A.T. Kearney, Inc. v. INCA Intern., Inc., 83-2308

Citation477 N.E.2d 1326,87 Ill.Dec. 798,132 Ill.App.3d 655
Decision Date11 April 1985
Docket NumberNo. 83-2308,83-2308
Parties, 87 Ill.Dec. 798 A.T. KEARNEY, INC., Plaintiff-Appellee, v. INCA INTERNATIONAL, INC., a foreign corporation; Interior Dynamics, Ltd., an Illinois corporation; John J. Popp; Thomas Jolitz; Bharat Kothari; and George Kackert, Defendants-Appellants.
CourtUnited States Appellate Court of Illinois

Terence E. Flynn, Thomas J. Fleischmann, Rooks, Pitts, Fullagar and Poust, Chicago, for defendant-appellant George Kackert.

William Van Hagey, William T. McGrath, Chadwell & Kayser, Ltd., Chicago, for plaintiff-appellee.

LINN, Justice: delivered the opinion of the court:

Plaintiff, management consulting firm, hired defendant, interior design company, to coordinate the design of its new offices, relying on defendant's project manager to secure bids for the architectural woodworking involved therein. The project manager presented plaintiff with a single bid, that of a corporation that, unbeknownst to plaintiff, the project manager and two of his associates had incorporated several weeks earlier.

Relying on the project manager's advice, plaintiff accepted the bid presented and paid to the newly formed corporation an earnest money deposit of $175,000 to commence work. Immediately upon receipt of plaintiff's deposit, one of the incorporator's of the woodworking corporation opened an account in the corporate name and used the deposit money to repay a personal loan of $100,000, made to him prior to incorporation by an associate with knowledge of the corporation's financial dealings and the source of repayment.

The trial court found the incorporators and the creditor/payee of the $100,000 personal loan guilty of conversion and held them jointly and severally liable under a theory of constructive trust for the entire amount of plaintiff's loss. The creditor/payee appealed.

We affirm in part, reverse in part, and modify.

FACTS

Plaintiff, A.T. Kearney, Inc. (Kearney), a management consulting firm, hired defendant, * Interior Dynamics, Ltd. (IDL), to coordinate the relocation of its new offices, to be completed by September 1980. IDL, through its project manager/executive vice president Bharat Kothari, was to obtain bids for the furnishings and architectural woodworking involved in the project. In its contract with Kearney, IDL promised to secure "competitive bids" from "reputable contractors known by [IDL]". Kearney relied completely on Kothari to secure the bids and to investigate and deal with the various vendors.

Despite IDL's promise to secure competitive bids from reputable contractors, Kothari submitted to Kearney on May 5, 1980, only a single bid, one from INCA International Inc. (INCA), a corporation which, unbeknownst to plaintiff, had been incorporated only three weeks earlier by Kothari and two of his close business associates. Kothari advised Kearney to accept INCA's bid and informed Kearney that the normal practice and custom in the trade was to remit 50% of the total contract price as an earnest money deposit. Relying on Kothari's advice, Kearney accepted INCA's bid and delivered to Kothari a check payable to INCA in the amount of $175,000, unapprised by Kothari of his relationship to INCA, of INCA's three week old status, and of various other facts that called into question Kothari's role as fiduciary and INCA's reputability and ability to perform under the contract.

Kothari delivered the Kearney $175,000 job deposit to INCA on May 12, 1980. On May 13, 1980, Joseph Popp, another of INCA's incorporator's and an officer thereof, called defendant, George Kackert, an associate of his in the construction and real estate development business and Popp's personal creditor, and informed Kackert that he had received the money for INCA, that he planned to open an account at Glenview State Bank, and that he would meet Kackert at the bank to repay the $100,000 personal loan Kackert had made to him several months earlier.

Kackert, the appellant here, initially became involved with Popp in March 1980, when Popp turned to him for financial assistance to facilitate the acquisition of Aztec, a woodcrafting plant in Nebraska that Popp and Thomas Jolitz, another INCA incorporator, were trying to purchase out of bankruptcy to perform the actual woodworking on the Kearney project. Kackert met with Popp, Jolitz, and Kothari on numerous occasions to discuss the concept of INCA, which was to serve as a holding company for the recently bankrupt Aztec to alleviate any difficulties Aztec might have in obtaining performance bonds. Popp told Kackert that Kothari was involved in the program to design work, to bring in investors and to bring business into the project. Kackert had several phone conversations with Kothari, met with him and the other INCA incorporators at Kothari's office, and traveled with them to construction conventions in Atlantic City and New York City, where they discussed plans for INCA-Aztec. Kackert flew to Nebraska with Popp and Jolitz to inspect the Aztec facilities and signed documents in the capacity as treasurer of Aztec.

A pre-incorporation agreement for INCA was signed by Kackert, Popp, and Jolitz on or about March 28, 1980. Later that same day, Kackert had occasion to go to the bank to check on a loan application that Popp and Jolitz were supposedly making to get funds pursuant to the agreement to put the INCA-Aztec project together. When Kackert got to the bank, he learned that neither Popp nor Jolitz had attempted to obtain the agreed on line of credit. Kackert called Popp and informed him that he wanted to withdraw from the deal because he was "not comfortable with it", it was "far too voluminous; there were too many loose ends", and "no documentation * * * the performances they were requested to do in every area, for myself, and ultimately in the end, the last straw was the bank * * *."

Popp informed Kackert of the difficult financial position in which Kackert's sudden withdrawal left the project and asked Kackert to make a personal loan of $100,000 to Jolitz, who had already begun to pay bills incurred by INCA-Aztec. Kackert refused to lend the money to Jolitz because he questioned his reputability, but he agreed to make a personal loan to Popp, who secured the loan with assignments of beneficial interests in real estate he owned personally.

After Kackert withdrew from the INCA deal, around March 29, Popp and Jolitz brought in Kothari as the third INCA incorporator. INCA was officially incorporated on April 15, 1980, some three weeks before INCA's bid on the Kearney project was accepted.

As of the beginning of May, Popp had neither repaid Kackert for the personal loan nor paid the bank on the $270,000 loan that was secured in part by Kackert's interest in a certificate of deposit. On May 3rd, Kackert learned that the bank had cashed the certificate of deposit in order to satisfy Popp's overdue loan. From that date forward Kackert, who had cause to believe that "there was nothing there as far as assets for INCA were concerned," aggressively pursued Popp for repayment of the personal loan. To reassure Kackert of payment, Popp informed him that INCA would soon be receiving a substantial deposit, and Kackert was aware of the expected job deposit due INCA from the Kearney deal.

On May 13, Popp called Kackert and told him he had received the earnest money from Kearney. He arranged to meet Kackert at the bank, where he opened an account in INCA's name. Repayment to Kackert of Popp's personal loan was made in the form of an INCA International check drawn on the INCA account. At the time he accepted the INCA check, Kackert was aware that he had loaned the money to Popp personally, that he had never loaned money to INCA, and that INCA owed him no money. Approximately one week after Kackert received the INCA check, Kothari telephoned Kackert to request a personal loan of $25,000. Kackert testified that the proximity of this loan request and repayment from Popp was strictly fortuitous.

Plans for the Kearney project went forward until late June 1980, when Kothari received a Mailgram from the president of Aztec, informing him that due to lack of sufficient operating capital, Aztec had been forced to close its facilities and terminate all its employees. Upon receiving this information, Kearney instructed Kothari to get back the $175,000 earnest money deposit it had paid to INCA. On August 1, Kothari made written demand on INCA for refund of Kearney's job deposit. No demand was ever made on Kackert personally. After demands made to INCA proved fruitless, Kearney instituted the instant action.

Kearney brought a nine count complaint against defendants IDL, Kothari, INCA, Jolitz, Popp and Kackert. The complaint alleged constructive trust, common-law fraud, conversion, deceptive trade practices, breach of contract and conspiracy. At trial, defendants IDL and Jolitz, who had filed for protection under the bankruptcy laws, interposed the automatic stay. INCA defaulted, and the trial proceeded against Kothari, Popp and Kackert. The trial judge found the defendants jointly and severally liable on the counts of constructive trust and conversion. The court found in favor of defendants on all other counts. Defendant Kackert now appeals.

OPINION
I.

After hearing 10 days of testimony and argument and reviewing over 1700 pages of evidence and transcripts, the trial judge found that George Kackert was not an innocent third party without knowledge who might otherwise be insulated from liability to Kearney, and held that Kearney was entitled to judgment against Kackert under the theories of conversion and constructive trust. The trial court found that (1) Kackert had actual knowledge of the source of the funds that he was accepting in the discharge of Popp's personal debts; (2) he understood Popp to be a corporate officer of INCA; and that (3) Kackert was thus charged with knowledge that the...

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