Humphrey Property Group v. Village of Frankfort

SUPREME COURT CASES

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State: Illinois

Court: 3rd District Appellate

Docket No: 3-08-0246 Rel

Case Date: 06/18/2009

Preview:No. 3-08-0246 ______________________________________________________________________________ CORRECTION-Filed June 18, 2009 IN THE APPELLATE COURT OF ILLINOIS THIRD DISTRICT A.D., 2009 HUMPHREY PROPERTY GROUP, L.L.C., an Illinois Limited Liability Company, ) Appeal from the Circuit Court of the ) Twelfth Judicial Circuit, ) Will County, Illinois, ) Plaintiff-Appellant, ) ) v. ) No. 06-MR-1026 ) THE VILLAGE OF FRANKFORT, ) The Honorable a Municipal Corporation, ) Barbara Petrungaro, ) Judge, Presiding. Defendant-Appellee. ) ______________________________________________________________________________ JUSTICE McDADE delivered the opinion of the court: ______________________________________________________________________________ Plaintiff, Humphrey Property Group, L.L.C., an Illinois limited liability company (Humphrey), filed a complaint in the circuit court of Will County against defendant, the Village of Frankfort, a municipal corporation, seeking declaratory judgment that Humphrey has the right to develop certain property within the village pursuant to an annexation agreement between Frankfort and Humphrey's predecessor in interest in the subject property. Pursuant to Supreme Court Rule 308 (134 Ill. 2d R. 308) the trial court certified the following question for review by this court: "May a municipality invoke the equitable doctrine of estoppel based on the conduct of a prior property owner to nullify a

successor property owner's rights under an annexation agreement in the absence of an amendment to that annexation agreement adopted either (i) in accordance with the terms of the annexation agreement itself; or (ii) in accordance with the procedures set forth in 65 ILCS 5/11-15.1-3 for amendment of an annexation agreement?" This court granted the parties' request for interlocutory appeal. BACKGROUND Frankfort annexed the subject property in September 1997 pursuant to an annexation agreement with H & D Development Corporation and State Bank of Countryside. The annexation agreement zones the subject property "C-4 PUD" and lists authorized uses for the property. The agreement remains in effect until September 2017 and states that it is applicable to the parties' successors in interest. Humphrey purchased a portion of the property covered by the annexation agreement in August 2005. Humphrey's proposed use is one of the enumerated authorized uses. The agreement also provides, in pertinent part, as follows: "[T]his Agreement and all the Exhibits attached hereto may be amended only [by] mutual consent of the parties, by the adoption of an ordinance or resolution of the VILLAGE approving said amendment or resolution, as provided by law, and the execution of said amendment by the parties hereto or their successors in interest." Frankfort admitted that the parties never amended the agreement. Nonetheless, Frankfort -2-

filed an affirmative defense to plaintiff's complaint arguing that plaintiff's predecessor in interest effectively amended the agreement by subdividing the subject property and requesting a change in zoning. Specifically, the predecessor requested a change in zoning from C-4 PUD to C-2 PUD. A C-2 PUD zoning does not permit the uses enumerated in the agreement. Frankfort granted the zoning change at the then owner's request including the portion of the property Humphrey now owns. Frankfort later re-zoned the subject property again to B-4 as the result of a comprehensive re-zoning in the village. Frankfort asserted that "in reliance on the request of [a predecessor in interest,] the Village of Frankfort changed its position as to what zoning was appropriate for the site and allowed Lot 4 to be subdivided into smaller lots which were no longer suitable for certain *** uses" including plaintiff's proposed use. As a result of the "effective amendment" of the parties' agreement, Frankfort argued, it is no longer bound by the original terms of the agreement. Frankfort asserts that Humphrey had actual or constructive knowledge of the rezoning at the request of the then owner of the subject property prior to its purchase of the subject property. Plaintiff filed a motion for judgment on the pleadings and a motion to strike Frankfort's affirmative defense. The trial court denied both motions. This appeal followed. ANALYSIS An amendment to a zoning ordinance adopted without following statutory procedures is void. County of Kankakee v. Anthony, 304 Ill. App. 3d 1040, 1045, 710 N.E.2d 1242, 1245 (1999) ("[T]he General Assembly has established certain procedures which govern the manner in which county boards carry out their legislative function. Compliance with these statutory procedures is a prerequisite to the valid enactment of an ordinance. [Citation.] When a county -3-

board has failed to follow proper procedures in amending a zoning ordinance, the amendment is void"). The certified question is actually in reference to section 11-15.1-3 of the Illinois Municipal Code (65 ILCS 5/11-15.1-3 (West 2006)). Section 11-15.1-3 reads, in pertinent part, as follows: "Any such agreement executed after July 31, 1963 and all amendments of annexation agreements, shall be entered into in the following manner. The corporate authorities shall fix a time for and hold a public hearing upon the proposed annexation agreement or amendment, and shall give notice of the proposed agreement or amendment not more than 30 nor less than 15 days before the date fixed for the hearing. * * * After such hearing the agreement or amendment may be modified before execution thereof. The annexation agreement or amendment shall be executed by the mayor or president and attested by the clerk of the municipality only after such hearing and upon the adoption of a resolution or ordinance directing such execution, which resolution or ordinance must be passed by a vote of two-thirds of the corporate authorities then holding office." 65 ILCS 5/11-15.1-3 (West 2006). In arguing that a nonstatutory change in an annexation agreement is similarly void, plaintiff suggests that "[a] municipality's attempt to amend an annexation agreement without complying with the mandatory notice and hearing requirements must be treated the same as a court would respond to an attempted zoning change without the requisite notice and hearing." Plaintiff asserts -4-

that "a municipality and property owner who desire to amend an annexation agreement involving valuable property rights [should] observe the simple and straightforward statutory notice and public hearing requirements." Plaintiff argues that Frankfort ignored the mandatory notice and hearing requirements when it "effectively amended" the annexation agreement, and that in doing so it prejudiced both plaintiff and the public. Plaintiff cites Cannizzo v. Berwyn Township 708 Community Mental Health Board, 318 Ill. App. 3d 478, 487, 741 N.E.2d 1067, 1074 (2000), for the proposition that Frankfort's alleged contractual amendment to the annexation agreement (resulting in a statutory zoning change) is void. The amendment to the annexation agreement is void under Cannizzo, plaintiff argues, because under Illinois law a contract entered by a municipality without statutory authority is void ab initio. Cannizzo, 318 Ill. App. 3d at 487, 741 N.E.2d at 1074. Also, plaintiff argues, because the contract is, allegedly, void, the change in the contract may not be rendered valid by estoppel. Frankfort relies on Berg & Associates, Inc. v. Nelsen Steel & Wire Co., 221 Ill. App. 3d 526, 535, 580 N.E.2d 1198, 1204 (1991), for the proposition that a party to an agreement who agrees to an oral modification is estopped from raising a challenge to the modification based on a term in the agreement precluding oral modifications. Frankfort's argument assumes that, under Reitman v. Village of River Forest, 9 Ill. 2d 448, 453, 137 N.E.2d 801, 803 (1956), plaintiff in the case at bar stands in the shoes of its predecessor in interest. If that is the case, then legally plaintiff is estopped from contesting the validity of the alleged amendment to the annexation agreement if the original parties amended the annexation agreement by mutual consent and, it argues, plaintiff is thus estopped from challenging the validity of the zoning ordinance. Frankfort -5-

is legally correct, but here, factually, the question becomes what is the scope of the estoppel applicable in this situation. Stated differently, to what did the original parties agree that now binds the successor parties. For example, did the original parties agree to amend the contract, for some reason which may have in fact benefitted both, without following the statute, or did plaintiff`s predecessor request and/or agree to the change in the contract with the implicit understanding and/or requirement that Frankfort make those changes in accord with the applicable statutory procedures. A. Legal Applicability of Principles of Estoppel In Village of Lisle v. Action Outdoor Advertising Co., 188 Ill. App. 3d 751, 760, 544 N.E.2d 836, 842 (1989), the Smiths, the owners of certain property, contracted with the defendant, Action Outdoor Advertising, for it to erect an outdoor sign. In Lisle the court held that although the Smiths, as parties to the agreement, had derived substantial contractual benefits from the agreement, estoppel did not apply to preclude the defendants from challenging the validity of the annexation agreement. There the court based its holding on finding that the Village could not argue that defendants should be estopped from asserting the validity of the agreement because the annexation agreement itself was invalid. Lisle, 188 Ill. App. 3d at 760-61, 544 N.E.2d at 842. In a similar transaction involving a contractual obligation requiring a change in a zoning ordinance, this court has addressed the party on the other side of the transaction and held that the "plaintiff's complaint *** states sufficient facts from which the city *** could be held to have been estopped to assert the invalidity of the original ordinance [changing the] zoning." (Emphasis added.) Mahoney Grease Service, Inc. v. City of Joliet , 85 Ill. App. 3d 578, 582-83, 406 N.E.2d 911, 915 (1980). There, Joliet rezoned property in an attempt to comply with a -6-

settlement agreement. The defendant alleged that "the agreement is a void and ultra vires contract to which the city cannot be held." Mahoney Grease Service, Inc., 85 Ill. App. 3d at 582, 406 N.E.2d at 914. The Mahoney court found that the defendant alleged facts to support a finding that "in trying to comply with the settlement agreement, in addition to annexation of the *** land, [Joliet] attempted to rezone the land *** in an invalid ordinance." Mahoney Grease Service, Inc., 85 Ill. App. 3d at 583, 406 N.E.2d at 915. There, "[t]he invalidity in the ordinance which rezoned the Mahoney land was a failure to hold a public hearing." Mahoney Grease Service, Inc., 85 Ill. App. 3d at 583, 406 N.E.2d at 915. This court held that "[w]here municipalities have received and accepted the benefits of a contract, they are estopped to deny the validity of the very contract through which they received the benefits. [Citations.] We believe an estoppel theory is applicable to the instant case." (Emphasis added.) Mahoney Grease Service, Inc., 85 Ill. App. 3d at 583, 406 N.E.2d at 915. The court first pointed out that "[t]he city of Joliet clearly has the legal authority to settle and compromise litigation of disputed or doubtful claims." Mahoney Grease Service, Inc., 85 Ill. App. 3d at 582, 406 N.E.2d at 914. The Mahoney court recognized that "a municipal contract which is legally prohibited or beyond the power of the municipality is absolutely void and cannot be ratified by later municipal action" (Mahoney Grease Service, Inc., 85 Ill. App. 3d at 582, 406 N.E.2d at 914), but the court held that "where the contract is within the corporate powers, but defectively or irregularly made it may be later ratified by the action of the municipality" (Mahoney Grease Service, Inc., 85 Ill. App. 3d at 582, 406 N.E.2d at 914). The court found that because "the settlement of disputed litigation and the annexation and zoning of land are within the legal -7-

authority of the city of Joliet to accomplish" the settlement--and the annexation and zoning it required--were "not absolutely void acts per se." Mahoney Grease Service, Inc., 85 Ill. App. 3d at 582, 406 N.E.2d at 914. Similarly, the Mahoney court found that in Branigar v. Village of Riverdale, 396 Ill. 534, 72 N.E.2d 201 (1947), "[an] *** irregularity was *** present [and] estoppel was applied against a municipal corporation in a breach of contract action to prevent the municipality from relying upon the invalidity of the contract." Mahoney Grease Service, Inc., 85 Ill. App. 3d at 583, 406 N.E.2d at 915, citing Branigar, 396 Ill. 534, 72 N.E.2d 201. In Branigar, the supreme court, as did the Mahoney court, initially focused on the regulating body's authority to enter the contract, holding that "where there is a power to enter into a contract but such contracts are irregularly made, and the city accepts the benefits of the contracts, it is estopped from setting up or relying on its own [statutory] irregularity to defeat recovery." Branigar, 396 Ill. at 546, 72 N.E.2d at 207. Finally, "[i]n City of Chicago v. Pittsburg, Cincinnati, Chicago and St. Louis Railway Co. 244 Ill. 220, in a similar situation, [the court] held that to permit a city now to say that it neglected publication of an ordinance would be a fraud which the law ought not to permit." Branigar, 396 Ill. at 546, 72 N.E.2d at 207. The court held: "Under these holdings we cannot say that the failure of the village to publish is any more than an irregularity in the exercise of its power. *** [T]here was a power in the village to enter into the contracts here in question and that the failure to publish was an irregularity, only, which the city is now estopped from asserting in -8-

defense of this cause." Branigar, 396 Ill. at 546-47, 72 N.E.2d at 207. Mahoney and Branigar stand for the general proposition that equitable estoppel is an available defense against a municipality's attempt to avoid the terms of a valid agreement on the grounds it failed to comply with an applicable statute. In Branigar, as in the case at bar, the public body adopted an ordinance in an attempt to effectuate its obligations under a contract. Branigar, 396 Ill. at 537-38, 72 N.E.2d at 203. The Branigar court cited its earlier decision in McGovern v. City of Chicago, 281 Ill. 264, 118 N.E. 3 (1917), holding that where "the municipality failed to publish as required by statute[,] *** that *** municipal corporation, as against persons who have acted in good faith and parted with value for its benefit, cannot, unless by virtue of some statutory provision, set up mere irregularities in the exercise of power conferred, as, for example, its failure to make publication." Branigar, 396 Ill. at 546, 72 N.E.2d at 207. Both this court in Mahoney and the supreme court in Branigar determined that, generally, estoppel is an available remedy in proceedings on a contract where a municipality sought to avoid the terms of the contract by challenging the validity of a statutory act adopted pursuant to and/or in furtherance of the contract. In Mahoney, the municipality rezoned property pursuant to a written settlement agreement. It then sought to avoid the terms of that agreement by arguing the zoning change was invalid. In Mahoney the court applied estoppel principles to prevent it from not complying with the new zoning requirements. The parties in Mahoney did not challenge any of the contract terms. In Branigar, the municipality sought to avoid the terms of the contract by arguing that an -9-

ordinance that was required for the type of contract involved was invalid. Branigar, 396 Ill. at 543, 72 N.E.2d at 205. The court held that the municipality was estopped from noncompliance with the terms of the contract because "there was a power in the village to enter into the contracts here in question and that the failure to publish was an irregularity, only, which the city is now estopped from asserting in defense of this cause." Branigar, 396 Ill. at 547, 72 N.E.2d at 207. From the authorities we conclude that Illinois applies the estoppel defense equally to challenges to actions undertaken pursuant to contract or statute, or to actions undertaken under one pursuant to an agreement or requirement stated in the other. In support of that finding we note that factually this case is analogous to Branigar where estoppel applied to prevent a party to a contract from not complying with the terms of the contract based on a failure to follow statutory procedures. In Branigar, the statute required an ordinance approving the contract. In the case at bar, both the statute and the agreement require an ordinance to modify the terms of the agreement. B. Scope of the Estoppel In this particular case, Frankfort rezoned the subject property allegedly pursuant to the original parties' oral agreement. Plaintiff now seeks to enforce the agreement as written, while Frankfort seeks to avoid the terms of that agreement. Under Illinois law, in such proceedings estoppel is available to either party. The fact or propriety of the oral amendment to the annexation agreement is irrelevant to the limited question presented to this court. The question presented to us is simply whether estoppel is an available remedy under the facts of this case. Pursuant to Mahoney and Branigar, the failure to amend the agreement by statute but allegedly to do so orally is an "irregular exercise" of authority but one which does not itself prevent the -10-

application of estoppel principles. See Branigar, 396 Ill. at 546-47, 72 N.E.2d at 207; Mahoney Grease Service, Inc., 85 Ill. App. 3d at 583, 406 N.E.2d at 915. On the contrary, the authorities stand for the proposition that this court will uphold an attempt by one party to apply the doctrine of estoppel to prevent the other party from asserting defects in the contract or in adopting and complying with an ordinance or statute when legal provisions impact the parties' contract. Moreover, we note that estoppel has been equally available to a private party which has relied on a municipality's exercise

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