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Notzke v. Art Gallery





APPEAL from the Circuit Court of Tazewell County; the Hon. IVAN L. YONTZ, Judge, presiding.


Plaintiff Gerald Notzke commenced this action in the circuit court of Tazewell County against defendants Richard Lewis, Ronald Hild, and The Art Gallery, Inc., seeking specific performance of a restrictive buy-sell agreement, damages stemming from the breach of that agreement and the breach of an employment contract, and liquidation of the corporation. The trial court considered evidence concerning the employment contract and the appropriateness of corporate liquidation at a bench trial and entered judgment for defendants on the former issue. After the expiration of a three-month period granted for the purchase of plaintiff's shares in the corporation, the court ordered its liquidation. Defendants appeal the order of liquidation and plaintiff cross-appeals the judgment concerning the employment contract.

Something of the history of the corporate venture is essential to an understanding of the various contentions at bar. In 1971, plaintiff began negotiating with Northwoods Mall, a Peoria shopping center, concerning the construction of a cocktail lounge, subsequently named The Art Gallery. Unable to procure a lease for lack of sufficient assets to obtain the necessary financing, plaintiff ultimately solicited defendants Lewis and Hild for investment in the venture. In March 1974, the defendant corporation was organized with plaintiff, Lewis, and Hild each receiving one-third of the corporation's 6,000 shares in exchange for a $15,000 contribution to capital. Each of the shareholders was elected a director of the corporation and plaintiff was selected as its president. In January 1975, the corporation borrowed $52,000 to finance construction of the lounge, and each shareholder pledged substantially all of his assets as security for this loan. As neither Lewis nor Hild had experience in the construction or operation of such a facility, plaintiff both designed the lounge and, with Hild, supervised its construction. Lewis and Hild were pleased with plaintiff's efforts and the board adopted a resolution in May 1975 that he be paid $5,000 at an undetermined time in the future. The bonus had not been paid at the time of trial.

The Art Gallery opened for business in April 1975 under the management of plaintiff and defendant Hild. Plaintiff had previously managed similar facilities and, while Hild had no such experience, he tended bar and maintained certain records. In June 1975, plaintiff and Hild began to have disputes concerning the operation of the lounge, including disagreements involving the supervision of employees. At this time, defendant Lewis was inactive in the management of the business and was informed of the escalating problems between plaintiff and Hild by corporate counsel William Morris. Later that month, Lewis delivered a set of written recommendations to plaintiff and Hild regarding corporate administration. Among Lewis' recommendations were that plaintiff terminate his employment with Caterpillar Tractor Company and assume a position as full-time manager of the lounge while Hild be relieved of managerial responsibility and further his business education to facilitate corporate expansion.

After the delivery of defendant Lewis' recommendations, the board of directors held two meetings to consider the proposals. It appears that defendant Hild desired to assume full-time management of the facility, but early in July the board adopted a resolution appointing plaintiff to the position. Later that month plaintiff assumed the position of full-time manager of the business at a salary of $400 per week and left his position with Caterpillar Tractor Company. There was a conflict of testimony at trial as to whether plaintiff was assured of the managerial position as long as he was effective in that capacity. Hild was to maintain the corporate records and observe the operation of the lounge so that he might in the future manage a second facility.

In October 1975, defendants Lewis and Hild indicated they desired to sell their holdings in the corporation. Lewis thereafter wrote plaintiff indicating he had found an outside party willing to purchase his interest for $20,000. Hild had stated he desired $30,000 for his shares and in November 1975, he also indicated he had located an outside purchaser. Plaintiff offered Lewis approximately $18,370 and indicated he would be willing to buy either party out but could not purchase both of their holdings simultaneously. Plaintiff also offered to exchange a property for Lewis' interest. None of the above transfers came to pass and Lewis ultimately sold his 2,000 shares to Hild for $30,000, payable in 60 monthly payments of $622. Plaintiff was never offered an installment purchase arrangement, and the actual transfer of shares had apparently not transpired at the time of trial, although Hild was authorized to vote Lewis' shares by proxy.

On December 25, 1975, plaintiff wrote a corporate check to himself for $2,250 and on December 28, 1975, wrote himself a second check for $2,650. There was a conflict of testimony at trial regarding the authorization of these payments. Plaintiff testified he was "running a little bit scared" and Lewis had previously told him he would receive half of his $5,000 if the venture showed a certain profit. While thus explaining one check, he was unable to recall the purpose of the other. Subsequent to the writing of the two checks, payment was stopped by Hild, who had removed the corporate records from the lounge. On December 30, 1975, it was determined that plaintiff was to continue as The Art Gallery's manager but that Hild, now the controlling stockholder, would have sole power to receive and disburse funds, hire and fire employees, and generally manage the corporation.

On January 18, 1976, Gregory Brown, a corporate employee, tended bar at the club until approximately 6 p.m., when he was relieved by plaintiff. Brown, who had begun to work for the corporation a month earlier, testified that approximately $207 of business had been conducted that afternoon and the following evening he reported this figure to Hild, who subsequently responded that the figure amounted to the approximate proceeds for the entire day. Hild testified that upon confronting plaintiff with this information, plaintiff stated: "Ron, didn't you ever get into the cash register when you worked?" Hild testified that he felt no obligation to keep an employee who was stealing from him and terminated plaintiff's employment with the corporation, although he conceded on cross-examination the evidence of the alleged theft was inconclusive. Plaintiff's version of his termination was considerably different. He testified that Hild told him they "just couldn't see eye-to-eye" and that "he no longer needed me." Plaintiff went on to explain that Hild stated that he now had control of the corporation and therefore he was terminating plaintiff as club manager. When plaintiff thereafter refused to leave the premises, plaintiff testified that Hild grabbed and threatened him with physical violence, and he has since been completely barred from the lounge. Plaintiff additionally denied removing any money from the cash register and likewise denied asking Hild if he had ever done so.

There is some indication that plaintiff may have closed the club shortly after Brown left that evening but Brown and Hild testified that, to their knowledge, the cocktail lounge had never closed before midnight and Hild stated plaintiff was to have kept the club open until 1 a.m. the following morning. Hild thereafter managed the club at a salary of $500 per week and plaintiff testified Hild could not otherwise have met his monthly obligation to Lewis.

Plaintiff attended a meeting of the board of directors in March 1976, but, although he received a notice, he did not attend the April 1976 meeting when new corporate directors were elected. He thus forfeited the opportunity to elect himself to the board, and Hild was subsequently elected president of the corporation. When plaintiff contacted the corporate accountants concerning his W-2 form for that year, his response was a letter from Hild stating all contact with the accountants was to be through him. Plaintiff received notice of the 1977 shareholders meeting but did not elect to attend.

At the time of trial before the circuit court, plaintiff's complaint contained three counts, and no error is assigned to the trial court's dismissal of count II, praying for damages for breach of the buy-sell agreement. As the parties stipulated that the stock in the corporation originally held by defendants Lewis and Hild would not be transferred pending the outcome of the litigation, the trial court determined not to hear evidence pertaining to count I, praying for specific performance of the buy-sell agreement. Having denied defendants' motion to dismiss count IV, praying for corporate liquidation, the bench trial proceeded on that count and count III, praying for damages for breach of the employment contract. By nunc pro tunc order the court found for plaintiff on count IV and granted defendant three months to purchase plaintiff's interest in the corporation for one-third of the corporate net worth and payment of the $5,000 bonus. As defendants failed to exercise their option, the court found for defendants on count I, to which no error is assigned, and on count IV, appointing a receiver with authority to liquidate the corporation.

On appeal, defendants contend the trial court erred in denying the motion to dismiss the corporate liquidation count of the complaint and that its ultimate decision to liquidate the corporation is contrary to the manifest weight of the evidence. Plaintiff contends these rulings were correct but that the court erred in refusing to admit the buy-sell agreement and that its determination of the breach of employment contract count is contrary to the manifest weight of the evidence.

Count IV of plaintiff's second amended complaint sought liquidation of the corporation pursuant to section 86(a)(3) of the Business Corporation Act (Ill. Rev. Stat. 1977, ...

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