Chicago Title Ins. Co. v. Bass (IL)

Summary: In an action for breach of warranty deed, the purchaser must prove that the seller used the warranty to induce the purchasers to make the purchase.

Chicago Title Ins. Co. v. Bass, 2015 IL App (1st) 140948.

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Facts: In 2003, Patricia Kelver (‘Kelver’) allegedly signed an agreement to sell property to William and Jan Baczek (‘Baczeks’). A dispute arose over the sale and the transaction did not close.

Prior to this dispute, Kelver was delinquent in paying real estate taxes in 2002. Property Group, owned by Benjamin J. Bass (‘Bass’), purchased the property's 2002 taxes. Bass subsequently filed a petition for issuance of a tax deed. The Baczeks redeemed the 2002 taxes before Bass received title. The Baczeks' attorney informed Kelver's attorney of the redemption, and in reliance on the action, Kelver refrained from redeeming the taxes herself. Following the redemption, the tax deed petition was dismissed.

After a time, the Baczeks contacted Bass about purchasing the property through the dismissed tax deed litigation. The parties entered into a contract under which the Baczeks agreed to purchase the property for a sum if Bass reinstituted the litigation. As a result, the trial court issued a tax deed for the property to Bass, and Bass transferred the property to the Baczeks by warranty deed. As part of their purchase of the property, the Baczeks obtained a title insurance policy from Chicago Title.

Kelver discovered that the Baczeks acquired the property through the tax deed litigation. She filed a petition pursuant to 735 ILCS 5/2–1401, alleging that Bass procured the property by fraud or deception. Because the Baczeks were respondents in Kelver's petition, they filed a title policy claim with Chicago Title, who accepted their claim. Kelver prevailed on her petition, and the trial court entered an order vacating the issuance of the tax deed to Bass and revesting the property to Kelver. The court also ordered Kelver to reimburse Bass and the Baczeks for real estate taxes paid on the property.

Chicago Title made a loss payment under its policy to the Baczeks, and also incurred attorney fees defending the Baczeks. In exchange, the Baczeks executed a settlement, release and assignment of rights with Chicago Title. The agreement provided that Chicago Title was subrogated to the insureds for any claims against the insureds' seller or any other potentially liable party with respect to the matter. Further, the Baczeks agreed to assign their rights and claims against the sellers or any other potentially liable parties. Chicago Title consequently demanded payment and reimbursement from Bass for breach of warranty and quiet enjoyment. Bass refused, and Chicago Title filed a complaint against him alleging breach of warranty deed and unjust enrichment. On his motion for summary judgment, Bass argued that Chicago Title had no contractual right to subrogation where it was a voluntary payor and that Chicago Title sought damages it was not entitled to pursue. The trial court granted Bass' motion. Chicago Title appealed

 

Holding: Affirmed. On appeal, the court determined that the issue was whether the Baczeks had a claim against Bass for breach of the warranty deed where the trial court determined that they were not bona fide purchasers under section 2–1401 and they lost the property Bass conveyed to them. In an action for breach of warranty deed, the purchaser must prove that the grantor gave the warranty as an inducement to make the purchase, and the purchaser actually relied upon that warranty. In this case, Bass did not induce the Baczeks to purchase the property. Instead, it was the Baczeks who approached Bass about the possibility of obtaining the property through the tax deed litigation. Pursuant to the agreement, the parties acted to expunge the tax redemption and vacate the order dismissing the petition for a tax deed. The Baczeks and Bass agreed to this transaction so that the Baczeks could obtain property they had long been trying to obtain. Bass did not use the warranty to induce the Baczeks to purchase the property, so the Baczeks could not maintain an action against Bass for breach of the warranty deed. Therefore, Chicago Title could not file a claim against Bass because, as subrogee and assignee of the Baczeks' rights, it could only enforce the Baczeks' rights.

Alternatively, Chicago Title argued that the Baczeks had a claim for unjust enrichment because Bass retained the proceeds from the sale, though the tax deed was subsequently declared void. The court found that unjust enrichment was an equitable remedy and did not apply where there was a specific contract governing the relationship between the parties. Because the warranty deed was a contract, unjust enrichment was not applicable.

 

AUTHOR'S COMMENT

by Steven Walker, ATG Law Clerk

When addressing this issue, the Supreme Court of Illinois has yet to indicate that the validity of a warranty deed is contingent upon the grantor using it as an inducement. In fact, in Weiss v. Binnian, 178 Ill. 241, 248-49 (1899), the court stated, “[a] person may warrant an article to be sound, when both buyer and seller know it is unsound. So, the seller may warrant the quantity or quality of an article he sells, when both parties know that it is not of the quality or does not contain the quantity warranted…a person selling land thus incumbered, and covenanting that it is not, must be held to perform his covenant by its removal, or respond in damages.” This holding, which has yet to be overturned or otherwise invalidated, seems to suggest that the court respects and values the parties’ freedom to contract even in cases where the contract or warranty may be deemed doomed to fail, so long as there is no fraud or other evidence of unfair dealings. See Am. Access Cas. Co. v. Reyes, 2013 IL 115601, ¶ 9, 1 N.E.3d 524, 527 (“‘The freedom of parties to make their own agreements, on the one hand, and their obligation to honor statutory requirements, on the other, may sometimes conflict…Just as public policy demands adherence to statutory requirements, it is in the public's interest that persons not be unnecessarily restricted in their freedom to make their own contracts.’…A contractual provision will not be invalidated on public policy grounds unless it is clearly contrary to what the constitution, the statutes, or the decisions of the courts have declared to be the public policy or unless it is manifestly injurious to the public welfare.”) (Emphasis added.) Further, in Fechtner v. Lake County Sav. & Loan Ass'n, 66 Ill. 2d 128, 134-35 (1977), the court stated, “…a grantee under a warranty deed [like every purchaser of land], except for the matters specifically [excluded within the deed],‘…has a right to demand a title which shall put him in all reasonable security against loss or annoyance by litigation.’”

Moreover, the Bass court’s holding seemingly misconstrues the holding and reasoning of Midfirst Bank v. Abney, 365 Ill. App. 3d 636, 644 (Ill. App. Ct. 2d Dist. 2006), in which the court states, “A warranty deed is a stipulation by the grantor in which he guarantees to the grantee that title to the property at issue will be good and that the grantor's possession is undisturbed…when [the grantor] promised that the title to the property would be good, [the grantee] had a right to rely on that promise. A purchaser insists on a covenant of title in the first place because he either knows or is afraid that the title is unsound or no good. Accordingly, when a purchaser such as [the grantee] receives a covenant of good title, the law should allow him to enforce its performance and recover damages for its breach.” Therefore, the Bass court’s seemingly unsupported assertion that the purchaser must prove that the grantor gave the warranty deed as an inducement for the purchaser to make the purchase, and the purchaser actually relied upon that warranty finds no support in case law or statute.

 

Opinion Year: 
2015
Jurisdiction: 
Illinois
Tags: 
By: ATG Underwriting Department | Posted on: Wed, 07/01/2015 - 4:50pm