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09/29/95 F.H. PRINCE & CO. v. TOWERS FINANCIAL

September 29, 1995

F.H. PRINCE & CO., INC., A CORPORATION, PLAINTIFF-APPELLEE,
v.
TOWERS FINANCIAL CORPORATION, A CORPORATION, DEFENDANT-APPELLANT.



APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY. HONORABLE IRVING R. NORMAN, JUDGE PRESIDING.

Released for Publication November 3, 1995.

The Honorable Justice Gordon delivered the opinion of the court. McNULTY and T. O'brien, JJ., concur.

The opinion of the court was delivered by: Gordon

JUSTICE GORDON delivered the opinion of the court:

This appeal follows our dismissals of appellant's two prior appeals which had been taken from nonfinal judgments. ( F.H. Prince & Co. v. Towers Financial Corp. (1994), 266 Ill. App. 3d 977, 640 N.E.2d 1313, 203 Ill. Dec. 940.) Appellant subsequently obtained certification pursuant to Supreme Court Rule 304(a) (159 Ill. 2d R. 304(a)); and this court now has jurisdiction to hear the merits of the arguments presented. The underlying action brought by F.H. Prince & Co. (Prince) alleged a breach of contract by Towers Financial Corporation (Towers) due to Towers' failure to fulfill the terms of a settlement agreement, promissory note and guaranty. In defense of that action, Towers filed two affirmative defenses: (1) that the settlement instruments were voidable because they were executed by Towers as a result of the fraudulent misrepresentations of a third party and because Prince gave no value for their execution; and (2) that the settlement instruments were unenforceable for want of consideration. Towers also filed a counterclaim seeking restitution based on mistake of fact and unjust enrichment.

The trial court struck Towers' first affirmative defense and counterclaim with the right to refile and dismissed with prejudice Towers' counterclaim with the right to refile and dismissed with prejudice Towers' second affirmative defense. Towers thereafter filed an amended affirmative defense and amended counterclaim, and Prince moved to dismiss those pleadings. On the day of hearing, Towers sought leave to file a second amended verified affirmative defense and counterclaim and attached that document to its motion. The counterclaim therein sought declaratory judgment that the settlement instruments were unenforceable due to material misrepresentations (count I); restitution based on fraudulent misrepresentations and unjust enrichment (count II); declaratory judgment that the settlement instruments were unenforceable due to mutual mistake of fact (count III); and restitution based on mutual mistake of fact and unjust enrichment (count IV). The trial court granted Prince's motion to dismiss Towers' amended affirmative defense and amended counterclaim and denied Towers' motion to file its second amended verified affirmative defense and counterclaim. The court held, inter alia, that, on the basis of the facts alleged, Prince had given value and therefore the settlement instruments were not void. In upholding its dismissal of Towers' affirmative defense, the court also noted that the alleged fraudulent misrepresentations by the third party were directed at an underlying transaction to which the settlement agreement between Towers and Prince was merely ancillary. After Towers' motion to reconsider was denied, the case proceeded to jury trial.

At trial, the court directed a verdict on the amount of principal due Prince under the promissory note and guaranty and denied Towers' request to have the jury determine the issue of attorneys' fees and costs due under those instruments. After the jury returned a verdict on the interest portion of damages, judgment was entered in the amount of $767,986.86 representing $600,000 in principal and $167,986.86 in interest. Two additional judgments were enteredagainst Towers in the amounts of $60,967.39 and $18,519.56 representing attorneys' fees and costs incurred through May 8, 1991, the date Towers' post-trial motion was denied.

On appeal, Towers argues that the trial court erred in dismissing its amended affirmative defense and counterclaim and, alternatively, in denying its motion for leave to file its second amended affirmative defense and counterclaim. Specifically, Towers argues that both pleadings set forth sufficient allegations of unjust enrichment and voidability based upon fraudulent misrepresentation and lack of consideration. Towers also argues that the trial court erred in refusing to permit the jury to determine the issue of attorneys' fees and costs due under the settlement agreement, promissory note and guaranty.

The settlement agreement, promissory note and guaranty at issue were signed on March 30, 1988. In accordance with those documents, Towers guarantied all payments owed by United Fire Insurance Company (United Fire), a Towers' subsidiary, to F.H. Prince & Co. (Prince) in settlement of Prince's 1979 lawsuit pending against United Fire. Prince's claim against United Fire, in which it was seeking $1.6 million, had been settled for $1.2 million; $600,000 to be paid in six installments pursuant to the settlement agreement and $600,000 plus interest to be paid quarterly pursuant to the promissory note. In accordance with the settlement agreement, United Fire paid Prince three installments totalling $350,000; and Towers, as the guarantor, paid the remaining $250,000. Towers subsequently notified Prince that it would not make any payments due under the promissory note, and Prince instituted the instant breach of contract action.

In support of its affirmative defenses and counterclaim, Towers alleged that it acquired United Fire in October of 1987 when it purchased United Fire's parent corporation. Towers alleged that it was induced to enter into this purchase agreement by reason of "false and misleading" material misrepresentations and omissions concerning United Fire's financial condition made by a third party, Ernest N. Solomon, who was chairman and principal shareholder of United Fire's parent corporation. Towers further alleged that in order to consummate the acquisition of United Fire, which had been placed in conservatorship by the Illinois Department of Insurance in May of 1987, it was required by that Department to "strengthen United Fire's financial condition by, inter alia, infusing additional capital into United Fire and by assuming legal responsibility for the disposition of certain of United Fire's liabilities" including Prince's claim against United Fire. Towers alleged that United Fire was removedfrom conservatorship on October 26, 1987. Towers further alleged that, at the time of acquisition, United Fire was insolvent but that Towers was unaware of that fact due to the misrepresentations by and omissions of Solomon. Towers became aware of that insolvency on March 3, 1989 when the "Department of Insurance caused an Order of Liquidation with a Finding of Insolvency to be entered against United Fire."

With respect to Towers' settlement of the Prince litigation, Towers alleged that prior to Towers' assumption of responsibility for the Prince debt, Prince would have been unable to collect its claim from United Fire because United Fire was in conservatorship and that, therefore, Prince neither gave value nor materially changed its position when it settled its claim against United Fire. Towers further alleged that Prince directly benefited from Solomon's fraud in that it received $600,000 from Towers pursuant to the settlement agreement; $250,000 that Towers paid directly to Prince and $350,000 that it paid indirectly through its infusion of $3.8 million capital into United Fire.

Based on the allegations discussed above, Towers' affirmative defense concluded that:

"The Settlement Agreement, Promissory Note, and Guaranty *** are voidable transactions under law as to Towers because said contractual agreements were entered into, and executed, by Towers solely as a condition of its acquisition of *** the parent of United Fire. Because said acquisition was procured through fraudulent misrepresentations and omissions *** the acquisition transaction and all other ancillary transactions are voidable contracts."

Towers' counterclaim for restitution concluded that, due to the fraud perpetrated by Solomon, the guaranty was a voidable contract and resulted in the unjust enrichment of Prince in the amount of $600,000.

As is relevant to the issues raised in the instant appeal, Towers' second amended verified affirmative defense and counterclaim differed from its prior pleading, discussed in detail above, in that the latter contained several modified allegations. Towers alleged that the "Department [of Insurance] required Towers to assume responsibility for and to resolve the Prince lawsuit without depleting any assets of United Fire." The pleading averred that Towers determined that "the least burdensome means" to satisfy the Department's condition was through settlement of the Prince lawsuit. Towers also alleged that Prince, in entering into the settlement agreement, did not materially change its position or give value even though it dismissed its suit against United Fire with prejudice since "albeit unknown toTowers and Prince in March of 1988, United Fire was totally insolvent, and Prince's cause of action against United Fire ...


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