author: MR. JUSTICE WARD

text:
    (No. 51574.
    MULLANEY, WELLS & COMPANY, Appellant, v. BARNARD A. SAVAGE, JR., et al., Appellees.

      Opinion filed Feb. 1, 1980.

    — Rehearing denied Mar. 28, 1980.

      James L. Perkins and John L. Huff, of Chicago (Winston & Strawn, of counsel), for appellant.
    Francis B. Stine and Robert V. Hogan, of Chicago (Quinn, Jacobs & Barry and Brown, Stine, Cook & Hanson, of counsel), for appellees Bernard A. Savage, Jr., and Glen Ellyn Corporation.
    Thomas G. Poulakidas, James A. Sprowl, and Nicholas T. Kitsos, of Chicago (Poulakidas, Poulakidas & Wood, of counsel), for appellee Dorothy F. Williams.
   MR. JUSTICE WARD

delivered the opinion of the court:

The plaintiff, Mullaney, Wells and Company, filed an action in the circuit court of Cook County on July 3, 1963, against the defendants, Barnard A. Savage, Jr., S. C. Williams, and Glen Ellyn Corporation, seeking an accounting for profits received in connection with the disposition of stock which had been acquired through an alleged violation of fiduciary duties by the defendant Savage, who was an employee of the plaintiff at the time. The case, which was tried on the plaintiff’s second amended complaint, filed September 16, 1965, was referred to a master in chancery, who recommended that a decree be entered in favor of the plaintiff. After two interlocutory appeals relating to aspects of the case which are not now pertinent (Mullaney, Wells & Co. v. Savage, 5 Ill. App. 3d 1 (1972); 31 Ill. App. 3d 343 (1975)), the circuit court sustained the defendants’ exceptions to the master’s report and entered a decree dismissing the action for want of equity. The appellate court affirmed (66 Ill. App. 3d 853), and we granted the plaintiff’s petition for leave to appeal.

At the time when the material facts occurred, the plaintiff was engaged in the investment banking business in Chicago. On January 18, 1957, it employed the defendant Savage, and Savage continued in . the plaintiff’s employment until March 28, 1961, when he resigned.

The agreement under which Savage was engaged was drafted by him and was executed by Savage and Paul L. Mullaney, president of the plaintiff. It provided as follows:

“1. Nature of Agreement — An understanding has been reached whereby Barnard A. Savage, Jr. will become affiliated with Mullaney Wells and Co. to undertake the establishment and direction of an ‘industrial financing division.’ The function of this newly created division will principally focus on activities involving the origination and negotiation of private placements and the underwriting of corporate securities in the industrial field.
2. Remuneration — Six thousand dollars ($6,000) per annum, payable to Barnard A. Savage, Jr., to be deducted from divisional gross revenues at the conclusion of each calendar year.
3. Division of Net Profits — At the conclusion of each calendar year, total net profits, after deducting all operating expenses accrued by the ‘industrial financing division’ and after deducting the salary taken by Barnard A. Savage, Jr., will be divided on a 50-50 basis between Mullaney Wells and Co. and Barnard A. Savage, Jr.
4. Duration of Agreement — Both parties concur to appraise this agreement and make such adjustments as the facts and circumstances may warrant at the conclusion of the first year of operations. This agreement is subject to cancellation by either party at any time.”

Savage was neither an officer nor a director of the plaintiff, and the precise scope of the duties imposed by his contract is in dispute among the parties.

The transaction on which the present suit is based was the acquisition by Savage and Williams in November 1960, from the majority stockholders of Blossman Hydratane Gas, Inc., a corporation engaged in the liquid petroleum gas business, of options to purchase some of the company’s common stock. These options were later assigned to the defendant Glen Ellyn Corporation, a corporation controlled by Savage and Williams. After the options were exercised by Glen Ellyn, the latter assigned the Blossman stock to American Hydratane Corporation, which had been organized by Savage and Williams. It was a subsidiary of Glen Ellyn and thus was also controlled by Savage and Williams.

Savage first heard of the Blossman company in January 1960, when he was told by a personal friend of his, an investment consultant, that the company was worth looking into because it was in need of financial assistance and its stock was presently undervalued. Savage checked the book value of the company’s stock in an investment manual maintained in the plaintiff’s office, and by using the plaintiff’s teletype service he ascertained the current market value of the stock, which was then being traded at about 3 3/4 points per share.

Savage then telephoned A. R. Blossman, Sr., the president of Blossman company. Savage testified that he had no recollection of the specific content of this conversation, but he did recall that the purpose of the call was to induce Blossman to use the plaintiff’s services. There is no dispute but that at this point Savage was acting as the agent of the plaintiff. On February 5 Savage wrote a follow-up letter to Blossman on the plaintiff’s stationery; it read:

“Dear Mr. Blossman:
I was delighted to have the opportunity to converse with you and become acquainted with you and your rapidly expanding L.P.G. business.
Mullaney, Wells & Company, Inc. of Chicago, Illinois are investment bankers of almost thirty years standing. We are members of the Midwest Stock Exchange and principally engaged in municipal underwiting. In addition, over the years, we have developed a noteworthy group of clients for which we have arranged and negotiated an impressive list of acquisitions, mergers and financings. Our principal bank in Chicago is the City National Bank and Trust Company.
As I indicated to you, we have been requested by a private individual to investigate the investment opportunities in the L.P.G. industry. During the past two years, we have invested funds in excess of two million dollars for his account; recently he has become heir to a sizable fortune and consequently his investment program must be accelerated. We, as a firm, are willing to vouch for our client’s reputation, fairness and integrity.
As indicated, our client is generally not interested in participating in the day to day management affairs of businesses. However, he desires position on the board of directors to help determine policy and long range decisions of the business. Generally, our client seeks a controlling interest with assurances that management will remain; however, in several instances he has been satisfied with a minority position.
If possible at this given moment, could you please send us the following information, so that we may make the necessary recommendations to our client. Should the requested material meet our clients aspirations, we should like to visit you and your organization and become intimately acquainted with you and your operations.
1. A brief outline of the history of your company, including present officers and directors, denoting each director’s business interest.
2. A statement as to the Blossman’s family’s investment in stock and debentures in Blossman Hydratane Gas, Inc.
3. Most recent balance sheet and Profit and Loss statement.
4. A list of fixed assets such as tank ownership etc. Has your company leased any tanks or cylinders to customers? How has your firm financed the tanks and cylinders which they own, etc.
Thanks for the courtesy you extended me on the telephone. I shall be looking forward to hearing from you shortly.”

Savage testified that the client referred to in his letter was Howard A. Weiss, who had been engaged in several financial transactions with the plaintiff in which Savage had participated.

The Blossman company had at that time 540,000 shares of common stock outstanding, of which Blossman and three members of his immediate family held 355,758 shares. On February 10, 1960, Blossman wrote the following letter to Savage at the plaintiff’s office:

“Dear Mr. Savage:
Your call and interest in our Company was \sic\ greatly appreciated. Under separate cover you will receive a letter from my son answering the questions you asked in your letter of February 5 th.
I consider our corporate stock ridiculously under valued on the market. You are aware that our stock is a relatively new security on the market, and it takes time to become known. I would not be interested in anything less than approximately three times the present market value for my stock. I realize that you probably would not have any interest at that price, but hope you will at a later date. Our Company has a great future.
I have a personal proposition you may be interested in, however. Enclosed you will find my personal financial statement. I would like to consolidate my liabilities on one long-term note. As you will note, it would take $300,000.00 to do this. I would be willing and able to pay it off in ten equal payments at an interest rate of 6% on the unpaid balance. The three $100,000.00 notes due from my sons and the 150,000 shares of Blossman Hydratane Gas, Inc. Common Stock securing these notes could be pledged as collateral.
To get this loan, I would give a personal stock option to convert the balance of the loan at any time into our corporate stock at $6.00 per share. The option would start at 50,000 and decrease at 10% per year — on the same basis as the unpaid balance. I feel positive that the person or institution that grants me this loan will make some real money on this conversion.
If you have any interest along those lines, please let me hear from you. If not, possibly we can find some grounds for future dealings. I will keep you informed on our Company’s progress.”

Over the next several months further correspondence took place between Savage and Blossman, as well as a number of face-to-face meetings. Some of the meetings were also attended by the defendant Williams, whom Savage testified he had decided to bring into the negotiations because of Williams’ many financial contacts. Williams and Savage had become acquainted in the course of business dealings between Williams and the plaintiff on which Savage had worked. Savage testified that at the first meeting between him and Blossman there was a discussion of the possibility of raising money for the Blossman company, which desired to expand its operations, through the sale of bonds. According to Savage the large existing indebtedness of the company made such a project unfeasible unless buyers were also to be offered an option to purchase stock in the company at its then market price. Savage testified that Blossman was not prepared to offer options to purchase stock at any price less than $9 or $10 a share, however. There is no evidence that Savage reported this situation either to Weiss or to the officers of the plaintiff.

Savage testified that he and Williams discussed several other financing projects with Blossman, including one which was abandoned, for transporting gas from Texas to Georgia by boat. The principal subject of discussion, however, was a proposal for Savage and Williams to become “partners” in the Blossman company by purchasing stock in it. This idea was first advanced by Williams in the course of a meeting with Blossman in Chicago in April 1960. It was discussed further at subsequent meetings, and it came to assume the form of an option to purchase common stock in the company from Blossman and the members of his family who, together, held the controlling interest.

Savage testified that Blossman was informed in a meeting held in September that this investment would be for the individual benefit of Savage and Williams and not on behalf of the plaintiff. In addition, during the summer of 1960 Savage, who had been corresponding with Blossman on the plaintiff’s letterhead, began preparing and typing his letters to Blossman away from the plaintiff’s office, using the letterhead of a different concern, Inland Block Company, in which he and Williams held an interest. In October or November, moreover, according to Savage, he asked Blossman to address all correspondence to him at Inland Block.

After considerable negotiations over its terms, a stock option contract was executed November 7, 1960. The agreement gave Savage and Williams an option to buy 271,000 shares of common stock at $8 per share, totaling $2,168,000, the option to be exercised by April 1, 1961. No consideration was paid for the option. At the time when this contract was made, the common stock of the Blossman company was being traded over the counter at about $3 a share. The stock subject to the option amounted to about 51% of the total stock then outstanding.

Savage and Williams then began efforts to secure financing which would enable them to exercise the option. The first step was to activate the defendant Glen Ellyn Corporation, a dormant corporation which had been organized by Savage’s attorney. During March 1961 Glen Ellyn issued 100 shares of common stock, 80 of which went to Savage and Williams, while Savage and Williams assigned to Glen Ellyn their stock option.

Arrangements were then made for a loan in the amount of $2,168,000 from the Harris Trust 8c Savings Bank. The Blossman shares were pledged to the bank as security, and the loan was also guaranteed by Bell Intercontinental Corporation. Under the agreement, if Glen Ellyn were to default on its loan, Harris could call upon Bell to repay the loan, and upon doing so Bell would be assigned the Blossman stock. On March 29, 1961, the stock options were exercised subject to the arrangements just described.

Savage testified that by February 1961 the market value of Blossman stock had risen from $3 to $10 as the result of some favorable publicity which the company had received in a financial publication. As a result, many holders of debentures in the Blossman company converted their holdings into common stock, with the further consequence that Savage’s and Williams’ equity in the company declined from 51% to about 40%. Savage also testified that during January or February Blossman had come to Chicago and asked Savage and Williams to release him from the option contract, but that they refused to do so.

The plaintiff first heard about the option contract on March 28 through telephone calls made to Charles M. Miller, a vice-president of the plaintiff, by a director of the Blossman company and by Blossman. After consultation with Mullaney it was decided to fire Savage. Miller confronted Savage with his knowledge of the option towards the close of business on March 28, but action to discharge Savage was deferred until the following day since Miller was awaiting the arrival of a copy of the option contract, which Blossman had promised to forward. After the close of business, however, Savage cleaned out his desk and departed, taking with him his files on the Blossman matter. He left behind a letter of resignation which he had prepared prior to his encounter with Miller.

The next step in what Savage referred to in his testimony as a plan to build a liquefied petroleum gas empire was to acquire Blue Flame Gas Company and Petroleum Securities Company (referred to collectively herein as BFP). Initially, between April and July 1961, Savage and Williams successfully solicited options from some 2,000 BFP shareholders, representing about 96% of the stock, for the purchase of their shares by Glen Ellyn.

These options were never exercised, however. Instead, Savage and Williams, on August 10, formed a new corporation, American Hydratane Corporation, to which Glen Ellyn assigned both its shares of the Blossman stock and its options to buy the BFP stock. American Hydratane assumed Glen Ellyn’s liabilities on the Harris bank loan as well as the guarantee agreement with Bell Intercontinental. In return Glen Ellyn received 287,445 shares of American Hydratane’s newly issued stock. American Hydratane, using 173,000 shares of its own stock and about $1.4 million in cash obtained by a new loan from the Harris bank (which was again guaranteed by Bell Intercontinental), then purchased the assets of BFP from its shareholders, and the BFP companies were liquidated.

The acquisition of the BFP enterprises contemplated a further amalgamation, namely a merger with Intex Oil Company, a concern in which Bell owned a 54% interest. Following the BFP acquisition, however, it was learned that a major Intex stockholder opposed thé merger, and that project was dropped. Although the record is not wholly clear, it appears that it was this development which led to a refusal by Bell to extend its guarantee on the original Harris bank loan. That action was followed by American Hydratane’s default on an installment due, upon which Harris accelerated the due date of the principal of the loan, and called on Bell to make payment. Bell did pay off the loan, in the amount of $2,267,343, and was assigned the Blossman shares.

It does not appear that the plaintiff made any attempt to ascertain the status of the Blossman matter after Savage resigned in March 1961, and it was not until March or April 1963 that the plaintiff discovered, quite by chance, that the option had been exercised. The present suit was filed on July 3.

At this time Bell, which was still the guarantor of the loan obtained in connection with the BFP acquisition, had threatened to institute bankruptcy proceedings against American Hydratane. In an effort to resolve this situation, Glen Ellyn entered into an agreement on August 9, 1963, with Tenneco Oil Company by which Glen Ellyn would sell its 287,445 shares of American Hydratane to Tenneco for $800,000.

Tenneco required as a condition of the purchase that arrangements be made so that it would not be affected by this suit. Accordingly, an agreement among the plaintiff, Glen Ellyn, Savage, Williams, and Glen Ellyn’s other shareholders was executed on August 30 by which the plaintiff agreed to assert no claim to the American Hydratane shares, while Glen Ellyn agreed to deposit one-half of the sale proceeds in escrow to abide the outcome of this suit. Pursuant to this agreement the plaintiff, which had named American Hydratane as a defendant in the original complaint, dropped that company from the suit.

For the sake of completeness we point out that neither Blossman Hydratane Gas, Inc., nor any of its shareholders who sold stock to Glen Ellyn under the option agreement is a party to the present suit, despite the expression of a belief by Blossman in 1961 that the exercise of the option was not legal. Counsel have not advised us of any other litigation relating to the subject matter of this suit, and we therefore assume there is none. Cf. Eastern v. Canty (1979), 75 Ill. 2d 566, 574.

We consider first the question whether the defendant Savage violated a fiduciary duty owed to the plaintiff. The plaintiff characterizes this case as one governed by the doctrine of corporate or business opportunity. This court has held that it is a breach of fiduciary obligation for a person to seize for his own advantage a business opportunity which rightfully belongs to the corporation by which he is employed. (Shlensky v. South Parkway Building Corp. (1960), 19 Ill. 2d 268; Paulman v. Kritzer (1967), 38 Ill. 2d 101; Kerrigan v. Unity Savings Association (1974), 58 Ill. 2d 20; Vendo Co. v. Stoner (1974), 58 Ill. 2d 289; cf. City of Chicago ex rel. Cohen v. Keane (1976), 64 Ill. 2d 559.) The same rule is followed in other jurisdictions. Lutherland, Inc. v. Dahlen (1947), 357 Pa. 143, 53 A.2d 143; Durfee v. Durfee & Canning, Inc. (1948), 323 Mass. 187, 80 N.E.2d 522; Guth v. Loft, Inc. (1939), 23 Del. Ch. 255, 5 A.2d 503; Rosenblum v. Judson Engineering Corp. (1954), 99 N.H. 267, 109 A.2d 558; Note, Corporate Opportunity, 74 Harv. L. Rev. 765 (1961).

Although they do not so limit the rule, the cases just cited do in fact involve defendants who are corporate officers and directors, or, where the plaintiff is a governmental entity, persons who hold public office. As we have previously pointed out, Savage was not an officer or a director.

The appeHate court did proceed on the assumption, nevertheless, that the plaintiff and Savage stood in the relationship of principal and agent, and that Savage was subject to fiduciary obligations with respect to the subject matter of his agency.

We agree, and the defendants do not seriously deny, that a fiduciary relationship existed between the plaintiff and Savage. (Rieger v. Brandt (1928), 329 Ill. 21, 27-28; Lerk v. McCabe (1932), 349 Ill. 348, 360; Moehling v. O’Neil Construction Co. (1960), 20 Ill. 2d 255, 267.) Under standard agency doctrine Savage thus would be obligated to act solely for the benefit of the plaintiff in aH matters connected with his agency, and to refrain from competing with the plaintiff. Byer v. International Paper Co. (10th Cir. 1963), 314 F.2d 831, 833; United States v. Drumrn (1st Cir. 1964), 329 F.2d 109, 112; Restatement (Second) of Agency secs. 387, 393 (1958); H. Reuschlein 8c W. Gregory, Agency and Partnership secs. 67-68 (1979); W. Seavey, Agency sec. 151 (1964).

The rationale of the appellate court’s holding that Savage did not violate any fiduciary obligation to the plaintiff, as we understand it, is that while the plaintiff’s business operations included both the occasional making of investments on its own account (referred to by the court as “two-party” transactions), and acting, for a fee, as a broker between businesses in need of funds and potential investors (referred to as “three-party” transactions), Savage’s contractual duties were limited to the latter, since in the court’s view the only compensation above his base pay to which he was entitled was a share of brokerage fees. Since the Blossman transaction did not involve a brokerage fee, it was not within the scope of his contractual duties.

We find this analysis defective in several respects. To begin with, the appellate court is incorrect in stating (66 HI. App. 3d 853, 868-69) that Savage’s compensation was necessarily limited to a share of the placement fees which would be earned by the plaintiff in a “three-party” transaction. The term used in the contract is not net fees but net profits. The latter could also include profits made by the plaintiff in the resale of stock or other securities which it had acquired for its own account.

The plaintiff had indeed engaged in a transaction of that character in December 1957, shortly after Savage was hired, when it purchased the entire outstanding stock of the Arlington Heights Bank through the exercise of stock options acquired from its stockholders. According to the testimony of the plaintiff’s president, the purchase had originaHy been made with the intention of holding the stock as an investment. When it was later decided to seU the stock instead, the sale was made at a profit of about $70,000.

It appears that Savage performed some work in connection with this transaction, although the extent of it is in dispute. He was not credited with any share of the profits on the Arlington Heights Bank matter, a fact which Savage contends demonstrates that the plaintiff understood that no compensation would be payable on a two-party transaction. The evidence also shows, however, that the transaction was originated by another employee some time before Savage had become employed by the plaintiff, and that that employee was compensated by an opportunity to purchase some of the bank’s stock, which he later resold at a profit. Witnesses for the plaintiff thus attributed the lack of payment to Savage to the fact that he had not originated the transaction.

Since it was the master who heard the testimony, his findings on matters as to which the testimony is in conflict are entitled to great weight. Uksas v. Zelensky (1961), 21 Ill. 2d 303, 311-12; Galler v. Galler (1975), 61 Ill. 2d 464, 473.

A second difficulty with the theory used by the appellate court is that when an agent begins his exploration of an investment possibility it may not be possible to determine what form it will ultimately assume. The Blossman negotiations furnish an illustration of the problem. Savage’s initial letter to Blossman was written in the belief that the Blossman company or its controlling stockholders might desire funds and that a client of the plaintiff’s, Weiss, might be in a position to advance them. Had this expectation been fulfilled the plaintiff and Savage would each have received their share of the brokerage fee. On the other hand, if the Blossmans and Weiss were unable to reach an agreement, Savage could have sought, and perhaps found, a new investor, which might have been another third party or possibly the plaintiff itself.

We may assume with the appellate court that Savage had no affirmative contractual duty to seek out investment opportunities for the plaintiff as opposed to brokerage opportunities. We may also assume that Savage might have concluded in good faith that further attempts to develop a loan or stock-purchase plan suitable for the Blossmans were fruitless, and that he might then have abandoned those attempts consistently with his contractual duties. It does not follow, however, that Savage, while still remaining as an employee of the plaintiff, could then, in the appellate court’s words, “begin to act on his own.” To accord Savage the option of substituting himself as the investing party without the consent of the plaintiff is to place him in a position where his personal interests will conflict with his duties to his principal. The situation is in principle indistinguishable from that of a real estate broker engaged to sell property owned by his principal who, without full disclosure of all material facts, acquires an interest in the property himself. Perry v. Engel (1921), 296 Ill. 549; Rieger v. Brandt (1928), 329 Ill. 21, 27-28; Gilman, Clinton & Springfield R.R. Co. v. Kelly (1875), 77 Ill. 426, 434; Restatement (Second) of Agency sec. 387, illustration 1 (1958).

It is not an answer to state, as does the appellate court, that there is no evidence that the plaintiff either “contemplated” or “would have desired to make” a stock purchase of this magnitude. That is a decision to be made by the plaintiff upon disclosure of the pertinent facts. In Kerrigan v. Unity Savings Association (1974), 58 Ill. 2d 20, 28, the court commented upon a comparable situation involving the seizure of a corporate opportunity by directors as follows: “If the directors fail to make such a disclosure and to tender the opportunity, the prophylactic purpose of the rule imposing a fiduciary obligation requires that the directors be foreclosed from exploiting that opportunity on their own behalf.”

The comment is equally apt here. (See also Vendo Co. v. Stoner (1974), 58 Ill. 2d 289, 304-05.) The record is clear that Savage never mentioned the Blossman option to the plaintiff’s officers until March 28, 1961, months after the option agreement had been executed and only a few days before the option was exercised. And even at that late date it was not Savage who disclosed the facts; he merely confirmed information that had just been disclosed by an outside person associated with the Blossman company. We thus conclude that the defendant Savage did breach his fiduciary obligations to the plaintiff.

We turn next to the question whether the defendants Williams and Glen Ellyn were also liable for the actions of Savage, a point which the appellate court did not reach. The master found that Williams and Savage were partners in the Blossman transaction, and that Williams thus became jointly and severally liable for the acts of Savage. Although Savage and Williams did not have a formal partnership agreement, each of them testified that they had an oral understanding that there would be a 50-50 sharing of profits; each of their names appeared on the stock options; and Williams participated actively in the negotiations from an early stage.

Williams was necessarily aware that the plaintiff would not be a participant in the Blossman transaction. The master also found that Williams ’ prior contact with Savage in a transaction handled through the plaintiff put Williams on notice of Savage’s relationship to the plaintiff, and that he should have inquired of the plaintiff as to whether it had any interest in the Blossman transaction. The master accordingly concluded that Williams was liable to the plaintiff for Savage’s breach of fiduciary obligations.

As for Glen Ellyn, since Savage and Williams were its president and vice-president, respectively, and also two of its three directors, the third being their attorney, and since the benefits to it from the Blossman transaction were not received as a bona fide purchaser without notice, the master found Glen Ellyn liable as well.

We agree with the conclusions reached by the master with regard to both Williams and Glen Ellyn.

The plaintiff asserts that the defendants are liable to it for the sum of $800,000, the amount received by Glen Ellyn from Tenneco for the sale to the latter of the 287,445 shares of American Hydratane stock owned by Glen Ellyn. The question is whether this relief is warranted.

The various steps in the transaction at hand have been described earlier. They may be recapitulated as follows:

(1) In March 1961 Savage and Williams assigned to Glen Ellyn their options to buy the Blossman stock plus $1,200 in cash in return for which they received 80% of Glen Ellyn’s stock.
(2) On March 29, Glen Ellyn exercised the options, purchasing 298,100 shares for the sum of $2,168,000, which was obtained by a bank loan guaranteed by Bell.
(3) Later in 1961 Glen Ellyn acquired options to purchase BFP stock.
(4) On August 10, Glen Ellyn assigned its Blossman stock and its BFP options to American Hydratane, which assumed Glen Ellyn’s obligations under the bank loan. Glen Ellyn received 287,445 shares of newly issued American Hydratane stock.
(5) On August 15, American Hydratane purchased the assets of BFP in return for about $1.4 million in cash obtained through a loan and 173,000 shares of additional stock.
(6) In June 1962 American Hydratane defaulted on the bank loan. The loan was paid off by Bell, and the latter acquired the Blossman stock.
(7) In August 1963 Glen Ellyn sold its shares of American Hydratane stock to Tenneco for $800,000.

The relief sought by the plaintiff in its second amended complaint was a judgment against the defendants for the $800,000 which Glen Ellyn was paid by Tenneco. The theory of the complaint was that since the American Hydratane shares had been received in exchange for the Blossman stock the former were subject to the same constructive trust which would have attached to the latter. (Winger v. Chicago City Bank & Trust Co. (1946), 394 Ill. 94, 111.) By a parity of reasoning, the plaintiff contends, it was entitled to receive the proceeds received by Glen Ellyn for the Hydratane stock.

The appellate court rejected this claim on the ground that the Blossman stock, having already been forfeited by American Hydratane, could not have formed any part of the consideration for the payment of the $800,000, which must be regarded as having been made in exchange for other property still owned by American Hydratane, principally the assets of BFP which it had acquired in August 1961 shortly after acquiring the Blossman stock.

We think this analysis of the matter is incorrect. The Blossman stock is significant here because of its value to the plaintiff in 1961, not its value to Tenneco in 1963. If property has been acquired in violation of fiduciary duties, a subsequent loss of the property, like a subsequent diminution in its value, does not reduce the amount to which the plaintiff had become entitled. (Restatement of Restitution sec. 161 (1937).) The forfeiture of the Blossman stock was not a fortuitous event, moreover; it came about as the direct result of American Hydratane’s failure to make payment on the loan which enabled Glen Ellyn to purchase the stock.

We also question whether a determination of the plaintiff’s right to restitution required a tracing of trust property into its product, as the appellate court assumed. No right is asserted here to the shares of American Hydratane stock which Tenneco purchased, but only to a sum of money received by one of the defendants. The plaintiff was entitled to recover a money judgment for the value of the Blossman stock, and it was not required to pursue the trust property. (Bogert, Trusts and Trustees sec. 867 (2d ed. 1962).) It was that proposition on which the master based his recommendation that a judgment be entered in favor of the plaintiff.

When Glen Ellyn acquired the Blossman stock on March 29, 1961, it carried the stock on its books at $3,068,000, which is $900,000 above the price paid for it. This difference was attributable to an increase in the market value of the stock to about $10 per share as compared to the option price of $7, and thus it did reflect the value of the stock at that time. When the stock was assigned to American Hydratane, as the master found, it was the only asset shown to have been transferred in exchange for Hydratane shares, and again it was listed at a value of $3,068,000 in both the balance sheet of American Hydratane, which appeared in a proxy statement, and in Glen Ellyn’s Federal tax return for 1961. The defendants’ duty to make restitution could not be diminished by their subsequent loss of that property through forfeiture, any more than it would be if the value of the Blossman shares had been dissipated in some imprudent investment. We hold accordingly that the plaintiff was entitled to judgment in its favor for $800,000.

The defendants Savage and Williams have filed a cross-appeal challenging the denial of their motion to bar the plaintiff’s attorneys from representing the plaintiff in this action because of a claimed conflict of interest. The claimed conflict arises from the fact that the law firm represented American Hydratane in 1961 in connection with that company’s acquisition of the BFP companies. While American Hydratane is no longer a party to this action, in 1961 it was wholly owned by the defendant Glen Ellyn and 80% of the latter’s stock was then held by Savage and Williams. The defendants ask that all costs, expenses, and attorney’s fees be taxed against plaintiff’s attorneys, and that the case be remanded to the circuit court to determine the amount involved. The plaintiff denies that the former representation of American Hydratane by the law firm resulted in any prejudice to the defendants. The appellate court found it unnecessaxy to pass upon this point because of its affirmance of the circuit court’s dismissal of the complaint.

We cannot say on the record here that the circuit court erred in denying the motion of Savage and Williams to bar the plaintiff’s attorneys from the case. The relief sought through the cross-appeal is denied.

The option contract of Savage and Williams was entered into with Blossman in November 1960, and the option was exercised in March 1961. This was the violation of the fiduciary obligation upon which the plaintiff’s case was founded. The American Hydratane Corporation was not formed until August 10, 1961, and the claimed representation of it by the plaintiff’s attorneys followed. Savage and Williams do not show how the representation of American Hydratane by the attorneys after the breach of the fiduciary obligation took place could have affected their defense against the plaintiff’s complaint of the breach. They do not suggest what kind of evidence might have been available were it not for the claimed conflict. Savage and Williams were completely aware of the law firm’s representation of American Hydratane. The attorneys who represented Glen Ellyn Corp. knew of it. Savage and Williams did not propose any findings to the master in chancery relating to a conflict. The master’s report was submitted to the chancellor on February 1, 1971, and on October 4, 1971, Savage and Williams raised the conflict issue by filing objections. It was not until April 26, 1973, that they moved to disqualify the law firm.

On this appeal we of course are not sitting as a tribunal to weigh charges of unprofessional conduct as such. That does not mean that the charge of Savage and Williams must go unheard. We observe that in Savage’s brief it is stated that Savage and Williams, “without benefit of counsel,” have filed a complaint against the attorneys with the Attorney Registration and Disciplinary Commission.

For the reasons given in this opinion, the judgment of the appellate court is reversed, and the cause is remanded to the circuit court with directions to overrule the defendants’ exceptions to the master’s report and to enter judgment in favor of the plaintiff.

Reversed and remanded, with directions.


source: Caselaw Access Project

author: MR. JUSTICE UNDERWOOD

license: Public Domain

text:
    (Nos. 50712, 50713 cons.
    THE CHICAGO PARK DISTRICT et al., Appellees, v. KENROY, INC., et al., Appellants.

      Opinion filed February 1, 1980.

    — Rehearing denied March 28, 1980.

      Friedman & Koven and Burke, Weber & Egan, of Chicago (Paul Homer, Thomas T. Burke and Lawrence M. Templer, of counsel), for appellants.
    Sneider & Troy, of Chicago (Richard J. Troy, of counsel), for appellee Chicago Park District.
    William R. Quinlan, Corporation Counsel, of Chicago (Robert R. Retke, Richard F. Friedman and Daniel Pascale, of counsel), for appellee City of Chicago.
   MR. JUSTICE UNDERWOOD

delivered the opinion of the court:

Plaintiffs, the Chicago Park District (Park District) and the Public Building Commission of Chicago (PBC), filed a complaint seeking the imposition of a constructive trust to recover actual damages of $5 million and punitive damages of $10 million from defendants, Kenroy, Inc. (Kenroy), Edgewater Company, and La Salle National Bank (La Salle). Another complaint, seeking similar relief from the same defendants, was filed by the city of Chicago (City), which had been granted leave to intervene.

The circuit court of Cook County dismissed the complaint of the Park District and PBC on the ground that it represented a collateral attack on a final judgment in a related eminent domain proceeding. The City’s complaint was also dismissed for failure to state a cause of action. The appellate court held no collateral attack occurred and reversed the dismissal of the complaint filed by the Park District and PBC, but affirmed the dismissal of the City’s complaint on the ground that it was barred by the applicable statute of limitations. 58 HI. App. 3d 879.

The conduct alleged in the complaints is adequately set forth in the opinion of the appellate court and need only be summarized here as follows. In its efforts to acquire a parcel of property commonly known as Edge-water Golf Club, the Park District filed an eminent domain proceeding during which the PBC was substituted as petitioner. According to a plan ratified by the Chicago city council, the PBC would acquire the parcel for the construction of park and recreational facilities and the Park District would then lease the property from the PBC for 20 years. Pursuant to the Public Budding Commission Act and the Chicago Park District Act, the Park District assumed the obligation to levy a tax in an amount sufficient to amortize the PBC’s acquisition costs.

In response to a petition filed by defendants prior to institution of the eminent domain proceedings, the Chicago city council rezoned the property from R — 4 residential use to “Planned Development No. 67.” Valuations of the property as rezoned were offered by various appraisers, including Roy Gottlieb, an officer of defendant Kenroy and a general partner of the Edge water Company. Pursuant to a settlement agreement among the parties to the eminent domain case, the circuit court entered an order requiring the PBC to pay LaSalle $10.3 million as just compensation for the taking of the property.

It is further alleged that throughout the eminent domain proceeding and settlement negotiations, the defendants represented that the property had been properly rezoned. However, Roy Gottlieb and Kenneth Tucker, officers of Kenroy and members of the Edge water partnership, subsequently testified that the rezoning had been secured by means of bribery and fraud. (United States v. Wigoda (N.D. Ill. 1974), Docket No. 74 CR 291 (unreported decision), aff’d (7th Cir. 1975), 521 F.2d 1221, cert, denied (1976), 424 U.S. 949, 47 L. Ed. 2d 355, 96 S. Ct. 1421.) Various municipal agencies and departments approved the zoning change, allegedly in reliance on representations made to them by defendants. As a city alderman and member of the Chicago Plan Commission, the city council and the council’s Committee on Building and Zoning, Paul Wigoda voted to approve the defendants’ application for a zoning change for which he allegedly received an envelope containing $50,000 in cash from Gottlieb and Tucker. Wigoda was subsequently convicted for failure to report this sum on his 1969 income tax return. (United States v. Wigoda (7th Cir. 1975), 521 F.2d 1221, 1225, cert. denied (1976), 424 U.S. 949, 47 L. Ed. 2d 355, 96 S. Ct. 1421.) Because of defendants’ participation in this alleged unlawful activity, plaintiffs prayed that defendants be declared constructive trustees of that portion of the condemnation award which equals the difference in the valuation of the property before and after the rezoning or $5 million, and that defendants be compelled to pay $10 million as punitive damages, plus costs. The City also seeks recovery for damages allegedly suffered in its defense of a suit brought by the defendants against the City’s building commission to secure a building permit pursuant to the planned unit development ordinance. The defendants prevailed in that suit at both the trial and appellate levels (La Salle National Bank v. Fitzgerald (Cir. Ct. Cook County), Docket No. 69 L 16155, aff’d (1973), 15 Ill. App. 3d 1016), and secured from the commissioner a stipulation to dismiss the appeal to this court and to permit the entry of an adverse judgment. (56 Ill. 2d 587 (1974).) Alleging that the stipulation to dismiss constituted an abuse of process and was part of defendants’ continuing fraud, the City has sought recovery for actual damages of $60,000 and punitive damages of $500,000, plus costs.

The issues in this consolidated appeal are whether the City’s complaint is barred by the statute of limitations and, if not, whether its complaint states a cause of action and whether the complaint of the Park District and PBC constitutes a collateral attack upon the final judgment entered in the prior eminent domain proceeding.

In affirming the dismissal of the City’s complaint, the appellate court found the action barred by section 15 of the Limitations Act, which provides in pertinent part that “all civil actions not otherwise provided for, shall be commenced within 5 years next after the cause of action accrued.” (Ill. Rev. Stat. 1975, ch. 83, par. 16.) Since this all-inclusive provision has been deemed applicable to actions for fraud and deceit (Keithley v. Mutual Life Insurance Co. (1916), 271 Ill. 584, 592; Bates v. Bates Machine Co. (1907), 230 Ill. 619, 621), to actions for tortious misrepresentations (Rozny v. Marnul (1969), 43 Ill. 2d 54, 69), and to actions for enforcement of cons tractive trusts (Anderson v. Lybeck (1958), 15 Ill. 2d 227, 234, Schreiner v. City of Chicago (1950), 406 Ill. 75, 91-92), the appellate court properly found this to be. the appropriate statute of limitations. Since the City’s complaint was not filed until April of 1975, more than 6 years after the alleged conduct forming the basis of its cause of action, the appellate court found the complaint to have been filed beyond the limitation period.

The appellate court also found that the limitation period had not been tolled by application of the “discovery rale” (see Auster v. Keck (1976), 63 Ill. 2d 485; Tom Olesker’s Exciting World of Fashion, Inc. v. Dun & Bradstreet, Inc. (1975), 61 Ill. 2d 129; Lipsey v. Michael Reese Hospital (1970), 46 Ill. 2d 32; Rozny v. Marnul (1969), 43 Ill. 2d 54), or by section 22 of the Limitations Act, which provides:

“If a person liable to an action fraudulently conceals the cause of such action from the knowledge of the person entitled thereto, the action may be commenced at any time within five years after the person entitled to bring the same discovers that he has such cause of action, and not afterwards.” (Ill. Rev. Stat. 1975, ch. 83, par. 23.)

We believe that court erred in its construction of this section as it applies to the circumstances here alleged. As a general rale, the concealment of a cause of action sufficient to toll the statute of limitations requires affirmative acts or representations designed to prevent discovery of the cause of action. (Skrodzki v. Sherman State Bank (1932), 348 Ill. 403, 407); Lancaster v. Springer (1909), 239 Ill. 472, 482; Bush v. Continental Casualty Co. (1969), 116 Ill. App. 2d 94, 100; Village of Dolton v. Harms (1945), 327 Ill. App. 107, 124-25.) Silence alone on the part of the defendant, accompanied by the failure of the plaintiff to discover the cause of action, ordinarily does not constitute fraudulent concealment. (Jackson v. Anderson (1934), 355 Ill. 550, 557; Harvey v. Harris Trust & Savings Bank (1979), 73 Ill. App. 3d 280, 287; Nogle v. Nogle (1964), 53 Ill. App. 2d 457, 464.) However, “[i] t is the prevailing rule that, as between persons sustaining a fiduciary or trust or other confidential relationship toward each other, the person occupying the relation of fiduciary or of confidence is under a duty to reveal the facts to the plaintiff (the other party), and that his silence when he ought to speak, or his failure to disclose what he ought to disclose, is as much a fraud at law as an actual affirmative false representation or act; and that mere silence on his part as to a cause of action, the facts giving rise to which it was his duty to disclose, amounts to a fraudulent concealment ***.” (Annot., 173 A.L.R. 576, 588 (1948); see Vigus v. O’Bannon (1886), 118 Ill. 334, 335; County of Cook v. Barrett (1975), 36 Ill. App. 3d 623, 635; see also Emmett v. Eastern Dispensary & Casualty Hospital (D.C. Cir. 1967), 396 F.2d 931, 937-38 n.33; Sheets v. Burman (5th Cir. 1963), 322 F.2d 277, 279-80; Rowen v. Le Mars Mutual Insurance Co. (Iowa 1979), 282 N.W.2d 639, 646-47; Laventhol, Krekstein, Horwath & Horwath v. Tuckman (Del. 1976), 372 A.2d 168, 170-71; Higbee v. Walsh (1940), 229 Iowa 408, 423-24, 294 N.W. 597, 605-06; 51 Am. Jur. 2d Limitation of Actions sec. 149 (1970).) There can be no doubt that, as an alderman, Wigoda occupied a fiduciary relationship to the City. City of Chicago ex rel. Cohen v. Keane (1976), 64 Ill. 2d 559, 565; County of Cook v. Barrett (1975), 36 Ill. App. 3d 623, 627; Flaum & Carr, The Equitable Bill of Accounting — A Viable Remedy for Combatting Official Misconduct (1974), 62 Ill. B.J. 622, 624.

According to the allegations here under consideration there was no apparent reason for the City to suspect that its fiduciary, Alderman Wigoda, had entered into a scheme of bribery and fraud with the defendants until it became apparent during his prosecution. (See United States v. Wigoda (7th Cir. 1975), 521 F.2d 1221, cert, denied (1976), 424 U.S. 949, 47 L. Ed. 2d 355, 96 S. Ct. 1421.) To hold that the City was obliged to search for the misfeasance of its duly elected public official, absent a prior indication of wrongdoing, would require it to presume unfaithfulness on the part of its fiduciary. We find that such a duty was not contemplated by section 22.

The fact that it is the defendants, rather than Wigodá, who here seek to invoke the statute of limitations does not, in our view, alter the situation or render section 22 inapplicable, for it is alleged that, in addition to buying Wigoda’s assistance, defendants actively participated in proceedings before the Chicago Plan Council, the Committee on Building and Zoning of the city council and the Department of Development and Planning, presenting plans and recommendations and urging approval of the proposed rezoning. Moreover, after bribing Wigoda and in an effort to consummate their scheme, defendants sued the City’s building commission to secure a building permit.

It is ordinarily true that the fraudulent concealment of a cause of action by a person other than the defendant will not toll the statute of limitations. (See Wood v. Williams (1892), 142 Ill. 269, 280-81; see also Bryan v. United States (10th Cir. 1938), 99 F.2d 549, 552, cert. denied (1939), 305 U.S. 661, 83 L. Ed. 429, 59 S. Ct. 364; International Union United Automobile Workers of America v. Wood (1953), 337 Mich. 8, 14, 59 N.W.2d 60, 63; Joseph v. Lesnevich (1959), 56 N.J. Super. 340, 356, 153 A.2d 349, 358.) However, if the third person is in privity with or occupies an agency relationship with the defendant, then the defendant’s knowledge or approval of the concealment has generally been held sufficient to toll the limitation period. (See Laventhol, Krekstein, Horwath & Horwath v. Tuckman (Del. 1976), 372 A.2d 168, 170-71; Pashley v. Pacific Electric Ry. Co. (1944), 25 Cal. 2d 226, 235-36, 153 P.2d 325, 330; see also Oddo v. Interstate Bakeries, Inc. (8th Cir. 1959), 271 F.2d 417, 423-24, modified on other grounds (8th Cir. 1959), 271 F.2d 959; Schram v. Burt (6th Cir. 1940), 111 F.2d 557, 563; Bogert, Trusts sec. 955, at 506-10 (2d ed. 1962): 2 Wood, Limitations sec. 276, at 1374-75 (4th ed. 1916); Restatement (Second) of Trusts sec. 327, at 125-28 (1959); 51 Am. Jur. 2d Limitation of Actions sec. 150, at 722 (1970); Annot., 173 A.L.R. 583-84 (1948); 54 C.J.S. Limitations of Actions sec. 207, at 229 (1948).) Since it is here a fair inference from the allegations of the complaint that the defendants intentionally and deliberately induced Wigoda’s breach of fiduciary duty by means of bribery, and that they actively participated in the fraudulent concealment of the City’s alleged cause of action through their representations to the various municipal agencies and departments which approved the zoning change, the existence of an agency relationship, privity or even an actual conspiracy (see City of Boston v. Santosuosso (1940), 307 Mass. 302, 351-53, 30 N.E.2d 278, 306), between the defendants and Wigoda to defraud the public trust has been sufficiently alleged. Under these circumstances, the defendants are in a position no better than Wigoda to use the statute of limitations to protect their allegedly ill-gotten gains. We accordingly hold that the statute of limitations was tolled with respect to the City’s cause of action.

Having established that the City’s complaint was not barred by section 15 of the Limitations Act, we must now determine whether it was properly dismissed by the circuit court for failure to state a cause of action. It is well established that a public officer occupies a fiduciary relationship to the political entity on whose behalf he serves. (City of Chicago ex rel. Cohen v. Keane (1976), 64 Ill. 2d 559, 565; Brown v. Kirk (1976), 64 Ill. 2d 144, 149; People v. Bordeaux (1909), 242 Ill. 327, 334; County of Cook v. Barrett (1975), 36 Ill. App. 3d 623, 627; Flaum and Carr, The Equitable Bill of Accounting — A Viable Remedy for Combatting Official Misconduct, 62 Ill. B.J. 622 (1974); see also United States v. Bush (7th Cir. 1975), 522 F.2d 641, 646-48, cert, denied (1976), 424 U.S. 977, 47 L. Ed. 2d 748, 96 S. Ct. 1484; United States v. Keane (7th Cir. 1975), 522 F.2d 534, 545-46, cert. denied (1976), 424 U.S. 976, 47 L. Ed. 2d 746, 96 S. Ct. 1481; 63 Am. Jur. 2d Public Officers & Employees sec. 275 (1972).) Upon allegations that those fiduciary responsibilities have been breached, a cause of action on the part of represented beneficiaries to seek restitution has been recognized. (City of Chicago ex rel. Cohen v. Keane (1976), 64 Ill. 2d 559, 565-66; County of Cook v. Barrett (1975), 36 Ill. App. 3d 623, 627-28; cf. Fuchs v. Bidwell (1976), 65 Ill. 2d 503, 509.) That the defendants rather than Alderman Wigoda are the parties against whom the City now seeks recovery does not warrant dismissal of its amended complaint. It is a fundamental rule in the law of restitution that “[a] third person who has colluded with a fiduciary in committing a breach of duty, and who obtained a benefit therefrom, is under a duty of restitution to the beneficiary.” (Restatement of Restitution sec. 138(2) (1937); see also Seminole Nation v. United States (1942), 316 U.S. 286, 296, 86 L. Ed. 1480, 1490, 62 S. Ct. 1049, 1054; Restatement (Second) of Trusts sec. 326 (1959); Ashbell, The Third Party Trusteeship: An Equitable Remedy Against Bribers and Corrupters of Public Officials, 67 Ill. B.J. 160 (1978).) Recognition of this salutary principle has resulted in the imposition of constructive trusts on benefits obtained by third persons through their knowledge of or involvement in a public official’s breach of fiduciary duty. (See United States v. Carter (1910), 217 U.S. 286, 54 L. Ed. 769, 30 S. Ct. 515; City of Boston v. Santosuosso (1940), 307 Mass. 302, 30 N.E.2d 278; see also Lenhoff, The Constructive Trust as a Remedy for Corruption in Public Office, 54 Colum. L. Rev. 214 (1954).) Since the allegations here charge defendants with knowing and intimate participation in the scheme of bribery and fraud involving Alderman Wigoda, the City has adequately alleged a right to recover from the defendants.

That the City’s cause of action is based partially on allegations that the rezoning ordinance resulted from fraudulent acts performed by the defendants does not, as defendants argue, constitute grounds for dismissal of the City’s complaint. Though courts ordinarily refuse to inquire into the motives of a municipal body when it is acting in a legislative capacity (Deerfield Park District v. Progress Development Corp. (1961), 22 Ill. 2d 132, 140, cert. denied (1963), 372 U.S. 968, 10 L. Ed. 2d 1042, 83 S. Ct. 1692; 2700 Irving Park Bldg. Corp. v. City of Chicago (1946), 395 Ill. 138, 147; Murphy v. Chicago, Rock Island & Pacific Ry. Co. (1910), 247 Ill. 614, 619; Pence v. Village of Rantoul (1973), 12 Ill. App. 3d 446, 450), an exception has been observed for those instances when fraud is alleged and supported by specific facts (City of Chicago v. Waters (1936), 363 Ill. 125, 131, aff’d sub nom. Hauge v. City of Chicago (1937), 299 U.S. 387, 81 L. Ed. 297, 57 S. Ct. 241; Keig Stevens Baking Co. v. City of Savanna (1942), 380 Ill. 303, 308; Stearns v. City of Chicago (1938), 368 Ill. 112, 116; Athey v. City of Peru (1974), 22 Ill. App. 3d 363, 370; Anthony v. City of Kewanee (1967), 79 Ill. App. 2d 243, 247). The City’s specific allegations of fraud on the part of one of its officers and the defendants, in our view, qualify for this exception, particularly since no attempt is made here to nullify the rezoning ordinance or to enjoin its operation. The City is instead attempting to recover funds allegedly procured through a scheme of bribery and fraud as evidenced in part by the enactment of the rezoning ordinance.

Arguments by the defendants that there is no causal connection between the alleged acts of bribery and fraud and the enactment of the rezoning ordinance and that their nondisclosure is not the proximate cause of the City’s alleged injury will be determined by the proof and are prematurely raised. We hold only that the City’s complaint is not barred by the statute of limitations, and that it states a cause of action.

With respect to the complaint filed by the Park District and the PBC, we are asked only to review the propriety of the appellate court’s ruling that the present action does not constitute a collateral attack on the final judgment entered in the prior eminent domain proceeding. We find no error in the appellate court’s disposition of that issue and its treatment of relevant authority. Because other issues, including whether the Park District and the PBC have adequately stated a cause of action, are not now properly before us, we decline to comment on their merits.

The judgment of the appellate court is affirmed as to the complaint of the Park District and PBC and reversed as to the complaint of the City. The cause is remanded to the circuit court of Cook County with directions to vacate its judgments and proceed in accordance with the views herein expressed.

Affirmed in part and reversed in part; cause remanded, with directions.


author: MR. JUSTICE UNDERWOOD MR. JUSTICE KLUCZYNSKI,

text:
    (No. 51754.
    HOWELL TRACTOR & EQUIPMENT COMPANY, Appellee v. THE INDUSTRIAL COMMISSION et al. (John Henry Bauer, Jr., Appellant).

      Opinion filed February 1, 1980.

    — Rehearing denied March 28, 1980.

      KLUCZYNSKI, J., GOLDENHERSH, C.J., and CLARK, J., dissenting.
    Murges and Bowman, of Chicago (George J. Murges and Gerald M. Chapman, of counsel), for appellant.
    Klohr, Braun, Lynch & Smith, Ltd., of Chicago (Mark A. Braun, of counsel), for appellee.
   MR. JUSTICE UNDERWOOD

delivered the opinion of the court:

Claimant filed an application for adjustment of claim under the Workmen’s Compensation Act (Ill. Rev. Stat. 1975, ch. 48, par. 138.1 et seq.), specifying the loss of his left leg as the basis of his claim. The arbitrator found that the injury did not arise out of and in the course of claimant’s employment, and denied compensation. The Industrial Commission reversed, awarding claimant compensation for total temporary disability and for the amputation of the left leg above the knee. The circuit court of Du Page County reversed the Commission, and claimant appealed to this court under Rule 302(a) (73 Ill. 2d R. 302(a)).

Respondent, Howell Tractor & Equipment Company, is in the business of selling, renting, and servicing various types of equipment, mostly heavy equipment such as cranes and bulldozers. Claimant, John Henry Bauer, Jr., had been employed by respondent as a field mechanic for four or five years as of the date of the accident in question.

On July 22, 1975, Bauer and George Hoefle, a coworker, were told by their superiors that a road resurfacing machine had broken down in Logansport, Indiana, on a job site of Orr International, owner of the machine. The machine had been sold by Howell to Orr. The parts to repair the machine were being flown to O’Hare Field in Chicago. Bauer and Hoefle were to pick up the parts at the airport and go to Logansport to repair the machine. Bauer testified later that his usual routine frequently required him to work at locations other than Howell’s shop. A company truck was assigned to him permanently in which he carried his own tools and whatever special equipment he needed for the particular job.

In the morning of the next day, July 23, Hoefle and Bauer loaded the truck assigned to Bauer with the special equipment which they would need for the job. They went to O’Hare Field, picked up the parts shipment, and proceeded to Logansport. When they arrived in Logansport, at approximately 3:30 p.m., they located the disabled machine on Orr International’s job site, and they there talked to Jerry Purdom, Orr’s foreman. Purdom was very anxious to have the machine in operation the next morning. Hoefle and Bauer disassembled the machine and found a broken shear pin. After the pin was replaced, the machine was operating but overheating. They also discovered a piece missing inside the motor, and Bauer was afraid that this would cause the machine to continue to overheat. He felt that a new motor would be necessary.

Purdom and Hoefle then telephoned the manufacturer of the machine, and it suggested that they reassemble the machine and try to operate it. If that did not work, the manufacturer would arrange for the delivery of a new motor via Indianapolis. In that event, Hoefle and Bauer again would be required to disassemble the machine and install the new motor.

At about 6:30 p.m., Purdom and Hoefle returned to the machine, where Bauer was working, and related their plan to him. Bauer told Purdom that they would have to get permission from their superiors at Howell to remain overnight at Logansport. Purdom and Bauer then telephoned Howell’s field-service manager. Bauer explained the situation, Purdom told the manager that he wanted Hoefle and Bauer to stay in Logansport, and the manager approved.

Purdom, Hoefle and Bauer then went to' the Ben Hur Motel in Logansport, where Purdom had been staying. Hoefle and Bauer, too, secured rooms at the motel. After washing up, Hoefle and Bauer ate dinner with Purdom at the motel. According to Bauer’s testimony, Purdom suggested at dinner that they go out for a couple of drinks and discuss the problems of the machine. Following dinner, claimant testified, they watched TV, then showered, borrowed clothes from Purdom, changed into them and left the motel, apparently shortly after 10 p.m., in Purdom’s truck. The three men went to a bar where they had two or three drinks each and talked about the machine, football, and various other topics. At about 11:30 or 11:45 p.m., Purdom took them to another bar in Logansport, where they remained, again talking about the machine and other topics, until closing time, about 1:30 or 1:45 in the morning of July 24. As the tavern was closing, Purdom and Hoefle decided to go to breakfast and suggested Bauer join them. Bauer, however, wanted to go back to the motel. Bauer went to the bathroom, and, when he returned to the table, Purdom and Hoefle were gone. The latter testified that they waited some 10 or 15 minutes in the truck for claimant, and then drove around tire block and returned to the tavern, leaving when claimant was not visible.

Although he had never been in Logansport before, claimant decided to walk back to the motel. He thought that he knew where he was and that he would recognize the motel. He did not inquire about taxi service, which was available, or ask anyone for directions to the motel. Bauer, Purdom and Hoefle had driven about 10 minutes from the motel to reach the first bar and another 10 minutes from the first bar to reach the second one. Subsequent testimony revealed that the distance from the second bar to the motel was about three miles. After walking for a few blocks, claimant realized that he was lost, and he came upon what was apparently an abandoned railroad station. He thought he remembered crossing some railroad tracks on the way from the motel, so he walked over to the station to see if someone were there. If not, he thought that he might be able to follow the tracks back to the motel. Bauer found no one in the station, and he started walking alongside the tracks in the direction he thought the motel was located. He testified that a train started to pass him, that some part of the train made contact with him, and that it dragged him along backwards. He held onto a “bar or handle or something” as long as he could with his left arm but finally had to let go. He apparently fell onto the tracks, and the train ran over his left leg. He dragged himself away from the tracks and put his belt around his leg as a tourniquet. He lay there, yelling for help, until a police officer, John Leigh Adair, arrived. Adair, with job-related experience with intoxicated individuals, later testified that in his opinion Bauer was not intoxicated. He stated that Bauer was coherent and handled himself well under the circumstances. In response to a question by the arbitrator, claimant denied that he had attempted to hitch a ride on the train.

Claimant testified that he had been out of town to repair equipment for Howell more than 25 times during his employment by that company. When he went out of town, the company either advanced money for his expenses or reimbursed him. Claimant also testified that the company never gave him instructions or placed restrictions on him concerning his conduct after he left a job site on out-of-town business trips. On a number of previous occasions when the company sent him out of town, claimant went out with customers after work for a few drinks. On one such occasion, claimant sold a customer a piece of equipment, and the company paid claimant a bonus for the sale. Claimant’s coworker, Hoefle, confirmed the lack of restrictions on after-work activities while out of town on business. Hoefle did admit, however, on cross-examination, that he and claimant were paid on an hourly basis and were not actually being paid during the time that they spent socializing in Logansport.

Since claimant was a traveling employee, it is not disputed that his injury was sustained in the course of his employment. Howell, however, urges that the injury did not arise out of claimant’s employment. An injury sustained by an employee arises out of his employment if the employee at the time of the occurrence was performing acts he was instructed to perform by his employer, acts which he has a common law or statutory duty to perform while performing duties for his employer, or acts which the employee might be reasonably expected to perform incident to his assigned duties. David Wexler & Co. v. Industrial Com. (1972), 52 Ill. 2d 506, 510; U.S. Industries v. Industrial Com. (1968), 40 Ill. 2d 469, 473; Ace Pest Control, Inc. v. Industrial Com. (1965), 32 Ill. 2d 386, 388.

Injuries to employees whose duties require them to travel away from home are not governed by the rules applicable to other employees. Under the standard enunciated in Ace Pest Control, set forth above, an injury is compensable if the conduct which gave rise to the injury is reasonable and might normally be anticipated or foreseen by the employer. (Wright v. Industrial Com. (1975), 62 Ill. 2d 65, 70; David Wexler & Co. v. Industrial Com. (1972), 52 Ill. 2d 506, 510; U.S. Industries v. Industrial Com. (1968), 40 Ill. 2d 469, 475.) Compensation has therefore been allowed for injuries sustained by traveling employees outside the course of a normal business day and while the employee was not performing duties owed his employer. (Wright, Wexler.) Both Wright and Wexler indicate that a traveling employee may be compensated for injuries sustained while he was engaged in recreational activities as long as those activities were reasonable and foreseeable.

Although the protection afforded a traveling employee by the Workmen’s Compensation Act (Ill. Rev. Stat. 1977, ch. 48, par. 138.1 et seq.) is considerably more extensive than that afforded other employees, the purposes of the Act do not require the employer to serve as an insurer for a traveling employee. (Ace Pest Control, Inc. v. Industrial Com. (1965), 32 Ill. 2d 386, 388; Klug v. Industrial Com. (1943), 381 Ill. 608, 611-12.) The burden of establishing compensability rests upon the claimant, and proof that he would not have been at the place where the injury occurred but for his employment is not alone sufficient. (U.S. Industries v. Industrial Com. (1968), 40 Ill. 2d 469, 473; Rysdon Products Co. v. Industrial Com. (1966), 34 Ill. 2d 326, 329; Christian v. Chicago & Illinois Midland Ry. Co. (1952), 412 Ill. 171, 175-76.) Thus in U.S. Industries compensation was denied a traveling employee because his off-duty activities from which the injury arose were not reasonable or foreseeable.

Assuming here that claimant’s conduct in borrowing dressier clothes, showering and leaving the motel after 10 p.m. was reasonable and foreseeable, it ceased being so, in our judgment, when claimant decided to part with his companions and return to the motel alone. Although the claimant testified he thought he knew how to reach the motel, he had never been in Logansport before. He, Purdom and Hoefle had driven a total of 20 minutes to reach the tavern where they parted. He didn’t ask anyone for directions to the motel, nor did he inquire about the taxi service which was available. Instead, about 2 a.m. in the morning and after admittedly having five drinks, he set out on foot in an unsavory section of the town to reach his motel some three miles away without being certain which direction or how far it was. In our opinion that action is simply not reasonable, nor could an employer be expected to reasonably foresee that an employee would make such a rash decision.

The conduct before us more closely resembles the conduct of the employee in U.S. Industries than that in Wright and Wexler. In this case, as in U.S. Industries, Wright and Wexler, a traveling employee away from home decided to pursue social or recreational activities in his off-duty hours. In both Wright and Wexler, however, no evidence pointed to any unreasonable activities by the employees. In Wexler the employee was killed when a runaway truck struck the station wagon he was driving at 6:30 p.m. on Memorial Day on a street in Omaha, Nebraska. In Wright the employee was killed in a head-on collision on a State highway in Tennessee around midday. Although the collision was not explained, testimony established that the road was straight and dry and that the weather was clear. Nothing suggested that the activities of the employees in Wright and Wexler were hazardous or unreasonable. Accordingly, the accidents in those two cases were considered compensable. Wright v. Industrial Com. (1975), 62 Ill. 65, 71; David Wexler & Co. v. Industrial Com. (1972), 52 Ill. 2d 506, 511.

In contrast the employee in U.S. Industries set off on a midnight drive in the mountains of western Pennsylvania, terrain that was not familiar to him. He fell asleep at the wheel and was injured in a subsequent collision. The employee was denied compensation because the decision to embark on this midnight excursion was itself unreasonable. (U.S. Industries v. Industrial Com. (1968), 40 Ill. 2d 469, 475.) In the case now before us even though the initial decision to have a few drinks with Purdom and Hoefle is assumed to be unobjectionable, the decision to walk back to the motel resulted in a late-night excursion through an unfamiliar and potentially hazardous area, not unlike the trip in U.S. Industries. Eschewing taxi service and guidance in locating the motel, Bauer predictably became lost and, at that hour in the morning, apparently saw no one to assist him. As the arbitrator below decided, any conclusion that this rash course of conduct is reasonable and foreseeable is against the manifest weight of the evidence.

We therefore affirm the judgment of the circuit court of Du Page County.

Judgment affirmed.

MR. JUSTICE KLUCZYNSKI,

dissenting:

Believing that the Commission’s decision is not against the manifest weight of the evidence, I respectfully dissent.

The evidence indicates that claimant was frequently required to work away from respondent’s home office. On this particular trip, in fact, his overnight stay was expressly authorized. While on this trip, as always, claimant used a company truck and company equipment, and the company paid his expenses.

The evidence also indicates that no restrictions were placed upon claimant and his coworker as to their activities after leaving the out-of-town job site and that, given this discretion, they decided to have a few drinks with their customer’s representative. The evidence is uncontroverted that one purpose of this socializing was to discuss the problems of the machine. Respondent admits that there is nothing unreasonable about claimant’s activities thus far. It concedes that a traveling ■ employee generally remains in the course of his employment from the time he leaves the employer’s premises until he returns and even during free time when engaged in reasonable activities incident to his employment, including socializing with customers. Respondent claims, however, that it could not reasonably foresee claimant’s injury. Respondent argues, “Under the circumstances of the employment obligation in this case, it is unreasonable that an employee who was required to be at the job promptly the next morning would: (1) refuse a ride back to the motel at approximately 1:10 [a.m.] when his companions left; (2) *** even consider walking a number of miles at 2:30 [a.m.] when in a city with which he was not familiar; (3) *** fail to explain his activity during a period of approximately one hour after leaving his companions in an establishment which was only a few blocks from the place of [the] accident; (4) *** be hanging from a railroad car by one or both hands without any explanation as to how or why he had assumed that position.” Respondent also points out, correctly so, that in deciding the “course of employment” issue, we must focus on the injury and not on whether claimant’s trip generally could be said to be in the course of his employment. See 1 A. Larson, Workmen’s Compensation sec. 14, at 4 — 1(1978).

Were I to agree with respondent’s interpretation of the evidence, I might be more inclined to accept its argument that the injury did not arise out of and in the course of claimant’s employment. The fact is, however, that (1) there is no evidence that claimant refused a ride back to the motel or that his companions definitely left at 1:10 a.m.; the testimony was that claimant declined his companions’ invitation to breakfast, and the estimates given as to the time that they left ranged from “shortly after” 1 a.m. to 1:30 or 1:45 a.m.; (2) there is nothing manifestly unreasonable about undertaking a walk of three miles, and the majority’s assertion that claimant shunned taxi service is without support in the record, as there is no evidence that a taxi was available at the time of the occurrence; (3) claimant admitted being lost, thereby explaining the lapse of time between leaving the bar and being hit by the train; and (4) the record does not indicate that claimant voluntarily “assumed” a hanging position on the side of the train.

Nor do I believe that the cases cited by respondent require a result different from that reached by the Commission. In U.S. Industries v. Industrial Com. (1968), 40 Ill. 2d 469, 475, for example, the court’s decision to deny compensation was based on the absence of a “reasonable relationship” to the claimant’s employment; the court said, “Claimant’s action in undertaking a midnight pleasure drive in unfamiliar, mountainous terrain was, in our judgment, a clearly unanticipated, unforeseeable and unreasonable activity not normally to be expected of a traveling employee.” Clearly, no interest of the employer would be furthered by taking a drive in the mountains. Here, however, the employer’s interest played a key part in claimant’s trip and in his social activity, and I find no manifest error in the Commission’s determination that claimant’s walk alongside the railroad tracks and the resultant injury were incidental to his employment.

I believe that the present case is more closely analogous to those decisions cited by claimant in which compensation was awarded. In Wexler & Co. v. Industrial Com. (1972), 52 Ill. 2d 506, for example, the court affirmed an award of compensation to the widow and five children of a traveling salesman who was killed on Memorial Day, 1967, while in Nebraska on business. There was a dispute in the evidence as to whether the deceased was engaged in business or recreational activity immediately preceding his death, but the court held that this did not bar an award. The court said:

“But even if it were to be assumed that the decedent was returning from an activity such as golfing, and not from his appointment, we judge that under the circumstances that conduct would not have been unreasonable. It was Memorial Day, a legal holiday in Nebraska, as in this State. The decedent was away from home in the course of an extended sales trip in behalf of his employer. It would be obviously unreasonable and contrary tó the intendment of the Workmen’s Compensation Act and its purposes to say that a traveling employee has the protection of the Act only when in the physical act of performing selling or other duties and only in the course of a normal business day.” (52 Ill. 2d 506, 511.)

(See also Hansen v. Industrial Com. (1951), 258 Wis. 623, 46 N.W.2d 754 (compensation awarded for death of an Arizona-based salesman found dead in Mexico near a restaurant-night club at 1:30 a.m. following an evening of socializing); Cavalcante v. Lockheed Electronics Co. (1964), 85 N.J. Super. 320, 204 A.2d 621 (compensation awarded for death of a traveling employee while returning to his motel from a dance hall two miles away); In re Claim of Kohl (1959), 9 App. Div. 2d 597, 189 N.Y.S.2d 361 (compensation awarded for death of a traveling employee driving to a restaurant 10 miles from a motel).) As Professor Larson states in his treatise, the pursuit of pleasure incident to employment does not bar an award. 1 A. Larson, Workmen’s Compensation sec. 18.42, at 4 — 287 (1978), citing Bradford Supply Co. v. Industrial Com. (1971), 50 Ill. 2d 190.

In Bradford Supply, a strikingly similar case which I believe is indistinguishable in any material respect, the court affirmed an award for the loss of a leg of a traveling employee. The employee had performed the required service, had consumed several beers with the customer, and was returning to his employer’s hometown at a late hour when he suffered his injury. In affirming an award, the court held that it was reasonable to expect the employee to remain and socialize with the customer after completing his task and that his injury clearly arose out of and was sustained in the course of his employment. (50 HI. 2d 190, 195.) Similarly, I believe that claimant’s injury sustained here is compensable.

In summary, and as the majority itself acknowledges, a traveling employee is generally considered differently from other employees in determining whether an injury arose out of and in the course .of his employment (Wexler & Co. v. Industrial Com. (1972), 52 Ill. 2d 506, 510), the implication being that a traveling employee is allowed more leeway in the activities he may pursue without losing the protection of the Act. The key inquiry is, as we have said, “the reasonableness of the specific conduct and whether it might normally be anticipated or foreseen by the employer ***.” (U.S. Industries v. Industrial Com. (1968), 40 Ill. 2d 469, 475.) The Commission’s determination on this key element, however, is not to be disturbed unless contrary to the manifest weight of the evidence (Brewster Motor Co. v. Industrial Com. (1967), 36 Ill. 2d 443, 449); the evidence here is not so clear or uncontroverted that the issue becomes one of law, subject to resolution by this court de novo (Math Igler’s Casino, Inc. v. Industrial Com. (1946), 394 Ill. 330, 334). The Commission here rendered a decision favorable to claimant. I do not believe that a finding that the Commission’s decision is against the manifest weight of the evidence is possible unless we are to weigh the evidence or inject our own notions of credibility; yet these are not the functions of this or any reviewing court.

GOLDENHERSH, C.J., and CLARK, J., join in this dissent.