Sole Proprietor d/b/a Auto Dealership Held Liable For Floor Plan Loan Default- IL 2d Dist.

The Illinois Second District brings into focus the perils of a business owner failing to incorporate in a car loan dispute in Baird v. Ogden Lincoln Mercury, Inc., 2016 IL App (2d) 160073-U.  Affirming judgment on the pleadings for the plaintiff lender in the case, the Court answers some important questions on the difference between corporate and personal liability and how judicial admissions in pleadings can come back to haunt you.

The plaintiff sued the individual defendant and two affiliated corporations for breach of contract and quantum meruit respectively, in the wake of a “floor plan” loan default.  The individual defendant previously signed the governing loan documents as “President” of Ogden Auto Group, an entity not registered in Illinois.  The corporate defendants consented to a judgment against them on the quantum meruit claim and the case continued on the lender’s contract claim versus the individual defendant.

The Court first rejected the individual defendant’s argument that the breach of contract claim “merged” into the quantum meruit confessed judgment against the corporate defendant.  While a breach of express contract claim normally cannot co-exist with an implied-in-law or quantum meruit claim, the plaintiff’s quantum meruit claim lay against different defendants than the breach of contract action: the breach of contract suit targeted only the individual defendant.  In addition, Illinois law permits multiple judgments in the same case and so the earlier quantum meruit judgment didn’t preclude a later money judgment.  See 735 ILCS 5/2-1301(a).

The Court then granting the plaintiff’s motion for judgment on the pleadings based on the defendant’s judicial admissions in his verified answer to the Complaint.

– Judicial admissions conclusively bind a party and include formal admissions in the pleadings that have the effect of withdrawing a fact from issue and dispensing wholly with the need for proof of the fact.”

– Judicial admissions are defined as “deliberate, clear, unequivocal statements by a party about a concrete fact within that party’s knowledge” and will conclusively bind the party making the admission.

– A statement is not a judicial admission if it is a matter of opinion, estimate, appearance, inference, or uncertain summary.

– An admission in a verified pleading, not the product of mistake or inadvertence, is a binding, judicial admission.

– An unincorporated business has no legal identity separate from its owner and is deemed an asset of the responsible individual.  A sole proprietorship’s liabilities are imputed to the individual owner.  One who operates a business as a sole proprietor under several names remains one “person,” and is personally liable for all business obligations.

(¶¶ 31-32)

Here, the individual defendant admitted signing both floor plan loans on behalf of Ogden Auto Group, which is not a legally recognized entity.  Since Ogden Auto Group wasn’t incorporated, it was legally a non-entity and the individual defendant was properly found liable for the unpaid loan balances.

Afterwords:

1/ A business owner’s failure to incorporate can have dire consequences.  By not setting up a separate legal entity to run a business through, the sole proprietor remains personally liable for all debts regardless of what name he does business under;

2/ Verified admissions in pleadings are hard to erase.  Unless a party can show pure mistake or inadvertence, a verified pleading admission will bind the litigant and prevent him from later contradicting the admission.

 

Statute of Frauds’ ‘Goods Over $500’ Section Dooms Car Buyer’s Oral Contract Claim (IL First Dist.)

I’ve written here before on the Statute of Frauds (SOF) and how it requires certain contracts to be in writing to be enforceable.  I’ve also championed “MYLEGS” as a useful mnemonic device for dissecting a SOF issue.

M stands for ‘Marriage’ (contracts in consideration of marriage), Y for ‘Year’ (contracts that can’t be performed within the space of a year must be in writing), L for ‘Land’ (contracts for sale of interest in land), E for ‘Executorship’ (promises by a executor to pay a decedent’s creditor have to be in writing), G is for ‘Goods’ (contracts to sell goods over $500) and S for ‘Surety’ (a promise to pay another’s debt requires a writing).

The First District recently affirmed the trial court’s dismissal of a breach of contract based on the Uniform Commercial Code’s (UCC) SOF provision governing the sale of goods for over $500 (the “G” in the above MYLEGS scheme).

The plaintiff in Isenbergh v. South Chicago Nissan, 2016 IL App(1st) 153510 went to a car dealer defendant to buy a new Nissan Versa (Versa 1) with specific features (manual transmission, anti-lock brakes, etc.).  When told the requested car wasn’t in stock, the plaintiff opted to rent a used car temporarily until the requested car was available.  But instead of renting a used car, the Plaintiff alleged the dealership convinced him to enter into a verbal “Return Agreement” for a substitute Versa (Versa 2). 

Under the Return Agreement, the dealership promised to sell the plaintiff Versa 2 – which didn’t have plaintiff’s desired features – and then buy it back from Plaintiff when Versa 1 was in stock.  According to Plaintiff, the Return Agreement contemplated Plaintiff’s total payments on Versa 2 would equal only two months of sales contract installment payments.

Plaintiff claimed the dealership refused to honor the Return Agreement and Plaintiff was stuck making monthly payments on Versa 2 (a car he never wanted to begin with) that will eventually eclipse $28,000.  The trial court granted defendant’s Section 2-619 motion to dismiss Plaintiff’s breach of contract action based on the SOF.

Held: Affirmed.

Reasons:

The SOF requires that a contract for the sale of goods for the price of $500 or more be in writing to be enforceable. 810 ILCS 5/2-201.  A “contract for sale” includes both a present sale of goods as well as a contract to sell goods in the future.  A “sale” is the passing of title from seller to buyer for a price. 810 ILCS 5/2-106, 103.  “Goods” under the UCC are all things “movable” at the time of identification to the contract for sale. 810 ILCS 5/2-105.

The Return Agreement’s subject matter, a car, clearly met the UCC’s definitions of “goods” and the substance of the Return Agreement was a transaction for the sale of goods.  (The dealership promised to buy back Versa 2 from the Plaintiff once Versa 1 (the car Plaintiff wanted all along) became available.

Since Versa 2’s sale price was over $26,000 and plaintiff’s two payments under the Versa 2 purchase contract exceeded $1,100, Versa 2 easily met the SOF’s $500 threshold. Because of this, the Court found that the SOF defeated plaintiff’s claim for breach of an oral agreement to buy and sell a car selling for well over $500.

Afterwords:

This case presents a straightforward application of the SOF section governing the sale of goods that retail for at least $500.  Clearly, a motor vehicle is a movable “good” under the UCC and will almost always meet the $500 threshold by definition.

The case also makes clear that even if the contract contemplates a future sale and purchase (as opposed to a present one), the UCC still governs since the statute’s definition of sales contract explicitly speaks to contracts to sell goods in the future.

Finally, the case is a cautionary tale for car buyers and sellers alike as it shows that oral promises likely will not be enforced unless reduced to writing.

‘Substantial Truth’ Defeats Wisconsin Plaintiff’s Tortious Interference Suit – 7th Circuit

In Wesbrook v. Ulrich 2016 WL 6123534, the Seventh Circuit examined the reach of the truth defense to a tortious interference with contract action stemming from a bitter dispute between a prominent Wisconsin medical clinic and one of its high-level employees.

The plaintiff sued a former co-worker and ex-supervisor for tortious interference with contract claiming the two worked in concert to engineer the plaintiff’s firing from the clinic.  The plaintiff claimed the defendants repeatedly made critical statements about him to third parties that resulted in his being ostracized by clinic staff and ultimately let go.  The District Court granted summary judgment for the clinic and the plaintiff appealed.

Held: Affirmed.

Reasons:

To prove tortious interference with contract in Wisconsin, the plaintiff must show (1) a valid contract or a prospective contractual relationship with a third party, (2) defendant’s interference with that relationship, (3) interference by the defendant that was intentional, (4) a causal connection between the interference and damages, and (5) the defendant wasn’t justified or privileged to interfere.

To sue a co-worker for tortious interference, the plaintiff must show (1) that the employer did not benefit from the co-worker’s/defendant’s statement, and (2) the co-worker’s act was independently tortious (i.e., fraudulent or defamatory).

Whether conduct or a statement is privileged is a fact-driven question that looks at the nature, type and duration of the conduct and whether the conduct was fair under the circumstances.  But where the challenged statement is true, it is privileged as a matter of law.  There can be no cause of action aimed at a true statement; even one motivated by ill will toward a plaintiff.

The same holds for “substantially true” statements.  Even where a statement isn’t 100% accurate, so long as it’s true in most of its particulars, it’s still privileged and will defeat a tortious interference claim.  Tort law does not demand “artificial precision” in common use of language.

Here, the defendants’ challenged statements concerning plaintiff were substantially true.  Defendants’ verbal and written assertions that plaintiff had an autocratic management style, threatened his subordinates, and that several employees had lodged complaints against him were true enough to defeat plaintiff’s claims.  While there were arguably some factual specifics that were either embellished or omitted from the statements, the Court viewed their substance as sufficiently accurate to negate plaintiff’s tortious interference suit.

The Seventh Circuit also based its decision granting summary judgment for the defendants on policy grounds.  It reasoned that if a plaintiff could sue a co-worker every time he believed that co-worker instigated or contributed to the firing decision, it would swallow up the general rule that at-will employees cannot sue for breach of contract where they are fired without warning or cause.

Afterwords:

1/ An interesting case in that it examines the tortious interference tort in the factually anomalous setting of an at-will employee suing his co-workers instead of his employer after a discharge;

2/ The key holding from the case is that truth is a defense not only to defamation but also to tortious interference with contract under Wisconsin law;

3/ A statement’s truth is construed flexibly: it doesn’t have to be completely accurate.  Even if there are exaggerated aspects of a statement, so long as the statement meets the substantially true test, the speaker will be privileged to tortiously interfere.