Indiana Nat. Bank v. Churchman

• Decision Date: 27 December 1990
• Docket Number: No. 49A02-8906-CV-270,49A02-8906-CV-270
• Citation: 564 N.E.2d 340
• Parties: The INDIANA NATIONAL BANK, Appellant (Plaintiff Below), v. David C. CHURCHMAN, Appellee (Defendant Below).
• Court: Indiana Appellate Court

Page 340

564 N.E.2d 340

The INDIANA NATIONAL BANK, Appellant (Plaintiff Below), v. David C. CHURCHMAN, Appellee (Defendant Below).

No. 49A02-8906-CV-270.

Court of Appeals of Indiana,

Second District.

Dec. 27, 1990.

James M. Secrest, Indianapolis, for appellant.

William A. Freihofer, Freihofer, Minton, Keeler & McClamroch, Indianapolis, for appellee.

SULLIVAN, Judge.

Indiana National Bank (Bank) appeals from the denial of its Motion for Summary Judgment and the granting of appellee-cross-appellant, David C. Churchman's (Churchman) Motion for Summary Judgment. Churchman cross appeals from the granting of Bank's Motion for Judgment on the Evidence.

We affirm in part and reverse in part.

Bank brought an action against David Churchman to collect the unpaid balance due on a promissory note executed to it by M.S. Churchman Co., Inc. (Corporation), an Indiana corporation. The record reflects that Corporation obtained an $800,000 "line of credit" from Bank. On July 20, 1982, Corporation executed a promissory note to Bank for that amount. The note was secured by collateral consisting of accounts receivable and inventory, as well as a real estate mortgage. The note was signed by Joseph F. Williams, as vice president and treasurer, and Donald Pea, as assistant treasurer. Churchman did not sign the note in any capacity.

On November 12, 1984, written notice of corporate dissolution was sent to Bank, pursuant to statute. Articles of Dissolution were filed with the Indiana Secretary of State's Office on April 4, 1985, and a Certificate of Dissolution issued that same date.

It is undisputed that on April 4, 1985, the amount of unpaid principal on Corporation's note was $49,500.00. Following dissolution, David Churchman made monthly interest payments to and including January 15, 1986. Churchman and Bank also discussed various means of satisfying the debt. These discussions ended on March 25, 1986, with no agreement as to how the debt was to be satisfied.

At some point, but apparently prior to March 25, 1986, the real estate subject to Bank's mortgage was sold. Bank's security interest was not satisfied due to an error on the part of a title company retained in connection with the sale. However, on December 29, 1986, Bank received full payment on the note as a result of a settlement with the title company. The note was assigned to the title company.

On September 3, 1987, Bank filed a complaint seeking judgment against David Churchman for $49,500.00 plus interest, costs and attorneys' fees. ¹ Churchman filed an Answer and Motion to Dismiss, asserting a statute of limitations affirmative defense. Churchman also filed a counterclaim against Bank alleging bad faith in the institution of its suit and seeking punitive damages. Subsequently, Churchman amended his Answer, asserting payment of the debt as an additional affirmative defense.

Both sides moved for summary judgment. Following a hearing, the trial court entered an order denying Bank's motion, and granting Churchman's, on the issues raised by Bank's complaint. Churchman's counterclaim was tried to a jury on May 30-31, 1989. At the close of Churchman's case, Bank moved for judgment on the evidence pursuant to Trial Rule 50. The motion was granted.

Bank's appeal raises one issue: Whether it was error to grant summary judgment for Churchman, and to deny Bank's motion, where Churchman's actions allegedly tolled the statute of limitations?

Churchman's cross-appeal raises an additional issue: Whether it was error to grant Bank's motion for judgment on the evidence where Bank presented no evidence to rebut Churchman's claim of malicious prosecution?

I.

Bank's action against Churchman as sole shareholder of M.S. Churchman, Inc. was commenced September 3, 1987. Churchman's motion for summary judgment invoked I.C. 23-1-7-1(e) (since repealed) as a bar to Bank's action. That section provided:

"(e) The dissolution of any corporation in accordance with the provisions of this section shall not take away or impair any remedy of or against such corporation, its directors, officers or shareholders, for any liabilities incurred by the corporation, its directors, officers or shareholders, for any liabilities incurred by the corporation previous to its dissolution if suit is brought and service of process is had, as provided by the laws of this state, within two (2) years after the date of such dissolution, nor shall such dissolution take away or impair the right or power of any such corporation to collect, liquidate, sue for and in any lawful manner realize upon and to distribute to its shareholders as in this section provided any asset not distributed to its shareholders prior to the issuance of such certificate of dissolution." ²

Bank's response to Churchman's motion, as well as Bank's own motion, asserted the theory of equitable estoppel. Bank argued that Churchman's actions in paying interest for nine months after dissolution and in discussing various options for satisfying the debt essentially misled the Bank, causing it to postpone filing suit until the two year time limit imposed by I.C. 23-1-7-1(e) had passed. Bank contends these acts tolled the statute.

The question of whether the theory of equitable estoppel operates to toll I.C. 23-1-7-1(e) has not been addressed by an Indiana court. However, we have the benefit of numerous decisions from other jurisdictions. Without fail, these decisions treat statutes identical, or similar, to I.C. 23-1-7-1 as "survival" statutes, rather than as statutes of limitation. That is, the statute gives life to a right otherwise destroyed.

At common law, the corporate capacity to sue or be sued terminated when the corporation dissolved. Poliquin v. Sapp (1979), 72 Ill.App.3d 477, 28 Ill.Dec. 615, 390 N.E.2d 974. Similarly, dissolution destroyed the capacity of former shareholders to sue or be sued with respect to rights entirely dependent upon and existing solely as an outgrowth of shareholder status. VanPelt v. Greathouse (1985) 219 Neb. 478, 364 N.W.2d 14. Thus a survival statute operates to give life to a claim that would otherwise be extinguished by virtue of corporate dissolution.

We see no reason for rejecting the view taken by these cases. It is "[a] firmly established premise that a dissolved corporation may thereafter be proceeded against either criminally or civilly only if authorized by the laws of the state of its incorporation." U.S. v. P.F. Collier & Son Corp. (7th Cir.1954) 208 F.2d 936, 937. It is undisputed that M.S. Churchman, Inc. was an Indiana corporation. Therefore suit is barred if filed, as here, over two years from the date of dissolution. I.C. 23-1-7-1(e).

That Bank proceeded against David Churchman individually does not change the result. In its complaint Bank claimed it was proceeding against Churchman as "successor in interest to M.S. Churchman Co., Inc." and as recipient of "assets and liabilities ... distributed to [him] as the sole shareholder of M.S. Churchman, Co., Inc." ³ Record at 2. Churchman's name did not appear on the original note or mortgage in either his personal or shareholder status. Despite attempts to renegotiate the debt, Bank admits that Churchman never signed a note nor promised to pay the balance. I.C. 23-1-7-1(e) applies to suits "against ... shareholders ... for any liabilities incurred by the corporation previous to its dissolution." Therefore, the statute giving life beyond dissolution to suits against corporations also extends to actions against shareholders. See Canadian Ace Brewing Co. v. Joseph Schlitz Brewing Co. (7th Cir.1980) 629 F.2d 1183. See also Canadian Ace Brewing Co. v. Anheuser-Busch, Inc. (1978) 448 F.Supp. 769, aff'd 601 F.2d 593, cert. denied 444 U.S. 884, 100 S.Ct. 175, 62 L.Ed.2d 113. Thus, Bank was required to bring suit against Churchman within two (2) years of the dissolution date.

Those few cases which have allowed suits against corporations or shareholders to proceed beyond the time period delineated in respective survival statutes are distinguishable. By far the most common rationale offered for allowing suit beyond the statutory period is non-compliance with the relevant dissolution statute's requirement of notice to creditors. See, e.g., In re Wolf Mfg. Indus. (USCCA 1932) 56 F.2d 64; Alpine Property Owners Assoc., Inc. v. Mountaintop Development Co. (1987) W.Va., 365 S.E.2d 57; Illinois v. Parker (1964) 30 Ill.2d 486, 197 N.E.2d 30. Included in this category of cases are cases where the corporate entity was terminated by forfeiture, rather than by statutory dissolution; the rationale for the distinction is lack of notice to creditors. See Goff v. Schlegel (1988) Mo.App., 748 S.W.2d 813. See also Benham v. Benham (1987) Tex.App., 726 S.W.2d 618 (survival statute applicable only to dissolution pursuant to dissolution statute and not to corporate forfeiture for failure to pay taxes).

Survival statutes have also been held to be inapplicable to claims arising after dissolution. See Donofrio v. Matassini (1987) 2d Dist.Fla.App., 503 So.2d 1278. See also Stemley v. Downtown Medical Bldg., Inc. (1989) Mo., 762 S.W.2d 43 (third-party plaintiff was allowed to maintain suit for contribution against dissolved corporation where third-party plaintiff had not been named as a defendant in plaintiff's personal injury suit until after expiration of survival period following dissolution.)

In Boxwood Corporation v. Berry (1977) 144 Ga.App. 351, 241 S.E.2d 297, suit was barred against a dissolved corporation after expiration of the statutory survival period but not as against shareholders who in the consent to dissolution expressly assumed corporate indebtedness.

The above cases bear little resemblance to our present case. Here, it is undisputed that Corporation provided notice of dissolution to Bank, that the obligation on the note accrued prior to dissolution, and that David Churchman never personally agreed to assume the corporate debt. Thus, our survival statut...