Strosberg v. Brauvin Realty Services, Inc.
Annotate this Case
THIRD DIVISION
February 25, 1998
No. 1-95-3601
DAVID M. STROSBERG, )
)
Plaintiff-Appellee, )
Cross-Appellant, ) APPEAL FROM THE CIRCUIT
) COURT OF COOK COUNTY.
v. )
)
BRAUVIN REALTY SERVICES, INC., an )
Illinois corporation, JEROME ) HONORABLE PHILIP
BRAULT, Individually, and CEZAR M. ) FLEISCHMAN, JUDGE
FROELICH, Individually, ) PRESIDING.
)
Defendants-Appellants- )
Cross-Appellees. )
JUSTICE GORDON DELIVERED THE OPINION OF THE COURT:
David M. Strosberg, the plaintiff, brought this action
against Brauvin Realty Services, Inc. (BRSI) alleging breach of
contract based upon BRSI's failure to make payment on a
promissory note allegedly due and owing Strosberg. Strosberg
filed an amended complaint adding Jerome Brault and Cezar
Froelich, BRSI's officers and directors, as additional defendants
alleging fraud, breach of fiduciary duty and interference with
contract. The breach of fiduciary duty claim was dismissed
pursuant to section 2-615 of the Code of Civil Procedure (735
ILCS 5/2-615 (West 1996)). The trial court entered a directed
verdict against Strosberg and in favor of Brault and Froelich on
the fraud claim and granted Brault and Froelich's motion to
strike Strosberg's prayer for punitive damages on his
interference with contract claim. Thereafter, the jury returned
a verdict in favor of Strosberg and against BRSI in the amount of
$151,791.15 on the breach of contract claim and in favor of
Strosberg and against Brault and Froelich each in the amount of
$75,895.57 on the interference with contract claim. The
defendants appeal from the denial of their motion for judgment
notwithstanding the verdict or a new trial. Strosberg cross-
appeals from the striking of his prayer for punitive damages
against Brault and Froelich.
Background Facts:
BRSI was incorporated in approximately 1980 by Sheldon Lavin
and defendants Brault and Froelich to syndicate real estate
limited partnerships. (Lavin left the company in the early
1980's.) As a Subchapter S corporation under the Internal
Revenue Code, all of BRSI's corporate income or loss passed to
BRSI's shareholders. Brault and Froelich served as officers and
directors of BRSI and as general partners of the Brauvin limited
partnerships.
Strosberg became employed by BRSI in 1983 and in 1986 was
promoted to executive vice-president. In approximately August
1986, Brault and Froelich offered Strosberg a twelve percent
shareholder interest in BRSI. At approximately the same time, a
five percent interest was given to BRSI chief financial officer
Donald Drag.
In 1986, working capital for BRSI was furnished by loans
made to it by its shareholders in proportion to their shareholder
interests in BRSI. The shareholders used income that would have
been paid to them by BRSI. For tax purposes, that income was
channeled to another Subchapter S corporation, Brauvin Advisory
Services, Inc. The dividend payments to Brauvin Advisory
Services allowed BRSI's shareholders to defer taxes for
approximately one year. The funds for the shareholder loans to
BRSI were wire transferred from Brauvin Advisory Services to
BRSI. BRSI recorded the loans on its books and issued promissory
notes to its shareholders.
The loan that is the subject of the instant dispute was made
by Strosberg to BRSI on January 15, 1987 in the amount of
$75,342.12. Strosberg testified that the terms of the loan
required repayment in two years and interest. He stated that at
the time the loan was made he was given a unanimous consent of
BRSI's board of directors, signed by Brault and Froelich,
authorizing BRSI to accept the loan from Strosberg, and a
typewritten note. Strosberg testified that he returned both
documents to BRSI's chief financial officer, Donald Drag,
pursuant to Drag's request. He stated that later during the
first quarter of 1987 he was given a new note after the original
note he had given Drag became lost. Strosberg identified the
subsequent note and the unanimous consent as Plaintiff's Exhibits
6B and 6A, respectively. The later note, also dated January 15,
1987, was captioned "Non-Negotiable, Non-Transferable Demand
Promissory Note." It contained a signature line for Brault,
BRSI's president, to sign on BRSI's behalf as maker. That line
was left blank without signature. However, notwithstanding the
absent signature, there was a pre-signed attestation by Froelich
as BRSI's secretary.
In December 1987, BRSI obtained a $1.25 million line of
credit from Exchange National Bank (ENB). At ENB's request,
BRSI's shareholders, including Strosberg, were asked to sign
subordination agreements subordinating their loans to BRSI to the
$1.25 million line of credit extended to BRSI by ENB. Strosberg
testified that Donald Drag gave him the subordination agreement
to sign and a $75,342.12 note to endorse over to ENB. The pre-
printed note, Plaintiff's Exhibit 7, dated January 15, 1987, was
signed by Froelich on BRSI's behalf as maker and was made payable
to Strosberg's order in the amount of $75,342.12. Strosberg
testified that that "printed note was for the $75,342.00 loan
that we've been talking about." He further testified that he
endorsed the back of the note to ENB "for collateral purposes
only."
The other BRSI shareholders, Froelich, Brault and Drag,
signed similar subordination agreements and endorsed their notes
representing their outstanding loans to BRSI. In accordance with
the terms of the subordination agreement, each agreed to
subordinate the indebtedness evidenced by their notes to any and
all debts which BRSI "may now or at any times hereafter" be
liable to ENB. The subordination agreement also provided that:
"This Agreement shall be continuing, irrevocable and
binding on the Undersigned and on the heirs, personal
representatives, successors and assigns of the initial
Undersigned and shall inure to the benefit of ENB, its
successors and assigns."
Each subordination agreement also was assented to by BRSI. In
its "Debtor's Assent," BRSI agreed to abide by the terms of the
subordination agreement and agreed not to make any payments
contrary to the intention of that agreement.
Strosberg testified at trial that when he "signed" the back
of the $75,342.12 note "for collateral purposes only," he did not
intend to give ENB a right to enforce that note. He understood
and intended that his signature evidence ENB's interest in the
subordination of his loan. Drag also testified that he did not
realize that he had assigned his note or otherwise "signed" his
note over to ENB. He stated that he thought he had only
subordinated his note.
Strosberg resigned from BRSI in 1989. Strosberg testified
that before he left BRSI's employment, he requested that the
January 15, 1987 note be paid out. He also made a written demand
for satisfaction on March 16, 1989. At that time, BRSI owed ENB
approximately $1 million. BRSI did not pay Strosberg. Strosberg
then requested that ENB waive its rights under the subordination
agreement; ENB refused. In March 1990 ENB refused to renew
BRSI's line of credit. In April 1990, BRSI drew $1.3 million on
its $1.5 million line of credit from American National Bank and
repaid ENB all but $50,000. The remaining $50,000 was converted
into a time note signed by Brault, as president of BRSI.
On July 18, 1990, Strosberg wrote to ENB again asking ENB to
permit BRSI to pay out his note. Strosberg also offered to
purchase BRSI's $50,000 time note issued to ENB at its current
principal amount in an effort to control and release the
subordination agreements that remained in effect due to BRSI's
outstanding indebtedness to ENB so that he could obtain full
repayment of his own loan. ENB reported Strosberg's offer to
Brault and Froelich who then personally purchased BRSI's $50,000
time note to ENB for $50,000 in cash on August 14, 1990. ENB
endorsed the $50,000 note: "Pay to the order of Jerome Brault
and Cezar Froelich or their order without recourse." In addition
to receiving the $50,000 time note from ENB, Brault and Froelich
received a written "Assignment of Note" assigning "all of [ENB's]
rights, title and interest in and to that certain note dated
April 1, 1990 from Brauvin Realty Services, Inc. to Exchange
National Bank ("ENB") in the principal amount of Fifty Thousand
Dollars." They also received the original subordination
agreements and notes signed and endorsed by Strosberg, Drag and
themselves in their personal capacities. ENB did not endorse the
subordination agreements or notes subject to the subordination
agreements to Brault and Froelich. Brault testified at trial
that while the assignment of the $50,000 time note was silent as
to the latter documents, the purchase agreement between ENB and
Brault and Froelich called for Brault and Froelich to receive all
documents relating to the $50,000 time note. Brault stated that
he and Froelich would not have purchased the $50,000 time note if
they "were not getting everything."
At trial, Strosberg presented evidence showing that BRSI had
funds to repay Strosberg. Jerome Levy, Donald Drag's successor
as BRSI's chief financial officer, testified that on the day
after BRSI paid down its line of credit to ENB to $50,000 Brault
and Froelich each received $38,000 from BRSI. While Brault
denied the payment, Froelich claimed that it was made in
repayment of an end-of-the-year loan made to BRSI for tax
purposes. According to Froelich, the loan proceeds created a tax
basis in BRSI upon which Brault and Froelich could then take a
tax loss. Froelich stated this loan, which was to be repaid the
following quarter, was not subordinated to ENB's loan. He stated
that ENB was aware of that transaction and had loaned Brault and
Froelich the funds to give to BRSI for that particular tax
purpose.
Strosberg also presented evidence that BRSI repaid Brault
and Froelich on two $250,000 loans that they made to BRSI on May
3, 1989. Those loans were subject to subordination agreements
signed by Brault and Froelich on May 3, 1989 having identical
language to the subordination agreement signed by Strosberg. At
trial, Brault admitted the repayment but testified that it
occurred with the agreement of ENB.
Issues:
On appeal, the defendants argue that the trial court erred
in denying their motion for judgment notwithstanding the verdict
or, alternatively, for a new trial. BRSI argues that it was not
liable for breach of its loan agreement with Strosberg. It
argues that Strosberg could not produce the promissory note
evidencing the loan since he endorsed and transferred that note
to ENB who in turn transferred it to Brault and Froelich. BRSI
also argues that it was precluded from making payment on that
note under the terms of the subordination agreement which had
been assigned to Brault and Froelich. Brault and Froelich argue
that they were not liable for intentional interference with
contract because the evidence showed their actions were justified
and without malice. Brault and Froelich alternatively argue that
they are entitled to a new trial because the trial court made
erroneous evidentiary rulings, tendered erroneous jury
instructions, and erroneously granted Strosberg's late jury
demand. Strosberg, in the event this court orders a new trial,
raises by cross-appeal, the contention that the trial court erred
in striking his prayer for punitive damages with respect to his
interference with contract claim against Brault and Froelich.
Discussion:
I. Breach of Contract
In an action with respect to a negotiable instrument, the
plaintiff producing the instrument is entitled to payment if he
proves the validity of the signatures on the instrument and
entitlement to enforce the instrument. 810 ILCS 5/3-308 (West
1996). See 810 ILCS 5/3-203, Uniform Commercial Code Comment, at
81 (West 1996) (the right to payment is represented by the
negotiable instrument). See generally 28 Ill. Law & Practice
Negotiable Instruments 301 (1957) (plaintiff cannot recover on a
negotiable instrument unless he produces the instrument since the
law presumes that the instrument has been paid or put into
circulation if not produced). Section 3-301 of the Uniform
Commercial Code (UCC) (810 ILCS 5/3-301 (West 1996)) provides
that a person is entitled to enforce a negotiable instrument if
he is the holder of the instrument, if he is a nonholder in
possession of the instrument who has the rights of a holder or if
he is not in possession of the instrument but is entitled to
enforce the instrument pursuant to section 3-309 or 3-418(d). A
holder of a negotiable instrument is any person in possession, if
the instrument is payable to bearer, but, in the case of an
instrument payable to an identified person, only the identified
person in possession is a holder. 810 ILCS 5/1-201(20) (West
1996). Under section 3-301, a person who does not have
possession of the instrument can enforce it if the person was in
possession of the instrument and was entitled to enforce it but
the instrument was lost, destroyed or stolen (see 810 ILCS 5/3-
309 (West 1996)) or if the instrument was paid previously by
mistake (see 810 ILCS 3-418(d)(West 1996)). 810 ILCS 5/3-301
(West 1996).
In the instant case the testimony showed that BRSI had given
three notes to Strosberg relative to Strosberg's January 1987
loan of $75,342.12 to BRSI. According to Strosberg, the first
note was lost. Strosberg was not seeking to enforce that note
nor could he since he admitted that other superseding notes had
subsequently been issued relative to the same loan. Strosberg
contends that he is a holder in possession of the second note
issued by BRSI to him after the first note was lost. That note,
Plaintiff's Exhibit 6B, was allegedly received by Strosberg from
BRSI during the first quarter of 1987. It was dated January 15,
1987 and was captioned "Non-Negotiable, Non-Transferable Demand
Promissory Note." While it contained a signature line for BRSI's
president, Jerome Brault, it was not signed by Brault. Froelich
signed the note as an attesting witness. However, since that
note was not signed, it was not effective. See 810 ILCS 5/3-
103(a)(6), 103(a)(9) (requiring written order or promise to pay
signed by person giving instruction to pay or undertaking promise
to pay).
It is clear from the evidence at trial that the third note
issued by BRSI to Strosberg in December 1987, Plaintiff's Exhibit
7, replaced and superseded the second unsigned "note" for
$75,342.12. This conclusion is supported by the actions of the
parties and by Strosberg's own testimony in which he admitted
that the third note, a pre-printed promissory note issued in
December 1987, related to his January 1987 $75,342 loan to BRSI.
He admitted that the third note was given to him by Donald Drag
when Drag gave him the subordination agreement to sign. The
evidence shows that Strosberg signed the subordination agreement;
that he endorsed the promissory note issued in December 1987 to
ENB "for collateral purposes only"; and that those documents were
delivered to ENB as required by the December 1987 subordination
agreement.
BRSI argues that Strosberg cannot enforce the third note
because he does not have possession of it (see 810 ILCS 5/3-
301(i) (West 1996)) since he transferred the note to ENB who in
turn assigned it to Brault and Froelich. Strosberg apparently
concedes that he does not have possession of the third note. He
argues, however, that he is entitled to enforce that note because
his loss of possession was not the result of a valid transfer.
810 ILCS 5/3-309 (West 1996). He argues that he did not intend
to transfer the note to ENB because he did not give ENB a right
to enforce the note. See 810 ILCS 5/3-203(a) (West 1993) (an
instrument is transferred when it is delivered by a person other
than the issuer for the purpose of giving to the recipient the
right to enforce the instrument). Strosberg contends that he
gave the note to ENB as an assurance that he would not seek
satisfaction of the note before ENB's loans to BRSI were repaid.
He further contends that, even if his actions could be construed
to have transferred the note to ENB, there was no evidence to
support a finding that the note was validly assigned to Brault
and Froelich. He states that absent such a valid assignment,
"when [ENB] was made whole, the draft note and Subordination
Agreement should have been returned to [him]." Strosberg
contends that, since the documents were not returned to him, they
should be "deemed lost or wrongfully in the possession of BRSI"
(see 810 ILCS 5/3-309 (West 1996)) thereby making him a person
entitled to enforce the note (see 810 ILCS 5/3-301(iii) (West
1996)).
We agree with BRSI and find that the $75,342.12 promissory
note was transferred by Strosberg to ENB and that it was assigned
by ENB to Brault and Froelich. An instrument is transferred when
it is delivered by a person other than its issuer for the purpose
of giving to the recipient the right to enforce the instrument.
810 ILCS 5/3-203(a) (West 1996). The evidence shows that
Strosberg did more than give custody of the note to ENB to assure
subordination of that note to BRSI's indebtedness to ENB. Before
the note was delivered to ENB, Strosberg endorsed it "for
collateral purposes only." Collateral is defined as "[p]roperty
which is pledged as security for the satisfaction of a debt."
Black's Law Dictionary 261 (6th ed. 1990). It is defined under
Article 9 of the Uniform Commercial Code as "property subject to
a security interest." 810 ILCS 5/9-105(c) (West 1996). By
endorsing the note to ENB "for collateral purposes only,"
Strosberg pledged his note as security for satisfaction of BRSI's
debt to ENB and gave ENB, the secured party, rights in the
collateral including the right to sell or otherwise dispose of
the collateral after default. See 810 ILCS 5/1-201(37) (West
1996) (a security interest is "an interest in personal property *
* * which secures payment or performance of an obligation"). See
generally Peter F. Coogan, Homer Kripke & Fredric Weiss, The
Outer Fringes of Article 9: Subordination Agreements, Security
Interests in Money and Deposits, Negative Pledge Clauses, and
Participation Agreements, 79 Harv. L. Rev. 229, 241 (1965)
(hereinafter Coogan, Kriptke & Weiss, The Outer Fringes of
Article 9) (a secured party's principal right in the collateral
is to sell or otherwise dispose of it after default). By giving
ENB these rights of enforcement, Strosberg transferred his note
to ENB and made ENB a holder. See 810 ILCS 5/3-201 (West 1996)
(the status of holder can arise when the instrument is negotiated
and possession is transferred by a person other than the issuer
to a person who thereby becomes a holder).
This conclusion is further buttressed by language in the
subordination agreement executed as part of the same transaction.
See Ill. Rev. Stat. 1987, ch. 26, par. 3-119(1) (the terms of a
written instrument may be modified or affected by any other
written agreement executed as a part of the same transaction).
See also Main Bank v. Baker, 86 Ill. 2d 188, 427 N.E.2d 94
(1981); Basu v. Stelle, 237 Ill. App. 3d 113, 603 N.E.2d 1253
(1992) (when a negotiable instrument is executed at the same time
as another writing as part of the same transaction, the documents
must be read together as a single agreement). While
subordination agreements generally are not treated as security
agreements giving security interests in the property of the
subordinated creditor,[fn1] such a result can occur if the
parties to the subordination agreement intend to create a
security interest. See 810 ILCS 5/1-209, Uniform Commercial Code
Comment at 59 (West 1996)). See generally 1A R. Anderson,
Uniform Commercial Code 1-209:11, at 479 (3d ed. 1996 rev.)
(stating a subordination agreement can function as a security
agreement when the intent is clearly expressed in the
subordination agreement to grant the creditor a security
interest). If the junior or subordinating creditor's debt is in
existence and he has rights against the debtor at the time the
subordination agreement is entered into, and if he gives the
senior creditor those rights to secure payment of the common
debtor's obligation to the senior creditor, it can be argued that
the effect of the subordination agreement is to create a security
interest. Coogan, Kriptke & Weiss, The Outer Fringes of Article
9, at 246.
Here, language in the subordination agreement gave ENB a
security interest in the promissory note BRSI issued to
Strosberg. Paragraph (D) of that agreement provided in pertinent
part that Strosberg
"subrogates ENB to the Undersigned's Claims and the
Undersigned's Collateral and assigns, endorses and
delivers to and deposits with ENB all agreements,
instruments and documents evidencing the Undersigned's
Claims, including the note(s) described above, and the
Undersigned's Collateral and in connection therewith,
the Undersigned hereby irrevocably authorizes ENB (i)
to collect, receive, enforce and accept any and all
sums or distributions of any kind that may become due,
payable or distributable on or in respect to the
Undersigned's Claims or the Undersigned's Collateral,
whether paid directly by Debtor or paid or distributed
in any bankruptcy, receivership, reorganization or
dissolution proceedings or otherwise; * * *."
By agreeing to assign, endorse and deliver to ENB the $75,342.12
note and by agreeing to give ENB the right to collect, receive
and enforce Strosberg's claim and collateral, Strosberg gave ENB
a security interest in the promissory note. See In re Data Entry
Service Corp., 81 Bankr. 467, 469-70 (Bankr. N.D. Ill. 1988)
(agreement to give creditor rights in the collateral and to
collect or cause to be collected or otherwise to be converted
into money all or any part of the collateral is an agreement to
give a security interest); Mid-Eastern Electronics, Inc. v. First
National Bank, 455 F.2d 141 (4th Cir. 1970) (an assignment of
"all monies due or which may become due" arising under a contract
constitutes a security agreement). See also Coogan, Kriptke &
Weiss, The Outer Fringes of Article 9, at 241. Since the
language in the subordination agreement and the endorsement of
the note are clear on their face, parol evidence of Strosberg's
intention not to create a security interest is inadmissible.
Mitchell v. Shepherd Mall State Bank, 458 F.2d 700 (10th Cir.
1972); Joseph v. Lake Michigan Mortgage Co., 106 Ill. App. 3d
988, 436 N.E.2d 663 (1982).
Strosberg argues, however, that even if he negotiated his
note to ENB and transferred to ENB his right to enforce the note
against BRSI, ENB did not assign the note to Brault and Froelich.
In support of this contention he argues that there was no valid
assignment of the note by ENB to Brault and Froelich because ENB
did not endorse the note or subordination agreement to them;
because neither the "Assignment of Note" signed by ENB nor the
$50,000 time note endorsed by ENB to Brault and Froelich
referenced the $75,342.12 promissory note issued to Strosberg;
and because the evidence showed that ENB sent the $75,342.12
promissory note to BRSI, not Brault and Froelich. BRSI argues
that ENB assigned the note to Brault and Froelich when they
purchased the $50,000 time note.
When negotiable paper is purchased, the holder of that paper
acquires all the rights of his assignor, including the right to
receive such collateral as his assignor may have had. Brainerd,
Shaler & Hall Quarry Co. v. Brice, 250 U.S. 229, 39 S. Ct. 458
(1919); Marx v. McKinney, 23 Cal. 2d 439, 144 P.2d 353 (1943);
Kornitz v. Commonwealth Land Title Insurance Co., 81 Wis. 2d 322,
260 N.W.2d 680 (1978). See generally 6A C.J.S. Assignments 76,
at 720 (1975) (an unqualified assignment of a debt or obligation
ordinarily carries with it, as incidents, all rights of priority
or preference, as well as all collateral securities and all
rights incidental thereto, previously held by the assignor).
There need not be a formal assignment of the underlying security
in order for the assignee to have rights in that security. See
Brainerd, 250 U.S. 229, 39 S. Ct. 458 (assignment of
remainderman's interest in estate carried with it the assignment
of the surety bond given to secure the life tenant's obligation
to the remainderman to repay the estate despite a lack of formal
assignment of the bond by the assignor/remainderman to the
assignee).
Here, as concluded above, Strosberg's endorsement on the
$75,342.12 promissory note to ENB "for collateral purposes only,"
viewed alone or in combination with the subordination agreement,
operated to give ENB security for its loans to BRSI. In April
1990, that loan was reduced to $50,000 and became evidenced by a
$50,000 time note issued by BRSI to ENB. When Brault and
Froelich purchased that note, ENB assigned to them "all of
[ENB's] rights, title and interest in and to that certain note
dated April 1, 1990 from Brauvin Realty Services, Inc. to
Exchange National Bank ("ENB") in the principal amount of Fifty
Thousand Dollars." The purchase of that negotiable paper and the
assignment of that time note gave to Brault and Froelich, as
holders of that paper, all the rights of ENB, their assignor,
including the right to receive such collateral as ENB may have
had even without a specific reference to that collateral. See
Brainerd, 250 U.S. 229, 39 S. Ct. 458; Marx, 23 Cal. 2d 439, 144 P.2d 353; Young, 180 Ill. App. 3d 280, 535 N.E.2d 977; Kornitz,
81 Wis. 2d 322, 260 N.W.2d 680. Thus, Brault and Froelich, as
holders of the time note, had the right to receive the $75,342.12
promissory note and the subordination agreement given to ENB as
collateral for ENB's loans to BRSI even though the assignment of
the time note made no mention of those documents. As a result,
Brault and Froelich had a right to possess the promissory note,
and Strosberg could not enforce that note as a nonpossessor
pursuant to section 3-309 of the UCC (see 810 ILCS 5/3-309 (West
1996)). See 810 ILCS 5/3-301(iii) (West 1996).
Argument could be made, however, that the $50,000 time note
was unsecured because it stated on its face that no security was
being pledged for its payment and that, thus, no collateral, such
as the $75,342.12 promissory note, passed to Brault and Froelich
as assignees of the time note. We disagree. As previously
discussed, the language in the subordination agreement and the
endorsement on the promissory note clearly showed that ENB's loan
to BRSI was collateralized. The failure to designate that
collateral on the time note can be readily explained by the
nature of that collateral which merely evidenced a further
payment obligation by BRSI as a general creditor. Thus, in
becoming a pledgee of the $75,342.12 Strosberg note, ENB did not
in reality acquire more security than it would have had if
Strosberg's note was merely subordinated. Moreover, any factual
issue regarding whether a security interest passed with the time
note is not essential to resolution of this case. Even if the
promissory note did not secure the time note, it is clear that
the promissory note was carried with the time note as an
attachment to the subordination agreement. The unqualified
assignment of the time note carried with it, as incidents, all
rights of priority or preference given in the subordination
agreement, namely, a preference in payment for "any and all
debts, demands, claims, liabilities * * * which the [BRSI] may
now or at any time or times hereafter in any way be liable to ENB
under any agreement, instrument or document executed and
delivered or made by [BRSI] to ENB." (Emphasis added.) See 6A
C.J.S. Assignments 76, at 720 (1975).
Strosberg argues that ENB's rights under the subordination
agreement were extinguished when ENB was made whole by Brault and
Froelich's purchase of the time note and that the subordination
agreement and promissory note should have been returned to
Strosberg. We disagree. In Rovak v. Parkside Veterans' Homes
Project, Inc., 8 Ill. App. 2d 310, 132 N.E.2d 11 (1956), such a
contention was rejected. In that case, the plaintiffs, signed a
standby agreement in which, like the subordination agreement here
at bar, they agreed not to take action to enforce their claim
against the debtor, Parkside Veterans' Home Project, Inc.
(Parkside), until Parkside's indebtedness to Reconstruction
Finance Corporation (RFC) had been paid. RFC subsequently
assigned its note from Parkside to Shaffer and Mandel who
purchased from RFC the balance of Parkside's indebtedness. RFC
also assigned the standby agreement to Shaffer and Mandel, the
purchasers of the note. Thereafter, the plaintiffs sued Parkside
under the standby agreement seeking payment of Parkside's debt to
them. The court dismissed their action as premature finding that
the purchase of the note by Shaffer and Mandel did not discharge
Parkside's indebtedness to RFC, and accordingly did not terminate
plaintiff's obligations under the standby agreement. The court
found that Shaffer and Mandel, as purchasers of the note, were
entitled to the rights and reservations enjoyed by RFC pursuant
to the standby agreement. See also Holcomb State Bank v. Federal
Deposit Insurance Corp., 180 Ill. App. 3d 840, 536 N.E.2d 453
(1989) (bank's sale of a negotiable instrument does not discharge
the debt in any sense).
Here, as in Rovak, BRSI's indebtedness to ENB was not
discharged or extinguished when ENB sold to Brault and Froelich
the time note evidencing BRSI's indebtedness. Also, as in Rovak,
the rights and reservations enjoyed by ENB under the contractual
terms of the subordination agreement would inure to ENB's
assignees of the note and subordination agreement. While in
Rovak, unlike in the instant case, the subordination agreement
was assigned in writing to the note's purchasers, that factual
distinction is not fatal. As discussed above, the subordination
agreement and the promissory note subject to that agreement were
carried with the time note as being incident thereto. Moreover,
we believe that there can be no question under the evidence
presented that the subordination agreement and promissory note
were assigned to Brault and Froelich by ENB pursuant to an oral
agreement of assignment. See Young, 180 Ill. App. 3d 280, 535 N.E.2d 977 (the intent of the parties to an assignment is a
question of fact to be derived not only from the instrument
executed by the parties, but also from the surrounding
circumstances).
The existence of an assignment is dependent upon proof of
intent to make an assignment and that intent must be manifested.
Season Comfort Corp. v. Ben A. Borenstein Co., 281 Ill. App. 3d
648, 655 N.E.2d 1065 (1995). As stated in the Restatement
(Second) of Contracts, "An assignment of a right is a
manifestation of the assignor's intention to transfer it by
virtue of which the assignor's right to performance by the
obligor is extinguished in whole or in part and the assignee
acquires a right to such performance." Restatement (Second) of
Contracts 317(1) (1981). When a valid assignment is effected,
the assignee acquires all of the interests of the assignor in the
property that is transferred. E.g., Community Bank v. Carter,
283 Ill. App. 3d 505, 669 N.E.2d 1317 (1996); Young v. Chicago
Federal Savings & Loan Ass'n, 180 Ill. App. 3d 280, 535 N.E.2d 977 (1989). See generally 1A R. Anderson, Uniform Commercial
Code 1-209:17, at 481 (3rd ed. 1996 rev.) (the assignee of a
party to a subordination agreement is entitled to the benefits
and is subject to the burdens of the agreement). In Illinois,
oral assignments are valid, unless expressly prohibited by
statute. Charles Poch, Inc. v. National Tire Services, Inc. (In
re National Tire Services, Inc.), 201 Bankr. 788 (Bankr. N.D.
Ill. 1996) (an assignment occurs when there is a transfer either
written or oral of some identifiable interest from the assignor
to the assignee); Buck v. Illinois National Bank & Trust Co., 79
Ill. App. 2d 101, 223 N.E.2d 167 (1967). When there is no
writing to evidence the intention to transfer some identifiable
property, claim or right, it is necessary to scrutinize the
surrounding circumstances and acts of the parties to ascertain
their intentions. Buck, 79 Ill. App. 2d 101, 223 N.E.2d 167.
Here, the evidence at trial, when viewed in a light most
favorable to Strosberg (see, e.g., Pedrick v. Peoria & Eastern R.
Co., 37 Ill. 2d 494, 229 N.E.2d 504 (1967)), overwhelmingly
established an intention by ENB and by Brault and Froelich that
ENB assign to Brault and Froelich its rights under the
subordination agreement and its right to hold the promissory note
for custodial purposes to effectuate the subordination. Brault
testified, without contradiction, that the agreement with ENB
regarding the purchase of the time note was that ENB "would
deliver to us unequivocally all right, title, and interest and
everything that went with that note." He stated that he and
Froelich would not have purchased the time note if they "were not
getting everything." Brault stated that the delivery of the
subordination agreement signed by Strosberg and the promissory
note occurred "when the assignment was given to us by the
Exchange bank."
Strosberg argues that the testimony showed that ENB sent the
subordination agreements and promissory notes to BRSI rather than
to Brault and Froelich. In support of this contention, he cites
only to Brault's testimony in which Brault stated that the
subordination agreement signed by Strosberg and the $75,342.12
promissory note attached to it "have been in the possession of
Brauvin Realty Services, Inc." However, a reading of Brauvin's
entire testimony shows that he also stated that the subordination
agreement and promissory note were delivered "to us at the same
time that the other documents were delivered to us when we signed
-- the assignment was given to us by the Exchange Bank."
(Emphasis added.) Upon further questioning, Brault testified as
follows:
"Q: And when did you obtain possession of those
documents?
A: We obtained possession of these * * * documents at
the same time we obtained the other documents from the
Exchange National Bank. It was of the time that the
assignment was made to us.
Q: And who has had possession of those documents
since that time?
A: They have been held by Brauvin Realty Services.
Q: When you say Brauvin Realty Services, do you mean
physically on the premises of Brauvin Realty Services?
A: That is correct." (Emphasis added.)
There can be no question from this uncontradicted testimony that
the subordination agreement and $75,342.12 promissory note were
sent by ENB to Brault and Froelich at their business address,
BRSI's premises. Brault and Froelich purchased the time note in
their personal capacities with their personal funds and were
entitled to receive all rights incidental thereto including the
subordination agreement and subordinated promissory note. Most
convincingly, the uncontradicted testimony at trial showed that
Brault and Froelich personally purchased the time note in order
to recover the subordination agreement signed by Strosberg and
the $75,342.12 subordinated promissory note to prevent Strosberg
from seeking payment of his loan to BRSI. In point of fact,
Strosberg posited that very conclusion to support his intentional
interference with contract claim against Brault and Froelich.
Thus, when the evidence is viewed in a light most favorable
to the plaintiff, it overwhelmingly supports a judgment in BRSI's
favor. See, e.g., Pedrick, 37 Ill. 2d 494, 229 N.E.2d 504. BRSI
was not liable to Strosberg on the $75,342.12 promissory note
because Strosberg could not enforce that note since he did not
have possession of it and his nonpossession was not the result of
a wrongful possession by Brault and Froelich. Moreover, BRSI was
not liable to Strosberg because that promissory note remained
subordinated to the time note purchased by Brault and Froelich in
accordance with the subordination agreement that was assigned to
Brault and Froelich as an incidental right to the time note. See
Rovak, 8 Ill. App. 2d 310, 132 N.E.2d 11 (1956). BRSI, having
assented to the subordination agreement between Strosberg and
ENB, was bound by its terms and could not repay Strosberg's loan
or satisfy the promissory note that it issued to Strosberg. See
Rovak, 8 Ill. App. 2d 310, 132 N.E.2d 11; Culp v. Tri-County
Tractor, Inc., 112 Idaho 894, 736 P.2d 1348 (Ct. App. 1987)
(debtor entitled to invoke subordination agreement between
creditors as a defense to junior creditor's default claim against
debtor). Therefore, BRSI's failure to repay Strosberg's note was
not a breach of its loan agreement with Strosberg; and judgment
entered in favor of Strosberg and against BRSI must be reversed.
II. Interference with Contract
Defendants Brault and Froelich argue that they were entitled
to judgment notwithstanding the verdict on Strosberg's
interference with contract claim. They contend that Strosberg
failed to establish that they intentionally and unjustifiably
induced BRSI to breach its contract with Strosberg; that BRSI
actually breached its contract with Strosberg; or that Strosberg
suffered any damage. They contend that their actions, as
corporate officers of BRSI, were privileged and the result of
their business judgment to protect BRSI. Finally, they contend
that, since their actions were privileged, Strosberg was required
to establish actual malice which he failed to do.
In order to establish an action for intentional interference
with contract, a plaintiff must plead and prove: (1) the
existence of a valid, enforceable contract between the plaintiff
and a third party; (2) defendant's knowledge of that contract;
(3) defendant's intentional and unjustified inducement of the
third party to breach the contract; (4) a subsequent breach by
the third party resulting from defendant's wrongful conduct; and
(5) damages suffered by the plaintiff as a result of the breach.
E.g., Voutiritsas v. Intercounty Title Co., 279 Ill. App. 3d 170,
664 N.E.2d 170 (1996); Reuben H. Donnelley Corp. v. Brauer, 275
Ill. App. 3d 300, 655 N.E.2d 1162 (1995). If the plaintiff's
complaint raises the issue of privilege or justification on its
face, then the plaintiff has the burden of pleading and proving
lack of justification or malice. Roy v. Coyne, 259 Ill. App. 3d
269, 630 N.E.2d 1024 (1994). In the context of claims for
tortious interference with contract, malice does not require a
showing of ill will, hostility or intent to injure; rather, it
requires a showing that the defendant acted intentionally and
without just cause. Roy, 259 Ill. App. 3d 269, 630 N.E.2d 1024;
Muthuswamy v. Burke, 269 Ill. App. 3d 728, 646 N.E.2d 616 (1993).
A necessary prerequisite to the maintenance of an action for
tortious interference with contract is a defendant's intentional
and unjustified inducement of a breach of contract.
Futurevision, Inc. v. Dahl, 139 Ill. App. 3d 61, 487 N.E.2d 127
(1985). While it is not necessary to show breach of contract to
establish the tort of intentional interference with prospective
business relation or economic advantage,[fn2] that is not the
tort pled nor argued in this case. Here, the plaintiff pled and
argued intentional interference with contract; and in order to
establish that tort there must be evidence of a breach of
contract caused by the defendant. Goldberg v. Miller, 874 F. Supp. 874 (N.D. Ill. 1995); Futurevision, 139 Ill. App. 3d 61,
487 N.E.2d 127. See Voutiritsas, 279 Ill. App. 3d 170, 664 N.E.2d 170 (1996) (tortious interference with contract action
could not be alleged where breach occurred before defendant's
alleged conduct). For the reasons discussed in part I of this
order, the evidence, when viewed in a light most favorable to the
plaintiff, did not establish that BRSI breached its loan
agreement with Strosberg. BRSI was not required to repay
Strosberg nor could Strosberg assert a right to repayment because
Strosberg did not possess the note and was not a holder of the
$75,342.12 note issued to him by BRSI and because Strosberg's
right to repayment of the loan was subordinated to the $50,000
time note issued by BRSI to ENB which was assigned by ENB to
Brault and Froelich along with the subordination agreement. In
accordance with that agreement, since BRSI had not paid out the
$50,000 time note, it could not repay its $75,342.12 obligation
to Strosberg and, thus, was not in breach of its loan agreement
with Strosberg. Accordingly, since Strosberg did not establish
the breach element of his tortious interference with contract
count, defendants Brault and Froelich were entitled to judgment
notwithstanding the verdict. See Goldberg, 874 F. Supp. 874;
Futurevision, 139 Ill. App. 3d 61, 487 N.E.2d 127.
Our findings in this regard make it unnecessary to reach
defendants' other contentions with respect to Strosberg's
tortious interference with contract count. It also becomes
unnecessary to reach defendants' contentions with respect to
various alleged trial errors which they raised in support of
their alternative request for a new trial and plaintiff's cross-
appeal regarding the trial court's refusal to allow plaintiff
punitive damages on his tortious interference with contract
claim.
For the foregoing reasons, the judgment of the circuit court
of Cook County is reversed.
Reversed.
LEAVITT, P.J. and COUSINS, J., concur.
[fn1]Under the typical subordination agreement, the
subordinating creditor (the junior creditor) does not give the
senior creditor the right to sell or otherwise dispose of the
collateral nor is the senior creditor given possession of the
collateral evidencing the subordinated indebtedness. Peter F.
Coogan, Homer Kriptke & Fredric Weiss, The Outer Fringes of
Article 9: Subordination Agreements, Security Interests in Money
and Deposits, Negative Pledge Clauses, and Participation
Agreements, 79 Harv. L. Rev. 229, 241 (1965).
[fn2]Where recovery for intentional interference with a
prospective business relation or economic advantage is sought,
the plaintiff need not prove breach of contract. The former
action recognizes the privilege of competition as an affirmative
defense provided the defendant's actions are not motivated solely
by spite or ill will. That defense is not applicable with
respect to the tort of intentional interference with contractual
relations. See generally Soderlund Brothers, Inc. v. Carrier
Corp., 278 Ill. App. 3d 606, 663 N.E.2d 1 (1995). See also
Belden Corp. v. InterNorth, Inc., 90 Ill. App. 3d 547, 551, 413 N.E.2d 98, 101 (1980) ("[t]he sacrosanct contractual relation
takes precedence over the conflicting rights of any presumptive
interferor, including his right to compete and his own
prospective advantage").
February 25, 1998
No. 1-95-3601
DAVID M. STROSBERG, )
)
Plaintiff-Appellee, )
Cross-Appellant, ) APPEAL FROM THE CIRCUIT
) COURT OF COOK COUNTY.
v. )
)
BRAUVIN REALTY SERVICES, INC., an )
Illinois corporation, JEROME ) HONORABLE PHILIP
BRAULT, Individually, and CEZAR M. ) FLEISCHMAN, JUDGE
FROELICH, Individually, ) PRESIDING.
)
Defendants-Appellants- )
Cross-Appellees. )
JUSTICE GORDON DELIVERED THE OPINION OF THE COURT:
David M. Strosberg, the plaintiff, brought this action
against Brauvin Realty Services, Inc. (BRSI) alleging breach of
contract based upon BRSI's failure to make payment on a
promissory note allegedly due and owing Strosberg. Strosberg
filed an amended complaint adding Jerome Brault and Cezar
Froelich, BRSI's officers and directors, as additional defendants
alleging fraud, breach of fiduciary duty and interference with
contract. The breach of fiduciary duty claim was dismissed
pursuant to section 2-615 of the Code of Civil Procedure (735
ILCS 5/2-615 (West 1996)). The trial court entered a directed
verdict against Strosberg and in favor of Brault and Froelich on
the fraud claim and granted Brault and Froelich's motion to
strike Strosberg's prayer for punitive damages on his
interference with contract claim. Thereafter, the jury returned
a verdict in favor of Strosberg and against BRSI in the amount of
$151,791.15 on the breach of contract claim and in favor of
Strosberg and against Brault and Froelich each in the amount of
$75,895.57 on the interference with contract claim. The
defendants appeal from the denial of their motion for judgment
notwithstanding the verdict or a new trial. Strosberg cross-
appeals from the striking of his prayer for punitive damages
against Brault and Froelich.
Background Facts:
BRSI was incorporated in approximately 1980 by Sheldon Lavin
and defendants Brault and Froelich to syndicate real estate
limited partnerships. (Lavin left the company in the early
1980's.) As a Subchapter S corporation under the Internal
Revenue Code, all of BRSI's corporate income or loss passed to
BRSI's shareholders. Brault and Froelich served as officers and
directors of BRSI and as general partners of the Brauvin limited
partnerships.
Strosberg became employed by BRSI in 1983 and in 1986 was
promoted to executive vice-president. In approximately August
1986, Brault and Froelich offered Strosberg a twelve percent
shareholder interest in BRSI. At approximately the same time, a
five percent interest was given to BRSI chief financial officer
Donald Drag.
In 1986, working capital for BRSI was furnished by loans
made to it by its shareholders in proportion to their shareholder
interests in BRSI. The shareholders used income that would have
been paid to them by BRSI. For tax purposes, that income was
channeled to another Subchapter S corporation, Brauvin Advisory
Services, Inc. The dividend payments to Brauvin Advisory
Services allowed BRSI's shareholders to defer taxes for
approximately one year. The funds for the shareholder loans to
BRSI were wire transferred from Brauvin Advisory Services to
BRSI. BRSI recorded the loans on its books and issued promissory
notes to its shareholders.
The loan that is the subject of the instant dispute was made
by Strosberg to BRSI on January 15, 1987 in the amount of
$75,342.12. Strosberg testified that the terms of the loan
required repayment in two years and interest. He stated that at
the time the loan was made he was given a unanimous consent of
BRSI's board of directors, signed by Brault and Froelich,
authorizing BRSI to accept the loan from Strosberg, and a
typewritten note. Strosberg testified that he returned both
documents to BRSI's chief financial officer, Donald Drag,
pursuant to Drag's request. He stated that later during the
first quarter of 1987 he was given a new note after the original
note he had given Drag became lost. Strosberg identified the
subsequent note and the unanimous consent as Plaintiff's Exhibits
6B and 6A, respectively. The later note, also dated January 15,
1987, was captioned "Non-Negotiable, Non-Transferable Demand
Promissory Note." It contained a signature line for Brault,
BRSI's president, to sign on BRSI's behalf as maker. That line
was left blank without signature. However, notwithstanding the
absent signature, there was a pre-signed attestation by Froelich
as BRSI's secretary.
In December 1987, BRSI obtained a $1.25 million line of
credit from Exchange National Bank (ENB). At ENB's request,
BRSI's shareholders, including Strosberg, were asked to sign
subordination agreements subordinating their loans to BRSI to the
$1.25 million line of credit extended to BRSI by ENB. Strosberg
testified that Donald Drag gave him the subordination agreement
to sign and a $75,342.12 note to endorse over to ENB. The pre-
printed note, Plaintiff's Exhibit 7, dated January 15, 1987, was
signed by Froelich on BRSI's behalf as maker and was made payable
to Strosberg's order in the amount of $75,342.12. Strosberg
testified that that "printed note was for the $75,342.00 loan
that we've been talking about." He further testified that he
endorsed the back of the note to ENB "for collateral purposes
only."
The other BRSI shareholders, Froelich, Brault and Drag,
signed similar subordination agreements and endorsed their notes
representing their outstanding loans to BRSI. In accordance with
the terms of the subordination agreement, each agreed to
subordinate the indebtedness evidenced by their notes to any and
all debts which BRSI "may now or at any times hereafter" be
liable to ENB. The subordination agreement also provided that:
"This Agreement shall be continuing, irrevocable and
binding on the Undersigned and on the heirs, personal
representatives, successors and assigns of the initial
Undersigned and shall inure to the benefit of ENB, its
successors and assigns."
Each subordination agreement also was assented to by BRSI. In
its "Debtor's Assent," BRSI agreed to abide by the terms of the
subordination agreement and agreed not to make any payments
contrary to the intention of that agreement.
Strosberg testified at trial that when he "signed" the back
of the $75,342.12 note "for collateral purposes only," he did not
intend to give ENB a right to enforce that note. He understood
and intended that his signature evidence ENB's interest in the
subordination of his loan. Drag also testified that he did not
realize that he had assigned his note or otherwise "signed" his
note over to ENB. He stated that he thought he had only
subordinated his note.
Strosberg resigned from BRSI in 1989. Strosberg testified
that before he left BRSI's employment, he requested that the
January 15, 1987 note be paid out. He also made a written demand
for satisfaction on March 16, 1989. At that time, BRSI owed ENB
approximately $1 million. BRSI did not pay Strosberg. Strosberg
then requested that ENB waive its rights under the subordination
agreement; ENB refused. In March 1990 ENB refused to renew
BRSI's line of credit. In April 1990, BRSI drew $1.3 million on
its $1.5 million line of credit from American National Bank and
repaid ENB all but $50,000. The remaining $50,000 was converted
into a time note signed by Brault, as president of BRSI.
On July 18, 1990, Strosberg wrote to ENB again asking ENB to
permit BRSI to pay out his note. Strosberg also offered to
purchase BRSI's $50,000 time note issued to ENB at its current
principal amount in an effort to control and release the
subordination agreements that remained in effect due to BRSI's
outstanding indebtedness to ENB so that he could obtain full
repayment of his own loan. ENB reported Strosberg's offer to
Brault and Froelich who then personally purchased BRSI's $50,000
time note to ENB for $50,000 in cash on August 14, 1990. ENB
endorsed the $50,000 note: "Pay to the order of Jerome Brault
and Cezar Froelich or their order without recourse." In addition
to receiving the $50,000 time note from ENB, Brault and Froelich
received a written "Assignment of Note" assigning "all of [ENB's]
rights, title and interest in and to that certain note dated
April 1, 1990 from Brauvin Realty Services, Inc. to Exchange
National Bank ("ENB") in the principal amount of Fifty Thousand
Dollars." They also received the original subordination
agreements and notes signed and endorsed by Strosberg, Drag and
themselves in their personal capacities. ENB did not endorse the
subordination agreements or notes subject to the subordination
agreements to Brault and Froelich. Brault testified at trial
that while the assignment of the $50,000 time note was silent as
to the latter documents, the purchase agreement between ENB and
Brault and Froelich called for Brault and Froelich to receive all
documents relating to the $50,000 time note. Brault stated that
he and Froelich would not have purchased the $50,000 time note if
they "were not getting everything."
At trial, Strosberg presented evidence showing that BRSI had
funds to repay Strosberg. Jerome Levy, Donald Drag's successor
as BRSI's chief financial officer, testified that on the day
after BRSI paid down its line of credit to ENB to $50,000 Brault
and Froelich each received $38,000 from BRSI. While Brault
denied the payment, Froelich claimed that it was made in
repayment of an end-of-the-year loan made to BRSI for tax
purposes. According to Froelich, the loan proceeds created a tax
basis in BRSI upon which Brault and Froelich could then take a
tax loss. Froelich stated this loan, which was to be repaid the
following quarter, was not subordinated to ENB's loan. He stated
that ENB was aware of that transaction and had loaned Brault and
Froelich the funds to give to BRSI for that particular tax
purpose.
Strosberg also presented evidence that BRSI repaid Brault
and Froelich on two $250,000 loans that they made to BRSI on May
3, 1989. Those loans were subject to subordination agreements
signed by Brault and Froelich on May 3, 1989 having identical
language to the subordination agreement signed by Strosberg. At
trial, Brault admitted the repayment but testified that it
occurred with the agreement of ENB.
Issues:
On appeal, the defendants argue that the trial court erred
in denying their motion for judgment notwithstanding the verdict
or, alternatively, for a new trial. BRSI argues that it was not
liable for breach of its loan agreement with Strosberg. It
argues that Strosberg could not produce the promissory note
evidencing the loan since he endorsed and transferred that note
to ENB who in turn transferred it to Brault and Froelich. BRSI
also argues that it was precluded from making payment on that
note under the terms of the subordination agreement which had
been assigned to Brault and Froelich. Brault and Froelich argue
that they were not liable for intentional interference with
contract because the evidence showed their actions were justified
and without malice. Brault and Froelich alternatively argue that
they are entitled to a new trial because the trial court made
erroneous evidentiary rulings, tendered erroneous jury
instructions, and erroneously granted Strosberg's late jury
demand. Strosberg, in the event this court orders a new trial,
raises by cross-appeal, the contention that the trial court erred
in striking his prayer for punitive damages with respect to his
interference with contract claim against Brault and Froelich.
Discussion:
I. Breach of Contract
In an action with respect to a negotiable instrument, the
plaintiff producing the instrument is entitled to payment if he
proves the validity of the signatures on the instrument and
entitlement to enforce the instrument. 810 ILCS 5/3-308 (West
1996). See 810 ILCS 5/3-203, Uniform Commercial Code Comment, at
81 (West 1996) (the right to payment is represented by the
negotiable instrument). See generally 28 Ill. Law & Practice
Negotiable Instruments 301 (1957) (plaintiff cannot recover on a
negotiable instrument unless he produces the instrument since the
law presumes that the instrument has been paid or put into
circulation if not produced). Section 3-301 of the Uniform
Commercial Code (UCC) (810 ILCS 5/3-301 (West 1996)) provides
that a person is entitled to enforce a negotiable instrument if
he is the holder of the instrument, if he is a nonholder in
possession of the instrument who has the rights of a holder or if
he is not in possession of the instrument but is entitled to
enforce the instrument pursuant to section 3-309 or 3-418(d). A
holder of a negotiable instrument is any person in possession, if
the instrument is payable to bearer, but, in the case of an
instrument payable to an identified person, only the identified
person in possession is a holder. 810 ILCS 5/1-201(20) (West
1996). Under section 3-301, a person who does not have
possession of the instrument can enforce it if the person was in
possession of the instrument and was entitled to enforce it but
the instrument was lost, destroyed or stolen (see 810 ILCS 5/3-
309 (West 1996)) or if the instrument was paid previously by
mistake (see 810 ILCS 3-418(d)(West 1996)). 810 ILCS 5/3-301
(West 1996).
In the instant case the testimony showed that BRSI had given
three notes to Strosberg relative to Strosberg's January 1987
loan of $75,342.12 to BRSI. According to Strosberg, the first
note was lost. Strosberg was not seeking to enforce that note
nor could he since he admitted that other superseding notes had
subsequently been issued relative to the same loan. Strosberg
contends that he is a holder in possession of the second note
issued by BRSI to him after the first note was lost. That note,
Plaintiff's Exhibit 6B, was allegedly received by Strosberg from
BRSI during the first quarter of 1987. It was dated January 15,
1987 and was captioned "Non-Negotiable, Non-Transferable Demand
Promissory Note." While it contained a signature line for BRSI's
president, Jerome Brault, it was not signed by Brault. Froelich
signed the note as an attesting witness. However, since that
note was not signed, it was not effective. See 810 ILCS 5/3-
103(a)(6), 103(a)(9) (requiring written order or promise to pay
signed by person giving instruction to pay or undertaking promise
to pay).
It is clear from the evidence at trial that the third note
issued by BRSI to Strosberg in December 1987, Plaintiff's Exhibit
7, replaced and superseded the second unsigned "note" for
$75,342.12. This conclusion is supported by the actions of the
parties and by Strosberg's own testimony in which he admitted
that the third note, a pre-printed promissory note issued in
December 1987, related to his January 1987 $75,342 loan to BRSI.
He admitted that the third note was given to him by Donald Drag
when Drag gave him the subordination agreement to sign. The
evidence shows that Strosberg signed the subordination agreement;
that he endorsed the promissory note issued in December 1987 to
ENB "for collateral purposes only"; and that those documents were
delivered to ENB as required by the December 1987 subordination
agreement.
BRSI argues that Strosberg cannot enforce the third note
because he does not have possession of it (see 810 ILCS 5/3-
301(i) (West 1996)) since he transferred the note to ENB who in
turn assigned it to Brault and Froelich. Strosberg apparently
concedes that he does not have possession of the third note. He
argues, however, that he is entitled to enforce that note because
his loss of possession was not the result of a valid transfer.
810 ILCS 5/3-309 (West 1996). He argues that he did not intend
to transfer the note to ENB because he did not give ENB a right
to enforce the note. See 810 ILCS 5/3-203(a) (West 1993) (an
instrument is transferred when it is delivered by a person other
than the issuer for the purpose of giving to the recipient the
right to enforce the instrument). Strosberg contends that he
gave the note to ENB as an assurance that he would not seek
satisfaction of the note before ENB's loans to BRSI were repaid.
He further contends that, even if his actions could be construed
to have transferred the note to ENB, there was no evidence to
support a finding that the note was validly assigned to Brault
and Froelich. He states that absent such a valid assignment,
"when [ENB] was made whole, the draft note and Subordination
Agreement should have been returned to [him]." Strosberg
contends that, since the documents were not returned to him, they
should be "deemed lost or wrongfully in the possession of BRSI"
(see 810 ILCS 5/3-309 (West 1996)) thereby making him a person
entitled to enforce the note (see 810 ILCS 5/3-301(iii) (West
1996)).
We agree with BRSI and find that the $75,342.12 promissory
note was transferred by Strosberg to ENB and that it was assigned
by ENB to Brault and Froelich. An instrument is transferred when
it is delivered by a person other than its issuer for the purpose
of giving to the recipient the right to enforce the instrument.
810 ILCS 5/3-203(a) (West 1996). The evidence shows that
Strosberg did more than give custody of the note to ENB to assure
subordination of that note to BRSI's indebtedness to ENB. Before
the note was delivered to ENB, Strosberg endorsed it "for
collateral purposes only." Collateral is defined as "[p]roperty
which is pledged as security for the satisfaction of a debt."
Black's Law Dictionary 261 (6th ed. 1990). It is defined under
Article 9 of the Uniform Commercial Code as "property subject to
a security interest." 810 ILCS 5/9-105(c) (West 1996). By
endorsing the note to ENB "for collateral purposes only,"
Strosberg pledged his note as security for satisfaction of BRSI's
debt to ENB and gave ENB, the secured party, rights in the
collateral including the right to sell or otherwise dispose of
the collateral after default. See 810 ILCS 5/1-201(37) (West
1996) (a security interest is "an interest in personal property *
* * which secures payment or performance of an obligation"). See
generally Peter F. Coogan, Homer Kripke & Fredric Weiss, The
Outer Fringes of Article 9: Subordination Agreements, Security
Interests in Money and Deposits, Negative Pledge Clauses, and
Participation Agreements, 79 Harv. L. Rev. 229, 241 (1965)
(hereinafter Coogan, Kriptke & Weiss, The Outer Fringes of
Article 9) (a secured party's principal right in the collateral
is to sell or otherwise dispose of it after default). By giving
ENB these rights of enforcement, Strosberg transferred his note
to ENB and made ENB a holder. See 810 ILCS 5/3-201 (West 1996)
(the status of holder can arise when the instrument is negotiated
and possession is transferred by a person other than the issuer
to a person who thereby becomes a holder).
This conclusion is further buttressed by language in the
subordination agreement executed as part of the same transaction.
See Ill. Rev. Stat. 1987, ch. 26, par. 3-119(1) (the terms of a
written instrument may be modified or affected by any other
written agreement executed as a part of the same transaction).
See also Main Bank v. Baker, 86 Ill. 2d 188, 427 N.E.2d 94
(1981); Basu v. Stelle, 237 Ill. App. 3d 113, 603 N.E.2d 1253
(1992) (when a negotiable instrument is executed at the same time
as another writing as part of the same transaction, the documents
must be read together as a single agreement). While
subordination agreements generally are not treated as security
agreements giving security interests in the property of the
subordinated creditor,[fn1] such a result can occur if the
parties to the subordination agreement intend to create a
security interest. See 810 ILCS 5/1-209, Uniform Commercial Code
Comment at 59 (West 1996)). See generally 1A R. Anderson,
Uniform Commercial Code 1-209:11, at 479 (3d ed. 1996 rev.)
(stating a subordination agreement can function as a security
agreement when the intent is clearly expressed in the
subordination agreement to grant the creditor a security
interest). If the junior or subordinating creditor's debt is in
existence and he has rights against the debtor at the time the
subordination agreement is entered into, and if he gives the
senior creditor those rights to secure payment of the common
debtor's obligation to the senior creditor, it can be argued that
the effect of the subordination agreement is to create a security
interest. Coogan, Kriptke & Weiss, The Outer Fringes of Article
9, at 246.
Here, language in the subordination agreement gave ENB a
security interest in the promissory note BRSI issued to
Strosberg. Paragraph (D) of that agreement provided in pertinent
part that Strosberg
"subrogates ENB to the Undersigned's Claims and the
Undersigned's Collateral and assigns, endorses and
delivers to and deposits with ENB all agreements,
instruments and documents evidencing the Undersigned's
Claims, including the note(s) described above, and the
Undersigned's Collateral and in connection therewith,
the Undersigned hereby irrevocably authorizes ENB (i)
to collect, receive, enforce and accept any and all
sums or distributions of any kind that may become due,
payable or distributable on or in respect to the
Undersigned's Claims or the Undersigned's Collateral,
whether paid directly by Debtor or paid or distributed
in any bankruptcy, receivership, reorganization or
dissolution proceedings or otherwise; * * *."
By agreeing to assign, endorse and deliver to ENB the $75,342.12
note and by agreeing to give ENB the right to collect, receive
and enforce Strosberg's claim and collateral, Strosberg gave ENB
a security interest in the promissory note. See In re Data Entry
Service Corp., 81 Bankr. 467, 469-70 (Bankr. N.D. Ill. 1988)
(agreement to give creditor rights in the collateral and to
collect or cause to be collected or otherwise to be converted
into money all or any part of the collateral is an agreement to
give a security interest); Mid-Eastern Electronics, Inc. v. First
National Bank, 455 F.2d 141 (4th Cir. 1970) (an assignment of
"all monies due or which may become due" arising under a contract
constitutes a security agreement). See also Coogan, Kriptke &
Weiss, The Outer Fringes of Article 9, at 241. Since the
language in the subordination agreement and the endorsement of
the note are clear on their face, parol evidence of Strosberg's
intention not to create a security interest is inadmissible.
Mitchell v. Shepherd Mall State Bank, 458 F.2d 700 (10th Cir.
1972); Joseph v. Lake Michigan Mortgage Co., 106 Ill. App. 3d
988, 436 N.E.2d 663 (1982).
Strosberg argues, however, that even if he negotiated his
note to ENB and transferred to ENB his right to enforce the note
against BRSI, ENB did not assign the note to Brault and Froelich.
In support of this contention he argues that there was no valid
assignment of the note by ENB to Brault and Froelich because ENB
did not endorse the note or subordination agreement to them;
because neither the "Assignment of Note" signed by ENB nor the
$50,000 time note endorsed by ENB to Brault and Froelich
referenced the $75,342.12 promissory note issued to Strosberg;
and because the evidence showed that ENB sent the $75,342.12
promissory note to BRSI, not Brault and Froelich. BRSI argues
that ENB assigned the note to Brault and Froelich when they
purchased the $50,000 time note.
When negotiable paper is purchased, the holder of that paper
acquires all the rights of his assignor, including the right to
receive such collateral as his assignor may have had. Brainerd,
Shaler & Hall Quarry Co. v. Brice, 250 U.S. 229, 39 S. Ct. 458
(1919); Marx v. McKinney, 23 Cal. 2d 439, 144 P.2d 353 (1943);
Kornitz v. Commonwealth Land Title Insurance Co., 81 Wis. 2d 322,
260 N.W.2d 680 (1978). See generally 6A C.J.S. Assignments 76,
at 720 (1975) (an unqualified assignment of a debt or obligation
ordinarily carries with it, as incidents, all rights of priority
or preference, as well as all collateral securities and all
rights incidental thereto, previously held by the assignor).
There need not be a formal assignment of the underlying security
in order for the assignee to have rights in that security. See
Brainerd, 250 U.S. 229, 39 S. Ct. 458 (assignment of
remainderman's interest in estate carried with it the assignment
of the surety bond given to secure the life tenant's obligation
to the remainderman to repay the estate despite a lack of formal
assignment of the bond by the assignor/remainderman to the
assignee).
Here, as concluded above, Strosberg's endorsement on the
$75,342.12 promissory note to ENB "for collateral purposes only,"
viewed alone or in combination with the subordination agreement,
operated to give ENB security for its loans to BRSI. In April
1990, that loan was reduced to $50,000 and became evidenced by a
$50,000 time note issued by BRSI to ENB. When Brault and
Froelich purchased that note, ENB assigned to them "all of
[ENB's] rights, title and interest in and to that certain note
dated April 1, 1990 from Brauvin Realty Services, Inc. to
Exchange National Bank ("ENB") in the principal amount of Fifty
Thousand Dollars." The purchase of that negotiable paper and the
assignment of that time note gave to Brault and Froelich, as
holders of that paper, all the rights of ENB, their assignor,
including the right to receive such collateral as ENB may have
had even without a specific reference to that collateral. See
Brainerd, 250 U.S. 229, 39 S. Ct. 458; Marx, 23 Cal. 2d 439, 144 P.2d 353; Young, 180 Ill. App. 3d 280, 535 N.E.2d 977; Kornitz,
81 Wis. 2d 322, 260 N.W.2d 680. Thus, Brault and Froelich, as
holders of the time note, had the right to receive the $75,342.12
promissory note and the subordination agreement given to ENB as
collateral for ENB's loans to BRSI even though the assignment of
the time note made no mention of those documents. As a result,
Brault and Froelich had a right to possess the promissory note,
and Strosberg could not enforce that note as a nonpossessor
pursuant to section 3-309 of the UCC (see 810 ILCS 5/3-309 (West
1996)). See 810 ILCS 5/3-301(iii) (West 1996).
Argument could be made, however, that the $50,000 time note
was unsecured because it stated on its face that no security was
being pledged for its payment and that, thus, no collateral, such
as the $75,342.12 promissory note, passed to Brault and Froelich
as assignees of the time note. We disagree. As previously
discussed, the language in the subordination agreement and the
endorsement on the promissory note clearly showed that ENB's loan
to BRSI was collateralized. The failure to designate that
collateral on the time note can be readily explained by the
nature of that collateral which merely evidenced a further
payment obligation by BRSI as a general creditor. Thus, in
becoming a pledgee of the $75,342.12 Strosberg note, ENB did not
in reality acquire more security than it would have had if
Strosberg's note was merely subordinated. Moreover, any factual
issue regarding whether a security interest passed with the time
note is not essential to resolution of this case. Even if the
promissory note did not secure the time note, it is clear that
the promissory note was carried with the time note as an
attachment to the subordination agreement. The unqualified
assignment of the time note carried with it, as incidents, all
rights of priority or preference given in the subordination
agreement, namely, a preference in payment for "any and all
debts, demands, claims, liabilities * * * which the [BRSI] may
now or at any time or times hereafter in any way be liable to ENB
under any agreement, instrument or document executed and
delivered or made by [BRSI] to ENB." (Emphasis added.) See 6A
C.J.S. Assignments 76, at 720 (1975).
Strosberg argues that ENB's rights under the subordination
agreement were extinguished when ENB was made whole by Brault and
Froelich's purchase of the time note and that the subordination
agreement and promissory note should have been returned to
Strosberg. We disagree. In Rovak v. Parkside Veterans' Homes
Project, Inc., 8 Ill. App. 2d 310, 132 N.E.2d 11 (1956), such a
contention was rejected. In that case, the plaintiffs, signed a
standby agreement in which, like the subordination agreement here
at bar, they agreed not to take action to enforce their claim
against the debtor, Parkside Veterans' Home Project, Inc.
(Parkside), until Parkside's indebtedness to Reconstruction
Finance Corporation (RFC) had been paid. RFC subsequently
assigned its note from Parkside to Shaffer and Mandel who
purchased from RFC the balance of Parkside's indebtedness. RFC
also assigned the standby agreement to Shaffer and Mandel, the
purchasers of the note. Thereafter, the plaintiffs sued Parkside
under the standby agreement seeking payment of Parkside's debt to
them. The court dismissed their action as premature finding that
the purchase of the note by Shaffer and Mandel did not discharge
Parkside's indebtedness to RFC, and accordingly did not terminate
plaintiff's obligations under the standby agreement. The court
found that Shaffer and Mandel, as purchasers of the note, were
entitled to the rights and reservations enjoyed by RFC pursuant
to the standby agreement. See also Holcomb State Bank v. Federal
Deposit Insurance Corp., 180 Ill. App. 3d 840, 536 N.E.2d 453
(1989) (bank's sale of a negotiable instrument does not discharge
the debt in any sense).
Here, as in Rovak, BRSI's indebtedness to ENB was not
discharged or extinguished when ENB sold to Brault and Froelich
the time note evidencing BRSI's indebtedness. Also, as in Rovak,
the rights and reservations enjoyed by ENB under the contractual
terms of the subordination agreement would inure to ENB's
assignees of the note and subordination agreement. While in
Rovak, unlike in the instant case, the subordination agreement
was assigned in writing to the note's purchasers, that factual
distinction is not fatal. As discussed above, the subordination
agreement and the promissory note subject to that agreement were
carried with the time note as being incident thereto. Moreover,
we believe that there can be no question under the evidence
presented that the subordination agreement and promissory note
were assigned to Brault and Froelich by ENB pursuant to an oral
agreement of assignment. See Young, 180 Ill. App. 3d 280, 535 N.E.2d 977 (the intent of the parties to an assignment is a
question of fact to be derived not only from the instrument
executed by the parties, but also from the surrounding
circumstances).
The existence of an assignment is dependent upon proof of
intent to make an assignment and that intent must be manifested.
Season Comfort Corp. v. Ben A. Borenstein Co., 281 Ill. App. 3d
648, 655 N.E.2d 1065 (1995). As stated in the Restatement
(Second) of Contracts, "An assignment of a right is a
manifestation of the assignor's intention to transfer it by
virtue of which the assignor's right to performance by the
obligor is extinguished in whole or in part and the assignee
acquires a right to such performance." Restatement (Second) of
Contracts 317(1) (1981). When a valid assignment is effected,
the assignee acquires all of the interests of the assignor in the
property that is transferred. E.g., Community Bank v. Carter,
283 Ill. App. 3d 505, 669 N.E.2d 1317 (1996); Young v. Chicago
Federal Savings & Loan Ass'n, 180 Ill. App. 3d 280, 535 N.E.2d 977 (1989). See generally 1A R. Anderson, Uniform Commercial
Code 1-209:17, at 481 (3rd ed. 1996 rev.) (the assignee of a
party to a subordination agreement is entitled to the benefits
and is subject to the burdens of the agreement). In Illinois,
oral assignments are valid, unless expressly prohibited by
statute. Charles Poch, Inc. v. National Tire Services, Inc. (In
re National Tire Services, Inc.), 201 Bankr. 788 (Bankr. N.D.
Ill. 1996) (an assignment occurs when there is a transfer either
written or oral of some identifiable interest from the assignor
to the assignee); Buck v. Illinois National Bank & Trust Co., 79
Ill. App. 2d 101, 223 N.E.2d 167 (1967). When there is no
writing to evidence the intention to transfer some identifiable
property, claim or right, it is necessary to scrutinize the
surrounding circumstances and acts of the parties to ascertain
their intentions. Buck, 79 Ill. App. 2d 101, 223 N.E.2d 167.
Here, the evidence at trial, when viewed in a light most
favorable to Strosberg (see, e.g., Pedrick v. Peoria & Eastern R.
Co., 37 Ill. 2d 494, 229 N.E.2d 504 (1967)), overwhelmingly
established an intention by ENB and by Brault and Froelich that
ENB assign to Brault and Froelich its rights under the
subordination agreement and its right to hold the promissory note
for custodial purposes to effectuate the subordination. Brault
testified, without contradiction, that the agreement with ENB
regarding the purchase of the time note was that ENB "would
deliver to us unequivocally all right, title, and interest and
everything that went with that note." He stated that he and
Froelich would not have purchased the time note if they "were not
getting everything." Brault stated that the delivery of the
subordination agreement signed by Strosberg and the promissory
note occurred "when the assignment was given to us by the
Exchange bank."
Strosberg argues that the testimony showed that ENB sent the
subordination agreements and promissory notes to BRSI rather than
to Brault and Froelich. In support of this contention, he cites
only to Brault's testimony in which Brault stated that the
subordination agreement signed by Strosberg and the $75,342.12
promissory note attached to it "have been in the possession of
Brauvin Realty Services, Inc." However, a reading of Brauvin's
entire testimony shows that he also stated that the subordination
agreement and promissory note were delivered "to us at the same
time that the other documents were delivered to us when we signed
-- the assignment was given to us by the Exchange Bank."
(Emphasis added.) Upon further questioning, Brault testified as
follows:
"Q: And when did you obtain possession of those
documents?
A: We obtained possession of these * * * documents at
the same time we obtained the other documents from the
Exchange National Bank. It was of the time that the
assignment was made to us.
Q: And who has had possession of those documents
since that time?
A: They have been held by Brauvin Realty Services.
Q: When you say Brauvin Realty Services, do you mean
physically on the premises of Brauvin Realty Services?
A: That is correct." (Emphasis added.)
There can be no question from this uncontradicted testimony that
the subordination agreement and $75,342.12 promissory note were
sent by ENB to Brault and Froelich at their business address,
BRSI's premises. Brault and Froelich purchased the time note in
their personal capacities with their personal funds and were
entitled to receive all rights incidental thereto including the
subordination agreement and subordinated promissory note. Most
convincingly, the uncontradicted testimony at trial showed that
Brault and Froelich personally purchased the time note in order
to recover the subordination agreement signed by Strosberg and
the $75,342.12 subordinated promissory note to prevent Strosberg
from seeking payment of his loan to BRSI. In point of fact,
Strosberg posited that very conclusion to support his intentional
interference with contract claim against Brault and Froelich.
Thus, when the evidence is viewed in a light most favorable
to the plaintiff, it overwhelmingly supports a judgment in BRSI's
favor. See, e.g., Pedrick, 37 Ill. 2d 494, 229 N.E.2d 504. BRSI
was not liable to Strosberg on the $75,342.12 promissory note
because Strosberg could not enforce that note since he did not
have possession of it and his nonpossession was not the result of
a wrongful possession by Brault and Froelich. Moreover, BRSI was
not liable to Strosberg because that promissory note remained
subordinated to the time note purchased by Brault and Froelich in
accordance with the subordination agreement that was assigned to
Brault and Froelich as an incidental right to the time note. See
Rovak, 8 Ill. App. 2d 310, 132 N.E.2d 11 (1956). BRSI, having
assented to the subordination agreement between Strosberg and
ENB, was bound by its terms and could not repay Strosberg's loan
or satisfy the promissory note that it issued to Strosberg. See
Rovak, 8 Ill. App. 2d 310, 132 N.E.2d 11; Culp v. Tri-County
Tractor, Inc., 112 Idaho 894, 736 P.2d 1348 (Ct. App. 1987)
(debtor entitled to invoke subordination agreement between
creditors as a defense to junior creditor's default claim against
debtor). Therefore, BRSI's failure to repay Strosberg's note was
not a breach of its loan agreement with Strosberg; and judgment
entered in favor of Strosberg and against BRSI must be reversed.
II. Interference with Contract
Defendants Brault and Froelich argue that they were entitled
to judgment notwithstanding the verdict on Strosberg's
interference with contract claim. They contend that Strosberg
failed to establish that they intentionally and unjustifiably
induced BRSI to breach its contract with Strosberg; that BRSI
actually breached its contract with Strosberg; or that Strosberg
suffered any damage. They contend that their actions, as
corporate officers of BRSI, were privileged and the result of
their business judgment to protect BRSI. Finally, they contend
that, since their actions were privileged, Strosberg was required
to establish actual malice which he failed to do.
In order to establish an action for intentional interference
with contract, a plaintiff must plead and prove: (1) the
existence of a valid, enforceable contract between the plaintiff
and a third party; (2) defendant's knowledge of that contract;
(3) defendant's intentional and unjustified inducement of the
third party to breach the contract; (4) a subsequent breach by
the third party resulting from defendant's wrongful conduct; and
(5) damages suffered by the plaintiff as a result of the breach.
E.g., Voutiritsas v. Intercounty Title Co., 279 Ill. App. 3d 170,
664 N.E.2d 170 (1996); Reuben H. Donnelley Corp. v. Brauer, 275
Ill. App. 3d 300, 655 N.E.2d 1162 (1995). If the plaintiff's
complaint raises the issue of privilege or justification on its
face, then the plaintiff has the burden of pleading and proving
lack of justification or malice. Roy v. Coyne, 259 Ill. App. 3d
269, 630 N.E.2d 1024 (1994). In the context of claims for
tortious interference with contract, malice does not require a
showing of ill will, hostility or intent to injure; rather, it
requires a showing that the defendant acted intentionally and
without just cause. Roy, 259 Ill. App. 3d 269, 630 N.E.2d 1024;
Muthuswamy v. Burke, 269 Ill. App. 3d 728, 646 N.E.2d 616 (1993).
A necessary prerequisite to the maintenance of an action for
tortious interference with contract is a defendant's intentional
and unjustified inducement of a breach of contract.
Futurevision, Inc. v. Dahl, 139 Ill. App. 3d 61, 487 N.E.2d 127
(1985). While it is not necessary to show breach of contract to
establish the tort of intentional interference with prospective
business relation or economic advantage,[fn2] that is not the
tort pled nor argued in this case. Here, the plaintiff pled and
argued intentional interference with contract; and in order to
establish that tort there must be evidence of a breach of
contract caused by the defendant. Goldberg v. Miller, 874 F. Supp. 874 (N.D. Ill. 1995); Futurevision, 139 Ill. App. 3d 61,
487 N.E.2d 127. See Voutiritsas, 279 Ill. App. 3d 170, 664 N.E.2d 170 (1996) (tortious interference with contract action
could not be alleged where breach occurred before defendant's
alleged conduct). For the reasons discussed in part I of this
order, the evidence, when viewed in a light most favorable to the
plaintiff, did not establish that BRSI breached its loan
agreement with Strosberg. BRSI was not required to repay
Strosberg nor could Strosberg assert a right to repayment because
Strosberg did not possess the note and was not a holder of the
$75,342.12 note issued to him by BRSI and because Strosberg's
right to repayment of the loan was subordinated to the $50,000
time note issued by BRSI to ENB which was assigned by ENB to
Brault and Froelich along with the subordination agreement. In
accordance with that agreement, since BRSI had not paid out the
$50,000 time note, it could not repay its $75,342.12 obligation
to Strosberg and, thus, was not in breach of its loan agreement
with Strosberg. Accordingly, since Strosberg did not establish
the breach element of his tortious interference with contract
count, defendants Brault and Froelich were entitled to judgment
notwithstanding the verdict. See Goldberg, 874 F. Supp. 874;
Futurevision, 139 Ill. App. 3d 61, 487 N.E.2d 127.
Our findings in this regard make it unnecessary to reach
defendants' other contentions with respect to Strosberg's
tortious interference with contract count. It also becomes
unnecessary to reach defendants' contentions with respect to
various alleged trial errors which they raised in support of
their alternative request for a new trial and plaintiff's cross-
appeal regarding the trial court's refusal to allow plaintiff
punitive damages on his tortious interference with contract
claim.
For the foregoing reasons, the judgment of the circuit court
of Cook County is reversed.
Reversed.
LEAVITT, P.J. and COUSINS, J., concur.
[fn1]Under the typical subordination agreement, the
subordinating creditor (the junior creditor) does not give the
senior creditor the right to sell or otherwise dispose of the
collateral nor is the senior creditor given possession of the
collateral evidencing the subordinated indebtedness. Peter F.
Coogan, Homer Kriptke & Fredric Weiss, The Outer Fringes of
Article 9: Subordination Agreements, Security Interests in Money
and Deposits, Negative Pledge Clauses, and Participation
Agreements, 79 Harv. L. Rev. 229, 241 (1965).
[fn2]Where recovery for intentional interference with a
prospective business relation or economic advantage is sought,
the plaintiff need not prove breach of contract. The former
action recognizes the privilege of competition as an affirmative
defense provided the defendant's actions are not motivated solely
by spite or ill will. That defense is not applicable with
respect to the tort of intentional interference with contractual
relations. See generally Soderlund Brothers, Inc. v. Carrier
Corp., 278 Ill. App. 3d 606, 663 N.E.2d 1 (1995). See also
Belden Corp. v. InterNorth, Inc., 90 Ill. App. 3d 547, 551, 413 N.E.2d 98, 101 (1980) ("[t]he sacrosanct contractual relation
takes precedence over the conflicting rights of any presumptive
interferor, including his right to compete and his own
prospective advantage").
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
