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Nordhem v. Harry's Cafe

OPINION FILED JULY 22, 1983.

JOHN L. NORDHEM ET AL., PLAINTIFFS-APPELLEES,

v.

HARRY'S CAFE, INC., DEFENDANT-APPELLANT — (HAROLD A. RESKIN, ET AL., DEFENDANTS).



Appeal from the Circuit Court of Cook County; the Hon. Thomas J. O'Brien, Judge, presiding.

PRESIDING JUSTICE WILSON DELIVERED THE OPINION OF THE COURT:

Plaintiffs, John and William Nordhem, each obtained judgments by confession in the amounts of $21,250 and $22,681.24, respectively, on individual promissory notes executed by defendants, Harold Reskin, Robert Liston, Thomas Dubois and Thomas Gorsuch, individually *fn1 and as shareholders of Harry's Cafe, Inc. (Harry's Cafe) in consideration for the purchase of plaintiffs' stock in Harry's Cafe. Defendant Harry's Cafe appeals from an order of the circuit court granting plaintiffs' motions for confirmation of judgments and denying its motion to open judgment and file its verified answer and counterclaim pursuant to Supreme Court Rule 276 (Rule 276). (87 Ill.2d R. 276.) For the reasons that follow, we reverse and remand with instructions.

Pursuant to written contracts and resolutions of stockholders and directors, plaintiffs managed Harry's Cafe from November 1977 through December 20, 1979. During that time, repeated disputes arose among plaintiffs and the other four stockholders regarding the operation of the restaurant. As a result of this discord, in 1979, two of the stockholders, Harold Reskin and Robert Liston, filed a complaint in Du Page County (Du Page action) against all parties in the present case, seeking injunctive and declaratory relief related to certain corporate and stockholder disputes. On March 5, 1980, while the Du Page action was still pending, plaintiffs agreed to sell their stock in Harry's Cafe to Thomas Gorsuch, one of the stockholders, for $80,000. On November 24, 1980, the stock purchase agreement was amended to substitute Harry's Cafe as the purchaser. Pursuant to the agreement, $20,000 was paid to each plaintiff as a downpayment and cognovite notes, due December 24, 1980, were issued for the balance.

The record reveals that instead of making the final stock purchase payments on the due date, Harry's Cafe filed a motion in the Du Page action requesting leave to file a counterclaim against plaintiffs (co-defendants in the Du Page action), seeking, inter alia, a declaratory judgment regarding the existence of certain rights of setoff and/or recoupment by Harry's Cafe against plaintiffs with respect to the outstanding promissory notes. Before the motion was set for hearing, the Du Page action was dismissed with prejudice by stipulation of the parties. As a result, the counterclaim was never filed.

On February 25, 1981, plaintiffs filed individual complaints for confession of judgment on the promissory notes, which judgments were entered on March 4, 1981 (J. Nordhem), and June 4, 1981 (W. Nordhem). On July 28, 1981, plaintiffs moved for a confirmation of the judgments, stating that no motion to open the judgments had been filed by defendants. However, on that same day, defendants also filed their motion to open judgment and requested leave to file a counterclaim and stay proceedings on the judgments. Defendants' motion was accompanied by their verified answer and counterclaim as well as an affidavit in support of the motion, signed by Thomas Dubois, president of Harry's Cafe.

Subsequently, at a hearing on the motions, plaintiffs argued that the judgments should be confirmed because defendants failed to present a meritorious defense as required by Rule 276 and, further, that the counterclaim was barred because: (1) defendants had knowledge of the allegations therein prior to execution of the promissory notes; (2) the stock purchase agreement was intended to be a settlement of all disputes between the parties; and (3) the allegations of the counterclaim were previously dismissed with prejudice in the Du Page action and, thus, were barred by res judicata.

In response, defendants argued that: (1) knowledge of plaintiffs' wrongful acts prior to execution of the notes may preclude raising a defense to payment, but does not preclude a counterclaim for setoff; (2) the stock purchase agreement was not intended as a settlement; and (3) the counterclaim prepared for the Du Page action was never filed and, thus, the current counterclaim was not barred by res judicata.

After taking the matter under advisement, the court granted plaintiffs' motion to confirm and denied defendants' motion to open the confession of judgment and for leave to file a counterclaim. In response to defendants' subsequent motion to reconsider, the trial court modified its findings, but affirmed its decision. Defendant's timely appeal followed.

OPINION

Rule 276, which provides for opening of judgments by confession, states in pertinent part:

"A motion to open a judgment by confession shall be supported by affidavit in the manner provided by Rule 191 for summary judgments, and shall be accompanied by a verified answer which defendant proposes to file. If the motion and affidavit disclose a prima facie defense on the merits to the whole or a part of the plaintiff's claim, the court shall set the motion for hearing. * * * If a defendant files a motion supported by affidavit which does not disclose a defense to the merits but discloses a counterclaim against the plaintiff, and defendant has been diligent in presenting his motion, the trial court may permit the filing of the counterclaim and to the extent justice requires may stay proceedings on the judgment by confession until the counterclaim is disposed of."

As the foregoing indicates, the filing of a Rule 276 counterclaim is a two-step process: (1) the procedural prerequisites of affidavit and diligence must be satisfied; then (2) the court, in its discretion, may permit the filing. In the case at bar, we find that defendants have satisfied both procedural prerequisites. First, the affidavit filed in support of defendants' motion to open judgment cited pertinent dates in support of defendants' diligence and alleged a setoff to plaintiffs' claim, thereby satisfying the requirements of particularity set forth in Supreme Court Rule 191 (Rule 191). (87 Ill.2d R. 191.) Second, although plaintiffs attempt to argue lack of diligence in their briefs, the record clearly shows that this was not an issue in the trial court, and, thus, cannot now be raised on appeal. (Moehle v. Chrysler Motors Corp. (1982), 93 Ill.2d 299, 303.) Therefore, the only issue before this court is whether the trial court's denial of defendants' motion for leave to file its counterclaim was an abuse of discretion.

In the pending case, the trial court entered two orders with accompanying opinions, the second order being in response to defendant's motion to reconsider. While the second order affirmed the previous one, it vacated one of the original findings and cited additional case law support. In making our determination as to whether the evidence supports the trial court's judgment, we will analyze the rationale expressed in the two opinions in conjunction with the record as a whole.

In its first opinion, the trial court denied defendants' motion on the grounds that: (1) "[r]equirements to vacate or open, (one of which is a non-conclusory meritorious defense) are not met under the standard of Passanti [sic] v. Callier"; (2) requirements of Rule 191 are not met; and (3) defendants' counterclaim is barred by the dismissal with prejudice of the identical counterclaim filed in the Du Page ...


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