appeal before
this court at the time. However, this court reinstated the
complaint, explaining that the pending appeal meant the foreclosure
judgment was not final for res judicata purposes. Kappos v. West
Suburban Bank, No. 2--94--0822 (2d Dist. April 13, 1995). As of
the filing of the notice of appeal in this case, Kappos' fraud suit
was still before the trial court. Both suits seek interest on the
purchase money, and Kappos acknowledges he may recover the
requested interest only once.
Our order in the prior appeal of this case did not explicitly
state that Kappos was entitled to interest on the $80,000 that the
plaintiff was required to refund him. Our order and mandate stated
only that the cause was remanded for proceedings "not inconsistent
with" our ruling. However, Kappos maintains that this was
sufficient to require the plaintiff to pay interest on the sum due
because interest is inherent in full restitution.
Upon the reversal of a judgment, a party that has received
benefits from the erroneous judgment must make restitution. Buzz
Barton & Associates, Inc. v. Giannone, 108 Ill. 2d 373, 381-82
(1985). The trial court's power to order restitution is inherent
in its jurisdiction over the case (Watkins v. Dunbar, 318 Ill. 174,
178 (1925)), and the duty to enforce restitution does not depend on
any direct order from the appellate court (Williamsburg Village
Owners' Ass'n, Inc. v. Lauder Associates, 200 Ill. App. 3d 474, 483
(1990); Rhodes v. Sigler, 44 Ill. App. 3d 375, 378 (1976)). The
purpose of restitution is to "restore, so far as possible, the
parties to their former position." Watkins, 318 Ill. at 178; see
also Williamsburg, 200 Ill. App. 3d at 483; Robinson v. Robinson,
100 Ill. App. 3d 437, 444 (1981).
In arguing that full restitution includes interest for the
time he was deprived of the use of his money, Kappos relies on
neither statute nor contract but on equitable principles. Several
Illinois cases do state, albeit mainly in dictum, that interest is
part of the restitution required upon the reversal of a judgment.
In Thompson v. Davis, 297 Ill. 11 (1921), on which Kappos
relies, the appellate court reversed the foreclosure of a mortgage,
holding that the loan on which it was based was beyond the
authority of the corporate lender (the dock company). The
appellate court remanded the cause and the mortgagor's trustee in
bankruptcy petitioned for restitution. The trial court ordered the
dock company to pay the trustee the proceeds from the foreclosure
sale (to a third party) insofar as they were based on the invalid
lien. The court also ordered the dock company to pay interest on
these proceeds. The supreme court upheld the restitution order.
The court reasoned that, upon the reversal of the foreclosure
decree, the trial court was required to restore the parties to
their rights by ordering the lender to surrender the advantage it
had gained from the improper judgment. Thompson, 297 Ill. at 15.
The court approved the award of interest, stating:
"The [trial] court allowed interest from *** the date of
the foreclosure decree. The decree drew interest of which the
dock company had the benefit, and a court of equity will allow
interest in a proper case although not within the precise
terms of the statute providing for interest. It was equitable
that the dock company should account for interest." Thompson,
297 Ill. at 21.
Other decisions also uphold the award of equitable interest as
part of the restitution due a party upon the reversal of a
judgment. In Hutson v. Wood, 263 Ill. 376 (1914), the supreme
court held that a mortgage foreclosure sale was void, entitling the
purchasers to the return of the amount they paid to redeem the
property plus interest from the date of the redemption. As in
Thompson, it appears that the purchasers' entitlement to interest
on any money due them was not directly at issue. The court also
held that the purchasers were entitled to be compensated for any
taxes and special assessments they paid and to receive interest
from the date of those payments. Hutson, 263 Ill. at 393.
In Erlinger v. Freed, 347 Ill. 588 (1932), a valid judgment
was the subject of an improper execution sale of property that was
protected by a homestead law. The supreme court held that the
purchaser at the sale, who had in effect paid the judgment
creditor's lien for the owner, was entitled to restitution from the
judgment debtor. Relying in part on Hutson, the court held (again
without the matter of interest being directly at issue) that,
before she could be declared the sole owner of the real estate, the
debtor had to pay the purchaser what he paid to redeem the
property, plus interest on that sum from the time of the
redemption. Erlinger, 347 Ill. at 595; see also Bennitt v.
Wilmington Star Mining Co., 119 Ill. 9, 21 (1886).
In more recent times, the appellate court has upheld the award
of equitable interest as part of restitution for an improper
judgment. Ryan v. City of Chicago, 274 Ill. App. 3d 913 (1995),
arose out of an earlier appeal in which the city was ordered to pay
about $19 million in simple interest on money it had improperly
withheld from several municipal pension funds. The city settled
with all but one of the pension funds; the remaining fund requested
not only the wrongfully withheld interest but compound interest--
interest on the interest--for the time before the initial judgment
when the city improperly generated this compound interest. The
appellate court held that compound interest was proper not as
statutory prejudgment interest but as part of full restitution.
Ryan, 274 Ill. App. 3d at 919-20. However, Ryan differs from this
case (and the cases just noted) in that, as the court emphasized,
the wrongful withholding was a breach of the city's fiduciary duty.
Ryan, 274 Ill. App. 3d at 919, relying in part on In re Estate of
Wernick, 127 Ill. 2d 61, 87 (1989).
The doctrine of equitable interest has been sparsely applied
of late, at least absent a fiduciary duty. Nonetheless, we believe
it is good law. Hutson, Thompson, and Erlinger have never been
overruled or disapproved. Their reasoning is sound, and we are
reluctant to depart from it even if it is considered dicta. Also,
the general rule elsewhere appears to be that interest is part of
restitution upon the reversal of an erroneous judgment. See Globe
Indemnity Co. v. Puget Sound Co., 154 F.2d 249, 250 (2d Cir. 1946);
Muchmore Equipment, Inc. v. Grover, 334 N.W.2d 605, 608 (Iowa
1983); Alexander Hamilton Life Insurance Co. v. Lewis, 550 S.W.2d 558 (Ky. 1977); Lytle v. Payette-Oregon Slope Irrigation District,
152 P.2d 934, 940 (Or. 1944); Restatement of Restitution 74,
Comment d, at 307-08 (1937).
In light of all of the foregoing, we hold that the trial court
erred in refusing to consider Kappos' request for interest on the
$80,000 that the plaintiff refunded him. Although the amount of
equitable interest depends on all the circumstances and is thus
within the trial court's discretion (Thompson, 297 Ill. at 21;
Ryan, 274 Ill. App. 3d at 919), it was improper for the trial court
to refuse to exercise its discretion at all. The trial court's
explanation that the voluntary dismissal mooted whether Kappos is
entitled to interest as part of his restitution is simply a non
sequitur. The power to award interest is inherent in the power to
order restitution, and the plaintiff could not cut off any
preexisting right to full compensation by obtaining the voluntary
dismissal of the case. The plaintiff cannot shelter a potential
windfall so easily; this would undermine our judgment on the first
appeal of this case. Therefore, we remand the cause for a hearing
on how much equitable interest is due Kappos.
The plaintiff argues that Kappos waived any right to interest
by failing to request it either in his original motion to vacate
the foreclosure judgment or in his first appeal to this court. We
need not decide if this argument is well taken. The waiver rule is
an admonishment to the parties, not a limitation on our
jurisdiction, and we may disregard waiver in the interests of a
just result and a uniform body of law. Geise v. Phoenix Co. of
Chicago, Inc., 159 Ill. 2d 507, 514 (1994). Also, the plaintiff
suggests various reasons that the equities of the case do not favor
awarding Kappos interest on the refunded purchase price. These
arguments are more appropriately raised in the trial court, which
may consider them fully in the exercise of its discretion.
We affirm the trial court's award of restitution of the
principal sum, but we reverse its holding that it need not consider
whether Kappos should receive equitable interest. We remand for a
hearing on Kappos' right to equitable interest on his refunded
purchase money. Because Kappos objects to the voluntary dismissal
of the foreclosure suit only insofar as it affects his right to
interest, the propriety of the order granting voluntary dismissal
is now moot.
The judgment of the circuit court of Du Page County is
affirmed in part and reversed in part, and the cause is remanded.
Affirmed in part and reversed in part; cause remanded.
BOWMAN and RATHJE, JJ., concur.