Source: https://casetext.com/case/van-dorn-co-v-future-chemical-and-oil-corp
Timestamp: 2019-05-24 19:49:46
Document Index: 528283804

Matched Legal Cases: ['§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 41', '§ 44', '§ 44', '§ 2']

Van Dorn Co. v. Future Chemical and Oil Corp, 753 F.2d 565 | Casetext
753 F.2d 565 (7th Cir. 1985)
Van Dorn Co.v.Future Chemical and Oil Corp.
United States Court of Appeals, Seventh CircuitJan 23, 1985
Kevin M. Murphy, Latham, Watkins, Hedlund, Hunter Lynch, Chicago, Ill., for plaintiff.
Robert E. Nasur, Frankel, McKay Orlikoff, Chicago, Ill., for defendants.
In April 1980, Roth wanted to begin filling cans at the Sovereign of Illinois facility. He had not as yet established a local source for cans and consequently ordered from the plaintiff. Roth placed a telephone order with Milton for one truckload containing 17,000 Walker DOT 3 Brake Fluid cans, 12,000 Walker Carburetor Cleaner cans, 20,000 Walker Gas Octane cans and 20,000 Morak Brake Fluid cans, and another truckload of all Walker DOT 3 Brake Fluid cans (73,000 cans). Both of these truck-loads were shipped to Chicago at Roth's instruction. Milton found that it did not have 17,000 Walker DOT 3 Brake Fluid cans in made-up stock at the time of shipment. Consequently, it shipped an additional 9,000 Morak Brake Fluid cans and an additional 9,000 Walker Gas Octane cans to complete the truckload. The excess cans were noted on the invoice sent to Future.
In the fall of 1980, the parties ceased doing business with each other. Roth refused to pay for the two April shipments of nois and the May shipment of labels because he contended that Sovereign of Illinois could not use them. The entire shipment of Morak Brake Fluid, Walker Gas Octane and Walker Carburetor cans was in Sovereign of Illinois' warehouse, unused as of the date of trial. Roth testified that the 73,000 DOT 3 cans were unusable due to bad lithography and were disposed of by Sovereign of Illinois. The trial court found that the cans were probably filled by Sovereign of Illinois, however, because of an absence of proof that the cans were bad and because no other complaints had been lodged by other users of the DOT 3 cans. In addition, Roth refused to pay for the August shipment because of the dispute over the April and May shipments.
The trial court found Sovereign of Illinois liable for the monies due Milton on two separate theories. First, the trial court held that Sovereign of Illinois was liable for the cans it received because Sovereign of Illinois and Future were "a single corporate entity with different corporate divisions." The trial court characterized this holding as an application of the "identity analysis" of Illinois law with respect to intercorporate transactions. Second, the trial court held that Sovereign of Illinois was liable for the shipments because "[w]hether they used them or had them available to use or not, Sovereign got the benefit of the shipments, which I think they are responsible to pay for," which the trial court characterized as the " quantum meruit theory."
The district court found that it was not by chance that Future has no assets while two other Roth corporations, particularly Sovereign of Illinois, have substantial assets; that Roth contemplated that Sovereign of Illinois would be the user of all the cans; that Roth had the cans shipped to Sovereign of Illinois, but billed to Future, which he knew was on the way out; that Roth dominated the corporations and operated them very loosely as suited his convenience without regard to the individual corporations; that Roth intermingled the corporations so completely that Sovereign of Illinois, which received and used the cans, is obligated for them as a division, with Future, of a single corporate entity.
In determining whether the requisite degree of control is maintained by one corporation over the affairs of another to justify disregarding their separate corporate identities, the Illinois courts have considered some of the following: (1) the failure to maintain adequate corporate records or to comply with corporate formalities, (2) the commingling of funds or assets, (3) undercapitalization, and (4) one corporation treating the assets of another corporation as its own. Main Bank of Chicago v. Baker, 56 Ill.Dec. at 22, 427 N.E.2d at 102; Macaluso v. Jenkins, 50 Ill.Dec. at 939, 420 N.E.2d at 256; Wikelund Wholesale Company, Inc. v. Tile World Factory Tile Warehouse, 57 Ill. App.3d 269, 14 Ill.Dec. 743, 372 N.E.2d 1022 (1978); Berlinger's Inc. v. Beef's Finest, Inc., 57 Ill.App.3d 319, 14 Ill.Dec. 764, 372 N.E.2d 1043 (1978); Stap v. Chicago Aces Tennis Team, Inc., 63 Ill.App.3d 23, 28, 20 Ill.Dec. 230, 379 N.E.2d 1298 (1978). The separate corporate identities will be disregarded only if the condition claimed to be unjust to creditors is a result of the abuses of the corporate form. See, Macaluso v. Jenkins, 50 Ill.Dec. at 940-41, 420 N.E.2d at 256-57. Although an intent to defraud creditors would surely play a part if established, the Illinois test does not require proof of such intent. Once the first element of the test is established, either the sanctioning of a fraud (intentional wrongdoing) or the promotion of injustice, will satisfy the second element.
Appellants acknowledge that the law of Illinois must control the question whether corporate entities are to be disregarded. They rely, however, on two decisions of this court, Steven v. Roscoe Turner Aeronautical Corporation, 324 F.2d 157 (7th Cir. 1963), and Matter of Palmer Trading Post, 695 F.2d 1012 (7th Cir. 1982). We must acknowledge a degree of confusion resulting from these and other decisions of this court which rely on Turner.
This court has consistently applied the three-part Turner test to cases involving piercing the corporate veil. See e.g., Matter of Palmer Trading Post, 695 F.2d 1012 (7th Cir. 1982); C M Corp. v. Oberer Development Co., 631 F.2d 536 (7th Cir. 1980); Matter of Bowen Transports, Inc., 551 F.2d 171 (7th Cir. 1977); Avco Delta Corp. Canada Ltd. v. U.S., 540 F.2d 258 (7th Cir. 1976); Bernardin, Inc. v. Midland Oil Corporation, 520 F.2d 771 (7th Cir. 1975); Allegheny Airlines, Inc. v. United States, 504 F.2d 104 (7th Cir. 1974), without inquiring into the applicable state law.
We do note that Palmer seems to have construed Turner to require an "intentional abuse of control." We find nothing in the Illinois decisions requiring proof of an intent to injure creditors. When the first part of the Main Bank test is met, the fact that "observance of the fiction of separate corporate existence would, under the circumstances, . . . promote injustice" is enough. 56 Ill.Dec. at 21, 427 N.E.2d at 101.
Edward Roth was the president and sole shareholder of both Future and Sovereign of Illinois. It appears from the record that very little attention was paid to corporate formalities such as shareholders' or directors' meetings. Mr. Kahn, the accountant for both corporations, was able to recall only one such meeting for Future Chemical. Roth traveled back and forth between New York and Chicago managing both companies. Similarly Edna Gordon, the bookkeeper for Future Chemical, traveled back and forth between New York and Chicago in 1981 overseeing the bookkeeping for both companies but being paid only by Future. In January of 1982 she moved to Chicago and was an employee of Sovereign of Illinois. Both Gordon and Kahn referred to the corporations collectively as "the company." The trial judge remarked "this is evidence, . . . of the lack of delineation internally between the companies."
Numerous transactions occurred between Future and Sovereign of Illinois and later Roth's other corporations, Sovereign of Delaware and Sovereign of Pennsylvania. Future transferred money to Sovereign of Illinois in order for the latter to begin operations, later Sovereign of Illinois loaned Future money to help keep it afloat. When Future became insolvent it apparently "owed" money to the other three corporations. Future acquired the Sovereign of Illinois stock for the nominal sum of $1.00 when it had a negative net worth of $2,000,000. When Sovereign of Delaware was formed the Sovereign of Illinois stock was transferred from Future to Sovereign of Delaware for the same $1.00, despite the fact that Sovereign of Illinois had become profitable in the meantime. All of the Roth corporations utilized consolidated accounting statements which eliminated intercompany accounts for presentation. Kahn testified that separate reports for each corporation were never prepared, although they all had separate books. While the attorney for the defendants stressed that the corporations kept separate books, all that appears from the record is a confusion of corporate records and finances. The record of the intercompany transactions supports the trial court's finding that "Mr. Roth operated these things very loosely, as he saw fit. Things went back and forth. . . . [t]hey did this as it suited their convenience, without regard to the . . . individual corporations." See Talen's Landing, Inc. v. M/V Venture, 656 F.2d 1157, 1160-61 (5th Cir. Unit A 1981).
Edward Roth dominated both Future and Sovereign of Illinois and intermingled them to such an extent that their separate corporate personalities ceased to exist. Eventually Future was stripped of its assets and rendered insolvent to the prejudice of Milton, its only creditor, while Sovereign of Illinois received the benefits of the Milton can shipments. The record supported the trial court's finding that such a result was unjust and warranted piercing the corporate veil between Future and Sovereign of Illinois to hold Sovereign of Illinois liable for the price of the cans.
Having affirmed the district court's imposition of liability on Sovereign of Illinois on the basis of piercing the corporate veil we need not reach the issue of whether quantum meruit was properly applied in this case.
Both James Milton, president of Milton Can Company, and Edna Gordon testified concerning a meeting they had at the Sovereign of Illinois plant in Chicago to discuss complaints over various shipment shortages and the disputed art charges. Ms. Gordon testified that Mr. Milton had agreed to a credit for the disputed art charges. Mr. Milton testified in a very general manner that he had agreed to credit Future for some of the disputed items, but he never specifically testified to giving or denying a credit for the art charges Based on this evidence the trial court found that Milton had agreed to a credit and thereby waived recovery for the art charges. The trial court could have reasonably inferred from the testimony of Gordon and Milton that Milton had agreed to credit Future for the art charges. The finding is not clearly erroneous.
The trial court found that in April of 1980 Roth ordered 20,000 Morak Brake Fluid cans and 20,000 Walker Gas Octane cans. Milton shipped in excess of 29,000 of each for its own convenience. The record indicates that Future was notified of the overshipment by the Milton invoice for the cans which had been stamped "received, May 06, 1980," a receiving record signed by Wayne Greigas, the plant foreman of Sovereign of Illinois, and a packing list, also signed by Wayne Greigas, indicating the quantity ordered, 20,000, and the quantity actually shipped, 29,000+. The trial court found that in two conversations with Mr. Scherr, one on July 25, 1980 and one on August 29, 1980, Roth agreed that Sovereign of Illinois would pay for the Morak and Walker cans. In a subsequent meeting with James Woodworth, a sales representative from Davies Can, a Van Dorn subsidiary, on December 10, 1980 at the Sovereign of Illinois facility, Roth told Woodworth that he could not fill the gas octane cans at Sovereign of Illinois but that he would keep the Morak cans. Roth made no objection to the number of Morak or Walker cans shipped at this meeting.
The trial court held that Milton could only recover for the 40,000 cans actually ordered, not the 58,000 cans which Sovereign of Illinois received. The judge stated, "under the facts and circumstances of this case, where the shipment of the additional amount was for your convenience and without confirmation or approval by the purchaser. I do not think that you can overship and then put the burden on the customer to say, `I didn't order that many.' I don't think the Uniform Commercial Code so requires."
Where "goods or the tender of delivery fail in any respect to conform to the contract, the buyer may (a) reject the whole; or (b) accept the whole; or (c) accept any commercial unit or units and reject the rest." Ill.Rev.Stat. ch. 26 § 2-601. An excess in quantity of goods delivered is a nonconformity. See Illinois Code Comment to § 2-601. The buyer has a duty to reject nonconforming goods "within a reasonable time after their delivery or tender," Ill.Rev. Stat. ch. 26 § 2-602, and a failure to make an effective rejection will operate as an acceptance of the goods. Ill.Rev.Stat. ch. 26 § 2-606(1)(b). "The buyer must pay at the contract rate for any goods accepted." Ill.Rev.Stat. ch. 26 § 2-607(1). The comment to § 2-607 indicates that it combines the rules set forth in the former Uniform Sales Act § 41 and § 44(1) and (2) and that § 44(2) required the buyer to pay for an excess in quantity of goods at the contract rate.'
In the present case the defendants were put on notice of the nonconformity of the shipment by the invoice, the receiving record, and the packing slip and failed to make a timely rejection of the goods. The failure timely to reject operated as an acceptance of the excess goods. In addition, Roth agreed to accept and pay for the goods in his conversation with Scherr. "Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of a non-conformity cannot be revoked because of it unless the acceptance was on the reasonable assumption that the non-conformity would be seasonably cured." Ill.Rev.Stat. ch. 26 § 2-607(2). Roth could not have reasonably assumed that Milton would take the excess cans back after he failed to reject them and then agreed to pay for them. Upon such facts, the law requires that defendants pay Milton for the full amount of cans delivered.