River Forest State Bank & Trust Co. v. Rosemary Joyce Enterprises, Inc.

December 12, 1997



1-96-3335

RIVER FOREST STATE BANK AND TRUST COMPANY, )
an Illinois corporation, in its capacity )
as Trustee under Trust Agreement dated ) Appeal from the
December 7, 1992, and known as Trust ) Circuit Court of
No. 3880, ) Cook County.
Plaintiff, )
)
v. )
)
ROSEMARY JOYCE ENTERPRISES INC., an Illinois )
corporation, )
Counter/Defendant-Appellee, )
)
LYN-JAY HOMES, INC., an Illinois corporation,)
Counter/Defendant-Appellee, )
)
THE ASHLEY B CORPORATION, an Illinois )
corporation, ) Honorable
Counter/Plaintiff-Appellant, ) Thomas Durkin,
) Judge Presiding.
FIRST NATIONAL BANK OF CHICAGO, )
Defendants. )

JUSTICE HARTMAN delivered the opinion of the court:
Ashley B Corp. (Ashley) appeals from the circuit court's
judgment favoring Lyn-Jay Homes, Inc. (Lyn-Jay), and Rosemary Joyce
Enterprises (Rosemary), appellees. The litigation was initiated by
River Forest State Bank and Trust Company (River Forest), which
filed a declaratory action as trustee of a land trust holding title
to a parcel of vacant land located in Westchester, Illinois.
Ashley, Lyn-Jay, and Rosemary were beneficiaries of the trust.
Among other things, the action sought directions as to the
trustee's responsibilities regarding the proposed disposition of
the trust property. Lyn-Jay filed an answer and counterclaim and,
subsequently, sought temporary and preliminary injunctive relief.
Rosemary filed a "motion" for declaratory judgment, later amended
to a complaint for a preliminary injunction.
By an agreed order entered March 8, 1996, the parties were
directed to take certain steps to wind-up their business
relationships and dispose of their assets. Ashley was ordered to
file pleadings stating all its claims to any interest and assets in
a joint venture involving the beneficiaries, based upon a joint
venture agreement earlier entered into by the parties to this
appeal. Lyn-Jay and Rosemary were directed to respond to those
pleadings. An ancillary trial was held upon those pleadings,
resulting in the order from which this appeal proceeds. A Supreme
Court Rule 304(a) (155 Ill. 2d 304(a)) finding was entered by the
circuit court upon which our appellate jurisdiction rests.
The issues identified in this appeal include whether the
circuit court erred (1) in construing the terms of the joint
venture agreement; (2) in finding in favor of Lyn-Jay and Rosemary
after Ashley rested, where Ashley purportedly presented a prima
facie case; and (3) whether an order of sale entered by the court
after this appeal was filed should be considered here.
In 1992, Frank J. Barrett secured and paid $35,000 for an
option to purchase a 6.155 acre tract of land from its owner in
Westchester. Thereafter, Barrett formed a joint venture with
Rosemary Joyce and Robert, Fred, Cary, and Henry Erfurth for the
purpose of developing and selling the property and, in October,
1992, they executed a joint venture agreement.
In December of 1992, the parties placed the land in the
instant land trust, with River Forest as trustee. The original
three parties each held an undivided one-third interest in the
trust. The parties subsequently assigned their beneficial
interests to corporate entities owned by each respective party.
Specifically, Barrett assigned his interest to Ashley, Joyce
assigned her interest to Rosemary, and the Erfurths assigned their
interests to Lyn-Jay.
Following the establishment of the land trust, on December 22,
1992, the parties executed a new joint venture development
agreement (December Agreement) that superseded the October 1992
agreement, and changed the name of the venture to the Rosebrook
Joint Venture. The December Agreement again authorized the joint
venture purchase of the 6.155 acre parcel, under section I.6.C.
and, under I.6.D., provided that "[t]he purchase price shall be
$725,000 minus the $35,000 capital already paid by *** Barrett.
Rosemary *** and Lyn/Jay will each contribute $345,000 toward the
purchase price balance." The December Agreement also set forth
Barrett's assignment of all his right, title, and interest in the
option contract to the joint venture partners. Section I.6.H. of
the December Agreement stipulated that the fair market value of the
real estate was $725,000.
Section I.6.I. directed that:
"Frank J. Barrett shall be reimbursed equally
by the other two (2) parties to the joint
venture for 2/3 of his ascertainable pre-
closing expenses to date ($24,136.55) and his
$35,000.00 capital contribution which were
paid to bring the project to its current
condition. All further expenses from this
date forward are to be shared and allocated
equally between the three entities. Such
capital and expense reimbursement shall take
place at the same time of any expense
reimbursement."
Further, section I.6.H. provided, in part, that:
"In the event, contribution of the Real
Estate is subject to existing taxes and/or
liens at the time of contribution to the Land
Trust, and a Joint Venture party advances
monies to the Joint Venture for the payment of
real estate taxes, mortgage payments or other
liens or costs that currently affect the
premises, the Contributing Party shall be
credited with same as a capital contribution."
Under section II.3., Lyn-Jay:
"as Developer shall contribute its own
services as a general contractor or obtain the
services as of such third parties (hereinafter
referred to as "Subcontractors") as it chooses
to undertake the Development of the Property."
Section II.6. of the joint venture agreement stated, in part:
"It is further understood that Lyn-Jay,
Barrett and Joyce, as parties to the Primary
Joint Venture, shall share equally in the
proceeds from: any lease income and/or from
the sale of the partially or fully developed
parcel earned by the Primary Joint Venture
and/or with the Secondary Joint Venture as co-
venturers."
In addition, the December Agreement in section III.2. read, in
part:
"Profit: The three entities shall share
equally all profit generated by either the
development or disposition of all or part of
the entire 6.155 acre tract. Profit is
defined as the remainder of revenue minus a
pro rata return of each party's investment of
capital to the project which shall include an
interest rate of return from the date of each
capital contribution at a rate of return of 2%
over the prime rate as published in the Wall
Street Journal."
Nothing in the December Agreement suggested that Barrett's $35,000
or any services he might perform were to constitute capital
contributions equivalent to the $345,000 each of the other parties
contributed, nor was any other value ascribed to such service, if
any.
The circuit court's construction of the foregoing December
Agreement provisions is the crux of the instant controversy.
In 1993, both Lyn-Jay and Rosemary made loans to the joint
venture in order to finance initial construction expenses. On
December 21, 1993, the three parties assigned their beneficial
interests to The First National Bank of Chicago (First National) as
security for a construction loan of $600,000. From that loan, the
joint venture, in January 1994, reimbursed Lyn-Jay and Rosemary in
full for previous loans they made to the joint venture.
On February 10, 1994, Ashley assigned its beneficial interest
in the land trust, which was already subject to the collateral
assignment to First National, to Lyn-Jay as security for a personal
loan in the amount of $40,000.
The joint venture's income tax return for 1993 showed the
interests of the three venture parties to be "33.33%," and
characterized the original cash commitments as mortgages, notes,
and bonds. Barrett disagreed with this characterization of the
cash commitments and, on behalf of Ashley, wrote a letter to the
joint venture's accountant stating he believed that the original
cash commitments should be characterized as capital
contributions.[fn1] On December 18, 1995, Lyn-Jay, Rosemary, and
First National directed River Forest to sell the frontage of the
land to World Savings and Loan, a California bank. The following
day River Forest received a letter from Barrett revoking Ashley's
February 1994 assignment to Lyn-Jay.
On December 22, 1995, River Forest filed its declaratory
action, seeking to ascertain the effectiveness of the various
assignments and Ashley's revocation. Lyn-Jay filed its answer and
emergency motion for a temporary restraining order, injunction, and
declaratory relief on December 29, 1995. After a hearing on
January 2, 1996, the circuit court ordered the sale of the frontage
portion of the land to World Savings Bank for $750,000, in
accordance with the December 18, 1995 direction of Lyn-Jay and
Rosemary to convey, approved by First National. The court ordered
that the sale proceeds be distributed, first, to First National to
pay off the original loan, and, second, to pay various contractors'
and materialmen's expenses incurred by the joint venture. Last,
the court ordered that the balance be distributed to the joint
venture's parties to pay further expenses, and certain of their
respective claims.
In accordance with the March 8, 1996 agreed order, Ashley was
required to file its pleadings with respect to all its claims
regarding the joint venture, its partners and its assets. Lyn-Jay
was granted leave to file its counterclaim and Rosemary was granted
leave to file its amended counterclaim. By an agreed order
presented on March 18, 1996, entered on March 20, 1996, and made
nunc pro tunc as of March 18, 1996, the Rosebrook Joint Venture was
dissolved and its affairs ordered to be wound-up. Matters upon
which the parties could not agree were to be presented to the court
for determination. As part of the wind-up, the court ordered that
the joint venture should attempt to sell any residential projects
then under construction.
Ashley filed a counterclaim, as its pleadings, in which it
asserted that the joint venture should be dissolved; Ashley be
declared owner of a one-third undivided interest in the land, which
land should be partitioned; that a receiver be appointed; and an
accounting ordered for proceeds of sales and for its ownership in
the capital of the joint venture.
A separate bench trial was set for Ashley's pleadings and Lyn-
Jay's and Rosemary's responses thereto. River Forest, the trustee,
was excused by the court from participating in this proceeding.
Only Barrett testified at trial, describing the history and
development of the joint venture and the continuing dispute between
the parties. His construction of section II.6. of the December
Agreement provided for an equal division of the land sale proceeds.
Although the $35,000 Barrett paid for the option was his only cash
capital contribution, he claimed a total contribution of $345,000,
the same amount as each of the other two parties, maintaining that
the land, with modified zoning and the eventual development of the
property, was worth considerably more than the $725,000 purchase
price.
On cross-examination, Barrett testified that section III.2. of
the December Agreement applied only to the sale of "residential
unit[s] constructed upon the property," but did not apply to the
disposition of the parcel of land itself.
At the conclusion of Barrett's testimony, which also marked
the end of Ashley's case, Lyn-Jay and Rosemary successfully moved
for a finding in their favor under 735 ILCS 5/2-1110. The circuit
court ruled that the joint venture agreement was "clear and
unambiguous"; Barrett's interpretation of the agreement was
"strained"; and section III.2. applied also to the distribution of
money from the sale of the land as well as from the residential
units constructed on the property. The court further found that
Ashley had made capital contributions of only $35,000, the cost of
the option, and $24,136.55, the pre-closing expenses. The court
entered a formal order, encompassing the foregoing determinations,
on May 2, 1996. Ashley appeals.
I
Ashley first contends that the circuit court erroneously
rewrote the December Agreement under the guise of holding it
unambiguous and erred specifically in its construction of sections
II.6. and III.2.
The primary object of contract construction is to give effect
to the intention of the parties. Srivastava v. Russell's Barbecue,
Inc., 168 Ill. App. 3d 726, 730, 523 N.E.2d 30 (1988).
(Srivastava). The rules of contract construction require that
intention should be ascertained from the language of the contract;
clear and unambiguous terms must be given their ordinary and
natural meaning; contracts will be interpreted as a whole, giving
meaning and effect to each provision thereof; contracts imply good
faith and fair dealing and when an instrument is susceptible of two
constructions, an interpretation which imputes bad faith to a party
or is inequitable will be avoided. Srivastava, 168 Ill. App. 3d at
730.
Ashley asserts that section II.6. of the December Agreement
applies to the sale of the subject property and section III.2.
applies only to the sale of residential units built on the
property. Contrariwise, Lyn-Jay (whose brief and argument on
appeal were adopted by Rosemary) maintains that section III.2.
applies to all dispositions of the subject property, whether
developed or undeveloped, and that section II.6. applies to
dealings in which the joint venture is a "co-venturer" with a
secondary joint venture, should such an additional venture be
formed. The language of section III.2. expressly refers to the
"disposition of all or part of the entire 6.155 acres tract."
(Emphasis added.) The language of section III.2. does not limit
its provisions merely to the sales of constructed residential
units, but specifies that all profits "generated by either the
development or disposition" of the land will be shared equally.
(Emphasis added.)
Ashley insists, however, that if section III.2. is read to
apply to all dispositions of the land, then section II.6. is
eliminated from the December Agreement. Section II.6. is not
eliminated under this construction; it simply applies to proceeds
generated by the joint venture as a co-venturer in the event
another partnership or business enterprise were to become involved,
an eventuality which never came to pass.
Ashley's interpretation also runs counter to long standing
partnership distribution laws contained in the Uniform Partnership
Act (Act) (805 ILCS 205/1 et seq. (West 1997)), and case law. In
Bachewicz v. American National Bank and Trust Co., 111 Ill. 2d 444,
448, 490 N.E.2d 680 (1986), and in Dremco, Inc. v. South Chapel
Hill Gardens, Inc., 274 Ill. App. 3d 534, 654 N.E.2d 501 (1995),
the courts held that the Act applies to joint ventures. The Act
provides, in pertinent part:
"Settlement of accounts between partners.
In settling accounts between the partners
after dissolution, the following rules shall
be observed, subject to any agreement to the
contrary:
(a) The assets of the partnership are:
I. The partnership property,
II. The contributions of the partners
specified in clause (d) of this paragraph.
(b) The liabilities of the partnership shall
rank in order of payment, as follows:
I. Those owing to creditors other than
partners,
II. Those owing to partners other than for
capital and profits,
III. Those owing to partners in respect of
capital,
IV. Those owing to partners in respect of
profits.
(c) The assets shall be applied in the order
of their declaration in clause (a) of this
paragraph to the satisfaction of the
liabilities." 805 ILCS 205/40.
Under Ashley's construction of the instant December Agreement, the
proceeds of any land sale would be divided evenly, as profits,
without payment first to settle the parties' capital accounts,
contrary to sections 40 (b)III and IV, and (c). Nothing in the
Agreement suggests that the Act was to have been modified in this
way. Indeed, section III.2. of the December Agreement takes
account of each party's contribution of capital in the definition
of profit, which requires that the pro rata return of each party's
investment of capital be made before distribution of proceeds is
made from the disposition of all or part of the subject property.
The circuit court's construction of the foregoing provisions
was correct.
II
Ashley next contends that its capital contribution was not
limited to the $35,000 option, but was $345,000, an amount equal to
the cash contributions of Rosemary and Lyn-Jay, because the value
of Ashley's concept of how the land should be developed and
Ashley's right to exercise the option must be considered part of
Barrett's, therefore Ashley's, capital contribution, rather than
being limited to $35,000, the cost of the land option.
The December Agreement expressly contemplated a capital
contribution from Ashley of $35,000 and payment of $24,136.55 in
pre-closing expenses, under section I.6.I. Ashley also may have
contributed another $1000 to the joint venture, for a total of
$60,136.55. Ashley has presented no evidence to the effect that
the development concept was an independently valued contribution,
nor can any such provision be found in the Agreement. There is no
evidence to suggest the option to buy the subject property carried
any value over the $35,000 cost of the option itself. There is no
showing that any of the other parties recognized an equivalent
contribution of $345,000 from Ashley. Significantly, the December
Agreement established that the fair market value of the land was
$725,000, the sum of Lyn-Jay's $345,000, Rosemary's $345,000, and
Ashley's $35,000, and mentioned no other assets. Nothing was
designated by the Agreement to account for Ashley's missing
contribution of $284,863.45, in order to support his claim of
equivalency.
Ashley urges that because the land value increased after the
joint venture's purchase (the commercial frontage was eventually
sold to a bank for $750,000, and First National loaned $600,000 to
the joint venture to develop the rear residential portion), the
fair market value of the land was grossly underestimated, which
somehow rebounded to increase Ashley's capital contribution credit
upon dissolution. An increase in land values after the purchase
relates to profit; it does not equate to a greater cash capital
contribution before the purchase, unless the parties choose to
treat it so. Here, the parties knew how to provide for increases
in capital contribution credits. They provided for such an
increase only in section I.6.H., and that increase concerns payment
of "real estate taxes, mortgage payments or other liens or costs
that currently affect the premises," none of which are involved in
Ashley's theory.
Ashley relies upon Becker v. Killarney, 177 Ill. App. 3d 793,
532 N.E.2d 931 (1988) (Becker), as support for its argument. In
Becker, seven people entered into a partnership agreement to
operate a hotel, five of whom agreed to contribute only their
services to the partnership and two others, who joined the
partnership later, agreed to contribute cash. The partnership
agreement itself recognized that service contributions by some of
the partners were to be treated as equivalent to the cash
contributions of the others. Also, the service partners each
continually performed their prescribed services according to their
skills throughout the partnership's operation of the hotel venture.
The hotel lost money and, when the losses mounted, the service
contributors sought reimbursement from the cash contributors to
share the losses equally. The cash contributors argued that their
contributions should be applied to the losses before they paid more
money into the partnership. Becker, 177 Ill. App. 3d at 795. The
appellate court explained that the agreement required services to
be recognized and capitalized "so as to prevent unjust enrichment."
Becker, 177 Ill. App. 3d at 798. Ashley claims Becker establishes
that, if profits are shared among partners, then their respective
capital contributions are automatically equal as well.
Ashley extends Becker too far. In Becker, the court merely
held that, to prevent the unjust enrichment of cash contributors at
the expense of service contributors, losses had to be shared
equally among both service and cash partners, as contemplated by
their agreement. Becker, 177 Ill. App. 3d at 796-798. In the
instant case, the circuit court did not hold that services could
not be a capital contribution, but found no provision in the
agreement for such a service contribution in lieu of cash, and
inferentially determined that Ashley did not make such a service
contribution. There was no error in the court's interpretation of
the December Agreement in this respect.
III
Ashley next contends that the circuit court erred in refusing
to find that Ashley was entitled to a capital contribution expense
reimbursement of $19,700 from Lyn-Jay and Rosemary each, under
section I.6.I. of the December Agreement.
Under section I.6.I., all parties were to contribute equally
to the expenses of the joint venture. The parties agree that
reimbursement of capital expenses to Ashley was to come at the same
time as any other expense reimbursement. Lyn-Jay and Rosemary each
received a reimbursement in January 1994, for initial loans they
made to the joint venture, which were in accordance with the joint
venture agreement.
At trial, Barrett conceded that Ashley did not share the
expenses equally, but that "[Lyn-Jay and Rosemary] made loans to
the Rosebrook Joint Venture to earn interest." Lyn-Jay and
Rosemary argue that, because Ashley did not pay its share of those
expenses, it should not be reimbursed under section I.6.I.
Although it is undisputed that Ashley never shared equally in
the expenses of the joint venture, the language of section I.6.I.
clearly and unambiguously requires that Lyn-Jay and Rosemary were
to reimburse Ashley for 2/3 of Ashley's capital contribution of
$35,000 and pre-closing expenses of $24,136.55 "at the same time of
any expense reimbursement." Under the language of that section,
such reimbursement does not require that Ashley share in further
expenses, nor does it state that the sharing of further expenses
was a condition for Ashley's reimbursement of "ascertainable pre-
closing expenses to date *** and his capital contribution."
Additionally, Lyn-Jay and Rosemary did not demand that Ashley
participate equally in further expenses.
Section I.6.I. was designed to protect the three parties from
paying disparate amounts of money in expenses, and to insure that
the expenses would be shared equally by the three joint venturers.
The circuit court erred in denying reimbursement to Ashley as
required by section I.6.I., and this part of the judgment must be
reversed and remanded for further proceedings.
I V
Ashley next contends that the circuit court erred when it
entered judgment in favor of Lyn-Jay and Rosemary at the close of
Ashley's case, because it presented a prima facie case with enough
evidence of ambiguity to require the case to have gone forward.
In a bench trial, where defendants move for judgment in their
favor at the end of the plaintiff's case-in-chief, "the court shall
weigh the evidence, considering the credibility of the witnesses
and the weight and quality of the evidence," and rule accordingly.
735 ILCS 5/2-1110 (West 1994). Section 2-1110 acknowledges that
where the circuit judge is the trier of fact, defendants should not
be required to put on their case when the court would rule for
defendant at the close of plaintiff's case. There is a two-stage
procedure inherent in section 2-1110. At the first stage the
circuit court determines whether plaintiff has made out a prima
facie case, in other words, whether "he has *** presented at least
some evidence on every element essential to his action." Kokinis
v. Kotrich, 81 Ill. 2d 151, 154, 407 N.E.2d 43, 45 (1980). If he
has not, defendants are entitled to judgment as a matter of law.
Kokinis, 81 Ill. 2d at 154-55. If "plaintiff has made out a prima
facie case" (Kokinis, 81 Ill. 2d at 155), then at the second stage
the circuit court views the case in the same manner as it would had
defendants rested at the close of plaintiff's case (Kokinis, 81 Ill. 2d at 158, 407 N.E.2d at 46 (Ryan, J., specially concurring)).
At the second stage the court may enter judgment for defendants, or
it may deny defendants' motion and allow the trial to proceed.
When such a section 2-1110 motion is made, the court weighs
plaintiff's credible evidence against the credible evidence
presented by defendants. The fact that plaintiff has presented
some credible evidence case does not require denial of defendants'
section 2-1110 motion, where the court's evaluation of the evidence
requires entry of judgment for defendants. The court's ruling on
a section 2-1110 motion will not be overturned unless it is against
the manifest weight of the evidence. Zannini v. Reliance Insurance
Co. of Illinois, Inc., 147 Ill. 2d 437, 449, 590 N.E.2d 457, 462
(1992).
Ashley contends that it presented enough evidence to establish
a prima facie case demonstrating that the December 1992 joint
venture agreement was ambiguous. First, Ashley notes Barrett's
testimony that section II.6. applied to the sale of land and that
section III.2. applied only to "dispositions" of residential
projects. Barrett also testified that he regarded his capital
contribution as having been $345,000, equal to that of Lyn-Jay and
Rosemary, based upon documents such as the December Agreement,
which stated that each party had a "1/3" interest in the joint
venture; the joint venture's federal income tax schedule K-1, which
listed the interests of the three parties as "33.33%"; and the land
trust agreement, which gave each party a one-third interest in the
land trust. He concludes that because he is entitled to one-third
of the profits (or share in any losses) he is entitled to one-third
of everything his partners contributed to the joint venture.
The circuit court's decision to the contrary was not against
the manifest weight of the evidence. First, the court found
Barrett to be an incredible witness, a finding it is permitted to
make with a motion for judgment in a bench trial. The court also
considered the language of the December Agreement itself,
determined the intention of the parties through the language it
used, and examined the Agreement as a whole (Srivastava, 168 Ill.
App. 3d at 730), as well as the other documents mentioned.
Although the December Agreement and other documents specified
that each party was to own "1/3" of the interest of the joint
venture, Barrett testified that the $35,000 was his only capital
cash contribution and the agreement did not recognize any other
value for Barrett's development concept, option, or any other
involvement or services which could be considered capital
contributions returnable to him upon dissolution.
The circuit court correctly entered judgment for defendants at
the close of Ashley's case.
V
In a motion filed in August, 1997, Ashley requested this court
to supplement the record with an order of sale entered by the
circuit court on December 6, 1996. This order issued after Ashley
filed his appeal with this court on September 19, 1996.
Ordinarily, a court of review cannot consider matters that
occurred after the filing of the appeal which are not in
furtherance of the appeal (Atkins v. Atkins, 393 Ill. 202, 206, 65 N.E.2d 801 (1946)), but will not apply this rule if it would
produce absurd results or injustice. Hazdra Homes, Inc., v. County
of Du Page, 27 Ill. App. 3d 685, 687, 326 N.E.2d 561 (1975).
Ashley argues that the December 6, 1996 order of sale is in
conflict with the circuit court's final order of May 2, 1996. To
the contrary, the order simply determines the balance of the wind-
up process and the rest of the pending matters. The order directs
that property owned by the joint venture partners through the River
Forest trust, which had not been sold up to December 6, 1996, was
to be sold at a sheriff's sale, under conditions prescribed by the
order, and that the proceeds be distributed in accordance with the
capital contributions of each of the partners, which was set forth.
The December order is neither necessary nor germane to the issues
involved in this appeal. Accordingly, leave to make that order
part of the present appeal record is denied and references thereto
in any subsequent brief are stricken.
Although the circuit court also dismissed Ashley's claims for
an accounting, receiver, and partition, those issues have not been
presented for review on appeal.
In summation, the circuit court's construction of sections
II.6. and III.2. of the December Agreement, and its determination
of the parties' capital contributions, are affirmed. The circuit
court's determination that Ashley is not entitled to reimbursement
under section I.6.I. of its capital contribution and pre-closing
expenses, as well as Ashley's further contribution of $1,000, is
reversed, and the cause is remanded for further proceedings as to
this issue.
Affirmed in part, reversed in part and remanded with
directions.
HOURIHANE and SOUTH, JJ., concur.
[fn1]Although the characterization of the initial cash
commitments was originally disputed, it appears that the three
parties now agree that all original cash commitments to the venture
are to be considered capital contributions.