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Kolton v. K & L Furniture & Appliances





APPEAL from the Circuit Court of Cook County; the Hon. ARCHIBALD J. CAREY, JR., Judge, presiding.


Rehearing denied April 8, 1980.

Plaintiff appeals from an order granting the motion of three defendants, Bernard Chaitman (Chaitman), Nationwide Acceptance Corporation (Nationwide) and Commercial Credit Business Loans, Inc. (Commercial) to dismiss the first four counts of a six-count amended complaint. The counts sounded respectively in breach of an alleged common law duty of good faith, common law fraud, breach of good faith allegedly created by the Illinois Uniform Commercial Code and violation of the Uniform Commercial Code in that the sale of the accounts receivable to Nationwide was commercially unreasonable.

On appeal plaintiff raises two issues, but it is only necessary that we consider plaintiff's contention that the trial court erred in granting defendants' motion to dismiss counts I through IV of the complaint since the order of dismissal presents only this question. We affirm in part and reverse in part. The pertinent facts follow and are undisputed.

Plaintiff is a creditor of defendant K & L Furniture & Appliances, Inc. (K&L), having loaned to K&L the aggregate amount of $215,000. On September 30, 1975, plaintiff received a promissory note from K&L in that amount bearing interest at 5% per annum and becoming due on September 30, 1978. Payment of the note was guaranteed by Sander Kolton *fn1 (Kolton), an officer, director and shareholder of K&L. As further security, plaintiff received 12,500 shares of K&L common stock from Kolton endorsed in blank. The shares represented 50% of the voting stock of K&L.

Prior thereto, on June 13, 1972, Commercial entered into an inventory collateral security agreement and a revolving loan agreement with K&L. In accordance with these agreements sums were advanced by Commercial to K&L and Commercial obtained a lien (security interest) upon all of K&L's owned and after-acquired inventory and accounts receivable.

In August of 1977, plaintiff received a letter from defendant Chaitman informing him of the insolvency of K&L and that because of its failure to continue in business, K&L had completed an assignment for the benefit of creditors to Chaitman. Chaitman also indicated that the only creditor who would receive any satisfaction from the assets of K&L was Commercial. He further stated that there might be a deficiency due the secured creditor. The principal asset owned by K&L was $2,700,000 of accounts receivable in the form of retail installment sales contracts and the approximate debt due Commercial, the secured creditor, from K&L was $1,350,000.

On October 26, 1977, plaintiff filed his complaint seeking an injunction and a motion for a temporary restraining order. The initial complaint alleged, in relevant part, that: (1) defendants failed to give plaintiff advance notice of the assignment for the benefit of creditors; (2) defendant Chaitman was collecting the accounts receivable and paying the proceeds to Commercial and (3) plaintiff was informed and believed that Commercial and K&L were contemplating a further assignment of the receivables to a third party.

The trial court held a hearing on October 26, on the motion for a temporary restraining order. Prior to the hearing, counsel for Commercial provided plaintiff a copy of the proposed contract between Commercial and Nationwide. At the hearing, the court was advised that the further assignment to which plaintiff referred in his complaint was the proposed sale of the uncollected accounts receivable by Commercial to Nationwide for $872,000, which sale was scheduled to occur on October 27. The court was further informed by several of the defendants that the accounts receivable were questionable, the $872,000 bid was the best price obtainable, and delay of the scheduled sale could result in further depreciation of the receivables. Plaintiff's principal objection to the proposed sale was that the sale price left no surplus for creditors such as plaintiff and that other avenues should be explored.

Following the hearing, the trial court denied plaintiff's motion for a temporary restraining order and dismissed the case without prejudice. The court made no findings in granting the dismissal. On October 27, Commercial consummated the sale of the receivables to Nationwide.

On November 22, plaintiff presented a motion to vacate the dismissal of his action and for leave to file an amended complaint. This motion was granted and plaintiff filed his amended complaint on December 2. The allegations of the amended complaint were virtually identical to those of the initial complaint, except that it alleged that the sale of the accounts receivable by Commercial to Nationwide was concealed from plaintiff until the sale was completed and that it was not a commercially reasonable sale.

Defendants Commercial, Nationwide and Chaitman moved for summary judgment as to counts I through IV, which motion was granted on January 18, 1978, and the case was dismissed as to those defendants. Based on a motion heard January 24, plaintiff obtained an order from the court vacating its January 18 order granting summary judgment in favor of defendants and allowing plaintiff until January 30 to file discovery requests and a proper affidavit under Rule 191(b) of the Illinois Supreme Court Rules. Ill. Rev. Stat. 1977, ch. 110A, par. 191(b).

On February 1, defendant Chaitman filed his motion to dismiss the amended complaint, counts I through IV, pursuant to section 45 of the Civil Practice Act (Ill. Rev. Stat. 1977, ch. 110, par. 45). Commercial and Nationwide joined Chaitman in the motion, and it was heard on February 8. At the conclusion of the hearing, the court granted the motion, dismissed counts I through IV, but allowed plaintiff 14 days in which to file a second amended complaint. The trial court did not state the reasons for striking these counts. By an order dated February 23, plaintiff was given until March 14 in which to file the amended pleading.

On March 14, plaintiff filed a motion urging the court to reconsider its order dismissing counts I through IV. The motion was denied and plaintiff was granted until April 11, in which to file his second amended complaint. On April 11, plaintiff filed a petition for change of venue. Separate motions were then filed by Commercial, Nationwide and Chaitman seeking an order dismissing counts I through IV with prejudice and without leave to amend. On April 18, the trial court denied ...

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