SOUTH MECKLENBURG PAINTING CONTRACTORS, INC., Plaintiff, v. THE
CUNNANE GROUP, INC., Defendant
No. COA98-881
(Filed 20 July 1999)
1. Corporations--corporate charter--revenue suspension--action on contract entered
during
The trial court correctly granted summary judgment for defendant in an action for breach
of a contract entered during a time when plaintiff's corporate charter was suspended under
N.C.G.S. § 105-230. Although the effect of N.C.G.S. § 105-230 is not absolute, it prevents a
corporation from conducting business as usual; plaintiff had no statutory right to enter into a
contractual relationship with defendant and may not bring suit to enforce a contract entered into
during the period of revenue suspension. Reinstatement is not relevant.
2. Corporations--corporate charter--revenue suspension--contract entered during--
dissolution statute
The trial court correctly granted summary judgment for defendant in an action on a
contract entered during a revenue suspension of the corporate charter where plaintiff argued that
N.C.G.S. § 55-14-05 permits the action. That statute mandates that a corporation may not carry
on any business except as appropriate to wind up and liquidate its affairs during the period of
dissolution.
3. Appeal and Error--authority not cited--contention abandoned
A contention concerning the ability of a corporation to enter into a contract during a
period in which its charter was suspended was deemed abandoned where no authority was cited.
Appeal by plaintiff from judgment entered 20 May 1998 by
Judge Robert P. Johnston in Mecklenburg County Superior Court.
Heard in the Court of Appeals 18 March 1999.
Wilson & Bos, by Gerard A. Bos, for plaintiff-appellant.
The Bishop Law Firm, P.A., by A. Todd Capitano, for
defendant-appellee.
JOHN, Judge.
Plaintiff South Mecklenburg Painting Contractors, Inc.
(SMPC), appeals the trial court's grant of summary judgment in
favor of defendant Cunnane Group, Inc. (Cunnane). In the main,
SMPC contends the court erred in ruling that N.C.G.S. § 105-230
(1997) and N.C.G.S. § 55-14-04 (1990) barred SMPC's action
against Cunnane. We affirm the trial court.
Relevant factual and procedural background includes the
following: SMPC is “in the business of supplying painting labor
and materials to general contractors on commercial projects.”
Cunnane is a general contractor operating in Charlotte, North
Carolina.
On 20 May 1997, representatives of SMPC and Cunnane met to
discuss a painting contract for the Bonnie Briar Townhouses (the
project), whereby SMPC would “provide labor and materials” in
exchange for agreed compensation. On 22 May 1997, a document was
executed reflecting the parties' agreement and SMPC began
purchasing materials and making preparations to commence work at
the project. Thereafter, SMPC became aware that another painting
contractor was painting the project.
On 21 August 1997, SMPC brought the instant action alleging
breach of contract and breach of quasi contract, seeking inter
alia, “actual and consequential damages in a sum . . .exceed[ing] $10,000.” Cunnane answered 27 October 1997 denying a
contractual relationship with SMPC. Specifically, and as grounds
for its subsequent 6 August 1998 motion for summary judgment,
Cunnane asserted that because SMPC's “Articles of Incorporation
were under revenue suspension” pursuant to G.S. § 105-230 at the
time of the alleged contract, SMPC was without authority to
conduct its normal business. SMPC's articles of incorporation
had been suspended 1 October 1991 and administratively dissolved
9 March 1993 by the Secretary of State for failure to pay annual
franchise fees. On 20 May 1998, the trial court granted
Cunnane's motion as to all SMPC's claims and the latter timely
appealed.
Summary judgment is properly granted when the pleadings,
depositions, answers to interrogatories, admissions and
affidavits show no genuine issue of material fact exists and the
movant is entitled to judgment as a matter of law. N.C.G.S. §
1A-1, Rule 56(c) (1990); Davis v. Town of Southern Pines, 116
N.C. App. 663, 665, 449 S.E.2d 240, 242 (1994), disc. review
denied, 339 N.C. 737, 454 S.E.2d 648 (1995). A summary judgment
movant bears the burden of showing that
(1) an essential element of plaintiff's claim
is nonexistent; (2) plaintiff cannot produce
evidence to support an essential element of
its claim; or (3) plaintiff cannot surmount
an affirmative defense raised in bar of itsclaim.
Lyles v. City of Charlotte, 120 N.C. App. 96, 99, 461 S.E.2d 347,
350 (1995), rev'd on other grounds, 344 N.C. 676, 477 S.E.2d 150
(1996). A court ruling upon a motion for summary judgment must
view all the evidence in the light most favorable to the non-
movant, accepting all its asserted facts as true, and drawing all
reasonable inferences in its favor. See Kennedy v. Guilford
Tech. Community College, 115 N.C. App. 581, 583, 448 S.E.2d 280,281 (1994).
[1]SMPC first contends the trial court erred in
its decision to grant [Cunnane's] motion for
summary judgment on the sole basis that
[SMPC's] corporate charter had been suspended
and administratively dissolved . . . for the
period of time that [plaintiff's] causes of
action against [defendant] accrued and [its]
action . . . commenced.
We do not agree.
It is well established that when a corporate charter has
been suspended for failure to pay franchise taxes, the
corporation under revenue suspension “loses its state-granted
privileges.” Pierce Concrete, Inc. v. Cannon Realty &
Construction Co., 77 N.C. App. 411, 412, 335 S.E.2d 30, 31
(1985).
G.S. § 105-230 provides in pertinent part:
If a corporation . . . fails to file any
report or return or to pay any tax or fee
required by this Subchapter for 90 days after
it is due, the Secretary shall inform the
Secretary of State of this failure. The
Secretary of State shall suspend the articles
of incorporation . . . . The powers,
privileges, and franchises conferred upon the
corporation . . . by the articles of
incorporation . . . terminate upon
suspension.
Further, N.C.G.S. § 105-231 (1997) states:
A person who exercises or by any act
attempts to exercise any powers, privileges,
or franchises under articles of incorporation. . . after it has been suspended under G.S.
§ 105-230 shall pay a penalty of not less
than one hundred dollars ($100.00) nor more
than one thousand dollars ($1,000.00) to be
recovered in an action to be brought by the
Secretary in the Superior Court of Wake
County. Any act performed or attempted to be
performed during the period of suspension is
invalid and of no effect.
Id. (Emphasis added).
Although the effect of G.S. § 105-230 is not absolute, see,
e.g., Mica Industries v. Penland, 249 N.C. 602, 606, 107 S.E.2d
120, 124 (1959), Swimming Pool Co. v. Country Club, 11 N.C. App.
715, 716, 182 S.E.2d 273, 274 (1971), and Ionic Lodge v. Masons,
232 N.C. 252, 259, 59 S.E.2d 829, 834-35, rev'd on other grounds,
232 N.C. 648, 62 S.E.2d 73 (1950) (corporation under revenue
suspension may bring lawsuit); see also Parker v. Homes, Inc., 22
N.C. App. 297, 299, 206 S.E.2d 344, 345 (1974) (approving
purchase and sale of property by suspended corporation) and Page
v. Miller, 252 N.C. 23, 26, 113 S.E.2d 52, 55 (1960) (G.S. § 105-
230 not intended to deprive corporation of its property or to
penalize innocent third parties), it indisputably prevents a
corporation from “continuing to conduct [its] business as usual.”
Pierce Concrete, 77 N.C. App. at 413, 335 S.E.2d at 31.
In Pierce Concrete, this Court observed that the
individual defendant, to the extent he was
involved, was acting in his capacity as
president and agent of the corporation. Hisauthority as agent of the corporation extended
only to matters within the ordinary scope of
the corporation's business. As discussed
above, the suspended corporation had no
statutory right to conduct as part of its
ordinary business . . . [the] transactions
which [occurred subsequent to its suspension].
Pierce Concrete, 77 N.C. App. at 413, 335 S.E.2d at 31 (citations
omitted) (emphasis added). We then held that, in consequence of
the suspension of the corporate charter, the individual defendant
was liable for the indebtedness sued upon because
[t]he law will not permit a corporate officer
to create obligations in the name of the
corporation, knowing the acts are without
authority and invalid, and then be permitted
to use the corporate name as shield against
the creditors.
Id. at 414, 335 S.E.2d at 32.
In the case
sub judice, the ordinary business of SMPC as
alleged in its complaint included “supplying painting labor and
materials to general contractors on commercial projects.” In
addition, the parties do not dispute that SMPC's corporate
charter had been suspended during the time it allegedly entered
into the agreement to provide painting services to Cunnane.
Accordingly, at the time of the alleged contract, SMPC had
“los[t] its state-granted privileges” to conduct “[its] business
as usual.”
Pierce Concrete, 77 N.C. App. at 412-13, 335 S.E.2d
at 31. Moreover, G.S. § 105-231 explicitly mandates that any “act
performed or attempted to be performed” by SMPC “during [its]
period of suspension is invalid and of no effect.” G.S. § 105-
231. Consequently, SMPC “had no statutory right . . . as part of
its ordinary business,”
Pierce Concrete, 77 N.C. App. at 413, 335
S.E.2d at 31, to enter into a contractual relationship with
Cunnane.
Notwithstanding, SMPC cites the holding in
Mica, 249 N.C.
602, 107 S.E.2d 120, that “revenue suspension does not end a
corporation's capacity to sue.” Therefore, SMPC concludes, the
circumstance of revenue suspension would not operate to preclude
its suit against Cunnane.
Mica is distinguishable.
The corporation's suit in
Mica was based upon transactions
occurring while operation of the company was statutorily valid,
see Mica, 249 N.C. 602, 107 S.E.2d 120 (corporation may bring
action regarding transactions consummated before suspension),
and a corporation may sue to enforce rights acquired prior to its
suspension,
see Swimming Pool, 11 N.C. App. at 716, 182 S.E.2d at
273-74 (corporation had legal capacity to bring suit to enforce
contract entered into before suspension, notwithstanding
suspension of corporation's articles of incorporation prior to
commencement of suit), and
Page, 252 N.C. at 26, 113 S.E.2d at 55
(corporation's transfer of property not invalid where judicialsale to corporation was confirmed but articles of incorporation
suspended prior to corporation's assignment of its bid to
judgment creditor and joining with creditor to convey the
property, because G.S. § 105-230 was not intended to “deprive a
corporation of its properties nor penalize innocent [third]
parties”).
In the instant case, however, SMPC sought to enforce
contract rights allegedly acquired
during a period of suspension.
The present circumstance is thereby distinct from case-law
grounded upon the rationale that suspension of a corporate
charter
“while depriving the corporation of the power
to engage in the ordinary business for which
it has been chartered, [does not] take[] away
. . . the incidental powers necessary to [the
corporation's] survival [
i.e.,] the power to
protect its property in a court of law,
either by assertion or defense of right.”
Swimming Pool, 11 N.C. App. at 716, 182 S.E.2d at 274
(citation omitted);
see also Mica, 249 N.C. at 606, 107 S.E.2d
at 124;
Ionic Lodge, 232 N.C. at 259, 59 S.E.2d at 834
(corporation may defend action brought against it during
period of suspension);
Trust Co. v. School for Boys, 229 N.C.
738, 743, 51 S.E.2d 477, 480 (1949) (corporation may take
property under a will during suspension). Although our courts
have not specifically addressed the issue
sub judice prior tothe instant appeal, our reading of G.S. § 105-230 and G.S. §
105-231, as well as of the case-law cited above, compels the
conclusion that a corporation may not bring suit to enforce a
contract entered into during a period of revenue suspension.
SMPC vigorously points to the reinstatement of its
articles during the pendency of this action.
(See footnote 1)
We respectfully
respond that such reinstatement is not relevant to our
inquiry. Rather we conclude the statute and case law direct
our focus to the circumstance that SMPC's suit against Cunnane
was instituted to enforce a contract allegedly entered into
while SMPC's articles of incorporation were suspended. We
reiterate that once suspended, a corporation simply may not
“conduct . . . business as usual,”
Pierce Concrete, 77 N.C.
App. at 413, 335 S.E.2d at 31, and “[a]ny act performed or
attempted to be performed during [a] period of suspension is
invalid and of no effect.” G.S. § 105-231.
[2]SMPC also argues that portions of the Business
Corporation Act, N.C.G.S. §§ 55-1-01 through 55-17-05 (1997),
permit the instant action. SMPC specifically points to G.S. §
55-14-05 which provides in pertinent part:
Effect of dissolution
(a) A dissolved corporation continues its
corporate existence but may not carry on
any business except that appropriate to
wind up and liquidate its business and
affairs, including:
(1) Collecting its assets;
(2) Disposing of its properties that
will not be distributed in kind to its
shareholders;
(3) Discharging or making provision
for discharging its liabilities;
(4) Distributing its remaining
property among its shareholders according
to their interests; and
(5) Doing every other act necessary
to wind up and liquidate its business and
affairs.
(b) Dissolution of a corporation does not:
(1) Transfer title to the
corporation's property;
(2) Prevent transfer of its shares
or securities, although the authorization
to dissolve may provide for closing the
corporation's share transfer records;
(3) Subject its directors or
officers to standards of conduct different
from those prescribed in Article 8;
(4) Change quorum or voting
requirements for its board of directors or
shareholders; change provisions for
selection, resignation, or removal of its
directors or officers or both; or change
provisions for amending its bylaws;
(5) Prevent commencement of aproceeding by or against the corporation
in its corporate name;
(6) Abate or suspend a proceeding
pending by or against the corporation on
the effective date of dissolution; or
(7) Terminate the authority of the
registered agent of the corporation.
G.S. § 55-14-05.
We do not quarrel with SMPC's assertion that G.S. § 55-
14-05 allows a corporation to “commence[] . . . a proceeding
by . . . the corporation in its corporate name.”
Id.
However, the statute also mandates that a corporation “may
not carry on any business except that appropriate to wind up
and liquidate its business and affairs” during the period of
dissolution.
Id. As SMPC's articles of incorporation were
dissolved 9 March 1993, there remains no legal basis upon
which to validate the alleged 22 May 1997 contract with
Cunnane occurring during the period of SMPC's suspension and
dissolution so as to permit suit upon the alleged contract.
SMPC's reliance upon the Business Corporation Act is
unavailing.
[3]Finally, SMPC contends the trial court committed
reversible error in that there was no “evidence of [SMPC's]
actual intent or knowledge concerning the suspension or
administrative dissolution [of its charter] in the record.”
However, plaintiff cites no authority in support of thiscontention and it is deemed abandoned.
See N.C.R. App. P.
28(b)(5) (“assignments of error . . . in support of which no
reason or argument is stated or authority cited, will be taken
as abandoned”).
In sum, SMPC had no statutory authority to enter into a
contractual relationship with Cunnane while the former's
corporate charter was in a state of administrative suspension
and dissolution.
See G.S. § 105-231 (“[a]ny act performed or
attempted to be performed during [a] period of suspension is
invalid and of no effect”). Accordingly, there existed no
basis upon which to allow SMPC to seek enforcement of the
alleged contract, and the trial court did not err in granting
summary judgment in favor of Cunnane.
Affirmed.
Judges WALKER and McGEE concur.
Footnote: 1