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Martindell v. Lake Shore Nat. Bank





APPEAL from the Appellate Court for the First District; — heard in that court on appeal from the Circuit Court of Cook County; the Hon. CHARLES S. DOUGHERTY, Judge, presiding.


This cause presents the issue of whether Jackson Martindell, herein referred to as plaintiff, is entitled to specific performance of an option contract to purchase 67 per cent of the debentures and stock of Marquis-Who's Who, Inc., a not-for-profit corporation which publishes Who's Who in America and similar publications. The circuit court of Cook County granted such relief upon plaintiff's motion for a summary decree but, upon review, the decree was reversed and specific performance denied by the Appellate Court. (Martindell v. Lake Shore National Bank, 15 Ill. App.2d 217.) We have granted plaintiff's petition for further review.

From the pleadings, exhibits, documents and affidavits upon which the summary decree was based, it appears that Wheeler Sammons, Sr., and his wife, Dorothy W. Sammons, had, for a long time prior to 1951, been engaged as partners in the publishing business under the name and style of The A.N. Marquis Company, with principal offices in the city of Chicago. A son, Wheeler, Jr., was employed by the company in the late 1940's but was not so engaged when the first events which led to this litigation occurred. In 1951, Sammons, Sr., conducted various negotiations for the sale of the business or for financial backing which would assure the perpetuation of the enterprise. He was also interested in establishing a public library of biographies with the data collected by Who's Who publications as a nucleus. At the time in question the plaintiff was a New York resident and the president and a director of American Institute of Management, a not-for-profit corporation established for research into the techniques and principles of management. Sammons learned of the plaintiff from a mutual friend and, in writing to such friend in June, 1951, Sammons stated: "If you feel he is the man to carry on `Who's Who — I'd rely on your judgment. * * * For reasons of which you know, I now do not have any cause, as I have had heretofore, for aiming toward `familial successorial perpetuation,' * * *." In a subsequent letter of June, 1952, to the same man, who was ultimately plaintiff's attorney in the transaction, Sammons stated that he understood plaintiff was coming to Chicago and remarked: "I am quite convinced of the desirability of working out some way to have `Who's Who' his responsibility when my stint is over, and I hope something can be worked out." Further showing the development of a friendly relationship between Sammons and the plaintiff, the latter's complaint alleges, and the answer of Dorothy W. Sammons admits, that Sammons was made a director of the American Institute of Management and received 10 per cent of its paid-in stock.

Preliminary negotiations between plaintiff and Sammons culminated in a conference between them and their attorneys in New York City on May 8, 1952. Upon the basis of agreements reached at this meeting Sammons's attorney drew up a written agreement which the plaintiff, Sammons, and the latter's wife signed on October 2, 1952. This instrument, which the parties refer to as the "master agreement," designated the plaintiff as "buyer" and the Sammonses as "sellers," and, as aptly stated by the Appellate Court, was a comprehensive plan by which the Sammonses could obtain the necessary financing to continue and remain active in the publishing business, receive an income from the net profits of the business, establish a biographical library, and at the same time provide for the perpetuation of the publishing business and the library in the event the sellers ceased to remain active by virtue of retirement, disability or death. Additionally, the agreement recited that the buyer was interested in creating and maintaining a library, and that he was also desirous of assuring the continuity of the library project and the publishing business.

To carry out the purposes of the agreement, the sellers first agreed to organize a not-for-profit corporation authorized to issue 425 shares of capital stock with a par value of $3 a share, to be paid for by the sellers in cash at par. After the organization of such corporation the plaintiff-buyer agreed to lend the sellers $125,000 in cash for a period of 20 years at 5 per cent interest, such loan to be secured by a mortgage on the building in which the sellers had conducted their publishing business, by the assignment of any leases on the building, and by a pledge of certain debentures, with a face value of $125,000, which were to be issued to the sellers by the new corporation. By a third provision the sellers were required to transfer the $125,000 in cash and all the capital assets of their partnership to the new corporation, and to receive in return $425,000 worth of debentures to be issued by the new corporation. These were long term debentures bearing 5 per cent interest and were to mature serially at the rate of $50,000 a year starting 12 years after their date of issue and concluding 20 years thereafter, the agreement providing that the new corporation could redeem its debentures but, if there was any redemption, the debentures pledged to plaintiff were to be redeemed in full before any other debentures could be redeemed in whole or in part. By a succeeding provision the sellers agreed to lease their building to the new corporation for a period of 20 years, and to cause the corporate lessee to provide for, staff and contribute to the biographical library. Thereafter it was agreed that Wheeler Sammons should be continued as chief executive and general manager of the new corporation at a salary of not less than $12,000 per annum, and that the new corporation should have the privilege of employing Mrs. Sammons and Elizabeth Connor, the latter a daughter of the sellers.

Most significant of the remaining provisions of the agreement was one which provided that the buyer or his nominee should have, and that the sellers granted, the following options: (a) After 10 years from the issue date of the debentures, the right at any time to purchase up to but not in excess of 67 per cent of the original principal amount of the debentures, the sellers being obligated to assign to the buyer one share of stock for each $1,000 in principal amount of the debentures. Contained within this option was the following language: "Debentures paid and discharged by the corporation shall not thereafter be available for purchase by the Buyer under this option." Thereafter subparagraph (b) of the option provision gave plaintiff a right, after 10 years, to purchase the business building for the sum of $125,000, while subparagraph (c) accelerated the option date in the event of Wheeler Sammons's voluntary retirement or death before a 10-year period had elapsed. With respect to his death, which did occur, the option date was advanced to the date his administrator or executor was appointed and continued for six months thereafter. Still another provision of the option clause was as follows: "In the event that the Buyer chooses to exercise any of the options hereunder, he shall notify the sellers or their personal representative or representatives, as the case may be, not less than thirty days in advance of the date specified in said notice for the exercise of said option."

Pursuant to the terms of the master agreement the Marquis-Who's Who corporation was formed on February 20, 1953, and Sammons and his wife purchased its 425 shares of common stock for $1,275. Plaintiff loaned the $125,000 to the Sammonses, which was evidenced by a note upon which there was no personal liability, secured by a mortgage on the building owned by the Sammonses and used by the corporation. The Sammonses transferred the partnership assets of the A.N. Marquis Company to the corporation, including the $125,000 received from the plaintiff, and received in exchange $425,000 in debentures issued by the new corporation. Debentures numbered one, two and three, totaling $125,000, were pledged to the plaintiff as agreed. The remaining seven bonds, having a value of $300,000, were in possession of Sammons and his wife and it appears that their undivided interests in them were, respectively, twenty per cent and eighty per cent.

The debentures each contained the following provision: "The right is hereby reserved to the corporation to redeem this bond at any time by the payment of the principal hereof and interest thereon, to the date of redemption; provided, however, that if there be any bond or bonds outstanding with a lower serial number, such bond or bonds shall be redeemed first." Similarly, the pledge agreement executed and delivered to the plaintiff had the following provision: "If the pledgors shall repay the above described principal sum of One Hundred Twenty-five Thousand ($125,000.00) Dollars, together with all interest due thereon, on or before the maturity thereof, then, in such event, the pledgee shall deliver back to the pledgors all of the said debenture bonds remaining unpaid, and shall reassign said bonds to the pledgors * * *. In the event any of said debenture bonds are redeemed by the obligor corporation the proceeds of such redemption shall be applied by the pledgee first in payment of interest due on the above described principal sum and the remainder on account of the principal balance then remaining unpaid."

Wheeler Sammons, Sr., died on February 21, 1956, and, at that time, was a director of the corporation along with his wife and Lloyd M. McBride, their attorney. Sammons was president and treasurer and his son, Wheeler, Jr., who had returned to the business in 1953, was secretary. Letters of administration with will annexed were issued to Lake Shore National Bank on March 5, 1956, and by the terms of the agreement plaintiff had six months from this date to exercise his option. On the same day, however, the shareholders of the corporation, namely, Mrs. Sammons and the administrator, both of whom made Wheeler, Jr., their proxy for the purpose, elected Wheeler, Jr., as a director. The board, in turn, accepted Wheeler's resignation as secretary, elected him to the offices of president and treasurer, and elected McBride as secretary. With reorganization accomplished, the new board passed a resolution to redeem the ten debenture bonds and, in connection therewith, Wheeler, Jr., explained that his mother had agreed to loan the corporation $240,000 and to consummate the loan by accepting a demand note of the corporation in the principal sum of $240,000, bearing interest at the rate of 6 per cent per annum, in full payment and discharge of her 80 per cent undivided ownership of the bonds bearing serial numbers 4 to 10 inclusive. The directors then authorized that transaction. On the same date, March 5, 1956, the corporation drew a check for $185,000 on its account at The First National Bank of Chicago payable to the Lake Shore National Bank, in Chicago, for the establishment of a "Debenture Retirement Fund" account at that bank.

Still on the same day, March 5, 1956, the corporation and the attorneys for Mrs. Sammons and the estate of the senior Sammons, each sent plaintiff a letter. The communication from the corporation advised plaintiff of the steps taken for the redemption of the debentures held by him as pledgee, and stated that the sum for the payment of the principal due on the bonds was on deposit in a special account at the Lake Shore National Bank. The letter from the attorneys for the estate and Mrs. Sammons likewise advised plaintiff of the steps taken for the redemption of the bonds and stated that they had authorized and directed the corporation to apply the money set aside in the debenture fund to the payment of the principal and interest due on note executed to plaintiff by the Sammonses. Concluding, the letter requested the surrender of the principal note and all documents held by plaintiff as collateral security, advised him that interest on the principal note had been prepaid to March 26, 1956, and requested him to present all necessary papers to Marquis-Who's Who. Inc., on or before March 10, 1956.

On March 6, 1956, pursuant to the resolution of the preceding day, the corporation issued a 6 per cent demand note to Mrs. Sammons in the principal amount of $240,000 and drew and delivered a check for $60,000 on the debenture account at the Lake Shore National Bank payable to the estate of Sammons, Sr. Both the administrator and Mrs. Sammons accepted these transactions as payment of their respective interests in the debentures.

On March 7, 1956, plaintiff sent registered letters and telegrams to Mrs. Sammons, the administrator, and to the president and secretary of the corporation, in which he stated his election to exercise his option to purchase 67 per cent of the debentures and 67 per cent of the common stock in accordance with the master agreement of October 2, 1952. In his letter he stated that he was prepared to execute all necessary documents to make the payments contemplated in connection with the transfer. Although plaintiff did not give advance notice of his intention to exercise his option, as required by the agreement, we agree that such a notice would have been useless in view of the optionors' attitude of repudiation. (See: Laegeler v. Bartlett, 10 Ill.2d 478; Lewis v. McCreedy, 378 Ill. 264.) To specifically enforce his option, the plaintiff instituted the present action in the circuit court of Cook County where, upon his motion for a summary decree, a decree of specific performance was entered June 22, 1956.

In seeking equitable relief, plaintiff has pursued two theories, the first being that the agreement obligated the Sammonses to hold his option open for a period of six months after the death of Sammons, Sr., and, second, that the debentures pledged to him were not "paid and discharged," either in law or in fact, at the time he elected to exercise his option to purchase 67 per cent of the debentures and stock. The trial court held for the plaintiff in both respects. Upon appeal, however, the Appellate Court, after indicating that it considered the business perpetuation and library purposes of the agreement to be "secondary" to the loan and security purposes, held that the purported option granted by the agreement was in effect but a revocable offer which had been revoked when the debentures were redeemed by the corporation, and that the pledged debentures had been effectively paid and discharged prior to the plaintiff's attempt to exercise his option. In granting plaintiff's petition for leave to appeal to this court, our concern is with the question of whether the parties to the agreement intended the option granted to plaintiff to be a mere revocable offer even after the occurrence of the event which gave him the right to exercise it.

The agreement is not without ambiguity and inconsistency, nor can it be said that the intent of the parties is crystal clear from its terms. Although the Appellate Court dismissed it as being for the primary purpose of creating a relationship of lender and borrower, the agreement itself manifests a different intent when it fixes the relationship of the parties as being buyer and seller, and when it states two of the mutual purposes for the agreement to be the creation and maintenance of a library and the continuation of the seller's publishing business. Further detracting from a conclusion that only a loan arrangement was intended are those provisions which spell out the formation of a corporation to carry out the purposes of the agreement, and those which go as far as to provide that certain persons could be employed by the corporation to be formed. Nor does it appear that the financial needs of the sellers, or their publishing business, was an entirely compelling circumstance upon them. Negotiations were carried on for approximately a year before a written agreement was drawn and signed and, during that period, the sellers' only concern appears to have been to gain satisfaction that the plaintiff-buyer was a proper ...

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