APPEAL from the Circuit Court of Lake County; the Hon. HENRY
H. CALDWELL, Judge, presiding.
MR. JUSTICE RECHENMACHER DELIVERED THE OPINION OF THE COURT:
This case was before this court in 1 Ill. App.3d 63 and in that case we reversed the trial court. An appeal was taken and the Supreme Court (53 Ill.2d 508) affirmed the trial court's judgment finding a joint venture and ordering an accounting and transfer of net proceeds and a 20% interest in the defendant corporation, and remanded the case to the trial court. Defendants have now appealed from a subsequent judgment of the circuit court of Lake County which determined the amount to which the plaintiffs were entitled. The basic issues on this appeal are: (1) whether a party entitled to 20% of a joint venture is entitled to 20% of any moneys or properties held by the joint venture regardless of whether they represent profits, capital investments, advances or loans; (2) whether the decree of the trial court in the first trial that the plaintiffs were entitled to 20% of Highland Memorial Park, Inc., "its assets, income and real estate and any other property of any other kind, acquired by the venture of the parties," entitled the plaintiffs, who did not contribute any capital, to 20% of the capital investment and advances and loans made.
We rule that while the plaintiffs would normally be entitled to only 20% of the profits, that under the ruling of the first trial court, they are also entitled to 20% of the stock in the corporation. However, the lower court erred in not treating the advances made as proper debts of the defendant corporation.
The detailed facts relating to the establishment of the joint venture can be found in the previous appellate and supreme court opinions. Suffice it to say, according to the ruling of the supreme court, the plaintiffs Reese and Doyle and the individual defendant Melahn (while Mr. Melahn has died and is represented in this case by his executor, we will for convenience merely refer to them as Melahn or the individual defendant) entered into a joint venture agreement to develop a cemetery. It is clear from the plaintiffs' testimony in the first trial that the parties intended their joint venture to take the form of a close corporation. Many of the details of this corporation were not specifically set out by the parties, including the amount of stated capital, financing, etc. Unfortunately, all of these matters are of prime concern in determining the rights of the parties.
It is clear, however, from plaintiff Reese's testimony in the first trial, which was uncontradicted and thus was binding on the plaintiffs, that the plaintiffs expected Mr. Melahn to obtain the financing; that the financing basically was to be by loans from Mr. Melahn which were to be repaid; and that notes were to be amortized with fair yield no lower than 6% or higher than 9%. The plaintiffs apparently were not concerned with the amount of the stated capital. Their only concern was that the restriction that Mr. Melahn be repaid 100% before the plaintiffs received any income from their 20% interest be removed and this was agreed to by the individual defendant. It is also clear that the plaintiffs' repeated representation to the court below that the Supreme Court had found the defendants were to provide all the capital was erroneous. The court made no such ruling. In fact, it merely pointed out that the proposal that Melahn finance the venture and that ownership be on the basis of 50% to Melahn and 50% to Doyle and Reese was rejected by Melahn.
The corporate defendant, Highland Memorial Park, was formed to develop the cemetery. The books of the defendant corporation show that the individual defendant contributed $100,000 in stated capital in fulfillment of his capital contribution. (50% of the shares of the corporation were issued to the individual defendant and 50% were issued in the name of the estate of Arnold Melahn, which is not a party to this litigation. None was issued to the plaintiffs.) From time to time the individual defendant and certain corporations connected with the Melahn family (affiliated corporations) made certain payments to the defendant corporation. A principal issue is whether these payments are loans or increases of capital. While many of these payments were in cash, either to allow the defendant corporation to transact business or to pay off debts to other affiliates, many others were non-cash payments, e.g., in the form of an office building and mausoleum; that is, the affiliates, rather than loaning the defendant corporation the funds with which to purchase the buildings, paid those persons directly.
As mentioned before, the trial court in the first trial found that a joint venture to form a corporation had been created and entered a decree which, among other things, ordered an accounting. The parts of the decree which control the rights of the parties are the following:
It is further ordered, adjudged and decreed that with respect to all normal cemetery operations, twenty percent (20%) of all monies, property and assets coming into the hands of the defendants from or out of any of the property described in the complaint shall be by said defendants held and retained in trust for the benefit of the plaintiffs. Sales of property, other than the above, must be approved by order of Court.
It is further ordered, adjudged and decreed that upon such accounting the plaintiffs, NORMAN REESE and MARK DOYLE, be and they are hereby decreed to receive twenty percent (20%) of the net proceeds of any sum found to be the total of the rents, issues and profits of the transactions alleged in the complaint and as set forth in this decree above from the defendants, E.M. MELAHN and HIGHLAND MEMORIAL PARK, Inc.
It is further ordered, adjudged and decreed that a constructive trust be and hereby is imposed on the venture of the defendant, E.M. MELAHN, alleged in the complaint and set forth above, to the extent of twenty percent (20%) of the present value of the total venture and twenty percent (20%) of all income wherein [sic] and E.M. MELAHN is hereby declared constructive trustee pursuant to this order of Court and MARK DOYLE and NORMAN REESE are hereby declared beneficiaries of said twenty percent (20%) of the present value and twenty percent (20%) of the future income.
It is further ordered that twenty percent (20%) of defendant, HIGHLAND MEMORIAL PARK, INC., its assets, income and real estate and any other property of any other kind, acquired by the venture of the parties hereto, be transferred to NORMAN REESE and MARK DOYLE, and in the event the defendants fail to make the said transfer, the Court retains jurisdiction to make such transfer and the Sheriff of Lake County, Illinois is hereby authorized, ordered and empowered to make such transfer.
It is further ordered, adjudged and decreed that this Court retains jurisdiction of this cause for purposes of enforcing the provisions of this decree."
The trial court, in the second case, in attempting to carry out the original decree simply subtracted all the allowed disbursements actually made from all money actually received from any source including capital and called the remainder net profits of which the plaintiffs were held entitled to receive 20% immediately. It also appointed a receiver, ordered the dissolution of the joint venture and the sale of the property, the plaintiffs again to receive 20%.
The trial court treated all the cash advances made by the Melahn interests as capital and repayment of the advances were disallowed as improper return of capital. This was true even where one advance was made to pay off a loan given by another affiliated interest just six weeks before. While the court did allow some payments to the Melahn interest for such items as road grading, fuel, automobile and truck repair, etc., the court disallowed the repayment of the major non-cash advances although treating the asset contributed as part of the venture of which the plaintiffs were entitled to 20%. In other words for example, the court awarded the ...