SO. MECKLENBURG PAINTING v. CUNNANE GROUP

• Decision Date: 20 July 1999
• Docket Number: No. COA98-881.,COA98-881.
• Citation: SO. MECKLENBURG PAINTING v. CUNNANE GROUP, 517 S.E.2d 167, 134 NC App. 307 (N.C. App. 1999)
• Court: North Carolina Court of Appeals
• Parties: SOUTH MECKLENBURG PAINTING CONTRACTORS, INC., Plaintiff, v. The CUNNANE GROUP, INC., Defendant.

517 S.E.2d 167

134 NC App. 307

SOUTH MECKLENBURG PAINTING CONTRACTORS, INC., Plaintiff, v. The CUNNANE GROUP, INC., Defendant.

No. COA98-881.

Court of Appeals of North Carolina.

July 20, 1999.

Wilson & Bos, by Gerard A. Bos, Charlotte, for plaintiff-appellant.

The Bishop Law Firm, P.A., by A. Todd Capitano, Charlotte, 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 its claim.

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).

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. His authority 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 judicial sale 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...