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02/22/89 In Re Estate of E. Davis Wernick

February 22, 1989



Ex'r, et al., Appellees, v.

Mitchell Macks, Appellant)

535 N.E.2d 876, 127 Ill. 2d 61, 129 Ill. Dec. 111 1989.IL.211

Appeal from the Appellate Court for the First District; heard in that court on appeal from the Circuit Court of Cook County, the Hon. Henry A. Budzinski, Judge, presiding.


JUSTICE MILLER delivered the opinion of the court. STAMOS and CALVO, JJ., took no part in the consideration or decision of this case. JUSTICE WARD, Dissenting.


The petitioners, Garson Wernick, executor of the estate of E. Davis Wernick and a son of the decedent, and Samuel S. Wernick, a beneficiary under the decedent's will and a son of the decedent, initiated proceedings in the circuit court of Cook County, probate division, against the respondent, Mitchell Macks. Petitioners sought to recover title to, or fair and adequate consideration for, the decedent's interest in two parcels of real property that the decedent had jointly owned with Macks in a land trust. After a lengthy period of pretrial discovery and hearings, including an earlier appeal to the appellate court, trial commenced. At the Conclusion of the evidence, the circuit Judge found that Macks had breached his fiduciary duty to the decedent. The Judge awarded petitioners one-half of the proceeds from Macks' sale of one of the properties, plus prejudgment interest at the statutory rate, and one-half of the beneficial interest of the other property, which was still held in trust. The trial Judge denied the petitioners' request for punitive damages, attorney fees and expenses pursuant to section 2-611 of the Code of Civil Procedure (Ill. Rev. Stat. 1983, ch. 110, par. 2-611), and prejudgment interest at the prime rate.

Both the petitioners and the respondent appealed. The appellate court affirmed the judgment awarding the petitioners half the proceeds from the sale of one of the properties, plus statutory prejudgment interest, and a half interest in the other property. The appellate court reversed the trial court's denial of punitive damages, section 2 -- 611 fees and expenses, and prejudgment interest at the prime rate and remanded the cause to the circuit court for calculation of those sums. (151 Ill. App. 3d 234.) We granted the respondent's petition for leave to appeal (107 Ill. 2d R. 315(a)).

Resolution of the issues before us requires an examination of the circumstances surrounding the business relationship of the two men and of the nine years of litigation that preceded the appeal to this court.

The decedent, E. Davis Wernick, was a physician engaged in the general practice of medicine. The respondent, Mitchell Macks, whose primary occupation is real estate investment, is a licensed attorney and the chairman of the board of a Chicago bank. Dr. Wernick and Macks were cousins and close friends. In the early 1960s, Macks and Dr. Wernick began investing in real estate together. By the time of the doctor's death in July 1977, the two men had acquired a total of six properties, most of which produced rental income, and all located in Chicago. The properties were held in several land trusts with Macks and his wife jointly holding a 50% beneficial interest and Dr. Wernick and his wife jointly holding the remaining 50% interest. Dr. Wernick and Macks contributed equal amounts to the purchase prices of the properties, and they shared equally in any profits or losses resulting from their investments. Although the investments were joint, the two men never entered into a written partnership agreement. They did, however, file partnership returns for the investment properties.

Each man performed specific duties with respect to the properties. Dr. Wernick was responsible for the management of the properties, which included keeping the books, collecting the rent, and arranging for preparation of the partnership income tax returns. Macks, in turn, handled all legal matters pertaining to the properties, prepared leases and closing statements, and appeared in court, when necessary, on behalf of the owners. In addition, Macks investigated new properties as potential investments. When acquisition of a new property was approved by both men, Macks would negotiate the purchase and perform all the necessary legal work. During the execution of his legal duties, Macks had occasion to sign various documents on behalf of the doctor. Macks also represented the doctor in some personal legal matters, including the purchase of his first residence and the preparation of several wills.

Late in 1976, Dr. Wernick was diagnosed as having terminal brain and lung cancer. Mrs. Wernick had died several years earlier, and the doctor met with Macks to discuss the Disposition of the six parcels of property jointly held in trust. Because Macks did not want to continue an informal partnership with the doctor's son Garson, Macks agreed to a liquidation of the joint holdings. Shortly thereafter, two of the six properties, located on Clark Street and on Lawrence Avenue in Chicago, were sold to third parties.

In November 1976, it was agreed that Macks would purchase Dr. Wernick's interests in two of the four remaining jointly owned properties. These two properties, located on North Avenue and on Bryn Mawr Avenue in Chicago, were held in two trusts. Dr. Wernick subsequently executed written assignments to Macks of his beneficial interest in the two trusts that held title to the properties. Dr. Wernick's nurse, Patrice Lane, witnessed the assignments, which were dated November 22, 1976.

In February 1977, about six months before his death, Dr. Wernick met with his son Garson, his accountant, and Macks to discuss the Disposition of the last two investment properties, which were located on Cedar Street and on Wabash Avenue in Chicago. The Cedar Street property was improved with a building that had been converted into apartments; the parcel on Wabash Avenue was a vacant lot. Ownership of both properties was held in a single trust (trust number 14599). The February 1977 Discussion focused mainly on the Disposition of the Cedar Street property.

Dr. Wernick and Macks each paid $90,000 to acquire the Cedar Street property. At the February 1977 meeting Macks allegedly offered to purchase Dr. Wernick's interest in the Cedar Street property, or, alternatively, to sell his own interest in the property to the doctor, for $75,000. No agreement was reached at the meeting. At trial, the doctor's son Garson testified that Dr. Wernick had later stated that he would not sell his interest in the Cedar Street property because it was increasing significantly in value. The evidence at trial indicated that both men were aware of the increasing value of the Cedar Street property. In 1973, shortly after it was acquired, the Cedar Street property was offered for sale by Macks and Dr. Wernick at a price of $350,000 to $500,000. An appraisal conducted following the death of Dr. Wernick's wife had valued the property at $325,000. In September 1977, two months after Dr. Wernick's death, the Cedar Street property was appraised for Federal estate tax purposes, and it was valued at $405,000.

Macks' allegation that Dr. Wernick, shortly before his death, had assigned to Macks his beneficial interest in the trust holding title to the Cedar Street property was the underlying cause of this litigation. Believing that Dr. Wernick still had an interest in the Cedar Street property at the time of his death, and unaware that Macks would claim that he had purchased the doctor's interest in the property before Dr. Wernick's death, an attorney for the executor of the doctor's estate contacted Macks in April 1979 to request an accounting on the property. Macks promptly responded that he had purchased all the doctor's right, title, and interest in the Cedar Street property many months before the doctor died.

On December 14, 1979, the petitioners filed a petition for a citation to discover assets, alleging that Macks was in possession of property belonging to the doctor's estate. On March 25, 1980, Macks filed an answer to the petition in which he denied being in possession of any property belonging to the estate. The petitioners then filed a request for the production of documents, seeking, among other things, documents evidencing the alleged transfer of the Cedar Street property.

On May 21, 1980, Macks responded to the discovery request. Macks stated that he had issued a promissory note in the amount of $90,000 to Dr. Wernick in exchange for the doctor's interest in the Cedar Street property but that he did not have a copy of the note. Macks attached to his response, however, a copy of a trust assignment. The document was dated November 23, 1976, and was an assignment by Dr. Wernick to Macks of the doctor's beneficial interest in a trust identified as "number 18201"; there was no other description of the property held in the trust. The document bore the signature of Patrice Lane as witness to the transaction.

About a week later, on May 29, 1980, counsel for Macks notified the petitioner of an error in document production, indicating that the previously disclosed assignment was not the correct one. Counsel informed the petitioners that the assignment of the Cedar Street property, held in trust number 14599, was a different transaction than the one previously described and had occurred on July 7, 1977. On June 3, 1980, Macks filed an amended response to the discovery request and submitted a copy of another trust assignment from Dr. Wernick to Macks. This document was dated July 7, 1977, and in it Dr. Wernick assigned his interest in trust number 14599 to Macks. The assignment was unwitnessed, and it did not describe the property held in the trust. In the amended response, Macks maintained that he was alone with the doctor at the time the assignment was executed.

On June 9, 1980, the trial court conducted a hearing regarding discovery. Macks testified at the hearing that he and Dr. Wernick had bought the Cedar Street property in 1972 or 1973 for $180,000, with each man paying $90,000 toward the purchase price. Macks also testified that he met alone with the doctor in May or June of 1977 to discuss the Disposition of the Cedar Street property. At the meeting, Macks allegedly offered $90,000 for the doctor's interest in the Cedar Street property. According to Macks, the doctor accepted this offer. As a result, Macks drew up the assignment and prepared the note. The note given by Macks in return for the Cedar Street property was a non-interest-bearing note for $90,000 payable in three months. There were no witnesses to the execution of the assignment. Although Macks testified that he routinely made copies of all documents, he said that he did not have a copy of the note; the note was never produced during discovery or at trial. At the hearing on discovery, Macks acknowledged that he had sold the Cedar Street property about 15 months after the July 1977 assignment for money and property worth $400,000. Macks admitted that he had not made any payments on the $90,000 note.

Based on the evidence presented at the discovery hearing, the trial Judge granted the petitioners leave to file a citation to recover property. The petitioners filed their citation on January 11, 1980, alleging that Macks had breached his fiduciary duty to Dr. Wernick by entering into the purported assignment for inadequate consideration only days before the doctor's death and at a time when the doctor was not represented by counsel. The citation further alleged that Macks had failed to pay the estate for the doctor's interest in the property, and the ...

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