Calandro v. Parkerson

Janet CALANDRO and Dale Suezaki v. John W.
Parkerson

95-825                                             ___ S.W.2d ___

                    Supreme Court of Arkansas
               Opinion delivered February 3, 1997


1.   Judgment -- review of grant of summary judgment -- factors on
     appeal. -- On review of a grant of summary judgment, the
     appellate court need only decide if the granting of summary
     judgment was appropriate based on whether the evidentiary
     items presented by the moving party in support of the motion
     left a material question of fact unanswered; the burden of
     sustaining a motion for summary judgment is always the
     responsibility of the moving party; all proof submitted must
     be viewed in a light most favorable to the party resisting the
     motion, and any doubts and inferences must be resolved against
     the moving party; summary judgment is proper when a claiming
     party fails to show that there is a genuine issue as to a
     material fact and when the moving party is entitled to summary
     judgment as a matter of law. 

2.   Judgment -- prima facie entitlement to summary judgment
     established -- opposing party must meet proof with proof. --
     Once the moving party establishes a prima facie entitlement to
     summary judgment by affidavits or other supporting documents
     or depositions, the opposing party must meet proof with proof
     and demonstrate the existence of a material issue of fact; if
     a moving party supports its motion for summary judgment by
     making a prima facie showing of an absence of factual issues
     and entitlement to judgment as a matter of law, and the
     adverse party fails to set forth specific facts showing a
     genuine issue of material fact, then the appellate court will
     not hold that the trial judge erred in granting summary
     judgment.

3.   Corporations -- corporation separate entity from its
     stockholders -- corporation loses ability to sue upon
     revocation of its charter. -- It is axiomatic that a
     corporation is an entity separate from its stockholders; a
     corporation, once formed, owns the corporate property and owes
     the corporate debts, is the creditor to sue or debtor to be
     sued, has perpetual existence, and can act only through its
     duly constituted organs, primarily its board of directors; one
     effect of charter revocation is that a corporation loses its
     ability to sue.

4.   Corporations -- malpractice and contract claims -- individual
     appellants could not bring corporate cause of action. --
     Summary judgment was affirmed where the contract and
     malpractice causes of action alleged in appellants' complaint
     were those of the corporation; because the corporation lost
     its capacity to sue when it lost its charter, appellants could
     not, as individuals, do for the corporation what it could not
     do for itself; appellants' charges that appellee failed to
     conduct a title search of the real property listed in the
     lease agreement and to verify the purported lessor's status,
     could not be brought by them as individuals where the lease
     agreement demonstrated that the lease was entered into by the
     corporation, not the individual appellants; appellants did not
     delineate any specific services that appellee had provided
     them as individuals; they failed to meet proof with proof to
     show that an issue of fact remained as to whether the services
     were rendered to the corporation, or to them as
     individuals.   

5.   Fraud -- five elements of -- proof required by preponderance
     of evidence. -- The tort of fraud or misrepresentation
     consists of five elements that must be proved by a
     preponderance of the evidence: (1) a false representation,
     usually of a material fact; (2) knowledge or belief by the
     defendant that the representation is false; (3) intent to
     induce reliance on the part of the plaintiff; (4) justifiable
     reliance by the plaintiff; and (5) resulting damage to the
     plaintiff.  

6.   Fraud -- privity of contract not required to have cause of
     action against attorney for fraud -- individual appellants
     could bring claim. -- Appellants' separate claim for deceit
     could stand because, in Arkansas, privity of contract is not
     required in order to have a cause of action against an
     attorney for intentional misrepresentations or fraud; the fact
     that the deceit claim was brought by the individual
     appellants, and not the corporation, was of no consequence.  

7.   Judgment -- summary judgment on claim of deceit reversed --
     disputed facts remained to be solved. -- Where a question of
     fact remained as to whether appellee made the false
     representation alleged and both appellants stated that their
     actions or inactions were based on appellee's agreement to
     assist them in obtaining a new lease for both the real
     property and the equipment and on appellee's repeated promises
     that he would "get back to them," the issue of whether
     appellants were damaged by the appellee's alleged
     misrepresentation was one of disputed fact that remained to be
     resolved; the entry of summary judgment on appellants' claim
     for deceit was reversed and remanded.    

     Appeal from Garland Circuit Court; Tom Smitherman, Judge;
affirmed in part; reversed and remanded in part.
     T.B. Patterson, Jr. P.A., for appellants.
     Stephen M. Bingham, for appellee.

     W.H."Dub" Arnold, Chief Justice. 
     The appellants, Janet Calandro and Dale Suezaki, were the sole
shareholders in U and Me, Inc., a Hot Springs convenience store. 
As individuals, appellants filed suit for legal malpractice,
deceit, and breach of contract against appellee John W. Parkerson. 
The trial court granted summary judgment in appellee's favor on the
basis that the causes of action alleged were those of the
corporation, not the individual appellants.  We affirm summary
judgment as to the claims for malpractice and breach of contract,
but reverse and remand the trial court's ruling on appellants'
claim for deceit.   
     On April 29, 1994, appellants filed their complaint against
appellee, an attorney practicing in Hot Springs.  They alleged
that, in the spring of 1991, they had desired to open a convenience
store, had located a site for the business, and had found a
prospective landlord, Kwik Lane Management Company, which had
agreed to rent the property and necessary equipment to them. 
Appellants obtained a proposed lease agreement from Jim Davis, a
representative of the purported lessor, and took it to appellee. 
     Upon appellee's recommendation, appellants incorporated as U
and Me, Inc.  Thereafter, appellee redrafted the lease agreement,
which was executed on May 1, 1991, by Kwik Lane Management
Corporation as lessor and U and Me, Inc., as lessee.  The business
had been in operation for approximately five months when, in
September of 1991, appellants were advised that Kwik Lane was not
the owner of the business premises; rather, Southern Farm Bureau
Life Insurance Company owned the real property and Worthen Bank
owned the equipment.  It was appellants' position that appellee's
failure to inquire as to the status of the lessor and the title of
the property leased constituted professional negligence, which
proximately caused them to lose possession and use of the premises
and equipment.
     According to appellants' complaint, in October of 1991,
appellee agreed to assist them in obtaining leases for the real
property and the equipment and promised that he would "get back to
them."  On or about January 2, 1992, appellee, knowing that
appellants would rely on his statement, told appellant Calandro
that the real property had been sold, when, in fact, appellee knew
that the property had not been sold.  Relying on appellee's
statement, appellants vacated the premises and allowed Worthen to
take the equipment.  Appellants claimed that, as a result of
appellee's deceit as to the sale of the business premises, they
voluntarily surrendered their rights in the equipment and fixtures
necessary to operate their store, which closed in January of 1992. 
Two years later, on January 24, 1994, U and Me's corporate charter
was revoked for nonpayment of franchise taxes.  Appellants asserted
that appellee's negligence and malfeasance constituted a breach of
the attorney-client agreement, entitling them to a return of
attorney's fees and costs.    
     After the complaint was filed, discovery ensued with the
taking of both appellants' depositions.  Appellee moved for summary
judgment on the basis that the causes of actions alleged in
appellants' complaint were those of the corporation, not the
individual appellants.  Attached to the motion were copies of
checks written on the corporation's account to appellee covering
fees and costs, as well as portions of appellants' depositions. 
While appellants filed a written response to the motion, they
submitted no supporting affidavits, nor did they or their attorney
appear at the scheduled hearing. 
     On April 12, 1995, the trial court issued a letter opinion and
found: (1) that it was clear from the pleadings that the services
upon which the complaint was based were rendered to the
corporation, U and Me, Inc., and that appellants Calandro and
Suezaki were not the proper parties in the case and had not moved
to substitute the proper party; (2) that U and Me, Inc. lost its
capacity to sue when its charter was revoked for failure to pay
franchise fees; (3) that the acts complained of were now barred by
the statute of limitations; (4) that the complaint failed to state 
a cause of action; and (5) that there was no genuine issue of
material fact remaining to be tried in the case.  On April 17,
1995, the trial court granted summary judgment to appellee.
     We have recently summarized our standards for summary judgment
review as follows: 
     In these cases, we need only decide if the granting of
     summary judgment was appropriate based on whether the
     evidentiary items presented by the moving party in
     support of the motion left a material question of fact
     unanswered.  Nixon v. H & C Elec. Co., 307 Ark. 154, 818 S.W.2d 251 (1991).  The burden of sustaining a motion for
     summary judgment is always the responsibility of the
     moving party.  Cordes v. Outdoor Living Center, Inc., 301
     Ark. 26, 781 S.W.2d 31 (1989).  All proof submitted must
     be viewed in a light most favorable to the party
     resisting the motion, and any doubts and inferences must
     be resolved against the moving party. Lovell v. St. Paul
     Fire & Marine Ins. Co., 310 Ark. 791, 839 S.W.2d 222
     (1992); Harvison v. Charles E. Davis & Assoc., 310 Ark.
     104, 835 S.W.2d 284 (1992); Reagan v. City of Piggott,
     305 Ark. 77, 805 S.W.2d 636 (1991).  Our rule states, and
     we have acknowledged, that summary judgment is proper
     when a claiming party fails to show that there is a
     genuine issue as to a material fact and when the moving
     party is entitled to summary judgment as a matter of law.
     Ark. R. Civ. P. 56(c); Short v. Little Rock Dodge, Inc., 
     297 Ark. 104, 759 S.W.2d 553 (1988); see also Celotex Corp. v.
     Catrett, 477 U.S. 317 (1986). 

Renfro v. Adkins, 323 Ark. 288, 295-296, 914 S.W.2d 306, 309-310
(1996); Cash v. Lim, 322 Ark. 359, 360-362, 908 S.W.2d 655, 656-657
(1995); Oglesby v. Baptist Medical Sys., 319 Ark. 280, 284, 891 S.W.2d 48, 50 (1995). 
     Once the moving party establishes a prima facie entitlement to
summary judgment by affidavits or other supporting documents or
depositions, the opposing party must meet proof with proof and
demonstrate the existence of a material issue of fact. Renfro v.
Adkins, supra; Ford Motor Credit Co. v. Twin City Bank, 320 Ark.
231, 895 S.W.2d 545 (1995); Wyatt v. St. Paul Fire & Marine Ins.
Co., 315 Ark. 547, 868 S.W.2d 505 (1994).  If a moving party
supports its motion for summary judgment by making a prima facie
showing of an absence of factual issues and entitlement to judgment
as a matter of law, and the adverse party fails to set forth
specific facts showing a genuine issue of material fact, then we
will not say the trial judge erred in granting summary judgment. 
Pyle v. Roberson, 313 Ark. 692, 858 S.W.2d 662 (1993).
     Appellee asks that we affirm summary judgment on the basis
that the causes of action alleged in appellants' complaint are
those of the corporation, and, since the corporation lost its
capacity to sue when it lost its charter, appellants cannot, as
individuals, do for the corporation what it could not do for
itself.  As supporting authority for his position, appellee cites 
Schmidt v. McIlroy Bank & Trust, 306 Ark. 28, 811 S.W.2d 281
(1991).  In Schmidt, appellants Schmidt were the sole shareholders
of Acro Corporation, a family farming and egg-producing business. 
Acro held its checking accounts and borrowed money from appellee
McIlroy Bank.  Appellants Schmidt and Acro filed a lender-liability
suit against McIlroy Bank, but did not plead any individual cause
of action as guarantors of Acro's debts.  The trial court granted
the bank's motion for summary judgment as to Acro on the ground
that Acro's charter had been revoked for failure to pay franchise
fees, and later granted summary judgment as to the Schmidts on the
grounds that they had not amended their complaint to allege
individual guarantor status.  On appeal, we affirmed, explaining:
     The reasoning behind the cases holding officers and
     stockholders liable is that they ought not be allowed to
     avoid personal liability because of their nonfeasance. 
     On the other hand, it does not follow that they should be
     allowed to benefit by their nonfeasance by allowing them
     to bring suit as partners.  The effect of revocation was
     that the corporation lost its capacity to sue, Sulphur
     Springs Recreational Park v. City of Camden, 247 Ark.
     713, 447 S.W.2d 844 (1969), and this particular type of
     corporate cause of action ceased to exist.  To allow the
     individual appellants to bring this cause of action would
     effectively reverse prior law which prohibits suits by a
     corporation whose charter has been revoked and, in
     addition, would reward them for their nonfeasance. 
 
306 Ark. at 33.  We agree with appellee that our holding in Schmidt
controls the malpractice and breach of contract claims in this
case.  It is axiomatic that a corporation is an entity separate
from its stockholders.  Wiseman v. State Bank & Trust, N.A., 313
Ark. 289, 854 S.W.2d 725 (1993).  A corporation, once formed, owns
the corporate property and owes the corporate debts, is the
creditor to sue or debtor to be sued, has perpetual existence, and
can act only through its duly constituted organs, primarily its
board of directors.  Arkansas Iron & Metal v. First National Bank
of Rogers, 16 Ark. App. 245, 701 S.W.2d 380 (1995), citing H. Henn,
Laws of Corporations and Other Business Enterprises  78 (3d ed.
1983).
     It is undisputed that appellants came to appellee to form a
business and that appellee assisted in incorporating the business. 
However, appellants do not complain that appellee was negligent in
forming the corporation; rather, they contend that appellee failed
to conduct a title search of the real property listed in the lease
agreement and to verify the purported lessor's status.  The lease
agreement, a copy of which is attached to appellants' complaint,
demonstrates that the lease was entered into by the corporation,
not the individual appellants.  Significantly, appellee's motion
for summary judgment was supported by two checks demonstrating that
the corporation paid his fees and costs.  In their response to the
motion, appellants asserted that forming the corporation was "just
one of the services" appellee provided to them.  However, they did
not delineate any specific services that appellee had provided them
as individuals.  During oral argument, appellants conceded that
they did not offer any evidence to meet the proof offered by
appellee.  Thus, they failed to meet proof with proof to show that
an issue  of fact remained as to whether the services were rendered
to the corporation, or to them as individuals.    
     Turning to appellants' claim for deceit, this tort, also known
as fraud or misrepresentation, consists of five elements that must
be proved by a preponderance of the evidence: (1) a false
representation, usually of a material fact; (2) knowledge or belief
by the defendant that the representation is false; (3) intent to
induce reliance on the part of the plaintiff; (4) justifiable
reliance by the plaintiff; and (5) resulting damage to the
plaintiff.  Clark v. Ridgeway, 323 Ark. 378, 914 S.W.2d 745 (1996);
Wiseman v. Batchelor, 315 Ark. 85, 864 S.W.2d 248 (1993). 
     Appellee defends the trial court's granting of summary
judgment on the basis that appellants had no standing to assert any
of the causes of action set forth in their complaint.  While this
argument is persuasive as to appellants' malpractice and contract
claims, it cannot defeat appellants' separate claim for deceit. 
This is so because, in Arkansas, privity of contract is not
required in order to have a cause of action against an attorney for
intentional misrepresentations or fraud.  Clark v. Ridgeway, supra;
Wiseman v. Batchelor, supra; Ark. Code Ann.  16-22-310(a)(1)
(Repl. 1994).  Thus, the fact that the deceit claim was brought by
the individual appellants, and not the corporation, is of no
consequence.    
     In appellants' complaint, their claim for deceit included the
following factual allegations: (1) appellee falsely represented
that the real property had been sold; (2) he knew this
representation was false; (3) he misrepresented the status of the
property with the intention that appellants would rely on his
statement and act on it; (4) appellants were justified in relying
on appellee's representation, as he told them he was working with
the real property owner and would get back with them; and (5)
appellants were damaged by the misrepresentation, as they
voluntarily surrendered their rights in the equipment and fixtures
necessary to operate their business. 
     Appellee further maintains that appellants' testimony in their
depositions is inconsistent with their claim for deceit. 
Particularly, he points to appellant Calandro's testimony that she
could not remember whether appellee told Suezaki and her that the
real property had been sold, or whether he told them that the
equipment had been sold.  However, Suezaki was certain that
appellee related that the building, not the equipment, had been
sold.  Thus, a question of fact remains as to whether appellee made
the false representation alleged.  
     Appellee also contends that appellants' testimony in their
depositions demonstrated that there was no genuine issue of fact on
the element of damage.  Specifically, appellee references
Calandro's admission that she and Suezaki closed the business after
Worthen Bank announced its plans to take the equipment, and that
both the equipment and the real property were necessary to continue
business operations.  Appellee also refers to appellants' failure
to pay or to negotiate the rent with the true owner, their failure
to make an offer to purchase the equipment, and their failure to
look for an alternate business location or to obtain financing. 
However, both Calandro and Suezaki stated that their actions or
inactions were based on appellee's agreement to assist them in
obtaining a new lease for both the real property and the equipment,
and his repeated promises that he would "get back to them."  In
light of this testimony, the issue of whether appellants were
damaged by the appellee's alleged misrepresentation is one of
disputed fact that remains to be resolved.
     For the foregoing reasons, we affirm the trial court's entry
of summary judgment against appellants on their claims for
malpractice and breach of contract.  We reverse and remand the
entry of summary judgment on appellants' claim for deceit.   
     Affirmed in part; reversed and remanded in part.   
     Glaze, Brown, and Imber, JJ., concurring in part and
dissenting in part.

=================================================================
                Annabelle Clinton Imber, Justice.


     Annabelle Clinton Imber, J., dissenting.  I concur with affirming
the trial court's entry of summary judgment against appellants on
their claims for malpractice and breach of contract for the reasons
stated in the majority opinion.  However, I would also affirm the
trial court's entry of summary judgment on appellants' separate
claim for deceit.
     The corporation U & Me, Inc., lost its capacity to sue when
its charter was revoked for failure to pay franchise fees.  Thus,
any claims by the corporation for legal malpractice, deceit, or
breach of contract have ceased to exist.  Schmidt v. McIlroy Bank
and Trust, 306 Ark. 28, 811 S.W.2d 281 (1991).
     In order to state a cause of action for deceit by the
individual appellants, and not the corporation, appellants must
allege sufficient facts to support each of the five elements of the
cause of action for deceit, including facts to support the
resulting damage to the individual appellants.  Clark v. Ridgeway,
323 Ark. 378, 914 S.W.2d 745 (1996).  
     Although appellants may have alleged sufficient facts to come
within the first four elements of a claim for deceit, they have
failed to allege sufficient facts under the fifth element -- the
resulting damage to the individual appellants.  Appellants allege
in their complaint that as a result of appellee's
misrepresentation, "they voluntarily surrendered their rights in
the equipment and fixtures necessary to operate their business."
(emphasis added).  This allegation ignores the fact that all rights
to the equipment and fixtures belonged to the corporation under the
lease agreement.
     The majority agrees with the well-settled rule that a
corporation is an entity separate from its stockholders. Shipp v.
Bell & Ross Enterprises, Inc., 256 Ark. 89, 505 S.W.2d 509 (1974). 
And, as a separate legal entity distinct from its members, a
corporation owns the corporate property and owes the corporate
debt, with the corresponding right to sue as a creditor and to be
sued as a debtor.  Arkansas Iron and Metal Co. v. First National
Bank of Rogers, 16 Ark. App. 245, 701 S.W.2d 380 (1995).  As stated
in Red Bug Realty Co. v. South, 96 Ark. 281, 291, 131 S.W. 340, 344
(1910):
     A stock holder does not acquire any estate in the
     property of a corporation by virtue of its stock; the
     full legal and equitable title thereto is in the
     corporation, and a cause of action for the recovery of
     its property or for a violation of its rights thereto is
     in the corporation.
(Emphasis added.)
     I find no factual basis for the conclusory allegation in the
complaint that the individual appellants were damaged by the
alleged misrepresentation.  Under the lease agreement, all rights
in the equipment and fixtures necessary to operate the business
belonged to the corporation.  Consequently, the appellants would
have sustained no damages in their individual capacities by the
surrender of the corporation's rights to the equipment and
fixtures.  Thus, appellants have failed to allege sufficient facts
to support the required element of damages in their individual
cause of action for deceit.  
     I must therefore conclude that no genuine issue of material
fact has been presented on the deceit claim brought by the
individual appellants and that the complaint fails to state a cause
of action for deceit.  For the above-stated reasons, I would affirm
the trial court's entry of summary judgment in its entirety. 
     Glaze and Brown, J.J., join in the dissent.