Pennconn Enterprises, Ltd. v. Huntington

• Decision Date: 25 November 1987
• Docket Number: No. 86-215,86-215
• Court: Vermont Supreme Court
• Parties: PENNCONN ENTERPRISES, LTD. and Richard Kaufman v. H.D. HUNTINGTON, H.D. Huntington, Inc. and Huntington Homes.

Page 673

538 A.2d 673

148 Vt. 603

PENNCONN ENTERPRISES, LTD. and Richard Kaufman v. H.D. HUNTINGTON, H.D. Huntington, Inc. and Huntington Homes.

No. 86-215.

Supreme Court of Vermont.

Nov. 25, 1987.

Thomas Ryan Paul of McCarty Law Offices, Brattleboro, for plaintiffs-appellants.

M. Jerome Diamond and Stephen C. Smith of Diamond & Associates, P.C., Montpelier, for defendant-appellee Huntington Homes, Inc.

Abare, Nicholls & Belcher, P.C., Barre, for defendant-appellee H.D. Huntington.

Before ALLEN, C.J., PECK, GIBSON and DOOLEY, JJ., and BARNEY, C.J. (Ret.), Specially Assigned.

DOOLEY, Justice.

This appeal arises from a contract action involving the development of a condominium project in southern Vermont. Plaintiff Pennconn Enterprises, Ltd. is a Pennsylvania corporation, and is the developer of that project. Plaintiff Richard Kaufman is the president of the plaintiff-corporation.

On August 1, 1984, plaintiffs entered into a contract with defendants under which defendants were to deliver certain modular condominium units to the plaintiffs' development site. The plaintiffs allege that defendants failed to perform according to the contract, and filed suit in February of 1986 for damages from alleged delays and defects in the modular units. Defendants moved to dismiss on the grounds that plaintiff-corporation was doing business in the state of Vermont at the time of the contract but had failed to register with the Secretary of State as required by 11 V.S.A. § 2101. Defendants argued below, and again before this Court, that this failure made the contract unenforceable pursuant to 11 V.S.A. § 2120.

The trial court held a hearing and took evidence on the question of whether plaintiff-corporation was obligated to register in the state. Based on the evidence presented, the court found that on August 1, 1984, the date of the contract, plaintiff-corporation was doing business in Vermont without a certificate of authority. Thus, the court dismissed the action as to both the corporate and individual plaintiffs.

The plaintiffs attack the dismissal on five separate grounds: (1) the corporate plaintiff was not "doing business" on the date of the contract with defendants; (2) the trial court improperly considered evidence of activities of the corporate plaintiff after the date of the contract; (3) dismissal of the action is not the proper remedy in this case; (4) the trial court's findings do not warrant dismissal as to the individual plaintiff; and (5) the action was improperly dismissed "with prejudice." We treat these claims in the order presented. ¹

We start by examining the statutes on which the trial court based its judgment and the facts on which it relied. There are two relevant statutes, 11 V.S.A. § 2101(a) and 11 V.S.A. § 2120(a). 11 V.S.A. § 2120(a) provides that a foreign corporation cannot maintain an action in this state "upon a contract made by it in this state if, at the time of making such contract, it was doing business in this state without lawful authority." The question of whether the corporation was acting "without lawful authority" is determined under 11 V.S.A. § 2101(a). See West-Nesbitt, Inc. v. Randall, 126 Vt. 481, 483, 236 A.2d 676, 677-78 (1967); A. & W. Artesian Well Co. v. Tornabene, 124 Vt. 413, 415, 207 A.2d 140, 141 (1965). That statute provides, in pertinent part, that:

(a) No foreign corporation shall have the right to transact business in this state until it shall have procured a certificate of authority so to do from the secretary of state....

Except as otherwise provided, "doing business" shall mean and include each and every act, power or privilege exercised or enjoyed in this state by a foreign corporation except the mere ownership of real property which is not producing any income, or which is not used in the performance of a corporate function.

The import of these statutes is that a foreign corporation that is doing business in Vermont at the time it makes a contract is precluded from enforcing the contract in our courts unless it had procured a certificate of authority before it entered into the contract. See A. & W. Artesian Well Co., 124 Vt. at 416, 207 A.2d at 142.

The trial court found that the plaintiff in this case was doing business at the time it entered into the contract with defendants based on the following facts. Plaintiff-corporation was engaged in the business of developing real property for sale. In April of 1984, it entered into a purchase and sale contract to purchase a tract of land in Dover, Vermont. Plaintiff-corporation intended to build nine condominiums at the site and sell them. In the same month, plaintiff obtained a land survey and applied for a sewer permit. In June, plaintiff-corporation applied to the state for a public building permit. In pursuit of this permit plaintiff-corporation hired an engineering firm to prepare and submit to the state plans for a condominium project on the site. During this time, it hired a Vermont lawyer and received its town sewer permit.

After a number of meetings, plaintiff-corporation entered into a contract with defendants to purchase modular condominium units and have them delivered to the Dover site. The contract was entered into in Vermont on August 1, 1984. Plaintiff did not receive a certificate of authority to transact business in Vermont until October, 1984.

The trial court found that on August 1, 1984 "plaintiff-corporation was actively engaged in the performance of its primary corporate purpose, the acquisition, development, improvement and sale of real property here in the State of Vermont." It found that by August 1st, the accomplishment of plaintiff's purposes had reached the point that it was required to register under 11 V.S.A. § 2101(a).

The question of whether a corporation is doing business is essentially one of fact. Hibbard, Spencer, Bartlett & Co. v. District Court, 138 Colo. 270, 273, 332 P.2d 208, 209 (1958). If the trial court's finding is supported by substantial evidence and is consistent with the statute, it must be affirmed. See Long Mfg. Co. v. Wright-Way Farm Service, Inc., 39 Mich.App. 546, 549, 197 N.W.2d 862, 864 (1972). There is ample support here.

The definition of doing business under 11 V.S.A. § 2101(a) is extremely broad--it includes "each and every act, power or privilege exercised or enjoyed in this state." ² The breadth of this term is evinced by the narrowness of its sole exclusion. The ownership of real property is excluded but only if the property does not produce income or is not used in the performance of a corporate function. Certainly, plaintiff has engaged in "acts" in this state in pursuit of its corporate purposes.

There are three other factors that are important in this case. First, the most important indicator of whether a foreign corporation is doing business in another state is whether the acts are part of the functions for which the corporation was created. See generally 17A Fletcher Cyclopedia of Private Corporations § 8466 (rev. ed. 1987). It is undisputed that the activities of plaintiff-corporation in Vermont were part of its corporate business.

Second, plaintiff-corporation applied for and, on at least one occasion obtained, regulatory permits in furtherance of its condominium development project. As this Court stated in A. & W. Artesian Well Co., the purpose of registration is to provide information to government agencies and individuals who might deal with the corporation:

The furnishing of the data relative to such corporation's corporate standing, and its financial standing, is so that residents of this state may have obtainable to them the same information on such foreign corporation's business responsibility as is available to such residents on the stability of domestic corporations under our corporation laws, before contracting with it.

124 Vt. at 415, 207 A.2d at 141-42. The presence of this information is also critical to regulators who rely on its availability if it is needed to enforce the laws they administer. When a corporation has reached the point in its activities that it is applying for governmental permits, the intent behind 11 V.S.A. § 2101(a) requires a finding that the corporation is doing business here.

Third, while it is impossible to create an all-inclusive definition of "doing business," the decisions from other states indicate that it is often possible to define activities that will not be considered "doing business." For example, the Model Business Corporation Act, adopted in many states, includes a list of ten kinds of activities within a state that will not be considered in determining whether a corporation is doing business. American Bar Found., Model Business Corporation Act § 106 (2d ed. 1971). None of the activities on that list were used by the trial court here in finding that plaintiff-corporation was doing business in Vermont.

Plaintiff's final argument on the doing business point is that it fits within an exception to the definition of doing business recognized in Jerene Enterprises, Inc. v. Burlington Housing Authority, 363 F.Supp. 1380 (D.Vt.1973). The federal district court in Jerene Enterprises refused to dismiss a construction contract action brought by an out-of-state contractor on grounds that it was "doing business" in Vermont without registering with the Secretary of State because plaintiff's activities were "merely preparatory to the commencement of doing business." 363 F.Supp. at 1382. Without deciding whether the exception used in Jerene Enterprises is valid, we can easily distinguish the case. The activities within Vermont in Jerene Enterprises were nominal--nothing more than signing the contract--where here they were substantial. Jerene Enterprises is a trial court decision involving a finding of fact--here we are reviewing a trial court decision that made the opposite finding. We find nothing in Jerene Enterprises that dissuades us from our conclusion in this case.

Plaintiff...