Title: WORTHEN B. & T. CO. v. United Underwrit. Sales Corp.
Citation: 474 S.W.2d 899
Docket Number: 5-5640
State: Arkansas
Issuer: Arkansas Supreme Court
Date: November 22, 1971

474 S.W.2d 899 (1971) WORTHEN BANK &amp; TRUST COMPANY, Appellant, v. UNITED UNDERWRITERS SALES CORPORATION OF AMERICA et al., Appellees. No. 5-5640. Supreme Court of Arkansas. November 22, 1971. Rehearing Denied January 24, 1972. *900 Wright, Lindsey &amp; Jennings, Little Rock, for appellant. Pope, Pratt, Shamburger, Buffalo &amp; Ross, Little Rock, for appellees. JONES, Justice. This is an appeal by Worthen Bank &amp; Trust Company from an adverse decision of the Pulaski County Circuit Court in a suit by Worthen on some promissory notes. United Underwriters Sales Corporation of America, a foreign corporation, obtained a loan from Worthen and gave its note direct to Worthen. James M. Williams, Joe Mangiapane and Charles Selman gave their separate personal notes to United and United assigned these notes to Worthen as collateral security for the payment of its note direct to Worthen. Williams, who was the president of United, also executed a personal guaranty agreement as additional security for the payment of the loan by United. United defaulted on the payment of its note and Worthen sued on all the notes as well as the guaranty agreement. Williams had died in the meantime and his estate was made a party defendant on the guaranty agreement. A jury was waived and the case was tried before the judge sitting as a jury. The court found that United is a foreign corporation organized under the laws of the State of Virginia, and that it was doing business in the State of Arkansas at the time its renewal note to Worthen was executed on February 28, 1968. The court further found that United was not authorized to do business in the State of Arkansas and that Worthen is not entitled to recover from the defendants, Joe Mangiapane and Charles Selman. A joint and several judgment was entered in favor of Worthen against United on its note direct to Worthen and against Williams' estate on the separate personal guaranty executed by Williams, but in paragraph three of the judgment the court recited: "The promissory notes of defendants Joe Mangiapane and Charles Selman which were assigned to plaintiff are unenforceable by plaintiff and void ab initio." On appeal to this court Worthen relies on the following points for reversal: We are unable to fully treat the first two points relied on by Worthen for the reason that we are unable to tell from the record before us what disposition the trial court finally made of the amended answer of Selman and Mangiapane, and we are unable to tell from the record before us whether United was doing business in the State of Arkansas. We find no evidence in the record that it was, and we find no evidence in the record that it was not. As to the amended answer to the complaint, the record indicates that the complaint *901 was filed on February 27, 1970; that on March 23 and March 25 respectively, Selman and Mangiapane filed their separate answers simply denying the material allegations stated in the complaint and reserving their right to plead further in the matter. The record indicates that the case was set for trial on November 23, 1970, and on that date Selman and Mangiapane filed an amended answer reasserting their general denial to the original complaint and alleging several affirmative defenses, including one set out in paragraph five of the amended answer as follows: Ark.Stat.Ann. § 64-1201 (Repl.1966) sets out the acts and procedure to be done and followed by foreign corporations before they may do business in the State of Arkansas, and § 64-1202 prescribes the penalties for doing business in the state without qualifying under § 64-1201. Section 64-1202 provides a fine for noncompliance and in addition provides as follows: Returning now to the action taken by the trial court relative to the amended answer; when the case was called for trial, the record reveals in-chambers proceedings as follows: During the course of the trial there was placed in evidence as defendants' exhibit 2, a certificate from the Secretary of State of Arkansas certifying that United Underwriters Sales Corporation of America is not a qualified corporation, not having met the requirements governing all the corporations of this state, and that said corporation has never been issued a certificate of authority to do business in Arkansas. At the close of all the evidence, the record recites as follows: Worthen contends that the trial court struck the amended answer. But, Worthen argues that even if it waived its objections to the first four paragraphs of the amended answer, it is clear that the court did not change its initial ruling concerning paragraph five of the amended answer. Selman and Mangiapane argue just as earnestly, that it is clear the trial court regarded the pleadings as amended to conform to the proof offered in evidence without objections. Perhaps the trial court's intentions would be much clearer to us if we knew what conclusions were reached in the off-record discussion, but from the trial court's comments following the off-record discussion as well as the court's comment in connection with the motion to conform, it is not clear to us what the court intended. We have not overlooked the exhibits indicating that mail was directed to United at an address in West Memphis, Arkansas, nor have we overlooked some evidence tending to indicate that some of the notes as well as some alleged "buy back" agreements were executed in Arkansas. This court has said that a corporation is doing business in the State of Arkansas within the meaning of the above statute when it transacts some substantial part of its ordinary business in this state, and that since the statute is highly penal it should not be invoked except in cases where the evidence warrants a belief that the corporation is, in fact, doing business within the state. Murray Tool &amp; Supply Co. v. State, for Use and Benefit of Crawford County, 203 Ark. 874, 159 S.W.2d 71. We are simply unable *903 to find any evidence in the record from which we can determine whether United was or was not doing such business in Arkansas so as to bring it within the purview of §§ 64-1201 and 64-1202, supra. Since we must remand this case because of the insufficiency of record as above set out, we are unable to pass on the main issue as to whether the two notes signed by Selman and Mangiapane were void ab initio. We conclude, however, that since the appellant's third point will likely arise on retrial, the question it raises should be answered now. The appellant, Worthen, argues that we should reverse or modify our opinion in Pacific Nat'l Bank v. Hernreich, 240 Ark. 114, 398 S.W.2d 221, or that we should at least limit our holding to the facts of that particular case. The appellees argue that our holding in Hernreich is sound and that it should be reaffirmed in this case. As far back as 1918 in the case of Hogan v. Intertype Corp., 136 Ark. 52, 206 S.W. 58, this court said: Our holding in Hogan was affirmed the following year in Dean v. Caldwell, 141 Ark. 38, 216 S.W. 31, where we said: In the 1924 case of Republic Power &amp; Service Co. v. Gus Blass Co., 165 Ark. 163, 263 S.W. 785, oil lease contracts with an unqualified foreign corporation were involved and in that case we said: It was not until 1966, in the case of Pacific Nat'l Bank v. Hernreich, 240 Ark. 114, 398 S.W.2d 221, that we said in unequivocal language, that a contract made in violation of the statute is "not merely unenforceable but void ab initio." In Hernreich we adopted the dicta expressed in Hogan, supra, in the following language: We then continued in Hernreich as follows: Our holding in Hernreich was reaffirmed as recent as March 29, 1971, in Union Planters Nat'l Bank of Tenn. v. Moore, 250 Ark. 272, 464 S.W.2d 786, wherein we said: We reaffirm our holding in Hernreich and hold that a contract made in violation of Ark.Stat.Ann. §§ 64-1201 to 64-1202 (Repl.1966) is not merely voidable or unenforceable by the offending corporation, but it is void ab initio insofar as the foreign corporation or its assignee is concerned. By the use of the phrase "void ab initio" we do not mean to imply that an unqualified corporation doing business in Arkansas may avoid its own liability under its contracts made in this state. The purpose of the statute is not to permit such corporations to avoid liability under such contracts, but the purpose of the statute is to prevent such corporations from enforcing liability under such contracts. The purpose of our use of the phrase "void ab initio" is to insure against possible benefits to the offending corporation, by assignment or otherwise, and to put prospective purchasers or assignees on notice that such contracts, even when negotiable or valid on their face, are void and unenforceable even in the hands of what would otherwise appear to be a bona fide purchaser for value. Reversed and remanded. BYRD, J., not participating.