Appeal from the Circuit Court for the 10th Judicial Circuit Peoria County, Illinois. No. 90 L 467. Honorable John A. Barra, Judge, Presiding.
As Modified on Denial of Rehearing July 17, 1997. Rehearing Denied July 17, 1997. Released for Publication July 17, 1997.
Present - Honorable William E. Holdridge, Justice, Honorable Thomas J. Homer, Justice, Honorable Peg Breslin, Justice. Justice Breslin delivered the opinion of the court. Holdridge and Homer, JJ., concur.
The opinion of the court was delivered by: Breslin
MODIFIED UPON DENIAL OF REHEARING
The Honorable Justice BRESLIN delivered the opinion of the court:
Plaintiff First of America Trust Company (Trustee), as trustee of the John Golofsky trust, brought this action against defendants First Illini Bancorp, Inc. and the estate of Mitchell Rudman. Each Party filed an appeal and the appeals were consolidated by this court. We affirm in part, reverse in part and remand.
The issues on appeal arise out of the administration of the estate of John Golofsky. The original executor of the estate was First Galesburg National Bank and Trust Company. However, after a subsequent merger, First Illini Bancorp (Bank) became the executor of the estate. Golofsky left a widow, Zoe Golofsky, and a daughter, Marilyn Urena, who received successive life estates under the testamentary trust. Golofsky was also survived by two grandchildren, Jon Urena and Zoe Urena Weiss, who were remainder beneficiaries under the trust. When he died in 1982, Golofsky owned one-half of the common stock of Brown Specialty Corporation, and Mitchell Rudman, now deceased, owned the other half.
The Bank delegated the responsibilities of running the business and finding a purchaser to Rudman. In 1986, John Sexton offered to purchase the company for $1.6 million. Rudman and the Bank accepted this offer. In May 1986, over the objections of the remainder beneficiaries, the Knox County probate court authorized the Bank to sell the shares in accordance with the terms of the offer and to "execute and deliver *** such instruments of acceptance and such other instruments of transfer as may be necessary in the sale and transfer of said shares."
Thereafter, Sexton, Rudman, the Bank and Zoe Golofsky entered a stock purchase agreement. The agreement provided warranties that the Brown Specialty Corporation financial statements were prepared in accordance with generally accepted accounting principles, that the statements fairly represented the company's financial position, that there had been no adverse change in the business, assets or financial condition of the company between December 31, 1985 and August 4, 1986, and that the inventory shown on the June 30, 1986 financial statement was valued at the lower of cost or market value. Before the agreement was executed, Zoe Weiss, one of the remainder beneficiaries, her husband, Zeff Weiss, and Zeff's law partner, Phillip Bayt, offered to match Sexton's $1.6 million offer without any of the contingencies contained in the warranties. Moreover, in a letter to the Bank's trust officer, Zeff Weiss pointed out that many of the warranties made in the stock purchase agreement were false. Despite Weiss' offer and admonitions, the Bank entered the agreement with Sexton.
Following the sale of the business, Sexton sued the Bank, Rudman and Zoe Golofsky in federal court, alleging that they had breached the warranties contained in the stock purchase agreement and committed securities violations, fraud and misrepresentation. The Bank and Rudman were represented by the same attorney, Burrell Barash. Before trial, Rudman entered an agreement with the Bank's trust officer which provided that if a judgment was recovered against the Bank, the Bank could pursue an action for indemnity and/or contribution against Rudman and Rudman could not assert as a defense that the cross-claim should have been filed in the federal case or that the statute of limitations had run.
After trial, the jury returned a verdict in favor of Sexton for $200,000 and assessed $50,000 in punitive damages against Rudman. The court did not enter judgment because the issue of attorney fees needed to be resolved. However, before that issue was resolved, the parties settled the case for $375,000. Rudman paid $212,500 and the Bank paid $162,500. The Bank used estate assets to satisfy the settlement and to pay approximately $40,000 in attorney fees incurred in the litigation. The parties then filed a satisfaction of judgment, but the judge refused to accept the filing because no final judgment had been entered. Accordingly, the parties filed an order of dismissal which dismissed the case with prejudice. All of these matters were set out clearly in the federal court docket sheet.
Sometime after the federal case was settled, the Trustee filed the instant suit on behalf of the beneficiaries against Rudman's estate (Rudman Executors) and the Bank. The portions of the complaint relevant to this appeal sought to regain the amount expended by the Bank to settle the federal case and pay its litigation expenses. In the counts against the Bank, the Trustee alleged that these amounts were unlawfully expended from estate assets as a direct result of the Bank's breach of fiduciary duties. The complaint also alleged that the Rudman Executors were liable under theories of indemnity and contribution because Rudman acted as the Bank's agent. The Trustee alleged that a judgment was entered against the Bank and the Rudman Executors in the federal case. The Rudman Executors agreed with this allegation in their answer, but later denied the allegation in their amended answer.
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The Bank responded to the Trustee's complaint by filing a counterclaim against the Rudman Executors for indemnity and contribution. The Bank alleged that if it was liable to the beneficiaries, then the Rudman Executors were liable to the Bank because Rudman was acting as its agent when he made the misrepresentations to Sexton [O> for indemnity and contributionres judicata. Another affirmative defense asserted that the pendency of the probate action deprived the court of subject matter jurisdiction. The court granted the Trustee's motion to strike the jurisdictional defense and granted the motion to strike the res judicata defense to the extent that it sought to preclude relitigation of whether the terms of the sale were appropriate. The court denied the motion as it related to the sufficiency of the sale price and whether the Bank should have retained experts to evaluate the business before the sale. The Bank appeals both of these rulings (3--96--0329).
Eventually, all of the parties filed motions for summary judgment. The Bank's motion for summary judgment alleged that the basis for the federal lawsuit was that the purchase price exceeded the actual value of the business and that the settlement was paid out of the trust because the trust was not entitled to receive the inflated purchase price. Accordingly, the Bank claimed that it was proper to use trust assets to pay the settlement and attorney fees. The court granted the Bank's motion, but only with respect to the attorney fees issue. The Trustee appeals this ruling (3--96-0330).
In the Rudman Executors' motion for summary judgment against the Trustee and the Bank, they alleged that the provisions of the Joint Tortfeasor Contribution Act barred any contribution claim against them by either the Trustee or the Bank. Further, the Rudman Executors alleged that the indemnity claims asserted by the Bank and the Trustee were barred as a matter of law. The trial court granted summary judgment in favor of the Rudman Executors on the contribution counts. Both the Bank and the Trustee appeal this ruling (3--96--0329 & 3--96--0330 respectively). The court denied the Rudman Executors' motion for summary judgment on the indemnity counts, and we granted the Rudman Executors leave to appeal (3--96--0565) pursuant to Supreme Court Rule 308 (155 Ill. 2d R. 308).
The Rudman Executors also filed a motion for attorney fees pursuant to Supreme Court Rule 137 (134 Ill. 2d R. 137). In that motion they pointed out that both the Trustee and the Bank filed court documents that alleged the existence of a federal court judgment against Rudman despite the fact that the federal court record clearly stated that no judgment was ever entered. The court denied this motion, and the Rudman Executors appeal (3--96--0324).
Litigation Expenses (3--96--0330)
We address first whether the trial court erred by granting the Bank summary judgment on the issue of litigation expenses.
A fiduciary relationship exists between the executor of a will and the beneficiaries under the will ( Edwards v. Lane, 331 Ill. 442, 451, 163 N.E. 460, 463 (1928)), and the use of discretionary language in a will does not alter the applicable standard of care with which that discretion is to be exercised (see Martin v. McCune, 318 Ill. 585, 149 N.E. 489 (1925)). Because an executor has no authority to bind the estate by a contract, a contract entered between an executor and a third person binds the executor personally. Thomas v. Gouwens, 25 Ill. App. 3d 663, 323 N.E.2d 829 (1975). Similarly, an executor is personally liable for any liability arising from an allegedly wrongful act ( In re Estate of Wagler, 217 Ill. App. 3d 526, 577 N.E.2d 878, 160 Ill. Dec. 553 (1991)), and the executor is entitled to reimbursement from the estate for such liability only if he acted with good faith and common prudence (see Wahl v. Schmidt, 307 Ill. 331, 138 N.E. 604 (1923)). An executor is not entitled to reimbursement from the estate for litigation expenses if the litigation was carried out as a result of the executor's own misconduct. Marshall v. Coleman, 187 Ill. 556, 58 N.E. 628 (1900); see also Edwards v. Lane, 331 Ill. 442, 451-52, 163 N.E. 460, 463-64 (1928) (executor not entitled to reimbursement for litigation costs if litigation is carried on for the benefit of the executor rather than the estate).
A motion for summary judgment should be granted only where the pleadings, depositions, admissions and affidavits show that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law. Carruthers v. B.C. Christopher & Co., 57 Ill. 2d 376, 313 N.E.2d 457 (1974). An appellate court's review of a summary judgment order must be confined to the record as it existed when the trial court ruled on the motion. Rayner Covering Systems, Inc. v. Danvers Farmers Elevator Co., 226 Ill. App. 3d 507, 589 N.E.2d 1034, 168 Ill. Dec. 634 (1992). This court ...