Zegers v. Zegers, Inc.
| Decision Date | 05 May 1976 |
| Docket Number | No. 61164,61164 |
| Citation | 38 Ill.App.3d 546,348 N.E.2d 210 |
| Parties | Raymond V. ZEGERS, Plaintiff-Appellee, Cross-Appellant, v. ZEGERS, INC., etc., et al., Defendants-Appellants, Cross-Appellees. |
| Court | United States Appellate Court of Illinois |
Rathje, Kulp & Monaghan, Chicago (Robert F. Monaghan and Theron L. Rathje, Chicago, of counsel), for defendants-appellants.
Pope, Ballard, Shepard & Fowle, Chicago (Marshal I. McMahon, Paul E. Freehling and Terry Satinover, Chicago, of counsel), for plaintiff-appellee.
Raymond V. Zegers sued Zegers, Inc. and William H. Zegers (William), Suzanne Zegers (Suzanne) and Anna Mae Zegers (Anna Mae), individually, claiming ownership of 20 shares of common stock of Zegers, Inc. issued to him in 1934. Count I of the complaint asks for a determination that plaintiff is a shareholder of the corporation and for payment to him of all cash and stock dividends to which he is entitled on the 20 shares of common stock. Count II requests that plaintifif's preemptive rights to stock issued by the corporation be recognized. Count III is a shareholder's derivative action on behalf of the corporation against the individual defendants charging them with misappropriating corporate funds for personal gain.
The circuit court heard evidence on all three counts. It found for the plaintiff on Count I and ordered that the 20 shares of stock be endorsed by plaintiff, and that plaintiff be paid $50,000 in exchange for his surrender of all rights in the stock. The court dismissed Counts II and III. Both plaintiff and defendants appeal from the circuit court's order as to Count I. Plaintiff also appeals the dismissal of Counts II and III.
Several issues are presented for review, but we need only consider the defense of laches.
Zegers Metalweatherstrip Company, Inc. was founded and operated by Harry Zegers and his son, Harry, Jr. The former was plaintiff's father, the latter was plaintiff's brother. William, president of the corporation from 1960 to at least the time of trial, was the son of Harry, Jr., Suzanne is William's wife and Anna Mae is William's mother. The individual defendants have comprised the board of directors of the corporation since 1962. Zegers Metalweatherstrip Company, Inc. was incorporated in Illinois in 1931 and changed its name to Zegers, Inc. in 1935.
In 1932, Harry Zegers and Harry, Jr., fearing that machinery owned by the company was in danger of being attached by its landlord, caused a fictitious chattel mortgage on the machinery to be recorded running to plaintiff for a loan the chattel mortgage recited was made to the company. Plaintiff concedes that no such loan was ever made.
In 1934, Raymond released the chattel mortgage so the corporation could use the machinery as security for a Bona fide loan from a third party. To show consideration for the release of the chattel mortgage and the payment of the fictitious loan, the company issued 20 of its 55 shares of common stock to the plaintiff. The next year, when the company's name was changed, a new certificate in the same amount was issued in plaintiff's name. The first time plaintiff saw either certificate was in 1936 when he was passing through Chicago and his father showed him both certificates. According to the plaintiff, he left them with his father for safekeeping.
In 1938, the stock issued in plaintiff's name was transferred on the company's books to Anna Mae, and a new certificate for those and other shares was issued to her. Plaintiff claims he was not informed of this transfer until after the institution of this lawsuit. In 1939, Harry, Jr., then secretary-treasurer and a director of the corporation, sent plaintiff, who was in Arizona, the two stock certificates (the original certificate and the one bearing the new corporate name) with the word 'cancelled' written across the front and Harry, Jr.'s signature underneath. A letter from Harry, Jr., asking plaintiff to sign the certificates and return them to the company accompanied the certificates. Plaintiff's wife testified that she and her husband decided that the stock could not be transferred unless plaintiff himself endorsed and surrendered the certificates, the reason being that the certificates stated on their face that the stock is 'transferable only on the books of the Corporation by the holder hereof in person or by Attorney upon surrender of this Certificate properly endorsed.' Plaintiff neither signed nor returned the certificates. Subsequently when he mislaid them, he did not notify the corporation that they were lost or request the issuance of a replacement certificate.
Plaintiff was employed by the corporation in Chicago from 1948 until 1971, most of the time in the capacity of a manufacturer's representative. Plaintiff and his wife discussed the stock certificates during the time of his employment, but did not mention them to plaintiff's father or brother or anyone else connected with the corporation. Plaintiff found the mislaid certificates in 1961, but he and his wife decided not to discuss his shareholder status with anyone because they feared plaintiff would lose his employment with the corporation as had another brother who previously worked there.
In 1965, plaintiff presented a list of his stockholdings in 19 different companies to an attorney he consulted about drafting a will for him. The list did not include stock of Zegers, Inc. The attorney did not remember discussing the Zegers' stock with the plaintiff, although plaintiff testified he showed the certificates to his attorney.
Claude Wells, an auditor for Zegers, Inc., discovered during an audit of the company's books in 1949 that stock certificates issued in plaintiff's name were missing from the corporation's records. Wells testified that he asked plaintiff about the certificates and plaintiff responded that he did not have any stock certificates and was not a shareholder. Wells again asked the plaintiff about the stock years later when Zegers, Inc. decided to file its income tax returns under Subchapter S which required the consent of all the shareholders. Plaintiff's answer to Wells was the same as in 1949. Plaintiff denied having these conversations with Wells and testified that no one else connected with the corporation ever asked him about the lost certificates.
In the 23 years plaintiff was employed by the corporation, 1 it increased its business tenfold, built a new plant and doubled the number of employees. The corporation borrowed money from the individual shareholders and from lending institutions, secured by the pledge of the corporation's stock, and in one instance personally guaranteed by William. The plaintiff acknowledged that he never received any dividends or other communications from the corporation. 2 He testified that he saw the business expanding but did not know its value. Plaintiff first asserted his rights to 20/55ths of the ownership of Zegers, Inc. after being forced to retire in 1971. By that time both his father and brother, Harry, Jr., were dead and William was the corporation's president. This suit was filed shortly thereafter.
The basis for all relief requested by the plaintiff is his claim that he is the owner of the 20 shares of Zegers, Inc. stock and thus entitled to all the rights of a shareholder, both cash and stock dividends, preemptive rights and an accounting of the company's funds, allegedly mismanaged by the three individual defendants as officers and directors. Defendants' position is that plaintiff's delay of 32 years 3 in claiming ownership of the stock constitutes laches which bars recovery.
Laches is such neglect or omission to assert a right over a period of time taken with other circumstances causing prejudice to an adverse party, as will operate to bar relief in equity. (Slatin's Properties, Inc. v. hassler (1973), 53 Ill.2d 325, 330, 291 N.E.2d 641; Anundson v. City of Chicago (1973), 15 Ill.App.3d 1032, 1039, 305 N.E.2d 376.) There is no absolute rule by which laches can be determined (Colucci v. Chicago Crime Commission (1975), 31 Ill.App.3d 802, 334 N.E.2d 461); the application of the doctrine depends on the circumstances of each particular case. (Pyle v. Ferrell (1958), 12 Ill.2d 547, 147 N.E.2d 341; Atwater v. Atwater (1974), 18 Ill.App.3d 202, 309 N.E.2d 632.) As a general rule, to charge a party with laches, it is essential that the party have knowledge of the facts upon which his claim is based. Masters v. Elder (1950), 407 Ill. 512, 95 N.E.2d 360; Gill v. Gill (1972), 8 Ill.App.3d 625, 290 N.E.2d 897, Aff'd., 56 Ill.2d 139, 306 N.E.2d 281.
A major question in this case is the time plaintiff first knew or should have known that his right to ownership of the stock was disputed. Plaintiff claims that this occurred in 1971 when he confronted William with his claim of ownership and was informed that Zegers, Inc. did not consider him a shareholder. Defendants contend that plaintiff's receipt in 1939 of the certificates marked 'cancelled' with the letter from his brother requesting their endorsement and return was notice to him that the corporation did not recognize him as a shareholder. They argue that the plaintiff failed to exercise due diligence in then asserting his ownership and to permit him now to assert his claim would prejudice them.
Even though specific facts may not be known by a party, where the circumstances are such that a reasonable person would be expected to make inquiry regarding them, a party will be charged with laches if he fails to ascertain the truth through readily available channels. (Ater v. Smith (1910), 245 Ill. 57, 91 N.E. 776.) Plaintiff argues that his receipt of the certificates and his brother's letter was not sufficient to put him on notice that the company repudiated his ownership because he had a right to rely on the language in the stock certificate requiring endorsement and surrender. The plaintiff, however, is chargeable with the facts which he...
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