No. 3--96--0484
_________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
THIRD DISTRICT
A.D., 1997
ROB PARK, ) Appeal from the Circuit Court
) of the 14th Judicial Circuit,
Plaintiff-Appellee, ) Rock Island County, Illinois,
)
v. )
)
TOWNSON & ALEXANDER, INC., )
a Canadian Corporation, )
)
Defendant-Appellant, )
)
and ) No. 94--L--234
)
DEERE & COMPANY, INC., )
a Corporation, )
)
and )
)
JOHN DEERE LAWN & GROUNDS ) Honorable
CARE DIVISION, a Subsidiary ) Joseph F. Beatty,
of Deere & Company. ) Judge, Presiding.
)
________________________________________________________________
JUSTICE SLATER delivered the opinion of the court:
________________________________________________________________
Plaintiff Rob Park obtained a default judgment of $48,117.02
plus costs against defendant Townson & Alexander, Inc., on
December 20, 1995. Plaintiff subsequently instituted garnishment
proceedings against Deere & Company, Inc., a Delaware
corporation. Deere's corporate headquarters are located in
Moline, Illinois. Deere indicated that while it held no property
belonging to defendant in Illinois, the Raleigh, North Carolina
branch office of Deere held accounts payable to Townson &
Alexander Consulting Services, Inc. (Consulting Services) as
assignee of the defendant. Defendant resisted the garnishment
proceedings on the grounds that the court lacked jurisdiction
over the accounts payable. Defendant also contended that it
validly assigned its rights to payment to Consulting Services
before the garnishment proceedings had begun. The trial court
ruled in plaintiff's favor and ordered the funds, which had
previously been transferred to an Illinois bank by court order,
to be released to plaintiff. On appeal, defendant raises the
same issues it argued in the trial court. We affirm.
Defendant first contends that the trial court lacked
jurisdiction over the accounts payable because they were located
outside of Illinois. Defendant cites the longstanding rule that
"[a] garnishee proceeding is in the nature of a proceeding in
rem, and to the effectual creation of a lien it is not enough
that the garnishee be within the jurisdiction of the court
issuing the process. The res itself must also be within the
jurisdiction of such court." Bowen v. Pope, 26 Ill. App. 233,
234-35 (1887), aff'd, 125 Ill. 28, 17 N.E. 64 (1888). See also
Apollo Metals, Inc. v. Standard Mirror Co., 87 Ill. App. 2d 383,
231 N.E.2d 655 (1967); Keller v. Snyder, 344 Ill. App. 294, 100
N.E.2d 672 (1951). However, in Lancashire Insurance Co. v.
Corbetts, 165 Ill. 592, 46 N.E. 631 (1897), the court explained
that the general rule applies to tangible property having an
actual situs in another state. A debt, however, is intangible
and jurisdiction does not depend on the situs of the debt.
Instead, "a foreign corporation having property and agents in
this State and transacting business here may be garnished in our
courts for a debt" (Lancashire, 165 Ill. at 598, 46 N.E. at 633)
regardless of the situs of the debt. See also Pomeroy v. Rand,
McNally & Co., 157 Ill. 176, 41 N.E. 636 (1895) (garnishment is
not limited to debts having situs in Illinois); Hannibal & St.
Joseph R.R. Co. v. Crane, 102 Ill. 249 (1882) (Missouri
corporation doing business in Illinois may be garnished for debt
owed in Missouri). We hold, therefore, that the trial court had
jurisdiction over the accounts payable in North Carolina.
Defendant next contends that the accounts payable were not
subject to garnishment because defendant assigned its rights to
payment to Consulting Services prior to the commencement of
garnishment proceedings. Defendant relies on the general rule
that "an assignment by the judgment debtor prior to the
commencement of garnishment proceedings, absent fraud, precludes
the garnishor from prevailing against the garnishee." Liberty
Leasing Co. v. Crown Ice Machine Leasing Co., 19 Ill. App. 3d 27,
29, 311 N.E.2d 250, 252 (1974). However, plaintiff maintains,
and the trial court found, that Consulting Services, the
corporate entity that purchased the accounts payable, was a "mere
continuation" of the defendant.
In general, a corporation that purchases the assets of
another corporation is not liable for the debts or liabilities of
the seller. Hoppa v. Schermerhorn & Co., 259 Ill. App. 3d 61,
630 N.E.2d 1042 (1994); Nilsson v. Continental Machine
Manufacturing Co., 251 Ill. App. 3d 415, 621 N.E.2d 1032 (1993).
Liability may be imposed, however, where: (1) there is an express
or implied agreement to assume liability; (2) the transaction
amounts to a merger of the seller into the buyer or a
consolidation of the two; (3) the purchaser is a mere
continuation of the seller; or (4) the transaction is for the
fraudulent purpose of escaping liability. Steel Co. v. Morgan
Marshall Industries, Inc., 278 Ill. App. 3d 241, 662 N.E.2d 595
(1996); Nilsson, 251 Ill. App. 3d 415, 621 N.E.2d 1032. The mere
continuation exception is akin to a corporate reorganization
where the corporation has, in effect, "put on a new coat."
Nilsson, 251 Ill. App. 3d at 418, 621 N.E.2d at 1034, quoting
Kraft v. Garfield Park Community Hospital, 296 Ill. App. 613,
619, 16 N.E.2d 936, 938 (1938). Continuity of stock ownership
has been held to be a critical factor in determining successor
liability under the mere continuation approach. Nilsson, 251
Ill. App. 3d 415, 621 N.E.2d 1032.
In finding that Consulting Services was a mere continuation
of the defendant, the trial court stated:
"From the evidence presented[,] Townson
& Alexander, Inc.[,] and Townson & Alexander
Consulting Services, Inc.[,] are both at the
same address, both have the same facsimile
number, both have the same motto[,] 'We Sell
Results', both have the same Federal Express
number, both have the same contact person
with the same telephone number, both have the
same major company that they do work for,
both have the same primary activity, both
have the same current telephone number, both
have the same business individual who signs
all the checks, [and] both have the same
contact person for billings.
It's also important that there be a
continuity of shareholders in that the
shareholder of the seller become the
shareholder of the buyer. In the case that
we have before us in Townson & Alexander,
Inc., all the shareholders were Harry
Alexander and Diane Alexander which [sic]
each owned 50% of the company. When Mr.
Harry Alexander transferred the assets from
Townson & Alexander, Inc.[,] to Townson &
Alexander Consulting Services, Inc., Diane
Alexander, his wife, became the sole
shareholder. However, during testimony,
Harry Alexander made it very clear that he
made all major decisions for the corporation
and called all the shots. Here in fact, as
husband and wife it is inaccurate to say that
the shareholders were different. In fact Mr.
Alexander testified that the only reason his
wife was designated as the sole shareholder
of Townson & Alexander Consulting Services,
Inc.[,] was that such an approach would be
beneficial to both of them as a family
because he had used up his lifetime capital
gains expense."
Defendant contends that the trial court's finding with
regard to continuity of shareholders was erroneous. Defendant
relies on its corporate records and the records of Consulting
Services which indicate that John Townson and Harry Alexander
were the only shareholders of Townson & Alexander, Inc., and that
Diane Alexander was the sole shareholder of Consulting Services.
We note, however, that a corporate income tax return filed by the
defendant lists both Harry and Diane Alexander as 50%
shareholders. Another tax document lists Harry Alexander as
president of Consulting Services. Although Harry testified that
these entries were mistakes, the trial court was in the best
position to judge the credibility of the testimony and to make
factual determinations. We note that the continuity of
shareholders necessary to a finding of mere continuation does not
require complete identity between the shareholders of the former
and successor corporations. See Hoppa, 259 Ill. App. 3d 61, 630
N.E.2d 1042 (fact that former joint tenant shareholder's interest
was reduced to 2% and that additional family member was
shareholder of successor corporation did not prevent finding of
continuity). In addition, while the spousal relationship between
the owners of the corporations does not in itself establish a
continuity of shareholders, it is certainly a factor which can be
considered. See Steel Co., 278 Ill. App. 3d at 249, 662 N.E.2d
at 600 ("We cannot allow the law to be circumvented by an
individual exerting control through his spouse."). After
considering all the evidence, we find that the trial court's
decision was not against the manifest weight of the evidence.
For the reasons stated above, the judgment of the circuit
court is affirmed.
Affirmed.
BRESLIN and HOLDRIDGE, J.J., concur.