Quality Interiors, Inc. v. American Management & Development Corp.

Citation: 8 Ohio App. Unrep. 651Docket: Case No. 89-T-4303

Court: Ohio Court of Appeals; December 6, 1990; Ohio; State Appellate Court

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Martin Perper, a real estate developer from McLean, Virginia, was involved with the American Management and Development Corporation, a construction company that ultimately collapsed in the early 1980s after completing two projects. In September 1985, Perper formed a limited partnership, Youngstown No. 4-B Motel Associates, where he served as the sole general partner. The partnership purchased land in Liberty Township, Ohio, intending to build the Metroplex Holiday Inn Convention Center. 

To manage the project, Perper engaged an architect to design the facility and negotiate contracts. Following legal advice, he instructed the formation of a new corporation to act as the general contractor, intending to protect the partnership from liability. The corporation was to adopt the name of the dissolved Virginia company. Although Perper believed the corporation was established by late October 1985, he later learned from his attorney in February 1986 that the articles of incorporation had not been filed, rendering the corporation non-existent. Furthermore, the original name could not be used due to an existing Ohio corporation.

Subsequently, Perper directed the attorney to file the articles under a new name, "Metroplex Management and Development Corporation," which was not completed until May. During the interim, the architect negotiated subcontracts with Quality Interiors, with the contracts mistakenly listing the non-existent corporation as the contractor and owner. Both subcontracts were signed by the architect on behalf of the corporation, and the work was completed by Quality Interiors, leading to an increased amount owed by the corporation for the contracted and additional work performed.

Appellee received multiple payments under subcontracts from a partnership rather than a corporation. In February 1988, appellee filed a complaint in Trumbull County Court against American Management and Development, claiming a debt of $41,986.98. After the corporation answered, the parties agreed to arbitration, but appellee amended the complaint to include appellant, who was identified as the principal owner of the corporation and allegedly continued business under its name despite its dissolution. The amended complaint asserted appellant's liability under the subcontracts.

The arbitration resulted in a ruling favoring appellee against the corporation for the original amount, which the corporation did not contest. Subsequently, appellant raised defenses after the arbitrator’s report. A bench trial determined appellant's personal liability based on several grounds: the non-existence of the Virginia corporation, appellant's ongoing business under its name, the failure of the Ohio corporation to provide liability protection, and the non-existence of Metroplex Management and Development at the time of the subcontracts. Appellant, Martin Perper, appealed the trial court's finding of personal liability, contesting the legal basis for this ruling, particularly regarding his continued business operations under the dissolved corporation's name.

The trial court's decision was based on two appellate cases, Chatman v. Day and Nabakowski v. 5400 Corp. Appellant argues that this reliance was erroneous, claiming a conflict with prior Supreme Court rulings. In Chatman, it was determined that a corporation's president could not claim protection from personal responsibility after the corporation's charter was declared not in good standing, as outlined in R.C. 1701.88(A). This statute mandates that once a corporation's articles are canceled, it can only act to wind up its affairs, thereby limiting the authority of the corporation and preventing individuals from using defunct corporations to shield themselves from liability.

Appellant cites earlier Supreme Court cases, Sweeny v. Keystone Driller Co. and Eversman v. Ray Shipman Co., which held that transactions made by a corporation whose articles were canceled were not void, as the relevant tax statute allowed for reinstatement. However, the Chatman court emphasized that the authority granted under the tax statute is much narrower than the restrictions imposed by R.C. 1701.88(A). Therefore, the court concluded that the earlier cases are not binding, given the explicit language of R.C. 1701.88(A), which serves to prevent fraud by prohibiting continued business operations under a non-existent corporation.

Despite this, the appellant's second assignment raises doubts about the applicability of the Chatman ruling to this case, questioning whether he was indeed operating under a defunct corporation. The trial court did not find that he was doing so, but the record indicates he authorized the use of the name "American Management and Development" in two subcontracts, which is relevant to determining the applicability of the Chapman precedent.

Jack Coffey, the sole owner of the appellee, believed he was dealing with a corporation from Virginia, but evidence indicated that the corporation, American Management and Development, was never officially formed. The trial court found that a de facto corporation had not been established, as there was no colorable compliance with incorporation laws, particularly since articles of incorporation were never filed. While Coffey acted as though a corporation existed, the court highlighted that estoppel does not apply when it would be unjust to allow someone to benefit from fraud. The trial court determined that the appellee could pierce the corporate veil, noting that the corporation lacked capital, with all project funds held by the partnership, and payments to subcontractors made by the partnership. Additionally, the ownership and management of the corporation were closely tied to the partnership. As a result, the appellant, as a general partner, was found personally liable for the corporation's debts. The appellant's argument against personal liability was rejected, as evidence showed he was the primary individual involved in business dealings, despite not being a party to the subcontracts. The judgment was affirmed, with concurring opinions from both judges.