APPEAL from the Circuit Court of Cook County; the Hon. RAYMOND
K. BERG and the Hon. NATHAN B. ENGELSTEIN, Judges, presiding.
MR. JUSTICE JIGANTI DELIVERED THE OPINION OF THE COURT:
These consolidated cases arise from a dispute over a real estate brokerage commission. The Hawthorn Realty Group, Inc. (Hawthorn), appeals from an order dismissing its counterclaim for a brokerage commission and from an order dismissing its complaint in a subsequently filed action for the same commission.
American National Bank & Trust Company of Chicago (American National) and Joseph D. Judah filed a complaint against Lawrence F. Levy and Hawthorn on July 29, 1977, in the chancery division of the circuit court of Cook County. The complaint alleged that Hawthorn and Levy planned to file a wrongful claim for a brokerage commission and that American National and Judah would be irreparably harmed by this action. The trial court entered a temporary restraining order on August 2, 1977, which precluded Levy and Hawthorn from taking any legal action except for filing "pleadings and documents appropriate to" the action then before the court. On August 9, 1977, Hawthorn filed an answer and a counterclaim against Judah. The counterclaim sought money damages for Judah's alleged breach of contract to pay Hawthorn a brokerage commission.
On September 30, 1977, Judah filed a motion to dismiss Hawthorn's counterclaim "for want of equity for reason of the fact that [Hawthorn] is coming into equity with unclean hands." No other ground for dismissal was stated. Judah submitted a transcript of a deposition and an affidavit containing excerpts of the deposition in support of his allegation that Hawthorn was guilty of unclean hands. On October 11, 1977, the court entered an agreed order that various depositions be admitted into evidence.
The parties appeared in court on October 13, 1977. Without hearing argument, the court stated that it was going to dismiss Hawthorn's counterclaim for want of equity because testimony contained in two of the depositions showed that Hawthorn had unclean hands. This decision was made "without deciding whether [Hawthorn is or is not] entitled to a commission." The court stated that Hawthorn could "proceed in the Law Division." At Hawthorn's request the court agreed to postpone its ruling and to hear testimony and argument on the motion. The court emphasized that the hearing would be solely on the issue of "whether or not [Hawthorn is] in this court with clean hands" and stated that if Hawthorn did not produce evidence to rebut what it referred to as a prima facie case of unclean hands, the cause would be dismissed on Judah's motion. During this hearing, which involved numerous court appearances over a period of several months, Hawthorn tried to establish that (1) the clean hands doctrine was inapplicable as Hawthorn's claim was purely legal, and (2) even if the court found the doctrine to be applicable, Hawthorn was not guilty of unclean hands. The court several times limited argument to those issues and cautioned counsel not to argue the issue of whether or not Hawthorn was entitled to the commission.
After the parties completed their closing arguments, the court stated:
"Gentlemen, first of all I want to make it clear that I am not at this time and I have not reached the issue of whether or not Hawthorn is entitled to a commission. We haven't even come close to hearing evidence on that particular issue.
What I am concerned with here is, I've said it at the beginning of this hearing, I wanted to hear evidence on the question of unclean hands and that is the only thing that I've been concerned with as well as, of course, the question of this being simply an issue of law for a commission."
The court ruled that the clean hands doctrine barred Hawthorn's counterclaim, and stated:
"This is a Court of Equity. I do not sit here in the Chancery Division as a law judge. I sit here as a chancellor. And I am therefore going to dismiss this case on the grounds of unclean hands and also on the secondary grounds that this is an action for commission, which is a Law Division case.
If you wish you may file the case in the Law Division. And I have not reached any finding or decision as to whether or not you may prevail there."
On March 31, 1978, the court entered an order dismissing Hawthorn's counterclaim. The court made several findings including a finding that Hawthorn had failed to communicate material facts to Judah and that Hawthorn breached its fiduciary obligations to Judah. The counterclaim was then dismissed "upon the doctrine of unclean hands" and upon the secondary basis that the counterclaim was "a law division case." Hawthorn filed a notice of appeal from this order.
On July 26, 1978, Hawthorn filed a complaint against Judah in the law division for a brokerage commission. The law division complaint differed from the equity counterclaim only in that additional counts for novation/waiver, restitution and fraud were pled against Judah. Judah filed a motion to strike the complaint on the basis that the action was barred by res judicata and/or estoppel by judgment and on the alternate ground that the appellate court had exclusive jurisdiction of the subject matter. On September 26, 1978, the court granted Judah's motion and dismissed Hawthorn's complaint with prejudice.
The first issue on appeal is whether the clean hands doctrine, an equitable maxim, operates to deny strictly legal rights. Judah asserts that the doctrine is applicable to both equity and law actions. He cites as authority Kuehnert v. Texstar Corp. (5th Cir. 1969), 412 F.2d 700, and Union Pacific R.R. Co. v. Chicago & Northwestern Ry. Co. (N.D. Ill. 1964), 226 F. Supp. 400. Neither case, however, involved a common-law action. Rather, both decisions involved actions arising under Federal securities laws (the Securities and Exchange Act of 1934, § 1 et seq., as amended, 15 U.S.C. § 78a et seq. (1976)) and were expressly ...