APPEAL from the Circuit Court of Cook County; the Hon. WALTER
J. KOWALSKI, Judge, presiding.
MR. JUSTICE STAMOS DELIVERED THE OPINION OF THE COURT:
___ N.E.2d ___ This is an action on a note brought by Main Bank (Bank) against Jerome Baker and Lee Bourgeois. Baker and Bourgeois, joined Baker, Bourgeois & Associates, Inc. (BB&A), filed a counterclaim against Main Bank in which Main Automated Services, Inc. (MAS) was joined as an additional counterdefendant. After a jury heard the evidence offered by both sides, the trial court directed verdicts for Main Bank and MAS. The court further awarded the Bank attorney's fees of $18,000. Baker and BB&A have appealed, *fn1 contending that the cause should have been submitted to a jury and that the award of attorney's fees had an improper basis.
The parties are identified and the factual background to this case is set out in our opinion in a related appeal, No. 79-957, involving these parties. (Baker, Bourgeois & Associates, Inc. v. Taylor (1980), 84 Ill. App.3d 909, 410 N.E.2d 55.) Only such facts as are necessary to understand the issues raised in the appeal at bar are repeated or added here.
Main Bank brought this suit against Baker and Bourgeois, seeking recovery upon a note. Baker and Bourgeois answered, admitting default on the note but alleging their promise to pay was conditional and therefore denying any money was due on the note. In an affirmative defense, they contended that they, in conjunction with Main Bank, had agreed to purchase a computer for MAS, which Baker and Bourgeois were managing through BB&A. Pursuant to this asserted agreement the Bank provided the cash ($283,077) to purchase the computer; Baker and Bourgeois took title to the computer and executed a note (in the sum of $382,180) to the Bank; they then leased the computer to MAS under an agreement providing for rental payments similar in amount to their installment payments under the note. Thus, the lease obligated MAS to make 78 monthly payments of $4692.62 to Baker and Bourgeois, and gave MAS an option to buy the equipment for $28,000 at the expiration of the lease. In turn, the note executed by Baker and Bourgeois obligated them to make 78 monthly payments of $4549.76 to the Bank, with a final balloon payment of $27,289.72. The security for the note consisted of the computer and the lease agreement.
Baker and Bourgeois made all payments due on the note from July 1973 to November 1977 and during this period received the designated payments on the lease. Baker and Bourgeois alleged that the Bank, acting as a single entity with MAS, terminated BB&A's agreement to manage MAS in November 1973, and then, four years later, in November 1977, stopped payments under the lease. Baker and Bourgeois contended that under their agreement with Main Bank their rights to manage MAS and to receive the payments on the lease were conditions precedent to their promise to pay on the note, and that by violating this claimed understanding, the Bank extinguished its right to payment on the note.
In their counterclaim Baker and Bourgeois alleged that Main Corporation, the Bank holding company; Main Bank; Sidney Taylor, chairman of Main Corporation, Main Bank, and MAS, and a principal shareholder of Main Corporation, and Irwin Cole, also an officer of MAS and a principal shareholder of Main Corporation, all acted as a single entity with respect to Baker and Bourgeois. Baker and Bourgeois alleged that the management agreement, note, and lease were all one transaction between them and the single entity. Their counterclaim demanded payments due on the lease.
The Bank answered, denying the single entity theory, denying it was party to any agreement but the note and security agreement executed with the note, denying it owned any stock in or participated in the affairs of MAS, and denying payment under the note was in any way connected with payment under the lease. When Baker and Bourgeois entered into the security agreement accompanying the note, they pledged not only the computer but the lease agreement as collateral. Therefore, although Main Bank admitted MAS had failed to make payments due on the lease, under the security agreement, the Bank now asserted the sole right to receive payments under the lease because of Baker and Bourgeois' default on the note. Baker and Bourgeois denied their pledge of the lease agreement was unconditional.
A jury trial ensued. The Bank introduced the note and security agreement through its president, who also established that the computer had been sold, reducing the amount due on the loan to $81,122.36. He testified that Sidney Taylor, the Bank's chairman, preceded him as president and chief operating officer of the Bank and held those positions in 1973. The only other testimony offered by the Bank was a stipulation by Bourgeois, who has not joined in this appeal. *fn2 Bourgeois admitted the validity of the note and security agreement as well as the lease. He did not recall any conversation with Taylor, Cole, or any Main Corporation official regarding the purchase of a computer. He admitted defaulting on the note; he also detailed the tax deductions he and Baker received owing to the computer purchase. The Bank rested its case.
Baker offered only his own testimony. The Bank objected to Baker's recounting of any conversations with Taylor on the ground of immateriality, but the court overruled the objection. Baker's TESTIMONY WAS ESSENTIALLY THE SAME AS THAT GIVEN IN HIS AFFIDAVIT set out in our related opinion in appeal No. 79-957. (Baker, Bourgeois & Associates, Inc.) The formation of MAS to provide computer services for the Bank and its customers was detailed. The management agreement between BB&A and MAS and the lease agreement were admitted into evidence. Baker also stated that the loan and lease agreements and the conversations leading up thereto all took place in Taylor's office as chief executive of the Bank. In addition Baker testified that both agreements were primarily prepared by the Bank. Also introduced was the letter from Taylor, signed as chairman of MAS but on his Main Bank stationery, removing Baker and Bourgeois as managers of MAS.
On cross-examination, Baker admitted defaulting on the note. It was also established that the management agreement contained an integration clause providing that it "incorporated all of the understandings and undertakings by the parties." The lease similarly provided: "This instrument constitutes the entire agreement between the parties." No such clause was pointed out in the note or security agreement, and it was established that neither expressly referred to the lease agreement as a condition precedent. Baker also admitted making payments on the note for four years after termination of the management agreement.
The court granted a directed verdict for the Bank on the note, stating that it found no evidence of any agreement other than the written contracts in evidence, that the parties operated at arm's length, and that there was no concealment by use of different corporate names. The court also directed a verdict for the Bank and MAS on the counterclaim, stating that it had some difficulty in ruling in favor of MAS, but no evidence had been offered to show there was any money due Baker and Bourgeois at the present time. The court subsequently awarded attorneys' fees to the Bank pursuant to a provision in the note for reasonable attorneys' fees.
The primary issue is whether Baker presented enough evidence to warrant submission to the jury of his theory that his obligation on the note was linked to his rights under the management and lease agreements, or whether all the evidence, viewed most favorably to Baker, so overwhelmingly favored the Bank that no contrary verdict could ever stand. Defendant contends that the note, lease agreement, and management arrangement should be construed as one transaction with a single entity — the Bank. He further maintains that once sufficient evidence was introduced to support these implications, section 3-119 of the Uniform Commercial Code mandates that the various agreements be construed as one course of dealing. Section 3-119 provides:
"(1) As between the obligor and his immediate obligee or any transferee the terms of an instrument may be modified or affected by any other written agreement executed as a part of the same transaction, except that a holder in due course is not affected by any limitation of his rights arising out of the separate written agreement if he had no notice of the limitation when he took the instrument.
(2) A separate agreement does not affect the negotiability of an instrument." Ill. Rev. Stat. ...