APPELLATE COURT OF ILLINOIS, SECOND DISTRICT
509 N.E.2d 1068, 156 Ill. App. 3d 727, 109 Ill. Dec. 229 1987.IL.786
Appeal from the Circuit Court of Du Page County; the Hon. James W. Jerz, Judge, presiding.
JUSTICE REINHARD delivered the opinion of the court. LINDBERG, P.J., and UNVERZAGT, J., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE REINHARD
Defendants, Chicago Art Glass, Inc. (Art Glass), Jeffery B. Fryer (Fryer), and Robert Prentice (Prentice), appeal from the judgment of the circuit court of Du Page County ordering the immediate return of 15,000 shares of Art Glass common stock to plaintiff, John Metropulos, Sr., after it determined that these shares were transferred by plaintiff to John Metropulos, Jr. (Metropulos, Jr.), a defendant who is not a party to this appeal, to be held in a constructive trust on behalf of plaintiff and that defendants were knowingly involved in the breach of a fiduciary duty by Metropulos, Jr., in the transfer, cancelling, and reissuance of this stock to Art Glass.
Defendants raise the following issues for review: (1) whether the trial court erred as a matter of law in finding that a constructive trust was created when plaintiff transferred his 15,000 shares of common stock in Art Glass to his son, Metropulos, Jr.; (2) whether notice to Metropulos, Jr., of the restrictions placed on the transference of the 15,000 shares of common stock is attributable to Art Glass and its directors; (3) whether notice to Art Glass that plaintiff had "an interest" in or "some control" of the 15,000 shares of common stock is notice of an adverse claim; and (4) whether the findings of the trial court are against the manifest weight of the evidence.
On March 7, 1986, plaintiff filed a four-count complaint for injunctive and other relief against Art Glass and its board of directors, Metropulos, Jr., Fryer, and Prentice, requesting the circuit court: in count I, to void the actions of the board of directors of Art Glass on February 26, 1986, because the actions violated the corporation bylaws and State law, citing section 8.25 of the Business Corporation Act of 1983 (Ill. Rev. Stat. 1985, ch. 32, par. 8.25); in count II, to impose a constructive trust over the 15,000 shares of stock on behalf of plaintiff as these shares were improperly transferred by Metropulos, Jr., to Art Glass with the knowledge of defendant Fryer and Prentice, who are shareholders and directors in Art Glass, and to order Art Glass to reissue the 15,000 shares of stock to plaintiff; in count III, to void the tender of the 15,000 shares of stock because the transfer lacked consideration; and in count IV, to award plaintiff damages for breach of his employment contract as he served as a corporate consultant for three years without receiving his $6,000-a-year salary. Hearings concerning plaintiff's petition for the issuance of the mandatory injunctive relief revealed the following information through testimony and exhibits.
Art Glass, a closely held corporation, was incorporated in 1978 and was in the business of producing stained glass. According to the stock record, 10,000 shares of common stock initially were issued to each of the three shareholders, Metropulos, Jr., Fryer, and Sekon Glassworks, Ltd. (Sekon), whose principal partner was Prentice. In July 1980, 15,000 shares of common stock were issued to plaintiff while Fryer transferred 2,500 shares of his stock to Metropulos, Jr. (1,250), and Sekon (1,250). In December 1985, the stock record reflected that Metropulos, Jr., acquired the 15,000 shares, and, in January 1986, the stock record reflects that the stock ownership was again 10,000 shares per original owner. Plaintiff was no longer listed as an owner.
Plaintiff testified that he has been a general agent in the insurance business for 40 years and owns his own business. He became a shareholder and a director in Art Glass in July 1980 when he purchased 15,000 shares of common stock for $60,000. Plaintiff stated that he purchased these shares because Art Glass, partly owned by his son, Metropulos, Jr., was having financial trouble. He previously had been guaranteeing some banking loans for Art Glass. In 1980, however, with Art Glass needing a large capital investment, plaintiff, on the advice of his attorney, chose to purchase stock rather than lend the corporation money so in the event that Art Glass failed, plaintiff could "write off" his losses. Plaintiff became one-third owner of Art Glass while his son, Metropulos, Jr., and Prentice, through his control of Sekon, each owned 25% of the corporation with Fryer owning the remainder. Thereafter, plaintiff personally guaranteed three more loans for Art Glass following his purchase of his one-third ownership interest and became chairman of the board.
Plaintiff also stated that on May 23, 1985, he signed his 15,000 share stock certificate over to his son, Metropulos, Jr., because plaintiff was experiencing serious medical problems requiring open-heart surgery and wanted the stock in his son's possession if anything happened to him to avoid the stock going through probate. In addition, he wanted his son, who was the president of Art Glass and a member of its board of directors, to be able to freely vote the stock on plaintiff's behalf and give the corporation the ability to freely negotiate a Small Business Administration loan on behalf of Art Glass. Plaintiff told his son, however, that under no condition was he to ever part with the 15,000 shares of stock, and if plaintiff recovered, he probably would want the stock back. He intended to leave the stock to Metropulos, Jr.'s children, as Art Glass was his son's business. Although he was still a director and chairman of the board of Art Glass, plaintiff was unaware that the corporation retired his stock in December 1985 and issued a new stock certificate for 15,000 shares in Metropulos, Jr.'s name, was unaware of the stock transfers in January 1986 or the adjusting ownership percentages in Art Glass, did not receive notice of the February 19, 1986, board of directors meeting, and did not attend either the February 19 or 26 meeting.
On February 25, 1986, plaintiff had a telephone conversation with his son, who informed him that Art Glass was reorganizing and returning to the one-third ownership format. Plaintiff objected to this reorganization and specifically objected to any reallocation of stock. His son informed him during this conversation that Fryer would be bringing plaintiff various documents requiring plaintiff's signature. Plaintiff stated that Fryer came to his office with the updated minutes of past board meetings along with plaintiff's resignation as chairman of the board. He simply signed the minutes and then the resignation because he was so disgusted by the way the business was being handled. He was also informed by Fryer that there was going to be a board meeting the next day, although he did not know when he signed these documents that his stock was going to be turned back to Art Glass or that his 15,000 shares had been reissued in his son's name. Plaintiff's one-third liability on three loans which he guaranteed for Art Glass, two of which were guaranteed after the May 1985 transfer, remained.
Plaintiff admitted, however, that when he executed the transfer of the 15,000 shares to his son, he did not record in writing the conditions he stated were part of the transfer, that he never discussed these conditions with anyone other than his son and his wife, who did not testify, and that he did not request, nor did he have any reason to request, his son to return the stock immediately upon his recovery from surgery. He trusted his son, he trusted his son's friends and business partners, and he never involved an attorney in any of his dealings with his son. Plaintiff stated that during the February 25 telephone conversation with his son, plaintiff learned that the reorganization was necessary for Prentice to infuse an additional $100,000 of cash into Art Glass. Plaintiff also noted that he was not threatened or promised anything in return for the resignation and never received a $60,000 promissory note from his son.
John Metropulos, Jr., also testified to the original ownership of the corporation and plaintiff's $60,000 investment in 1980. He stated that plaintiff invested in the business because it was experiencing financial trouble. In May 1985, Metropulos, Jr., was in the process of negotiating an SBA loan and was informed that the application would probably be rejected because plaintiff was an owner in Art Glass and had a ...