Appeal from the Appellate Court for the Third District; heard
in that court on appeal from the Circuit Court of Peoria County,
the Hons. Charles Iben and Stephen Covey, Judges, presiding.
JUSTICE UNDERWOOD DELIVERED THE OPINION OF THE COURT:
Rehearing denied April 8, 1983.
This litigation began in 1974, approximately 6 1/2 months after the dissolution of a partnership that had existed for some 20 years between the plaintiff, Joseph Couri, and his brother, Anthony Couri, the defendant. Pursuant to plaintiff's complaint, the circuit court of Peoria County ordered defendant to render a formal accounting to plaintiff, and on June 30, 1980, a court-appointed receiver wound up the partnership affairs. A final judgment was entered, in February 1981, for plaintiff in the amount of $122,690 and costs. Defendant appealed, plaintiff cross-appealed, and the appellate court reversed (103 Ill. App.3d 445). We allowed plaintiff's petition for leave to appeal.
In 1941, plaintiff, defendant, and their brother Peter Couri orally agreed to operate as equal partners the "Couri Brothers Supermarket," a business which their father began in 1928. The brothers agreed that they would have equal control of the partnership, share equally in profits and losses and have equal rights in the partnership property. The agreement was of indefinite duration.
Plaintiff began working full time in his father's store in 1935 and continued to do so until 1941, when he entered the United States Army. Defendant began working in the store in the early 30's and in 1941, following his father's death, assumed responsibility for the books and records of the newly formed partnership. Defendant continued to work full time at the store until 1946, when plaintiff returned from the Army and resumed his full-time position. Thereafter defendant apparently worked part time for several years until he formed another unrelated partnership, a tavern called the "Western Tap." From approximately 1949 until 1956, defendant devoted most of his time to that business while plaintiff continued to work full time in the supermarket. It was apparently during that time that Peter Couri entered medical school, and in 1954 plaintiff and defendant purchased his interest in the partnership. Their oral agreement was of indefinite duration, and provided that they would, in all respects, be equal partners.
Defendant sold the Western Tap in 1956, and for the next 10 years devoted a good deal of his time to real estate ventures on behalf of the supermarket partnership. During this period, plaintiff gave his full time to the store, working as a clerk as well as a butcher in the meat department.
The brothers continued to operate the partnership, with both now apparently working full time, until September 29, 1973, at which time they had an irreconcilable disagreement, resulting in plaintiff's leaving the store permanently. The circumstances under which the disagreement and dissolution of the partnership occurred were sharply disputed: Plaintiff claimed that he was precluded by defendant from full participation in the management and operation of the partnership, while defendant claimed that plaintiff abandoned the business and thereafter refused to participate. Although neither party acquiesced in the other's characterization of the circumstances surrounding plaintiff's departure, the trial court determined that the partnership was rightfully dissolved, a finding which has not been challenged on appeal.
In November 1973, plaintiff visited defendant at his home and requested and received some of the partnership records for the prior two years. The parties, however, were unable to resolve their differences, and plaintiff consequently demanded that defendant wind up the partnership affairs. Instead, in July 1974, defendant changed the locks on the store, closed out the partnership checking account, opened a new account which was in his exclusive control, changed the name of the grocery store from "Couri Brothers Supermarket" to "Couri's Supermarket," and continued to operate the store until the court-appointed receiver wound up the partnership affairs and disposed of its assets.
The books and records of the partnership as well as the tax returns were prepared and maintained by defendant throughout the partnership's existence. There were daily reports, and monthly and yearly summaries. The tax returns were prepared from the latter two. The daily reports were theoretically restated in the monthly and yearly summaries; however, at least for the years 1971 through 1974, income was admittedly substantially understated so that the summaries and tax returns for those periods did not accurately reflect actual income. The parties agreed at trial and in the appellate court that income could be reliably verified from the daily reports, a concession which the appellate court found difficult to accept because of its belief that those records could not have accurately reflected the partnership's net profit. It seems clear, however, that those records, if adequately explained, represented the most accurate description of the financial operation of the partnership. Unfortunately, the vast majority of the daily reports, which were in defendant's possession and under his control, were destroyed approximately two years after this litigation began. Despite a court order prohibiting defendant from destroying, altering or otherwise modifying any of the partnership's books and records, defendant's son cleaned his parents' attic, while the latter two were vacationing, resulting in the disposal of several boxes containing daily reports. According to the boy's testimony, he was instructed to clean the garage and attic by his mother, who testified she acted without consulting defendant.
The parties stipulated at trial that there would be no accounting of the partnership's financial affairs prior to 1957. Thus, the trial court's judgment was based upon the partnership's financial status from 1957 through June 1980. In response to the court's order requiring defendant to account for this period, defendant produced books, records, bank statements, and tax returns which may, at best, be described as contradictory and incomplete. Such daily reports as were available were mainly copies which plaintiff had fortuitously made of reports which he had received prior to trial but which were returned by him and were among those destroyed. To exacerbate matters further, defendant's bookkeeping practices were not in accord with generally accepted accounting principles.
Although neither party could provide precise calculations, both submitted memoranda and affidavits based upon the available evidence indicating the manner in which the income should be computed. Defendant's total figures varied from approximately $433,600 to $487,000, whereas plaintiff asserted that defendant's figures should be increased by approximately $527,000, resulting in a total in excess of $1 million. The estimated reported income (tax returns for four or five years were not produced and were no longer available from the Internal Revenue Service) was approximately $424,000. The trial judge, who succeeded the originally assigned judge and whom the parties stipulated should decide the case on the basis of the transcripts and any additional hearings, determined that the accounting filed by defendant for the years 1957 through June 30, 1980, did not accurately reflect the net income of the partnership. Rather, the court found that the actual net income was $750,000. Further, based upon admissions in the record, the court found that defendant had drawn $88,000 from partnership funds in excess of that drawn by plaintiff. The court held, however, that defendant was entitled to compensation in the amount of $65,000 for the period from 1974 to June 30, 1980. The final award was accordingly based upon these figures with adjustments made for other assets of the partnership as well as money paid on property jointly owned.
Defendant appealed, contending, inter alia, that the trial court's determination regarding the net income of the partnership was against the manifest weight of the evidence. Plaintiff cross-appealed, arguing that the award should have been based upon an actual income in excess of $1 million. In addition, plaintiff argued that defendant was not entitled to the $65,000 compensation award. The appellate court, accepting one of defendant's arguments, reversed and dismissed plaintiff's petition for an accounting. It held that, notwithstanding defendant's duty to account, based upon the available incomplete evidence as well as the unreliability of the tax returns, plaintiff had failed to demonstrate an amount to which he was entitled. Although doubting the reliability of the daily reports, the court stated that once those documents were "innocuously swept away," an accounting became not only impractical but unattainable, and it was thus impossible to compute how much was due either party.
In our judgment the basic flaw in the appellate court's reasoning is its mischaracterization of the consequences of the breaches of defendant's fiduciary duties and the destruction of the daily records which the court had ordered him to preserve. Those records were in defendant's sole possession and control, and while the defendant's proof indicates he did not know they were being destroyed, it is clear that he had not informed his family of their importance and the necessity of their preservation. Plaintiff's inability to be more specific in his proof is the ...