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Krebs v. Mini





APPEAL from the Circuit Court of Lake County; the Hon. FRED H. GEIGER, Judge, presiding.

MR. PRESIDING JUSTICE RECHENMACHER DELIVERED THE OPINION OF THE COURT: Plaintiffs, Krebs and Kann, appeal from the trial court's entry of an order vacating a temporary restraining order, and dismissing their amended petition for a temporary restraining order.

Krebs, Kann and Mini entered into an arrangement involving the purchase of the stock of the corporation known as C.I.S., Inc., under which Mini would provide the necessary funds to purchase C.I.S., while Krebs and Kann would undertake the day-to-day management of the corporation, and eventually would receive one-third each of the corporation's stock.

The C.I.S. stock was purchased, and Krebs and Kann undertook the management of the corporation. No stock was ever transferred or issued to Krebs or Kann and on December 24, 1975, Mini informed them that their relationship with C.I.S. was terminated, and demanded that they turn over their keys to the C.I.S. offices. Krebs and Kann instituted the instant action on that same day by filing a petition for a temporary restraining order.

The petition alleged that Mini was seeking to "oust" Krebs and Kann from their interest in C.I.S., Inc., and that unless Krebs and Kann were able to continue to operate C.I.S. "on Monday morning, December 29, 1975" they would be "injured irreparably with their customers," giving "their competitors" an unfair advantage and lowering "the equity value of the stock in the corporation which they were purchasing." The only relief prayed for in the petition was a temporary restraining order restraining Mini from interfering with Kreb's and Kann's operation of C.I.S. The temporary restraining order prayed for was entered without notice that same day, December 24.

Mini filed an answer to the petition for a temporary restraining order on December 31, 1975. On January 5, 1976, Krebs and Kann filed a complaint at law against Mini and his attorney, Paul Sugar, seeking $1,500,000 in compensatory and punitive damages against each. The basis for their action at law was substantially the same as the grounds alleged in their petition for a temporary restraining order. On January 21, 1976, Krebs and Kann filed an amendment to their petition for a temporary restraining order. In the amendment they prayed for a "finding" that there was a partnership or joint venture agreement between Krebs, Kann and Mini, and asked that the court declare that Mini "holds two-thirds of the stock as a trustee" for the benefit of Krebs and Kann. On January 23, 1976, the court heard evidence regarding the petition, the hearing having been continued to that date, apparently by agreement.

At this hearing, Krebs and Kann testified that informal discussions with Mini regarding the acquisition of C.I.S. had been held as early as May of 1973. Both Krebs and Kann were extremely familiar with the operations of C.I.S., whose corporate predecessor, Caldwell Industries, had been owned by Krebs. According to their testimony, it was agreed from the very outset that each was to "have one-third of the business." Shortly before C.I.S. was purchased, Krebs, Kann, Mini, and attorney Fisher, acting as counsel for Mini, had a meeting. Attorney Fisher expressed his dissatisfaction with the whole proposal. Krebs testified that he responded that "he was not interested in working for Mr. Mini" and that he would be a "partner" with Mini "and that's the only way."

In March of 1973, the C.I.S. stock was purchased for $76,200 and transferred to Illinois Carbide Tool Company, which is a corporation wholly owned by Mini. Krebs and Kann admitted that the purchase price was obtained or provided by Mini, and that they did not contribute any money toward the purchase of C.I.S. On appeal, Mini argues that Illinois Carbide provided $50,000 of the purchase price through a loan to C.I.S., and the record supports this contention.

At or around the time of the purchase of C.I.S., the three parties signed a one-page document entitled "MEMORANDUM REGARDING CIS, INC.," which provided in part that:

"1. Profits of business shall be divided in the following manner: 1/2 of profits to be used for purchase of stock. Remaining thirds to be divided equally.

2. Krebs and Kann each to be permitted to purchase 1/3 of stock after all loans by Mini or Illinois Carbide are paid.

3. Purchase price shall be $25,000 for each 1/3 of stock."

Krebs and Kann testified that they undertook the operation of the business after the purchase, at an initial salary of $475 per week, a salary which was increased to $575 per week. Both freely admitted that they had taken bonuses totaling $13,000 each from C.I.S. funds from January to April, stating that they had done so with the hearty approval of Mini. Mini, though president of C.I.S., was never paid any bonus.

On November 5, 1974, Krebs and Kann sent a check for $12,500 to Mini. The check was drawn on C.I.S.'s checking account and was accompanied by a memorandum to Mini, stating that the check "represents payment to Illinois Carbide Tool Company for 25% of the purchase price for 2/3rds of the common stock of C.I.S., Inc., as per our agreement." The memo requested that 1,666 2/3 shares (out of a total of 20,000 shares of C.I.S.) be issued to Kann, and a like number to Krebs. At the bottom of the memorandum were the words "Agreed to and Accepted" and a signature line, where they obtained Mini's signature. On February 12, 1975, a second C.I.S. check for $12,500 was sent to Mini, with a similar memo requesting the issuance of C.I.S. stock to Krebs and Kann, and they again obtained Mini's signature on the memorandum. On March 18, 1975, a third C.I.S. check, in the amount of $8,000 was mailed to Mini, accompanied by a memo from Krebs and Kann which did not mention the matter of C.I.S. stock but recited that "with this check, the total amount returned to Illinois Carbide Tool Company is $33,000."

Krebs and Kann introduced a financial statement reporting the financial condition of C.I.S. as of December 31, 1974. Though not audited, the statement showed a deficit in C.I.S.'s retained earnings account of $44,112.92. Kann testified that C.I.S. had had a "$60,000 tax loss" for its first year of operation, 1973. Kann testified that it was his recollection ...

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