2013 Ohio 5815
Ohio Ct. App.2013Background
- Big Little Farms, Inc. (BLF) purchased and held title to a Trumbull County horse farm; its articles of incorporation were cancelled in the early 1980s and were never reinstated.
- In December 2003, Dale Ross (purporting to act as BLF’s president) signed a promissory note to Gene and Beverly Ross for $103,385 and executed a mortgage on the farm in BLF’s name.
- Gene Ross died shortly after; BLF (and Dale) made no payments on the loan.
- In 2007 the county treasurer filed a tax foreclosure; Beverly filed cross-claims against BLF and Dale’s estate seeking foreclosure and enforcement of the mortgage and note.
- The trial court granted partial summary judgment: it held BLF lacked capacity when the instruments were executed and declared the mortgage void as to BLF, but held Dale personally liable on the note.
- The court of appeals reversed the quiet-title ruling, holding BLF (and Dale’s estate) estopped from denying corporate existence because Dale held himself out as BLF’s president and executed the documents in the corporate name; case remanded.
Issues
| Issue | Plaintiff's Argument (Beverly) | Defendant's Argument (BLF / Dale's estate) | Held |
|---|---|---|---|
| Enforceability of the mortgage given BLF’s cancelled articles | Mortgage valid; Dale signed in corporate capacity and BLF held title, so parties reasonably relied on corporate existence | Mortgage void as BLF lacked capacity under R.C. 1701.88 when executed; only winding-up acts allowed | Reversed trial court: estoppel applies; mortgage not void as to BLF on summary judgment; remanded |
| Whether Dale (or his estate) is estopped from denying BLF’s corporate existence | Dale’s representations that he acted for BLF preclude denying corporate status to invalidate the transaction | Cancellation of articles means corporation ceased regular business; statutory bar prevents estoppel from restoring corporate powers | Court accepts estoppel: party who held out corporation cannot later deny it to avoid obligations |
| Proper legal effect of R.C. 1701.88 (winding up after cancellation) | Estoppel and facts (title in BLF name, corporate-signed documents) control here | R.C. 1701.88 prohibits ordinary business after cancellation; loans and mortgages outside winding-up are void as to the corporation | Majority declines to treat R.C. 1701.88 as defeating estoppel on these facts; dissent argues statute should control and would affirm trial court |
Key Cases Cited
- Callender v. Painesville R.R. Co., 11 Ohio St. 516 (1860) (estoppel prevents one who held out a corporation from later denying corporate existence)
- Trumbull Cty. Mutual Fire Ins. Co. v. Horner, 17 Ohio 407 (1848) (same estoppel principle)
- Grafton v. Ohio Edison Co., 77 Ohio St.3d 102 (1996) (standard of review for summary judgment)
- Mack Constr. Devel. Corp. v. Austin Smith Constr. Co., 65 Ohio App.3d 402 (1989) (R.C. 1701.88 bars carrying on ordinary business after cancellation; policy rationale)
- Eversman v. Ray Shipman Co., 115 Ohio St. 269 (1926) (older precedent noting cancellation does not render all actions void; distinguished by later statute)
- Kesselring Ford, Inc. v. Cann, 68 Ohio App.2d 131 (1980) (corporate assets held in trust pending winding up and creditor claims)