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Wikelund Wholesale Co. v. Tile World

OPINION FILED JANUARY 24, 1978.

WIKELUND WHOLESALE COMPANY, INC., PLAINTIFF-APPELLEE,

v.

TILE WORLD FACTORY TILE WAREHOUSE ET AL., DEFENDANTS. — (RUBBER LININGS CORPORATION ET AL., DEFENDANTS-APPELLANTS.)



APPEAL from the Circuit Court of Cook County; the Hon. JOHN A. OUSKA, Judge, presiding.

MR. JUSTICE STAMOS DELIVERED THE OPINION OF THE COURT:

This appeal arises from a judgment entered by the circuit court of Cook County in favor of plaintiff Wikelund Wholesale Company, Inc., and against defendants Rubber Linings Corporation and Harold Trilling. This judgment followed a bench trial of plaintiff's action against defendant pursuant to which (1) defendant Rubber Linings Corporation was found to have violated the Illinois bulk transfers act (Ill. Rev. Stat. 1975, ch. 26, par. 6-102 et seq.), and (2) defendant Harold Trilling, as "alter ego" of defendants Tile World Factory Tile Warehouse, a corporation, and Rubber Linings Corporation, were found to have unlawfully exercised dominion and control over merchandise belonging to plaintiff in the amount of $4,864.66.

Plaintiff, distributors of building materials and floor covering, allegedly delivered various materials to defendant Harold Trilling and subsequently sent invoices to Trilling for the goods delivered. Plaintiff apparently was never paid in full for the goods delivered. Trilling's nonpayment prompted plaintiff's initiation of an action in the circuit court of Cook County. Plaintiff's action contained three counts. The first count sought the balance due and owing for goods, wares, and merchandise sold and delivered by plaintiff to defendant, plus interest, in the amount of $5,239.66. Count II alleged that the inventory of defendant Tile World Factory Tile Warehouse (of which Trilling had been vice-president and shareholder) was transferred to defendant Rubber Linings Corporation (in which Trilling had an interest) in violation of the Illinois bulk transfers act in that Rubber Linings Corporation failed to (1) require Tile World Factory Tile Warehouse to schedule a list of creditors and (2) notify plaintiff of the bulk transfer. Count II further alleged that defendant Rubber Linings Corporation had custody of substantial amounts of plaintiff's merchandise but refused to pay for said merchandise and is, therefore, liable to plaintiff in the amount of $4,864.66. Count III alleged that defendant Trilling was the "alter ego" of the defendant corporations and, as such, should be held personally liable for the balance due and owing to plaintiff in the amount of $4,864.66.

A bench trial ensued and the totality of the testimony was supplied by defendant Trilling and Donald Muscavitch, credit manager of Wikelund Wholesale Company. The testimony reflected that plaintiff sold merchandise to Tile Brand Distributors, Inc., Cicero, Illinois, and Tile World of Madison and Sheboygan, Wisconsin. Furthermore, the testimony established that $1,500 was paid plaintiff by Factory Tile Warehouse, Inc., checks signed by defendant Harold Trilling, leaving a balance due plaintiff in the amount of $4,864.60. Further established by the testimony was the fact that defendant Trilling had interests in various corporations, three of which were engaged in the tile business.

At the completion of the evidence the court entered an order finding in favor of defendant as to count I of plaintiff's complaint and finding in favor of plaintiff with respect to counts II and III. It is from the orders entered against defendants Rubber Linings Corporation and Harold Trilling that defendants appeal.

The trial court found, pursuant to plaintiff's allegations, that Rubber Linings Corporation violated the Illinois bulk transfers act (Ill. Rev. Stat. 1975, ch. 26, par. 6-102 et seq.), based upon a transfer of inventory from Tile World Factory Tile Warehouse to Rubber Linings Corporation. It is clear that if we are to uphold the trial court's finding in this regard we must first find the bulk transfers act applicable to the case at bar. This we are unable to do.

• 1 A bulk transfer is any transfer in bulk and not in the ordinary course of the transferor's business of a major part of the materials, supplies, merchandise or other inventory of an enterprise subject to the bulk transfers act. (Ill. Rev. Stat. 1975, ch. 26, par. 6-101.) A transfer of the "major part" of inventory has the clear and definite meaning of the transfer of "greater than fifty percent" of inventory. Zenith Radio Distributing Corporation v. Mateer (1941), 311 Ill. App. 263, 35 N.E.2d 815. See Continental Casualty Co. v. Burlington Truck Lines, Inc. (1966), 70 Ill. App.2d 405, 217 N.E.2d 293.

• 2 The testimony adduced in the case at bar does not admit of a transfer in excess of 50 percent of the Tile World Factory Tile Warehouse inventory to Rubber Linings Corporation. In fact, Harold Trilling's uncontradicted testimony reflects that "about fifty percent" of the inventory was transferred. This testimony is insufficient upon which to base a finding of a transfer of a "major part" of inventory for purposes of the application of the bulk transfers act. Consequently, the finding of the circuit court, that defendant Rubber Linings Corporation violated the Illinois bulk transfers act, must be reversed.

The circuit court further found that defendant Harold Trilling was the principal and "alter ego" of various corporations, including defendant corporations and, consequently, was liable for the unlawful exercise of dominion and control over merchandise belonging to plaintiff. In reaching this result, the circuit court found a debt due plaintiff and disregarded the corporate nature of various businesses in which Trilling had interests.

There is no basis for disturbing this finding of the circuit court. Trilling's testimony is somewhat uncertain as to the number of corporations in which he had an interest, however, it is clear that those corporations involved in the tile business were managed with a disregard for their corporate status. Trilling, while testifying at trial, never denied that he used accounts of his various corporations to pay the debts of any one corporation. His testimony also revealed that the money received by one corporation in which he had an interest might come to rest in the accounts of another of his corporations. This commingling of funds was explained by Trilling as an attempt to pay the debts owed.

• 3, 4 Trilling's unusual scheme of corporate accounting may have increased his ability to satisfy creditors, but it also requires us to disregard the corporate status of Trilling's businesses engaged in the tile business and affirm the circuit court's imposition of personal liability upon Trilling. It is elementary that the separate corporate status of subsidiary or other affiliated corporations will not be recognized when the accounts of the corporations are intermingled. (Henn, Handbook Of The Law Of Corporations And Other Business Enterprises § 148 (1970).) This intermingling is clearly evident from Trilling's testimony. Consequently, the incorporation of Trilling's various business interests cannot be utilized to promote injustice and defeat a recovery by plaintiff. The doctrine that a corporation is a legal entity existing separate and apart from the person composing it is a legal theory used for the convenience of the business world. The concept cannot, therefore, be extended to a point beyond its reason and policy, and when invoked in support of an end subversive of this policy, will be disregarded by the courts>. State Bank v. Benton (1974), 22 Ill. App.3d 1007, 317 N.E.2d 578.

Based upon the facts of this case and the principles of law applicable thereto we hold (1) that the circuit court erred in finding that defendant Rubber Linings Corporation violated the Illinois bulk transfers act, and (2) that the circuit court correctly found Harold Trilling liable to plaintiff Wikelund Wholesale Company, Inc. Accordingly, the judgment of the circuit court of Cook County is affirmed in part and reversed in part.

Affirmed in part; reversed in part.

DOWNING, P.J., concurs.

Mr. JUSTICE PUSATERI, concurring in part and dissenting in part:

This appeal initially confronts us with determinations concerning the construction of article 6 (bulk transfers act) of the Uniform Commercial Code (Ill. Rev. Stat. 1971, ch. 26, par. 6-101 et seq.), a statute which has been criticized as having not been drafted in clear, concise and explicit language, and further criticized on the grounds that its looseness and over-flexibility is out of place in a technical formal statute designed to protect creditors against fraudulent conveyances and dissipation of proceeds. *fn1 The second major determinations concern the facts, circumstances and requirements necessary to employ the remedy of piercing a corporate veil, which remedy has been described as "one of the most awesome judicial remedies," *fn2 and the consequences of so doing in relation to the imposition of individual personal liability.

I also wish to state preliminarily, regarding this appeal, that the trial record is far from being clear and certain. There is much confusion arising out of the indiscriminate interchange of corporate names, identities and locations, both by the witnesses and counsel. In an attempt to make the facts of the case more meaningful, I feel that it is necessary to devote more than the ordinary amount of time, detail and space to factual recitation and analysis. I also employ an extensive use of quotations both by way of clarification and by way of furnishing examples of the lack of clarification with which we are confronted. The transactions in issue all took place during the years 1971, 1972 and 1973. The Uniform Commercial Code and bulk sales provisions became effective in Illinois on July 1, 1962. Ill. Rev. Stat. 1971, ch. 26, par. 10-101.

The plaintiff-appellee Wikelund Wholesale Company, Inc., a corporation (hereinafter Wikelund) filed a three-count complaint for a balance due in the amount of $4,864.66:

I. Count I seeks recovery against Tile World Factory Tile Warehouse, a corporation (hereinafter Tile World Factory), for goods, ware and merchandise sold and delivered.

II. Count II seeks recovery of the same sum from Rubber Linings Corporation (hereinafter Rubber Linings), alleging that it had violated the Bulk Transfers Act by receiving the inventory of Tile World Factory, without requiring the latter corporation to schedule a list of its creditors (Ill. Rev. Stat. 1971, ch. 26, par. 6-104) and without giving notice to plaintiff Wikelund of the transfer (Ill. Rev. Stat. 1971, ch. 26, par. 6-105).

III. Count III seeks recovery against the defendant, Harold Trilling, individually (hereinafter Trilling), as the alter ego of various corporations, including the defendants Tile World Factory and Rubber Linings, asserting that Trilling "manipulated, transferred, and commingled" the merchandise sold to Tile World Factory with the merchandise of Rubber Linings.

The trial court, sitting without a jury, found as to:

I. Count I, for the defendant Tile World Factory, that it was not liable for any amount alleged due and owing:

II. Count II, for the plaintiff Wikelund, that the defendant Rubber Linings was liable for the full sum of $4,864.66, for "violating the Bulk Sales Act."

III. Count III, for the plaintiff Wikelund, that the defendant Trilling was jointly and severally liable with defendant Rubber Linings.

Defendants Rubber Linings and Trilling prosecute this appeal from the judgments entered as to counts II and III. Plaintiff Wikelund did not file a cross-appeal as to the judgment entered on count I, and in its brief, plaintiff Wikelund presented no argument on the matters raised "on Count II as to the liability of Rubber Linings."

At the trial, plaintiff presented the testimony of its credit manager, Donald Muscavitch, who testified that: plaintiff Wikelund sold material to the "various stores" of Trilling; that the invoices he had in court were for sales to "Sheboygan Tile World"; that he talked to defendant Trilling or his office on various occasions regarding the payment of these invoices; that some of the invoices were also for the account of Tile Brand Distributors, Inc.; that he received "payment on account on checks signed by Mr. Trilling" and they were credited on the account of Tile Brand Distributors; that there still remains due and owing "$989.99 on the Tile Brand Distributors" account and "$3,874.67 on the Tile World of Sheboygan."

On cross-examination, Mr. Muscavitch testified that: one set of the invoices was for material sold to "Tile World, 706 West 8th Street, Sheboygan, Wisconsin"; that as far as he knew "Tile World of Sheboygan, Wisconsin, was Tile World Factory Warehouse"; that one of the invoices in the second set of invoices was for material shipped to "Tile World, Madison, Wisconsin," and it said "Sold to Tile Brand Distributors, Cicero, Illinois"; that the merchandise in the second set of invoices was sold to Tile Brand Distributors of Cicero, Illinois. In response to a concluding question as to his understanding as to "who you're suing," he replied, "You have me a little lost now * * *."

As its second and final witness, plaintiff Wikelund called the defendant Trilling as a witness under section 60 of the Civil Practice Act (Ill. Rev. Stat. 1971, ch. 110, par. 60). Trilling testified that: during the period in question, 1971 through 1973, he was vice president of "Factory Tile Warehouse," there were two separate corporations involved, and that they were incorporated in the States of Illinois and Wisconsin; the other corporations were Tile Brand, Inc., and Tile Brand Distributors, and the latter was incorporated in Illinois; he was a shareholder of "these corporations" and could "guess" that he owned between 40 and 50 percent of the stock; that he "had an interest in Rubber Linings" and had an interest in about 20 corporations but only three were in the tile business; "Factory Tile" was a corporation in Illinois and Wisconsin; there were three corporations in Illinois under the name "Factory Tile Warehouse" and two in Wisconsin under that same name; each store was incorporated separately in each State; he never spoke to Wikelund and never bought anything personally from them; he did not remember when he acquired an interest in Tile Brand Distributors of Illinois and he gave it up completely and turned the stock over to his former partner; he had "an interest in Rubber Linings" and that there was no connection whatsoever between "Rubber Linings and the Sheboygan store"; he was a stockholder in the Sheboygan store but he closed it up "maybe sometime in 1973"; Rubber Linings did receive "materials, supplies or other inventory from the Sheboygan store when the Sheboygan store closed"; and he did not comply with the notice requisites of the bulk sales act because "nothing from Wikelund Wholesale was transferred anywhere."

On examination by his own attorney, defendant Trilling testified that: he had an interest in a company "Factory Tile Warehouse, an Illinois corporation," and there is also a "Factory Tile Warehouse, a Wisconsin corporation," and that on occasion Factory Tile Warehouse, a Wisconsin corporation, would order goods from the plaintiff Wikelund; he "had an interest" in a company known as Rubber Linings Corporation, an Illinois corporation; after a while the Wisconsin corporation ceased operations and at that time Rubber Linings took back the merchandise they sold to the Wisconsin corporation, but Rubber Linings did not take back any material belonging to the plaintiff Wikelund, because the Wisconsin corporation "didn't have a dollar's worth of Wikelund's merchandise in the place"; he has never done business under the name of Harold Trilling.

At the conclusion of defendant Trilling's testimony, plaintiff's group invoices were received in evidence, and both parties rested. To further burden an unclear record, these invoices ...


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