Bullington v. Palangio
2001 Ark. LEXIS 390, 345 Ark. 320, 45 S.W.3d 834 (2001)
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Rule of Law:
An officer who actively operates a corporation after its charter is revoked for nonpayment of franchise taxes is personally liable for debts incurred during the revocation period. Furthermore, an express warranty on a specific subject, such as workmanship, does not waive broader implied warranties of habitability and proper construction unless the circumstances are sufficient to call the buyer's attention to the exclusion.
Facts:
- On December 29, 1993, Jerry Bullington incorporated his construction business as Bullington Builders, Inc., with himself and his wife as the only stockholders.
- On July 9, 1994, Jerry Bullington entered into a contract with Helen Palangio to build her a new residence.
- The contract contained a one-year express warranty for workmanship and materials.
- Bullington Builders, Inc. failed to pay its corporate franchise taxes, leading to the revocation of its corporate charter.
- The charter revocation occurred approximately one and one-half months before the completion of construction on Palangio's home.
- Bullington continued to perform work under the contract after the corporation's charter was revoked.
- Following the home's completion, Palangio discovered numerous construction defects, which Bullington attempted to remedy without success.
- Palangio hired another contractor to repair the alleged defects.
Procedural Posture:
- Helen Palangio filed a lawsuit against Jerry Bullington, d/b/a Bullington Builders, Inc., in the Van Burén County Circuit Court (trial court), alleging negligence and breach of contract and implied warranties.
- Palangio later amended her complaint to name Bullington personally as a defendant.
- At trial, a jury returned a verdict finding Jerry Bullington individually liable to Palangio for $19,000 and finding no liability for Bullington Builders, Inc.
- The trial court entered a judgment consistent with the jury's verdict.
- Jerry Bullington (appellant) appealed the judgment to the Arkansas Supreme Court.
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Issue:
Is a corporate officer who continues to operate the business after its charter has been revoked for failure to pay taxes personally liable for contractual obligations, including breach of implied warranties, incurred during the period of revocation?
Opinions:
Majority - Ray Thornton, Justice
Yes. A corporate officer who continues to actively operate a business after its charter has been revoked is individually liable for debts incurred during the period of revocation. The court reasoned that corporate officers should not be allowed to avoid personal liability due to their own nonfeasance in failing to maintain the corporation's good standing. Citing precedent like Schmidt v. McIlroy Bank & Trust, the court held that by continuing to perform the construction contract after the charter was revoked, Bullington personally assumed the obligations of the contract. This liability attaches for debts incurred during the period of revocation, making him responsible for any faulty performance. Because this rationale was sufficient to impose personal liability, the court did not need to address alternate theories like improper contract execution or piercing the corporate veil. The court also held that the express warranty for workmanship did not waive the implied warranties of habitability and proper construction, as an express warranty on a specific subject only supplants an implied warranty on that same subject, not broader, unmentioned warranties.
Analysis:
This decision reinforces the principle that limited liability is a privilege contingent upon adherence to corporate formalities, such as paying franchise taxes. It serves as a stark warning to principals of closely-held corporations that failure to maintain good standing can erase the corporate veil and expose them to personal liability for corporate debts. The opinion also clarifies Arkansas warranty law by distinguishing narrow express warranties from broader implied warranties. It establishes that implied warranties of habitability and proper construction survive unless they are explicitly and clearly disclaimed, thereby providing greater protection to homebuyers against boilerplate contract provisions.
