World-Wide Computer Resources, Inc. v. Arthur Kaufman Sales Co.

• Decision Date: 30 October 1992
• Docket Number: WORLD-WIDE,No. 91-673-A,91-673-A
• Citation: 615 A.2d 122
• Parties: COMPUTER RESOURCES, INC. v. ARTHUR KAUFMAN SALES CO. et al. ppeal.
• Court: Rhode Island Supreme Court

Page 122

615 A.2d 122

WORLD-WIDE COMPUTER RESOURCES, INC. v. ARTHUR KAUFMAN SALES CO. et al.

No. 91-673-Appeal.

Supreme Court of Rhode Island.

Oct. 30, 1992.

Barry J. Kusinitz, Corrente, Brill & Kusinitz, Providence, for plaintiff.

Richard O. Lessard, Rodio & Ursillo, Ltd., Providence, for defendants.

OPINION

WEISBERGER, Justice.

This case comes before us on appeals from both parties from orders entered by a justice of the Superior Court during the trial of an action on book account filed by the plaintiff and a counterclaim filed by the defendants. The trial justice dismissed the plaintiff's complaint without prejudice for lack of capacity to sue pursuant to the provisions of G.L.1956 (1985 Reenactment) § 7-1.1-117. The trial justice directed a verdict against the defendants on their counterclaim and rendered judgment accordingly. We vacate the judgment and remand for a new trial. The facts of the case insofar as pertinent to these appeals are as follows.

Jonathan Springer, president of World-Wide Computer Resources, Inc. (World-Wide or plaintiff) entered into an agreement with Arthur Kaufman Sales Co., Multi-Source International, Ltd., and Disposable Products Co. (the Kaufman companies or defendants) to provide a software system as part of a computer package for use in the business of the Kaufman companies. Generally, the Kaufman companies served as manufacturers' representatives. They dealt in disposable coffee lids, party goods, napkins, straws, plates, and cups. They would accept orders from customers then submit each order to a manufacturer who would produce the product and ship it directly to the customer. The Kaufman companies would receive a commission on the sale. In certain instances, some of the Kaufman companies purchased goods from suppliers and stored them in their warehouses. The Kaufman companies engaged World-Wide through its president, Jonathan Springer (Springer), to prepare a computer-software system with the appropriate hardware to handle the processing of orders and inventory for the three Kaufman companies. Springer worked from January 1985 until sometime in 1986, when he and the Kaufman companies terminated the relationship. Springer then filed a complaint in the Superior Court claiming that at that time he was owed an arrearage of payments of $31,140.25. In their counterclaim, the Kaufman companies asserted that they never received a functional operating computer package. They claimed that the computer systems installed by Springer did not work properly and did not perform the functions contemplated in the contract.

During the course of the trial, counsel for the Kaufman companies elicited on cross-examination that World-Wide had never obtained a certificate of authority to do business in Rhode Island as required by § 7-1.1-117. It was further elicited on cross-examination that World-Wide had been dissolved as a corporate entity in Massachusetts as of December 31, 1990. At that juncture, defendants sought to amend their answer in order to raise the defense of lack of capacity. The trial justice permitted this amendment and then dismissed plaintiff's complaint without prejudice for lack of capacity to maintain its action.

After the close of the evidence in the case, the trial justice considered a motion for directed verdict filed by plaintiff against defendants in respect to their counterclaim. The trial justice granted the motion for directed verdict on the ground that there was no evidence that plaintiff had breached its agreement and further that there was no evidence that defendants had incurred expenses as a result of World-Wide's failure to perform. We shall consider the two issues in the case as they have been raised by the parties.

I The Dismissal of Plaintiff's Action

It is undisputed that World-Wide was a Massachusetts corporation. This fact was set forth in its complaint, which was filed November 24, 1986. It is further undisputed that Springer, on behalf of World-Wide, was engaged in the conduct of business at the premises of the Kaufman companies located in the State of Rhode Island. The statute, § 7-1.1-117, upon which the Kaufman companies relied in their defense to the action, reads as follows in pertinent part:

"Transacting business without certificate of authority.--(a) No foreign corporation transacting business in this state without a certificate of authority shall be permitted to maintain any action, suit or proceeding in any court of this state, until such corporation shall have obtained a certificate of authority. Nor shall any action, suit or proceeding be maintained in any court of this state by any successor or assignee of such corporation on any right, claim or demand arising out of the transaction of business by such corporation in this state, until a certificate of authority shall have been obtained by such corporation or by a corporation which has acquired all or substantially all of its assets.

(b) The failure of a foreign corporation to obtain a certificate [of] authority to transact business in this state shall not impair the validity of any contract or act of such corporation, and shall not prevent such corporation from defending any action, suit or proceeding in any court of this state."

The Supreme Court of Rhode Island has interpreted this statute to require that an out-of-state corporation that brings action against a Rhode Island defendant based upon a contract performed within this state must obtain a certificate of authority before proceeding to final judgment. Tiffany Agency of Modeling, Inc. v. Butler, 110 R.I. 568, 295 A.2d 47 (1972); New England Dye Co. v. General Products Co., 92 R.I. 292, 168 A.2d 150 (1961). The court in Tiffany went on to observe that if a defendant desired to raise such an issue, it would be required to file a responsive pleading challenging the plaintiff corporation's capacity to maintain the action. 110 R.I. at 573, 295 A.2d at 50. In the event that a defendant should prevail on the issue of alleged incapacity, the out-of-state corporation would be entitled to acquire standing by obtaining a certificate of authority during the course of the trial. Good Will Home Ass'n v. Drayton, 108 R.I. 277, 274 A.2d 750 (1971); see 1 Kent, R.I. Civ. Prac. § 17.5 at 167 (1969).

In the case at bar, this issue was raised for the first time during the month of July 1991 after the case had been pending for more than four years. We have held that the failure to raise an affirmative defense in a timely manner constitutes a...