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Hurst v. Papierz

SEPTEMBER 18, 1970.

RALPH HURST, PLAINTIFF,

v.

STANLEY PAPIERZ, ET AL., DEFENDANTS. ROBERT RAUTH, COUNTERCLAIMANT-APPELLANT,

v.

STANLEY PAPIERZ, ET AL., COUNTERDEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County, County Department, Chancery Division; the Hon. JOHN J. LUPE, Judge, presiding. Judgment reversed and cause remanded with directions.

MORAN, P.J.

This action was initiated by Ralph Hurst to establish his ownership of a one-third interest with Stanley Papierz and Robert Rauth in an apartment project known as the Villa Venice Apartments located in LaGrange, Illinois. Defendant Robert Rauth filed a counterclaim against Stanley Papierz, Theresa Papierz, S.P. Construction, Inc., Stanley Papierz Builders, Inc., LaGrange State Bank, as trustee under Trust No. 180, and Baird & Warner, Inc., asserting a 30% interest as a joint venturer with Stanley Papierz in the same project. The cause was referred to a Master who took evidence and recommended that Hurst's complaint and Rauth's counterclaim be dismissed for failure to prove the material allegations therein. The Chancellor overruled all exceptions to the Master's report and entered a decree dismissing the complaint and counterclaim and assessing costs among all parties. Rauth only appeals from that portion of the decree dismissing his counterclaim. Hurst does not appeal.

In January, 1963, Hurst and Papierz were introduced and discussed the possibility of constructing apartment buildings on one of three land sites proposed by Hurst. The testimony is conflicting as to whether Papierz was to advance a down payment of 5% of the purchase price of the land, or whether he was to advance all capital necessary for deposits on the land, building permits and any other initial costs. Shortly thereafter, Rauth, Papierz's brother-in-law, was invited to participate. At one point the three met in Papierz's attorney's office to discuss the legal aspects and each of their duties with respect to the project. Numerous meetings and phone calls followed, until it was learned that the three original land sites could not be purchased. Hurst and Rauth testified that Papierz agreed to continue the same arrangement with respect to any other suitable property that might be found. Papierz denied this assertion. Some time later Hurst located some ground in LaGrange, Illinois, owned by a man named Eiserman, on which the apartments were eventually built and which is the subject matter of this litigation. All three parties met with Eiserman and negotiated on several occasions before they purchased the property. Eventually, it was agreed in late May or early June to purchase the property for $210,000. Throughout this time, Rauth and Hurst had been spending two or three days each week on preliminary matters in furtherance of the project. The sale was conducted through an escrow with Chicago Title and Trust Company, with Papierz making a down payment of $17,500 with S.P. Construction, Inc. as grantee. Papierz, Rauth and Hurst all signed a written waiver of commission in connection with this sale on June 10, 1963. At the time of the escrow agreement Rauth owned 30% of the stock of S.P. Construction, Inc., and Stanley Papierz and Theresa Papierz, his wife, owned the remainder. This arrangement will be discussed more fully in the course of this opinion.

The Master's Report as it pertains to the dispute between Rauth and Papierz is in pertinent part as follows:

"After Eiserman agreed to sell the LaGrange property for $210,000.00, Eiserman and Papierz further agreed that the sale of the property be through an escrow with Chicago Title and Trust Company as the escrowee and that a down payment of $17,500.00 be made by the parties at the time the escrow was opened; in addition, it was also agreed that Papierz, Hurst and Rauth were to execute written waivers of commission in connection with the LaGrange project. Papierz testified that he told Hurst that he expected him (Hurst) to come up with the balance of the land loan to complete the project after Papierz deposited the required $17,500.00, and that if he did not, it could very well be that the said $17,500.00 would be defaulted. Papierz further testified that Hurst stated that he would have the balance of the land loan within three days, all of which Hurst denies. Hurst did not come up with the balance of the land loan within the prescribed time and, because of that, Papierz told Hurst his services were no longer needed for this venture and offered Hurst $1,500.00 for the alleged services he rendered which Hurst refused and caused the amended complaint to be filed.

"Between June 1 and June 14, 1963, prior to the date that the escrow was opened with Chicago Title and Trust Company, as escrowee, there was a conference between Papierz and Rauth as to Rauth's alleged interest in the LaGrange site. The testimony is conflicting again because Papierz testified that he offered to sell Rauth thirty per cent of S P Construction Company for $10,000.00 and that if the financing could be handled through S P Construction Company, then Rauth would have a thirty per cent of the LaGrange property; if not, then the arrangement would be off. Theresa Papierz, wife of Stanley Papierz, was present and testified to the same substance. Papierz further testified that Rauth was actually issued a certificate of thirty shares representing thirty per cent of S P Construction Company; that payments for the said certificate were made from time to time by Rauth and that a balance of $675.00 is still unpaid. Rauth's testimony is in direct conflict with Papierz's as Rauth contends there was no such condition placed on his thirty per cent of the LaGrange project as evidenced by his thirty shares of S P Construction Company stock, as the net worth of S P Construction Company was only $30,000.00.

"After the escrow was opened and after it was discovered that Hurst was unable to supply the necessary land loan commitments to pay off Eiserman, Rauth and Papierz, individually and together, attempted to find land financing; that from June through October, 1963, approximately twenty financial institutions were visited by them in behalf of S P Construction Company. The evidence further disclosed that when Papierz was unable to pay the balance of the land purchase to Eiserman in the sum of $192,500.00 within the time period set forth in escrow due to Hurst's inability to get the necessary land loan financing, Eiserman agreed to various extensions providing Papierz pay the interest for each extension; that extensions for payment were agreed to be paid in October or November, 1963, upon Papierz paying $900.00 interest per month for each monthly extension period, and that Eiserman notified Papierz there would be no further extensions after that time and that he required payment in full or have a default entered.

"The various interest payment checks to Eiserman were paid by Stanley Papierz Builders, Inc., the corporation owned solely by Stanley Papierz and Theresa Papierz. All during this time the evidence further discloses that Rauth, besides attempting to secure financing on behalf of S P Construction Company, spent several days per week in Papierz's office dealing with subcontractors who were desirous of submitting bids on the LaGrange project.

Findings of Fact

"3. That Stanley Papierz and Theresa Papierz, his wife, own all of the stock of Stanley Papierz Builders, Inc. that Stanley Papierz and Theresa Papierz, his wife, own all of the stock of S P Construction Company with the exception of thirty per cent which was sold to Robert Rauth in June, 1963, for $10,000.00; that the net worth of S P Construction Company is valued at approximately $30,000.00.

"18. That prior to the date of the opening of the escrow the Master finds from the greater weight of the evidence presented, taking into consideration testimony of all the witnesses, that Papierz did offer and did sell Robert Rauth thirty per cent of S P Construction Company for $10,000.00 so that Rauth might have a thirty per cent interest in the La Grange project, providing S P Construction Company would be able to underwrite the financing land loan for the project. No evidence was offered by Rauth that Papierz was to contribute any of his personal assets to finance S P Construction Co., in carrying the LaGrange site — the only evidence was that Rauth was to and did purchase thirty (30) shares of S P Construction Co. stock.

"19. The Master finds that Rauth was issued thirty shares of S & P Construction Company and that payments towards the $10,000.00 were made by Rauth and that a small balance is still unpaid."

[1-3] In his answer to Rauth's counterclaim, Papierz denies that he entered into an agreement with either Hurst or Rauth, but pleads further that he advised Hurst and Rauth that if they could obtain the necessary financing, he would put up the necessary cash not to exceed 5% of the purchase price and would give Hurst and Rauth an interest of 30% each in the project. Papierz did not attempt to prove this allegation, but instead at trial he testified that Rauth's interest in the project was predicated on the ability of S.P. Construction, Inc. to "swing or handle" the financing of Villa Venice on the strength of its own resources. This defense was never pleaded. Rauth argues that since Papierz did not prove his pleaded defense and since he did not plead the defense which he attempted to prove, that he is now left with no defense at all, relying on the rule that a party cannot avail himself of any manner of defense not stated in the answer, even though it appears in the evidence, citing Jewett v. Sweet, 178 Ill. 96, 52 NE 962; Potter v. Fon du Lac Park Dist., 337 Ill. 111, 168 N.E. 908, and other cases. However, Rauth did not initially object to Papierz's testimony concerning this condition and in fact, he rebutted that testimony with his testimony that no such condition existed, with the letter of Mrs. Papierz that they had agreed to submit financial statements, and with the testimony of Maria Grenet that financial statements were prepared in connection with obtaining financing for the project. Consequently, he has not been surprised or prejudiced by this variance and he will be deemed to have waived his objection since this variance could have been corrected by an amended pleading at trial. See Ill Rev Stats 1967, c 110, § 43(4), which states that "the facts constituting any affirmative defense . . . which if not expressly stated in the pleading would be likely to take the opposite party by surprise, must be plainly set forth in the answer or reply." (Emphasis added.)

Rauth further contends that the Master erred in holding that he had the burden of proving that his interest in the agreement was conditioned upon S.P. Construction, Inc. being able to underwrite the loan, thus erroneously requiring him to disprove an affirmative defense. The Master found, "Similarly, the burden of proof is upon Rauth to establish his alleged interest in the LaGrange project due to his ownership of 30% of S.P. Construction Company stock. The Master concludes that the testimony of Papierz and Rauth is conflicting, particularly whether Rauth's interest in the project was conditioned upon S.P. Construction Company being able to underwrite its own land loan. In the case at bar, the testimony of Papierz and Rauth are diametrically opposed as to this proviso, consequently, the testimony offered by Rauth is not clear and convincing as to lead to one conclusion."

The test of what constitutes an affirmative defense was discussed in Cunningham v. City of Sullivan, 15 Ill. App.2d 561, 147 N.E.2d 200. In that case, the court stated: "At common law and under the codes the test of whether a defense is affirmative . . . is whether the defense gives color to the opposing party's claim and then asserts new matter by which the apparent right is defeated. The admission of the apparent right is inferable from the affirmative defense." Applying that test to the case before us, we believe that the defense sought to be proved by Papierz, that the agreement whereby Rauth was to have a 30% interest in Villa Venice as evidenced by the thirty shares of S.P. Construction, Inc. stock conditioned on that company being able to underwrite its land financing alone, essentially admits the alleged contract to form a joint venture, but sets up new matter that the contract was conditional, seeking to negate its legal effect. Accordingly, we hold that the condition precedent sought to be proved by Papierz at trial is an affirmative defense which Papierz had the burden of proving and the Master erred in placing this burden of proof on Rauth. The condition asserted by Papierz does not constitute merely a denial because it does not negate any essential element of Rauth's prima facie case.

Rauth also contends that the Master erred in finding there was no joint venture between him and Papierz.

". . . In a court of equity, the substance of the transaction, and not the form, is to be regarded in the determination of the rights of the parties. A joint adventure may be established without any specific formal agreement to enter into a joint enterprise; it may be implied or proved by facts and circumstances showing such an enterprise was in fact entered into. It is the nature of the enterprise undertaken that controls, not the form of the agreement. If a joint enterprise be proved either by direct evidence of a mutual agreement, or by proof of facts and circumstances from which it is made to appear that such enterprise was entered into, the law fixes the rights of the parties." Ditis v. Ahlvin Const. Corp., 408 Ill. 416 at 425, 97 N.E.2d 244.

It is undisputed that Papierz and Rauth made an agreement concerning the construction of the Villa Venice Apartments and that Rauth was to have a 30% interest in the project. It is undisputed that Rauth paid $10,000 for thirty shares of S.P. Construction, Inc., and that this corporation under their agreement was supposed to take title to the property. It is undisputed that the deal to purchase the Eiserman property was made with S.P. Construction, Inc. as purchaser and Judge Eiserman and his wife as sellers on June 14, 1963, and that Rauth put in many days working on the venture from June until November, 1963. In fact, the Master found that both Papierz and Rauth made a concentrated effort to get land loan commitments for S.P. Construction, Inc. by contacting a large number of financial institutions.

In our opinion, the foregoing undisputed evidence established a joint venture as a matter of law, unless the agreement was conditioned upon S.P. Construction, Inc. being able to obtain the loan ...


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