Summary of Daniels v. Anderson, Supreme Court of IL (1994)
Parties: Buyer (Daniels) v. Seller (Zografos)
Cause of action/remedy sought: The following is an equitable action for specific performance.
Procedural History: Trial court held for PL. The appellate court affirmed, as does this court.
Facts: Adjoining landowner contended that he was a bona fide purchase of the contiguous parcel, the trial court’s award of the contiguous parcel to the landowner should not have included the easement that the adjoining landowner received from the prior owner, and that the landowner had no easement rights under the 1977 contract. The adjoining landowner contended he was a bona fide purchaser. The adjoined landowner had not raised this defense until his appeal.
Issue(s): Under IL property law, was Zografos a BFP who took notice of the option and therefore should be protected from having to convey to Daniels. Under the same law, at what stage does one become a BFP?
Holding: No. DF had notice of the first refusal clause before he took title of the property, and thus should estopped from asserting any rights as a BFP over PL, and specific performance should be granted.
Court’s Rationale/Reasoning: As to the notice, DF/appellee tried to invoke the doctrine of equitable conversion in this court and the lower court, as he did not raise the argument at trial and has thus waived any such contention (collateral estoppel). Absent consideration of the equitable conversion doctrine, the court turned to when Zografos became a BFP. DF contends that during this executory period, the buyer can rely solely on the public records and ignore even actual notice of an outstanding, unrecorded interest. Not so.
However, the courts are split as to whether or not a BFP is still a BFP upon receiving notice prior to paying the full price. Some say partial consideration is not enough, but many courts have relaxed this harsh rule. Instead they apply a pro tanto rule, which protects the buyer to the extent that they have paid prior to notice. This court recognizes this rule. There are 3 methods to apply this rule:
(1) most common method is to award the land to the holder of the outstanding interest and award the buyer the payments he or she has made
(2) award the buyer a fractional interest in the land proportional to the amount paid prior to notice
(3) allow the buyer to complete the purchase, but to pay the remaining installments to the holder of the outstanding interest
Since the court went with the first option and forced Daniels to pay DF, the trial court did not abuse its discretion.
Rule: A BFP takes takes title to real property w/o notice of the interests of others. Any notice prior to the payment of any consideration pays at their own risk with respect to the holder of the outstanding interest. That buyer is not a BFP.
Did court avoid issues?: No.