Fraudulent Transfer Action Can Be Brought In Post-Judgment Proceedings – No Separate Lawsuit Required – IL Court

Despite its vintage (over two decades), Kennedy v. Four Boys Labor Service, 664 N.E.2d 1088 (2nd Dist.  1996), is still relevant and instructional for its detailed discussion of Illinois’ fraudulent transfer statute and what post-judgment claims do and don’t fall within a supplementary proceeding to collect a judgment in Illinois.

The plaintiff won a $70K breach of contract judgment against his former employer and issued citations to discover assets to collect the judgment.

While plaintiff’s lawsuit was pending, the employer transferred its assets to another entity that had some of the same shareholders as the employer.  The “new” entity did business under the same name (Four Boys Labor Service) as the predecessor.

Plaintiff obtained an $82K judgment against the corporate officer who engineered the employer’s asset sale and the officer appealed.

Held: Judgment for plaintiff affirmed


The Court applied several principles in rejecting the corporate officer’s main argument that a fraudulent transfer suit had to be filed in a separate action and couldn’t be brought within the context of the post-judgment proceeding.  Chief among them:

– Supplementary proceedings can only be initiated after a judgment has entered;

– The purpose of supplementary proceedings is to assist a creditor in discovering assets of the judgment debtor to apply to the judgment;

– Once a creditor discovers assets belonging to a judgment debtor in the hands of a third party, the court can order that third party to deliver up those assets to    satisfy the judgment;

– A court can authorize a creditor to maintain an action against any person or corporation that owes money to the judgment debtor, for recovery of the debt (See 735 ILCS 5/2-1402(c)(6);

– A corporate director who dissolves a company without providing proper notice to known creditors can be held personally liable for corporate debts (805 ILCS 5/8.65, 12.75);

– An action to impose personal liability on a corporate director who fails to give notice of dissolution must be filed as a separate lawsuit and cannot be brought in a post-judgment/supplementary proceeding;

– Where a third party transfers assets of a corporate debtor for consideration and with full knowledge of a creditor’s claim, the creditor may treat the proceeds from the sale of the assets as debtor’s property and recover them under Code Section 2-1402;

– A transfer of assets from one entity to another generally does not make the transferee liable for the transferor’s debts;

– But where the transferee company is a “mere continuation” of the selling entity, the transferee can be held responsible for the seller’s debt.  The key inquiry in determining successor liability under the mere continuation framework is whether there is continuity of shareholder or directors from the first entity to the second one;

– An action brought under the Uniform Fraudulent Transfer Act (FTA), 740 ILCS 160/1, is considered one that directly concerns the assets of the judgment debtor and imposes liability on the recipient/transferee based on the value of the transferred assets;

– A transfer is not voidable against one who takes in good faith and provides reasonably equivalent value.  740 ILCS 160/9;

– A court has discretion to sanction a party that disobeys a court order including by entering a money judgment against the offending party;

(664 N.E.2d at 1091-1093)

Applying these rules, the Court found that plaintiff could properly pursue its FTA claim within the supplementary proceeding and didn’t have to file a separate lawsuit.  This is because an FTA claim does not affix personal liability for a corporate debt (like in a corporate veil piercing or alter ego setting) but instead tries to avoid or undo a transfer and claw back the assets actually transferred.

FTA Section 160/5 sets forth eleven (11) factors that can point to a debtor’s actual intent to hinder, delay or defraud a creditor.   Some of the factors or “badges” of fraud that applied here included the transfer was made to corporate insiders, the failure to inform the plaintiff creditor of the transfer of the defendant’s assets, the transfer occurred after plaintiff filed suit, the transfer rendered defendant insolvent, and all of the defendant’s assets were transferred.  Taken together, this was enough evidence to support the trial court’s summary judgment for the plaintiff on his FTA count.

Take-away: Kennedy’s value lies in its stark lesson that commercial litigators should leave no financial stones unturned when trying to collect judgments.  Kennedy also clarifies that fraudulent transfer actions – where the creditor is trying to undo a transfer to a third party and not hold an individual liable for a corporate debt can be brought within the confines of a supplementary proceeding.


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.


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 Doesn’t Prevent Guaranty Claim Where Main Purpose Is To Benefit Guarantor- IL First Dist.

66381928 Photo credit: (1.21.15)


I’m surprised at how often I see contracts where it’s unclear whom the parties are.  Sometimes, a contract’s main text will say it’s between two companies but it’s clearly signed by two individuals. I’ve also experienced the reverse: the contract body says it’s between two individuals but the signature block provides that it’s signed by corporate agents on behalf of their corporate employers.  When the contract is breached, it becomes a challenge to sort out who’s entitled to sue and who should be named as defendant.

Sullivan & Crouth Holdings, LLC v. Ceko, 2014 IL App (1st) 133028-U examines the impact of conflicting language in a promissory note and how textual contradictions affect the note’s enforceability.

Plaintiff sued the guarantor defendant for breach of a $100K promissory note (“Note”). The Note was between an LLC borrower and a lender but the Note body provided that the individual defendant (the LLC’s manager) will personally guarantee payment of the Note.

The Note signature line read:

 “MGT Lottery, LLC”

 By: [Peter Ceko]

 Peter Ceko, One of Its Managers

The defendant moved for summary judgment on the basis that he signed the Note purely in his capacity as LLC manager – as reflected by the “one of its managers” notation in the signature line.  He also argued that plaintiff’s claim was barred by the Statute of Frauds, 740 ILCS 80/1 (“SOF”) provisions that require a writing to enforce a promise to pay another’s debt (example: a guaranty).  The trial court agreed and entered summary judgment for the defendant and the plaintiff appealed.

Held: Reversed.

Q: Why?

A: There was a facial inconsistency between the Note and its signature line. The Note clearly reflected the intent for the defendant to personally guaranty the LLC borrower obligations yet the defendant clearly signed the Note as LLC manager.

In Illinois, where language in the body of a contract clashes with the apparent representation by the officer’s signature, it’s  an issue of fact for a jury or judge to decide.

The court found that based on its conflicting language, the Note was ambiguous – it was reasonably subject to differing interpretations.  The murky Note, then, required the parties to submit additional evidence of their intent.

The Court also found there was a question of fact as to whether the SOF defeated the plaintiff’s claim.  The SOF requires the promise to pay the debt of another to be in writing.  An exception to this rule is where the “main purpose” or “leading object” of the promisor is to advance his own business interest.  Whether a promisor’s main purpose is to further his personal interest (as opposed to benefit the promisee) is a fact question that defeats summary judgment. 

The court found the record too sparse to discern the LLC manager’s main reason for signing the Note.  As a result, more evidence was needed and summary judgment was improper.


– Parties to a contract should take pains to specify whether it’s a corporate or individual obligation;

– Where there is a clash between the body of a written contract and its signature block, this will likely signal a fact question that defeats summary judgment;

– The requirement that a promise to pay a third party’s debt be in writing can be tempered where the promisor is signing a contract to advance his own economic interest