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Illinois Sterling, Inc. v. Kdi Corp.

NOVEMBER 17, 1975.

ILLINOIS STERLING, INC., ET AL., PLAINTIFFS-APPELLEES,

v.

KDI CORPORATION ET AL., DEFENDANTS-APPELLANTS.



APPEAL from the Circuit Court of Kane County; the Hon. ERNEST AKEMANN, Judge, presiding.

MR. JUSTICE GUILD DELIVERED THE OPINION OF THE COURT:

This is an interlocutory appeal pursuant to Supreme Court Rule 308 (Ill. Rev. Stat. 1973, ch. 110A, par. 308) from the order of the trial court denying defendants' motion to dismiss the complaint and plaintiffs' motion to file their amended complaint, which, in substance, amended their original complaint to allege wilful and malicious conduct on the part of the defendants.

The original complaint, filed December 23, 1970, was based solely on defendants' alleged breach of a reorganization agreement of December 8, 1969, between plaintiffs and defendants. The complaint alleged, inter alia, that defendants breached the agreement by (1) failing to provide any capital to a business being operated by plaintiff; and (2) notifying various suppliers and customers of the business that it was without funds and would be shut down and liquidated by a certain date. In part, Count I prayed for judgment for compensatory damages resulting from the breach of the contract and punitive damages.

Count II of the complaint realleged allegations contained in Count I and stated that as a result thereof the business reputation of one of the plaintiffs suffered severe and irreparable damage. The prayer of Count II requested monetary damages as a result of the aforesaid breach and contained no prayer for punitive damages.

Count III of the complaint realleged the allegations of Count I and further stated that as a result of such breaches of contract the plaintiffs were required to expend certain sums and alleged damages as a consequence thereof. The prayer of Count III prayed for monetary damages and contained no prayer for punitive damages.

The original complaint did not allege that the defendants wrongfully, wilfully or maliciously breached the reorganization agreement.

Subsequent to the filing of the original complaint, defendant KDI Corporation filed a bankruptcy petition under chapter XI of the Federal Bankruptcy Act in the United States District Court in Ohio. On April 17, 1972, the trial court herein entered an order enjoining the instant proceedings pending disposition of the bankruptcy cause. The plaintiffs' claim was scheduled in the bankruptcy case and plaintiffs had notice thereof but it appears that plaintiffs failed to appear therein. On June 6, 1973, a discharge order was entered in Federal court. Subsequently, the notice of the discharge in bankruptcy was served upon the plaintiffs, which provided in pertinent part:

"* * * any judgment heretofore or hereafter obtained in any other Court is null and void as a determination of the personal liability of the Debtor (KDI) with respect to any of the following:

(a) debts not excepted from discharge under subdivision (a) of Section 17 of the Bankruptcy Act;

(b) debts discharged under paragraph (2) of subdivision (c) of Section 17 of the Bankruptcy Act;

(c) debts determined to be discharged under paragraph (3) of subdivision (c) of Section 17 of the Bankruptcy Act."

The notice of discharge further provided that any creditor who claimed that its debt was not dischargeable was required to file an application in the bankruptcy court for a determination of dischargeability within a specified time and that failure to file such an application would result in discharge of the debt. It appears that after being notified plaintiffs did not file an application for determination by the bankruptcy court as to the dischargeability of their claim under the provisions of section 17(c)(2) of the Bankruptcy Act. 11 U.S.C. § 35(c)(2) (1971).

On February 14, 1974, the defendants moved the trial court to dismiss the original complaint, based upon a certified copy of the discharge order entered by the bankruptcy court on June 6, 1973. The plaintiffs opposed this motion, stating that their original complaint stated a cause of action within the purview of section 17(a)(8) of the Bankruptcy Act, which provides:

"§ 17. Debts Not Affected by a Discharge. (a) A discharge in bankruptcy shall release a bankrupt from all of his provable debts, whether allowable in full or in part, except such as * * * (8) are liabilities for wilful and ...


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