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Schoenbrod v. Rosenthal

MAY 3, 1962.

ROY M. SCHOENBROD AND HYLAND BUILDERS CORPORATION, AN ILLINOIS CORPORATION, PLAINTIFFS-APPELLANTS,

v.

HERBERT M. ROSENTHAL, DUNBAR BUILDERS CORPORATION, AN ILLINOIS CORPORATION, AND LA SALLE NATIONAL BANK AS TRUSTEE UNDER TRUSTS NOS. 23354 AND 24445, DEFENDANTS-APPELLEES.



Appeal from the Superior Court of Cook County; the Hon. SAMUEL B. EPSTEIN, Judge, presiding. Affirmed.

MR. JUSTICE DEMPSEY DELIVERED THE OPINION OF THE COURT.

Rehearing denied June 6, 1962.

The plaintiffs, Roy M. Schoenbrod and Hyland Builders Corporation, appeal from a decree dismissing, with prejudice, their amended complaint. The principal issues presented are whether the plaintiffs are barred from maintaining their suit by the doctrines of res judicata and laches.

Schoenbrod and the defendant, Herbert M. Rosenthal, were equal owners of the Hyland Builders Corporation and four affiliated companies. In April 1955 they agreed to terminate their association by one or the other selling his stock to the corporations. The liquidation agreement provided that on April 18, 1955, Rosenthal would deposit in escrow a written statement of the price at which his or Schoenbrod's 50% interest could be bought or sold, and that Schoenbrod would have the election, to be exercised on April 19th, of either selling his stock or of buying Rosenthal's at the stated price.

Rosenthal deposited his statement and its terms were, (a) for the immediate transfer of $90,000 worth of the corporations' contract paper; (b) for the payment of $25,000 in cash on or before July 18, 1955, and, (c) for a two-year employment contract to the selling party for an additional $26,000 payable at $250 a week, starting on May 1, 1955.

Schoenbrod elected to purchase Rosenthal's interest. He and the corporations made the payments as agreed but stopped paying on the employment contract, which had been signed April 30, 1955, after having paid $10,250. In May 1956 Rosenthal sued for the unpaid balance of $15,750. He received a judgment for that amount and Schoenbrod appealed to the Appellate Court which affirmed the judgment. Rosenthal v. Hyland Builders Corp., 25 Ill. App.2d 229, 166 N.E.2d 463 (1960).

In June 1960 Schoenbrod brought the present suit against Rosenthal and Ben Silberman and Gilbert H. Hennessy, Jr., who were the accountant and the attorney, respectively, of the Hyland Builders Corporation at the time of the liquidation agreement. He alleged that in June 1955 he retained a new accountant and learned for the first time that the net worth of the corporations was $140,000, and not $280,000 as represented by the defendants upon whom he relied. He charged that they conspired to induce him to transfer all of the assets of the corporations to Rosenthal and that, as a result, he suffered damages of $142,000. He prayed for an accounting, for reformation of the liquidation agreement and for punitive damages.

After the three defendants had answered, an amended complaint was filed which adopted the averments of the original complaint and which added Dunbar Builders Corporation and the La Salle National Bank as defendants. It was alleged that Rosenthal converted the money he received from the plaintiffs into real estate owned by him and the Dunbar Company and that the La Salle bank held title, as trustee, for some of this property. The imposition of a constructive trust upon the defendants' property, the appointment of a receiver for it, an injunction against encumbering it and an injunction against enforcing the judgment of $15,750 were prayed for, in addition to the relief sought in the original complaint.

All the defendants joined in a motion to dismiss which was predicated on the grounds that the subject matter of the amended complaint was or could have been adjudicated in the prior litigation between Rosenthal and Schoenbrod, and that the complaint was barred by laches. The chancellor sustained the motion as to Rosenthal, the Dunbar Company and the La Salle National Bank, the latter two because of being in privity with Rosenthal, and denied it as to the defendants Silberman and Hennessy. He further found that there was no just reason for delaying the enforcement of or the appeal from his decree.

[1-4] The initial question to be determined is whether the first litigation over the employment contract is res judicata of the present suit. The doctrine of res judicata is that a cause of action once adjudicated by a court of competent jurisdiction cannot be tried again between the same parties or their privies in new proceedings, before the same or a different tribunal, except in an action to set aside or review the prior adjudication. The People v. Kidd, 398 Ill. 405, 75 N.E.2d 851; City of Chicago v. Partridge, 248 Ill. 442, 94 N.E. 115. The doctrine arises where the prior adjudication is relied upon as a conclusive bar to the entire new action. There are three essentials to its application: the cause of action, the parties or their privies, and the subject matter must be the same in both cases. Ray Schools-Chicago-Inc. v. Cummins, 12 Ill.2d 376, 146 N.E.2d 42. Not only all the matters which were litigated in the first cause of action, but also all those which could or might have been presented to support or defeat the claim are regarded as concluded by the prior judgment. Seno v. Franke, 16 Ill. App.2d 39, 147 N.E.2d 469.

[5-8] Another rule concerning former adjudication, which rests on the same fundamental principle, is generally called estoppel by verdict. City of Elmhurst v. Kegerreis, 392 Ill. 195, 64 N.E.2d 450. Occasionally, it has been termed collateral estoppel (Cohen v. Schlossberg, 17 Ill. App.2d 320, 150 N.E.2d 218) a term which might advantageously be used in all cases. It is broad enough to cover both law and equity, and in law it would apply equally well to cases tried with or without a jury. Collateral estoppel arises where the second cause of action differs from the first but is between the same parties or their privies. The judgment in the prior action then operates as a bar to those points or issues raised or decided in the first case. Boddiker v. McPartlin, 379 Ill. 567, 41 N.E.2d 756; Hicks v. Hicks, 20 Ill. App.2d 139, 155 N.E.2d 355; Cheevers v. Stone, 10 Ill. App.2d 39, 134 N.E.2d 32. Under collateral estoppel only the matters which were litigated in the first cause of action and not those which might have been, are deemed concluded. Chicago Historical Society v. Paschen, 9 Ill.2d 378, 137 N.E.2d 832.

These rules were applied by the Supreme Court in a case similar to the present one, Harding Co. v. Harding, 352 Ill. 417, 186 N.E. 152. The Harding Company had been formed to take over the business of Charles E. Harding. In the agreement he assigned his name and assets to the company. He received an employment contract in which he agreed not to participate in any like business for two years. A year and a half later the company sought to enjoin him from doing business under his name. The injunction was issued and the company was given a judgment for the costs of the suit. Later the company brought a creditor's bill to satisfy the judgment and it also asked for an accounting to recover money Harding owed the company. Harding filed a cross-bill. He named as defendants those who controlled the company, charging that they had used duress and fraud to get him to make the agreement under which the company took over his business. He asked that the agreement be set aside, for the declaration of a constructive trust and for an accounting. The defendants' answer asserted that all the matters concerning the formation of the company had been adjudicated in the injunction proceeding. The trial court held for Harding. The company and the cross-defendants appealed to the Appellate Court. One of the grounds urged on appeal was that it was the obligation of Harding to have made the defense of fraud in the injunction suit, and that having failed to do so he should not be permitted to maintain a separate suit for such relief. The Appellate Court concurred in this view and held that the issue of fraud was barred by res judicata. (Harding Co. v. Harding, 264 Ill. App. 121.) The Supreme Court disagreed with the Appellate Court's application of the doctrine of res judicata. The court noted that although the full agreement had been set forth in the bill in the injunction suit, Harding's answer did not question its validity and that the only issue between the parties was the construction of the agreement as it pertained to Harding's employment and to his engaging in the same line of business under his own name. The court said:

"If the contract had been invalid for fraud or duress in its origin that issue might well have been raised and decided in that [injunction] suit, but no such question was raised in the pleadings, and naturally no such ...


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