Appeal from the Appellate Court for the First District; heard
in that court on appeal from the Circuit Court of Cook County,
the Hon. Francis T. Delaney, Judge, presiding.
MR. JUSTICE WARD DELIVERED THE OPINION OF THE COURT: Rehearing denied March 28, 1980.
The plaintiff, Mullaney, Wells and Company, filed an action in the circuit court of Cook County on July 3, 1963, against the defendants, Barnard A. Savage, Jr., S.C. Williams, and Glen Ellyn Corporation, seeking an accounting for profits received in connection with the disposition of stock which had been acquired through an alleged violation of fiduciary duties by the defendant Savage, who was an employee of the plaintiff at the time. The case, which was tried on the plaintiff's second amended complaint, filed September 16, 1965, was referred to a master in chancery, who recommended that a decree be entered in favor of the plaintiff. After two interlocutory appeals relating to aspects of the case which are not now pertinent (Mullaney, Wells & Co. v. Savage, 5 Ill. App.3d 1 (1972); 31 Ill. App.3d 343 (1975)), the circuit court sustained the defendants' exceptions to the master's report and entered a decree dismissing the action for want of equity. The appellate court affirmed (66 Ill. App.3d 853), and we granted the plaintiff's petition for leave to appeal.
At the time when the material facts occurred, the plaintiff was engaged in the investment banking business in Chicago. On January 18, 1957, it employed the defendant Savage, and Savage continued in the plaintiff's employment until March 28, 1961, when he resigned.
The agreement under which Savage was engaged was drafted by him and was executed by Savage and Paul L. Mullaney, president of the plaintiff. It provided as follows:
"1. Nature of Agreement An understanding has been reached whereby Barnard A. Savage, Jr. will become affiliated with Mullaney Wells and Co. to undertake the establishment and direction of an `industrial financing division.' The function of this newly created division will principally focus on activities involving the origination and negotiation of private placements and the underwriting of corporate securities in the industrial field.
2. Remuneration Six thousand dollars ($6,000) per annum, payable to Barnard A. Savage, Jr., to be deducted from divisional gross revenues at the conclusion of each calendar year.
3. Division of Net Profits At the conclusion of each calendar year, total net profits, after deducting all operating expenses accrued by the `industrial financing division' and after deducting the salary taken by Barnard A. Savage, Jr., will be divided on a 50-50 basis between Mullaney Wells and Co. and Barnard A. Savage, Jr.
4. Duration of Agreement Both parties concur to appraise this agreement and make such adjustments as the facts and circumstances may warrant at the conclusion of the first year of operations. This agreement is subject to cancellation by either party at any time."
Savage was neither an officer nor a director of the plaintiff, and the precise scope of the duties imposed by his contract is in dispute among the parties.
The transaction on which the present suit is based was the acquisition by Savage and Williams in November 1960, from the majority stockholders of Blossman Hydratane Gas, Inc., a corporation engaged in the liquid petroleum gas business, of options to purchase some of the company's common stock. These options were later assigned to the defendant Glen Ellyn Corporation, a corporation controlled by Savage and Williams. After the options were exercised by Glen Ellyn, the latter assigned the Blossman stock to American Hydratane Corporation, which had been organized by Savage and Williams. It was a subsidiary of Glen Ellyn and thus was also controlled by Savage and Williams.
Savage first heard of the Blossman company in January 1960, when he was told by a personal friend of his, an investment consultant, that the company was worth looking into because it was in need of financial assistance and its stock was presently undervalued. Savage checked the book value of the company's stock in an investment manual maintained in the plaintiff's office, and by using the plaintiff's teletype service he ascertained the current market value of the stock, which was then being traded at about 3 3/4 points per share.
Savage then telephoned A.R. Blossman, Sr., the president of Blossman company. Savage testified that he had no recollection of the specific content of this conversation, but he did recall that the purpose of the call was to induce Blossman to use the plaintiff's services. There is no dispute but that at this point Savage was acting as the agent of the plaintiff. On February 5 Savage wrote a follow-up letter to Blossman on the plaintiff's stationery; it read:
I was delighted to have the opportunity to converse with you and become acquainted with you and your rapidly expanding L.P.G. business.
Mullaney, Wells & Company, Inc. of Chicago, Illinois are investment bankers of almost thirty years standing. We are members of the Midwest Stock Exchange and principally engaged in municipal underwiting. In addition, over the years, we have developed a noteworthy group of clients for which we have arranged and negotiated an impressive list of acquisitions, mergers and financings. Our principal bank in Chicago is the City National Bank and Trust Company.
As I indicated to you, we have been requested by a private individual to investigate the investment opportunities in the L.P.G. industry. During the past two years, we have invested funds in excess of two million dollars for his account; recently he has become heir to a sizable fortune and consequently his investment program must be accelerated. We, as a firm, are willing to vouch for our client's reputation, fairness and integrity.
As indicated, our client is generally not interested in participating in the day to day management affairs of businesses. However, he desires position on the board of directors to help determine policy and long range decisions of the business. Generally, our client seeks a controlling interest with assurances that management will remain; however, in several instances he has been satisfied with a minority position.
If possible at this given moment, could you please send us the following information, so that we may make the necessary recommendations to our client. Should the requested material meet our clients aspirations, we should like to visit you and your organization and become intimately acquainted with you and your operations.
1. A brief outline of the history of your company, including present officers and directors, denoting each director's business interest.
2. A statement as to the Blossman's family's investment in stock and debentures in Blossman Hydratane Gas, Inc.
3. Most recent balance sheet and Profit and Loss statement.
4. A list of fixed assets such as tank ownership etc. Has your company leased any tanks or cylinders to customers? How has your firm financed the tanks and cylinders which they own, etc.
Thanks for the courtesy you extended me on the telephone. I shall be looking forward to hearing from you shortly."
Savage testified that the client referred to in his letter was Howard A. Weiss, who had been engaged in several financial transactions with the ...