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12/19/89 Thomas Mcdonough, v. Thomas Mcdonough

December 19, 1989




549 N.E.2d 643, 192 Ill. App. 3d 799, 139 Ill. Dec. 917 1989.IL.1978

Appeal from the Circuit Court of Cook County; the Hon. Anthony J. Scotillo, Judge, presiding.


JUSTICE DiVITO delivered the opinion of the court. BILANDIC, P.J., and SCARIANO, J., concur.


Plaintiff-appellant Imogene Bosak sued defendant-appellee Thomas McDonough and defendants Gerald E. Murphy and John C. Kmiecik, alleging fraud and conspiracy to defraud against all defendants and breach of fiduciary duty against McDonough, in connection with four loans totalling $240,000 made to Murphy to cover shortages in Murphy's real estate escrow account. Bosak now appeals from the trial court's order granting McDonough's motion for summary judgment, raising as issues (1) whether the trial court erred in granting summary judgment in favor of McDonough on Bosak's conspiracy to defraud count; (2) whether the trial court erred in granting summary judgment in favor of McDonough on Bosak's breach of fiduciary duty count; and (3) whether Bosak is estopped to assert fraud against defendants because she participated in wrongdoing by loaning Murphy money knowing that it would be used for illegal purposes.

Bosak, a widow who received large sums of money upon her husband's death, met Murphy in a bowling alley in November 1979. Beginning in December 1979, Murphy, a real estate broker and owner of Gerald E. Murphy & Associates, Ltd. , illegally commingled the funds in his real estate escrow account with the funds in his general business account. In March 1980, Murphy needed money to cover shortages in the escrow account. After being refused loans from several banks, he approached Bosak, explained to her the purpose of an escrow account, and told her that if he did not cover the shortage, he would lose his real estate license. Bosak gave Murphy $80,000 in exchange for a promissory note at 16% interest and a stock certificate for all outstanding shares in GEMA. Murphy deposited the money in his escrow account and told Bosak that because she had 100% of the stock, she had become the owner of the company.

In the summer of 1980, Murphy told Bosak he needed more money for the escrow account and Bosak loaned him an additional $55,000, which she had obtained through a loan from a bank. Bosak later testified at her deposition that she loaned Murphy the money to "save his license and protect her prior investment." She did not receive any collateral for the $55,000 loan.

After receiving the second loan from Bosak, Murphy contacted McDonough and told him he was $100,000 short in his escrow account. McDonough told Murphy that the shortage in the escrow account was illegal, and advised him to contact Bosak to "create some money." Bosak then met with Murphy and McDonough. McDonough explained to Bosak that if the shortage was not covered, Murphy would lose his license and she would lose the money she had already invested. McDonough then prepared a loan application for Bosak, which Bosak reviewed and signed. McDonough drove Bosak to the bank, telling her again that if Murphy did not get money into his escrow account, "people would know there [was] trouble" and she would lose "everything that [she had] in there." Bosak obtained $40,000 from the bank and loaned it to Murphy.

Two weeks later, Murphy again told Bosak that the escrow fund was short and Bosak loaned Murphy yet another $50,000. This money was also obtained through a bank. Bosak filled out the application herself, but McDonough prepared the necessary documents to place the deed to Bosak's home in a land trust as collateral. Bosak asserts that McDonough received $2,500 from the proceeds of the loans as fees for the loan transactions, but McDonough maintains that he received only money that Murphy already owed him. Bosak testified later at her deposition that she would not have made the loans to Murphy had she known the seriousness of the troubled condition of the business.

In early 1981, Murphy's escrow account was still short and Murphy, concerned that State authorities would soon audit his escrow account, asked Kmiecik if he would consider buying GEMA. Revocation of Murphy's corporate, branch office, and broker's licenses became imminent, and Murphy told McDonough that a buyer had to be found and that he had spoken with Kmiecik in that regard. McDonough informed Murphy of a possible buyer other than Kmiecik and also advised Murphy that bankruptcy was an alternative. Nevertheless, Murphy met with Kmiecik and agreed that Kmiecik would purchase GEMA for the amount of the deficient escrow account plus the total outstanding obligation to Bosak. These Discussions all occurred without Bosak's knowledge.

On March 15, 1981, State authorities discovered the illegal shortage in the escrow account. Murphy and McDonough traveled to Springfield, where it was agreed that Murphy would surrender his broker's license, but the corporate and branch office licenses would remain intact until the sale of the business was completed.

Bosak, meanwhile, learned of the meeting with Kmiecik and requested that she be permitted to attend subsequent meetings involving the business. At the first meeting she attended, she was asked if it "would be agreeable to her for Kmiecik to run ." Bosak indicated that such an arrangement would be agreeable. Although it is not clear whether Bosak agreed that Kmiecik would repay her loans, that topic was discussed at the meeting.

At the second meeting Bosak attended, she asked the lawyers present if she should have her own lawyer. Both McDonough and Kmiecik's lawyer told Bosak that she should have her own lawyer, whereupon Bosak stated she would consult with a lawyer named Tony Sisliano, with whom she was acquainted. McDonough responded that "he might blow the whistle on the whole deal" if he learned about the deficient escrow account, and referred Bosak to a lawyer named Hammer, with whom he was acquainted. Eventually, the subject of the money owed to Bosak was discussed. According to Bosak, she agreed to an arrangement under which Kmiecik would take over GEMA, but only under the condition that Kmiecik paid her $165,000 of the $250,000 owed by Murphy.

At the third meeting Bosak attended, she was represented by a lawyer named Axelrod, an associate of Hammer's. The parties discussed the sale of the business to Kmiecik. At the fourth meeting attended by Bosak, she was represented by Hammer. At that meeting, the parties agreed that as part of the sale of the business, Kmiecik would pay Bosak the money she was owed. McDonough, Hammer, and Kmiecik's lawyer told Bosak to "forget about" the GEMA stock she owned; that Murphy was going to lose his corporate and broker's licenses; and that Kmiecik would run the business. They also told her that only a licensed real ...

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