HENDERSON-SMITH & ASSOCIATES v. NAHAMANI FAMILY SERVICE CENTER

• Decision Date: 28 May 2001
• Docket Number: No. 1-00-1526.,1-00-1526.
• Citation: 752 N.E.2d 33,323 Ill. App.3d 15,256 Ill.Dec. 488
• Parties: HENDERSON-SMITH & ASSOCIATES, INC., a corporation, Plaintiff-Appellee, v. NAHAMANI FAMILY SERVICE CENTER, INC., a not-for-profit corporation, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

752 N.E.2d 33

323 Ill. App.3d 15

256 Ill.Dec. 488

HENDERSON-SMITH & ASSOCIATES, INC., a corporation, Plaintiff-Appellee, v. NAHAMANI FAMILY SERVICE CENTER, INC., a not-for-profit corporation, Defendant-Appellant.

No. 1-00-1526.

Appellate Court of Illinois, First District, First Division.

May 28, 2001.

Michael A. Childers, Danny Windham, Childers, Williams & Windham, Chicago, for Appellant.

Robert C. Baran, Teller, Levit & Silvertrust, Chicago, for Appellee.

Justice COHEN delivered the opinion of the court:

The parties entered into a contract for the plaintiff corporation to provide accounting services for the defendant corporation. Subsequently, the Illinois Secretary of State administratively dissolved the plaintiff for failure to pay state franchise taxes. The plaintiff alleges that after it was dissolved it provided services for the defendant pursuant to the contract, however, the defendant never rendered payment for those services.

The plaintiff filed suit in municipal court, but failed to attach a copy of the contract to its complaint as required by the Code of Civil Procedure. 735 ILCS 5/2-606 (West 1998). On the day of trial, the trial court, over the defendant's objection, allowed the plaintiff to amend its complaint by attaching the contract. The defendant moved to dismiss based on the plaintiff's administrative dissolution. The trial court denied the motion and, after a bench trial, entered judgment for the plaintiff.

The plaintiff attempted to execute the judgment by issuing a citation to discover assets. A second judge, on the motion of defendant, quashed the citation to discover assets and, on the court's own motion, sanctioned the plaintiff for issuing it. The plaintiff then paid its franchise taxes and was reinstated.

The defendant filed a motion for a new trial before the original judge. In this motion, the defendant argued that it was improper to grant judgment for an administratively dissolved corporation and further argued that the plaintiff should not have been permitted to amend its complaint on the day of trial. The plaintiff filed a reply accompanied by a copy of its reinstatement notice. The judge denied the motion for a new trial. The defendant then appealed to this court.

We affirm.

BACKGROUND

The plaintiff, Henderson-Smith & Associates, Inc. (Henderson-Smith) is an Illinois corporation that provides bookkeeping and accounting services. The defendant, Nahamani Family Service Center, Inc. (Nahamani) is an Illinois nonprofit corporation that operates a group home for children who are wards of the State.

On January 3, 1997, the parties entered into a contract. According to the contract, Henderson-Smith was to perform accounting services for Nahamani for a fee of $1,500 per month. The parties agreed that at the end of each fiscal year, Henderson-Smith would "close the books" and assist with Nahamani's year-end audit for an additional fee of $5,000. The contract was terminable by either party on thirty days' notice.

Subsequently, Henderson-Smith failed to pay its franchise taxes. As a result, the Secretary of State administratively dissolved Henderson-Smith effective June 1, 1998, as directed by section 12.40 of the Business Corporation Act (the Act). 805 ILCS 5/12.40 (West 1998). Henderson-Smith continued to keep Nahamani's books.

In October 1998, Henderson-Smith performed Nahamani's audit for the fiscal year ending June 30, 1998. Henderson-Smith alleges that it never received its $5,000 fee for the year-end audit. On March 16, 1999, Henderson-Smith filed suit in the Circuit Court seeking $5,000 in damages. It attached a copy of Nahamani's invoice to the complaint instead of attaching a copy of the contract as required by the Code of Civil Procedure. 735 ILCS 5/2-606 (West 1998).

The matter was set for a bench trial on November 9, 1999. Prior to trial, Nahamani moved to dismiss based on the administrative dissolution of Henderson-Smith. Nahamani attached a copy of the certificate of dissolution to its motion. The trial judge denied the motion. Nahamani also moved for dismissal predicated on the failure of Henderson-Smith to attach a copy of the contract to its complaint. Nahamani argued that without the copy of the contract, the complaint only stated a claim for quantum meruit. Nahamani further argued, as a quantum meruit claim will not lie where there is a written contract governing the matter in question (Industrial Lift Truck Service Corp. v. Mitsubishi International Corp., 104 Ill.App.3d 357, 360-61, 60 Ill.Dec. 100, 432 N.E.2d 999, 1002 (1982)), the complaint was legally insufficient. In response, Henderson-Smith moved to amend its complaint to attach a copy of the contract. The court granted the motion over Nahamani's objection. Nahamani then moved for a continuance, arguing that it needed time to adjust its defense based on (according to Nahamani) the new theory of the complaint. The judge denied the motion and the trial went forward. The court found for Henderson-Smith and entered an order for $5,000 plus costs. Nahamani filed a motion for a new trial.

Henderson-Smith then attempted to collect the judgment. On November 24, 1999, counsel for Henderson-Smith appeared before the supplementary proceeding judge and caused a citation to discover assets to be issued upon Nahamani's bank, resulting in Nahamani's bank account being frozen. Nahamani filed an emergency motion to quash. On December 14, 1999, the supplementary proceeding judge granted the motion to quash. On his own motion, the judge also ordered that a hearing be held to determine whether Henderson-Smith should be assessed Rule 137 sanctions for availing itself of the court's supplementary proceedings when it did not have legal authority to do so having previously been administratively dissolved.

Henderson-Smith then paid its franchise taxes, with its corporate status being reinstated on January 6, 2000. Henderson-Smith attached a copy of the certificate of reinstatement to its response to Nahamani's motion for a new trial.

On February 14, 2000, the hearing on the motion for sanctions proceeded before the supplementary proceeding judge. Counsel for Henderson-Smith did not appear and a default order was entered.

On March 29, 2000, the trial judge entered a memorandum order denying Nahamani's motion for a new trial.

Nahamani now appeals, arguing that the trial judge erred in: (1) allowing Henderson-Smith to proceed to trial and obtain a judgment despite its administrative dissolution; and (2) allowing Henderson-Smith to amend its complaint on the day of trial and then not granting Nahamani a continuance to revise its defense.

ANALYSIS

I

The secretary of state may "administratively dissolve" a corporation that neglects its obligations by failing to pay its franchise tax, not filing an annual report or not maintaining a registered agent in the state. 805 ILCS 5/12.35 (West 1998). If the administratively dissolved corporation corrects the deficiency within five years, however, the secretary of state may reinstate it to its former status. 805 ILCS 5/12.45 (West 1998).

The primary question to be addressed in this appeal is whether reinstatement of an administratively dissolved corporation will serve to retroactively validate a judgment that: (1) arose out of a cause of action that accrued during the period of dissolution; and (2) was entered during the period of dissolution. This precise question is one of first impression in Illinois.

Henderson-Smith initially argues that Nahamani's motion to dismiss should be properly understood as an objection to standing, which this court should consider waived since not pled as an affirmative defense. Greer v. Illinois Housing Development Authority, 122 Ill.2d 462, 509, 120 Ill.Dec. 531, 524 N.E.2d 561, 582 (1988). We feel that waiver is inappropriate in this situation. The administrative dissolution provisions are for the protection of the State and the public (Regal Package Liquor, Inc. v. J.R.D., Inc., 125 Ill.App.3d 689, 693, 80 Ill.Dec. 957, 466 N.E.2d 409, 411-12 (1984)), not private civil defendants. Accordingly, a private civil defendant should not be able to waive such an objection. If held otherwise, the interests of an innocent third party would be compromised by the defendant's oversight. Inability to sue due to administrative dissolution is a matter of public policy, which "may be raised by the court on its own motion or at any time during the course of the proceedings." Elsberry Equipment Co. v. Short, 63 Ill.App.2d 336, 352, 211 N.E.2d 463, 471 (1965).

A

Under common law, a dissolved corporation could not sue or be sued. All of its pending legal proceedings would abate. Blankenship v. Demmler Manufacturing Co., 89 Ill.App.3d 569, 572, 44 Ill.Dec. 787, 411 N.E.2d 1153, 1155 (1980). The Business Corporation Act of 1983 (805 ILCS 5/1.01 et seq. (West 1998)), sets out exceptions to this principle. The first exception holds, "[dissolution of a corporation does not * * * [a]bate or suspend a criminal, civil or any other proceeding pending by or against the corporation on the effective date of dissolution." 805 ILCS 5/12.30(c) (West 1998).

The second exception is a "corporate survival" provision, which extends the exception concerning actions that are pending at the time of dissolution to any causes of action that have accrued at that time.

"Survival of remedy after dissolution. The dissolution of a corporation either (1) by the issuance of a certificate of dissolution by the Secretary of State, or (2) by a judgment of dissolution by a circuit court of this State, or (3) by expiration of its period of duration, shall not take away nor impair any civil remedy available to or against such corporation, its directors, or shareholders, for any right or claim existing, or any liability incurred, prior to such dissolution if action or other proceeding thereon is commenced within five years after the date of such dissolution." 805 ILCS 5/12.80 (West 1998).

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