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KIMCO Corporation v. Murdoch

May 23, 2000

KIMCO CORPORATION, PLAINTIFF-APPELLEE,
V.
MURDOCH, COLL AND LILLIBRIDGE, INC., DEFENDANT-APPELLANT



Appeal from the Circuit Court of Cook County No. 95 L 15226 The Honorable David G. Lichtenstein, Judge Presiding.

The opinion of the court was delivered by: Presiding Justice Cousins

The plaintiff and the defendant made a contract for the plaintiff to perform janitorial services on a month-to-month basis at a building managed by the defendant. The defendant was acting as an agent for a limited partnership that owned the building. When the partnership fell behind in its payments, two officers of the plaintiff and an officer of the defendant met to discuss the situation. After the meeting, the plaintiff continued to perform under the contract.

The plaintiff eventually was paid the amount that was due prior to the meeting but has not received payment for the services performed after the meeting. The plaintiff filed suit for the unpaid amount. The defendant argued that the plaintiff could only seek payment from the building owner. The trial court entered summary judgment for the plaintiff on the grounds that the defendant had not disclosed its principal at the time of contracting.

The defendant appeals, arguing that:(1) for a divisible contract, any distinct portion of performance during which a principal is undisclosed does not affect an agent's liability for a portion during which the principal is disclosed; (2) the contract between it and the plaintiff was divisible on a monthly basis; and (3) summary judgment was inappropriate since there was an issue of triable fact as to whether the defendant had disclosed the identity of the building owner at the meeting.

We reverse and remand.

FACTS

On May 29, 1992, the plaintiff, Kimco Corporation (Kimco), entered into a contract with the defendant, Murdoch, Coll & Lillibridge, Inc. (MC&L), to provide janitorial services at a building on North Dearborn known as the Fisher Building. MC&L managed the building for its owner, The Fisher Building Limited Partnership. Duane Usa, Kimco's vice president of marketing, signed the agreement on behalf of Kimco. The contract was signed on behalf of MC&L by Mark Gluskin, an MC&L employee who had an office at the Fisher Building. Colleen Tobias was the MC&L employee in charge of day-to-day management of the building. The original contract proposal had been sent to Tobias.

Within a year the account was in arrears. In February 1993, Usa and the president of Kimco, Elliot Tarson, met with the president of MC&L, Gary Gries, to discuss the situation. Gries told them that MC&L was an agent for the true owner of the building, and the owner was having financial difficulties. The owner was in default on its mortgage and the limited partners were unwilling to invest any more capital in the building. The partnership was attempting to refinance, and the mortgagee, meanwhile, had imposed a "lock-box" arrangement on the building. Under this arrangement, the owner could only pay for services already rendered, which created a problem because Kimco billed in advance.

The parties are in dispute, however, as to whether Gries ever actually told them the name of the owner during this meeting. In their initial depositions, both Gries and Usa seem to have indicated that they did not remember whether Gries revealed the identity of The Fisher Building Limited Partnership. Subsequently, however, Gries filed an affidavit asserting that he had told Usa and Tarson the exact name of The Fisher Building Limited Partnership at the meeting. Usa then filed an affidavit swearing that Gries never mentioned the name of the building owner at the meeting.

Kimco continued to service the Fisher Building until August 23, 1993. The arrearages in existence prior to the meeting were eventually paid, but Kimco was not compensated for the services it provided after the February meeting.

Kimco filed suit against the owner as well as MC&L on the basis that MC&L was the agent of an undisclosed principal and thus was liable on the contract. The original complaint was voluntarily amended, and the next two complaints were stricken. The final complaint named only MC&L as a defendant. MC&L raised two affirmative defenses in its answer: (1) that it had disclosed the identity of its principal prior to or at the time of contracting; and (2) that it had informed Kimco of the identity of its principal at the February 1993 meeting and that subsequent to that time Kimco had been dealing with a disclosed principal.

The trial court granted summary judgment in favor of Kimco, and on November 6, 1998, it awarded Kimco $91,724, a figure comprising $11,667 in fees and $25,000 in interest in addition to damages. MC&L timely filed an appeal. MC&L has agreed not to contest fees and prejudgment interest if liability is affirmed on appeal.

MC&L argues that:(1) for a divisible contract, any distinct portion of performance during which a principal is undisclosed does not affect an agent's liability for a portion during which the principal is disclosed; (2) the contract between it and Kimco was divisible on a monthly basis; and (3) summary judgment was inappropriate since there was an issue of triable fact as to whether Gries had disclosed the identity of the building owner at the February 1993 meeting.

ANALYSIS

Summary judgment may be granted when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Telenois, Inc. v. Village of Schaumburg, 256 Ill. App. 3d 897, 901, 628 N.E.2d 581, 584 (1993). Summary judgment should not be granted if reasonable persons could draw divergent inferences from the undisputed facts. Telenois, 256 Ill. App. 3d at 901, 628 N.E.2d at 584. In making its ruling, the trial court should construe the pleadings, depositions and affidavits in the light most favorable to the nonmoving party. Soderlund Brothers, Inc. v. carrier Corp., 278 Ill. App. 3d 606, 614, 663 N.E.2d 1, 7 (1995).

I.

A principal is undisclosed when the third party does not know that the agent is contracting on another's behalf. A principal is partially disclosed when the third party knows that the agent is contracting on behalf of a principal but does not know the identity of the principal. See Restatement (Second) of Agency §4 (1958). In this case, the principal was at most partially disclosed at the time of contracting. While Kimco may have been notified that MC&L was acting as an agent, it was not notified of the principal's identity. It is a well-established general rule that an agent who contracts with a third party on behalf of undisclosed or partially disclosed principal is personally liable on the contract. Mawer-Gulden-Annis, Inc. v. Brazilian & Colombian Coffee Co., 49 Ill. App. 2d 400, 404, 199 N.E.2d 222, 225 (1964). The reason for the rule is reliance; the third party is obviously relying on the credit of the agent and not that of the principal when the agent is contracting on behalf of an undisclosed or partially disclosed principal. Vander Wagen Bros., Inc. v. Barnes, 15 Ill. App. 3d 550, 554, 304 N.E.2d 663, 665 (1973). Agents are not unfairly burdened by such a rule.

"If the agent would avoid personal liability, the duty is on him to disclose his principal; it is not upon the party with whom the agent deals to discover the principal. There is no hardship in this rule of liability against agents who do not disclose their principals; they always have it in their power to relieve themselves from such liability, and when they do not, it must be presumed that they intend to be liable." 3 Am. Jur. 2d Agency §325 (1986).

MC&L acknowledges this rule, but urges that there is an exception, namely, that when an agent discloses the identity of his or her principal during the course of an executory, divisible contract, the agent is no longer personally liable if the third party elects to continue performance. 3 Am. Jur. 2d Agency §317 (1986). The North Carolina Supreme Court formulated the exception as follows in the case of Howell v. Smith, 261 N.C. 256, 134 S.E.2d 381 (1964):

"If a third party to a contract involving an undisclosed principal discovers the agency and the identity of the principal while a continuing, divisible contract for the furnishing of goods or supplies is still executory, he then has the option to deal either with the agent or the principal with respect to the future performance of the contract. Ordinarily, the agent who made the original purchase is not liable if the third party continues to deliver goods after acquiring knowledge of the principal's identity unless he has agreed to be personally liable." Howell, 261 N.C. at 260, 134 S.E.2d at 385.

Similarly, a Kentucky court held that "[a]fter the principal is disclosed, the agent is not liable, generally speaking, *** for the subsequent dealings between the third person and the principal." Potter v. Chaney, 290 S.W.2d 44, 46 (Ky. App. 1956).

The parties have not cited nor have we found Illinois case law directly on point for the question of whether this state recognizes the exception urged. But as no authority from any jurisdiction has been cited rejecting the exception, we recognize it on the strength of the cases from other states.

II.

Kimco argues that even if the court recognizes this exception, it would not apply to MC&L because the contract between it and Kimco is entire, not divisible. While there is not a precise test for contract divisibility, as a general matter "[a] divisible contract is one in which both parties have divided up their performance into units or installments in such a way that each past performance is the rough compensation for a corresponding past performance by the other party." Trapkus v. Edstrom's, Inc., 140 Ill. App. 3d 720, 727, 489 N.E.2d 340, 346 (1986).

In determining whether a contract is divisible, as in other aspects of contract interpretation, courts attempt to effectuate the intent of the parties. Kaplan v. Keith, 60 Ill. App. 3d 804, 808, 377 N.E.2d 279, 281 (1978). Of course, in reality, especially in a case that reaches litigation, the parties often will not have considered the question of divisibility in making their contract (3A A. Corbin on Contracts §694, at 283 (1951); Restatement (Second) of Contracts §240, Comment e (1981)), so in practice "[t]he test is whether, had the parties thought of it, they would be willing to exchange the part performance irrespective of what transpired subsequently or whether the divisions made are merely for the purpose of requiring periodic payments as the work progresses." Trapkus, 140 Ill. App. 3d at 727, 489 N.E.2d at 346.

For its part, Kimco argues that the proper test for divisibility is given in Bonner v. Westbound Records, Inc., (76 Ill. App. 3d 736, 394 N.E.2d 1303 (1979), and Meredith v. Knapp, 62 Ill. App. 2d 422, 211 N.E.2d 151 (1965). The standard given by Bonner for determining whether a ...


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