REID v. WELLS (1999)

Plaintiff David Reid filed suit against defendants Raymond and Suzanne Wells claiming that the defendants breached a loan agreement.   The defendants filed a counterclaim against Reid alleging that he breached a separate oral partnership agreement.   The trial court dismissed the defendants' counterclaim, finding that it was barred by the statute of limitations.   Subsequently, the jury found in favor of Reid, awarding him $192,500.   On appeal the defendants argue, among other things, that Reid's cause of action is barred by the five-year statute of limitations for unwritten contracts because Reid's name did not appear on the contract.   Reid cross-appeals for interest on his judgment.   Based on the following discussion, we affirm and hold that an undisclosed principal steps into the shoes of his agent for the purposes of the statute of limitations.

FACTS

The defendants entered into a loan agreement (loan or loan agreement) with Bob White in which the defendants acknowledged the receipt of $175,000 and agreed to pay back this amount in 6 months plus 10% interest for a total of $192,500.   As security for the loan, the defendants agreed to make White a joint tenant of six parcels of real estate that they owned.

After Reid filed suit, the defendants moved for summary judgment, arguing that because Reid was not a named party to the agreement the 5-year and not the 10-year statute of limitations should apply.   735 ILCS 5/13-205, 13-206 (West 1998).   The parties agreed that if the five-year statute applied then the suit would have been time-barred.   The court denied the defendants' motion.

The defendants then filed a counterclaim against Reid alleging that they had entered into an oral partnership agreement with Reid for the purchase and subsequent sale of various parcels of real estate (Mound Road Property).   The trial court found that their counterclaim was barred by the five-year statute of limitations and granted Reid's motion to dismiss for that reason.   Subsequently, the case proceeded to trial on Reid's breach of contract claim.

The defendants testified that the debt created by the loan agreement had been satisfied by an oral agreement in which they agreed to transfer stock in Advanced Water Technology, Inc. (water company), a company owned by them, to Reid and/or White.   The defendants claimed that this oral agreement was entered into prior to the due date on the loan.   They also claimed that as a result of the oral agreement the deeds being used as security for the loan were returned to them.

Following the close of evidence, the jury returned a verdict in favor of Reid in the amount of $192,500 ($175,000 plus 6 months' interest at 10%).   The defendants appeal, claiming that (1) Reid's attempt to enforce the loan agreement was barred by the five-year statute of limitations;  (2) any oral agreement in effect between Reid and the defendants was likewise barred by the five-year statute of limitations;  (3) the trial court committed several errors in evidentiary rulings the cumulative effect of which was to deny the defendants a fair trial;  and (4) the trial court erred in dismissing the defendants' counterclaim concerning the oral partnership agreement for the Mound Road Property based on the five-year statute of limitations.   Reid cross-appeals for interest on the judgment.

Other facts relevant to this appeal will be related as they become necessary to the discussion.

ANALYSIS

1. Statute of Limitations

 The defendants assert that because Reid is not named in the loan agreement his cause of action is barred under the five-year statute of limitations.   We disagree.

 When an agent fails to disclose that he is acting for a principal, the latter may, on a showing of the agency, claim the benefit of any transaction into which the agent entered as if the principal had entered into it himself.   O'Connor v. Village of Palos Park, 31 Ill.App.3d 528, 333 N.E.2d 276 (1975).   See also Brunswick Leasing Corp. v. Wisconsin Central, Ltd., 136 F.3d 521 (7th Cir.1998) (generally, an undisclosed principal may step into the shoes of his agent and assume all the rights and obligations of a contract that the agent had entered into on the undisclosed principal's behalf).

It is clear from the record that the jury was presented with evidence of an agency relationship between Reid and White in the form of extensive testimony by both gentlemen.   Given the jury's province to determine the credibility of witnesses (see Moss v. Miller, 254 Ill.App.3d 174, 192 Ill.Dec. 889, 625 N.E.2d 1044 (1993)), we cannot say that a finding of agency was against the manifest weight of the evidence.   The sole question then is whether, through this agency relationship, Reid stepped into the shoes of White for the purposes of the statute of limitations.

Our Limitations Act provides that the time period for enforcement of an unwritten contract is five years after the date on which the cause of action accrued.   735 ILCS 5/13-205 (West 1998).   The time period for filing a suit based on a written contract is 10 years after the date on which the cause of action accrued.   735 ILCS 5/13-206 (West 1998).

In Jovan v. Starr, 87 Ill.App.2d 350, 231 N.E.2d 637 (1967), the plaintiff brought suit against his former agent and an escrowee with whom the agent had deposited a sum of money.   The written agreement upon which the plaintiff sought to recover the deposit did not mention the plaintiff.   As in this case, part of the defendants' argument for applying the 5-year instead of the 10-year statute of limitations was that the agreement did not refer to the plaintiff.   In holding that the 10-year statute of limitations applied, the appellate court stated that the fact the plaintiff is not mentioned in the agreement is immaterial.  Jovan, 87 Ill.App.2d at 353, 231 N.E.2d at 639.   We believe that Jovan is on point and expressly apply its holding here.

In opposition to this conclusion, the defendants cite Munsterman v. Illinois Agricultural Auditing Ass'n, 106 Ill.App.3d 237, 62 Ill.Dec. 125, 435 N.E.2d 923 (1982) for the proposition that a contract is only in writing as to a party if he can be ascertained as a party from the face of the agreement.   We, however, believe the factual situation presented by Munsterman is inapposite to the facts at hand.

In Munsterman, the plaintiffs were a group of farmers who had stored their grain in an elevator owned by a company that had contracted with an auditing association to provide the company with annual fiscal reports.   The contract included warranties that the association would undertake its audits in a competent manner.   While the association's reports indicated that the company was physically sound, in actuality the company had become insolvent.   Over five years after the company's insolvency became known, the plaintiff farmers filed suit against the auditing association pursuant to the contract warranties.   In dismissing the action, the trial court relied on the five-year statute of limitations for suits based on unwritten contracts.   The appellate court affirmed, finding that the contract was wholly oral as to the plaintiffs because they could “only be ascertained as beneficiaries or third parties to [the] agreement by resort to parole evidence.”  Munsterman, 106 Ill.App.3d at 238-39, 62 Ill.Dec. 125, 435 N.E.2d at 925.

 Unlike the Munsterman plaintiffs, Reid argues that he is an undisclosed principal.   An undisclosed principal is in a fundamentally different position than a third party to a contract.   For example, whereas an undisclosed principal may step into the shoes of his agent and assume all the rights and obligations of a contract that the agent has entered into on the undisclosed principal's behalf (Brunswick, 136 F.3d at 526), third parties are not afforded such a right.   In fact, Illinois law provides that there is a strong presumption that the parties to a contract intend the provisions of that contract to apply only to them and not to third parties.  Barney v. Unity Paving, Inc., 266 Ill.App.3d 13, 203 Ill.Dec. 272, 639 N.E.2d 592 (1994).   In order for a plaintiff third party to have standing to sue under a contract, the contract must be undertaken for the plaintiff's direct benefit and the contract itself must affirmatively make this intention clear.   Caswell v. Zoya International, Inc., 274 Ill.App.3d 1072, 211 Ill.Dec. 90, 654 N.E.2d 552 (1995).

In light of Jovan and given the factual dissimilarity of Munsterman, we believe the trial court correctly found that Reid's suit against the defendants based on the loan agreement was not barred by the five-year statute of limitations.

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2. A Fair Trial

The defendants essentially argue that they were denied a fair trial because the trial court made several erroneous evidentiary rulings and errantly allowed Reid to amend his pleadings.   We disagree.

Initially, the defendants contend that the trial court erred by denying the admission of evidence relating to Reid's prior felony conviction.   The defendants claim that such evidence was relevant for impeachment purposes and substantively as evidence of why the parties' business relationship terminated.   A prior conviction, however, is not admissible if (a) it is more than 10 years old, or (b) the probative value of the evidence is substantially outweighed by the danger of unfair prejudice.  People v. Holloman, 304 Ill.App.3d 177, 237 Ill.Dec. 500, 709 N.E.2d 969 (1999).   Reid claims that the conviction at issue here was ten years old at the time of the trial and the defendants do not dispute this contention.   Moreover, we agree with the trial court that the potential prejudice of admitting the conviction far outweighed its probative value.   Consequently, we cannot say that the court abused its discretion in denying its admission.

The defendants further maintain that the trial court abused its discretion by allowing Reid to plead inconsistent theories, allowing Reid to amend his pleadings after the trial commenced, allowing Reid to file late answers to affirmative defenses and disallowing the defendants' motion to amend their pleadings to conform to the proofs.   We find none of these arguments persuasive.

As to the defendants' argument concerning Reid's inconsistent theories, in his initial complaint Reid alleged that White assigned him his rights under the loan agreement.   In his first amended complaint, Reid added the allegation that White was acting as his agent when he entered into the loan agreement with the defendants.   Each of these complaints was verified.   The defendants seem to contend that Reid's amended complaint was fatally inconsistent in that he could not plead both that he was assigned White's rights under the contract and that White was acting as his agent when White entered into the contract.   Like the trial court, however, we do not believe that these two allegations are necessarily inconsistent.   One could act as an agent for another when entering into a contract and, for fear that the agency could not be proved, make an assignment of the contract rights to the principal.

As to the trial court allowing Reid to amend his pleadings after the trial began, during the course of Reid's testimony he attempted to admit a copy of the alleged assignment executed by himself and White.   The defendants objected, arguing that the document was irrelevant because Reid had not properly plead the existence of an assignment.   The court allowed the document to be admitted and thereafter permitted Reid to amend his pleadings relating to the alleged assignment.   At the close of evidence, however, Reid stipulated that he had not provided enough evidence as to the existence of an assignment and the jury was instructed only on the agency theory.   Thus, even if we believed that the trial court erred by allowing Reid to amend his pleadings, we would still not disturb the trial court's decision because we do not believe that this amendment affected the outcome of the trial.   See Jackson v. Pellerano, 210 Ill.App.3d 464, 155 Ill.Dec. 167, 569 N.E.2d 167 (1991) (when it appears an error did not affect the outcome of a trial, or where reviewing court can see from the entire record that no harm has been done, the judgment will not be disturbed).

The defendants also argue that the court errantly allowed Reid to file a late answer to one of their affirmative defenses.   Courts are given broad discretion and encouraged to freely and liberally allow amendment of pleadings.  Lee v. Chicago Transit Authority, 152 Ill.2d 432, 178 Ill.Dec. 699, 605 N.E.2d 493 (1992).   In his brief to this court, Reid admits that he failed to respond to the affirmative defense that the loan agreement had been paid in full and/or otherwise satisfied.   He attributes this transgression to the plethora of pleadings filed by the defendants in a short period of time immediately prior to the trial.   Reid further maintains that his complaint, which clearly stated that the loan had not been paid, can be fairly construed to stand on its own as a response to the affirmative defense.   Given these arguments and the fact that the trial court's decision clearly facilitated the resolution of this suit upon its merits, we cannot say the court abused its discretion by allowing Reid to file a late answer to the affirmative defense.

As to the court's refusal to allow the defendants to amend their pleadings to conform to the proofs, the defendants sought to add an affirmative defense based on a new alleged oral contract.   This argument of the defendants followed a line of testimony given by Reid in which he stated that he returned the property deeds being used as collateral to encourage the defendants to sell the property and repay their debt.   Despite the fact that the defendants attempted to use this testimony to establish the existence of a new oral contract, they themselves insisted that they paid back the loan by transferring the stock in the water company and never acknowledged or accepted this alleged new agreement.   Thus, the only testimony even arguably relating to the existence of a new contract was given by Reid himself.   We believe that such testimony was woefully insufficient to establish a contract and agree with Reid that the testimony at most could be characterized as a release of collateral which would not have discharged the defendants' indebtedness.   See Polo National Bank v. Lester, 183 Ill.App.3d 411, 132 Ill.Dec. 220, 539 N.E.2d 783 (1989).   Hence, we cannot say the trial court abused its discretion by denying the defendants' motion to amend their pleadings to conform to the proofs.

Lastly, regarding the trial court's dismissal of the defendants' claim that Reid breached the Mound Road Property partnership agreement, the defendants argue that the court improperly determined the time of the breach when such a determination was solely within the province of the trier of fact.   By uncontradicted affidavit, however, Reid established that (1) he told Raymond Wells in the summer of 1988 that Wells was to get no part of Mound Road property and (2) Raymond Wells objected to Reid putting the property up for sale in September of 1990.   Both of these events occurred more than five years before the defendants' counterclaim was filed and either could have been considered a breach of the agreement by the trial court.   Accordingly, because a court is to take as true those facts in an affidavit supporting a motion to dismiss not refuted by counteraffidavit, (Pryweller v. Cohen, 282 Ill.App.3d 899, 218 Ill.Dec. 312, 668 N.E.2d 1144 (1996)), we affirm the trial court's dismissal.

3. Reid's Cross-appeal for Interest

On cross-appeal Reid argues that he should have been granted interest either at the rate of 10% every 6 months under the loan agreement, or at the rate of 5% per annum under the Interest Act. 815 ILCS 205/2 (West 1998).   We cannot agree.

The interpretation of a contract is a question of law to be reviewed de novo.  In re Marriage of Velasquez, 295 Ill.App.3d 350, 229 Ill.Dec. 852, 692 N.E.2d 841 (1998).   The contract language on this point reads “ * * * to borrow said [$175,000] for six (6) months at 10% interest * * * for a total of $192,500.”   There is no provision for additional interest monies.   A plain reading of this provision shows that the contract does not contemplate interest beyond the six month period.

As for the Interest Act, Reid did not make this argument to the trial court in his post-trial motion following the jury verdict.   As a consequence, he did not afford the trial court the opportunity to correct any error that may have occurred as to this issue and thus waived his right to appeal it.   See Flynn v. Cusentino, 59 Ill.App.3d 262, 16 Ill.Dec. 560, 375 N.E.2d 433 (1978).   In sum, we affirm the trial court's refusal to grant Reid interest on his judgment under both the contract and the Interest Act.

The parties have put forward several other arguments.   Having carefully reviewed these arguments in light of the record, however, we find further discussion unnecessary.

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For the reasons stated above, the judgment of the circuit court of Will County is affirmed.

Affirmed.

Justice BRESLIN delivered the opinion of the court: