Court Opinion

ID: 4711414
Source: CourtListenerOpinion
Date Created: 2021-08-12 00:36:53.450905+00
Date Added: 2024-06-11T08:07:08.789668
License: Public Domain

Johnson, J.
(dissenting) — The issue in this case is whether the principal of an administratively dissolved corporation is entitled to the legal “protections” of a corporation. Statutes and case law establish that where no corporation exists, no immunity is available. The majority *373errs in applying and analyzing a statutory section which is inapplicable to the facts of this case. I would affirm the Court of Appeals.
This appeal arises out of two creditors’ attempts to hold an individual liable on a contract signed by the individual purportedly on behalf of a corporation which did not exist. The majority misinterprets the plain language of the applicable Washington statutes in order to excuse the neglect of the defendant and finds the defendant not personally liable for the debts of an administratively dissolved corporation.1
Corporations are creatures of statute which derive their existence and ability to act through statutes. 1 William Meade Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 2.10, at 10 (Charles R.E Keating & Gail O’Gradney eds., rev. ed. 1990). The requirements imposed by statutes must be complied with in order to retain corporate form. Conversely, failure to comply with these duties results in no recognized corporate existence. Fundamental to corporate law, and the statutes involved here, is if a corporation does not legally exist, no corporate protections exist. Further, corporate privileges, such as limited liability, vanish whenever corporateness is disregarded. Harry G. Henn & John R. Alexander, Laws of Corporations § 146, at 346 (3d ed. 1983). In this case, no dispute exists that the corporation was administratively dissolved and was not entitled to statutory reinstatement. Yet, the majority determines the statutes require the corporation or its principal to know of the dissolution.
The majority begins its analysis correctly by explaining Washington’s dissolution statutes, RCW 23B.14.200-.220. However, the majority resolves this case by referring to RCW 23B.02.040, which, by its terms, does not apply. RCW 23B.02.040 is titled “Liability for Preincorporation Transactions,” and states:
*374All persons purporting to act as or on behalf of a corporation, knowing there was no incorporation under this title, are jointly and severally liable for liabilities created while so acting except for any liability to any person who also knew that there was no incorporation.[2]
RCW 23B.02.040 states if an individual knows that no corporation has been formed, and acts on behalf of a corporation, that individual will be held jointly and severally hable unless the other party to the contract also knew there was no corporation formed.
We have interpreted the similarly worded predecessor statute, former RCW 23A.44.100, and held an individual acting on behalf of the preincorporated corporation escapes joint and several liability under this statute only if the other party knew a corporation did not exist and still agreed to look to the corporation for satisfaction of the debt. Goodman v. Darden, Doman & Stafford Assocs., 100 Wn.2d 476, 479, 670 P.2d 648 (1983). In the entire statutory scheme, RCW 23B.02.040 is the one shield from personal liability when there is no corporation, and it applies only when both parties know there is no corporation. By its express terms, this section is limited to a specific situation. Nothing in this case supports an argument that plaintiffs knew there was no corporation at the time of contract. This fact should end any analysis under this section simply because it does not apply.
Application of the dissolution statutes resolves this case. The majority correctly states that a corporation has yearly responsibilities to maintain its corporate status, including filing an annual report with the Secretary of State, RCW 23B.16.220, and paying an annual $50 licensing fee, RCW 23B.01.530. The corporation also has the obligation to maintain a registered agent in the state. RCW 23B.05.010. *375In this case, the defendant and his corporation failed to comply with these statutory requirements for three years. As a result of this neglect, the corporation was administratively dissolved by the Secretary of State in accordance with RCW 23B.14.200.3
The majority properly explains the process for administrative dissolution—it acknowledges that the corporation may not conduct any business except that business necessary to wind up business affairs.4 The majority correctly states that the Secretary of State possesses the ability to reinstate a corporation within two years of dissolution. RCW 23B.14.210-.220. There is no question that an individual acting on behalf of a corporation that has been administratively dissolved, but reinstated during the two-year window under RCW 23B. 14.220, will not be personally hable for acts that occurred during the temporary dissolution. However, that did not occur in this case; the corporation no longer existed.
Existence of a corporation shields an individual from personal liability. Limited liability has been regarded as “the corporation’s most precious characteristic.” Bernard F. Cataldo, Limited Liability with One-Man Companies and Subsidiary Corporations, in 18 Law & Contemp. Probs. 473 (1953) (quoting William W. Cook, “Watered Stock”Commissions-“Blue Sky Laws”-Stock Without Par Value, 19 Mich. L. Rev. 583, 583 n.4 (1921)). However, the converse *376may also be true—if there is no corporation, then personal liability must attach.
The defendant argues he did not have knowledge that the corporation was administratively dissolved. The defendant attempts to shift the blame for his lack of knowledge to a former registered agent. The majority agrees with this argument and remands this case for a determination of whether the defendant had actual knowledge that the corporation was administratively dissolved. In effect, the majority creates a “good faith, I did not know” defense that is not found in any statute.
In this present case, the indications are that the corporate form was generally disregarded. The corporation did not pay its fees, file an annual report, or have a registered agent—all required by statute. Failure to have a registered agent, RCW 23B. 14.200(3), or failure of the corporation to “notify the secretary of state that its registered agent or registered office has been changed, that its registered agent has resigned, or that its registered office has been discontinued,” RCW 23B.14.200(4), are all grounds for dissolution. The express language of the statute states it is incumbent upon the corporation to notify the Secretary of State of changes; significantly, it is not the duty of the registered agent. The corporation is statutorily charged with the duty to abide by these requirements. A “good faith” breach of these basic corporate duties is not a legally recognized concept.
Whether the express statutory scheme is analyzed or common-law agency principles applied, as the Court of Appeals correctly did, since no corporation existed at the time of contract, personal liability on the contracts exists. I would affirm the Court of Appeals.

J & R Interiors, Inc. was administratively dissolved in 1991; summary judgment was granted against Yarmouth personally in 1994. Hence, the dissent references the statutes in effect during this time period.

Incorporation is defined by Black’s Law Dictionary as “[t]he act or process of forming or creating a corporation. The formation of a legal or political body, with the quality of perpetual existence and succession, unless limited by the act of incorporation.” Black’s Law Dictionary 766 (6th ed. 1990). With the definition of incorporation in mind, it is clear this statute was intended to apply to acts which took place before the corporation was actually formed.

A corporation, with regard to its registered agent, has a duty to, at the least, know the status of its chosen registered agent. RCW 23B. 14.200(3) and (4) reflect this corporate statutory duty. It makes no difference whether notice from the Secretary of State was lost in the mail or whether the registered agent moved or died. Under the statute, upon administrative dissolution and expiration of the reinstatement period allowed by statute, no corporate form is recognized by the statutes and, therefore, it simply does not exist. Under the statute, whether a person has knowledge or “in good faith believes” a corporation exists is irrelevant.

In this case it is not disputed that the purchase of new equipment did not constitute acts which were necessary to wind up business. If the defendant had entered into contracts that were necessary to wind up business, the statutes provide a shield from personal liability. Conversely, the statutes indicate if the acts are not necessary to wind up business, an individual may be held hable.