Court Opinion

ID: 9643766
Source: CourtListenerOpinion
Date Created: 2023-08-22 20:40:04.603419+00
Date Added: 2024-06-11T18:11:03.548691
License: Public Domain

On Motion for Rehearing
Appellees, Phill and Nancy Hansel, have filed a motion for rehearing in which they assert this court was in error in holding that James L. Allen, the sole stockholder of Regal Construction Company, had standing to prosecute a suit originally filed by Regal Construction Company after the corporate charter of that company had been forfeited by the Secretary of State for failure to pay franchise taxes. They point out that we failed to comment on the holding of the Supreme Court of Texas in Pratt-Hewit Oil Corporation v. Hewit, 122 Tex. 38, 52 S.W.2d 64 (Tex.1932) in which the court stated: “ . . .If the cause of action sought to be asserted is merely the ordinary one which accrues to the corporation in the due course of its business, it is of course barred from bringing the same, nor can such suit be maintained for its benefit by its agent, assignee, or stockholder.” However, the court also stated: “ . when a corporation, domestic or foreign, has been denied the right to use our courts as a penalty for its failure to comply with the laws of this state, the property the corporation holds in trust for its stockholders is not subject to appropriation by third parties. In such cases, the suit must be brought, not for the benefit of the corporation, but by the individual stockholders, suing in their own right. A court of equity, in such case, possesses full power and authority to take such action as is necessary and proper to protect the interests of the stockholders in the corporate property..."
Our attention has also been called to the case of Jones v. Central States, Southeast and Southwest Acres Pension Fund, et al., 552 S.W.2d 578 (Tex.Civ.App.-Dallas 1977, no writ). In that case the court held that the right of shareholder action is contingent upon a showing of corporate disability, and when that disability is removed, the shareholder suit is necessarily mooted. This case recognized the right of the shareholder to bring suit where the corporation lost its right to sue for failure to pay franchise taxes.
The case of McGown v. Kittel, 480 S.W.2d 47 (Tex.Civ.App.-Fort Worth 1972, writ ref. n. r. e.), also cited, was an action by a shareholder of a corporation whose charter had been forfeited for nonpayment of franchise taxes to liquidate the corporation. Prior to the trial of the suit the corporate charter was reinstated. The significant holding of the court was that the forfeiture of the corporate charter did not extinguish the corporation as a legal entity so long as there was a statutory right to have the corporate charter reinstated.
In Longoria v. Atlantic Gulf Enterprises, Inc., 572 S.W.2d 71 (Tex.Civ.App.-Corpus Christi 1978, writ ref. n. r. e.), the court rejected the contention that upon the forfeiture of a corporate charter for failure to pay franchise taxes the corporate existence ends and title to the corporate assets vests in the sole shareholder rendering him personally liable as a sole proprietor for all corporate obligations.
The contention is made, based upon language foimd in Longoria v. Atlantic Gulf Enterprises, Inc., supra, and McGown v. Kittel, supra, that Humble Oil & Refining Co. v. Blankenburg, 149 Tex. 498, 235 S.W.2d 891 (1951) is no longer authoritative because the legislature has now provided a statutory method for securing the reinstate*157ment of a forfeited corporate charter. The conclusion is drawn that the only method for protecting the assets of the corporation which are in litigation is to revive the corporate charter and thereby the corporation’s right to defend or prosecute a lawsuit. While we recognize that the legislature has provided a simple and effective method by which corporate assets may be protected, we feel that the rules of law approved by the Supreme Court of Texas in the Humble Oil & Refining Co. case and the Pratt-Hewit Oil Corporation case are binding on this court. The corporate charter of Regal Construction Company has been forfeited and as a result it cannot prosecute the suit. Mr. Allen has prosecuted it in his individual capacity as a stockholder and falls within those rules of law.
Other points are presented in the motion for rehearing and have been considered by the court. The motion for rehearing is denied.