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No. 3--03--0097

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APPELLATE COURT OF ILLINOIS

THIRD DISTRICT

A.D., 2003

PRESIDING JUSTICE McDADE delivered the opinion of the court:

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In this appeal from the circuit court of Bureau County, thedefendants below, Jim Haff and Sheila Haff, appeal an orderpiercing the corporate veil and making them personally liable forthe corporate debts of J.A. Haff & Sons, Inc., an Illinoiscorporation of which they were the sole shareholders andofficers. For the following reasons, we reverse.

FACTS

The Haffs were the sole shareholders and officers of arestaurant supply wholesale business, J.A. Haff & Sons, Inc.,that often purchased supplies from Cosgrove Distributors, Inc., adistributor of restaurant supplies. In April of 2002, J.A. Haff &Sons, Inc., ceased business operations. At that time, thecorporation owed Cosgrove approximately $9,000. Cosgrove sued theHaffs personally for the owed amount. The Haffs claimed that theywere not responsible for debts owed by the corporate entity.

The first witness at trial was Nora Cosgrove. Ms. Cosgrovetestified that she was unaware that J.A. Haff & Sons, Inc., was acorporation until the filing of the lawsuit. She testified thatJames Haff personally called in orders to Cosgrove and that heoften came to pick up the orders himself, but she was unable toremember whether Haff paid for the orders with cash or withchecks. She recollected that when she called the defendants'company, the phone was answered "J. Haff," which she assumedstood for Jim Haff. However, Cosgrove invoices entered intoevidence during her testimony recorded dealings with "J.A. Haff &Sons, Inc.," and Ms. Cosgrove acknowledged that it was commonpractice at Cosgrove to place the corporate name and billingaddress at the top of Cosgrove invoices. Other documents,including invoices sent to plaintiff from the defendants andinvoices and documents received from third parties, also referredto the defendants' company as J.A. Haff & Sons, Inc.

Jack Cosgrove testified that he had done business with thedefendants for approximately 10 years. He stated that trucks thatcame to pick up orders for the defendants were labeled J.A. Haff& Sons, and that checks received for those orders were alsolabeled J.A. Haff & Sons. However, he testified that he believedJ.A. Haff & Sons and Jim Haff to be the same. Upon questioning bythe judge, he testified that J.A. Haff & Sons, Inc., did notsubmit a credit application to Cosgrove Industries.

James Haff testified after the close of plaintiffs' case. Hestated that J.A. Haff & Sons, Inc., was a registered Illinoiscorporation and that he and Sheila Haff were the onlyshareholders. He was the president of the corporation and SheilaHaff was the secretary/treasurer. He testified that they heldannual shareholder meetings and kept personal accounts separatefrom corporate accounts. The Haffs had never borrowed money fromthe corporation, nor loaned it money. On invoices and checks sentto Cosgrove from the company was the name J.A. Haff & Sons, Inc.

The court, after hearing the evidence, found that thedefendants could not claim the protection of the corporate veilbecause they had not sufficiently notified Cosgrove that it wasdealing with a corporate entity, J.A. Haff & Sons, Inc., ratherthan the Haffs individually. Judgment was entered in favor of theplaintiff. The defendants appeal the decision.ANALYSIS

Generally, a corporation as a legal entity exists separatelyfrom its shareholders, directors and officers, who are notordinarily liable for the corporation's obligations. Jacobson v.Buffalo Rock Shooter's Supply, Inc., 278 Ill. App. 3d 1084, 1088,664 N.E.2d 328, 331 (1996). For a court to pierce the corporateveil and find the shareholders liable for the corporation'sobligations, two conditions must be met: (1) a unity of interestand ownership that causes the separate personalities of thecorporation and the individual to no longer exist; an (2) thepresence of circumstances under which adherence to the fiction ofa separate corporate existence would sanction a fraud, promoteinjustice or promote inequitable consequences. Jacobsen, 278 Ill.App. 3d at 1088, 664 N.E.2d at 331. A trial court's decisionwhether to pierce the corporate veil should not be overturnedunless it is against the manifest weight of the evidence.Jacobson, 278 Ill. App. 3d at 1088, 664 N.E.2d at 331.

Courts are reluctant to pierce the corporate veil. Thereforea party seeking to pierce the veil must make a substantialshowing that the corporation is really a dummy or sham foranother dominating entity. Jacobsen, 278 Ill. App. 3d at 1088,664 N.E.2d at 331. Courts look at a number of factors todetermine whether to pierce the veil. These factors include:inadequate capitalization; failure to issue stock; failure toobserve corporate formalities; nonpayment of dividends;insolvency of the debtor corporation; nonfunctioning of the otherofficers or directors; absence of corporate records; comminglingof funds; diversion of assets from the corporation by or to ashareholder; failure to maintain arm's-length relationships amongrelated entities; and whether the corporation is a mere facadefor the operation of the dominant shareholders. Jacobsen, 278Ill. App. 3d at 1088, 664 N.E.2d at 331.

In this case the evidence does not warrant the piercing ofthe veil. It is undisputed that the Haffs held annual meetings,thereby maintaining corporate formalities. They did not commingletheir funds with those of the corporation, did not borrow fromthe corporation and did not loan money to the corporation.

There is no evidence to indicate that J.A. Haff & Sons,Inc., was anything more than a properly registered corporationengaged in a course of business. The corporation had employees,customers and suppliers, and was a separate and distinctcommercial enterprise. It was no more a facade for the operationof the dominant shareholders than any other small, closely heldcorporation. The plaintiff argues that to allow the defendantsthe protection of the corporation would be to sanction a fraudand allow inequitable consequences. However, there is absolutelyno indication that the defendants engaged in any fraud. For thesereasons, the test for piercing the corporate veil has not beenmet, and the trial court's finding otherwise was against themanifest weight of the evidence.

Despite this, the plaintiff argues that the defendantsshould be estopped from asserting corporate protection becausethey failed to sufficiently apprise the plaintiff of thecorporate status of the company. In order to invoke equitableestoppel, the asserting party must show that (1) the other partymisrepresented or concealed material facts; (2) the other partyknew at the time it made the misrepresentations that they wereuntrue; (3) the party claiming estoppel did not know that therepresentations were untrue when they were made and acted upon;(4) the other party intended or reasonably expected that theparty claiming estoppel would act upon the representations; (5)the party claiming estoppel reasonably relied upon therepresentations in good faith to its detriment; and (6) the partyclaiming estoppel would be prejudiced by its reliance on therepresentations if the other party is permitted to deny the truththereof. Geddes v. Mill County Country Club, Inc., 196 Ill. 2d302, 313-14, 751 N.E.2d 1150, 1157 (2001). The trial court'sgrant of relief in the form of equitable estoppel must besupported by clear and convincing evidence and should not beoverturned absent an abuse of discretion. In re Marriage ofDuerr, 250 Ill. App. 3d 232, 237, 621 N.E.2d 120, 124 (1993).

The record does not support a finding of estoppel. There isno evidence to indicate that the defendants concealed ormisrepresented the fact that J.A. Haff & Sons was a corporateentity. The corporate name appeared on invoices from the company,on the check with which Cosgrove was paid, and on the deliveryvehicle. Indeed, plaintiff used the Haff corporate name on itsown invoices sent to document deliveries and secure payment ofgoods. These facts are inconsistent with the assertion that thedefendants hid the corporate identity of the organization.

The fault seems to lie squarely with the plaintiff, which,despite doing business with J.A. Haff & Sons, Inc., for around adecade, failed to notice, despite clear documentary indications,that the business it dealt with was a corporation. The defendantsshould not be punished for the plaintiff's failure or refusal toperceive or appreciate relevant facts about the defendants'business. Because there is no evidence of concealment ormisrepresentation on the part of the defendants, the trial courterred in finding that the defendants are estopped from assertingcorporate protection.

CONCLUSION

The trial court ruling piercing the corporate veil wasagainst the manifest weight of the evidence. There was noevidence that the defendants had attempted to perpetrate a fraudon the plaintiff, nor that the corporation was a dummy or shamentity. In fact, the defendants adhered to corporate formalities.Furthermore, the court's finding that the defendants wereestopped from asserting corporate protection was an abuse ofdiscretion, since there was no evidence that the defendantswithheld information or misrepresented material facts. The rulingof the circuit court of Bureau County is reversed.

Reversed.

SLATER and HOLDRIDGE, JJ., concur.