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05/25/88 Donald J. Orr Et Al., v. Carter Shepard Et Al.

May 25, 1988





524 N.E.2d 1105, 171 Ill. App. 3d 104, 121 Ill. Dec. 57 1988.IL.820

Appeal from the Circuit Court of Cook County; the Hon. George A. Higgins, Judge, presiding.


JUSTICE RIZZI delivered the opinion of the court. WHITE, P.J., concurs. JUSTICE FREEMAN, Dissenting.


Plaintiffs, Donald Orr, William Orr and Margaret Orr (Orrs), brought an action against defendants, Carter Shepard, Cassie Shepard, Signal Printing Company, Continental Illinois Bank & Trust Company of Chicago, Edmund P. Burke, Burke & Burke, Ltd., and numerous other depositories suspected of maintaining funds of the Shepards. In their complaint against Edmund P. Burke and Burke & Burke, Ltd. (Burke), the Orrs alleged professional negligence or, in the alternative, breach of contract, in that Burke: (1) failed to inform the bank that the account was to be an escrow account; (2) established the account in such a manner so as to permit Shepard to withdraw the funds in violation of the escrow agreement; and (3) failed to review the certificate of deposit when received to determine whether it was in conformance with the escrow agreement. Burke made a motion to dismiss which was granted by the trial court. The court further entered an order finding no just cause to delay enforcement or appeal as to the dismissal of Burke.

On appeal, the Orrs allege that the circuit court erred in dismissing Burke from the lawsuit and not allowing them to file an amended complaint. We affirm.

The Orrs were the sole shareholders in a now dissolved Illinois corporation which was known as Orr Building Company (Orr Building). Signal Printing Company, Inc. (Signal), was an Illinois corporation in which Carter Shepard was an officer, director and sole shareholder. Orr Building and Signal entered into a contract for the sale and purchase of realty owned by Orr Building. Under this contract, Shepard and his wife, Cassie, personally guaranteed payment and performance by Signal.

Prior to closing the contract, but after Signal took possession and occupied the property, the realty was destroyed by fire. Following the payment of approximately $100,000 in insurance proceeds to Orr Building, a dispute arose as to the portion, if any, of the proceeds which Signal was entitled to receive. Signal claimed that $30,000 of the $100,000 belonged to Signal to cover the value of its personal property allegedly destroyed in the fire.

Orr Building and Signal could not reach an agreement as to what amount, if any, Signal was entitled to receive. They did, however, agree to pay the insurance adjusters their fee and place the remaining proceeds in an escrow account pending resolution of their dispute. On August 4, 1982, the parties met at the law firm of Burke & Burke and executed an escrow agreement prepared by Burke & Burke. The agreement provided that the insurance proceeds would be deposited into an interest-bearing account at Continental Illinois National Bank (Continental) and further stated that "said escrow may be terminated by the agreement of the parties and upon the joint signatures of the parties."

Burke established the escrow account in December 1982 at Continental, and the certificate of deposit indicated that the account was a joint tenancy account. However, on May 15, 1984, the Orrs were informed by Continental that Shepard had withdrawn all of the money from the account in December 1983. The Orrs had neither given Shepard permission to withdraw the money nor authorized Continental to disburse the money to Shepard.

Shepard admitted to withdrawing the money and voiced an intention not to return the money to Continental. Thereafter, an attorney for the Orrs met with Burke. Burke stated that it established the escrow account, gave the copy of the certificate of deposit to the Orrs' attorney and kept the original certificate of deposit in its possession.

The Orrs filed their suit in chancery, naming Burke as a defendant. The circuit court granted Burke's motion to dismiss on July 18, 1985. On August 9, 1985, the Orrs filed a motion for reconsideration. In this motion, the Orrs stated:

"[Accordingly], based upon the allegations set forth in the complaint, if the Court deems those to be inappropriate to support a cause of action against Defendant Edmund P. Burke and Burke & Burke, Ltd., Plaintiffs should be allowed to amend the complaint to state a valid cause of action, if they so desire."

The Orrs, however, never tendered an amended complaint or indicated how their complaint could be amended to state a cause of action. The court denied the Orrs' motion for reconsideration and this appeal followed.

The Orrs first argue that the trial court erred in dismissing Burke from the lawsuit. It is the Orrs' position that the Illinois Supreme Court case of Pelham v. Griesheimer (1982), 92 Ill. 2d 13, 440 N.E.2d 96, is not applicable to this case. We disagree.

In Pelham, our supreme court delineated the test for determining if a duty exists between an attorney and a nonclient. The court stated:

"In the area of legal malpractice the attorney's obligations to his client must remain paramount. In such cases the best approach is that the plaintiffs must allege and prove facts demonstrating that they are in the nature of third-party intended beneficiaries of the relationship between the client and the attorney in order to recover in tort. [Citations.] By this we mean that to establish a duty owed by the defendant attorney to the non-client the non-client must allege and prove that the intent of the client to benefit the non-client third party was the primary or direct purpose of the transaction or relationship. [Citation.]" (Emphasis added.) 92 Ill. 2d at 20-21, 440 N.E.2d at 99.

Our review of the record demonstrates that the complaint herein clearly fails to state a cause of action for breach of contract or for legal malpractice. The complaint fails to allege, legally or factually, that a contract was entered into for the direct benefit of the Orrs, which is an indispensable element of a third-party beneficiary theory of recovery. (Altevogt v. Brinkoetter (1981), 85 Ill. 2d 44, 56, 421 N.E.2d 182, 187-88.) Moreover, for a complaint of legal malpractice grounded in negligence to be legally sufficient, the complaint must set forth facts that establish the existence of a duty owed by the defendant ...

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