Vernon v. Schuster

Decision Date18 December 1997
Docket NumberNo. 82680,82680
Citation179 Ill.2d 338,688 N.E.2d 1172,228 Ill.Dec. 195
Parties, 228 Ill.Dec. 195 George VERNON et al., Appellees, v. Jerry SCHUSTER, d/b/a Diversey Heating and Plumbing, Appellant.
CourtIllinois Supreme Court

Richard L. Curry, William L. Barr, Jr., and Robert M. Moye, Bell, Boyd & Lloyd, Chicago, for Jerry Schuster.

George Vernon, Leng Stowell Friedman & Vernon, Chicago, for George Vernon.

Chief Justice FREEMAN delivered the opinion of the court:

Plaintiffs, George Vernon and Nancy Baker, brought an action in the circuit court of Cook County against defendant, Jerry Schuster, doing business as Diversey Heating and Plumbing. Plaintiffs alleged, inter alia, that defendant, a sole proprietorship, succeeded to the liability of a predecessor sole proprietorship for breach of contract and breach of warranty claims.

The circuit court dismissed those claims for failure to state a cause of action. The appellate court reversed and remanded. 285 Ill.App.3d 857, 221 Ill.Dec. 122, 674 N.E.2d 915. We allowed defendant's petition for leave to appeal. 166 Ill.2d R. 315(a). We now reverse the appellate court and remand the cause to the circuit court for further proceedings.

BACKGROUND

In determining whether to allow a motion to dismiss, a court must take as true all well-pled allegations of fact contained in the complaint and construe all reasonable inferences therefrom in favor of the plaintiff. Bryson v. News America Publications, Inc., 174 Ill.2d 77, 86, 220 Ill.Dec. 195, 672 N.E.2d 1207 (1996).

Plaintiffs' first-amended complaint alleged as follows. In November 1989, plaintiffs owned a building at 953 W. Webster Avenue in Chicago. James Schuster was a sole proprietor doing business as Diversey Heating and Plumbing (Diversey Heating). Diversey Heating was in the business of selling, installing, and servicing heating and plumbing systems.

Plaintiffs contracted with Diversey Heating to replace the boiler in their building. Diversey Heating warranted for 10 years portions of the boiler against cracking. In the course of installing the boiler, Diversey Heating employees sealed a valve with a pipe, which prevented the valve from draining water from the boiler. Diversey Heating instructed Baker that the only care the boiler would need was an annual preseason servicing prior to the heating season. Diversey also admonished plaintiffs not to drain water from the boiler because that could severely damage it.

From 1990 through 1992, plaintiffs paid Diversey Heating to inspect and service the boiler annually. In September or October 1993, Baker and James Schuster agreed that Diversey Heating would perform preseason service on the boiler.

On October 20, 1993, James Schuster died. Beginning on that date, Diversey Heating was a sole proprietorship owned and operated by defendant, Jerry Schuster, who is James Schuster's son.

In late October or early November 1993, Vernon asked Diversey Heating whether it had performed the preseason service on the boiler. Defendant informed Vernon of his father's death. Defendant told Vernon that Diversey Heating had not yet performed the preseason service on the boiler, but that it would service the boiler immediately.

In February 1994, the boiler stopped heating. Defendant inspected the boiler and told plaintiffs that it was totally broken, could not be repaired, and had to be replaced. Defendant told plaintiffs that Diversey Heating had no responsibility for the failure of the boiler and would not honor the warranty. After consulting a second heating contractor, plaintiffs paid $8,203 for a new boiler.

Count I of plaintiffs' four-count complaint alleged that defendant was negligent in installing and servicing the boiler and instructing plaintiffs on caring for the boiler. Count II alleged that defendant's promise in late October or early November 1993 to service the boiler was the basis of a contract, and that defendant breached that contract.

Count III alleged that Diversey Heating breached its warranty on the boiler, and count IV alleged that Diversey Heating breached its contract to install and service the boiler properly. In these counts, plaintiffs alleged:

"18. On Jim Schuster's death Jerry Schuster succeeded to the assets, rights and obligations of Diversey Heating and Plumbing and received the benefits of the good will associated with the name of Diversey Heating and Plumbing.

19. Jerry Schuster d/b/a Diversey Heating and Plumbing is a continuation of Jim Schuster d/b/a Diversey Heating and Plumbing and a successor to the relationship, rights and obligations of Diversey Heating and Plumbing under the contract and warranty * * * ."

On defendant's motion, the circuit court dismissed count I based on the economic loss doctrine enunciated in Moorman Manufacturing Co. v. National Tank Co., 91 Ill.2d 69, 61 Ill.Dec. 746, 435 N.E.2d 443 (1982). The Plaintiffs appealed from the dismissal of counts III and IV. The appellate court reversed and remanded. The court noted the above-quoted allegations that Diversey Heating, a sole proprietorship owned and operated by defendant, was merely a continuation of Diversey Heating, a sole proprietorship owned and operated by his father, James Schuster. The appellate court held that counts III and IV stated a cause of action against defendant. 285 Ill.App.3d at 863, 221 Ill.Dec. 122, 674 N.E.2d 915. Defendant appealed (166 Ill.2d R. 315).

                [228 Ill.Dec. 198] court dismissed counts III and IV "because this defendant cannot be held liable for any obligations of his father's sole proprietorship."   The court limited count II "to events occurring after the death of James Schuster on October 20, 1993."   The court also found no just reason to delay an appeal of the decision.  See 155 Ill.2d R. 304(a)
                
DISCUSSION

This case is before us following the dismissal of plaintiffs' claims pursuant to section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 1996)). A section 2-615 motion attacks the legal sufficiency of a complaint. The motion does not raise affirmative factual defenses, but rather alleges only defects on the face of the complaint. The question presented by a section 2-615 motion to dismiss is whether the allegations of the complaint, when viewed in a light most favorable to the plaintiff, are sufficient to state a cause of action upon which relief can be granted. Bryson, 174 Ill.2d at 86-87, 220 Ill.Dec. 195, 672 N.E.2d 1207; Urbaitis v. Commonwealth Edison, 143 Ill.2d 458, 475, 159 Ill.Dec. 50, 575 N.E.2d 548 (1991). A cause of action will not be dismissed on the pleadings unless it clearly appears that no set of facts can be proved which will entitle the plaintiff to recover. Gouge v. Central Illinois Public Service Co., 144 Ill.2d 535, 542, 163 Ill.Dec. 842, 582 N.E.2d 108 (1991).

Moreover, Illinois is a fact-pleading jurisdiction. A plaintiff must allege facts sufficient to bring his or her claim within the scope of the cause of action asserted. Anderson v. Vanden Dorpel, 172 Ill.2d 399, 408, 217 Ill.Dec. 720, 667 N.E.2d 1296 (1996); People ex rel. Fahner v. Carriage Way West, Inc., 88 Ill.2d 300, 308, 58 Ill.Dec. 754, 430 N.E.2d 1005 (1981). Since ruling on a motion to dismiss does not require a court to weigh facts or determine credibility, we review the complaint de novo. Mt. Zion State Bank & Trust v. Consolidated Communications, Inc., 169 Ill.2d 110, 127, 214 Ill.Dec. 156, 660 N.E.2d 863 (1995); Toombs v. City of Champaign, 245 Ill.App.3d 580, 583, 185 Ill.Dec. 755, 615 N.E.2d 50 (1993).

The issue presented here is whether plaintiffs sufficiently alleged that defendant succeeded to the liability of his father, James Schuster, doing business as Diversey Heating. The well-settled general rule is that a corporation that purchases the assets of another corporation is not liable for the debts or liabilities of the transferor corporation. Nilsson v. Continental Machine Manufacturing Co., 251 Ill.App.3d 415, 417, 190 Ill.Dec. 579, 621 N.E.2d 1032 (1993); People ex rel. Donahue v. Perkins & Will Architects, Inc., 90 Ill.App.3d 349, 351, 45 Ill.Dec. 696, 413 N.E.2d 29 (1980).

The traditional rule of successor corporate nonliability "developed as a response to the need to protect bonafide purchasers from unassumed liability" (Tucker v. Paxson Machine Co., 645 F.2d 620, 623 (8th Cir.1981)) and was "designed to maximize the fluidity of corporate assets" (Upholsterers' International Union Pension Fund v. Artistic Furniture, 920 F.2d 1323, 1325 (7th Cir.1990)). The rule is the "general rule in the majority of American jurisdictions." Leannais v. Cincinnati, Inc., 565 F.2d 437, 439 (7th Cir.1977); accord 15 W. Fletcher, Private Corporations § 7122 (rev.vol.1990).

"To offset the potentially harsh impact of the rule, however, the law also developed methods to protect the rights of corporate creditors after dissolution." Tucker, 645 F.2d at 623. There are four exceptions to the general rule of successor corporate nonliability: (1) where there is an express or implied agreement of assumption; (2) where the transaction amounts to a consolidation or merger of the purchaser or seller corporation; (3) where the purchaser is merely a continuation of the seller; or (4) where the The continuation exception to the rule of successor corporate nonliability applies when the purchasing corporation is merely a continuation or reincarnation of the selling corporation. Grand Laboratories, Inc. v. Midcon Labs of Iowa, Inc., 32 F.3d 1277, 1282 (8th Cir.1994), quoting Bud Antle, 758 F.2d at 1458. In other words, the purchasing corporation maintains the same or similar management and ownership, but merely "wears different clothes." Bud Antle, 758 F.2d at 1458; Nilsson, 251 Ill.App.3d at 418, 190 Ill.Dec. 579, 621 N.E.2d 1032. The rationale of this exception is as follows:

[228 Ill.Dec. 199] transaction is for the fraudulent purpose of escaping liability for the seller's obligations. Steel Co. v. Morgan Marshall Industries, Inc., 278...

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