Friday, July 7, 2017

No, You Can't Sign as the Witness on a Power of Attorney Appointing Yourself as Agent!

I recently received a call on behalf of a former client who had apparently suffered some serious medical issues.  The gentleman who called informed me that, since I last communicated with the former client, he had signed a new Power of Attorney for Property ("POA") appointing the caller his agent.  He told me that they had not worked with an attorney in preparing this new POA but just "found one online." The agent sought to review/obtain a copy of the former client's file at my office, including his estate planning documents.  I asked the agent to send me a copy of the new POA so I could take a look at it.

When I reviewed the new POA document, I saw the typewritten provision where the former client named the caller his agent.  I then checked to ensure the document had been signed by the principal, witnessed and notarized properly.   There were two attesting witnesses who signed the document - the named agent himself and his spouse (the spouse was also named as successor agent).

I pointed this out to the agent and explained that the statute does not allow the named agent or their spouse to serve as the attesting witnesses.  See 755 ILCS 45/3-3.6.  I explained that in my opinion the document was therefore not valid, and that I could not release the former client's file documents to the purported POA agent.

He called again about a week later, to inform me that he had provided the POA document to the former client's bank and financial adviser/broker, and they had accepted it without question.  He became agitated when I informed him my view had not changed, and he asked me, "Do you think you know more than ABC Bank and XYZ Financial?!"  (both of which are large, well known financial institutions).  I explained to him that not only did I believe I was right, but I also believed it would be unethical for me to turn over the former client's file to him under the circumstances, and I declined to do so.

The statute is quite clear on this issue.  But I share this story to make one particular point - IT IS A VERY BAD IDEA TO SIGN AS WITNESS ON A POA APPOINTING YOU AGENT.  For the person agreeing to serve as agent, by doing so you are taking on fiduciary duty obligations and exposing yourself to potential legal liability for violating that duty.  If you yourself sign as witness, it creates an inherent appearance of impropriety, that could be used against you later if there is ever an allegation you violated your duty, even if you always tried to do the right thing.

And a related point - WHETHER OR NOT A BANK CHALLENGES THE POA IS NOT PROOF OF ITS VALIDITY.  You have to understand, when you present a POA to a bank as basis for you to access funds as agent on behalf of the principal, YOU are the one with the primary legal obligation to actually have the legal authority you claim.  It is up to YOU to have the valid POA; it is not primarily up to the bank to catch an invalid POA.  To put it bluntly, you are potentially committing fraud by doing this, even if you have the best of intentions.

Thursday, June 15, 2017

Changes to Illinois LLC Act - Members With Authority

Get ready for changes to the Illinois LLC Act.  Last year a bill to amend the statute was signed into law, but with its effective date deferred to July 1, 2017, and is now less than a month away.  This is a significant update to the statute and may potentially affect existing LLCs; it is worth taking a look at an LLC's current Operating Agreement in light of the changes, to see if any updates are in order.  For a complete review of all the changes, see the text/markup of the statute here.

There are many changes to the statute, but I'd like to focus on one, particularly significant change.  LLCs will now be able to designate certain members having authority to act for the company.  This is a very significant change; existing LLCs may wish to revisit their management structure and operating agreements to see whether they could benefit by utilizing this new process.

As part of the application to file Articles of Organization, Illinois LLCs are required to designate to the State whether the LLC will be managed by its members (the owners), or by a "manager."  The Manager referenced in the statute is not merely the person managing the day to day business, but is defined as the "person vested with authority" under Section 13-5 of the statute, which has to do with the law of agency.

Under general agency law and Section 13-5 of the LLC Act, each member (owner) is considered an agent and has authority to act on behalf of the LLC, unless the LLC elects to be "manager-managed" and designates one or more persons as "manager."  Currently, in a "member-managed" LLC, any member, regardless of their percentage of ownership, could sign contracts committing the LLC to obligations.  Some member-managed LLCs attempt to control this by having restrictions in the Operating Agreement, restricting who can act for the LLC and under what circumstances.  That is helpful and provides some recourse against a member who acts in violation, but the Operating Agreement is not binding on a third party who in good faith signs a contract with the rogue member.  Unless the third party "knew or had notice" that the rogue member did not have authority, the company would be required to honor this contract.

The July 1 changes to the LLC Act create a new, optional form, called a "Statement of Authority," that can be filed with the Illinois Secretary of State to satisfy the notice requirement and help member-managed LLCs protect against this rogue member scenario.  When filling out the form, the LLC will indicate which of the members have the authority to act for the LLC.  Any third party will then be deemed to have "constructive notice" of this; in other words, the third party will be presumed to have checked with the Secretary of State (or required the LLC to provide proof) to ensure that the person signing for the LLC actually had authority to sign.  In the rogue member scenario, if the LLC had filed a Statement of Authority designating only other members, then the rogue member's signature on the contract would not be effective to bind the LLC to honor it.

The Statement of Authority form is not yet available on the Secretary of State website as I write this, because it is not yet July 1, but after July 1, the form should be included with the other LLC filing forms, here.

If you have a "member-managed" Illinois LLC, the Statement of Authority may be an important document to consider filing after July 1, to protect your interests.  You would also be well advised to at the same time dust off your Operating Agreement and particularly read over the section about management of the company, and who has authority to act for the LLC.  If a Statement of Authority is filed, this section of the Operating Agreement should be revised to be consistent with that.

Wednesday, December 7, 2016

Just in Time for the Holidays, another Court Ruling About Snow Liability!

Last winter I wrote about the First District Appellate court decision in  Murphy Hylton v. Lieberman Management Services, Inc. Here is that previous post.  After that decision, one of the parties petitioned the Illinois Supreme Court to hear the case, and the court granted the petition.  In the spirit of the season, the Illinois Supreme Court last week issued its decision, affirming the First District ruling. 

My previous post went through the case and potential liability and immunity under the Snow and Ice Removal Act; I will not repeat that all here.  But essentially, the ruling (at both courts) finds that the Act, which provides immunity and limits liability for negligent removal of naturally accumulated snow and ice, does NOT apply to limit liability for negligently creating an unnatural condition that causes ice to accumulate.  In this case, the plaintiff alleged that a faulty downspout installation caused the ice accumulation.  The Court is distinguishing between liability for shoddy shoveling or salting, as opposed to allowing water to pool and ice over on a sidewalk when no snow or ice would otherwise be present.  The former is covered by the Act.  The latter is not.

The procedural context of the ruling is also important to remember.  The original appeal arose when the trial court granted summary judgment to the defense; no trial had yet occurred.  Both court opinions start their analysis by appropriately noting this procedural context and the resulting appropriate standard of review, and that at the trial court level the standard for awarding summary judgment is that their must be "no genuine issue of material fact" and that therefore the moving party is entitled to judgment as a matter of law.  In other words, even considering the non-moving parties' position favorably, there is no point in having a trial because they cannot win as a matter of law. That is what the trial court ruling meant when it awarded summary judgment to the defense.  These appeal rulings mean that it is possible for plaintiff to win, if she proves at trial the case she has alleged. She will get her "day in court" at trial (unless of course the case settles, which is entirely possible). 

Sunday, August 14, 2016

Wills and Probate - As the Client, Your Choice of Attorney is ALWAYS Up to You and Your Executor!

I recently met with some new clients (a married couple aged 60-70) to review their estate plan.  They had met with another attorney who prepared wills for them within the past year.  As we went over their estate planning goals and their previous wills, the first thing we discovered is that the wills they had prepared did not provide the bequest and specific gift terms they were looking for, and which they thought had been written into their wills. 

The second thing that stood out was a paragraph like this that the clients did not realize had been written into their wills (I'm paraphrasing):

"Joe and Jane Testators have retained Larry Lawyer to prepare their wills, and they want Ed Executor and their family to continue to retain Larry Lawyer to handle probate of their estates."

Now don't get me wrong, obviously when I help clients with estate planning, I certainly hope to be able to continue to help their families with probate and other legal issues that arise when the clients pass away.  But that decision is entirely up to the clients.  (So long as your chosen attorney chooses to accept you as a client in turn). In the estate context, when the original client herself passes away, that means the choice of attorney is up to her executor. 

Generally speaking, it would seem to make sense that the executor continue to retain the deceased client's lawyer for probate and related matters, because that lawyer is most familiar with the client's estate plan.  But that may not always be the case.  And in any event, it would take a lot of gall for any lawyer to pressure the executor to hire him, on the basis that that's what the deceased client wanted, let alone to actually write that into the client's will!! Needless to say, it is not enforceable.  In fact, I'd love to see the lawyer in that situation "double down" and try to enforce the provision in probate court. Any guesses how a probate judge is going to rule on that one?

Thursday, May 12, 2016

Residential Real Estate Transactions - Should You Hire a Lawyer, and When?

As part of my practice I help clients buy and sell real estate, including residential real estate.  The question often comes up of why are lawyers necessary in this process.  After all, isn't the lawyer "just going with you to the closing?"

This is a common misconception that is actually exacerbated when the lawyers do their jobs well, "making it look easy."  In reality, much of the lawyer's job, particularly the attorney for the seller, is done in advance of closing, behind the scenes.  For example, reviewing or drafting the contract, ordering or reviewing title insurance reports to ensure clean title will be conveyed, and preparing some of the documentation that will be signed and exchanged at closing.  These are the standard steps.

In addition to the standard stuff, there is also the conflict avoidance/resolution aspect, helping the parties sort through the issues that seem to arise in many if not most such transactions.  These include issues with buyer financing and appraisals, home inspections and alleged defects, failed radon tests, early occupancy requests, seller mortgage and lien payoffs and releases, property defect disclosures and failure to disclose issues, and many more.

Ok So I Should Hire A Lawyer.  Can't I Just Pay You To Come to the Closing With Me?

See the above as to why this is not a good idea.  The closing is the consummation of significant advance prep work that hopefully resolved most issues in dispute.  And if issues are disputed at closing, you want your lawyer to be prepared by having background knowledge about the transaction, and not just shoot from the hip.

In McLean County, Illinois, it has often been the case that the parties sign a preliminary contract with help of a realtor, then take that document to their attorneys for review afterwards, sometimes under an "attorney review clause" in the contract.  The problem with this is that it is human nature to feel offended when you've signed an agreement only to have the other side present you with changes they want to make days later.  What happened to the deal that was signed?  The contract forms commonly allow this to happen legally, but to the layman it can be hard to explain or accept, and it is always harder to propose changes after "the horse is out of the barn."  Furthermore, it is not unusual for the contract offered by a buyer to have a quick deadline -say 5:00 pm the day it is presented - upon which the offer is revoked.  For a seller who is seeing the contract form for the first time, that is simply not enough time to review and understand what they are signing before they sign it.

For these reasons, I highly recommend clients CONSULT AN ATTORNEY BEFORE SIGNING ANYTHING in a real estate transaction.  It is far better to be briefed by your lawyer on what to expect in the contract forms, and to already have some expectations in mind as to the standard terms, so that you as a Seller are prepared when you get that offer, or as a Buyer you are prepared to make an offer right away when you are shown your dream home.

I'm a member of the Illinois Real Estate Lawyers Association, and the following is their very helpful response to these questions.

Q. Why do I need a lawyer for a residential real estate purchase?

A. Intelligent consumers are well advised to enlist the assistance of a qualified real estate attorney. Buying a home will likely be the biggest and most important financial transaction of your life. You need a qualified professional to help guide you through the complicated world of today`s real estate transaction, and help you steer clear of problems.
Your real estate attorney owes an undivided duty of loyalty to you, unlike others involved in the real estate transaction, such as real estate salespersons, lenders, appraisers, inspectors and title insurance company representatives. Before you sign documents involving significant legal rights and obligations, your attorney can explain terms and help you understand what you are signing.
Therefore, you would be well-advised to see your lawyer first. Consult a qualified real estate attorney before signing any offer to purchase property. Thereafter, your real estate attorney can help you negotiate the specific terms of the contract, review title documents and ensure that clear title to the property will be conveyed, help you evaluate mortgage financing options and explain the terms of your mortgage loan, help guide you at closing through the stack of documents that you will be asked to sign, and check to be sure that the conveyance documents have been properly prepared and actually convey good title to the property to you. If you are married, your real estate attorney can also help you evaluate the pros and cons of taking title as joint tenants or as tenants by the entirety, and can explain to you the consequences of the various options.

Monday, December 28, 2015

Snow and Ice Removal and "Natural Accumulation" in Illinois

As I write this post, Central Illinois is having a severe ice storm on the heals of a very wet Christmas.  Thus I read with interest today the First District Illinois Appellate Court's recent decision in Murphy-Hylton v. Lieberman Management Services, Inc., as to the scope of the Snow and Ice Removal Act and "natural accumulation."  

At Illinois common law, a landowner has no duty to remove natural accumulations of snow, but can have a duty to remove unnatural accumulations, and if undertaking to remove snow, can incur liability if done negligently.  The Act changed the common law to provide immunity for injuries sustained by a person as a result of attempts to clear snow or ice, albeit negligently.  

In Murphy-Hylton, the plaintiff apparently injured herself by slipping on a patch of ice on an otherwise clear sidewalk.  Her complaint did not allege negligent removal of snow or ice.  Instead, the plaintiff argued that her injury was caused by the defendant's negligent and defective property maintenance or construction.  She apparently alleged that the ice patch in question was caused by a faulty downspout installation, causing gutter runoff to flow onto the sidewalk and then puddle and freeze.  

After the trial court had granted summary judgment for the defense based on the Act, the appellate court reversed, and held that the Act does not apply in such a case, and therefore the defendants were not immune from liability for the alleged damages.  In doing so the First District Appellate Court concurred with the Fourth District's holding in Greene v. Wood River Trust, and disagreed with the Second District's decision in Ryan v. Glen Ellyn Raintree Condo. Ass'n, although noting that the strict holdings of the two decisions do not necessarily conflict as applied to the facts of this case.  

These are important decisions to clarify the potential liability of condo and homeowner associations, property managers, snow removal contractors, and where defective building construction/design is alleged as in this case, general contractors and architects.  It is also important to show the importance of the specific pleading of plaintiff's allegations, in terms of potentially implicating an entirely different class of defendants, and determining applicability of insurance coverage.  

Wednesday, October 7, 2015

Implied Warranty Update - Does Not Extend to Architects for Design Flaws

I just posted a few days ago about the Illinois implied warranty of habitability and the recent case of Fatah v. Bim, which found that contractors can be liable for a claim of warranty breach by a subsequent homeowner, not the initial buyer, even when the initial buyer signed a waiver with the builder.  
The implied warranty is again in the news today, for a second Illinois appellate case, this time about whether the warranty extends to architects for alleged design flaws.  The court held that the warranty addresses the construction itself, not design, and therefore found the warranty did not extend to the architect.  
The case is also significant for the court's consideration of warranty disclaimer language in the contracts signed by the buyers, as to potential liability of the developer and other defendants.  The court found the disclaimer, which was in all caps, was sufficiently conspicuous as a matter of law, and that the developer was not required to verbally bring the the disclaimer to the buyers' attention before they signed.  
Finally the court also addressed when implied warranty claims may be raised against subcontractors (only where the general contractor is insolvent), and found the plaintiffs' pleadings did not sufficiently show the contractor's insolvency and therefore potential subcontractor liability.