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P.a. Bergner & Co. v. Lloyds Jewelers





Appeal from the Appellate Court for the Third District; heard in that court on appeal from the Circuit Court of Peoria County, the Hon. James M. Bumgarner, Judge, presiding.


Rehearing denied June 2, 1986.

Plaintiff, P.A. Bergner & Company of Illinois, instituted this action against defendants, Lloyds Jewelers, Inc. (Lloyds), and J. Robert Congress (Congress), in the circuit court of Peoria County. Defendants counterclaimed against plaintiff and two affiliated corporations which, after leave given, they joined as counterdefendants, alleging that they conspired with plaintiff to wrongfully terminate a lease held by defendant Lloyds. The jury returned a verdict in favor of plaintiff and against both defendants in the amount of $36,688.33 on each of three counts in plaintiff's complaint. The jury returned a verdict in favor of Lloyds in the amount of $670,000 on count I of its counterclaim against plaintiff, and verdicts in favor of the two counterdefendants. Following a hearing on the post-trial motions, the circuit court directed a verdict in favor of plaintiff on count I of the counterclaim and allowed a new trial on plaintiff's action on the issue of damages only. Defendants appealed; the appellate court reversed the judgment entered on count I of the counterclaim, reinstated the verdict, and reversed the order granting a new trial. (130 Ill. App.3d 987.) We allowed plaintiff's petition for leave to appeal (94 Ill.2d R. 315).

The record shows that plaintiff operated a chain of retail department stores and that Lloyds was in the retail jewelry business. In 1967, plaintiff and Lloyds entered into a "Departmental Lease" under the terms of which Lloyds would operate the jewelry department located in plaintiff's Peoria store. The agreement provided for a minimum guaranteed rental and for additional rental based on Lloyds' net sales in excess of $100,000 per lease year. The agreement provided that all cash receipts would be delivered to plaintiff's cashier not later than the close of business of each day and for charge accounts and installment payments to be processed through plaintiff's credit department. The agreement also provided:

"6. Lessor [plaintiff Bergner] shall receive and hold in trust until an accounting is made in respect thereto, all sums collected, including cash sales and approved credit sales of merchandise or services rendered by the Lessee [defendant Lloyds], but shall not be obligated to segregate said funds or keep them in a separate account. Accounting and settlement shall be made by Lessor with Lessee for each calendar month's business on or before the last day of the next succeeding month. Each month as the Lessor makes an accounting to the Lessee of the business of the Lessee for the preceding calendar month, it shall, after deducting its proper charges and any and all sums due from Lessee to Lessor, pay over to the Lessee the balance due to it through and including the last day of the preceding calendar month."

On January 21, 1975, the parties executed a "Master Department Lease" which applied to lease departments operated by Lloyds in eight of plaintiff's stores. This agreement contains the foregoing provision.

For reasons not explained in the record, plaintiff, in accounting to Lloyds, did not consistently deduct fixture costs which the agreements provided Lloyds was to pay, and failed to deduct the excess rentals. Lloyds' financial statements for the fiscal year 1972 through 1976 (June 1 through May 31) showed liabilities for accrued rent, and the financial statement for 1976 showed a fixture liability to plaintiff in the amount of $125,361.

In late January 1977, Congress, who was president and sole shareholder of Lloyds, met with an officer of plaintiff to discuss payment of the amounts due from Lloyds to plaintiff. At that meeting the parties signed a letter agreement which agreed that Lloyds was indebted to plaintiff in the amount of $125,361.43 for fixtures, and $161,220.39 for excess rentals. It was agreed that the fixture indebtedness would be paid on or before February 28, 1977, through a loan Congress was negotiating with his bank. Payments of $10,000 per month on the excess rental indebtedness were to be deducted by plaintiff from Lloyds' statement, and on April 30, 1977, the matter was to be reviewed for the purpose of accelerating the principal payments. Congress executed two promissory notes payable to plaintiff, one in the amount of each indebtedness.

On July 31, 1977, because the fixture and rent charges remained unpaid, plaintiff withheld the entire sum due Lloyds under the monthly settlement statement. Lloyds was given written notice of the withholding and advised as to the balance remaining on each indebtedness, and was further notified that failure to pay the entire amount due within 30 days would result in the lease being terminated. Except for some money released by plaintiff to Lloyds in August for the purpose of making payments to some other creditors, plaintiff withheld Lloyds' sales proceeds for July and August 1977, and applied them to the amounts due. On October 14, 1977, Lloyds vacated all of the leased locations, and its attorney advised plaintiff that Lloyds considered the lease agreement "at an end, effective immediately."

Plaintiff's complaint contained three counts; count I, based on the letter agreement as an account stated, asked judgment against defendant Lloyds in the amount of $82,292.72; counts II and III sought judgments against Congress in the amount of the balances remaining due on the notes, $37,683.02 on the fixture note, and $44,608.70 on the rent note.

In Lloyds' counterclaim, as amended, count I alleged that plaintiff had breached the contract between the parties and sought damages for that breach. Counts II, III, IV and V were directed against plaintiff, the two counterdefendants named in the counterclaim, and a corporate subsidiary of one of them. It alleged tortious interference with Lloyds' contract with plaintiff resulting in one of the counterdefendants taking over the locations which defendant had under lease.

The circuit court, in setting aside the verdicts in favor of plaintiff, stated that it could not be determined from the verdicts what the jury intended to award plaintiff, and the finding of the same amount on each of the three counts could not be reconciled. Concerning the verdict on the counterclaim, finding that as a matter of law plaintiff had not breached the contract, the court allowed plaintiff's motion for directed verdict on which it had earlier reserved ruling.

In reversing the judgment, the appellate court found that the verdict in favor of plaintiff did not indicate confusion on the part of the jury, that it resulted from the jury's finding that the sums due plaintiff had been reduced below the amount claimed by plaintiff, and that the verdict was supported by the evidence; the court held that the provision of the agreement for the deduction of rent and fixture charges could not be waived by plaintiff without notice to or acquiescence of Lloyds. The court held further that plaintiff, in permitting substantial arrearages to accrue and then later attempting to collect the whole amount by withholding Lloyds' entire "cash flow" violated its implied "good faith obligation." It held further that Lloyds' failure to perform the ...

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