Court Opinion

ID: 9543120
Source: CourtListenerOpinion
Date Created: 2023-08-07 16:42:20.282629+00
Date Added: 2024-06-11T15:09:43.427965
License: Public Domain

JUSTICE MURRAY delivered the opinion of the court: This is an appeal by plaintiff, as administrator, from a trial court’s judgment in an accounting action involving the sale of her late husband’s stock in defendant’s, Plasti-Drum Corporation’s, business. The facts are as follows: Bert Ferrell and Walter Craig incorporated defendant Plasti-Drum Corporation in 1972. Each held 5,000 shares of common stock and both served as an officer and director. In April 1975, Bert Ferrell suffered a ruptured appendix, after which his health declined. Bert Ferrell resigned as president of PlastiDrum and Walter Craig assumed the position. From May to December 1975, Bert Ferrell and Walter Craig negotiated a buyout agreement of Bert Ferrell’s ownership interest in Plasti-Drum. On January 19, 1976, Bert Ferrell and Walter Craig signed a memorandum of an agreement drafted by Wayne Johnson, an attorney for Plasti-Drum. The memorandum was incorporated into a formal buyout agreement which was signed by Ferrell and Craig on January 29, 1976. The agreement provided that for five years Plasti-Drum pay Bert Ferrell 10% of the corporation’s net profits indicated on the corporate tax return. Bert Ferrell died on February 26, 1976. His wife, Virginia Ferrell, was appointed administrator of his estate. No payments were made by Plasti-Drum to Ferrell’s estate pursuant to the buyout agreement for the fiscal years April 1975-76 and 1976-77 because, according to testimony, Plasti-Drum operated at a loss during those years. However, Plasti-Drum paid to the Ferrell estate 10% of the corporation’s net profits indicated on taxable income line 30 of the corporate tax return for the fiscal years April 1977-78, April 1978-79 and April 1979-80. Mrs. Ferrell cashed the payment checks for the fiscal years ending in April 1978 and 1979, but she did not cash the payment check for the fiscal year ending in April 1980. The April 1980 payment check from Plasti-Drum was accompanied by a letter dated January 12, 1981, from Walter Craig. The letter stated that under the buyout agreement between Craig and Ferrell, Plasti-Drum was to pay Bert Ferrell 10% of the corporate profits for five years and the 1980 check was the final payment due. On July 14, 1980, Mrs. Ferrell filed this action seeking an accounting of Plasti-Drum profits, the bonuses paid its employees in the years 1977 through 1981, a determination as to the years payments under the agreement were to begin and end, and the method used to calculate the amount of profit due the decedent’s estate under the contract. The defendant answered asserting estoppel as an affirmative defense. Defendant charged that plaintiff was estopped from denying that the contract period commenced other than the year 1974-75. The basis of this claim was that plaintiff had made an allegation to that effect in prior litigation between the parties in Will County, Illinois. The Will County case had been appealed and no issue as to the contract term appears to have been settled in that appeal. Plasti-Drum Corp. v. Ferrell (1979), 70 Ill. App. 3d 441, 388 N.E.2d 438. The contract provisions at issue in the case are as follows: “Whereas Ferrell owns Five Thousand (5,000) shares of common stock of the corporation and desires to sell the same to the corporation and the corporation desires to purchase and redeem all of said shares of common stock upon the terms and conditions all as is hereinafter set forth and contained; 2. That the purchase price for the Five Thousand (5,000) shares of common stock of the corporation so purchased and redeemed by the corporation shall be paid in the following manner to wit: A. For the next five (5) successive fiscal years, commencing with the close of its current fiscal year, the corporation shall pay to Ferrell, within ten (10) days of the preparation of its annual federal income tax return, ten percent (10%) of its net profits; such net profits to be determined from the federal income tax return prepared by a certified public accountant engaged by the corporation for that purpose. Such net profit shall be determined after provision for payment of all corporate taxes, however any bonuses paid to officers or employees of the corporation shall be added to the net profit indicated on such federal income tax return.” (Emphasis added.) After a three-day trial, the trial court made an oral ruling in defendant’s favor. On May 18, 1984, the court entered judgment. In its final judgment the court found (1) the issues in favor of defendant and against plaintiff; (2) that plaintiff’s proof did not establish by a preponderance of the evidence that she is entitled to receive anything more than she received and retained in the past; (3) that the term of the agreement is determined from the evidence to be the five fiscal years starting with fiscal year ending April 30, 1976, and concluding with fiscal year ending April 30, 1980; and (4) that said administrator takes nothing by her suit and that she go hence without delay. The plaintiff appealed. On appeal she contends that the trial court erred in the following respects: (1) that the trial court’s conclusion as to the term (1975 to 1980) is contrary to the evidence; (2) that the conclusion the Corporate Tax Return (Line 30) was the basis for calculating defendant’s net profit is manifestly erroneous; (3) that the trial court erred in holding Craig’s salary increases and profit sharing benefits were not covered by the bonus add-back language of the net profits agreement; and (4) the court erred in allowing evidence regarding working papers of a prior accountant, the same being hearsay. We affirm the trial court for the following reasons.  We initially point out that the burden of proof in an accounting action is on the party that seeks the remedy. He or she has the burden of proving by a preponderance of the evidence a right to the accounting. (Nieberding v. Phoenix Manufacturing Co. (1961), 31 Ill. App. 2d 350, 176 N.E.2d 385.) Whether a party has established a cause of action for an accounting is a question of fact for the court and the court’s finding on that question will not be disturbed unless it is against the manifest weight of the evidence. (31 Ill. App. 2d 350, 356, 176 N.E.2d 385.) Finally on this point, a trial court has broad discretion in determining whether to order an accounting, and in making this determination, it will consider the particular circumstances of each case. Netisingha v. End of the Line, Inc. (1982), 107 Ill. App. 3d 275, 278, 437 N.E.2d 857. Plaintiff first asserts that the phrase in the January 1976 agreement, ‘[f]or the next five-year successive years, commencing with the close of its current fiscal year, the corporation shall pay Ferrell,” meant the years 1976 to 1981. The trial court found it meant 1975 to 1980. The facts disclose that the plaintiff did not know of the agreement until after her husband’s death. She was appointed administrator of her husband’s estate in April of 1976. She filed suit against defendant in May 1976. She sought an eviction for nonpayment of rent. PlastiDrum filed a suit for an injunction to stop the plaintiff from going into the plant, for a declaratory judgment and other relief. Plaintiff filed a counterclaim in this action for a money judgment for amounts owed the decedent during his lifetime; for money due on notes “10% of net profits for Plasti-Drum’s fiscal year ended April 30, 1976”; possession of the plant; and $3,000 for February 1976, per a lifetime agreement.  The cases were consolidated and on September 14, 1977, the Will County trial judge entered a judgment order. Plaintiff appealed. The appellate court in the Third District affirmed the trial court in part and reversed in part. The principal point of reversal was that a note of $153,802.14 had been accelerated by plaintiff, contrary to the trial court’s conclusion. A judgment for that amount was ordered, plus interest, if any. (Plasti-Drum Corp. v. Ferrell (1979), 70 Ill. App. 3d 441, 388 N.E.2d 438.) The appellate court did not decide the agreement term in that case but did indicate the claim of plaintiff for “payment to defendant of 10% of plaintiff’s profits for fiscal year ending April 30, 1976.” Plasti-Drum Corp. v. Ferrell (1979), 70 Ill. App. 3d 441, 443, 388 N.E.2d 438. In her sworn pleading in that suit, plaintiff stated: “That by virtue of the agreement aforesaid, counter-claimant’s intestate was entitled to ten (10%) per cent of the net profits of the counterdefendants within ten (10) days of the preparation of its annual Federal Income Tax Return at the conclusion of the fiscal year on April 30,1976.” The original trial judge noted “the proofs show that there were no net profits and this claim has been abandoned by her.” Plaintiff began the present litigation in Chicago in December of 1980. The trial consisted of 10 witnesses and 33 exhibits. The trial court did not believe the testimony of plaintiff and Walter Lewis as to the term and the charge that the contract term as to the payment of the 10% began with the fiscal year 1975 rather than 1976. He expressed his disbelief in the oral opinion based on the sworn statement in the 1976 litigation in Will County. He also referred to the fact that plaintiff acknowledged payment under the January 19 agreement of $153,000, plus $15,000, plus $2,000. In addition, he referred to the fact that plaintiff cashed two of the three 10% of profit payments made to her. In the first two years, 1975-76, defendant made no profit. With respect to Lewis’ statements, the trial judge indicated the statements he made as to the intent of the deceased were made to fortify plaintiff’s assertion that she did not know of the intent of the agreement when she filed pleadings in the prior litigation, contrary to the pleading in this case. The trial judge stated in his oral opinion that “that statement by Lewis is incredible and not worthy of belief, given the fact that Lewis was close enough to Ferrell to have been given a power of attorney by the estate to collect rents for the estate.” The trial court properly considered the prior statement made by plaintiff of the date payment was to begin as an evidentiary or judicial admission. Murphy v. Rochford (1977), 55 Ill. App. 3d 695, 371 N.E.2d 260.  The fact that the trial judge did not believe plaintiff’s belated claims of mistake after a number of years of receiving payment is no reason for an appellate court to overturn this conclusion. In a bench trial, the trial court sits as the jury and weighs evidence and determines credibility and its findings are entitled to great weight on appeal and should not be set aside unless clearly against the manifest weight of evidence. Ross v. Thomas (1977), 45 Ill. App. 3d 705, 360 N.E.2d 126.  The trial court’s determination that plaintiff’s evidence did not overcome her sworn allegation in the Will County suit that the start of the term of payments under the agreement was the fiscal year ending April 30, 1976, is not against the manifest weight of the evidence and must be affirmed.  The trial court concluded that plaintiff had not proven that taxable income line 30 on the Federal tax return was not to be used as the basis for calculating monies owed to Bert Ferrell pursuant to the agreement provision that Plasti-Drum pay 10% of its net profits for the next five successive fiscal years. Plaintiff contends on appeal that this finding was against the manifest weight of the evidence. We disagree. Although paragraph 2(A) of the agreement may be considered ambiguous as to the question of what line on the Federal tax return is to be used in determining the net profit figure, it is clear that the Federal income tax return was the controlling reference. The issue was not how best to calculate Plasti-Drum’s profit, but what line entry on the tax return was intended to most accurately reflect the profits as viewed by the signators to the agreement. Taxable income is an objective standard upon which to determine net profits because it reflects the reality of management decisions as to how best to report the financial status of the corporation. “The court will not resort to rules of construction where an agreement itself is clear ***. However, where the terms of the agreement itself are not clear, or are ambiguous, the court will construe the contract to give effect to the intention of the parties.” (Ricke v. Ricke (1980), 83 Ill. App. 3d 1115, 1118, 405 N.E.2d 351.) Attorney Johnson, who drafted the agreement, testified that the net profit figure was to be ascertained from the taxable income line 30 on the Federal income tax return. The two accounting firms which implemented the terms of paragraph 2A each used the taxable income figure in calculating the 10% of net profits due to Bert Ferrell under the agreement. Mr. Ferrell signed the agreement with no indication that such was not his intent. Mrs. Ferrell accepted and cashed two checks from Plasti-Drum based upon the taxable income figure entered on line 30 of the income tax return. The words in paragraph 2(A), “determined from the federal income tax return,” support the conclusion that the tax return was to provide the specific net profit entry to be relied upon in calculating the 10%, rather than Mrs. Ferrell’s assertion that the income tax return served as a source of multiple entries from which one should be required to make a net profit calculation. The former interpretation infuses certainty into the 10% calculation, while the latter would generate uncertainty and endless dispute. We affirm the trial court’s finding that the net profit figure was to be determined by using the taxable income entry on line 30 of the Federal tax return.  In her third point, plaintiff argues that the trial court erred in holding that Craig’s salary increase and profit sharing benefits were not covered by the agreement. The agreement qualified the 10% of net profit figure as follows: “[H]owever, any bonuses paid to officers or employees *** shall be added to the net profit.” Plaintiff, in her contention on this point, claims that compensation in excess of Craig’s 1976 salary ($26,000) should be construed as bonuses paid to Craig. The trial court concluded on this point that plaintiff failed to sustain her burden of proof as to the term “bonus” in the agreement. In support of this conclusion, the trial court directed its attention to a finding of the Will County court that “neither Walter Craig nor Bert Ferrell (deceased) were interested in the subject matter of expense accounts or salaries.” The only evidence suggested by plaintiff as to the meaning of the term “bonus” came from Mr. Doherty, an accounting expert. Doherty testified on cross-examination that his conclusions on bonuses was based on his interpretation of the agreement. However, Plasti-Drum had an ordinary bonus program as authorized by its board’s action of July 8, 1974. This was prior to the written agreement that used the term “bonuses paid to officers or employees in amounts to be added to net profit rather than salary increases or other types of income.” In light of the existence of a bonus program, the trial court correctly concluded that “Mr. Doherty’s conclusions seem to spring from thin air, with nothing referenced from his field of expertise to support them.” Wayne Johnson, the attorney who drafted the agreement, testified that his firm was selected by Ferrell. As the trial court stated, “He testified that bonus was understood and intended to cover payment of money to officers and employees over and above annual salary.” In light of these facts, this court cannot conclude that the trial court’s determination that plaintiff failed to meet her burden as to the meaning of the term “bonus” was in error or unsupported by evidence.  In her final argument, plaintiff contends that permitting the accountant, James O’Connell, to testify that original accountants had used line 30 of the corporate tax return as the basis of calculating the amounts due the Ferrell estate under the net profits clause was impermissible hearsay. She also contends that the accountant’s testimony relating to April 30, 1976, as the effective date of the net profits clause was impermissible hearsay. She bases this contention on the fact that O’Connell’s conclusions were based on the unproduced working papers of the prior accountants who did not testify. Although the testimony may be hearsay, the court in Wilson v. Clark (1981), 84 Ill. 2d 186, 417 N.E.2d 1322, created an additional exception to the all too many exceptions to the hearsay rule. Under the present rule, an expert may base his opinions on facts or data of a type reasonably relied on by experts in the particular field in forming opinions or inferences on the subject. The facts and data themselves need not necessarily be admissable in evidence. (84 Ill. 2d 186, 417 N.E.2d 1322.) Absent some indication in the record that the working papers of the prior accountants were data or facts not relied on by experts in expressing opinion, we cannot conclude that the trial court committed reversible error in allowing the testimony.  After his comment on the evidence, the trial court concluded “the action here is not for rescission of the agreement based on fraud, misrepresentation or mistake of fact; plaintiff’s testimony in evidence hints at a no-meeting-of-the-minds theory. However, the action is as selective of terms deemed through hindsight to be unfavorable while retaining the advantage gnawed through companion terms. No theory of equity permits such result. Plaintiff’s action is for accounting and the plaintiff’s proofs do not establish by a preponderance of the evidence that she is entitled to anything more than she has received and retained in the past.” Our examination of the record discloses that the trial judge was correct, basing his conclusion not on concepts of estoppel or res judicata, but on well-established equitable principles and rules of evidence. Accordingly, we affirm the judgment of the trial court. Affirmed. LORENZ, J., concurs.