Roosevelt Federal Savings & Loan Ass'n v. Sugar Hollow Apartments, Inc.

Citations: 99 Ill. App. 2d 317; 241 N.E.2d 45; 1968 Ill. App. LEXIS 1368Docket: Gen. No. 67-111

Court: Appellate Court of Illinois; August 22, 1968; Illinois; State Appellate Court

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Defendants Russel J. Lesperance and Virginia K. Lesperance appeal decrees of foreclosure on two mortgages and security agreements related to dormitories at Southern Illinois University, which were secured by notes of $306,000 each. The trial court ruled that Russel J. Lesperance is not a judgment creditor of the mortgagor, Sugar Hollow Apartments, Inc., a position the appellants contest, asserting his statutory right to redeem the foreclosed properties under Illinois law. Roosevelt Federal Savings and Loan Association filed the foreclosure complaints, consolidated for trial, with the mortgagor waiving its right of redemption. The dormitories involved include Dormitory No. 3, held in an Illinois Land Trust, and Dormitories No. 4 and No. 5, owned by Sugar Hollow Apartments, Inc. Russel Lesperance, president of the corporation and co-signer of the notes, indicated a funding shortage during construction and issued personal notes to contractors in lieu of payment. Upon completion, due to insufficient funds, these notes were exchanged for new notes signed by both the corporation and Lesperance.

Sugar Hollow Apartments, Inc. executed a second mortgage on Dormitories No. 4 and No. 5 to A. J. Cargnino Construction Co. Inc. and Weller’s, Inc. After defaulting on installment payments to Roosevelt Federal Savings and Loan Association for January, February, and March of 1967, foreclosure proceedings were initiated. Subsequently, on May 13, 1967, an agreement was made to replace two notes from September 30, 1966, signed by Sugar Hollow Apartments, Inc. and Russel Lesperance, with backdated new notes signed only by the corporation. Cargnino and Weller transferred old notes to Russel Lesperance in exchange for new notes, and they later surrendered these new notes in return for a 20% beneficial interest in Land Trust No. 86 owned by Sugar Hollow Apartments, Inc., along with additional consideration. A similar exchange occurred involving Carl Jones, who received a 10% interest in the land trust for a note held against Sugar Hollow Apartments, Inc. On May 15, 1967, Russel Lesperance secured judgments against Sugar Hollow Apartments, Inc. for the notes assigned to him. In response to the foreclosure suit, the Lesperances claimed these judgments as an affirmative defense. The trial court ruled on July 12, 1967, that Russel Lesperance was not a valid judgment creditor of Sugar Hollow Apartments, Inc., and found the judgments alleged in the defenses to be invalid. Both sides acknowledged that Illinois statutes govern the appeal, allowing a judgment creditor of a corporation that waived its redemption rights to redeem from a foreclosure sale within three months. Appellee conceded that a mortgagor may confess judgment to enable creditor redemption, provided the judgment is based on a legitimate debt. Appellants argued that the confessed judgments could not be collaterally attacked for procedural defects, citing relevant case law for support.

The complaint does not adequately challenge the Brown judgment, as it fails to present sufficient facts to deem the municipal court's judgment void for lack of jurisdiction. The law allows for judgments obtained through fraud or collusion to be contested when conflicting with third-party rights. The appellants argue that the three notes leading to Russel Lesperance's confession of judgment against Sugar Hollow Apartments were based on legitimate debt, thus free of fraud. However, a judgment obtained without an actual debt is considered fraudulent and void. The appellants claim that despite transferring a portion of the corporation's beneficial interest in a land trust, the notes were not regarded as paid by the creditors. This position is contested by testimony indicating that the creditors sought to collect their debt and were satisfied with the terms agreed upon with Lesperance. The court found that the original notes were effectively paid by the corporation, leaving no obligation to support the assignment of new notes to Lesperance. Consequently, the court ruled that Lesperance was not a judgment creditor entitled to redemption rights. The court affirmed the trial court's judgment, denying the appellee's motion for a deficiency judgment due to its timing relative to the appeal. The judgment was upheld, with concurrence from Justices Goldenhersh and Eberspacher.