Shultz v. Delta-Rail Corp.

• Decision Date: 28 May 1987
• Docket Number: DELTA-RAIL,No. 2-85-0834,2-85-0834
• Citation: 156 Ill.App.3d 1,508 N.E.2d 1143,108 Ill.Dec. 566
• Parties: , 108 Ill.Dec. 566 Robert F. SHULTZ and Morris D. Davis, Plaintiffs-Appellants v.CORPORATION, an Illinois Corporation; John D. Shultz, as President and Treasurer, Marie V. Shultz as Secretary, Defendants-Appellees.
• Court: United States Appellate Court of Illinois

Page 1143

508 N.E.2d 1143

156 Ill.App.3d 1, 108 Ill.Dec. 566

Robert F. SHULTZ and Morris D. Davis, Plaintiffs-Appellants v.DELTA-RAIL CORPORATION, an Illinois Corporation; John D Shultz, as President and Treasurer, Marie V Shultz as Secretary, Defendants-Appellees.

No. 2-85-0834.

Appellate Court of Illinois Second District.

May 28, 1987.

Lloyd E. Dyer, Jr., Wheaton, for plaintiffs-appellants.

Donovan & Roberts, P.C., Rodney W. Equi, Keith E. Roberts, Sr., Robert R. Verchota, Wheaton, for defendants-appellees.

Presiding Justice LINDBERGdelivered the opinion of the court:

Plaintiffs, Robert F. Shultz(Robert) and Morris D. Davis(Morris), appeal from an order entered in the circuit court of DuPage County granting defendants, Delta-Rail Corporation, John D. Shultz(John) and Marie Shultz(Marie), motion to dismiss pursuant to section 2-619(a)(9) of the Civil Practice Law (Ill.Rev.Stat. 1985, ch. 110, par. 2-619(a)(9).)The issue raised on appeal is whether the trial court erred in granting defendants' motion to dismiss based on affirmative matter capable of defeating plaintiffs' claims.We affirm.

The circumstances of this case are complex and are further complicated by the fact that the case involves an intra-family dispute, and each side has a different version or interpretation of the underlying facts giving rise to the dispute.In 1962 Robert and his brother John formed the Delta Tube Corporation which underwent a name change to Delta-Rail Corporation in 1966.Robert contributed two-thirds of the initial capitalization, and John, one-third.At the time of incorporation three stock certificates were issued: certificate No. 1, for 50 shares, issued to Robert; certificate No. 2, also for 50 shares, issued to John; and certificate No. 3, for five shares, issued to the brothers' father.Robert did not receive shares of stock proportionate to his contribution because he was involved in bankruptcy proceedings in connection with a precursor corporation, and Robert was a personal guarantor of its debts.The bankruptcy matter was eventually settled and Robert was appointed to the board of directors of Delta Tube.In 1964 stock certificate No. 4 for 50 shares was issued to Marie, John's wife, for no consideration, with the understanding that she was holding the certificate for the benefit of Robert who at the time was still involved in the bankruptcy proceedings.Each brother has a separate version regarding the purpose of the issuance of certificate No. 4.Robert contends that certificate No. 4 was issued to reflect his true capital contribution to the corporation, i.e. 100 shares or two-thirds of the outstanding stock, while John had 50 shares or one-third of the stock.John's version is that certificate No. 4 was issued to replace certificate No. 1, and, therefore, as of that date Robert was left with no shares of stock.John stated that this action was taken because of Robert's 1966 divorce.As plaintiffs' brief notes neither version is completely supported by the facts.According to plaintiffs' amended complaint, the record book of the corporation contains the statements that certificate No. 4 was a transfer from John and also a transfer of certificate No. 1.John's version is contradicted by facts pleaded in plaintiffs' second amended complaint which state that both Robert and Marie participated as shareholders after 1964, i.e. in 1966, 1971, 1972 and 1973.Robert's version is in conflict with the fact that the corporate annual reports and record book continued to list 112 shares as outstanding (John had received seven additional shares in 1964), even though the owners of certificates No. 1, 2 and 4 totalling 150 shares participated as shareholders.

In 1978 Robert requested that certificate No. 4 be transferred from Marie to himself.The transfer took place during a meeting at the office of attorney Keith Roberts who at the time represented both brothers and the corporation.As a result of the meeting, an agreement was executed which transferred certificate No. 4 from Marie to Robert for no consideration.The agreement further stated that:

"The outstanding Common Stock Certificates in Delta Rail Corp as of this date [August 2, 1978] are as follows:

No. 2--fifty (50) shares, JOHN D. SHULTZ

No. 3--five (5) shares, FRANK A. SHULTZ[the father]

No. 4--fifty (50) shares, ROBERT F. SHULTZ

No. 5--seven (7) shares, JOHN D. SHULTZ"

This agreement does not mention certificate No. 1.When questioned on this issue at his deposition, John made the following statements:

"Q.[Plaintiffs' Counsel] Would you tell me everything that took place at the August 2 meeting?

A.Demand was made upon Robert Shultz for certificate number 1.

Q.Who made that demand?

A. Keith Roberts.

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Q.What did Keith Roberts say?

A.He said Where is certificate number 1?

Q.That's how he made his demand?

A.Yes, to the best of my knowledge.

Q.Do you recall those words?

A.No, I don't recall those words.

Q.Then what happened?

A. Robert Shultz said Certificate 1 never existed.

Q.Said it never existed?

A.Never existed.

Q.What else was said?

After he refused the existence of certificate number 1, this agreement was typed up including paragraph 2.[recital of the outstanding stock] There was no argument about the fact."

In 1979 Robert and John entered into negotiations for the purchase of Robert's interest.An agreement was apparently reached by both parties but the scope of the agreement is in dispute.The record evinces the existence of the following documents: an "Agreement" dated September 25, 1979, for the sale of certificate No. 4 to the corporation at a price of $3,560 per share to be paid in installments over two years; an "Assignment" of certificate No. 4 dated September 25, 1979; an "Assignment" of certificate No. 1 dated September 25, 1979; an "Agreement" providing for the employment of Robert as an independent consultant dated October 1, 1979; and a "Mutual Release and Indemnification" dated October 3, 1979.

At his deposition, Robert testified that he executed an agreement for the sale of certificate No. 1 that contained the same provisions as for certificate No. 4.Installment payments on the sale of this certificate were to start in 1981 after the payments on certificate No. 4 had been completed.Robert testified that he signed the agreement for the sale of certificate No. 1 at the office of John's attorney.He claimed that the agreement for the sale of certificate No. 1 was never returned to him.This agreement is not part of the record on this case.

In his deposition, John testified that the agreement executed by the parties concerned the sale of certificate No. 4, since "Robert Shultz said (on August 2, 1978) certificate No. 1 did not exist."When asked why an assignment of certificate No. 1 was needed, John made the following statements:

"Q.Now, the agreement refers only to the purchase of certificate number 4, is that correct?

A.That's correct.

Q.Why is there no reference to certificate number 1?

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[A] Because on August 2, 1978, Robert Shultz said certificate number 1 did not exist.

Q.Was there any discussion at all with reference to the transfer or sale of certificate number 1?

Q.When was that conversation?

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A.Prior to the signing of the purchase agreement.

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Q.What was said at that conversation?

A.Well, I did not believe that Robert Shultz did not have certificate number 1, and that certificate number 1 and certificate number 4 were for the same share in the company, and wanted as much protection as what I could get.

That's why I insisted that he sign the 2 assignments of stock, which are in the purchase agreement * * *.Robert Shultz signed for value received stock certificate number 1, Delta Tube, and stock certificate number 4 of Delta-Rail Corporation, both being the same certificate in terms of ownership.

* * *

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Q.And can you explain why the purchase agreement does not refer to number 1?

A.Because Robert Shultz denied the existence of certificate number 1.

Q.That is the only reason?

A.Yes.Number 1 did not exist, according to Robert Shultz.

Q.Did you--your testimony is you insisted on receiving an assignment of number 1?

A.Because I did not believe him.

Q.Is there any reason why you did not insist that the agreement refer to number 1?

A.It does in terms of what he signed, as part of the package.It does refer to it.

Q.Where does it refer in the purchase agreement?

A.It does not in the purchase agreement."

The final installment payment on the sale of certificate No. 4 due on September 1, 1981, was withheld by John pursuant to a 90-day grace period provided for in the September 1979 agreement.On September 11, 1981, John through his attorney prepared and delivered to Robert a document entitled "Settlement of Agreement."The document provided that in consideration for purchaser's (the corporation) agreement to waive the remaining time portion of the 90-day payment grace period such that the final payment would be tendered on September 11, 1981, the seller (Robert) would waive some of his rights under the original September 1979 agreement.The document further provided that the seller was to tender to purchaser stock certificate No. 1 or sign an "Affidavit" also prepared by John's attorney.Among other provisions the affidavit provided:

"3.Affiant [Robert] at the time of issuance of Delta-Rail Corp.Stock advised the corporation that said stock certificate number one of Delta Tube Corp. was lost.

4.Upon this representation, Delta-Rail Corp. issued to affiant Delta-Rail stock certificate number four for fifty (50) shares of said corporation.

5.Affiant warrants that:

(a)That Delta Tube Corp. stock certificate number one is still missing.

(b) That he has not nor will not transfer said certificate (if found) to any party for or without consideration."

Robert refused to sign either the "Settlement of Agreement" or the "Affidav...