Secretary of State’s LLC File Detail Report Is Public Record – IL Court (A Deep Cut)

R&J Construction v. Javaras, 2011 WL 10069461, an unpublished and dated opinion, still holds practical value for its discussion of the judicial notice rule, breach of contract pleading requirements and a limited liability company member’s insulation from liability for corporate debts.

The plaintiff sold about $70K worth of construction materials to a concrete company associated with the individual defendant.  The concrete company’s legal name was WS Concrete, LLC, an Illinois limited liability company doing business under the assumed name, West Suburban Concrete.  Defendant was a member of the LLC and point-person who ordered supplies from the plaintiff.

The plaintiff sued the individual and did not name the LLC as a party defendant.

The trial court dismissed the complaint because the plaintiff failed to attach the written contract and there was no evidence the defendant assumed personal responsibility for the contract obligations.  The plaintiff appealed.

Result: Affirmed.

Reasons:

The Court first found the trial court correctly dismissed plaintiff’s suit for failure to attach the operative contract.

Code Section 2-606 requires a plaintiff to attach a written instrument (like a contract) to its pleading where the pleading is based on that instrument.  The exception is where the pleader can’t locate the instrument in which case it must file an affidavit stating the instrument is inaccessible.

Here, the plaintiff alleged a written contract but only attached a summary of various purchase orders and invoices to the complaint.  Since it failed to attach the contract, the appeals court found the complaint deficient and falling short of Section 2-606’s attached-instrument requirement.

The court next addressed whether the LLC File Detail Report (see above image), culled from the Illinois Secretary of State “cyberdrive” site was admissible on Defendant’s motion to dismiss.  In ruling the Report was admissible, the Court cited to case precedent finding that Secretary of State records are public records subject to judicial notice.  (Judicial notice applies to facts that are readily verifiable and not subject to reasonable dispute.)

Since the LLC Report plainly demonstrated the proper defendant was the LLC (as opposed to its member), and there was no evidence the individual defendant took on personal liability for plaintiff’s invoices, the trial court correctly dismissed the defendant.

Added support for the defendant’s dismissal came via the Illinois Limited Liability Company Act, 805 ILCS 180/1 et seq.  Section 10-10 of the LLC Act provides that an LLC’s contractual obligations belong solely to the LLC and that a member cannot be personally responsible for LLC contracts unless (1) the articles of organization provide for personal liability and (2) the member consents in writing.

The Court next addressed plaintiff’s agent of a disclosed principal argument.  The plaintiff asserted that since the individual defendant is the person who ordered plaintiff’s construction materials and it was unclear who the defendant represented, the defendant was responsible for plaintiff’s unpaid invoices.

The court rejected this argument.  It noted that under Illinois law, where an agent signs a contract by signing his own name and providing his own personal contact information (address, phone number, SS #, etc.) and fails to note his corporate affiliation, he (the agent) can be personally liable on a contract.  In this case, however, there was no documentation showing defendant ordering supplies in his own name.  All invoices attached to the plaintiff’s response brief (to the motion to dismiss) reflected the LLC’s assumed name – “West Suburban Concrete” – as the purchasing entity.

Afterwords:

(1) the case provides a useful analysis of common evidentiary issues that crop up in commercial litigation where a corporate agent enters into an agreement and the corporation is later dissolved;

(2) Both the LLC Act and agency law can insulate an individual LLC member from personal liability for corporate debts;

(3) Secretary of State corporate filings are public records subject to judicial notice.  This is good news for trial practitioners since it alleviates the logistical headache of having a Secretary of State agent give live or affidavit testimony on corporate records at trial.

 

 

Commercial Frustration and the Impossibility Defense: The Case of the Missing Bentley

Illinois agency rules, consumer fraud law and the commercial frustration doctrine are the focal points of Tahir v. DMI, 2014 WL 985351 (N.D. Ill. 2014), a case involving the purchase of an undelivered Bentley.

The plaintiff sued multiple car dealer defendants for breach of contract and consumer fraud after he paid over $100,000 for a car he never received.  The companies and individuals involved in the sale of the car operated a complex web of interconnected business entities that made it difficult to properly identify the selling defendants. 

The defendants all moved for summary judgment.

Result: Judgment for plaintiff on breach of contract claim against the dealership; Judgment for management company on plaintiff’s consumer fraud count.  

Basis/Reasoning:

The Court found for the plaintiff on its breach of contract claim versus the dealership based on Illinois agency principles governing liability to third parties. 

The test for agency is whether the principal can control the manner and method of the agent’s work such that the agent can affect the principal’s legal relationship.  (*5). 

Where a principal’s identity is disclosed to a third party, the disclosed principal is liable to the third party for a breach of contract while the agent is not.

Where an agent enters into a contract for an undisclosed principal, the agent is personally liable on the contract. 

Where a plaintiff gets a money judgment against an agent and an undisclosed principal, the plaintiff must choose which party to take the judgment against. (*5-6).

Here, both undisclosed and disclosed principal rules applied.  The dealership was managed by another entity under a written management agreement.  That agreement was cryptic concerning each parties’ duties in relation to the other. 

Based on the agreement’s wording, it was equally plausible that the car dealer controlled the manager and vice versa.

Because of this uncertainty, the Court found the dealer was liable under the car purchase contract as either a disclosed principal of the manager or as an agent for an undisclosed principal – also the manager.  Either way, plaintiff stated a breach of contract claim against the dealer. (*5).

The Court rejected the dealer defendant’s impossibility and commercial frustration defenses that blamed another dealer for not delivering the car. 

The impossibility defense applies where the (1) the impossibility was not and could not have been anticipated by the contracting parties, (2) the party claiming impossibility didn’t contribute to it, and (3) exhausted all possible alternatives to permit performance. 

Commercial frustration applies where (1) the frustrating  event wasn’t foreseeable and (2) the value of performance has been practically destroyed by the frustrating event.  (*6).  

Rejecting the defenses, the Court found that the manager’s default under the management agreement was clearly foreseeable as the agreement specified respective default and remedy provisions. 

The dealership also failed to show it exhausted all attempts at performance, such as by buying the car itself. The dealership offered no evidence that it lacked the resources to buy and deliver the car to the plaintiff. (*6).

The Court ruled against plaintiff on its consumer fraud claim against the manager.  An Illinois consumer fraud plaintiff must show (1) a deceptive act or practice, (2) defendant’s intent that the plaintiff rely on the deception, and (3) occurrence of the deception in trade or commerce.  (*8). 

The Court found that the plaintiff failed to demonstrate a deceptive act by the manager such as its intent to take plaintiff’s money without delivering the car.  At most, the Court ruled, the plaintiff alleged a breach of contract claim; not consumer fraud.  (*8).

Take-aways:

Many businesses operate through a byzantine web of corporate parents, subsidiaries, holding companies, trade names and “d/b/a”s (doing business as).  The plaintiff wisely named all possible entity permutations as defendants and let them sort out the responsible parties through motion practice.

The case also shows how difficult it is to prevail on an impossibility or commercial frustration defense – especially where the parties are sophisticated commercial entities.

Agent of Disclosed Principal in Contract Litigation (Is It A Corporate Or a Personal Obligation?)

 

imageSometimes it’s difficult to determine who the contracting parties are.  A common example is where the contract text names the parties are two corporations but it’s signed by an individual.  Or, the contract signer clearly notes his corporate affiliation (by stating his job title) next to his signature, but the body of the contract states that the parties are individuals (not corporations) or that the signer is personally guaranteeing the corporate obligations.

Yellow Book Sales and Distribution Co. v. Feldman, 2012 IL App (1st) 120069 illustrates the importance of signature line clarity in contracts in determining the responsible party if a contract is breached.

In Yellow Book, the plaintiff sued an officer of a defunct corporation for breach of  several advertising contracts.  The contract was between two corporations – an advertising firm (plaintiff) and a glass company.  The glass company’s President signed the contracts and wrote “President” or “Pres.” next to his signatures.

The contracts’ signature blocks provided that the signer “personally and individually” assumed full responsibility for the contracts and a contract term on the back page also provided that the signer guaranteed the corporate obligations.

After the corporation dissolved (the corporation was in good standing when the contracts were signed), the plaintiff sued the corporate officer individually for unpaid invoices.  After a bench trial, the trial court found for the plaintiff and the officer appealed.

Result:  Affirmed.

Reasoning:

The contract clearly provided in two different places (signature block and the “Terms and Conditions” section) that the defendant was signing both for the corporation and for himself.

Generally, when a corporate officer signs a contract and indicates his corporate status next to his signature, this insulates the officer from personal liability.  ¶ 38. 

This is a manifestation of the agent of a disclosed principal rule – a corporate officer isn’t personally liable on contracts he signs on behalf of his corporate principal/employer.  (¶¶ 38, 48); See 810 ILCS 5/3-402(a)(b) (where organization name is followed by signature of representative, the signature is deemed made in representative capacity).

The contracts’ text stated that the contracting parties were two corporations and the corporate officer who signed the contracts indicated his corporate affiliation (“Pres.”, “President”) next to his signatures.

Still, this wasn’t enough to defeat the clear contract language in two separate locations that unequivocally stated the defendant was personally guaranteeing the corporation’s contract obligations.

Also critical to the First District’s ruling was the bargaining equality element: the defendant was a lawyer and experienced businessman who testified he clearly understood the difference between personal and corporate liability.

There was also trial testimony that showed defendant was given an opportunity to review the contracts before he signed them and the parties had done business together for over a decade.

Lastly, the Court also noted that defendant made no attempt to either cross out the contracts’ guarantee language or insert language that clarified he was signing only for the corporation and not for himself.  ¶¶ 46-48.

Afterwords:

1/ The contract text and signature line should clearly identify the contracting parties and the signature block should reflect who is signing – an individual, a business entity or both.

2/ If the intent is for the contract to bind a business entity only (not an individual), the contract and signature block should say so and the signer should note his job title or corporate affiliation.

3/ If a contracting party wants the signing corporate officer to be responsible along with the corporation, the signature line should make clear that the person signing is doing so on his own (and not just his company’s) behalf.