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06/30/94 THOMAS G. CRONIN v. DANIEL F. MCCARTHY

June 30, 1994

THOMAS G. CRONIN, COUNTERPLAINTIFF-APPELLANT,
v.
DANIEL F. MCCARTHY, DEFENDANT-APPELLEE.



APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY. HONORABLE MONICA D. REYNOLDS, JUDGE PRESIDING.

Campbell, O'connor, Jr., Manning

The opinion of the court was delivered by: Campbell

PRESIDING JUSTICE CAMPBELL delivered the opinion of the court:

Following a bench trial, the circuit court of Cook County entered judgment in favor of defendant Daniel F. McCarthy on defendant and counterplaintiff Thomas G. Cronin's First Amended Countercomplaint in chancery for Injunction, Accounting and Other Relief. Counterplaintiff now appeals.

The record on appeal indicates the following facts. On September 29, 1979, Philip Corboy filed a "Complaint in Chancery for an Accounting and Other Relief" against McCarthy and Cronin. The complaint alleges that Corboy entered into an oral partnership agreement with McCarthy and Cronin for the purpose of erecting, owning and operating an office building in Skokie, Illinois, known as the Westmoreland Building. Corboy alleged that McCarthy was to be the managing partner, receiving 81.5 percent of the profits, whereas Corboy and Cronin were each to receive 9.25 percent of the profits. Corboy also alleged that McCarthy submitted statements to Corboy and Cronin that understated the income received by the partnership and overstated losses incurred. Corboy further alleged that McCarthy withdrew partnership funds for McCarthy's own use and for non-partnership uses and that some of these withdrawals were disguised as legitimate partnership expenses.

On December 10, 1981, McCarthy filed a counter-complaint against Cronin, relating to services allegedly negligently performed by Cronin on behalf of the partnership. On January 29, 1982, Cronin filed a cross-complaint against McCarthy that largely mirrored the initial complaint filed by Corboy. On February 20, 1986, Corboy and McCarthy filed a stipulation to dismiss that indicated that these two parties had settled their dispute. The circuit court entered an order that same day, dismissing Corboy's complaint against McCarthy withprejudice, but noting that said dismissal did not affect the dispute between McCarthy and Cronin.

On February 5, 1990, the trial court granted Cronin's motion to voluntarily dismiss his cross-complaint against McCarthy. On March 12, 1990, the trial court granted Cronin leave to file his First Amended Countercomplaint against McCarthy. In the First Amended Countercomplaint, Cronin repeats the allegation that McCarthy withdrew partnership funds for personal and non-partnership uses. The First Amended Countercomplaint also alleges that McCarthy intentionally or negligently miscalculated Cronin's share of the partnership. Cronin alleged that his interest in the partnership should be 13.3891%, rather than 9.2594%.

The following facts were adduced at trial. Cronin and McCarthy became close friends while serving in the Marines during World War II and maintained their friendship after the war. McCarthy testified that between 1958 and 1963, he acquired or caused to be acquired ownership interests in parcels of property and lots located in the Westmoreland subdivision of Skokie, Illinois.

On December 21, 1959, McCarthy entered into an agreement with Cronin, Philip Corboy and Ralph Bogan regarding the purchase of six such lots. The agreement provided that Cronin, Corboy and Bogan would purchase the six lots, with Bogan paying 50%, Cronin and Corboy paying 25% each, and with the purchasers bearing their respective costs, interests or income resulting from the agreement. The lots would then be conveyed to Trust #1151 at the First National Bank and Trust company of Evanston, Illinois, of which McCarthy was the beneficiary. The December 21, 1959, agreement indicated that twelve lots had already been conveyed to Trust #1151 and that it was anticipated that three other lots would be acquired by McCarthy and conveyed to the trust or McCarthy would enter into agreements with the lot owners for the use of the lots in conjunction with the trust. The agreement also indicated that the six lots to be purchased by Cronin, Corboy and Brogan represented 33.037583% of the total front feet of the 22 lots to be held or used in conjunction with the trust.

The agreement further stated that:

"It is anticipated by the parties to this agreement that they, and possibly others, will construct an income producing improvement on this property. If it is decided to so improve the property [McCarthy] may purchase not more than 50% of [the other] parties' interest in Lots 12, 16, 21, 22, 28 and 32 by paying each of them the same fractional part of their total costs and expenses in said property, as [McCarthy] is buying, not to exceed 50%, plus 6% perannum on said fractional part of their cost commencing from the time the cost was incurred."

In addition, the agreement provided that McCarthy would purchase the interest of any party who elected not to participate in an improvement of the property. McCarthy testified that this was a "temporary" or "bridge" agreement.

Pursuant to this agreement, Cronin and Corboy paid 25% of the cost of acquiring the six lots, which would amount to 8.2594% interests in the entire tract. Bogan paid the remaining 50% of the cost of acquiring the six lots, which would amount to a 16.5188% interest in the entire tract.

In late 1960, the parties agreed to improve the property with an office building; the plans called for a three story building, with an infrastructure that would allow for a possible expansion to five floors. Cronin testified that in February 1961, he telephoned McCarthy to indicate that he and Corboy were concerned that they had nothing to indicate their interest in the venture. According to Cronin, McCarthy responded that he was unable to determine Cronin's exact interest at that time. Cronin testified that he made a similar telephone call in September 1961, during which McCarthy indicated that he had not yet acquired all of the lots and did not know whether all of the lots were necessary. According to Cronin, McCarthy added that the percentage interests of the parties would change if some of the lots were not needed.

During 1961, development of the building proceeded. McCarthy acquired most of the lots discussed in the 1959 agreement. McCarthy obtained a building permit and broke ground on the project by April 11, 1961. McCarthy testified that he negotiated bids for construction with contractors and arranged for payment of contractors' and architects' fees before obtaining a construction loan secured by assets of the participants in late 1961.

According to McCarthy, before the building was completed, Bogan indicated that he wanted out of the investment. Cronin testified that in September 1961, McCarthy suggested that he, Cronin and Corboy purchase Bogan's interest. McCarthy testified that on September 22, 1961, he, Cronin and Corboy agreed to expand the building by two and one-half floors. On November 2, 1961, the parties entered into an agreement which indicated that McCarthy would exercise his option under the 1959 agreement to purchase half of Bogan's interest and Cronin and Corboy would purchase the remainder of Bogan's interest. As Bogan held a 16.5188% interest in the entire tract, it would appear that McCarthy gained an additional 8.25 % interest and Cronin and Corboy each gained an additional 4.125% interest from this transaction.

Tenants began occupying the building in February 1962, although the building was not completed until September or October 1962.

Cronin testified that he contacted McCarthy in June 1962, demanding payment for legal services he performed for McCarthy between 1958 and 1962. Cronin testified that he represented McCarthy in transactions involving approximately 100 parcels of real estate and in a suit brought by McCarthy's former attorney. Cronin introduced a group of exhibits at trial providing partial documentation of his work. McCarthy, while testifying that he generally hired attorneys to clear title to lots he acquired, denied that he owed Cronin legal fees and testified that Cronin had merely acted as a "courier."

On October 8, 1962, Corboy sent a letter to McCarthy suggesting that title be formalized by November 1, 1962. Cronin testified that he then received a telephone call from McCarthy, in which McCarthy reiterated that he had not yet acquired all of the lots and did not know whether all of the lots were necessary, which would affect the calculations. On November 3, 1962, McCarthy sent Cronin a letter asking for an additional equity contribution and indicating that McCarthy hoped to determine Cronin's exact interest within the next week so that assignments could be ready by December 1, 1962. Cronin testified that he telephoned McCarthy after receiving this letter. Cronin testified that he told McCarthy that Cronin and Corboy must have their interests determined and spread of record before they would contribute additional equity to the venture. Cronin also testified that he told McCarthy that the question of Cronin's legal fees must be resolved.

Cronin and McCarthy agree that McCarthy telephoned Cronin on November 28, 1962. The parties disagree, however, regarding the substance of the conversation.

McCarthy testified that the purpose of the telephone call was to firm up Cronin and Corboy's interests in the venture. McCarthy testified that he told Cronin that he wanted to give Cronin calculations that McCarthy had made the previous night. McCarthy testified that he asked Cronin to write the figures down and that Cronin said he was doing so.

According to McCarthy, he calculated that if he exercised his option under the 1959 agreement to purchase half of Cronin's 8.25% interest, Cronin would receive $6300 and be left with a 4.125% interest. However, McCarthy had also calculated that a one percent interest in the venture was worth $7000. McCarthy testified that he offered Cronin the choice of accepting either $6300 or a rebate of one percent in exchange for McCarthy's exercise of his option. According to McCarthy, Cronin elected to retain the one percent interest in lieu of $6300.

McCarthy also testified that he told Cronin that he did not want to offer the same deal to Corboy, adding that he was considering charging Corboy $40,000 for his services in launching the venture. McCarthy indicated that he would offer Corboy $6300 in exercising the option, leaving Corboy with an 8.25% interest. Alternatively, McCarthy would subtract 8.25% of $40,000 -- $3300 -- from the $6300, and pay Corboy $3000 for half of Corboy's interest. McCarthy added that he would be willing to award a one-half percent interest in lieu of the $3000, giving Corboy an 8.75% interest in the venture. According to McCarthy, Cronin said he would discuss the matter with Corboy.

In contrast, Cronin testified that the purpose of the call was to settle the question of Cronin's legal fees. Cronin testified that McCarthy agreed to award Cronin an additional two percent interest in the venture in settlement of the dispute. Cronin stated that he wanted one of the additional points to be awarded to Corboy, so that he and Corboy would maintain identical percentage interests in the venture. According to Cronin, McCarthy reluctantly agreed to this arrangement.

Both parties have notes relating to this conversation; McCarthy's notes and a photocopy of Cronin's notes were introduced as exhibits at trial and appear in the record on appeal.

McCarthy was questioned about two letters he wrote to Cronin's attorney in 1986, both of which were introduced into evidence. The first of these, dated October 6, 1986, discusses McCarthy's exercise of his option against Bogan, Corboy and Cronin:

"There is a provision that McCarthy could acquire 50% of each of the first parties [sic] interest. McCarthy exercised this right, reducing Bogan to 8.25% and Corboy and Cronin to 4.125% each. In Corboy's and Cronin's cases McCarthy gave each of them a 1% interest in lieu of payment for the 4.125%, thereby increasing Corboy and Cronin to a 5.125% interest.

In November 1961 (see Bogan letter of November 2, 1961) Corboy and Cronin each purchased one half of Bogan's remaining 8.25% interest, or 4.125% each for Corboy and Cronin. This raised their interests to ...


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