Appellate Court Confirms Five-Year Cut-off for Suing a Dissolved Corporation

In a recent First District Appellate Court decision, Justice Epstein, explains in detail that the plain and unambiguous language of section 12.80 of the Business Corporations Act prohibits a court from extending the “grace period” for suits against dissolved corporations beyond the definite period of five years contained in the statute.

In Michigan Indiana Condominium Ass’n v. Michigan Place, LLC, 2014 IL App (1st) 123764 (decided April 24, 2014),  the third-party plaintiff alleged breach of contract and breach of implied warranties against certain corporate third–party defendants. Because both third-party defendant corporations had been dissolved, the third-party plaintiff served its notice upon the Secretary of State pursuant to section 5.25 of the Business Corporation Act of 1983 (805 ILCS 5/1.01 et seq. (West 2010)). The third-party defendants moved jointly to dismiss the third-party complaint pursuant to sections 2-619(a)(5) and (a)(9) of the Code of Civil Procedure,  arguing that, since the action against them was instituted more than five years after their dissolution, the Secretary of State was not authorized to act as the dissolved corporations’ agent under the Act, service was therefore improper, and the court lacked personal jurisdiction.  The court recounted well-established legal principles:

“A corporation can exist only under the express laws of the State by which it was created.” Blankenship v. Demmler Manufacturing Co., 89 Ill. App. 3d 569, 573 (1980). “Accordingly, the right to sue a dissolved corporation is limited to the time established by the legislature.” Id. The dissolution of a corporation is, in legal effect, the same as the death of a natural person. Markus v. Chicago Title & Trust Co., 373 Ill. 557, 561 (1940), overruled on other grounds by ABN AMRO Mortgage Group, Inc. v. McGahan, 237 Ill. 2d 526 (2010). “Under common law, a dissolved corporation could not sue or be sued.” Henderson-Smith &Associates, Inc. v. Nahamani Family Service Center, Inc., 323 Ill. App. 3d 15, 19-20 (2001). Even its pending legal proceedings would abate. Id. at 20; Blankenship, 89 Ill. App. 3d at 572.”

However, these common law doctrines had been commented on, and arguably, eroded many times over the course of time (such as in minor’s cases).  Thus, the third-party plaintiff prayed for relief from their harsh impact.  The Court commented that Section 12.80 is not a statute of limitations but, rather, a corporate “survival” statute with section 12.80 extending the life of a corporation after its dissolution so that suits which normally would have abated may be brought by and against the corporation.  It is not a statute of limitations nor a statute of repose. It is rather a statute that extends the limitations period but recognizes an endpoint to sue established by the legislature.  The court found the “end-point” to be valid even where the time to file a third-party action expires before the third-party could have discovered that it had a cause of action against the dissolved corporations.  The court ruled that “this harsh result does not allow us to disregard the plain language of the statute.”