W.E. Erickson Construction v. Congress-Kenilworth Corp.

445 N.E.2d 1209 (Ill. App. Ct. 1983)

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Nature of the Case

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Facts

P, a general contractor, was hired to construct a public amusement consisting of a concrete water slide for D for a total cost not to exceed $535,000. Work commenced on April 15, 1981. P was to apply for monthly progress payments and that D was required to pay P within 30 days of application. P applied for a payment in the amount of $246,958, which it did not receive. The parties then agreed that D would deliver the deed to the real estate to P and that P would use this deed as security for additional interim financing. The title was placed in a land trust and the beneficial interest was assigned to Elmhurst National Bank as additional security for financing obtained by P. On July 9, 1981, Adams, Stafford and their attorney, Paul Daugerdas, the three principal stockholders of D, filed articles of incorporation for a separate corporation to be known as Thunder Mountain Rapids Corporation. The designated purposes of Thunder Mountain Rapids Corporation were identical to those set forth in the articles of incorporation of D. In addition, all bank accounts standing in the name of D were closed; all gross revenues were collected by Thunder Mountain Rapids and deposited in its accounts; and a written management contract was entered into between D and Thunder Mountain Rapids. The contract was requested but not produced at trial. There is no further evidence in the record as to the terms of the contract. The record also reveals that Thunder Mountain Rapids owns 80% of D and a church owns the other 20%. Partial payments to P were made by Thundar Mountain. A total of $150,000 of the $550,000 owed was paid. Sometime in August 1981, the parties learned that the Department of the Army owned the real property conveyed by D to P and that the water slide was an encroachment. D subsequently entered into a lease with the Army. Gross revenues of the project in 1981 were approximately $224,000. The books and records of D were in proper order, and Adams testified that he and Stafford did not take a salary but were reimbursed a total of $25,000 for expenses which they had incurred before the slide was opened. This evidence was also undisputed. The court appointed a receiver after finding that the security given to P, the deed to the real estate, was worthless; that the future proceeds from the slide constituted a special fund; and that hundreds of thousands of dollars were passing through Thunder Mountain Rapids Corporation while D alleged that they could not pay because they did not have any assets. The court made no findings specifically relating to diversion, malfeasance or misfeasance on the part of the defendants. This appeal resulted.