Chapman v. Freeport Securities Co.

• Court: Appellate Court of Illinois
• Writing for the Court: INGLIS
• Citation: Chapman v. Freeport Securities Co., 174 Ill.App.3d 847, 529 N.E.2d 6, 124 Ill.Dec. 289 (Ill. App. 1988)
• Decision Date: 23 September 1988
• Docket Number: No. 2-87-1167,2-87-1167
• Parties: , 124 Ill.Dec. 289 Robert P. CHAPMAN, Plaintiff and Appellee and Counterdefendant and Cross-Appellant, v. FREEPORT SECURITIES COMPANY, Defendant-Appellant and Counterplaintiff (Jack W. Chapman et al., Defendants and Cross-Appellees).

Page 6

529 N.E.2d 6

174 Ill.App.3d 847, 124 Ill.Dec. 289

Robert P. CHAPMAN, Plaintiff and Appellee and Counterdefendant and Cross-Appellant, v. FREEPORT SECURITIES COMPANY, Defendant-Appellant and Counterplaintiff (Jack W. Chapman et al Defendants and Cross-Appellees).

No. 2-87-1167.

Appellate Court of Illinois Second District.

Sept. 23, 1988.

Karl F. Winkler (argued), Rockford, for Freeport Securities Com., Jack Chapman, and Marilyn C. Tibbits.

Thomas E. Laughlin, Robert J. Oliver (argued), Connolly, Oliver, Close & Worden, John L. Olson, Schlueter, Ecklund, Olson, Barrett & Moore, Michael K. Havrilesko, Williams & McCarthy, P.C., Rockford, for Robert P. Chapman.

Justice INGLIS delivered the opinion of the court:

Plaintiff, Robert Chapman, initiated this action by filing a three-count complaint. Count I was against Freeport Securities Company (corporation) claiming compensation was owed him for two years five months on a three-year employment contract. Count II was against Jack W. Chapman (Jack), and count III was against Marilyn C. Tibbits (Marilyn). Both of these counts were for interference with contractual relationship between plaintiff and the corporation. The corporation counterclaimed against plaintiff for damages it claimed it sustained both before and after his resignation. The trial court found for plaintiff on his compensation claim, against plaintiff on counts II and III, and found against the corporation on its counterclaim. The corporation appeals the judgment against it and for plaintiff on both the complaint and counterclaim. Plaintiff appeals the trial court's holding as to counts II and III. We reverse in part and affirm in part.

C.W. Chapman had organized the corporation and was its president until his death on April 2, 1980. C.W.'s children, plaintiff, Jack, and Marilyn, owned 646 of the 891 shares of Freeport Securities Company. The remaining shares were owned by 29 shareholders.

Eight days after C.W.'s death, Jack, Marilyn, and plaintiff made plaintiff president of the corporation, and attorney Richard Eckert was subsequently elected to the board.

Approximately one month prior to the annual meetings of the stockholders and the board of directors, Eckert and plaintiff discussed plaintiff's presidency. Eckert suggested that plaintiff ask for an employment contract with the corporation for a number of years. He also suggested that plaintiff might seek an incentive agreement, one that paid plaintiff a base salary and a percentage of company earnings if plaintiff's efforts produced more income.

Plaintiff made up a schedule on yellow legal paper which listed three salary options and had a chart at the bottom which compared the options given various profits. He and Eckert discussed the proposals shown so that Eckert could propose them at the annual meeting. Neither of them discussed the proposals with Jack or Marilyn prior to the board meeting. The proposal was not in any notices of the meeting.

After the stockholders meeting on January 27, 1981, the four directors met in Eckert's conference room. Eckert was elected corporate secretary, plaintiff was made president, and Jack was voted vice-president.

A 1980 financial statement was distributed and copies of plaintiff's schedule of options was handed around. Eckert explained that he thought it was in the best interest of the corporation for plaintiff to have a written contract as president. He also advocated a percentage arrangement as in the corporation's interest since such an arrangement would give plaintiff more money as he produced more money for the corporation. Marilyn testified that plaintiff said any of the three proposals outlined were agreeable to him and that each would pay him approximately $75,000 in 1981.

What happened after this is in dispute. All agree there was discussion of the proposal. They all agree that a three-year contract was the length of time discussed. They all agree Eckert suggested the third option on plaintiff's schedule--a $40,000 base salary with annual increases of 23% and a 23% incentive each year.

Marilyn stated she did not understand the inflation factor in the schedule or its implications but was in favor of giving plaintiff the security of a three-year written contract with an incentive. She stated that she asked Eckert and plaintiff to write up what they wanted and to give it to her.

Eckert stated that he, Jack and Marilyn all voted for the third option on the proposal. According to Eckert, plaintiff did not vote.

Neither Jack nor Marilyn remembers a vote of any kind on the salary proposal. Everyone left the meeting knowing Eckert was going to draft an employment contract. No minutes of the meeting were made and approved at the meeting. After the meeting, Marilyn made some calculations which showed that for 1981 a reasonable projection for plaintiff's income with the definition of "net income" being all income of the corporation would be $133,000. She called Jack, who said that was wrong, that only new business was involved, not all income, and that could not be right. Marilyn and Jack then called Eckert and made an appointment to see him about this.

Subsequent to the board meeting on January 27, 1981, Eckert made two drafts of an agreement. They were different on the increase in base salary due to inflation. Eckert did not recall why his second draft differed from his first one. He stated he did not discuss the first one with anyone but changed it on his own. He also drafted proposed minutes containing a resolution approving the agreement.

After Jack and Marilyn met with Eckert, they went to see her lawyer, Mr. Plager. He reviewed the proposed minutes and the schedule and told them to call a special meeting, have the minutes read, and not to approve them. They called a special meeting on March 6. The minutes were read. No one seconded the motion to approve the minutes, and the motion died. The minutes of the meeting on March 6, 1981, were approved at the July 10, semiannual board meeting. Marilyn testified that plaintiff, attorney Eckert, and attorney Plager were asked to get together and try to negotiate something that would be acceptable to all parties.

At the July 10 meeting, Eckert asked for approval of the officers' actions since the March 6 meeting. The motion died. Jack and Marilyn moved for monthly meetings. The vote was two for and two against, and the motion failed. The minutes further state:

"Discussion was then had in regard to the election of Robert P. Chapman as President and the contract authorized by the Board of Directors at the Board of Directors Meeting held in January of 1981. A motion was made by Jack W. Chapman and seconded by Marilyn C. Laux that the Company reject and disavow any such contract with Robert P. Chapman. The motion passed upon Marilyn C. Laux and Jack W. Chapman voting aye and Richard F. Eckert voting nay. Robert P. Chapman abstained."

Plaintiff then offered to resign effective August 1, 1981, as president and director. Eckert moved the resignation be accepted, and plaintiff seconded the motion. The meeting was continued until July 24. Jack and Marilyn wanted plaintiff to reconsider. Plaintiff wanted to give them time to think about what they were doing.

On July 24, the resignation was accepted. Plaintiff's resignation letter states that the affairs of the company will be current and in perfect order. He asserts he is leaving because Jack and Marilyn had criticized him and, on July 10, had left him without a salary contract.

The trial court found that the claimed resolution was passed, that the board of directors agreed to give plaintiff a three-year contract as president, and that his salary would be set forth in proposal number three: "a base of $40,000 plus 23 per cent of the net profits of the corporation. The base would be increased in 1982 and 1983 as set forth in Plaintiff's Exhibit 2." The trial court also found that adoption of the resolution constituted an acceptance of plaintiff's offer.

The trial court further found that plaintiff's resignation did not bar him from bringing this cause of action for breach of contract.

The trial court further stated that the corporation may have gone outside the bylaws but that that could not void the contract. The trial court also found that the minutes were properly signed by the secretary of the corporation and constituted acts of the corporation.

We initially address the corporation's contention that the resolution contained in Eckert's minutes of the January 27, 1981, meeting indicated an intent to enter into a written contract in the future and was not a resolution to enter into a contract at that time.

We consider the resolution as a whole which provided in pertinent part: "RESOLVED, that a three year salary contract be entered into with the President * * * The officers of the company are hereby authorized and directed to execute all documents necessary to accomplish the above resolution." Given that the minutes provided that the officers and directors were authorized and directed to execute all documents necessary to accomplish the resolution, we find that the term "be entered into" was referring to a future as opposed to a present act. Consequently, we find that the trial court erred in determining that adoption of the resolution constituted an acceptance of plaintiff's offer.

The corporation also contends that there was no contract under the bylaws of the corporation because (1) the bylaws limited the term of office, and (2) the bylaws state that a corporate contract is "valid only when signed by the president and duly attested by the Secretary and the official Seal of the Company affixed thereto; provided, however, that the provisions of this Section may be waived in any particular case or class of cases by a duly adopted resolution of the Board of Directors."

In response, plaintiff contends that bylaws cannot make a contract ultra vires, and that no act of a...