Amman Food & Liquor, Inc. v. Heritage Ins. Co.

• Decision Date: 23 October 1978
• Docket Number: No. 77-44,77-44
• Citation: 22 Ill.Dec. 242,382 N.E.2d 562,65 Ill.App.3d 140
• Court: United States Appellate Court of Illinois
• Parties: , 22 Ill.Dec. 242 AMMAN FOOD & LIQUOR, INC., Plaintiff-Appellant, v. HERITAGE INSURANCE CO., Defendant-Appellee.

Page 562

382 N.E.2d 562

65 Ill.App.3d 140, 22 Ill.Dec. 242

AMMAN FOOD & LIQUOR, INC., Plaintiff-Appellant, v. HERITAGE INSURANCE CO., Defendant-Appellee.

No. 77-44.

Appellate Court of Illinois, First District, First Division.

Oct. 23, 1978.

Norman Hanfling, Fein & Hanfling, Chicago, for plaintiff-appellant.

Clausen, Miller, Gorman, Caffrey & Witous, Chicago (Thomas H. Ryerson, Frank L. Schneider, James T. Ferrini, Chicago, of counsel), for defendant-appellee.

BUCKLEY, Justice:

Amman Food and Liquor, Inc., appeals from an order of the Cook County Circuit Court dismissing its action against Heritage Insurance Company of America for Amman's "failure to pay franchise taxes within the time permitted."

Due to the nature of the issues raised, it is useful to consider the pertinent facts in this case in chronological sequence:

On January 4, 1975, Heritage issued to Amman for the sum of $1,970 a policy insuring Amman's premises to the extent of $80,000 against loss or damage by fire.

On February 23, 1975, while that insurance policy was in effect, Amman's premises were destroyed by fire.

On August 15, 1975, the Secretary of State sent Amman a notification of its delinquency in franchise tax payments.

On December 1, 1975, Amman was dissolved by the Secretary of State for delinquency in payment of franchise taxes.

On January 16, 1976, in view of Heritage's refusal to honor Amman's claim, Amman filed an action in the circuit court to compel payment of its claim. On February 18, 1976, Heritage filed an answer to Amman's complaint going to its merits.

On February 23, 1976, the one-year time limit of the insurance policy for commencing actions for recovery under it expired.

On May 27, 1976, on payment of the franchise taxes owed, Amman was issued a certificate of reinstatement by the Secretary of State.

On June 9, 1976, Heritage filed a motion to dismiss Amman's action based on Illinois Civil Practice Act, Sec. 48(1)(b) (Ill.Rev.Stat.1975, ch. 110, par. 48(1)(b)) because Amman "was not an entity capable of suing at the time suit was filed or at any time, and even if capable of suing it was barred by Sec. 142 (of the Illinois Business Corporation Act, Ill.Rev.Stat.1975, ch. 32, par. 157.142) from suing, citing a decision of the Illinois Appellate Court.

On June 22, 1976, Amman responded to this motion, stating that it had been reinstated by the Secretary of State, that any defect on its part had been cured, and that Sec. 142 is not an absolute bar to maintaining an action.

On August 23, 1976, the circuit court entered the order from which Amman appeals.

The issue presented in this appeal is whether the circuit court erred in granting a defendant's motion to dismiss an action because the plaintiff was a corporation which had been dissolved for nonpayment of franchise taxes after the occurrence upon which the action was based, but before the filing of the action, and the plaintiff corporation had been reinstated before the motion to dismiss was filed, but after the applicable period of limitation had expired.

Decisions applying Illinois law to similar facts have reached contrary results based on different interpretations of Section 142 of the Business Corporation Act. For example, in Jorgensen v. Baker (1959), 21 Ill.App.2d 196, 157 N.E.2d 773, Pet. lv. to app. den., 17 Ill.2d 629, Cert. den., 361 U.S. 962, 80 S.Ct. 590, 4 L.Ed.2d 543, it was stated that a motion to dismiss an action under such circumstances was properly granted because Section 142 bars a dissolved corporation from initiating or maintaining any civil action, so that a filing of an action by such a corporation would not toll the applicable statute of limitation. On the other hand, Rush Street Rugby Club, Ltd. v. Maryland Casualty Co. (7th Cir., 1969), 409 F.2d 540, declared that such a filing would operate to toll a period of limitation because Section 142's bar did not prevent a corporation from "commencing," as distinguished from "maintaining," an action.

Because under their stated rationales, these decisions' factual foundations are not meaningfully distinguishable, they stand as conflicting authority. Neither of these decisions articulates a consideration of the effect of all applicable laws to such a motion to dismiss, so that it is not possible to determine directly which rationale is valid, or whether an unarticulated rationale might serve to reconcile these seemingly contradictory results by rendering the facts of the two cases meaningfully distinguishable.

Since the time of these decisions, their rule has been recited in Dicta or mechanically applied as controlling precedent in two cases, U. S. for Use of Triangle Landscaping Corp. v. Home Ins. Co. (N.D.Ill., 1975), 403 F.Supp. 320, and Kaybill Corp., Inc. v. Cherne (1974), 24 Ill.App.3d 309, 320 N.E.2d 598. Neither, however, analyzed the rationales of the prior decisions or added to their bases. Accordingly, it is necessary here to undertake a full inquiry in order to determine the correct rule to apply to the facts before us in this case.

Our inquiry must begin by considering this issue in the procedural context in which it has come before this court, as an appeal from an order granting a motion to dismiss an action. The question then becomes whether there was a proper basis for dismissing Amman's cause of action.

Heritage's motion to dismiss was expressly based on Section 48(1)(b) of the Civil Practice Act which provides for dismissal where the plaintiff lacks the legal capacity to sue. However, because Amman was reinstated prior to this motion, and such reinstatement ended its legal disabilities (Sternberg Dredging Co. v. Sternberg's Estate (1954), 351 Ill.App. 514, 115 N.E.2d 557), Amman's reply asserting its reinstatement, therefore, refuted this ground.

Although Heritage did not expressly cite any other ground for dismissal under Section 48, its motion contained additional language which indirectly raised, by referring to Section 142 of the Business Corporation Act and citing Jorgensen, the ground provided in Section 48(1)(e), failure to commence the action within the time limited by law. The language of the circuit court's order of dismissal indicates that the motion was granted on that basis. Consideration of this ground requires consideration of the significance of Amman's filing a complaint within the limitation period of the insurance policy on which its action was predicated.

Heritage argues that this filing was without legal effect because Amman was without the legal capacity to file such a complaint. Amman disputes this point. Without passing on the merits of these contentions, we note that, if Amman were correct, its filing would clearly have constituted commencement of an action, and Heritage's Section 48(1)(e) motion would be groundless.

On the other hand, if Heritage were correct, and Amman was without capacity to commence an action at the time it filed its complaint, Amman's response to Heritage's motion to dismiss, that it had been reinstated and any defect on its part had been cured, must be considered.

Just as Sections 4 and 33 of the Civil Practice Act (Ill.Rev.Stat.1977, ch. 110, pars. 4 and 33), require that Heritage's vague references to Jorgensen and Section 142 of the Business Corporation Act be regarded as raising the grounds for dismissal in Section 48(1)(e) in order to do substantial justice between the parties and enable their controversy to be resolved on its substantive merits, these provisions require that the significance of Amman's reply to that motion be given an appropriate effect regardless of technical vagueness. In its reply Amman asserted that its reinstatement cured any defects on its part so the significance of reinstatement in the light of a Section 48(1)(e) motion must be considered.

A Section 48(1)(e) motion raises the bar of the statute of limitations, and Heritage's motion, it must be inferred, asserted that Amman's earlier filing did not toll the limitation period for this action. Amman's reply, therefore, must be viewed as asserting that, in view of its reinstatement, the earlier filing did toll the limitation period.

Although Amman did not expressly link its reply to Section 46 of the Civil Practice Act, it is obvious that the only way in which subsequent reinstatement of a plaintiff corporation could affect the status of its former filing would be through a relation-back mechanism, such as that provided in Section 46(2). The relation-back effect of Section 46(2) provides that certain amendments correcting defects in pleadings shall relate back to the time of filing of the original pleadings for the purpose of meeting the requirements of statutes of limitation. Among the types of amendments expressly covered by Section 46(2) and (4) are amendments remedying an original pleading that failed to state a cause of action, provided the original pleading identified the transaction upon which the action is based, and amendments substituting a proper defendant for an improper defendant, provided the original pleadings sufficiently notified the proper defendant of the impending action and met other requirements.

An amendment curing a third possible defect in original pleadings, an improperly named plaintiff, is not expressly covered by Section 46, but this omission is understandable, since it would be rare for a plaintiff to misname itself. When confronted with such rare cases, such as a situation in which an action had been mistakenly filed in the name of a person who was legally incompetent, the courts determined that the policy upon which Section 46 is based to permit an amendment naming a competent person as plaintiff would relate back to the date of filing of the original action. Flannery v. People (1907), 225 Ill. 62, 80 N.E. 60; McClun v. McClun (1899), 176 Ill. 376, 52 N.E. 928; In re Gingolph's Estate (1969), 114 Ill.App.2d 363, 252 N.E.2d 726.

Therefore, Amman's response to the motion to dismiss filed by...