Illinois Bell Telephone Co. v. Wolf Furniture House, Inc.

• Decision Date: 02 June 1987
• Docket Number: No. 85-3417,85-3417
• Citation: 109 Ill.Dec. 277,157 Ill.App.3d 190,509 N.E.2d 1289
• Parties: , 109 Ill.Dec. 277 ILLINOIS BELL TELEPHONE COMPANY, Plaintiff-Appellant, v. WOLF FURNITURE HOUSE, INC., Defendant (James E. Carmel, Citation Respondent-Appellee; Mid-City National Bank of Chicago, Citation Respondent).
• Court: United States Appellate Court of Illinois

Page 1289

509 N.E.2d 1289

157 Ill.App.3d 190, 109 Ill.Dec. 277

ILLINOIS BELL TELEPHONE COMPANY, Plaintiff-Appellant, v. WOLF FURNITURE HOUSE, INC., Defendant (James E. Carmel Citation Respondent-Appellee; Mid-City National Bank of Chicago, Citation Respondent).

No. 85-3417.

Appellate Court of Illinois First District, Second Division.

June 2, 1987.

Law Offices of Kenneth Baker & Assoc., Chicago (Kenneth Baker, David S. Miller, of counsel), for plaintiff-appellant.

Carmel, Baker & Marcus, Ltd., Chicago (Karen R. Goodman, of counsel), for citation respondent-appellee.

Presiding Justice SCARIANO delivered the opinion of the court:

In order to satisfy a judgment obtained against Wolf Furniture House, Inc. ("Wolf Furniture"), Illinois Bell Telephone Company ("IBT"), brought this action seeking a turnover of funds held in a money market account at Mid-City National Bank of Chicago ("Mid-City"), in the name of James E. Carmel ("Carmel"), as trustee for Wolf. The trial court denied IBT's petition. We reverse.

Because it was experiencing financial difficulties, in May, 1982 Wolf Furniture decided to cease doing business and convened several meetings of its creditors regarding the best method of liquidating and distributing its assets. Attending these meetings were Gilbert Wolf, the President of Wolf Furniture, Sherwin Winer ("Winer"), attorney for Wolf Furniture, representatives of Exchange National Bank of Chicago ("Exchange"), a secured creditor, and Carmel, representing several of the unsecured creditors. As a result of these meetings, the parties agreed that a liquidation sale would be conducted by Sales Results, Inc., and that the proceeds from the sale would go towards satisfying the secured debt owed to Exchange. After the sale, the only remaining assets would be Wolf Furniture's accounts receivable, consisting primarily of installment payments due to it from its customers. Carmel and Gilbert Wolf agreed orally that the accounts receivable would be transferred to Carmel for collection and that Carmel would then use the proceeds to extinguish Wolf Furniture's secured and tax debts and distribute the remainder on a pro-rata basis to all of its unsecured creditors.

Sales Results, Inc. conducted the liquidation sale in August 1982, and Wolf Furniture terminated business officially on August 30. The balance of Wolf Furniture's assets, consisting of "customer account cards" to be used for collection of the accounts receivable and $2873.63 in installment payments received, was transferred to Carmel on October 15, 1982, along with a letter from Winer, which stated:

"Dear Jim [Carmel],

I am forwarding to you, along with the letter, the following items:

1. Copies of letter forwarded to customers of Wolf Furniture House, Inc.

2. Envelope containing $2,873.63 being payments received to date.

3. List of customers accounting for those payments; said list reflects the balance due on each account.

4. Packet of all customer account cards set forth in that list. (The payments accounted for herein have already been entered on the customer cards.)

5. A list of furniture and office equipment owned by the corporation as prepared by Mr. Wolf.

The contracts which support this first package of customer cards are in the possession of the Exchange National Bank. The cards for those customers who are not paying on a monthly basis will be forwarded to you as soon as they are received by me along with an updated list of payables and copies of all known contracts and leases. I am pushing Mr. Wolf and hope to have this for you within the next few days.

Thank you very much.

Sincerely yours,

s/s Sherwin Winer"

As illustrated, Winer's letter did not detail the powers which Carmel had over the transferred property, nor did it refer to Carmel as assignee for the benefit of creditors. The October 15 correspondence also included a note from Gilbert Wolf which advised customers of Wolf Furniture that the enterprise had ceased doing business and designated Carmel as the recipient of all future installment payments.

Carmel deposited the proceeds he received from Winer and those that he subsequently received from Wolf Furniture's accounts receivables in a bank account he had opened at United Bank of America in late 1982 or early 1983. In April 1984, Carmel transferred the funds to a money market account at Mid-City and executed a signature card as sole signatory on Account # 67-03437 as trustee for Wolf Furniture; but on Mid-City's Statement of Account Carmel was listed as escrowee for Wolf Furniture. Carmel testified later that no one except he had the power to withdraw funds from the account, and that he made a disbursement of approximately $500 out of the account to the Internal Revenue Service for taxes due.

During the dissolution process, Carmel communicated with the general unsecured creditors of Wolf Furniture on three occasions. On May 18, 1982, Carmel sent a letter to the creditors describing the agreements reached concerning liquidation and distribution, and notifying them of his duty to "monitor the liquidation process and arrange for periodic pro-ration distribution to unsecured creditors once the obligation due Exchange has been liquidated in full." On September 29 Carmel sent another letter to the creditors informing them that the liquidation sale was complete and that his office was in the process of collecting the accounts receivable. A third letter, dated April 11, 1983, related that Carmel was experiencing some difficulty collecting the outstanding debts, and that his law firm had not received any compensation for its services rendered in this matter. In none of this correspondence did Carmel inform the creditors that he was acting as an assignee for the benefit of creditors.

IBT was one of the unsecured creditors who received the communications referred to above, but rather than wait for its pro-rata distribution, IBT brought an action to compel payment of a debt owed for telephone service rendered to Wolf Furniture. In response to a summons in this action, Winer wrote counsel for IBT and stated that Wolf Furniture was "out of business" and that dissolution was being handled by Carmel through "an informal assignment for the benefit of creditors." IBT nevertheless proceeded to obtain a default judgment against Wolf Furniture in the sum of $11,096.22, and served Mid-City with a citation to discover assets belonging to Wolf Furniture. Mid-City disclosed the above-mentioned account in the name of James Carmel with a balance of $25,599.03, and IBT filed a motion for a turnover of those funds in order to satisfy its judgment.

On June 20, 1985, the trial court held a hearing on the turnover issue, and on November 20, 1985, it denied IBT's motion in an order, holding that "an express trust in personal property was created by the debtor, that Carmel was trustee, further, by his letters, Carmel, an attorney, assumed the duty of collecting and distributing the funds." The judge also concluded that the general creditors of Wolf were the beneficiaries of such trust.

In seeking to affirm the trial court, Carmel, the appellee, presents two alternative positions. Initially, he claims that the October 15 letter he received from Winer, his subsequent actions to collect and segregate Wolf Furniture's assets, and his correspondence with Wolf Furniture's unsecured creditors established a valid assignment for the benefit of creditors, and that IBT cannot reach the funds held by Carmel because property in the hands of an assignee under a valid assignment is not subject to judicial process such as attachment or garnishment. (Bach v. Chas. Weiner & Sons, Inc. (1955), 6 Ill.App.2d 284, 127 N.E.2d 279.) Alternatively, Carmel argues that we can affirm the actual holding of the trial court by finding that an express trust in personal property was created in which the beneficiaries are the creditors of Wolf Furniture. Under this option, a formal writing establishing the trust does not need to be shown since Illinois law does not require a written instrument for the creation of an express trust in personal property. Price v. State of Illinois (1979), 79 Ill.App.3d 143, 148-49, 34 Ill.Dec. 690, 398 N.E.2d 365.

In contrast, IBT maintains that this court can uphold the trial court only by finding that the relationship between Carmel and Wolf Furniture constituted a valid assignment for the benefit of creditors. IBT asserts such a relationship was not established because Carmel and Wolf Furniture did not comply with the common law requirements for a valid assignment for the benefit of creditors in that they were not parties to a written agreement delineating the powers of the assignee over the trust res. (Price v. Laing (1894), 152 Ill. 380, 38 N.E. 921; Farwell v. Nilsson (1890), 133 Ill. 45, 24 N.E. 74; Black v. Palmer (1957), 15 Ill.App.2d 207, 214, 145 N.E.2d 797.) Therefore, the argument runs, since the assignment is invalid, the assignee, Carmel, has acquired no rights as against any creditor seeking satisfaction of a debt, and the property he holds is subject to attachment or garnishment by IBT. Tribune Co. v. R & J Furniture Sales (1959), 20 Ill.App.2d 370, 375, 155 N.E.2d 844; Tribune Co. v. Canger Floral Co. (1941), 312 Ill.App. 149, 158, 37 N.E.2d 906.

We first address the issue of whether Carmel and Wolf Furniture established a valid and enforceable assignment for the benefit of creditors. An assignment for the benefit of creditors is a voluntary transfer by a debtor of his property to an assignee in trust for the purpose of applying the property or proceeds thereof to the payment of his debts and returning the surplus, if any, to the debtor. (Black v. Palmer (1957), 15 Ill.App.2d 207, 210-11, 145 N.E.2d 797.) Such an assignment implies a trust and contemplates the intervention of a trustee. (Tribune Co. v. Canger Floral Co. (1941), 312 Ill.App. 149, 155-56, 37 N.E.2d 906.) The assignment "passes the legal and equitable...