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Circle Security Agency, Inc. v. Ross





APPEAL from the Circuit Court of Cook County; the Hon. ARTHUR L. DUNNE, Judge, presiding.


Rehearing denied July 7, 1982.

Plaintiff, Circle Security Agency, Inc. (Circle), brought a declaratory judgment action against Lewis D. Ross for the construction of a contract under which Circle paid Ross for certain services. The trial court found that Ross was entitled to compensation at the rate of $20,000 per year. Ross appeals from the amount awarded only, contending that the terms of the contract entitle him to $30,000 annually. Circle cross-appeals from the judgment, arguing that (1) the trial court erred in ruling that the contract had not been repudiated by Ross; and (2) Circle is entitled to damages. We affirm the judgment, with modification.

Circle is a general agent for Mutual of Omaha and United Benefit Life Insurance Co. Years ago, defendant Ross created and developed Circle and during that time he established excellent rapport with the home office of the Omaha insurers. In 1966, with the approval of the home office, he sold his controlling interest in Circle to Bernard Levin and Harmon Kravitz, who were at the time operating a subagency under another general agent of the insurers.

The sale of the business was effectuated through several related documents, an agreement and plan of reorganization, a warranty agreement, and an employment agreement. The latter document, which is the basis of the present litigation, provides for Ross to be employed by Circle "in an executive and managerial capacity" for "the remainder of his life" at specified rates of compensation. In return, Ross is obligated to apply his "knowledge, skill, attention and experience to the best of his ability in the discharge of the duties and obligations thereof and to use his best efforts to further the interest of Circle."

From 1966 to 1971 Ross maintained an office for Circle in downtown Chicago. Pursuant to the terms of paragraph 2 of the agreement he received an annual salary of $35,000. After these first five years of Ross' employment, paragraph 2 provided that his salary would increase to $40,000 for his remaining years of service. In 1971, however, Levin and Kravitz closed Circle's downtown office, which they were entitled to do, and Ross then elected (under paragraph 6 of the contract) "to perform services to Circle on a consulting basis only, upon the terms and rate of compensation provided for such consulting services in paragraph 3 hereof." In pertinent part, paragraph 3 provides that

"[If Ross becomes] physically incapacitated to such an extent as to prevent him, in the opinion of his physician, from reasonably performing his full time services hereunder, then from and after delivery to Circle of a letter or certificate of the physician to such effect, Ross shall only be required to render consulting services to Circle and shall only be required to devote such time in his employment as shall be consistent with the state of his health. If such incapacity shall continue for a period of more than 12 months, the compensation payable to Ross by Circle shall be reduced by $10,000 commencing on a date which is 12 months after delivery of the physician's letter or certificate referred to above." *fn1

During the next seven years Levin and Kravitz made few requests of Ross for his consulting services, although the men regularly met to discuss general operations. Ross' major function was to maintain good relations with the insurers' home office, to protect Circle's status. *fn2

The facts that led to this lawsuit occurred over a period of months in 1978, during which time the parties communicated primarily through letters. According to Bernard Levin's trial testimony, certain changes in marketing conditions caused him and Harmon Kravitz (Circle's operating officers), to reassess Circle's operations and status. In a letter to Ross dated February 17, 1978, Levin and Kravitz listed some of the economic and political factors which led to their review of Circle's structure. The letter indicated that they had consulted with their attorney concerning Ross' "contract of employment, the amount due * * * thereunder, and the quantity of services that Circle had a right to expect therefor." The February 17 letter further noted that they had "been rather lax up to now in not insisting on full compliance with the contract" but that they had "no choice but to insist upon such full and complete compliance so that the correct amount of salary to be paid [him could] be determined." The letter requested Ross to furnish a statement from his doctor attesting to his physical capacity or incapacity to perform under the contract, and concluded with a request for a meeting. Ross did not respond to this letter.

The record indicates that Ross had suffered a severe heart attack shortly after receiving the February 17 letter and was hospitalized until September. He was further confined to his home until October 1978, at which time he prepared to leave for his annual winter trip to his home in Arizona. For medical reasons he had spent winters in Arizona for a number of years. He also testified at trial that he viewed his consultant status as being similar to that of an independent contractor rather than as an employee in the master-servant sense.

In September 1978, the parties' attorneys met with Levin, Kravitz, and Ross' son to discuss a possible amendment or settlement of the contract. The negotiations were unsuccessful. Ross' son informed Kravitz and Levin that his father's health had improved to the point that he was able to perform his consulting duties.

In a letter dated October 4, 1978, Ross' attorney wrote to plaintiff's attorney regarding several matters and concluded with the statement that "[i]f Circle wishes Mr. Ross to perform specific consulting services consistent with the state of his health as provided in Exhibit B of the Agreement, Mr. Ross is entirely willing to do so. Circle should communicate its desire on this point in writing to Mr. Ross * * *."

In response to this letter, Levin wrote to Ross on October 12, 1978. He told Ross that Circle needed Ross' assistance with several major problems that Circle was facing, the most pressing being the home office's changing attitude toward its general agents. Expressing the fear that Circle might be eliminated by the home office, Levin asked Ross to accompany him to a meeting in Omaha, Nebraska, on November 13, 1978. He also expressed the desire to consult with Ross before the meeting if Ross was unable to attend. Finally, he reiterated the need for a face-to-face meeting, and told Ross that, regarding his vacation time, they needed to know his whereabouts and availability at all times.

Ross responded to the October 12 letter on October 24, 1978. He explained that he received Levin's letter as he was preparing to leave for his winter home in Phoenix. Ross stated that, having for years operated as a consultant pursuant to paragraph 6 of the contract, he was "not required to deal with others on your behalf, nor subject to your control over my vacation time or other use as to my time allocations." He further noted his belief that "undue urgency" was not necessary as to matters which have involved the general agents such ...

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