Sears v. Weissman, 55985

Citation6 Ill.App.3d 827,286 N.E.2d 777
Decision Date17 July 1972
Docket NumberNo. 55985,55985
PartiesDorothy SEARS, Plaintiff-Appellee, v. Michael L. WEISSMAN et al., Defendants-Appellants.
CourtUnited States Appellate Court of Illinois

Julius L. Sherwin, Chicago (Sherwin & Sherwin, Chicago, of counsel), for appellants.

Wooster, Mugalian & Klingner, Chicago (Harold W. Klingner, Chicago, of counsel), for appellee.

GOLDBERG, Presiding Justice.

Dorothy Sears (plaintiff) filed an action at law against National Atomic Fallout Shelters Inc. (National) and Michael L. Weissman, Neal A. Helberg and Donald S. Pine, its directors. Plaintiff sought to enforce statutory liability against the directors in seeking return of money paid by her to National pursuant to a written construction contract. Subsequently, plaintiff filed a second count as an amendment to the complaint. This count sought basically the same relief in chancery. It also prayed for appointment of a receiver for National and for other equitable relief. Count 2 was referred to a master in chancery who heard the evidence and filed a lengthy report. He recommended that judgment be entered in favor of plaintiff and against Weissman, Helberg and Pine for $3880 being the amount paid National; that plaintiff have judgment against defendants Helberg and Pine in the amount of $3880 for punitive damages; that his fees, in the amount of $2250 be assessed as costs and that plaintiff be allowed attorney's fees in the amount of $2600 and certain costs. The trial court approved the master's report and entered a decree in accordance with the recommendations thereof. All of the defendants appeal.

All contend that certain of the statutory causes of action against corporate directors may not be used by a creditor; and, further, that plaintiff was not a creditor of National so as to be entitled to notice of its dissolution. They further contend that the court erred in assessing punitive damages and attorney's fees. The defendant Weissman raises additional defenses, contending that he did not vote for or assent to the alleged violations of corporate law; that he was not negligent when National was dissolved and that the evidence fails to prove him guilty of conspiracy. The relevant facts will first be stated.

National was duly organized as a corporation under the law of Illinois on August 30, 1961. It had stated capital of $15,000 divided into 15,000 shares of par value of $1 per share. As its name would imply, the corporation was organized, among other things, to make contracts for and construct fallout shelters. Two stock certificates were issued, each for 7500 shares, with one in the name o Helberg and the other in the name of Pine. Weissman was and is a practicing attorney in Cook County. He had no financial interest of any kind in National but acted as its attorney in connection with its corporate affairs. The sum of $14,872.51 was deposited in a corporate bank account as National's initial capital. This contribution was made by Helberg and Pine. No contribution was made by Weissman. Helberg, Pine and Weissman were all directors of the corporation. In addition, Helberg was president, Pine was treasurer and Weissman was secretary and registered agent.

On September 26, 1961, the capital of National was reduced by issuance of two checks, each in the amount of $5000, one payable to Helberg and another to Pine. The stubs show that these checks were issued for retirement of common stock. There were other previous withdrawals, including various salary items paid to Pine. These payments reduced the total corporate assets to $3574.78. On November 11, 1961, an additional amount of $2000 was paid to Helberg. At or about that time, the total assets of National were reduced to $58.09 carried in the bank account. Throughout the corporate existence, aside from the transaction with plaintiff, two deposits of $48 each were made to the corporate account.

The business affairs of the corporation were conducted in an incredibly loose manner. The checkbook constituted the sole and only accounting record. The bank records show that checks could be withdrawn on the joint signatures of Helberg and Pine. Attorney Weissman never had authority to sign checks. It does not appear that he ever at any time had knowledge of any of the financial transactions of National or of any of the withdrawals made by Helberg and Pine from the corporate bank account.

On November 13, 1961, National and plaintiff entered into a short typewritten contract of one page. Plaintiff was then approximately 75 years of age. National agreed to install a fallout shelter for plaintiff for $3880. Plaintiff paid the entire amount and this sum, evidence by a check payable to National, was deposited in its bank account. This increased the total assets of National to $3938.09.

Approximately two weeks thereafter, corporate checks were issued to Helberg in the amount of $600 and to Pine in the amount of $400. On February 7, 1962, National issued a check to a company known as Educational Plans in the amount of $2750. This was purportedly a loan to the payee, which was jointly owned by Helberg and Pine. The loan was never repaid. These withdrawals left a nominal amount in the corporate treasury. The bank account was closed without further activity. It is clear that defendant Weissman was never informed of these withdrawals.

Apparently there was little activity by either side of the transaction until early in 1963. On February 27, 1963, National filed with the Secretary of State of Illinois a statement of intent to dissolve by voluntary consent of its shareholders. This form was prepared by attorney Weissman and was executed by him as secretary and by Helberg as president of National. No notice of the filing of this document was ever sent to plaintiff by any person. Weissman testified that he did not know of plaintiff or her transaction with the remaining defendants until the filing of suit against him. There are no corporate resolutions pertaining in any manner to the transaction between National and plaintiff. Weissman testified that Helberg told him that National had not transacted any business prior to execution of the statement of intent to dissolve. Weissman did not question this statement and never requested an examination of the financial records of the corporation. Helberg and Pine both testified that they never had any conversation or communication with Weissman regarding the transaction with plaintiff. However, Helberg at one point contradicted himself, at least in part, and testified that he did tell Weissman that one shelter had been sold but not constructed.

On February 25, 1963, before filing the statement of intent to dissolve, attorney Weissman prepared and Helberg and Pine signed a unanimous consent of shareholders evidencing their intent to dissolve National and resolving that the shareholders agreed '* * * to make adequate provision for the full and complete discharge of all debts, obligations and liabilities of this corporation * * *'.

On March 6, 1963, articles of dissolution of National were filed with the Secretary of State. This document recited that, 'All debts, obligations and liabilities of the corporation have been paid and discharged, or that adequate provision has been made therefor.' This document was also prepared by attorney Weissman and executed by him as secretary and Helberg as president.

On April 26, 1963, plaintiff's counsel wrote directly to Helberg. The letter stated that Pine had advised plaintiff's attorney on December 7, 1962, that construction of the shelter would commence after the spring thaw. This letter in effect demanded that the contract be performed or that plaintiff would '* * * have to reevaluate the question of your intent to complete the contract in accordance with its terms.' On June 20, 1963, plaintiff's counsel wrote to an attorney (other than Weissman) who was then representing Helberg and Pine. This communication mentioned dissolution of the corporation. Plaintiff had never previously been advised of the dissolution. On January 16, 1964, plaintiff's counsel wrote to National in care of the attorney and demanded refund of plaintiff's money. Plaintiff's suit was filed on February 4, 1964.

We will first consider the merits of the relief granted plaintiff against defendants Helberg and Pine. We will preface this by stating that we have read the voluminous briefs submitted by counsel for these defendants as well as the many authorities therein cited. From this entire mass of argument and material, we cannot glean any sufficient legal or equitable reason to question the decree appealed from insofar as it found both Helberg and Pine personally liable to repay the amount due plaintiff. As the facts here show, these defendants stripped National of virtually its entire capital before their dealings with plaintiff. When plaintiff entered into the contract with National, the total assets of the corporation had been reduced to $58.09. After the deposit of plaintiff's funds in the bank account of National, these defendants took additional sums from the corporate bank account including a purported loan to a corporation which they jointly owned. It is virtually conceded by these defendants, under the compulsion of clear evidence, that these distributions were made by defendants for their own personal benefit. The diversion of these funds and then the dissolution of National without notice to plaintiff was a gross violation of several portions of the Illinois Business Corporation Act.

Defendants Helberg and Pine as directors of the corporation assented to and caused distribution of the assets of National to themselves after the transaction with plaintiff. At this time, National's net assets were less than its stated capital. Therefore, they were '* * * jointly and severally liable to the corporation for * * * the value of such assets * * *.' Ill.Rev.Stat.1961, ch. 32, par. 157.42--1. In...

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