Opinion ID: 519626
Heading Depth: 2
Heading Rank: 3

Heading: Whether Hutson possesses a property right which he received by operation of law?

Text: 24 The critical inquiry is whether Hutson in his capacity as a shareholder acquired any legally recognized property rights by operation of equitable principles of law following Foresco's dissolution. Because Hutson asserts two claims, one based on a right to damages arising from Fulgham's allegedly tortious conduct and another based upon a right to payments under the contract with Fulgham, the nature of Hutson's alleged property interests are different requiring separate inquiries. We address Hutson's contract claims first.
25 Whether Hutson may assert claims based on the contract between Foresco and Fulgham depends upon whether an unasserted corporate contract claims are legally recognized property rights that devolve to shareholders upon dissolution. Hutson asserts that the district court erred as a matter of law in barring him in his individual capacity from enforcing the contract between Fulgham and Foresco. He argues that Foresco has fully performed under the agreement with Fulgham requiring only Fulgham's payment of royalties. Hutson draws an analogy between the collection of royalties under an executed contract and the collection of a corporate claim reduced to judgment. Fulgham, however, asserts that the contract was not fully performed because Foresco had further duties to perform under the agreement. 13 26 Fulgham argues that a literal reading of Alabama's corporate survival statute requires that unasserted corporate claims expire unless brought within the two-year wind-up period. Fulgham's argument is based on the survival statute's purpose which is to provide a definitive period for resolving claims by and against a dissolved corporation and, in particular, to permit a dissolved corporation to collect revenues owed to it under corporate contract claims. In addition, Fulgham asserts that no case law exists that recognizes an unasserted corporate contract as a property interest that devolves to shareholders following dissolution. 27 Hutson relies heavily upon Jenot v. White Mountain Acceptance Corp., 124 N.H. 701, 474 A.2d 1382 (1984), a case in which the New Hampshire Supreme Court held that: 28 when a corporation has failed to exercise its right to foreclose a mortgage and enforce a promissory note within the three year wind-up period, the right to the mortgage and promissory note automatically descends to the former shareholders suing in their individual capacity. 29 Id. 474 A.2d at 1386. The Jenot court distinguished its holding from that in MBC, Inc., supra, noting that corporate survival statutes were not intended to supplant the equitable rule that former shareholders succeed to the assets of a dissolved corporation. Id. 30 We agree with the Jenot court's distinction on this latter point. We are unwilling, however, to extend the equitable rule so far as to recognize a property interest in an unasserted corporate contract claim which involves evidentiary problems and factual disputes. 14 We agree with the MBC, Inc. court that: 31 [t]he policy behind the [survival] statute is favored over the ends of particularized justice. To allow lawsuits involving a dissolved corporation to commence in contravention of a clearly expressed legislative policy would thwart the orderly process of corporate dissolution conceived by that policy. It would 'produce a continuous dribble of business activity contrary to the intent of the winding up provisions of the statute.' 32 MBC, Inc., 397 A.2d at 639. In the district court's words, extending the equitable rule to such claims would render the wind-up statute a nullity and the two-year time period bars nothing. Memorandum Opinion, April 1, 1988, at 5-6. We hold that such claims must be asserted within the wind-up period (or be properly assigned) to survive dissolution. 15 33 We further agree with the district court's salient observation that this action is one which cries out for the application of a rule extinguishing corporate claims either on dissolution or within a fixed time thereafter. Memorandum Opinion, April 1, 1988, at 8. We note that Alabama's survival statute explicitly provides that dissolution shall not take away or impair any remedy available to or against such corporation, its directors, officers or shareholders, for any right or claim existing, or any liability incurred, prior to such dissolution if action or other proceeding thereon is commenced within two years after the date of dissolution. Ala.Code Sec. 10-2A-203 (1987). Thus, Hutson and the Diazes (as Foresco officers, directors and principal shareholders) had two years in which to initiate proceedings to protect Foresco's remedies, rights or claims under the contract with Fulgham. 16 Their failure to promptly assert such claims or to properly effectuate an assignment pursuant to their dissolution agreement renders such claims nugatory. 17
34 Hutson also alleges that Fulgham committed fraud by slightly altering the design drawings to construct 78 foot and 125 foot cranes (instead of the 80 and 120 foot cranes contemplated under the contract). Fulgham denies it committed any tortious act and further asserts that the survival statute extinguished this unasserted corporate claim because it was not brought within the two-year wind-up period. 35 Fulgham's position must prevail. The accepted rule in jurisdictions which have adopted corporate survival statutes is that corporate claims reduced to judgment in which only a mere collection is necessary are assets which devolve to former shareholders in a dissolved corporation. Fletcher, supra Sec. 8139 at 427. 36 A corporate claim which has been reduced to judgment is to be distinguished from a claim which has never been asserted. A claim which has been reduced to judgment is similar to a debt, and such a claim, passing to the shareholders as their distribution of the property of the corporation, may form the basis for a cause of action despite the fact that the statutory period of continuation has passed. 37 Id. Hutson's fraud claim, which is based on a tort committed against Foresco, falls into a category of corporate claims that the survival statute clearly intended to prohibit after the wind-up period. This unasserted corporate claim should have been brought during the two year wind-up period because, as one court has noted, [t]he expired right is no more enforceable in the former shareholders' possession than it is in the defunct corporation's. MBC, Inc. v. Engel, 119 N.H. 8, 397 A.2d 636, 639 (1979) (interpretation of New Hampshire's survival which parallels the Model Act's provisions). Thus, the district court properly held that Hutson could not maintain his tort claims. 18