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B. Kreisman & Co. v. First Arlington Nat'l Bk.

OPINION FILED DECEMBER 22, 1980.

B. KREISMAN & CO., PLAINTIFF-APPELLEE AND CROSS-APPELLANT,

v.

FIRST ARLINGTON NATIONAL BANK OF ARLINGTON HEIGHTS, TRUSTEE, ET AL., DEFENDANTS-APPELLANTS AND CROSS-APPELLEES.



APPEAL from the Circuit Court of Du Page County; the Hon. CHARLES R. NORGLE, Judge, presiding.

MR. JUSTICE NASH DELIVERED THE OPINION OF THE COURT:

Rehearing denied January 20, 1981.

Defendants, Ruth Mayer and First Arlington National Bank, as trustee, appeal from a judgment imposing a mechanic's lien against real estate in Du Page County upon which the Le Grand Chalet restaurant, operated by Grand Chalet, Inc., was located. Plaintiff, B. Kreisman & Co., cross-appeals from the denial of a personal judgment against Ruth Mayer for the balance due for equipment installed by Kreisman in the restaurant.

The evidence discloses that the Grand Chalet, Inc., was incorporated in 1972 for the purpose of operating a restaurant. Mayer became its secretary-treasurer, and Christopher Demos became its president, with each owning one-half of the corporate stock. Demos made no initial financial contribution to the corporation, bringing into it his experience in the restaurant business which Mayer lacked. Since Demos never paid for his stock, his interest in the corporation was later severed in December 1973 and Mayer's son then became president. It is not clear from the record whether Mayer or her son received Demos' share of the stock because she failed to comply with a request to produce the stock registry at trial. Title to the land upon which the restaurant was to be situated was held by the First Arlington National Bank, as trustee, under a land trust of which Mayer was principle beneficiary. Later in 1972 Mayer commenced the remodeling of an existing building on the property and the construction of an addition to it. Mayer and Demos also began discussions with Bernard Kreisman, president of B. Kreisman & Co., for the purchase of kitchen equipment to be used in operating the restaurant. Thereafter, on May 13, 1973, Kreisman and Mayer entered into an oral contract (it is disputed whether Mayer was acting in her own behalf or for the corporation in doing so) under which Kreisman agreed to supply and install designated restaurant equipment for a price of $208,249.43, and Kreisman completed his portion of the contract by December 24, 1973.

The remodeling of the building and purchase of the restaurant equipment was financed by an $800,000 loan made in March 1973 by the First Arlington National Bank and was secured by a trust deed on the real estate executed by the bank in its capacity as trustee of the property. $760,000 of these funds were deposited with Chicago Title and Trust Company under an escrow agreement entered into with it by Mayer on behalf of the trustee. As the equipment was delivered and installed by Kreisman it provided lien waivers and contractor's affidavits and, after approval by Mayer, received disbursements from the escrow account.

By June 3, 1974, Kreisman had received only $128,077.25 of the contract price and it commenced this action. In May 1975, before this cause had proceeded to trial, Grand Chalet, Inc., filed a chapter 11 proceeding in bankruptcy. Kreisman participated in those proceedings and approved a plan of arrangement under which it ultimately received a dividend of $22,612.59 which Kreisman credited towards payment for restaurant equipment other than that for which it seeks recovery in this action.

The trial court determined that the real estate was subject to a mechanic's lien for the improvements made by the kitchen equipment furnished by plaintiff in the sum of $31,922.98. It further found that the subject premises were not the property of Grand Chalet, Inc. and that Kreisman's acceptance of the plan of arrangement in the bankruptcy proceeding released only the corporation from further claims and not the present defendants. The trial court also determined that Ruth Mayer was acting in her capacity as an officer of the corporation when the contract with Kreisman was made and that the evidence was insufficient to warrant piercing of the corporate veil so as to impose personal liability upon her.

In their appeal, defendants Mayer and the trustee contend that the trial court erred in finding the restaurant equipment to be lienable and, alternately, that Kreisman is estopped from asserting a mechanic's lien as it received payments under the contract exceeding the sums due for any lienable equipment it supplied and that the payments made should have been first applied to those items by Kreisman.

In its cross-appeal, Kreisman contends that its contract was with Mayer personally and not with Grand Chalet, Inc., and, alternately, that the corporate veil ought to be pierced to permit a personal judgment against Mayer for the sums due under the contract.

I.

We will first consider Kreisman's cross appeal where it asserts that the corporate veil of Grand Chalet, Inc., should be pierced and personal liability imposed upon Ruth Mayer.

While it is the general rule that a corporation is an entity separate and apart from its shareholders (e.g., Loy v. Booth (1974), 16 Ill. App.3d 1077, 307 N.E.2d 414), this is a legal theory used for the convenience of the business world which will not be permitted to 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>." (Wikelund Wholesale Co. v. Tile World Factory Tile Warehouse (1978), 57 Ill. App.3d 269, 273, 372 N.E.2d 1022, 1024.) The privilege of conducting one's business affairs through the separate legal entity of a corporation will be disregarded in those exceptional circumstances where to adhere to the fiction would sanction a fraud or promote injustice. (People ex rel. Scott v. Pintozzi (1971), 50 Ill.2d 115, 128-29, 277 N.E.2d 844, 851; Gowdy v. Richter (1974), 20 Ill. App.3d 514, 314 N.E.2d 549.) Whether the corporate veil will be pierced depends upon the circumstances of each case. (See, e.g., Stap v. Chicago Aces Tennis Team (1978), 63 Ill. App.3d 23, 27-28, 379 N.E.2d 1298, 1302.) The ultimate inquiry for appliation of the doctrine has been said to be whether or not there is "(1) * * * such a unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist; and (2) circumstances must exist that adherence to the fiction of separate corporate existence would sanction a fraud or promote injustice." (63 Ill. App.3d 23, 27, 379 N.E.2d 1298, 1301.) Consideration may also be given to whether the corporation is the alter ego of a dominant personality and whether the principle shareholder treats the corporation as if it were his sole property in disregard of its corporate status. Wikelund Wholesale Co.

In our view the determination by the trial court that the doctrine may not be applied in this case was contrary to the manifest weight of the evidence. It is apparent that Ruth Mayer was the dominant force controlling the transaction with Kreisman and the restaurant construction. She was the principle beneficiary of the trust holding legal title to the restaurant property which the trustee furnished as security for the construction loan from which the improvements and equipment costs were to have been paid. She also entered into the escrow agreement on behalf of the trustee under which all disbursements of funds required her approval. We find it noteworthy, too, that in her initial answer filed in this action on June 28, 1974, Mayer described herself as "Ruth Mayer, individually, and doing business as Le Grand Chalet" in admitting she had entered into the contract with Kreisman. Although subsequently withdrawn, this document can be considered as an evidentiary admission on her part. Kleb v. Wendling (1978), 67 Ill. App.3d 1016, 385 N.E.2d 346.

Further indication of Ruth Mayer's disregard of the separate corporate entity is shown by the timing of the filing of various pleadings in relation to the bankruptcy of the corporation. Her initial answer in this case was filed 11 months before the corporation went into bankruptcy, at a time when there was no reason to insist that the contract bound only the corporation, and was not withdrawn until after any corporate obligation under the contract was discharged. Again, in September 1976, some six months after conclusion of the corporate bankruptcy proceedings in March 1976, Mayer filed a counterclaim and third-party action against other parties not concerned with this appeal. There, too, she described herself as Ruth Mayer, individually and d/b/a Le Grand Chalet, and sought personal damages for incomplete and defective work in the construction delays and for injury to her business reputation. That action was pending at the time of the trial of the present case. It is obvious that she would not be personally entitled to damages for such injuries if the corporation, in fact, owned the restaurant. It therefore appears ...


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