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Brubaker v. Gould

MARCH 5, 1962.




Appeal from the Superior Court of Cook County; the Hon. JOHN A. SBARBARO, Judge, presiding. Reversed and remanded with directions.


Rehearing denied March 22, 1962.

Plaintiffs appeal from a decree dismissing their complaint for want of equity at the close of plaintiffs' evidence before a master in chancery. The transfer to this court of plaintiffs' direct appeal to the Supreme Court disposed of plaintiffs' theory that a freehold is involved.

The record shows that on February 24, 1949, plaintiff Henry J. Brubaker and defendant J.H. Lahman jointly accepted a letter of intent to purchase a U.S. Navy surplus plant at Rockdale, Illinois, from the War Assets Administrator. The price was $875,000, payable over a ten year period. A plant consisted of approximately 26 acres, improved with buildings, containing about 700,000 square feet of space. Brubaker and Lahman made initial deposits of $30,000. On April 27, 1949, Lahman, Brubaker, and his wife Civilla, formed an Illinois corporation, Interlake Industries Corporation, for the purpose of taking title to and possession of the property.

On May 26, 1949, Brubaker, because of illness, assigned to Lahman all of his right, title and interest in the letter of intent of February 24, 1949. Lahman agreed to assume, perform and discharge all of the terms and obligations of the letter of intent; to assume payment of specified outstanding Brubaker notes; to pay Brubaker the sum of $1100, and to reserve for Brubaker a one-tenth interest in the common stock of Interlake Industries or any other corporation that might become the successor to the letter of intent.

On June 22, 1949, in exchange for Interlake stock, Lahman assigned his interest in the War Assets Administration letter of intent to Interlake. Of the stock then received by Lahman, he assigned 1,000 shares of common to Civilla J. Brubaker, and stock certificate No. 14 was issued to her.

Lahman, prior to 1949, had been borrowing money at high interest rates from defendant W.E. Gould & Company, which was in the business of lending money, primarily to corporations. After June 1949, Gould & Company commenced making substantial loans to Interlake, for which it received notes of Interlake. Interlake also picked up outstanding Lahman notes held by Gould & Company by the substitution of Interlake notes.

In 1950, Lahman and Interlake were in serious financial distress, Gould & Company held Lahman and Interlake notes and some Lahman "NSF" checks. After negotiations, Lahman and defendant W.E. Gould, principal owner of W.E. Gould & Company and acting on its behalf, entered into a contract on May 29, 1950, intending to take Lahman completely out of Interlake and to put W.E. Gould & Company in full control as owner of all its stock. At that time Lahman, although the owner of 75% of the stock of Interlake, agreed to deliver to Gould & Company all of the outstanding stock of Interlake. Gould and Gould & Company agreed to "turn back" to Lahman and to Interlake, notes totaling $179,000, of which $67,000 were Lahman's and $112,000 were Interlake's. In addition, Lahman was to receive $11,000 in cash.

On June 1, 1950, Gould & Company took over Interlake and its properties, and Lahman stepped out completely. Gould was elected president of Interlake at a meeting purportedly held by all the shareholders on June 5, 1950, at which time, the record indicates, Gould or Gould & Company had possession of only Lahman's 75% With the exception of the 1,000 shares held by the Brubakers, Lahman delivered to Gould the balance of the outstanding stock of Interlake shortly after May 29, 1950.

Up to this point, Lahman and Brubaker remained friendly and frequently saw each other. Lahman had told Brubaker of Interlake's difficulties in meeting the plant contract payments, and that he was going "to have to unload to somebody and it probably would be Gould." Finally Lahman told Brubaker that he had "made a deal with Gould & Company to carry the ball from there on," and that he had sold all of his interest in Interlake to Gould. Later, Lahman told Brubaker that the Gould deal included delivery of the 1,000 shares of the Interlake common held by the Brubakers, with no consideration to them. Several weeks later, Lahman started urging the Brubakers to return their Interlake stock to him, in order that he could give it to Gould. He stated that it was their duty to do so, that the stock was worthless, and he was in great distress and might go to jail if he did not get it. After some delay, the Brubakers informed Lahman they would talk it over with their attorney, Sidney O. Simon, known to Lahman.

Simon, over a period of four months, had a number of conferences with Lahman and with Brubaker, separately and together. Lahman persisted in his statements that he was very heavily involved with Gould and had received a threatening letter — he had to have the Brubaker shares to deliver to Gould. The Brubakers did not want to give up their Interlake stock and were openly suspicious that Lahman had a collateral agreement with Gould for the return of Lahman's interest in Interlake. Lahman persisted in stating that he had given the stock to the Brubakers without consideration and felt that, as he was in difficulties, it was Brubaker's "Christian duty" to return the shares. Finally Lahman agreed to pay the Brubakers $5,000 in payment of some past due Lahman notes, which Brubaker held, and they agreed to give the stock to him.

On May 9, 1951, at a meeting at Simon's office attended by Lahman and Brubaker, Lahman gave his $5,000 check to Brubaker, and Brubaker gave to Lahman stock certificate No. 14 for 1,000 shares of Interlake common, endorsed by Civilla J. Brubaker. At that time Lahman delivered to Brubaker his affidavit, prepared by Simon, which stated that since June 1, 1950, he (Lahman) had no "interest of any kind or character, present or reversionary," in any of the shares of stock or real property of Interlake Industries; that the certificate representing 1,000 shares of Interlake common stock "is being sold and delivered by Civilla J. Brubaker based on the above and only to enable affiant to fulfill his contract"; and that the affidavit was made for the purpose of inducing her to deliver to Lahman the stock certificate. Lahman delivered the stock certificate to Gould that day, and Interlake issued a new certificate to Gould & Company for the Brubaker shares.

On May 15, 1955, Lahman, as plaintiff, filed a complaint in equity in the Circuit Court of Cook County against W.E. Gould and Gould & Company, as defendants, Case No. 55 C 7294, in which Lahman alleges inter alia that the Lahman-Gould agreement of May 29, 1950, was executed under such circumstances that Lahman has the right to recover his shares in Interlake from Gould & Company upon doing equity, which he offered to do in his complaint.

In the Lahman-Gould complaint (copy of which is in evidence), Lahman alleges that the purported "sell out" of May 29, 1950, "was understood to be a further collateral protection to defendants and an accounting would be made from time to time." He further alleges that the defendants and their attorney, Israel Dordek, on or before April 4, 1955, knowing that Lahman was under subpoena by the U.S. Government as a witness in the case of United States of America v. Roberts Enterprises, Inc. No. 53 C 967, summoned Lahman to defendants' office and admonished him and "suborned the perjury of plaintiff under duress or threat as alleged that plaintiff testify falsely that the sellout of May 29, 1950, was legal and proper and that under duress plaintiff so testified and similarly in the case of Harold Ronin v. Lahman in the Circuit Court of Cook County, No. 52 C 187, when in truth and in fact the transaction was for collateral as hereinabove alleged more particularly."

Plaintiffs filed the instant complaint on September 9, 1955, after making a demand upon Gould and Gould & Company for the return of their Interlake stock. The complaint consists of four counts, all based on the theory that Gould and Lahman entered into a conspiracy and committed fraudulent acts, so as to defraud plaintiffs of their Interlake common stock and of a one-half interest in the Navy surplus plant now owned by Interlake. They seek a rescission of the assignment of their interest in the real estate, a rescission of the transfer of their stock certificate, an accounting, and a receiver for Interlake. All defendants answered, denying the charges, and the cause was referred to a master in chancery.

The hearings before the master commenced on January 15, 1956, and plaintiffs closed their proofs on October 31, 1957. All defendants then moved for a finding for defendants under Section 64(5) of the Civil Practice Act. On March 12, 1959, the death of W.E. Gould was suggested as of December 21, 1958, by Harriet B. Gould, executor of his will. She answered the complaint "without prejudice to all proceedings heretofore had." She also moved to exclude the testimony of the Brubakers and Lahman and adopted the motion of the defendants for a finding and decree in their favor. The report of the master in chancery is dated May 27, 1959. The witnesses include both plaintiffs, their attorney, Sidney O. Simon, and defendants Lahman and W.E. Gould, who were called as witnesses under Section 60.

In his report the master found that plaintiffs were guilty of laches; that the evidence submitted by plaintiffs failed to sustain the allegations of the complaint on any of its counts; and recommended that the motion of all defendants for a finding and decree at the close of plaintiffs' evidence be allowed in all respects. The chancellor overruled all exceptions to the master's report, sustained the motions of defendants for a finding and decree, approved master's fees in the sum of $13,031.30, and dismissed the complaint for want of equity at plaintiffs' costs.

Subsequent to the entry of the decree, the chancellor entered an order directing the payment by plaintiffs of fees occasioned by the appointment of a receiver for Interlake. This appointment was made on the petition of plaintiffs during the pendency of the hearings before the master and was later reversed by this court. (Brubaker v. Gould, 19 Ill. App.2d 412, 152 N.E.2d 485.) Plaintiffs appeal from the decree of dismissal, the order allowing master's fees, and the order allowing receivership fees. They also ask for a review of the order of this court reversing the appointment of the receiver.

The principal question is whether the chancellor erred in entering a decree of dismissal at the close of plaintiffs' evidence. The motion of all the defendants at the close of plaintiffs' case was a procedural means of submitting the whole case to the court for a determination of the merits. In ruling on the motion, the court was required to weigh the evidence offered on behalf of the plaintiffs. Section 64(5), Civil Practice Act. (Banks v. Gregory (1959), 16 Ill.2d 227, 231, 157 N.E.2d 12.) If there was any substantial evidence tending to prove plaintiffs' allegations, the motion should have been denied. (City of West Frankfort v. Fullop (1955), 6 Ill.2d 609, 617, 129 N.E.2d 682.) In passing upon the motion, it is the duty of the court to weigh and consider the evidence to ascertain if there is enough substantial evidence to sustain a decree for plaintiff in the absence of rebutting evidence. (Fewkes v. Borah (1941), 376 Ill. 596, 600, 35 N.E.2d 69; Banks v. Gregory, 16 Ill.2d 227, 157 N.E.2d 12.)

The evidence in the instant appeal is voluminous, as the prior factual summarization indicates. Considering plaintiffs' evidence, it is our conclusion that some of the findings approved and confirmed by the court are correct. Nevertheless, we believe the decisive findings are contrary to the evidence and are erroneous.

The finding that plaintiffs were guilty of laches in filing their complaint for relief on the stock transaction is contrary to the evidence. Plaintiffs delivered their stock to Lahman on May 9, 1951, and on that day he delivered it to Gould. This is the transaction which plaintiffs seek to rescind and set aside on the ground of fraud. The Lahman-Gould suit was filed on May 15, 1955, and the instant suit was filed on September 9, 1955. There has been no change of stock ownership since May, 1951. Mere delay will not bar relief, where the injured party was ignorant of the fraud and filed his complaint within a reasonable time after acquiring knowledge of it. (Bremer v. Bremer (1952), 411 Ill. 454, 468, 104 N.E.2d 299.) Neither Gould, Gould & Company nor Lahman have been prejudiced by the alleged delay of Brubaker in commencing the instant action, and no defendant has changed his position in reliance on plaintiffs' failure to take action at an earlier date. McCartney v. McCartney (1956), 8 Ill.2d 494, 500, 134 N.E.2d 789.

We agree that plaintiffs' evidence does not sustain any of the allegations that Lahman, by means of fraudulent misrepresentations, procured the assignment of May 25, 1949, of Brubaker's one-half interest in the letter of intent for the purchase of the surplus plant. The evidence is clear that the terms of the agreement of May 25, 1949, resulted from discussions initiated by Mrs. Brubaker because of Brubaker's illness. The record shows that Lahman complied with his part of the agreement. On cross-examination, Brubaker testified, "I was never called upon to pay that so that this deal of May 25, 1949 really cleaned me up as far as what I had in the Rockdale deal and gave me 10% of the stock. . . . I didn't see anything wrong with this deal of May 25, 1949 as is evidenced by that contract. I didn't see anything wrong with it then and I don't see anything wrong with it now just so far as that deal is concerned."

As to the transfer of Brubaker Interlake stock, we believe that the evidence offered by plaintiffs sustains the allegations that the May 9, 1951, assignment was procured by Lahman by means of false and fraudulent misrepresentations, deliberately made with the intent to defraud the Brubakers of their complete interest in the stock.

Lahman freely admitted that he spent months trying to persuade the Brubakers to give up their stock; that there was a discussion prior to May 9, 1951, about Brubaker starting a lawsuit against Gould, in which Simon said he thought the Brubakers had a good lawsuit if Lahman joined as plaintiff; that Brubaker said to Lahman, in Simon's office, "Harold, look, I think I am doing you a favor by not giving you these shares. We cannot only enforce our rights on this but probably do you a lot of good," and at that time he (Lahman) said to Brubaker, "This is a debt of honor with me, I got the money from Gould when I couldn't get it any place else and I am not the kind of man that welches on obligations. I have made a commitment to Gould to deliver all the shares and I am not only honor bound, I am morally bound and also legally bound to deliver them, and that I am in for all kinds of trouble if I don't deliver them."

Lahman admitted making the affidavit of May 9, 1951, in which he stated he "had no interest of any kind or character, present or reversionary," in any of the shares of Interlake or its real estate. Lahman admitted the allegations of the amended complaint in the Lahman-Gould lawsuit, and also admitted that it was true that Gould assured Lahman that "even though this would be called a sellout, it was understood to be a further collateral protection to defendants and an accounting would be made from time to time."

We think a reasonable conclusion from this evidence is that Lahman deliberately signed the affidavit, knowing that the basic representations were false, in order to induce the Brubakers to give up their Interlake stock and to foreclose them of any future rights in the stock, although he (Lahman) had an oral agreement with Gould that the delivery of the Brubaker stock to Gould was intended to be only additional collateral for Gould, and that Lahman, at the time of the execution of the false affidavit, believed he would ultimately recover all the Interlake stock from Gould.

Fraud is established by evidence of circumstances and facts which are inconsistent with an honest purpose and which convinces the mind of the existence of fraud. The proof should be clear and convincing in its nature, so as to leave the mind well satisfied that each element has been established. (In re Estate of Baumgarth (1960), 23 Ill. App.2d 319, 326, 163 N.E.2d 201; 19 ILP, Fraud, 47.) We conclude that plaintiffs' evidence, with all reasonable intendments, is sufficiently clear and convincing in its nature so as to establish actionable fraud by Lahman in securing the Brubaker stock. Malewski v. Mackiewich (1935), 282 Ill. App. 593, 601.

We do not agree with the contention that there is no evidence that Gould and Gould & Company had any knowledge of Lahman's stock negotiations with plaintiffs. In admitting the affidavit of May 9, 1951, Lahman said, "I swore to it and signed it. The truth is that I had to sign whatever they put before me because I was under so much duress to pick up this particular certificate of stock belonging to Civilla J. Brubaker that I had to sign it in order to get the stock to deliver to W.E. Gould & Company. I was under duress from W.E. Gould. That is all."

Lahman testified further that he was completely under the domination and control of Gould and said he "was economically, spiritually and every other way subservient to Mr. Gould"; that after entering into the agreement with Gould on May 29, 1950, he had frequent conversations with Gould about the Brubaker stock, in which Gould made urgent demands for the stock. At one time Gould said that "it was now near a year since the date of the agreement and it was up to me to get this stock of Brubaker's and fulfill the terms of the contract of May 29, 1950. I told him that I was having difficulty. I said the Brubakers were reluctant to surrender their stock; that they were refusing to give it up. Mr. Gould said that if it was a question of money that I should offer Mr. Brubaker money — do anything in order to get the stock — and so I began to approach Mr. Brubaker from a monetary standpoint then, and ascertained either through him or his attorney I don't recall which, what he would require to surrender the stock. I don't think I ever had any talk with Mr. Gould as to what steps he might deem necessary to enforce my obligation. . . . When I got the stock from Brubaker I took it over the same day and delivered it to Gould."

Finding as we do that plaintiffs' evidence as to Lahman's conduct in securing title to the Brubaker stock established fraud, we also believe that Lahman's conduct, taken in connection with the Lahman-Gould contract of May 29, 1950, and the subsequent conversations between Gould and Lahman, wherein Gould repeatedly demanded that Lahman secure the Brubaker stock, in which Gould told Lahman to "do anything in order to get the stock," is legitimate ground for the conclusion that there was a conspiracy between Lahman and Gould to secure the Brubakers' Interlake stock by any means whatever, legal or illegal, and that Lahman acted as Gould's tool in the negotiations. Lahman had to get ...

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