Rimco Enterprises, Inc. v. Texas Electric Service Co.

OPINION

MASSEY, Chief Justice.

This is a suit for collection of a debt Rimco Enterprises, Inc., allegedly owes Texas Electric Service Company (TESCO). In the trial court RIMCO denied receipt of service and raised usury as an affirmative defense by way of counterclaim, seeking to recover all penalties of usury, including cancellation of principal, double the amount of interest, and reasonable attorney’s fees. TESCO prevailed in a trial to the court, where RIMCO’s usury counterclaim was also found to be without merit and denied.

RIMCO has appealed on two points of error. The first states that there was insufficient evidence to support the finding that RIMCO received the electricity for which it was billed. The second complains of the denial of the usury counterclaim. On appeal, TESCO has moved to dismiss the appeal and has attacked, for the first time, RIMCO’s capacity to sue or defend in the courts of this state.

TESCO’s motion to dismiss is denied, and the judgment of the trial court is affirmed.

ON MOTION TO DISMISS APPEAL

It appears from the record that RIMCO forfeited its corporate charter on or about 21 March 1977 due to nonpayment of its franchise tax, pursuant to V.A.T.S. Title 122A, “Taxation-General”, Art. 12.14(2), “Failure to Pay Tax and File Reports” (Supp.1980). Such article provides in part, as follows:

“Any corporation whose right to do business shall be thus forfeited shall be denied the right to sue or defend in any court of this State, except in a suit to forfeit the charter or certificate of authority of such corporation. In any suit against such corporation on a cause of action arising before such forfeiture, no affirmative relief shall be granted to such corporation unless its right to do business in this State shall be revived as provided in this Chapter.”

Two issues are raised by TESCO’s motion to dismiss. The first deals with RIMCO’s right of access to the courts of this state, and specifically whether RIMCO has the right to prosecute any part of this appeal. The second issue deals with the timing of this motion and whether TESCO can raise this defect at this time or whether it waived RIMCO’s disability to sue or defend by failure to timely assert such an objection at the outset of trial.

Corporations are creatures of statute. The privilege of suing or defending in Texas courts is conferred upon a corporation by its charter and state statute. The state may also abolish a corporate charter at any time, subject to constitutional guarantees of due process and the like. Such an act would logically result in the complete destruction of the right of the corporation, as a legal entity, to sue or defend in state court. It follows that if the state, by abolishing a corporate charter, may destroy the right of a corporation as an entity to prosecute or defend an action in the courts, the state possesses the lesser power of restricting a corporation’s right to the use of our courts only so long as it discharges its obligation to the state by the payment of the required franchise taxes. Federal Crude Oil Co. v. Yount-Lee Oil Co., 122 Tex. 21, 52 S.W.2d 56 (1932).

Because RIMCO failed to pay its franchise tax, its right to do business under its corporate charter was forfeited and, under our statutes RIMCO’s right of access to the courts of Texas, to an extent, was barred. (V.A.T.S. Title 122A, “Taxation-General”, Ch. 12, “Franchise Tax”, Art. 12.14, “Failure to Pay Tax and File Reports” (Supp. 1980)).

Two points of error have been raised and in each RIMCO seeks varying degrees of access to state courts.

In the first, RIMCO contests all liability by the suit of TESCO. In the second, RIM-CO seeks affirmative relief in the prosecution of its usury counterclaim. Are both barred by RIMCO’s failure to pay its franchise tax?

A corporation that has failed to pay its franchise tax does not thereby find itself unable to raise a defense to any suit that may arise. In Bryan v. Cleveland Sand & Gravel Co., 139 S.W.2d 612 (Tex.Civ.App.—Beaumont 1940, writ ref’d), the court said of a predecessor statute, adopted into the present Taxation-General statute at Art. 12.14 without material change (at page 613):

“[A]rt. 7091 denies to a corporation, whose right to do business has been forfeited ... for failure to pay franchise tax, the right to any affirmative relief in the courts of Texas, . We do not understand our courts to hold that such a corporation cannot interpose a defense purely negative in character against a suit brought against it, . [T]he plaintiff ... is still under the duty of establishing his cause of action, and the corporate defendant may, . offer proof which negatives the plaintiff’s case.” (Emphasis supplied.)

TESCO asserted that RIMCO received service. RIMCO denied and lost at the trial court level. Insofar as TESCO was granted relief in the lower court on this issue, this court is bound to review that decision for any impropriety.

The counterclaim of usury stands on different footing. RIMCO is not “interposing a defense purely negative in character” but is in fact a defendant corporation seeking affirmative relief, in direct contradiction to the statute, by way of its counterclaim. Where a corporation is sued and desires to obtain affirmative relief, it must do so by means of a cross-action in which it is necessarily the plaintiff, and the plaintiff bringing the original suit occupies the position of a defendant. The legislature could have had but one purpose in putting such a provision in this act; to prevent the corporation from thwarting the purpose of the legislature by getting relief through means of a cross-action which it was prohibited from obtaining in an independent suit in which it was plaintiff. Federal Crude Oil Co., supra, (52 S.W.2d at p. 60).

Therefore, RIMCO’s counterclaim for usury would be barred by its failure to have made franchise tax payments as required under V.A.T.S. Taxation-General, Art. 12.-17, “Forfeiture of Charter and Bill of Review” (1969), unless such disability was waived by TESCO’s failure to timely object on the ground of forfeiture of the RIMCO right to do business in this state. Nowhere in its motion to dismiss does TESCO discuss the issue of waiver. RIMCO, on the other hand, asserts that the failure by TESCO to have attacked RIMCO’s capacity to sue by a timely and proper plea in abatement waived its right to later complain.

It is the general rule that in order to contest a party’s capacity to sue an objection must be made by a plea in abatement in the trial court and the issue cannot be urged for the first time on appeal. Allen v. Wilkerson, 396 S.W.2d 493 (Tex.Civ.App.—Austin 1965, writ ref’d n. r. e.). More specifically, in Frazier v. Waco Bldg. Ass’n., 25 Tex.Civ.App. 476, 61 S.W. 132, 134 (Waco 1901, writ ref’d), the court stated the requirement to raise failure to pay a franchise tax by a timely plea in abatement, in these words: “The right of the appellee to bring and maintain the suit because it had not paid its franchise tax should have been raised before judgment, and came too late when first presented by the motion for a new trial.” See also H. O. Wooten Grocer Co. v. Smith, 161 S.W. 945 (Tex.Civ.App.—Fort Worth 1913, no writ).

TESCO’s motion to dismiss is denied.