Jenot v. White Mountain Acceptance Corp.

• Citation: 124 N.H. 701,474 A.2d 1382
• Decision Date: 09 April 1984
• Docket Number: No. 83-103,83-103
• Parties: Thelma JENOT v. WHITE MOUNTAIN ACCEPTANCE CORPORATION et al.
• Court: Supreme Court of New Hampshire

Page 1382

474 A.2d 1382

124 N.H. 701

Thelma JENOT v. WHITE MOUNTAIN ACCEPTANCE CORPORATION et al.

No. 83-103.

Supreme Court of New Hampshire.

April 9, 1984.

Wescott, Millham & Dyer, Laconia (Steven M. Latici, Laconia, on the brief and orally), for plaintiff.

Gould & Neubeck, Meredith (Michael E. Gould, Meredith, on the brief), by brief for defendants, waiving oral argument.

KING, Chief Justice.

The questions presented in this appeal are whether a former shareholder of a dissolved corporation can foreclose a mortgage given to the corporation, and enforce the promissory note secured by that mortgage, after the three-year corporation continuance period provided by RSA 293-A:95, I(c) (Supp.1983) has elapsed, see also RSA 293-A:106 (Supp.1983), and, if so, whether the action is barred by the equitable doctrine of laches. The Superior Court (Pappagianis, J.) discharged the mortgage and promissory note and, alternatively, found that any action brought to foreclose the mortgage and enforce the promissory note would be barred by laches. For the reasons which follow, we reverse.

The plaintiff, Thelma Jenot, and her deceased husband, on June 5, 1967, gave a promissory note to the defendant White Mountain Acceptance Corporation (White Mountain), which was secured by a mortgage. The last mortgage payment made by the plaintiff was on June 4, 1973, which was applied to a March 1972 payment. The plaintiff was fifteen months behind in her mortgage payments. The term of the promissory note was seven years, and the note was scheduled to mature on June 5, 1974. As of April 1982, the mortgage had an outstanding balance of $6,562.77.

White Mountain was dissolved by the New Hampshire Legislature on June 25, 1971. Prior to its dissolution, the stockholders of White Mountain were the defendant Richard Feltham, individually, and Belknap Investment Corporation, which was wholly owned by Mr. Feltham before its subsequent dissolution. Neither the mortgage nor the promissory note was assigned to Mr. Feltham during the corporate life and windup of White Mountain.

Mr. Feltham testified at trial that, on account of the plaintiff's financial condition and the death of Mr. Jenot, he took no formal legal action following the three-year windup period to recover the mortgage payments from the plaintiff.

The plaintiff, on September 15, 1981, filed a petition to discharge the mortgage. The plaintiff contended that both White Mountain and its former stockholders were barred from foreclosing the mortgage and enforcing the promissory note, because the three-year corporate windup period had expired.

While admitting that White Mountain was barred from foreclosing the mortgage because of the dissolution of the corporation and the subsequent expiration of the corporation continuance period, Mr. Feltham contended, at trial, that as a former stockholder, he succeeded to the rights of the corporation in the mortgage and the promissory note. Further, Mr. Feltham argued that as the current sole owner of White Mountain's assets, he had the right to enforce collection of the promissory note, under the provisions of RSA 508:2 and RSA 508:6, beyond the three-year continuance period.

The Superior Court (Pappagianis, J.) approved the recommendation of the Master (Robert A. Carignan, Esq.) that the mortgage and promissory note be discharged. The master found that Mr. Feltham, as a former stockholder of White Mountain, was barred from pursuing any action on either the mortgage or the promissory note due to the expiration of the statutory continuance period, then codified at RSA 294:98 ("any business corporation dissolved by act of the legislature shall nevertheless continue as a body corporate for the term of 3 years"), repealed by Laws 1981, 557:2 (current version codified at RSA 293-A:95, I(c) (Supp.1983)). See also RSA 293-A:106 (Supp.1983). In so ruling, the master relied on our opinion in MBC, Inc. v. Engel, 119 N.H. 8, 397 A.2d 636 (1979), that former shareholders have no greater rights than a dissolved corporation. The master also found that any claim brought by Mr. Feltham would be barred by laches. Mr. Feltham raises both issues on appeal. We reverse, finding error in both conclusions.

On appeal, Mr. Feltham argues that a former shareholder of a dissolved corporation may foreclose a mortgage and enforce the promissory note beyond the corporation continuance period, if the action is brought within the twenty-year limitation period for foreclosure of a mortgage. See RSA 508:2; RSA 508:6. He thus contends that since his right to foreclosure the mortgage has not expired under the twenty-year limitation period, he has the right to enforce the promissory note under RSA 508:6.

This court has long recognized the rights of former shareholders of a dissolved corporation to succeed, in their individual capacities, to assets owned by the corporation prior to its dissolution. Hampton v. Hampton Beach Improvement Co., 107 N.H. 89, 94, 218 A.2d 442, 446-47 (1966). "We subscribe to the general rule that after the dissolution of a corporation its property passes to its stockholders subject to the payment of the corporate debts." Id. In Hampton, this court held that the former stockholders of a dissolved corporation succeeded to a lease held by the corporation prior to its dissolution and to the rights and liabilities of the corporation in the leasehold estate. Id.; see Downtown Athletic Club, Inc. v. Brown, 122 N.H. 633, 634-35, 448 A.2d 402, 404 (1982).

This rule of law is based on the principle in equity that at dissolution of a corporation the equitable right to a distributable share of the corporation's assets vests in the respective shareholders:

"On the dissolution of ... a corporation, whether by expiration of its charter, by a judgment of forfeiture, or otherwise, it is considered in equity, even in the absence of any statute, that its assets are held for the benefit of its stockholders or members, after payment of its debts, and will be so distributed by a court of equity when no other mode of distribution is provided by statute."

16A Fletcher, Cyclopedia of the Law of Private Corporations § 8134, at 323 (1979); see also Hampton v. Hampton Beach Improvement Co. supra (reaffirming this principle in equity relying on Fletcher ).

The New Hampshire corporation continuance statute, RSA 293-A:95, I(c) (Supp.1983), provides, in pertinent part, that:

"Any corporation having its charter forfeited ... shall, nevertheless, continue as a body corporate for 3 years ... for the purpose of presenting and defending suits by or against it and of gradually closing and settling its concerns and distributing its assets, including the disposition and transfer of all or any part of the property...."

A companion statute, RSA 293-A:106 (Supp.1983), states, in part, that:

"The dissolution of a corporation ... shall not take away or impair any remedy available to or against the corporation, its directors, officers, or shareholders, for any right or claim existing, or any liability incurred, prior to the dissolution if action or other proceeding on the right or claim is commenced within 3 years after the date of dissolution.... The shareholders, directors, and officers shall have power to take corporate or other action as shall be appropriate to protect the remedy, right or claim."

We will strictly construe the corporation continuance statute, MBC, Inc. v. Engel, supra, 119 N.H. at 11, 397 A.2d at 638, and its companion statute preserving corporate rights and remedies during the windup period. See id. The corporation continuance statute "exclusively controls matters concerning dissolved corporations." Id. at 13, 397 A.2d at 639.

RSA 293-A:95, I(c) (Supp.1983) mandates that a corporation continue as a body corporate for three years after the date of dissolution to enable it to close up its business affairs. The statute, therefore, gave White Mountain three years after dissolution in which to foreclose the plaintiff's mortgage and enforce the promissory note. To allow White Mountain to commence a foreclosure action, after the expiration of the windup period, would contravene the acknowledged policy of the corporation continuance statute to insure that there is " 'a definite point in time at which the existence of a corporation and the transaction of its business are terminated.' " MBC, Inc. v. Engel, supra at 12, 397 A.2d at 639 (quoting Bishop v. Schield Bantam Co., 293 F.Supp. 94, 96 (N.D.Iowa 1968)).

The defendant argues that when a corporation has failed to exercise its right to foreclose a mortgage and enforce a promissory note within the three-year windup period, the right to the mortgage and promissory note automatically descends to the former shareholders suing in their individual capacities. We agree.

The plaintiff argues that this court's interpretation of the corporation continuance statute in MBC, Inc. v. Engel supra suggests that the three-year limitation period is applicable not only to a dissolved corporation but also to its shareholders.

In MBC, Inc., this court barred derivative actions by former shareholders seeking to assert a claim on behalf of a dissolved corporation after the three-year windup period had expired. Id. 119 N.H. at 13, 397 A.2d at 639. See also Druding v. Allen, 122 N.H. 823, 451 A.2d 390 (1982) (a principal stockholder of a dissolved corporation can be sued, based on a theory of piercing the corporate veil, during the windup of the corporation). The court reasoned that after the windup period had elapsed, the expired claim of a dissolved corporation is no more enforceable by the former shareholders than it is by the dissolved corporation. MBC, Inc. v. Engel supra.

Our opinion in MBC, Inc. did not face the case at bar, wherein a former principal stockholder of a dissolved corporation seeks nothing for and on behalf of the corporation, but instead, in his individual capacity, seeks recovery of an asset--the mortgage and...