Appeal from the Circuit Court of Cook County; the Hon. Richard
L. Curry, Judge, presiding.
JUSTICE LINN DELIVERED THE OPINION OF THE COURT:
Rehearing denied May 16, 1985.
Plaintiff, management consulting firm, hired defendant, interior design company, to coordinate the design of its new offices, relying on defendant's project manager to secure bids for the architectural woodworking involved therein. The project manager presented plaintiff with a single bid, that of a corporation that, unbeknownst to plaintiff, the project manager and two of his associates had incorporated several weeks earlier.
Relying on the project manager's advice, plaintiff accepted the bid presented and paid to the newly formed corporation an earnest-money deposit of $175,000 to commence work. Immediately upon receipt of plaintiff's deposit, one of the incorporators of the woodworking corporation opened an account in the corporate name and used the deposit money to repay a personal loan of $100,000, made to him prior to incorporation by an associate with knowledge of the corporation's financial dealings and the source of repayment.
The trial court found the incorporators and the creditor/payee of the $100,000 personal loan guilty of conversion and held them jointly and severally liable under a theory of constructive trust for the entire amount of plaintiff's loss. The creditor/payee appealed.
We affirm in part, reverse in part, and modify.
Plaintiff, A.T. Kearney, Inc. (Kearney), a management consulting firm, hired defendant, *fn1 Interior Dynamics, Ltd. (IDL), to coordinate the relocation of its new offices, to be completed by September 1980. IDL, through its project manager/executive vice-president Bharat Kothari, was to obtain bids for the furnishings and architectural woodworking involved in the project. In its contract with Kearney, IDL promised to secure "competitive bids" from "reputable contractors known by [IDL]." Kearney relied completely on Kothari to secure the bids and to investigate and deal with the various vendors.
Despite IDL's promise to secure competitive bids from reputable contractors, Kothari submitted to Kearney on May 5, 1980, only a single bid, one from INCA International, Inc. (INCA), a corporation which, unbeknownst to plaintiff, had been incorporated only three weeks earlier by Kothari and two of his close business associates. Kothari advised Kearney to accept INCA's bid and informed Kearney that the normal practice and custom in the trade was to remit 50% of the total contract price as an earnest money deposit. Relying on Kothari's advice, Kearney accepted INCA's bid and delivered to Kothari a check payable to INCA in the amount of $175,000, unapprised by Kothari of his relationship to INCA, of INCA's three-week old status, and of various other facts that called into question Kothari's role as fiduciary and INCA's reputability and ability to perform under the contract.
Kothari delivered the Kearney $175,000 job deposit to INCA on May 12, 1980. On May 13, 1980, Joseph Popp, another of INCA's incorporators and an officer thereof, called defendant, George Kackert, an associate of his in the construction and real estate development business and Popp's personal creditor, and informed Kackert that he had received the money for INCA, that he planned to open an account at Glenview State Bank, and that he would meet Kackert at the bank to repay the $100,000 personal loan Kackert had made to him several months earlier.
Kackert, the appellant here, initially became involved with Popp in March 1980, when Popp turned to him for financial assistance to facilitate the acquisition of Aztec, a woodcrafting plant in Nebraska that Popp and Thomas Jolitz, another INCA incorporator, were trying to purchase out of bankruptcy to perform the actual woodworking on the Kearney project. Kackert met with Popp, Jolitz, and Kothari on numerous occasions to discuss the concept of INCA, which was to serve as a holding company for the recently bankrupt Aztec to alleviate any difficulties Aztec might have in obtaining performance bonds. Popp told Kackert that Kothari was involved in the program to design work, to bring in investors and to bring business into the project. Kackert had several phone conversations with Kothari, met with him and the other INCA incorporators at Kothari's office, and traveled with them to construction conventions in Atlantic City and New York City, where they discussed plans for INCA-Aztec. Kackert flew to Nebraska with Popp and Jolitz to inspect the Aztec facilities and signed documents in the capacity as treasurer of Aztec.
A pre-incorporation agreement for INCA was signed by Kackert, Popp, and Jolitz on or about March 28, 1980. Later that same day, Kackert had occasion to go to the bank to check on a loan application that Popp and Jolitz were supposedly making to get funds pursuant to the agreement to put the INCA-Aztec project together. When Kackert got to the bank, he learned that neither Popp nor Jolitz had attempted to obtain the agreed-on line of credit. Kackert called Popp and informed him that he wanted to withdraw from the deal because he was "not comfortable with it," it was "far too voluminous; there were too many loose ends," and "no documentation * * * the performances they were requested to do in every area, for myself, and ultimately in the end, the last straw was the bank * * *."
Popp informed Kackert of the difficult financial position in which Kackert's sudden withdrawal left the project and asked Kackert to make a personal loan of $100,000 to Jolitz, who had already begun to pay bills incurred by INCA-Aztec. Kackert refused to lend the money to Jolitz because he questioned his reputability, but he agreed to make a personal loan to Popp, who secured the loan with assignments of beneficial interests in real estate he owned personally.
After Kackert withdrew from the INCA deal, around March 29, Popp and Jolitz brought in Kothari as the third INCA incorporator. INCA was officially incorporated on April 15, 1980, some three weeks ...