Jensen Sound Laboratories v. Long
447 N.E.2d 464, 113 Ill. App. 3d 331, 69 Ill. Dec. 247 (1983)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
To relieve former partners of personal liability for debts incurred by a newly incorporated entity, actual notice of the partnership's dissolution and incorporation must be given to persons who have dealt with the firm, unless the new corporate name significantly differs from the partnership name, includes an appropriate indicium of corporateness, and the firm's dealings in the new form convey information of the incorporation.
Facts:
- In June 1978, Jensen Sound Laboratories provided open-account credit to Long’s Auto Sound, a partnership.
- George and Alice Long were the partners of Long’s Auto Sound.
- On January 24, 1979, Long’s Sound Systems, Inc. was incorporated and acquired the business of Long’s Auto Sound.
- The name of the new corporation, Long's Sound Systems, Inc., was significantly different from the partnership's name, Long's Auto Sound, and contained an explicit indicium of corporateness (i.e., 'Inc.').
- For almost two years after the incorporation, Jensen Sound Laboratories was in receipt of corporate checks bearing the name 'Long's Sound Systems, Inc.'
- Jensen Sound Laboratories claimed it had no knowledge that the defendants had become a corporation, except for the corporate checks it received.
- Long’s Sound Systems, Inc. was dissolved on December 1, 1981, by action of the Illinois Secretary of State’s Office.
Procedural Posture:
- Jensen Sound Laboratories (Plaintiff) provided open-account credit to Long’s Auto Sound, a partnership.
- Long’s Auto Sound was incorporated as Long’s Sound Systems, Inc., and subsequently incurred a debt.
- Jensen Sound Laboratories sued George and Alice Long (individual defendants) in the circuit court of Sangamon County (trial court) for personal liability regarding the debt.
- The circuit court entered judgment for the individual defendants, George and Alice Long, finding them not personally liable for the debt.
- Jensen Sound Laboratories (Appellant) appealed the judgment of the circuit court to the Appellate Court of Illinois, Fourth District, with George and Alice Long as Appellees.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a creditor receive adequate actual notice of a partnership's incorporation and dissolution, sufficient to relieve the former partners of personal liability for debts incurred by the new corporation, when the creditor receives corporate checks for an extended period and the corporate name is significantly different from the partnership name and includes an explicit indicium of corporateness?
Opinions:
Majority - Justice Jones
Yes, a creditor receives adequate actual notice of a partnership's incorporation and dissolution, sufficient to relieve the former partners of personal liability for debts incurred by the new corporation, when the creditor receives corporate checks for an extended period and the corporate name is significantly different from the partnership name and includes an explicit indicium of corporateness. The court affirmed the trial court's judgment, reasoning that while actual notice of partnership dissolution is generally required for those who have dealt with the firm, this rule applies only if, when an existing partnership is incorporated, the firm continues dealing in the same way and the change of name does not convey information of the incorporation. In this case, Jensen Sound Laboratories received corporate checks from 'Long's Sound Systems, Inc.' for almost two years, and the corporate name was significantly different from 'Long's Auto Sound' and contained 'Inc.' The court found this record demonstrated sufficient notification, distinguishing it from prior cases where the name change was minimal (e.g., Roof v. Morrisson, Plummer & Co.) or where a specific personal guarantee existed (e.g., Kingsberry Homes v. Corey). The court concluded that the consistent receipt of corporate checks over a two-year period, bearing a substantially changed and corporately designated name, constituted actual notice to the plaintiff.
Analysis:
This case clarifies the standard for actual notice required to relieve partners of personal liability when their partnership incorporates, particularly regarding existing creditors. It establishes that actual notice can be implicitly provided through observable changes in business operations and nomenclature, such as the consistent use of corporate checks with a clearly distinct and corporate-indicating name, even without formal written notification. This ruling provides important guidance on the practical obligations of incorporating entities to inform creditors and limits the instances where former partners remain personally liable for corporate debts, emphasizing the importance of visible and unambiguous signals of a change in legal entity status for effective communication of liability shifts.
