Gallagher v. Reconco Builders, Inc.

• Decision Date: 18 December 1980
• Docket Number: No. 79-2039,79-2039
• Citation: 91 Ill.App.3d 999,415 N.E.2d 560,47 Ill.Dec. 555
• Court: United States Appellate Court of Illinois
• Parties: , 47 Ill.Dec. 555 Eleanor GALLAGHER, Charles Gallagher and Barbara Gallagher, Plaintiffs- Appellees, v. RECONCO BUILDERS, INC. d/b/a Ridge Construction Company, Pierre Zucco, Defendants-Appellants. Federal Savings & Loan Association of Chicago, Defendant.

Page 560

415 N.E.2d 560

91 Ill.App.3d 999, 47 Ill.Dec. 555

Eleanor GALLAGHER, Charles Gallagher and Barbara Gallagher Plaintiffs- Appellees, v. RECONCO BUILDERS, INC. d/b/a Ridge Construction Company Pierre Zucco, Defendants-Appellants Federal Savings & Loan Association of Chicago, Defendant.

No. 79-2039.

Appellate Court of Illinois, First District, Fourth Division.

Dec. 18, 1980.

Ignaz Kratz, Chicago, for defendants-appellants.

Barry E. Burke, Molaro & Burke, Chicago (George S. Pfeifer, Chicago, of counsel), for plaintiffs-appellees.

ROMITI, Justice:

The plaintiff sued the corporate defendant and its sole stockholder for breach of contract when defendant walked off of a construction job without completing it and after defendant had obtained all of the funds by the submission of false affidavits. The court determined that under the facts of the case the individual stockholder as well as the corporation, which was insolvent, should be held liable. The stockholder has appealed.

We affirm.

In May of 1975, Reconco Builders, Inc. (hereinafter Reconco), acting through its president, Pierre Zucco, (hereinafter Zucco), contracted with plaintiff to build for her a two story addition to her house and to remodel certain rooms in the house. After a major portion of the construction had been completed, and Reconco had been paid the amount agreed upon, Reconco walked off the job when plaintiff refused to pay an additional $5,000. Reconco since then has gone out of business. Plaintiff sued both Reconco and Zucco alleging that Zucco should be held liable for Reconco's breach because the corporation was obviously undercapitalized; Zucco commingled his funds with those of Reconco; Reconco failed to maintain the required books and records and Zucco has treated Reconco as a sole proprietorship. Plaintiff further alleged that Zucco submitted inaccurate and incomplete contractor's affidavits to induce Talman Federal Savings and Loan to release funds. (Plaintiff also sued Talman but this claim has been settled.) After hearing the evidence the trial court found fraud on the part of Zucco and awarded plaintiff the sum of $5,606 to cover the liens plaintiff had to satisfy, $5,875 for repairs, and $1,800 liquidated damages as agreed upon in the contract.

The only issue before this court is whether the trial court erred in piercing the corporate veil and holding Zucco personally liable. While several witnesses testified as to the amount of damages, the only evidence we need consider is the testimony of the defendant Zucco and the exhibits introduced in connection therewith.

Zucco testified that his primary experience in the building trade was in bidding for jobs. If he sold a job, he would then "sub" the work out. He was not a member of any trade union. Prior to the time he began to do business under the name of Reconco Builders, he had done business under the name Ridge Construction Company. While he claimed that he had filed under the Assumed Name Act (Ill.Rev.Stat.1975, ch. 96, pars. 4-8a), for Ridge Construction Company, plaintiff introduced into evidence a statement from the Cook County Clerk that there was no filing under the Assumed Name Act for that company.

Ridge Construction Company was an individual proprietorship. Zucco while doing business under that name banked at the Plaza Drive-in Bank.

After doing business as Ridge Construction Company for about a year Zucco incorporated Reconco. He believed it was in 1972. He was the incorporator. He might have used his wife "as a secretary or something" but he was not sure. He was the sole stockholder. At one point he said he was the sole director; at another, he said he and his wife were directors. He thought he owned 250 shares but in a discovery deposition he stated the corporation had issued one hundred shares. He thought the corporation was formed with $1,000. He did not remember where the money came from.

Reconco also had its bank account at Plaza Drive-in Bank. This was the corporation account; it did not contain any of his private funds. Reconco had only one employee (besides Zucco), a secretary, since all jobs were "subbed" out. Zucco and his wife were the only ones authorized to sign checks.

When asked how many corporation meetings he attended, Zucco answered "whenever they had to be." He did not know how many. "There must have been one" in 1975. He did not remember in what season of the year that meeting was held or what business was conducted at that time. Zucco decided whether a job was advantageous to Reconco or not. He did not believe that it was his habit to get any corporate resolutions authorizing him to enter into any contracts to bid for Reconco. He testified that he kept very precise books for the corporation and that he had most of them in his basement. However he did not produce them.

The caption of the proposal submitted to the plaintiff reads: Ridge Construction Company, subsidiary of Reconco Builders, Inc. Zucco testified that this was the normal stationery he was using at the time. Until October the letterhead on subsequent letters sent to plaintiff regarding changes reads: Ridge Construction Co., General Contracting and Alterations. The address below was x'd out and on all but one letter, in smaller print, Reconco Builders, Inc., 6550 N. Northwest Highway Chicago Illinois 60631 was stamped on the letters below and to the left of the printed letterhead. On none of the letters was the name Ridge Construction Co. x'd or stamped out. All of the letters were signed Reconco Builders Inc., Pierre M. Zucco, Pres. The letters sent in October have no letterhead at all.

Zucco testified that when he entered into the contract in May, 1975, business had been slow or he might not have taken the job. He had had two or three jobs in the previous four months, not enough to make it a good business. When he started the job he was low on funds. He might have had a thousand dollars or a little more but he did not know. The corporation did not own any equipment or real estate. His first bid was $41,000 but in a weaker moment he agreed to do the job for $31,000. It was done on the spur of the moment. He thought if he got the right "guys" and could "work it close," he could do it.

He had never done a job exactly like this one. This was the first two story room addition he had done. Most of his jobs ran from $1,000 to $3,000. He had no credit lines with any banks or other financial institutions so as to enable him to borrow money against the jobs he was doing. He never needed credit lines since the jobs were never that size.

Zucco never drew more than $250 a week from the corporation; some weeks he would draw $100; and a "lot of weeks I wouldn't draw anything." It was set up so that he should draw $250 a week but "it wasn't there."

In order to get funds from Talman Savings which was making payments pursuant to a construction loan obtained by plaintiff, Zucco, as president of Reconco, filled out under oath five contractor's affidavits which were then notarized. In the affidavits he swore that all waivers were there, correct and genuine and delivered unconditionally and that there was no claim either legal or equitable to defeat the validity of the waivers; that the names listed on the affidavits were the names of all persons who had furnished labor or material or both and of all parties having contracts or subcontracts for specific portions of the work and the amounts due or to become due to each of them and that the items mentioned included all labor and material required to complete the work according to plans and specifications. He further swore that there were no other contracts for said work outstanding and that there was nothing due or to become due to any person for material, labor, or other work of any kind done or to be done upon or in connection with the work other than that stated. By filing these affidavits with Talman, Zucco and Reconco were able to receive over $31,000 (the evidence is unclear as to whether it was $31,000 or $33,000). Zucco admitted that not all of the people were paid the amounts listed on the affidavits. Some were and some were not. He also paid other people not shown on the affidavits. He did not pay the suppliers all that was owed. They got part but not all. (These outstanding debts resulted in liens against plaintiff's property.) Zucco stated there would have been a lot more owed if he hadn't taken money from another job and "stuck it in there" (presumably the corporation) instead of "sticking it in his pocket." All the funds he received from Talman he disbursed to workmen, subcontractors and material men.

After Zucco received the last payment from Talman on November 4, 1975 he informed plaintiff that he "was busted out" and could not complete the job unless plaintiff came up with an additional $5,000. Zucco stated that he figured it would take around $3,000 to complete the work but he was going to play it safe. After plaintiff refused to pay the additional amount defendant quit.

Reconco stopped doing business immediately following plaintiff's job. The corporation was dissolved by the Secretary of State on December 1, 1975 for failure to pay the franchise tax in 1975 thereby terminating its existence. On December 31, 1975 there was $5 in Reconco's bank account.

When asked what the situation was when he spoke to plaintiff, Zucco responded:

"A. I didn't have any money.

Q. Who didn't have any money.

A. I didn't have any money. There was no money in the corporation. I borrowed money from Commercial Credit to the limit. From Local Loan I borrowed money to put into the corporation. I couldn't borrow any more to put in there.

Q. When you say, 'I didn't have any money,' do you refer to the corporation or yourself?

A. I didn't have any money, period. If I drew 250 a week, even, that, it wasn't there. I had gone to the limit to my personal borrowing to put money in the corporation to continue the work I was...