Hoskins Chevrolet Inc. v. Hochberg

FIRST DIVISION
JANUARY 20, 1998



No. 1-96-4135

HOSKINS CHEVROLET, INC., ) Appeal from the
) Circuit Court
Plaintiff-Appellee, ) of Cook County.
)
v. )
)
RONALD HOCHBERG, Indiv. and )
d/b/a Diamond Auto )
Construction, ) Honorable
) Willard J. Lassers,
Defendant-Appellant. ) Judge Presiding.

PRESIDING JUSTICE BUCKLEY delivered the opinion of the

court:

Defendant Ronald Hochberg appeals from an order of the
circuit court of Cook County granting summary judgment in favor
of plaintiff Hoskins Chevrolet, Inc. Defendant contends that the
trial court erred in determining that he was individually liable
for a corporate debt.
Plaintiff, an Illinois corporation engaged in the sale of
automobiles and automobile parts, filed a complaint for breach of
contract and account stated against defendant alleging that he
ordered and received from plaintiff automobile parts valued at
$40,198.16 for which he never paid. Defendant filed a motion to
dismiss asserting that at all times relevant to plaintiff's
complaint he was the president of Diamond Auto Body & Repair,
Inc., an Illinois corporation, and that at no time did he conduct
business with plaintiff in any capacity other than as the
president of the corporation. Plaintiff filed a response,
stating that the invoices it sent for the automobile parts were
in the name of Diamond Auto Construction and that payment was
always made to plaintiff with checks drawn on the bank account of
Diamond Auto Construction. Defendant's motion to dismiss was
denied.
Defendant filed an answer in which he admitted that he
received all of the automobile parts at issue, but only as
president of a corporation and not individually or doing business
as Diamond Auto Construction. He further admitted that the
September and October 1994 bank statements attached to
plaintiff's complaint were true and correct copies of statements
of the bank account of Diamond Auto Construction, but he asserted
that the statements were never delivered to him individually but
to the corporation. He denied that there was an account stated
between himself and plaintiff. His answer asserted as an
affirmative defense that Diamond Auto Construction was at all
times material to plaintiff's complaint the "operating name" of
the corporation and that he was the president of the corporation.
Plaintiff filed a motion for summary judgment asserting that
at all pertinent times, it had done business with defendant and
Diamond Auto Construction, and Diamond Auto Construction was not
a corporation nor had it ever been registered with the Illinois
Secretary of State as the assumed name of a corporation as
required by section 4.15 of the Business Corporations Act of
1983. 805 ILCS 5/4.15 (West 1994). In support of its motion,
plaintiff noted that defendant admitted in his answer that parts
were purchased under the name Diamond Auto Construction and that
the invoices attached to the complaint were true and correct
copies of Diamond Auto Construction's account. Plaintiff also
noted that because defendant failed to respond to plaintiff's
request for admission of facts, defendant was deemed to have
admitted that Diamond Auto Construction was neither incorporated
nor registered as an assumed name of a corporation. Plaintiff
asserted that because the amount owing was undisputed, the only
issue before the court was whether defendant, as the principal of
Diamond Auto Construction, was individually liable for the debt.
Plaintiff attached copies of checks written to plaintiff from the
checking account of Diamond Auto Construction and invoices sent
by plaintiff to Diamond Auto Construction.
Defendant filed a response asserting that Illinois law
provides that a corporation's use of an unauthorized name does
not impose vicarious liability upon the corporation's
shareholders or officers. He stated that plaintiff knew from the
beginning that he represented a corporation and, therefore, was
estopped from pursuing him individually on the debt. In support
of his assertion, he noted plaintiff's admission in its answer to
defendant's request to admit that defendant had applied for
credit with plaintiff as president of Diamond Auto Construction
and in the application had described Diamond Auto Construction
as a corporation. In an affidavit attached to his response,
defendant asserted that he was the president of Diamond Auto Body
& Repair, Inc., a corporation validly existing and in good
standing in Illinois, and that he never did business individually
or as Diamond Auto Construction. The affidavit did not address
the relationship of Diamond Auto Construction to the corporation.
Plaintiff filed a reply, asserting that it was not its
knowledge or belief that determined whether Diamond Auto
Construction was a corporation, but Illinois law. Plaintiff
claimed that according to defendant's argument, no individual
would ever have to incorporate in order to receive the benefits
of limited liability because, as long as he represented to others
that he was a corporation, others would be estopped from treating
him otherwise.
After a hearing, the trial court granted plaintiff's motion
for summary judgment and found that defendant owed plaintiff the
amount of $28,198.16 plus costs.
Defendant filed a motion to reconsider, asserting that the
trial court erred in determining that the corporation's use of
the unregistered name Diamond Auto Construction was sufficient to
impose personal liability on him. He argued that the court did
not properly consider the case law he had cited in his response
and erred in finding that the facts of his case were dissimilar
to those in Pilsen Brewing Co. v. Wallace, 291 Ill. 59 (1919).
He asserted that just as in Pilsen, "there is no evidence in this
case that Plaintiff did not know at the time this contract arose
that 'Diamond Auto Construction' was not a valid Illinois
corporation." He claimed that, as in Pilsen, the business
represented by the assumed name was the exact same business as
the corporation "with the name being the only difference." He
also argued that plaintiff's contract was not with him
personally, but as agent for Diamond Auto Construction as
disclosed on the credit application, and that plaintiff presented
no evidence to support its claim that Diamond Auto Construction
was a completely separate entity from the corporation. Attached
to the motion was defendant's affidavit in which he asserted that
Diamond Auto Construction was the assumed name of Diamond Auto
Body & Repair, Inc., and did not exist separate and apart from
the corporation. Also attached were copies of the corporate
federal tax returns which referenced the name Diamond Auto
Construction and copies of corporate checking account statements
and checks from two banks indicating that the checks to the
corporate accounts were in the name of Diamond Auto Construction.
The trial court denied defendant's motion.
On appeal, defendant cites Pilsen and Przybyl v. Chelsea
Motor Inn, 105 Ill. App. 3d 942 (1982), in support of his
contention that the trial court erred in determining that the
corporation's use of the unregistered name Diamond Auto
Construction imposed personal liability on him, the president of
the corporation.
In Illinois, summary judgment shall be granted if the
pleadings, depositions, admissions, affidavits and any other
evidence show that there is no genuine issue as to any material
fact and that the moving party is entitled to judgment as a
matter of law. 735 ILCS 5/2-1005(c)(West 1994). Where the
moving party has presented evidence in the form of depositions,
admissions or affidavits in support of his motion, the nonmoving
party must present evidentiary material that establishes a
genuine issue of material fact. Levitt v. Hammonds, 256 Ill.
App. 3d 62, 66 (1993). Although the nonmoving party need not
prove his case as he would at trial, he must present some factual
basis that would arguably entitle him to judgment under the
applicable law. West v. Deere & Co., 145 Ill. 2d 177, 182
(1991). However, the pleadings, depositions and affidavits must
be construed most strictly against the moving party and most
liberally in favor of the opponent. Purtill v. Hess, 111 Ill. 2d 229, 240 (1986). Because summary judgment is a drastic remedy
disposing of litigation, it should be granted only when the right
of the movant is clear and free from doubt. Spivack, Shulman &
Gold v. Foremost Liquor Store, Inc., 124 Ill. App. 3d 676, 682-83
(1984).
Initially, we note that the cases cited by defendant were
governed by law in existence prior to the legislative amendment
of 1981 which for the first time allowed Illinois corporations to
elect to adopt an assumed name if certain prescribed procedures
were followed. See Przybyl, 105 Ill. App. 3d at 943; Precision
Components, Inc. v. Kapco Communications, 131 Ill. App. 3d 555,
559 (1985). Pilsen was decided in 1919, and, unlike the facts
presented here, the central determining element was the fact that
the directors of the defendant corporation adopted a resolution
to change the corporate name, but never filed a certificate of
amendment with the Secretary of State. The reviewing court found
that the directors' action coupled with the obvious intention of
the parties that the contract be between the plaintiff and the
corporation prevented the officers of the corporation from being
personally liable on the contract. Pilsen, 214 Ill. App. 3d at
545. Accordingly, we find that Pilsen is not helpful here. In
Przybyl, the facts were also dissimilar to those in the case at
bar. There, the issue did not involve a contract, but posed the
question of whether a corporation's unauthorized use of an
assumed name would result in personal liability of the
shareholders for the alleged negligence of a corporate employee.
Przybyl, 105 Ill. App. 3d at 943. We find neither Pilsen nor
Przybyl helpful in resolving the matter before us under the
current law.
The Business Corporations Act (the Act) permits a
corporation to elect to adopt an assumed name provided that
certain procedures are followed. 805 ILCS 5/4.15 (West 1994).
Where those procedures are not followed, the corporation is
required to conduct business under its corporate name. However,
the Act provides that a corporation may use the "name of a
division, not separately incorporated *** provided the
corporation also clearly discloses its corporate name." 805 ILCS
5/4.15(b)(2) (West 1994). The use of an assumed name without
complying with the Act or disclosing the corporate name neither
creates a legal entity nor does it inform creditors of the
existence of the "parent" corporation. Precision Components, 131
Ill. App. 3d at 560.
In the case at bar, defendant admitted that Diamond Auto
Body & Repair, Inc., used the assumed name of Diamond Auto
Construction without complying with the filing requirements of
the Act. Further, the record contains no evidence that while
using the assumed name in his dealings with plaintiff, defendant
also disclosed the corporate name as required by section
4.15(b)(2) of the Act. 805 ILCS 5/4.15(b)(2) (West 1994).
Accordingly, we find no error in the trial court's determination
that under the Act, Diamond Auto Construction was neither a
corporation nor the assumed name of a corporation for purposes of
establishing contract liability in anyone other than defendant.
Next, defendant cites Thompson v. Patrick Cadillac, 187 Ill.
App. 3d 104 (1989), and Knight's Prairie Hunting Club, Inc. v.
Holmes, 263 Ill. App. 3d 455 (1994), for the proposition that
plaintiff was estopped from seeking a judgment against him
personally because the evidence demonstrated that plaintiff
believed that it was dealing with a corporation. Although
neither case is factually similar to the case at bar, defendant
directs our attention to the fact that in each case the court
made a general statement that an individual who deals with a
pretended corporation in a manner which recognizes its existence
is estopped from denying the existence of the corporation.
Thompson, 187 Ill. App. 3d at 109; Knight's, 263 Ill. App. 3d at
459-60. However, we find that neither case discussed the
estoppel issue in any depth or addressed the issue as it may be
applied to this case.
In Davane, Inc. v. Mongreig, 193 Ill. App. 3d 636, 641
(1990), the reviewing court was required to address a similar
statement taken from the case of Zimmerman Ford, Inc. v. Cheney,
132 Ill. App. 2d 871, 874 (1971). The Davane court noted that
the statement made by the Zimmerman court was misleading in that
it generalized the applicable law without discussing the
recognized relationship between the doctrine of de facto
corporations and the principle of estoppel to deny corporate
existence. The court stated:
"An organization which is not
technically a corporation because of the
failure to meet some statutory requirement
will be recognized as a de facto corporation
if there is a valid law under which it may be
organized, a good-faith effort to organize
under the law, a colorable or apparent
compliance with the law, and if the
organization is a user of corporate powers.
[Citation.] A person who contracts with an
entity while the entity is acting as a de
facto corporation, and who contracts with it
as an organized corporation, is estopped from
denying its corporate status at the time the
parties entered into the agreement.
[Citation.] If the organization was not a de
facto corporation, however, there is no
estoppel to deny its corporate existence."
Davane, 193 Ill. App. 3d at 641.
Here, as in Davane, we find that defendant presented no evidence
of a good-faith effort to comply with the statutory formalities
of the Act for either creating a corporation or operating under
an assumed name. Accordingly, Diamond Auto Construction was not
a de facto corporation and plaintiff was not estopped to deny its
corporate existence.
For these reasons, the order of the circuit court of Cook
County granting summary judgment in favor of plaintiff is
affirmed.
Affirmed.
O'BRIEN and GALLAGHER, JJ., concur.