JAMES A. SCHWARTZ, AS TRUSTEE OF SUNBELT PROPERTIES, AND INDIVIDUALLY, APPELLANT,
v.
SARAH H. HILL, APPELLEE
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James Schwartz, an attorney who signed a promissory note as trustee of a land trust, was held personally liable by the trial court for the trust's default. The appellate court reversed, finding that the trust was validly established as an Illinois land trust, which does not require the trustee to perform conventional fiduciary duties, and therefore Schwartz incurred no personal liability.
The trial court erred in finding no viable trust existed and in holding Schwartz personally liable. An Illinois land trust, unlike conventional trusts, does not require the trustee to perform traditional fiduciary duties such as accounting or management, as all managerial and administrative powers rest with the beneficiaries. The trust was validly established despite the lender's failure to sign the trust documents, and therefore Schwartz incurs no personal liability for the promissory note.
[1] A trustee acting under an Illinois land trust, where beneficiaries hold exclusive control over management and operation, is not subject to the fiduciary duties applicable…
[2] The validity of an Illinois land trust is not negated by a beneficiary's failure to sign or receive a copy of the trust documents, provided the documents were properly ex…
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Join FLexlaw to unlock all legal intelligence“one who signs a promissory note in a representative capacity for a principal which is nonexistent is personally liable”
The trial court's erroneous legal principle that formed the basis for holding Schwartz personally liable
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Join FLexlaw to unlock all legal intelligenceIn August 1985, attorney Schwartz was retained by McGuire and Smillee to help them acquire distressed condominium projects. At their request, Schwartz…
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HALL, Judge.
The appellant challenges the final order which finds him personally liable for the default in payment of a promissory note which he executed as trustee of a land trust. We reverse.
In August 1985, Bryan McGuire and Joseph V. Smillee, as principals of Suncoast Properties, retained the appellant, James A. Schwartz, an attorney, to assist them in negotiating and drafting contracts to acquire distressed condominium projects. The appellant, at McGuire and Smillee’s request, established a land trust as the purchasing entity and agreed to act as trustee only as legal title owner, claiming that he was not willing to incur personal liability or to be involved in the management of the project.
Thereafter, McGuire and Smillee solicited a $25,000 loan from the appellee, Sarah H. Hill, which was evidenced by a promissory note from the land trust to the appellee. The note was signed by the appellant as trustee. The appellee was to have the $25,-000 repaid to her plus interest and 5% ownership of the project and profits.
The appellant drafted the documents for Sunbelt Properties Trust I. The trust documents were signed by the appellant, McGuire and Smillee; however, they were not received or signed by the appellee.
McGuire and Smillee' established a business office to sell condominium units. The appellee conducted business with them and visited the site, but never contacted the appellant about the venture.
On October 17, 1986, the appellee brought suit against the appellant as the trustee of the Sunbelt Properties Trust and individually, alleging that the appellant had defaulted on the promissory note. Following a nonjury trial on October 7, 1988, the trial court entered its final judgment in favor of the appellee and against the appellant individually in the sum of $25,000, plus interest, on the grounds that since the appellee never signed or knew of the existence of the trust documents and the appellant failed to keep an accounting of the trust assets or otherwise act in a fiduciary capacity, no viable trust ever existed. It found that “one who signs a promissory note in a representative capacity for a principal which is nonexistent is personally liable.” The appellant challenges this finding on appeal.
The appellant argues that the trial court erred in finding that the Sunbelt Trust I never existed since there was sufficient evidence in the record to show that the trust was viable: There were written trust documents which were signed by 95% of the shareholders, the trust was funded, conducted business, entered into contracts to obtain real property, and was the sole owner of a corporation which owned the thirty-unit condominium project.
The appellant concedes that he never performed the conventional fiduciary duties of a trustee, such as accounting, reporting, or managing the trust properties; however, he argues that this was not a conventional trust. Rather, he argues it was an Illinois land trust, which differs from all other trusts in that although the trustee holds title to the property, all managerial and administrative powers are held by the beneficiaries of the trust. The trustee has no duties other than to convey, mortgage, or sell the real estate as directed by the beneficiaries. See, e.g., Robinson v. Chicago Nat’l Bank, 32 Ill.App.2d 55, 176 N.E. 2d 659 (1961).
We agree with the appellant that the trial court erred in finding that the appellant failed to perform his fiduciary duties as a trustee under a conventional trust and, therefore, no viable trust existed. It is apparent from the record that the parties hereto operated under an Illinois land trust and that the fiduciary duties as referred to by the trial judge do not apply to a trustee acting under an Illinois land trust.
The trust documents, which were properly executed by the appellant, McGuire, and Smillee, expressly stated that the beneficiaries were to have full and exclusive control over the management and operation of the trust and that the trustee was to incur no individual liability as in a standard Illinois land trust. The fact that the appellee, a 5% shareholder, did not sign or receive a copy of the trust documents does not negate its validity.
Reversed and remanded with directions to the trial court to enter judgment finding no individual liability as to James A. Schwartz for any unpaid sums under the promissory note.
SCHOONOVER, A.C.J., and THREADGILL, J., concur.