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07/09/87 Century Universal v. Triana Development

July 9, 1987

CENTURY UNIVERSAL ENTERPRISES, INC., PLAINTIFF-APPELLANT

v.

TRIANA DEVELOPMENT CORPORATION ET AL., DEFENDANTS-APPELLEES



APPELLATE COURT OF ILLINOIS, SECOND DISTRICT

510 N.E.2d 1260, 158 Ill. App. 3d 182, 110 Ill. Dec. 229 1987.IL.975

Appeal from the Circuit Court of Du Page County; the Hon. William E. Black, Judge, presiding.

APPELLATE Judges:

PRESIDING JUSTICE LINDBERG delivered the opinion of the court. INGLIS and DUNN, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE LINDBERG

Plaintiff, Century Universal Enterprises, Inc. , appeals from an order of the Du Page County circuit court granting defendants', Triana Development Corp. (Triana), Jeffrey Hyman (Hyman) and Gary Rosen (Rosen), motion to dismiss pursuant to section 2-615 of the Illinois Code of Civil Procedure (Ill. Rev. Stat. 1985, ch. 110, par. 2-615), plaintiff's first amended complaint and denying plaintiff's motion for leave to file its second amended complaint. The issues raised on appeal are: (1) whether the trial court erred in dismissing plaintiff's complaint for failure to state a cause of action; and (2) whether the trial court abused its discretion in denying plaintiff's motion for leave to file its second amended complaint. We affirm in part, reverse in part and remand with directions.

This action arose as a result of a joint venture agreement entered into by the parties to this suit for the development of real estate in Florida. In October 1982, CUE entered into a written joint venture agreement (agreement) with Hyman and Rosen as "developers" to acquire and develop real estate in Florida. Hyman and Rosen formed Triana, a corporation created for the purpose of carrying out the duties of the "developers" under the agreement, and each of them was an officer and a 50% shareholder. Under the agreement, CUE and the "developers" each owned 50% of the venture. Hyman and Rosen "jointly and severally" personally guaranteed the performance of the "developers" as per the terms of the agreement. The venture formed by the parties was known as Wespalm. In the period of time between the beginning of the venture through June 30, 1984, Hyman and Rosen were paid at a monthly rate of $6,000 pursuant to the agreement for a total sum of $68,000.

In its complaint plaintiff alleged that since its beginning Wespalm proved to be unprofitable. CUE claimed that it contributed $1,272,000 to the venture, as capital contribution, which money was lost because of the continued unprofitability of Wespalm. Therefore, pursuant to section 7.03 of the agreement, describing the procedure to be followed if the venture must be terminated on the basis of default by either party, in January 1985 CUE sent a "Notice of Default" letter to defendants demanding that defendants pay $591,626, which according to CUE constituted half of the deficits for the fiscal year ending June 30, 1984.

In March 1985, defendants notified plaintiff that they "disclaim any obligation with respect to the said deficit and any capital deficits . . . with respect to the Wespalm venture . . .." The letter further stated that defendants "will terminate all activity at the project site or on behalf of Wespalm Venture." A few days later, CUE, pursuant to the terms of the agreement governing termination, gave defendants a final notice of termination and expressed its intention to liquidate the venture.

In July 1985, plaintiff filed a two-count complaint against Triana and its two shareholders, Hyman and Rosen. In count I, CUE sought damages against defendants for breach of the agreement. Count II of the complaint sought recovery against Hyman and Rosen personally based on their personal guarantees of Triana's obligations under the agreement. Defendants moved to strike the complaint. Before the court ruled on this motion, plaintiff withdrew its complaint and filed in January 1986 a nine-count first amended complaint. In count I of the first amended complaint plaintiff alleged a breach of the agreement based on defendants' failure to reimburse CUE for 50% of the capital losses it had incurred. Count II alleges Hyman and Rosen breached their guarantees regarding Triana's performance and were, therefore, personally liable to plaintiff for half of the capital losses. Count III, against Hyman and Rosen, alleged that Triana was the alter ego of these two individual defendants, and, as such, Hyman and Rosen were personally liable to plaintiff. Count IV sought to hold Hyman and Rosen personally liable based on "promoter liability." In counts V and VI, CUE alleged that defendants violated the Illinois Consumer Fraud and Deceptive Business Practices Act (Ill. Rev. Stat. 1985, ch. 121 1/2, par. 261 et seq.) . Count VII alleged a claim for fraud in the inducement. In count VIII, CUE sought recovery under a common law fraud theory. Count IX was for negligent misrepresentation. Plaintiff attached to the

Defendant filed a motion to dismiss plaintiff's first amended complaint pursuant to section 2-615 of the Illinois Code of Civil Procedure (Ill. Rev. Stat. 1985, ch. 110, par. 2-615). The trial court entered an order pursuant to a written letter of opinion granting defendants' motion dismissing with prejudice all counts of plaintiff's complaint except for count VII, which was dismissed with leave to replead.

Thereafter, CUE filed a timely petition for rehearing requesting the trial court to vacate or modify its order. Simultaneously, plaintiff filed a motion for leave to file an 11-count second amended complaint. Nine of these counts raised the same claims as those raised in CUE's first amended complaint, including the fraud count contained in count VII of the first complaint. Two weeks later, plaintiff filed an amended

motion for leave to file a 15-count second amended complaint. A copy of the proposed pleading was attached to the amended motion.

The trial court filed a second letter of opinion and entered an order denying plaintiff's petition for rehearing and plaintiff's amended motion for leave to file the 15-count second amended complaint. This appeal ensued.

Plaintiff contends that the trial court erred in granting defendants' section 2-615 motion (Ill. Rev. Stat. 1985, ch. 110, par. 2-615) on the ground that plaintiff's complaint raised issues of fact which could not be resolved on the pleadings.

Generally, a cause of action will not be dismissed on the pleadings unless it clearly appears that no set of facts can be proved which entitle plaintiff to recover. (Charles Hester Enterprises, Inc. v. Illinois Founders Insurance Co. (1986), 114 Ill. 2d 278, 286, 499 N.E.2d 1319.) Additionally, all facts which are well pleaded are to be construed as true, as well as all reasonable inferences favorable to the nonmoving party which can be drawn from those facts. (Morrow v. L. A. Goldschmidt Associates, Inc. (1984), 126 Ill. App. 3d 1089, 1096, 468 N.E.2d 414.) We analyze each count of plaintiff's first amended complaint in light of these principles.

Count I of the complaint for breach of contract is based on plaintiff's contention that under the agreement defendants were obligated to pay their proportionate share of losses, including capital losses. The relevant allegations are reproduced verbatim below:

"9. Section 4.01 of the AGREEMENT provided:

(a) Contemporaneously with the execution of this Agreement, COMPANY has contributed to the VENTURE TEN THOUSAND ($10,000.00) DOLLARS, such contributions to be hereinafter referred to as 'Initial Capital Contribution.'

(b) Said Initial Contribution is hereby credited to the capital amount of the COMPANY;

10. Section 4.02(a) of the AGREEMENT provided:

(a) Any one or more of the VENTURERS shall have the right to contribute to the VENTURE such additional sums of money, in cash, as such VENTURER desires. All amounts so contributed shall be credited to the capital account of the VENTURER making such contributions, but shall not change the Venture Ownership Percentage Interests (as hereinafter defined) of the VENTURERS. The aggregate of the Initial Capital Contribution, and any contributions made pursuant to this subsection are hereinafter referred to as the 'total Capital Contributions.' In no event shall any loans from LYONS SAVINGS AND LOAN ASSOCIATION be considered as Capital Contribution;

11. In furtherance of its duties and obligations under Sections 4.01 and 4.02(a) of the AGREEMENT, CUE furnished, supplied and contributed from the inception of the AGREEMENT to the present a sum in excess of ONE MILLION TWO HUNDRED SEVENTY TWO THOUSAND ($1,272,000.00) DOLLARS as capital contribution to the Joint Venture (hereinafter referred to as 'WESPALM');

12. WESPALM was, at all relevant times, an unprofitable Joint Venture, which lost all monies contributed to it, and CUE suffered as a loss all the aforementioned monies contributed as capital to WESPALM;

13. Section 1.01(b) of the AGREEMENT provided:

(b) Except as herein expressly provided to the contrary, the rights and obligations of the VENTURERS and the administration and termination of the VENTURE shall be governed by the Illinois Uniform Partnership Act. A VENTURER's interest in the VENTURE shall be personal property for all

14. The aforementioned Illinois Uniform Partnership Act, Ill. Rev. Stat. ch. 106-1/2, par. 1 et seq. provides in paragraph 18, "Each partner . . . must contribute towards the losses, with capital or otherwise, sustained by the partnership according to his share of the profits.";

15. Pursuant to Section 5.05 of the AGREEMENT, TRIANA was to receive fifty percent of all profits earned by WESPALM;

16. At all relevant times herein, TRIANA failed to compensate and reimburse CUE fifty percent of the capital contribution made by CUE in WESPALM in violation of the aforementioned Illinois Uniform Partnership Act, despite demands by CUE for said reimbursement."

Based on these allegations CUE prayed that judgment in excess of $636,000 be entered in its favor.

We agree with defendants' assertion that under the general rule one partner cannot, in an action at law, recover money due to him from his co-partner for a matter connected with the partnership. (Purvines v. Champion (1873), 67 Ill. 459, 461.) The appellate court in Mayhew v. Craig (1929), 253 Ill. App. 238, outlined the rationale for this rule:

"(1) a dispute of this nature ordinarily involves the taking of a partnership account, for, until that is taken, it cannot be known that plaintiff is not liable to refund even more than he claims in the particular suit;

(2) in partnership transactions a partner does not as a rule become a creditor or the debtor of a copartner, but of the firm." (253 Ill. App. 238, 241.)

The court in Schlossberg v. Corrington (1980), 80 Ill. App. 3d 860, 400 N.E.2d 73, stated that the rule is applicable even in cases where the partnership had been dissolved. 80 Ill. App. 3d 860, 866, 400 N.E.2d 73.

Plaintiff correctly contends that there are several exceptions to the above rule, and these were enumerated in Marcus v. Green (1973), 13 Ill. App. 3d 699, 300 N.E.2d 512:

"'A partner may maintain an action at law against his copartner upon claims growing out of the following facts: . . . 5.) Where the partnership is terminated, all debts are paid, and the partnership affairs otherwise adjusted, with nothing remaining to be done but the amount due by one to the other, such amount involving no complicated reckoning. 6.) Where the partnership is for a single venture or special purpose, which has been accomplished, and nothing remains to be done except to pay over the claimant's share.'" (Emphasis in original.) 13 Ill. App. 3d 699, 708-09, 300 N.E.2d 512, quoting Pugh v. Newbern (1927), 193 N.C. 258, 261, 136 S.E. 707, 708-09.

We reject plaintiff's attempt to fit into one of the other exceptions enumerated above. Specifically, plaintiff argues that the following two exceptions are applicable in this case: (1) that an action may be maintained where the damage belongs exclusively to one partner, and not the firm, and can be asserted without taking an accounting (Mayhew v. Craig (1929), 253 Ill. App. 238, 241); and (2) where the partnership was for a single purpose. (Marcus v. Green (1973), 13 Ill. App. 3d 699, 709, 300 N.E.2d 512.) In order for plaintiff to meet the test of the first exception, we must accept CUE's argument that, in fact, a reasonable inference from the complaint is that "all debts have been paid and its affairs otherwise adjusted, with nothing remaining to be done but the Defendants' payment of the amount due Plaintiff." We cannot so conclude absent a full accounting. Plaintiff's reliance on Tichenor v. Newman (1900), 186 Ill. 264, is inapposite in that that case dealt with a breach of promises which were personally made to Tichenor and not the firm. (186 Ill. 264, 275.) The court stated:

"The benefit to accrue from their [promises] performance would inure to Tichenor individually and not to the firm, and a breach of these undertakings on the part of Newman would result in injury to Tichenor as an individual . . .. An adjustment of the damages resulting from the failure of Newman to observe and perform these things which he had undertaken and contracted to do for the purpose of delivering to Tichenor the good will of the business [to personally recommend Tichenor to his patients] could not be considered on an accounting in equity of the partnership accounts." 186 Ill. 264, 275-76.

Even assuming, arguendo, that plaintiff's damages resulting from defendants' breach were due by defendant exclusively and not by the venture, we do not agree that an assessment of the amounts owed may be obtained without resorting to an accounting.

We also reject plaintiff's contention that an accounting would not be necessary in this case on the basis of the single purpose or single venture exception. This exception applies " [where] the partnership is for a single venture or special purpose, which has been accomplished, and nothing remains to be done except to pay over the claimant's share." (Emphasis in original.) (Marcus v. Green (1973), 13 Ill. App. 3d 699, 709, 300 N.E.2d 512.) In this case the venture may have been formed for the single purpose of developing real estate in Florida, but as defendants correctly point out, this purpose has not been accomplished. Furthermore, certain provisions under the agreement which deal with termination have not as yet been fully complied with, and, therefore, something "remains to be done."

The appellate court in Balcor Income Properties, Ltd. v. Arlen Realty, Inc. (1981), 95 Ill. App. 3d 700, 420 N.E.2d 612, after a review of the existing exceptions, formulated a new concise rule which had been adopted by other jurisdictions: "The better rule . . . is a practical one: one partner . . . can bring an action against a co-partner if the plaintiff's claim can be decided without a full review of the partnership accounts. [Citations.]" (95 Ill. App. 3d 700, 702, 420 N.E.2d 612.) We agree with defendants that this case cannot be decided without an examination of partnership accounts. Consequently, plaintiff may not avail itself of this exception either.

In Conclusion, we find that since an accounting is necessary for plaintiff to be able to maintain a cause of action we remand the case for an accounting.

We note that the trial court dismissed count I of the first amended complaint on a different basis than the one we addressed above. We believe that given the factual basis of the dispute and the trial court's interpretation of the provisions of the agreement as they affect the substantive basis for count I, the trial court will again be confronted with these issues. Therefore, in the interest of judicial economy, we now address the issue of whether the trial court erred in dismissing count I of plaintiff's complaint on the basis that it did not allege a cause of action for which relief could be granted.

The issue presented in count I is whether defendants are obligated under the agreement to contribute to capital losses proportionate to their partnership share in the joint venture. The two provisions of the agreement which need to be scrutinized in order to resolve this issue are:

"Any one or more of the VENTURERS shall have the right to contribute to the VENTURE such additional sums of money, in cash, as such VENTURER desires. All amounts so contributed shall be credited to the capital account of the VENTURER making such contributions, but shall not change the Venture Ownership Percentage Interests (as hereinafter defined) of the VENTURERS. The aggregate of the Initial Capital Contribution, and any ...


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