Wikelund Wholesale Co. v. Tile World Factory Tile Warehouse

Mr. JUSTICE STAMOS

delivered the opinion of the court:

This appeal arises from a judgment entered by the circuit court of Cook County in favor of plaintiff Wikelund Wholesale Company, Inc., and against defendants Rubber Linings Corporation and Harold Trilling. This judgment followed a bench trial of plaintiffs action against defendant pursuant to which (1) defendant Rubber Linings Corporation was found to have violated the Illinois bulk transfers act (Ill. Rev. Stat. 1975, ch. 26, par. 6 — 102 et seq.), and (2) defendant Harold Trilling, as “alter ego” of defendants Tile World Factory Tile Warehouse, a corporation, and Rubber Linings Corporation, were found to have unlawfully exercised dominion and control over merchandise belonging to plaintiff in the amount of *4,864.66.

Plaintiff, distributors of building materials and floor covering, allegedly delivered various materials to defendant Harold Trilling and subsequently sent invoices to Trilling for the goods delivered. Plaintiff apparently was never paid in full for the goods delivered. Trilling’s nonpayment prompted plaintiff’s initiation of an action in the circuit court of Cook County. Plaintiff’s action contained three counts. The first count sought the balance due and owing for goods, wares, and merchandise sold and delivered by plaintiff to defendant, plus interest, in the amount of *5,239.66. Count II alleged that the inventory of defendant Tile World Factory Tile Warehouse (of which Trilling had been vice-president and shareholder) was transferred to defendant Rubber Linings Corporation (in which Trilling had an interest) in violation of the Illinois bulk transfers act in that Rubber Linings Corporation failed to (1) require Tile World Factory Tile Warehouse to schedule a list of creditors and (2) notify plaintiff of the bulk transfer. Count II further alleged that defendant Rubber Linings Corporation had custody of substantial amounts of plaintiff’s merchandise but refused to pay for said merchandise and is, therefore, liable to plaintiff in the amount of *4,864.66. Count III alleged that defendant Trilling was the “alter ego” of the defendant corporations and, as such, should be held personally liable for the balance due and owing to plaintiff in the amount of *4,864.66.

A bench trial ensued and the totality of the testimony was supplied by defendant Trilling and Donald Muscavitch, credit manager of Wikelund Wholesale Company. The testimony reflected that plaintiff sold merchandise to Tile Brand Distributors, Inc., Cicero, Illinois, and Tile World of Madison and Sheboygan, Wisconsin. Furthermore, the testimony established that *1,500 was paid plaintiff by Factory Tile Warehouse, Inc., checks signed by defendant Harold Trilling, leaving a balance due plaintiff in the amount of *4,864.60. Further established by the testimony was the fact that defendant Trilling had interests in various corporations, three of which were engaged in the tile business.

At the completion of the evidence the court entered an order finding in favor of defendant as to count I of plaintiffs complaint and finding in favor of plaintiff with respect to counts II and III. It is from the orders entered against defendants Rubber Linings Corporation and Harold Trilling that defendants appeal.

The trial court found, pursuant to plaintiffs allegations, that Rubber Linings Corporation violated the Illinois bulk transfers act (Ill. Rev. Stat. 1975, ch. 28, par. 6 — 102 et seq.), based upon a transfer of inventory from Tile World Factory Tile Warehouse to Rubber Linings Corporation. It is clear that if we are to uphold the trial court’s finding in this regard we must first find the bulk transfers act applicable to the case at bar. This we are unable to do.

A bulk transfer is any transfer in bulk and not in the ordinary course of the transferor’s business of a major part of the materials, supplies, merchandise or other inventory of an enterprise subject to the bulk transfers act. (Ill. Rev. Stat. 1975, ch. 26, par. 6 — 101.) A transfer of the “major part” of inventory has the clear and definite meaning of the transfer of “greater than fifty percent” of inventory. Zenith Radio Distributing Corporation v. Mateer (1941), 311 Ill. App. 263, 35 N.E.2d 815. See Continental Casualty Co. v. Burlington Truck Lines, Inc. (1966), 70 Ill. App. 2d 405, 217 N.E.2d 293.

The testimony adduced in the case at bar does not admit of a transfer in excess of 50 percent of the Tile World Factory Tile Warehouse inventory to Rubber Linings Corporation. In fact, Harold Trilling’s uncontradicted testimony reflects that “about fifty percent” of the inventory was transferred. This testimony is insufficient upon which to base a finding of a transfer of a “major part” of inventory for purposes of the application of the bulk transfers act. Consequently, the finding of the circuit court, that defendant Rubber Linings Corporation violated the Illinois bulk transfers act, must be reversed.

The circuit court further found that defendant Harold Trilling was the principal and “alter ego” of various corporations, including defendant corporations and, consequently, was liable for the unlawful exercise of dominion and control over merchandise belonging to plaintiff. In reaching this result, the circuit court found a debt due plaintiff and disregarded the corporate nature of various businesses in which Trilling had interests.

There is no basis for disturbing this finding of the circuit court. Trilling’s testimony is somewhat uncertain as to the number of corporations in which he had an interest, however, it is clear ¿hat those corporations involved in the tile business were managed with a disregard for their corporate status. Trilling, while testifying at trial, never denied that he used accounts of his various corporations to pay the debts of any one corporation. His testimony also revealed that the money received by one corporation in which he had an interest might come to rest in the accounts of another of his corporations. This commingling of funds was explained by Trilling as an attempt to pay the debts owed.

Trilling’s unusual scheme of corporate accounting may have increased his ability to satisfy creditors, but it also requires us to disregard the corporate status of Trilling’s businesses engaged in the tile business and affirm the circuit court’s imposition of personal liability upon Trilling. It is elementary that the separate corporate status of subsidiary or other affiliated corporations will not be recognized when the accounts of the corporations are intermingled. (Henn, Handbook Of The Law Of Corporations And Other Business Enterprises §148 (1970).) This intermingling is clearly evident from Trilling’s testimony. Consequently, the incorporation of Trilling’s various business interests cannot be utilized to promote injustice and defeat a recovery by plaintiff. The doctrine that a corporation is a legal entity existing separate and apart from the person composing it is a legal theory used for the convenience of the business world. The concept cannot, therefore, be extended to a point beyond its reason and policy, and when invoked in support of an end subversive of this policy, will be disregarded by the courts. State Bank v. Benton (1974), 22 Ill. App. 3d 1007, 317 N.E.2d 578.

Based upon the facts of this case and the principles of law applicable thereto we hold (1) that the circuit court erred in finding that defendant Rubber Linings Corporation violated the Illinois bulk transfers act, and (2) that the circuit court correctly found Harold Trilling liable to plaintiff Wikelund Wholesale Company, Inc. Accordingly, the judgment of the circuit court of Cook County is affirmed in part and reversed in part.

Affirmed in part; reversed in part.

DOWNING, P. J., concurs.