KHB Holdings v. Mark Duncan

CourtCourt of Appeals of Tennessee
DecidedMay 12, 2003
DocketE2002-02062-COA-R3-CV
StatusPublished

This text of KHB Holdings v. Mark Duncan (KHB Holdings v. Mark Duncan) is published on Counsel Stack Legal Research, covering Court of Appeals of Tennessee primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
KHB Holdings v. Mark Duncan, (Tenn. Ct. App. 2003).

Opinion

IN THE COURT OF APPEALS OF TENNESSEE AT KNOXVILLE May 12, 2003 Session

KHB HOLDINGS, INC. v. MARK A. DUNCAN, ET AL.

Appeal from the Chancery Court for Knox County No. 149910-2 Daryl R. Fansler, Chancellor

FILED JUNE 25, 2003

No. E2002-02062-COA-R3-CV

KHB Holdings, Inc. (“KHB”) sued Mark A. Duncan and Tina L. Duncan (“the Duncans”), alleging that the Duncans had terminated KHB’s contract to construct a residence for them. The trial court found that KHB’s corporate charter had been revoked two years prior to the date on which KHB ostensibly contracted with the Duncans; denied KHB’s motion to substitute its sole shareholder, Kenneth H. Boyd (“Boyd”), for the corporation; and held that KHB had failed to establish it was entitled to recover based upon a theory of quantum meruit. We affirm.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed; Case Remanded

CHARLES D. SUSANO, JR., J., delivered the opinion of the court, in which HERSCHEL P. FRANKS and D. MICHAEL SWINEY, JJ., joined.

Raymond E. Lacy and Cynthia Lacy Wagner, Knoxville, Tennessee, for the appellants, KHB Holdings, Inc. and Kenneth H. Boyd.

John T. Sholly, Knoxville, Tennessee, for the appellees, Mark A. Duncan and Tina L. Duncan.

OPINION

I.

KHB was incorporated in Tennessee on May 25, 1989. Boyd, the sole shareholder of KHB, also served as the sole director and president of the corporation. On October 30, 1997, the Tennessee Department of Revenue revoked KHB’s charter for failure to pay taxes.

More than two years later, on November 22, 1999, KHB ostensibly entered into a contract with the Duncans for the construction of a residence on real property owned by them; the contract price was $150,000. KHB obtained a construction loan and began construction. On August 30, 2000, the parties executed an amended contract, which granted to KHB an extension of time on the project, in exchange for a $4,242.03 credit on the purchase price. On October 1, 2000, the Duncans terminated the contract.

At the time of termination, construction was 95% complete. Of the adjusted contract price of $145,757.97, the Duncans paid only $108,000. They spent approximately $15,000 to complete the residence. Thereafter, KHB brought this action against the Duncans1 for breach of contract and under a quantum meruit theory, and demanded $42,000 in damages, plus interest. The Duncans then filed a counterclaim against KHB, alleging breach of contract, unjust enrichment, fraud, and misapplication of payments.

On the day of trial, Boyd made a motion to be added as a party plaintiff, contending that, as the sole shareholder of KHB, he would be entitled to any recovery against the Duncans due under the contract. KHB made a motion on the same day, asking that it be allowed to amend its answer to the counterclaim to assert the defense of Boyd’s discharge in bankruptcy in the event the trial court should find that KHB was without authority to contract with the Duncans. In that event, KHB asked that Boyd be substituted as the real party in interest.

At the conclusion of the trial, the court found that when KHB ostensibly entered into a contract with the Duncans, it was then precluded from engaging in new business because its corporate charter had been previously revoked. Accordingly, “there was no cause of action of the corporation for [Boyd] to pursue as a result of this purported contract on November 22, 1999.” Further, the trial court found that Boyd failed to prove that it could pursue an action against the Duncans in quantum meruit. The trial court dismissed KHB’s complaint and dismissed the Duncans’ counterclaim because of their failure to attend the trial and prosecute their claim. From this order, KHB appeals. Boyd appeals the trial court’s denial of his motion to be added as a party plaintiff.

II.

In this non-jury case, our review is de novo upon the record of the proceedings below; but the record comes to us with a presumption of correctness as to the trial court’s factual determinations that we must honor unless the evidence preponderates otherwise. Tenn. R. App. P. 13(d); Wright v. City of Knoxville, 898 S.W.2d 177, 181 (Tenn. 1995); Union Carbide Corp. v. Huddleston, 854 S.W.2d 87, 91 (Tenn. 1993). Our review of questions of law is de novo with no such presumption of correctness attaching to the trial court’s conclusions of law. Campbell v. Florida Steel Corp., 919 S.W.2d 26, 35 (Tenn. 1996); Presley v. Bennett, 860 S.W.2d 857, 859 (Tenn. 1993).

1 In the original complaint, KHB name d several other de fendants. Ho wever, the claim s against these defendants were dismissed by the trial court and are no t before us on this app eal.

-2- III.

A.

KHB and Boyd raise two issues on appeal. First, they argue that the trial court erred in denying Boyd’s motion to be substituted and/or added as a plaintiff in the instant case. Second, they contend that the trial court erred in dismissing their claim based upon a theory of quantum meruit.

B.

When a corporation is administratively dissolved, the assets of the corporation pass to its shareholders. See Jesse A. Bland Co. v. Knox Concrete Prods., Inc., 207 Tenn. 206, 338 S.W.2d 605, 607-08 (Tenn. 1960). Likewise, any causes of action belonging to the corporation may be pursued by its shareholders. See id. The appellants argue from this that Boyd, as the sole shareholder of KHB, has the right to pursue the cause of action in the instant case against the Duncans.

Once a corporation has been administratively dissolved, it “may not carry on any business except that necessary to wind up and liquidate its business and affairs...and notify claimants....” Tenn. Code Ann. § 48-24-202(c) (2002). In addressing this issue, the trial court found as follows:

In effect, if [KHB] acquired a cause of action it did so in violation of state law prohibiting it from continuing to do business. Thus, while property belonging to the corporation on October 30, 1997, may have passed to its shareholder, i.e. [Boyd], the corporation on November 22, 1999, was prohibited from entering into the contract and thus acquiring the cause of action at hand. In effect, there was no cause of action of the corporation for [Boyd] to pursue as a result of this purported contract on November 22, 1999.

See also Swindle v. Big River Broad. Corp., 905 S.W.2d 565, 567 (Tenn. Ct. App. 1995) (stating that “[a]bsent a statutory provision . . ., no suit can be maintained by or against a corporation after dissolution, and must be dismissed”).

In their brief, the appellants contend that if KHB’s charter had been reinstated before trial, its contract with the Duncans would have been validated, pursuant to Tenn. Code Ann. § 48-24- 203(c) (2002), which provides as follows:

When the reinstatement is effective, it relates back to and takes effect as of the effective date of the administrative dissolution, and the corporation resumes carrying on its business as if the administrative dissolution had never occurred.

-3- The appellants’ assertion is obviously correct.

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Related

Swafford v. Harris
967 S.W.2d 319 (Tennessee Supreme Court, 1998)
Castelli v. Lien
910 S.W.2d 420 (Court of Appeals of Tennessee, 1995)
Union Carbide Corp. v. Huddleston
854 S.W.2d 87 (Tennessee Supreme Court, 1993)
Presley v. Bennett
860 S.W.2d 857 (Tennessee Supreme Court, 1993)
Jesse A. Bland Co. v. Knox Concrete Products, Inc.
338 S.W.2d 605 (Tennessee Supreme Court, 1960)
Wright v. City of Knoxville
898 S.W.2d 177 (Tennessee Supreme Court, 1995)
Campbell v. Florida Steel Corp.
919 S.W.2d 26 (Tennessee Supreme Court, 1996)
Swindle v. Big River Broadcasting Corp.
905 S.W.2d 565 (Court of Appeals of Tennessee, 1995)

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Bluebook (online)
KHB Holdings v. Mark Duncan, Counsel Stack Legal Research, https://law.counselstack.com/opinion/khb-holdings-v-mark-duncan-tennctapp-2003.