The United City of Yorkville v. Fidelity and Deposit Company of Maryland
143 N.E.3d 69
Ill. App. Ct.2019Background
- Kimball Hill, Inc. (KH) entered an annexation agreement with the City of Yorkville requiring KH to complete public improvements for the Whispering Meadows subdivision and to post performance bonds; Fidelity issued bonds naming KH principal and Fidelity surety.
- KH (and related entities) conveyed many lots to third parties; TRG and WRH acquired vacant lots from KH-related entities and planned to develop and resell homes.
- KH later entered bankruptcy and failed to finish the public improvements; the City sued KH, Fidelity, TRG, and WRH for breach of the annexation agreement; Fidelity filed third-party claims against TRG and WRH seeking reimbursement/exoneration.
- TRG/WRH moved to dismiss; WRH relied on a Lot Purchase Agreement asserting KH retained completion duties and on a successor-owner exception in the annexation agreement for purchasers of lots "for residential occupation."
- The trial court dismissed the City’s claims against TRG and WRH and dismissed Fidelity’s third-party counts against WRH; Fidelity later settled with the City; City and Fidelity appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether purchasers (TRG, WRH) became successor "developers" bound to complete public improvements under the annexation agreement | City/Fidelity: language in the annexation agreement (successors in title and interest; runs with the land) and factual allegations that TRG/WRH bought lots to develop make them successor developers | TRG/WRH: they purchased only empty lots or individual improved lots (or contracted that KH would finish improvements); section 22.B exempts purchasers of lots "for residential occupation"; Lot Purchase Agreement shows KH retained duties | Reversed trial court: allegations suffice to show TRG/WRH plausibly became successor developers; dismissal improper; factual disputes not resolvable on 2-615/2-619 motions |
| Construction of section 22.B ("residential occupation" exception) — scope and meaning | City/Fidelity: exception applies only where purchaser intends residential occupation (so developers who buy to build/resell are not exempt); article "a" does not restrict quantity | TRG/WRH: exception exempts purchasers of empty lots (and developers) or applies to any purchaser who could "occupy" the lot only if improved; single-lot language limits scope | Court: read clause to mean any purchaser who acquires empty or improved lots for residential occupation (singular "a" = "any"); exception does not shield developers who buy lots to develop/resell; multiple successor developers and shared liability are contemplated |
| Whether the annexation agreement's obligations are covenants running with the land, enforceable against successors | City/Fidelity: common-law elements met and agreement text expressly states it runs with the land, so obligations pass to successors | TRG/WRH: dispute whether duties transferred; rely on Lot Purchase Agreement and factual assertions that KH retained obligations or improvements were completed | Court: agreement and allegations adequately plead covenants running with the land; plaintiffs alleged successors and unfinished improvements — dismissal improper |
| Whether a surety relationship arose making WRH a principal obligor to Fidelity (so Fidelity can seek reimbursement) | Fidelity: bonds secured KH’s development obligations; when WRH succeeded to KH’s obligations, a surety relationship arose by operation of law and Fidelity can seek indemnity/reimbursement from WRH | WRH: Fidelity lacks standing under the agreement; no express contractual basis making WRH principal to Fidelity; suretyship cannot be imposed on a "stranger" without express agreement | Court: follows City of Elgin reasoning — suretyship may arise by operation of law where successor assumes the principal’s obligations secured by bonds; Fidelity adequately alleged WRH became principal obligor and may seek reimbursement; dismissal of those counts reversed |
Key Cases Cited
- Gallagher v. Lenart, 226 Ill. 2d 208 (contract interpretation; give effect to parties' intent)
- Van Meter v. Darien Park Dist., 207 Ill. 2d 359 (standard for 2-619 motions)
- Chandler v. Ill. Cent. R.R. Co., 207 Ill. 2d 331 (de novo review of 2-619 dismissals)
- Streams Sports Club, Ltd. v. Richmond, 99 Ill. 2d 182 (elements for covenant running with the land)
- Village of Orland Park v. First Fed. Sav. & Loan Ass’n of Chicago, 135 Ill. App. 3d 520 (public policy favoring enforcement of annexation agreements)
- Estate of Ramsay v. Whitbeck, 183 Ill. 550 (surety’s right to reimbursement from principal)
- La Salle Nat’l Trust, N.A. v. Village of Westmont, 264 Ill. App. 3d 43 (covenant-running analysis)