APPEAL from the Circuit Court of Will County; the Hon. THOMAS
W. VINSON, Judge, presiding.
MR. PRESIDING JUSTICE ALLOY DELIVERED THE OPINION OF THE COURT:
Rehearing denied May 8, 1979.
This appeal is the result of involved litigation between Virginia Ferrell, individually, and as administrator of the estate of Bert Ferrell, her deceased husband, and Plasti-Drum Corporation, an Illinois Corporation located in Lockport, Illinois. This action was first brought by Plasti-Drum Corporation (hereinafter referred to as "Plasti-Drum"), seeking to enjoin Virginia Ferrell from entering plaintiff's place of business; from proceeding with disposing of any of the collateral for certain notes made by plaintiff and held by the estate of Bert Ferrell; from communicating with any of plaintiff's suppliers or making any representations of plaintiff's financial condition to any of plaintiff's suppliers; and asking that the court declare that the aforementioned notes made by plaintiff and held by the estate were not in default and that defendant Ferrell could not exercise her rights under the Illinois Commercial Code or Security Agreement. Virginia Ferrell counterclaimed asking for an accounting of interest, salary, and expense reimbursement due defendant's intestate; judgment against Plasti-Drum in the amount of $168,802, plus interest and attorney's fees, or, in the alternative, delivery of the collateral securing certain notes; payment to defendant of 10% of plaintiff's profits for fiscal year ending April 30, 1976; payment of certain water charges; and possession of the premises occupied by plaintiff under a lease from defendant's intestate, plus judgment for accrued rent and attorney's fees.
After a bench trial, the court ordered that $17,547.42, which had been deposited with the court by Plasti-Drum, could be withdrawn by defendant Ferrell, conditioned upon her acceptance of the moneys as satisfaction of certain debts of Plasti-Drum to the estate. In addition, the court granted her judgment for the water charges. As to all other issues, the court found for plaintiff Plasti-Drum. Defendant-counterplaintiff Virginia Ferrell appeals from the judgments against her. She raises nine issues in this appeal. Prior to setting out the questions raised, it is necessary to summarize the pertinent facts concerning the parties' business relationships.
The record discloses that Bert Ferrell, defendant's intestate, and Walter Craig, current president of Plasti-Drum, incorporated Plasti-Drum in 1972, each holding 5,000 shares of common stock and serving as both officer and director. In 1973, Plasti-Drum began operations in a Lockport building leased to it by the Drovers National Bank, as trustee under a 1973 trust agreement. Bert Ferrell was the sole beneficiary under the trust. Ferrell had given a mortgage on the property to Drovers and Ferrell's monthly mortgage payments were $4,388. The property was leased to Plasti-Drum at the rate of $5,500 monthly. Prior to May 1975, the corporation, in checks signed by its president Bert Ferrell, paid the monthly rent to Ferrell himself. In May 1975, a change in practice was effected by the corporation. Then, and thereafter, Plasti-Drum, in checks signed by its president Walter Craig, paid $4,388, the amount of the mortgage on the property, directly to Drovers Bank. According to Craig's testimony, the remainder due Bert Ferrell under the lease was suspended. The only rental payments made by the corporation thereafter, until after the death of Bert Ferrell, were those in the amount of $4,388, paid to Drovers.
Bert Ferrell was not only a principal shareholder of the corporation and its landlord, but he also became a principal creditor of the corporation. For capital that he had loaned the corporation, Plasti-Drum delivered to Ferrell, in April 1975, a promissory note in the amount of $153,802.14, at 8 percent interest, payment commencing May 1, 1976, and the note to be paid in 5 annual installments.
In January 1976, Bert Ferrell, Walter Craig, and Plasti-Drum entered into various agreements which altered the business and financial arrangements between them. Ferrell resigned as officer and director, and he and Plasti-Drum entered into a stock redemption agreement whereby it purchased his 5,000 shares of stock. The purchase price included payments to Ferrell of 10% of the corporation's net profits for five years and lifetime payments to him of $2,000 monthly, beginning February 1, 1976. The agreement was made on January 19, 1976. In another provision of the stock redemption agreement, Bert Ferrell agreed to cancel, as of the execution of the agreement, the April 1975 promissory note for $153,802.14; and the corporation agreed to execute and deliver a new promissory note, in the amount of $153,802.14, dated January 19, 1976, payable at 7 percent per annum, with a payment schedule spread over 5 years, the first payment due on January 19, 1977. The agreement also provided that the corporation would execute and deliver a security agreement to Ferrell covering all assets of the corporation, in order to secure payments due under the stock redemption agreement.
In addition to the $153,802.14 promissory note covered in the stock redemption agreement, the corporation on January 19 also executed and delivered a promissory note to Ferrell in the amount of $15,000, at 5 percent interest, a payment of $5,000 to be made February 19, 1976, and monthly payments to continue thereafter until paid in full. An additional $5,000 cash was paid to Ferrell on January 19. The second note and the cash payment were not covered in the aforementioned stock redemption agreement. They are covered in a memorandum of agreement executed by the parties on January 19, 1976. In that agreement the parties set forth the specifics above mentioned with respect to the stock sale. In addition, the agreement provides for the cash payment of $5,000 and the $15,000 note.
The other document executed on January 19, 1976, was a security agreement between Plasti-Drum, by its president, Craig, and Bert Ferrell, as secured party. Ferrell was given a security interest in certain of Plasti-Drum's production machinery, in its present and future accounts receivable, and in all inventory, present and future. The agreement states that the security interest is:
"* * * given to secure the payment of any and all indebtedness and liabilities whatsoever of the Debtor to the Secured Party, whether direct or indirect, absolute or contingent, or due or to become due, and whether now existing or hereafter arising, and together with all costs, attorney's fees, and expenses of the Secured Party in respect to the indebtedness of the Collateral (all herein collectively called the "Obligations") which current indebtedness is in the amount of One Hundred Sixty Eight Thousand Eight Hundred Two ($168,802.00) Dollars and is evidenced by Notes now held by the SECURED PARTY."
The security agreement also provided, in pertinent part, that Plasti-Drum would be in default if it failed to pay any of the obligations when due, or if, at any time, the secured party felt insecure. Upon such default, the secured party was given the option to declare "any one or more or all of the Obligations immediately due and payable."
The foregoing agreements, and documents appurtenant thereto, were executed by Craig and Ferrell on January 19, 1976. On February 19, 1976, Drovers National Bank, as trustee of the property, served Plasti-Drum with a demand for back rent in the sum of $11,000. Rental payments for January and February had not been paid. Plasti-Drum was given 5 days to make the rental payments or it would face termination of the lease. Within the time allowed, Plasti-Drum gave Drovers two checks, each in the amount of $4,388, to cover the rent due. The payments were accepted by Drovers, as had similar monthly rental payments made by Plasti-Drum since May 1975.
On February 28, 1976, Bert Ferrell died. Prior to his death, Plasti-Drum had not made the February 19, 1976, $5,000 installment payment called for in the $15,000 note, nor had it paid Ferrell the $2,000 monthly payment for February. Plasti-Drum made no payments on either of these obligations for several months after Ferrell's death, although it did make monthly rental payments to Drovers, in the amount of $4,388 each time, for March, April, May and June, 1976.
After Ferrell's death, Plasti-Drum informed attorneys for Mrs. Virginia Ferrell, who was to be named administrator of the estate of Bert Ferrell, that it would pay its indebtedness to the estate when such became due. Her attorneys informed counsel for the corporation that they would advise him of the appointment of the administrator so that payment could be made. In a letter of May 11, 1976, they did so, instructing Plasti-Drum to continue to make mortgage payments as in the past, the mortgage payment to Drovers, with the remainder now going to the estate. The letter also informed Plasti-Drum that the other payments should be made to the representative of the estate, Virginia Ferrell. No installment payments on the $15,000 note, several of which were then past due, nor on the remainder of rent due were made in response to the letter. Then, on May 24, 1976, Drovers, as trustee of the property, and Virginia Ferrell, as administrator of her husband's estate, filed a forcible entry and detainer action against ...