Zokoych v. Spalding

• Decision Date: 19 February 1976
• Docket Number: Nos. 57184,57383,s. 57184
• Parties: Steven ZOKOYCH, Plaintiff-Appellee, v. Bruce SPALDING et al., Defendants-Appellants.
• Court: United States Appellate Court of Illinois

Page 805

344 N.E.2d 805

36 Ill.App.3d 654

Steven ZOKOYCH, Plaintiff-Appellee, v. Bruce SPALDING et al., Defendants-Appellants.

Nos. 57184, 57383.

Appellate Court of Illinois, First District, Third Division.

Feb. 19, 1976.

Rehearing Denied April 1, 1976.

Fortes, Eiger & Shirnick, Chicago, Donovan, Dichtl, Atten, Mountcastle & Roberts, Wheaton, for West Suburban Bank of Lombard.

Jerome Rotenberg, Maurice L. Cowen, Chicago, for Spalding.

Defrees & Fiske, Chicago, for plaintiff-appellee; Edward J. Griffin, Chicago, of counsel.

MEJDA, Presiding Justice.

Plaintiff, Steven Zokoych (Zokoych), commenced action for equitable relief and damages against defendants Bruce Spalding (Spalding), Spalding Manufacturing Company (Spalding Manufacturing), West Suburban Bank of Lombard (Bank), Ample Tool & Mfg., Inc. (Ample), Gay Burke and Robert G. Jaros. An amended complaint was filed and Ample was dismissed as a defendant. Burke and Jaros were dismissed at the close of plaintiff's evidence. After trial without a jury, the court entered a decree which awarded judgment against defendants Spalding, Bank, and Spalding Manufacturing for $40,013.66 compensatory and $30,000 punitive damages, for the total sum of $70,013.66, and costs of suit, and further released and discharged plaintiff from any obligation under his guarantee of Ample's corporate note to defendant Bank, and enjoined defendants from collecting or enforcing the guarantee as to plaintiff. Defendants appealed. Plaintiff cross-appealed from the refusal of the trial court to award him damages for loss of his half ownership in Ample. Defendant Bruce Spalding filed a further appeal which was consolidated here for hearing from an order finding him in contempt of court and imposing a fine of $1,000.

Count I of plaintiff's amended complaint alleged in substance, as to Spalding, Burke, Jaros, and Spalding Manufacturing: in breach of an agreement between them, Spalding did not return plaintiff's pledged stock in Ample and wrongfully purported to act as sole stockholer and owner of Ample and removed plaintiff and his wife as directors of the corporation; Burke and Jaros were purportedly elected as directors; Spalding, Burke and Jaros discharged plaintiff as president and purported to appoint Spalding; these defendants stopped payment of plaintiff's salary as president and wrongfully caused the removal of Ample's machinery and equipment to premises in Addison, Illinois, occupied by Spalding Manufacturing; Spalding and Spalding Manufacturing thereafter used the equipment for their own benefit, have collected and converted to their own use the accounts receivable of Ample and also converted the business and good will of Ample to their own profit. Count I concludes that by reason of said acts Ample was deprived of its operating assets, its activities were completely stopped and its business and good will were injured and destroyed; Ample was prevented from paying its obligations and, due to the action of certain creditors, has been adjudged bankrupt; that Ample is indebted to plaintiff in excess of $50,000, and plaintiff has personally guaranteed other obligations of Ample in excess of $100,000; plaintiff will recover only a small part, if any, of Ample's indebtedness to him; the value of his half ownership of Ample has been destroyed; plaintiff's personal reputation and good will have been damaged; and he has suffered physical and emotional injury. In Count I plaintiff sought the following relief: 1) that he be declared owner of one-half of the outstanding shares of Ample and that Spalding be required to transfer that stock to him; 2) an order setting aside as illegal and void the election of new directors on May 15, 1970, and also the hiring of Spalding as president of Ample; 3) a declaration that plaintiff and his wife are directors and that plaintiff is president; 4) an injunction against defendants enjoining their use of Ample's assets and collection of its accounts receivable; 5) an accounting of the amounts owed to plaintiff by Ample and unpaid salary; 6) judgment for the value of plaintiff's one-half ownership of Ample; 7) a release of plaintiff's guarantees of Ample's debts; and 8) $500,000 compensatory and $500,000 punitive damages.

Count II of the amended complaint alleged that all of the named defendants, including the Bank, 'wrongfully and unlawfully conspired and agreed upon a plan to defraud plaintiff by forcing plaintiff out as an officer and director of Ample, by appropriating and converting to Spalding's use plaintiff's entire stock ownership in Ample, and by appropriating and converting the assets, good will and customers of Ample to the use and profit of Spalding and Spalding Manufacturing Company.' It was further alleged that pursuant to the conspiracy, Spalding, with the cooperation and assistance of Burke, Jaros and the Bank, caused the removal of the machinery and equipment of Ample to the premises of Spalding Manufacturing; that Spalding removed plaintiff as director and discharged him, and appointed himself as president of Ample; that Spalding notified customers of Ample to send money owed Ample and future orders to Spalding Manufacturing; that in furtherance of the plan and conspiracy to force plaintiff out of the control of Ample and to assist Spalding to convert Ample's assests, the Bank accepted and honored checks issued by Ample, and consented to the use by Spalding and Spalding Manufacturing of Ample's machinery and equipment in violation of the security agreement. It alleged that as a result, Ample was deprived of its operating assets, sustained injury to its good will and business, was prevented from paying its obligations and was finally involuntarily adjudged bankrupt. Plaintiff alleged that because of the wrongful acts of defendants he will recover only a portion, if any, of Ample's indebtedness to him; that his ownership has been totally lost and destroyed, that His business reputation and good will have been irreparably destroyed, and that His salary and other benefits were denied him; further, that the wrongful acts of defendants were deliberately calculated to convert the assets and good will of Ample and to injure and damage plaintiff. Substantially the same relief was sought as in the previous count.

The evidence and testimony taken at trial may be summarized as follows. Ample was founded in 1959 by Zokoych (plaintiff) and Spalding. Each owned half of the issued stock. In 1965, Spalding sold to Zokoych his 75 shares which were returned to Ample as treasury stock. Spalding formed Spalding Manufacturing which became a competitor of Ample. During fiscal 1968 and 1969, Ample encountered financial difficulties due to the general downturn of business and Ample's large capital expenditures for machinery and equipment. The number of employees had been increased from approximately 15 to 40 in anticipation of a large volume of business. To maintain its cash flow during this period, Colonial National Bank loaned Ample $60,000 which was secured by a pledge on the home of one James Cerone, a friend of plaintiff's. Ample in turn pledged its 75 shares or treasury stock to Cerone as security. In the spring of 1969 Ample still experienced problems with an insufficient cash flow to meet current operating expenses, and was unable to borrow additional funds from other local lending institutions.

In March of 1969 Zokoych suggested that Spalding return to Ample as a partner. This culminated in a meeting on July 3, 1969, at which Cerone, Zokoych and Spalding discussed Ample's indebtedness and the immediate need of $10,000 to meet its payroll. Later that day, Spalding gave Zokoych a check for $10,000 payable to Ample. Spalding and Zokoych then executed a handwritten memorandum agreement which provided in relevant part that 'Bruce Spalding has purchased one-half (s/2) ownership of Ample Tool & Mfg. Co.' and that 'Spalding & Steven Zoko (sic) will conduct business jointly & all other matters pertaining to Ample Tool & Mfg. Co.' On the same day Zokoych delivered to Spalding his certificate for 75 shares in Ample, endorsed in blank.

Spalding testified that he acquired Zokoych's stock as of July 3, 1969; that Zokoych asked him to purchase Cerone's stock so that Spalding would have 100 per cent of the corporation; and that he paid approximately $54,000 to Cerone on September 18, 1969, and received the treasury stock. He testified that a stock certificate for 150 shares of Ample was issued to him signed by him and Zokoych on November 10, 1969. The certificate, which was admitted as an exhibit, had been torn in half and taped together. Spalding explained that Ample's auditor, Jack Schwartz, saw Zokoych sign the certificate and that Schwartz tore it when he removed it from the corporate minute book. Schwartz denied witnessing Zokoych's signature and denied tearing the certificate. Spalding stated that in August of 1969, when Zokoych told him he could not get the stock held by Cerone without payment, Zokoych agreed to Spalding's payment to Cerone had acquisition of 100 per cent of Ample. It was stipulated, however, that Spalding had advanced only $38,000 to Ample.

Zokoych testified that he and Spalding agreed that the latter would lend additional money to Ample and pay off the Colonial loan, for which Spalding would receive the stock held by Cerone; that Spalding agreed to advance additional sums to Ample and would return to the company to supervise production; and that Spalding demanded Zokoych's stock as security until he received the treasury stock. Zokoych further testified--and was corroborated by Schwartz--that the net amount advanced by Spalding of approximately $38,000 was entered on Ample's books as a lona, not an investment, and that a portion of the funds used to pay off the Colonial loan was received by Spalding from the sale of some of Ample's machinery. After Spalding had possession of the treasury stock he told Zokoych that he would...