APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, THIRD DIVISION
Carl Stacey, Third-Party Defendant-Appellee)
542 N.E.2d 46, 185 Ill. App. 3d 951, 134 Ill. Dec. 46 1989.IL.1013
Appeal from the Circuit Court of Cook County; the Hon. Robert L. Sklodowski, Judge, presiding.
JUSTICE WHITE delivered the opinion of the court. RIZZI and CERDA, JJ., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE WHITE
This is an appeal from a summary judgment entered in favor of the appellee.
In July 1982, plaintiff James Paul DeLaney entered into an "Intercreditor and Security Agreement" with defendant James Happel, appellee Carl Stacey, and several other individuals, granting each a security interest in DeLaney's art collection. The "Intercreditor and Security Agreement" stated that DeLaney was indebted to Stacy in the amount of $375,000, that part of this indebtedness was represented by a reimbursement agreement executed by DeLaney and Stacy, and that pursuant to the reimbursement agreement, Stacy would be repaid upon the sale of DeLaney's art collection.
On May 12, 1983, DeLaney filed suit against Happel seeking to cancel the contracts and agreements between them. DeLaney also sought to enjoin Happel from any action involving the art collection in which Happel purported to act as DeLaney's agent.
On May 23, the appellants, William Earl Harp and R.K. Harp Investment Corp. (Harps), filed a petition to intervene in DeLaney's action. They alleged that in November 1982, Stacy transferred his rights under the reimbursement agreement to Karen S. Hettenbach for $200,000, and that Hettenbach in turn assigned that interest to the Harps as collateral for a $200,000 debt she owed them.
The Harps were granted leave to intervene, and on September 30, 1983, they filed a third-party complaint against Stacy, James McQuade, and Donald Cobb. Several months earlier, the Harps had filed another action against Cobb and McQuade in the United District Court for the Northern District of Illinois. A default judgment for $200,000 was entered against Cobb in the Federal action on September 6, 1983, and the Harps attempted to collect this judgment in a garnishment action against Stacy in which they alleged that Stacy had in his possession property belonging to Cobb.
In their third-party action against Stacy, Cobb, and McQuade, the Harps alleged that Stacy's interest in the reimbursement agreement was a security within the meaning of the Illinois Securities Law of 1953 (Ill. Rev. Stat. 1981, ch. 121 1/2, par. 137.1 et seq.), which applies to all securities, including the transfer of any evidence of indebtedness, and that the transfer of Stacy's interest in the reimbursement agreement to Hettenbach was in violation of the Securities Law. The Harps alleged that the transfer to Hettenbach was voidable under section 13 of the Securities Law (Ill. Rev. Stat. 1981, ch. 121 1/2, par. 137.13), because Stacy did not register the security, or deliver a prospectus describing it, prior to the sale. The Harps requested that the sale to Hettenbach be rescinded and that Stacy be required to pay them $200,000, plus interest.
Subsequently, Stacy moved for summary judgment on the Harps' third-party complaint. Stacy alleged that by filing their Federal court action against Cobb and McQuade, the Harps had made an election to sue as assignees of the reimbursement agreement and, therefore, they had lost the right and ability to seek rescission of the transfer of the agreement to Hettenbach. Stacy also alleged that the Harps had no standing under section 13 to sue for rescission of the transfer to Hettenbach.
The trial court found that by filing suit against Cobb and McQuade in Federal court, the Harps had made a binding election of remedies and, therefore, ...