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Swager v. Couri





Appeal from the Appellate Court for the Third District; heard in that court on appeal from the Circuit Court of Peoria County, the Hon. Calvin Stone, Judge, presiding.


This action arose out of the brief life and untimely death of an Illinois corporation, Fondulac Nursing Manor, Inc. (Fondulac). The plaintiffs are partners in the architectural firm of Phillips Swager Associates (Swager), which had, pursuant to a contract, rendered services to Fondulac. The defendants, Dr. Peter J. Couri, Jack W. Riley and Carl F. Reardon, were officers, directors and shareholders of Fondulac. The gravamen of plaintiffs' complaint is that, in dissolving Fondulac, the defendants tortiously interfered with the contractual relationship between Fondulac and Swager. A jury in the circuit court of Peoria County apparently agreed, and returned a verdict for the plaintiffs and against the defendants in the amount of $27,000 actual damages and $111,000 punitive damages. The circuit court entered judgment on that verdict and denied defendants' post-trial motion, but on appeal, the Appellate Court, Third District, reversed (60 Ill. App.3d 192), holding that plaintiffs had failed to plead and prove an essential element of the tort alleged, i.e., malice or lack of justification. (See, e.g., H.F. Philipsborn & Co. v. Suson (1974), 59 Ill.2d 465, 474.) We granted plaintiffs' petition for leave to appeal, and we now affirm.

Early in 1969, two old friends, Charles Blye, an architect and partner in Swager, and Jack W. Riley, a real estate salesman and broker, met to discuss the possibility of constructing a nursing home in East Peoria. Because of his friendship with Riley, and because the Swager firm previously had been employed by Riley's co-venturer, Dr. Peter J. Couri, Blye had reason to expect that Swager would be retained as architect for the project although no formal agreement was reached. Accordingly, when Riley told Blye that the proposed site would have to be rezoned to permit construction of a nursing home, Blye agreed to prepare a sketch of the site for use in connection with the necessary zoning change. Blye also appeared with Riley before the East Peoria zoning board. The necessary zoning change was granted, and, on May 22, 1969, Blye met at the site with Couri, Riley and a representative of the State of Illinois in connection with an application for a "certificate of need" from the State for the project. Blye also accompanied Riley in visiting with officials of the Federal Housing Administration (FHA) in Springfield, in connection with an application for financing.

At the May 22 meeting at the site, defendants Couri and Riley told Blye that they planned to put together a group of investors to raise capital for the project, and on July 16, Blye met with such a group at the office of Swager, where Couri asked Blye to serve as architect for the investors.

Sometime in August 1969, Blye, on behalf of Swager, submitted to Couri a "Standard Form of Agreement Between Owner and Architect" (American Institute of Architects, Document B-131, copyright 1967). It is not clear from the record whether Swager expected Couri to execute the agreement personally, on behalf of a corporation to be formed, or as trustee of a land trust, but, in any event, Couri declined to execute the agreement at that time, despite repeated requests. He later testified that his refusal was prompted by a desire to first explore the possibility of forming a corporation to undertake the project and, presumably, the contract. Nonetheless, on December 16, 1969, at another meeting held in the offices of Swager, Blye agreed on behalf of Swager to undertake the "schematic design" portion of the project, even though the agreement had not yet been executed.

On March 26, 1970, Couri, as incorporator, filed with the Secretary of State articles of incorporation for the corporation to be known as Fondulac Nursing Manor, Inc. That same day, pursuant to section 48 of the Business Corporation Act (Ill. Rev. Stat. 1969, ch. 32, par. 157.48) (the Act), the Secretary of State issued Fondulac's certificate of incorporation. Although the certificate of incorporation lists Couri as the sole, original subscriber to shares of Fondulac, he apparently assigned some of his subscription rights to 12 others. The minutes of the initial meeting of directors held on April 22 indicate that the 13 subscribers, who also were the beneficiaries of the land trust which had been established to purchase the land for the project, each caused $100 to be paid for his shares from funds which he had contributed to the land trust. Fondulac thus received its initial capital of $1,300, satisfying the statutory requirement of the receipt of at least $1,000 in initial capital before the commencement of business. Ill. Rev. Stat. 1969, ch. 32, par. 157.42-5.

Blye, who attended the meeting on behalf of Swager, informed the directors that Swager already had about $5,000 worth of time invested in the project, but that its fee for this time was subsumed in the overall fee structure of the agreement. The directors ratified Couri's preincorporation actions as promoter and authorized execution of the agreement with Swager, and Couri executed the agreement on behalf of Fondulac that same day. Blye was, however, told to suspend further work on the project pending the FHA's approval of the application for financing.

The agreement provided that, unless Fondulac negotiated the construction contract itself (which it did not), Swager's fee would be equal to 7% of the project's estimated construction cost, and that, in the event the project was suspended or abandoned, Swager would receive a portion of its fee calculated according to the portion of its work which had been completed. Toward that end, the agreement divided the architectural work into phases, assigning a specified portion of the total job (and, by implication, the total fee) to each phase:

Schematic Design Phase 15% Design Development Phase 20% Construction Documents Phase 40% Bidding or Negotiation Phase 5% Construction Phase 20%

The agreement also provided for interim payments to Swager to be credited against its fee, and to be calculated at 2 1/2 times Swager's "direct personnel expense" in connection with time expended on behalf of Fondulac for the preceding period. However, Swager deliberately billed Fondulac at a lower rate, in an effort to help the project "get underway."

The project never was completed, however. The FHA apparently never approved the application for financing, and in October 1970 all of the investors except Riley and Couri withdrew. Plaintiffs profferred evidence which, if admitted, might have tended to show that the reason for the investors' withdrawal was a dispute over the fairness of the price at which Riley and Couri proposed to sell the land for the project, which they owned, to either the land trust or the corporation (Fondulac). Nonetheless, Riley and Couri assured Swager that they intended to bring the project to fruition, and asked for additional time to raise the necessary capital.

Sometime during this period, it is stipulated, Reardon became an officer, director and shareholder of Fondulac. Almost 3 years had passed when, in late August or early September 1973, Reardon met with Blye in the offices of Swager's attorneys, telling them that Fondulac had been insolvent for 2 years, and either was being dissolved already or would be dissolved shortly. On September 11, 1973, Couri, Riley and Reardon filed with the Secretary of State a "Statement of Intent to Dissolve [Fondulac] by Voluntary Action of the Corporation Pursuant to Section 76 of the `Business Corporation Act'." Although section 79(a) of the Act required that notice of the filing (of the statement of intent to dissolve) "be mailed to each known creditor of the corporation" (Ill. Rev. Stat. 1973, ch. 32, par. 157.79(a)), no such notice was mailed to Swager.

On September 26, 1973, Couri, Riley and Reardon filed articles of dissolution with the Secretary of State. Despite the existence of the debt outstanding to Swager, the articles (which were on a standard, printed form signed and sworn to by Riley, and attested to by Reardon) recited that, as required by section 80 of the Act, "all debts, obligations and liabilities of the corporation have been paid and ...

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