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Howard A. Koop & Assoc. v. Kpk Corp.

OPINION FILED NOVEMBER 3, 1983.

HOWARD A. KOOP & ASSOCIATES ET AL., PLAINTIFFS-APPELLEES AND CROSS-APPELLANTS,

v.

KPK CORPORATION ET AL., DEFENDANTS-APPELLANTS AND CROSS-APPELLEES.



Appeal from the Circuit Court of Kane County; the Hon. Marvin D. Dunn, Judge, presiding.

JUSTICE HOPF DELIVERED THE OPINION OF THE COURT:

Following a bench trial, plaintiff Howard A. Koop (Koop) and defendants KPK Corporation (KPK), Seattle Steam Corporation (Seattle), Buskirk Lumber Company (Buskirk), and Robert L. Brumley (Brumley), appeal from various portions of a Kane County circuit court judgment awarding $46,200 to plaintiff and $49,000 to defendant KPK, pursuant to various contractual agreements between the parties.

The facts surrounding this controversy are as follows. On July 6, 1977, defendant Brumley entered into a purchase agreement with KPK to acquire two-thirds of the then outstanding stock in KPK Corporation. Plaintiff Koop was at that time one-third shareholder, as well as the president and chief operating officer of KPK. On July 15, 1977, KPK entered into a buy-sell agreement with its two shareholders, Brumley and Koop, whereby either stockholder had first option to acquire the shares of the other. Koop continued as president of KPK until March 9, 1978, when he entered into a stock redemption agreement with KPK. Brumley thereafter acquired all of Koop's outstanding shares, thus becoming the sole shareholder in KPK Corporation.

As consideration for Koop's sale of the stock, Koop received a total of $400,000, some bank stock in the Batavia Investment Company, a car, and some incentives in the form of various contractual agreements which are the subject of this appeal. Among these agreements were certain employment contracts between Koop, Seattle and Buskirk, whereby Koop agreed to act as special assistant to the president of those corporations (Brumley). Seattle and Buskirk were both wholly owned subsidiaries of KPK. Seattle agreed to pay Koop $1,650 per month for his services, plus $50 per month toward the cost of a leased business automobile. Buskirk agreed to pay Koop $4,200 per month salary, plus $200 per month toward the leased automobile. Both of these contracts provided that in the event either party wished to terminate their respective contracts, then 30 days' written notice was required.

In addition to the employment agreements, Koop also entered into a written "Agreement to Negotiate Sale or Lease" with KPK, whereby Koop was entitled to a commission if he could procure a purchaser or tenant for a building owned by KPK, known as "Building 48," prior to July 1, 1979. The particulars of this agreement are discussed later in this opinion.

On May 12, 1978, Koop procured a tenant, Lifetime Foam Company, for Building 48, and the lease was subsequently executed on June 22, 1978. On July 28, 1978, Koop wrote KPK requesting $47,198 for his procurement of the tenant for Building 48. Attached to this letter was a detailed computation of this amount which had been prepared by Joseph Liss, a certified public accountant (CPA) and former treasurer of KPK.

Meanwhile, on July 1, 1978, Seattle and Buskirk notified Koop that his employment with them was terminated. On July 28, 1978, the same date as Koop's letter requesting his procurement fee, Koop demanded wages and expenses for the month of July 1978 which he claimed were due him under the employment agreements with Seattle and Buskirk. KPK responded by letter dated August 23, 1978, advising Koop that the corporations were claiming a setoff of $7,219.76 owed by Koop to KPK for prior loans and from an overpayment of Koop's salary. The matter was referred to Koop's attorney, who advised KPK that its actions in this regard were in violation of an oral agreement to forgive these debts, which were allegedly made at the closing of the stock sale.

Plaintiff Koop ultimately brought this action against defendants to recover commissions, salaries, and other benefits allegedly due him under the various contracts, as well as attorney fees incurred in connection with the employment contracts. At the time of filing his complaint, Koop also obtained a temporary restraining order and later a preliminary injunction preventing KPK, Brumley and the New York Life Insurance Company from canceling five New York Life Insurance policies owned by KPK on the life of Koop. Koop alleged that KPK had orally agreed to assign the policies to him, but then failed to do so. In response to Koop's complaint, defendants filed an affirmative defense and counterclaim seeking to offset any amounts due to Koop by monies which Koop allegedly owed to KPK, Seattle and Buskirk. Defendants also alleged that Koop made false representations to Brumley regarding KPK's financial condition when Brumley first acquired the two-thirds interest in KPK in 1977, and again when he acquired Koop's shares in March 1978. Finally, defendants sought reimbursement of the insurance premiums which KPK was required to pay under the restraining order obtained by Koop and denied any oral agreement to assign the policies to Koop.

After hearing evidence and arguments of counsel, the circuit court found that: Koop was entitled to a commission in the amount of $40,100 from KPK under the agreement to negotiate sale or lease; Koop was entitled to one month's salary plus expenses from Seattle and Buskirk; certain debts owed by Koop to KPK and Buskirk were not forgiven at the time Koop sold his stock to KPK and Brumley; Koop did not fraudulently misrepresent the condition of KPK to Brumley; there was no oral agreement to assign the life insurance policies to Koop; KPK was entitled to reimbursement from Koop for insurance premiums it was required to pay pursuant to the preliminary injunction; and Koop was not entitled to recover attorney fees in connection with his claim against Seattle and Buskirk. Defendants appeal from the court's findings on the commission and misrepresentation issues. They also allege that the court erroneously failed to rule on their counterclaim for an offsetting of amounts due to Koop by debts which Koop owed to them. Koop appeals from the court's findings on the issues of forgiveness of debts, life insurance assignment, and attorney fees.

We first consider defendants' contention that the trial court erred when it determined that Koop was entitled to a commission under the "Agreement to Negotiate Sale or Lease" of Building 48. The agreement provides in pertinent part:

"(b) If a tenant for Building No. 48 shall be procured (either through the efforts of KOOP or through the efforts of a third party) on or before May 15, 1978 and if the annual net rent to be realized by KPK under such lease, when capitalized at ten percent (10%), would produce a net gain (as defined above) of Five Hundred Thousand Dollars ($500,000), then and in such event KPK shall pay to KOOP the sum of Fifty Thousand Dollars ($50,000); * * *."

The agreement also provides that Koop would in no event be entitled to a fee in excess of $50,000, and that if the net gain to KPK under such sale or lease is less than $500,000 then Koop's fee would be reduced pro rata at the rate of $12,500 for each reduction of $100,000 in gain (or 12.5%). "Net gain" is defined in the agreement as "sale price less basis." The agreement does not define "net rent," "sale price," or "basis." The parties apparently agree, however, that "sale price" under the contract here is equal to the average annual rental income of the property, capitalized at 10%. Thus, the formula for computing "net gain" and, ultimately, Koop's commission under the agreement may be simply summarized in the following equations:

Net gain = (annual net rental income, capitalized @ 10%)-basis Fee = $50,000-[($500,000-net gain) x 12 1/2%].

The parties do not dispute that Koop did in fact procure a tenant, Lifetime Foam Products, Inc. (Lifetime), prior to the May 15, 1978, deadline in the above-quoted provision. It is also undisputed that under the lease, Lifetime is to pay a total aggregate rent of $3,747,558.08 over 15 years' time, or an average annual rent of $249,837.20. The dispute here, however, focuses upon the ...


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