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Harris v. American General Finance Corp.

OPINION FILED OCTOBER 19, 1977.

THOMAS HARRIS ET AL., PLAINTIFFS-APPELLANTS,

v.

AMERICAN GENERAL FINANCE CORPORATION ET AL., DEFENDANTS-APPELLEES.



APPEAL from the Circuit Court of Tazewell County; the Hon. JAMES D. HEIPLE, Judge, presiding.

MR. PRESIDING JUSTICE STENGEL DELIVERED THE OPINION OF THE COURT:

Plaintiffs Thomas and Lucille Harris and Frank Rosenberg, Inc., appeal from a judgment entered in favor of defendants Albert N. Ballard and John W. Cunningham after a bench trial in the Circuit Court of Tazewell County. The issues on appeal are whether defendants' agent was authorized to negotiate a contract with the plaintiffs and whether a binding contract was created.

On February 18, 1971, Sayre & Fisher Corporation (hereafter referred to as S & F) agreed to pay the Harrises $1,306,000 in exchange for certain improved real estate and 50% of the common stock of Pepco Ltd., a realty investment firm. The Harrises received 147,692 shares of S & F common stock, but were required to pledge back 55,384 shares as security for a $360,000 loan from S & F. The remaining shares were subject to "put" options at a predetermined price of $6.82 per share. S & F agreed to assume an outstanding mortgage of $296,000 on the real estate and to repay a $25,000 loan and $25,000 note owed by the Harrises. S & F further agreed to obtain a second mortgage and to pledge the Pepco stock as security for its promises.

On the same date S & F issued a $60,000 three-year convertible debenture to Frank Rosenberg, Inc., the Harrises' representative, as payment for arranging the land purchase. The holder could demand immediate payment of the debenture if S & F defaulted on any scheduled interest payment under the instrument, and S & F did default shortly after the debenture was issued. S & F also defaulted on its agreement with the Harrises by failing to buy back stock subject to the "put" options plan. The plaintiffs, consequently, instituted foreclosure proceedings against S & F in the Tazewell County Circuit Court.

In March or April, 1972, American General Finance Corporation (hereafter referred to as AGF), a profitable land development firm, decided to acquire S & F, which was suffering steady losses, as a tax shelter. AGF was controlled by Ballard and Cunningham, who between them owned 90% of its stock.

In April 1972, AGF representatives, including the defendants Ballard and Cunningham, met with S & F's directors to propose a merger of the two companies. The defendants desired immediate control of S & F, which they obtained by tendering a $50,000 check to S & F to meet its expenses. At the conclusion of this meeting a majority of S & F directors and officers resigned, and were replaced by AGF personnel. Ballard became S & F's new chairman and president. The $50,000 check was then returned to Ballard, but was never deposited in S & F's account.

Later in the month defendants instructed their agent Arthur Schwartz to return all of plaintiffs' property in exchange for their S & F stock and a dismissal of their lawsuit. This offer was rejected. In May, Bernard Rosenberg, the owner of Frank Rosenberg, Inc., personally informed the defendants that he required written authorization for Schwartz' agency and the personal guarantees of defendants as preconditions to any settlement of the lawsuit.

On June 16, 1972, Schwartz gave Rosenberg a letter from Ballard stating that Schwartz had "full authority to negotiate with you on behalf of Sayre & Fisher * * *." The letter included the personal financial statements of Ballard and Cunningham and the corporate statements of AGF and S & F. Thereafter Rosenberg and Schwartz entered into negotiations.

On July 25, 1971, Cunningham sent Rosenberg S & F's "proposal for an agreement." By its terms S & F agreed to return all of the plaintiffs' assets in exchange for 72,308 shares of the Harrises' stock and plaintiffs' dismissal with prejudice of their lawsuit. The Harrises' remaining shares were subject to new "put" options at $7.625 per share, but they were required to dispose of all of their stock by February 18, 1973. Rosenberg was required to convert his debenture into 24,720 shares of common stock subject to the same terms as the Harrises. S & F also promised to extend the Harrises' $360,000 note which S & F had received under the 1971 contract, and to obtain a $425,000 life insurance policy on either of defendants as security for its promises. Moreover, Cunningham's letter stated that the new agreement would be "guaranteed by Albert N. Ballard, John W. Cunningham * * *" and others.

Although the letter mentioned reducing these terms to formal documents, it provided spaces for plaintiffs' signatures below the word "ACCEPTED" and was signed by both the Harrises and Rosenberg. Furthermore, Cunningham's letter required plaintiffs to "leave all pending litigation in statu quo, pending completion and execution of formal documents."

On August 1, 1972, S & F proposed certain modifications relating to the "put" options and the amount of life insurance to be obtained which the plaintiffs accepted in writing. Plaintiffs' attorney submitted a formal contract to S & F in early October, which was rejected obstensibly because it required AGF to promise additional security as a guarantor of S & F's agreement. Schwartz, however, testified that Cunningham told him in late October or early November that, "This is too fat a deal for Bernie."

In any event, negotiations broke down and a formal contract was never executed, although plaintiffs held their lawsuit in abeyance as required by Cunningham's July 25 letter. Plaintiffs eventually obtained a decree of foreclosure in February 1974, but by then S & F had initiated bankruptcy proceedings and plaintiffs' judgment could not be satisfied. Thereafter they began these proceedings which resulted in a judgment for defendants from which plaintiffs appeal.

• 1 Although defendants have not filed briefs on appeal, this is not a basis for reversing the trial court pro forma under the rule of First Capitol Mortgage Corp. v. Talandis Construction Corp. (1976), 63 Ill.2d 128, 345 N.E.2d 493. Talandis requires us to decide the merits of the appeal without an appellee's brief in cases where the record is simple and the alleged errors can be easily resolved. In other cases we may reverse the trial court only if "the appellant's brief demonstrates prima facie reversible error and the contentions of the brief find support in the record * * *." 63 Ill.2d 128, 133, 345 N.E.2d 493, 495.

As indicated by the statement of facts, this appeal does not involve simple factual and legal questions which must be fully resolved under Talandis. The report of proceedings contains 382 pages and is supplemented by over 20 exhibits, including many lengthy and detailed legal documents. At the same time, however, the record does ...


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