Divco-Wayne Sales Financial Corp. v. Martin Vehicle Sales, Inc.

• Decision Date: 22 November 1963
• Docket Number: DIVCO-WAYNE,Gen. No. 49016
• Parties: SALES FINANCIAL CORPORATION, Plaintiff-Appellant, v. MARTIN VEHICLE SALES, INC., Defendant-Appellee and Cross-Appellant.
• Court: United States Appellate Court of Illinois

Page 287

195 N.E.2d 287

45 Ill.App.2d 192

DIVCO-WAYNE SALES FINANCIAL CORPORATION, Plaintiff-Appellant, v. MARTIN VEHICLE SALES, INC., Defendant-Appellee and Cross-Appellant.

Gen. No. 49016.

Appellate Court of Illinois, First District, Second Division.

Nov. 22, 1963.

Rehearing Denied Dec. 18, 1963.

Tenney, Bentley, Guthrie & Howell, Chicago, John P. Forester and Stephen J. Nagy, Chicago, of counsel, for appellant.

Melvin M. Landau, Chicago, for appellee.

BURKE, Presiding Justice.

Divco-Wayne Sales Financial Corporation brought a replevin action against Martin Vehicle Sales, Inc., for possession of seven hearses. Martin filed a counterclaim against plaintiff, Sales Financial, for commissions allegedly due under a contract with Divco-Wayne Corporation. The plaintiff, Sales Financial, filed a counterclaim against Martin for a judgment for principal, interest and attorney's fees on four notes executed by Martin the nonpayment of which had formed the legal basis for the replevin action. Two trials were had without a jury. The replevin action was tried in September 1961, ending in judgment for plaintiff for possession of the vehicles seized. The correctness of this judgment is not challenged in the instant case. The respective counterclaims were tried in May, 1962. Plaintiff, Sales Financial, was found entitled to the principal balance due on the four notes (less a credit to Martin for the amount received on a sale of the replevied property), but was denied the interest and attorneys') fees provided for in the notes. The commission allegedly due Martin under the contract with the parent corporation, Divco-Wayne Corporation, was awarded in full against the subsidiary, Sales Financial. After adjusting the respective credits the court entered a judgment for $7,608.67 in favor of Martin and against Sales Financial. Plaintiff appealing, asks that the judgment be reversed, that Martin's counterclaim be dismissed, that judgment be entered for plaintiff for the principal on the notes, $28,176.40, plus interest from July 1, 1960, and attorney's fees of 15% found to be due for principal and interest, less a credit of $3,600 to Martin representing the proceeds of the replevied vehicles. In its cross-appeal Martin asks that the judgment be modified to declare that the retention of the seven vehicles for an unreasonable period without a public sale constituted an acceptance of the vehicles as payment for the trust receipt notes and that judgment be entered against plaintiff for the balance of the commission, $32,185.70, or in the alternative a judgment be entered against plaintiff for $33,008.67.

Plaintiff maintains that the counterclaim does not state a cause of action against it and that its motion to dismiss should have been allowed. The exhibit attached to Martin's counterclaim is not an agreement between plaintiff and Martin. It is a contract between Martin and Divco-Wayne Corporation. The allegation in the counterclaim that Martin entered into an agreement with plaintiff is inconsistent with the exhibit. Where exhibits are relied upon for recovery and there is a discrepancy between the allegations of the complaint and the exhibits, the exhibits are controlling and the language of the exhibits will be taken as the factual basis upon which the complaint is predicated. Benner v. Hudelson Baptist Home, 24 Ill.App.2d 256, 164 N.E.2d 252; Nagel v. Northern Ill. Gas. Co., 12 Ill.App.2d 413, 419-420, 139 N.E.2d 810; Awotin v. Abrams, 309 Ill.App. 421, 33 N.E.2d 179; Woods v. First Nat. Bank of Chicago, 314 Ill.App. 340, 41 N.E.2d 235. The counterclaim does not state a cause of action against Sales Financial as the exhibit evidences a contract with Divco-Wayne Corporation and not with Sales Financial.

The evidence is uncontroverted that Sales Financial, although a wholly owned subsidiary, is a separate corporation independent of the parent. The principle that a corporation is an entity separate from its shareholders and from other corporations with which it may be associated has long been recognized in Illinois, as it has universally in the United States. Donnell v. Herring-Hall-Marvin Safe Co., 208 U.S. 267, 273, 28 S.Ct. 288, 52 L.Ed. 481; Lowenthal Securities Co. v. White Paving Co., 351 Ill. 285, 295, 184 N.E. 310. In the Donnell case Mr. Justice Holmes said, 208 U.S. p. 273, 28 S.Ct. p. 289, 52 L.Ed. 481: 'A leading purpose of such statutes and of those who act under them is to interpose a nonconductor, through which, in matters of contract, it is impossible to see the men behind.' In Superior Coal Co. v. Department of Finance, 377 Ill. 282, p. 289, 36 N.E.2d 354, p. 358, the court said: 'Ownership of capital stock in one corporation by another does not, itself, create an identity of corporate interest between the two companies, nor render the stockholding company the owner of the property of the other, nor create the relation of principal and agent, representative, or alter ego between the two. [Cases cited.] Nor does the identity of officers of two corporations establish identity of the corporations.' Divco-Wayne Corporation is engaged in the business of manufacturing vehicles. Sales Financial is in the business of financing vehicles. Sales Financial had a net worth of approximately $500,000, and an independent bank credit of $8,000,000 not guaranteed by the parent. Only two of the eight directors of Divco-Wayne Corporation were on the Board of Sales Financial. None of the three Martin brothers, who acted for the defendant, asserted that he was misled by the existence of these two corporations.

The relationship of parent and subsidiary corporation will not, standing alone, render the subsidiary liable on the parent's contract. American Cyanamid Co. v. Wilson & Toomer Fertilizer Co., 5 Cir., 51 F.2d 665; First Nat. Bank of Seattle v. Walton, 146 Wash. 367, 262 P. 984, 986. The decisions on this point are collected in an annotation in 102 A.L.R. 1054, entitled 'Liability of holding corporation on contracts of subsidiary,' where the annotator says: 'As stated in the original annotation on this subject, a holding company is not, as a general rule, liable on the contracts of its subsidiary corporation.'

One who seeks to have the Court apply an exception to the rule of separate corporate existence, must seek that relief in his pleading and carry the burden of proving actual identity or a misuse of corporate form which, unless disregarded, will result in a fraud on him. Martin did not assert in any of its pleadings that sales Financial and Divco-Wayne Corporation were one and the same or that it had been misled, nor did it ask the court to disregard corporate form in order to prevent a fraud from being perpetrated. In John Sexton & Co. v. Library Plaza Hotel Corporation, 270 Ill.App. 107, p. 110, the court said: 'Confusion often results from the operation of various related corporations especially where names similar in sound are used. It cannot be said, however, that this fact alone creates a joint liability. There must be something more, such as a commingling of interests, a joint ownership, or a holding out to the world such as would mislead or tend to lull one into a mistake of fact.' The Martins had been dealers in Divco-Wayne professional cars for several years prior to the signing of the contract exhibited in this case. The three Martins testified and not one of them asserted that he was confused or misled by these two corporations or that they or the Martin Company were in any manner defrauded because of the two corporations. There is no basis in the evidence justifying the court in refusing to treat the two corporations as separate entities. The burden was upon Martin to prove either (1) identity in fact, or (2) the fraudulent misuse of corporate form. This it failed to do. The judgment against Sales Financial for commissions allegedly owed not by it but by Divco-Wayne Corporation has no basis in law. The same claim for commissions has been brought against the parent corporation in the U.S. District Court for the Northern District of Illinois, Eastern Division, where it is...