Harbaugh v. Hausman

• Decision Date: 07 March 1991
• Docket Number: No. 4-90-0622,4-90-0622
• Parties: , 155 Ill.Dec. 342 Max W. HARBAUGH, Plaintiff-Appellee, v. Nancy R. HAUSMAN and Christopher Hausman, Co-Executors of the Estate of C.A. Rice, Deceased, Defendants-Appellants.
• Court: United States Appellate Court of Illinois

Page 523

569 N.E.2d 523

210 Ill.App.3d 715, 155 Ill.Dec. 342

Max W. HARBAUGH, Plaintiff-Appellee, v. Nancy R. HAUSMAN and Christopher Hausman, Co-Executors of the Estate of C.A. Rice, Deceased, Defendants-Appellants.

No. 4-90-0622.

Appellate Court of Illinois Fourth District.

March 7, 1991.

Rehearing Denied April 2, 1991.

Jeffrey W. Tock, Phebus, Tummelson, Bryan & Knox, Urbana, for defendants-appellants.

Emerson L. Moore, Lemna, Moore & Carroll, Tuscola, for plaintiff-appellee.

Justice GREEN delivered the opinion of the court:

This case concerns the illusive concepts involved in the rescission of a contract on the basis of a mutual mistake as to antecedent matters which include questions of law. The case began on January 27, 1989, when plaintiff Max W. Harbaugh filed a complaint in the circuit court of Douglas County against defendants Nancy R. Hausman and Christopher Hausman, coexecutors of the estate of C.A. Rice, deceased. Plaintiff sought specific performance of a contract whereby defendant's decedent agreed to sell him 330 shares of the capital stock of the Villa Grove Bank (Bank). On June 27, 1990, the court granted plaintiff's motion for summary judgment. On July 3, 1990, defendants filed a motion to reconsider. On August 14, 1990, defendants were given leave to file affirmative defenses requesting a rescission of the contract. After a hearing on defendants' motion for reconsideration, that motion was denied on August 14, 1990.

Defendants have appealed, contending the affirmative defenses together with depositions and exhibits on file create at least a factual question as to whether a mutual mistake as to the legal effect of a preexisting option agreement between the parties requires rescission of the contract upon which suit was brought. We recognize the reluctance of courts to rescind contracts upon the basis of mutual mistakes of law. (Holbrook v. Tomlinson (1922), 304 Ill. 579, 136 N.E. 745.) However, we deem some explanation of the facts of the case is appropriate before we confront the legal question upon which this case turns. Because, in order to be entitled to a summary judgment, a movant must show undisputed facts which established the movant is entitled to judgment as a matter of law (Purtill v. Hess (1986), 111 Ill.2d 229, 95 Ill.Dec. 305, 489 N.E.2d 867), we recite those facts in the light most favorable to the defendants against whom the summary judgment was entered.

Defendants' decedent was chairman of the board of the Bank at times pertinent until December 1983. On December 20, 1976, decedent entered into a contract with Harrison J. McCown, the majority shareholder of a holding company owning a controlling interest in the Bank. That contract granted McCown (1) an option of first refusal to purchase decedent's bank shares at any time during decedent's lifetime for $8,000, and (2) an absolute option right to purchase those shares for that price for 60 days following decedent's death. On November 24, 1978, a tripartite agreement was entered into between the decedent, plaintiff, who was then president of the Bank, and McCown whereby McCown released decedent from the 1976 option agreement and decedent granted the same option terms to plaintiff. That agreement provided that "in consideration of SELLER [decedent] granting to BUYER [plaintiff] the exclusive first option, BUYER agrees to pay to SELLER $100.00 the receipt of which is hereby acknowledged by SELLER."

Evidence indicated a check for $100 was executed by plaintiff at the time of the foregoing 1978 transaction but was made payable to McCown, who had released decedent from the 1976 option agreement, rather than to decedent who was to receive $100 under the terms of the 1978 agreement and who acknowledged receipt of that sum by the terms of the instrument. At the time of the 1978 agreement, McCown was representing decedent as an attorney and drafted the document but the record gives no indication that McCown received the money on behalf of the decedent or turned the money over to him. The first element of defendants' affirmative defense theory is that at least a factual question exists as to whether decedent received any consideration for his grant of options in the 1978 agreement. If decedent received no consideration, then, as to him, that agreement merely constitutes an offer of options which can be withdrawn prior to acceptance. Hermes v. Wm. F. Meyer Co. (1978), 65 Ill.App.3d 745, 749, 22 Ill.Dec. 451, 454, 382 N.E.2d 841, 844.

The contract upon which suit was brought was entered into between decedent and plaintiff on December 24, 1983. It recited the existence of the 1978 option agreement whereby plaintiff had an option to purchase decedent's stock for $8,000. The contract also stated: "Seller [decedent] has requested that said option agreement be converted into a firm agreement providing for the sale of said 300 shares of stock from Seller to Buyer, and Buyer is willing to honor said request." The contract then stated the sale was to take effect upon the decedent's death. Thus, for the first time, plaintiff was under an obligation to buy the shares. However, evidence was also introduced that earlier in December 1983 decedent had resigned as chairman of the Bank board of directors and, after the meeting where he resigned, he had a conversation with McCown and plaintiff. Evidence indicated the decedent told them he did not want to sell his Bank stock for $8,000 and it was worth more than that.

Citing Jones v. Dove (1943), 382 Ill. 445, 47 N.E.2d 447, and Kalman v. Bertacchi (1980), 80 Ill.App.3d 530, 36 Ill.Dec. 87, 400 N.E.2d 507, defendants maintain the above conversation between the decedent, McCown and plaintiff could be deemed by a trier of fact to constitute a rescission of decedent's option offer which existed if the 1978 agreement lacked consideration. The existence of a rescission of that "offer" is the second element of defendants' theory that the 1983 contract should be rescinded.

Both Jones and Kalman concern the question of whether conduct of vendees under contracts for sales of real estate constituted rescission of those contracts barring them from obtaining specific performance of those contracts. In Jones the vendee's conduct in leaving the premises and stating he could not make payments was held to constitute a rescission. In Kalman the failure of the vendee to make a substantial escrow payment required by a court-imposed settlement agreement between the parties was held not to constitute a rescission of the agreement as a matter of law. That court stated:

"Rescission or abandonment of a contract may be deduced from circumstances or from a course of conduct which clearly evidences an abandonment thereof. (Lasher v. Loeffler (1901), 190 Ill. 150, 60 N.E. 85; Jones v. Dove (1943), 382 Ill. 445, 47 N.E.2d 447.) To constitute abandonment of a contract for the sale of land by conduct, the acts relied on must be positive, unequivocal and inconsistent with the existence of the contract. Grossman v. Liedeker (Tex.Civ.App.1947), 202 S.W.2d 267." Kalman, 80 Ill.App.3d at 533, 36 Ill.Dec. at 90, 400 N.E.2d at 510.

Here, evidence indicated the decedent forcefully stated that he did not want to sell his stock for $8,000 and he did not think it was fair that he should have to do so. On the other hand, plaintiff emphasizes that the 1983 contract recites decedent requested the contract and points out that defendant benefited from the contract because, for the first time, plaintiff was required to buy decedent's shares. The mental state of the decedent at this time was a question of fact for the trier of fact. However, if, as defendants contend, the decedent did not know the 1978 option agreement was merely an offer, a trier of fact could not find decedent positively and unequivocally withdrew that offer although much evidence indicates that he would have done so if he had believed the 1978 option agreement was actually only an offer. In any event, failure of defendants to establish that the decedent's "offer," arising from the 1978 agreement, was not withdrawn does not necessarily mean that, in entering into the 1983 agreement, plaintiff was accepting the offer of an option. The 1983 contract did not give plaintiff an option. Rather, it required plaintiff to buy the shares.

If the 1978 agreement was void as to the decedent for lack of consideration, some evidence indicates neither the decedent nor plaintiff thought that was so. The evidence of the conversation between decedent, McCown, and plaintiff wherein decedent stated he did not want to sell the shares for $8,000 is sufficient to justify a trier of fact to find the decedent would not have entered into the 1983 contract had he not thought the 1978 agreement was binding upon him. Plaintiff's signing of the 1983 contract which recites the existence of a first option possessed by him to buy decedent's Bank shares for $8,000 before sale could be made to anyone else is evidence of substance that plaintiff thought the 1978 option agreement was valid.

Accordingly, we reach the heart of the case. The third element of defendants' theory is that if the decedent and plaintiff were mistaken as to the legal effect of the 1978 option agreement and the decedent would not have entered into the 1983 agreement if he had known this, the 1983 contract should be rescinded.

Citing Holbrook, plaintiff maintains any mutual mistake of the decedent and plaintiff as to the validity of plaintiff's purported option to purchase the decedent's shares was a mistake of law which is not recognized in Illinois law as a grounds for revocation. Holbrook is similar to the instant case in an important way. The mistake between parties to a contract there concerned a matter antecedent to the entry into the contract sought to be set aside. There, daughters of an intestate decedent by a first marriage met with the decedent's widow and an attorney. They agreed that the widow should have...