COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NO. 73358 KEVIN P. SHEEHAN : : JOURNAL ENTRY Plaintiff-Appellee : : and -vs- : : OPINION JOHN MCREDMOND : : Defendant-Appellant : : DATE OF ANNOUNCEMENT NOVEMBER 5, 1998 OF DECISION: CHARACTER OF PROCEEDING: Civil appeal from Common Pleas Court Case No. CV-314621 JUDGMENT: Affirmed as modified. DATE OF JOURNALIZATION: APPEARANCE: For Plaintiff-Appellee: JOHN D. SAYRE, ESQ. 1400 Republic Building 25 W. Prospect Avenue Cleveland, Ohio 44115 For Defendant-Appellant: RICHARD C. KENNEY, JR., ESQ. Ohio Savings Plaza, #630 1801 East Ninth Street Cleveland, Ohio 44114 PATRICIA ANN BLACKMON, A.J.: Defendant-appellant John McRedmond appeals a decision by the trial court in favor of plaintiff-appellee Kevin Sheehan in an -2- action on a promissory note signed by McRedmond as an officer of Touch Technology, Inc.(TTI). McRedmond assigns six errors for our review.1 Having reviewed the record and the legal arguments of the parties, we modify the judgment of the trial court and affirm the modified judgment. The apposite facts follow. On October 17, 1995, Kevin Sheehan loaned $25,000 to Touch Technology, Inc. (TTI). The loan was evidenced by a promissory note signed by John McRedmond as president of Touch Technology. When Touch Technology defaulted on the note, Sheehan filed suit against Touch Technology and obtained a judgment of $25,000 plus 10% interest against the company on June 13, 1996. On September 4, 1996, Sheehan filed a complaint against John McRedmond for money owed on the promissory note. Sheehan alleged that TTI's corporate charter had been cancelled on December 30, 1994, ten months before the promissory note was signed. According to Sheehan, since TTI was no longer in existence at the time the note was signed, McRedmond was personally liable on the note. McRedmond answered and denied personal liability on the note. On June 6, 1997, Sheehan moved for summary judgment. He attached verification from the Ohio Secretary of State that TTI's charter was cancelled as of December 30, 1994 and argued that McRedmond personally obligated himself on the note by continuing to do business in TTI's name after its charter was cancelled. 1 See Appendix. -3- On August 22, 1997, McRedmond was granted leave to amend his answer to raise the affirmative defenses of failure to state a claim upon which relief may be granted, res judicata, and collateral estoppel. On August 28, 1997, he filed his response to Sheehan's motion for summary judgment. McRedmond argued that, before receiving Sheehan's complaint, he was unaware that TTI's charter was cancelled and believed that TTI was still a valid corporation. He also maintained that, had he known TTI's charter was cancelled, he would not have continued to operate the business in a corporate form or allowed the corporation to borrow the $25,000 from Sheehan. He also argued that, since Sheehan successfully asserted in his prior action against TTI that TTI was liable on the note, the doctrine of judicial estoppel precludes him from later asserting that McRedmond was personally liable on the note. He also argued that, since McRedmond was a real party in interest in the earlier lawsuit brought by Sheehan against TTI, any claims against McRedmond arising out of the same transaction should have been asserted at that time and were barred by res judicata. He further argued that, since the issue of liability on the promissory note was decided in the prior litigation, the doctrine of collateral estoppel precluded Sheehan from re-litigating that issue. He also argued that his lack of notice that TTI's charter was cancelled was a defense to Sheehan's claim that he was personally liable on the note. -4- The trial court granted Sheehan's motion for summary judgment and awarded him $29,817.92. This appeal followed. In his first, second, third and fourth assignments of error, McRedmond argues that the claims raised in Sheehan's complaint were barred by the doctrines of judicial estoppel, res judicata, and collateral estoppel. Judicial estoppel prevents a party from taking a position inconsistent with one successfully and unequivocally asserted by the same party in a prior proceeding. Reynolds v. C.I.R. (C.A. 6 1988), 861 F.2d 469, 472. It is intended to preserve the dignity of the courts and to insure order in judicial proceedings. Monterey Development Corp. v. Lawyer's Title Ins. Corp. (C.A. 8 1993), 4 F.3d 605, 609. Under the doctrine of res judicata, a plaintiff cannot maintain a subsequent lawsuit against a defendant based upon the same cause of action determined by the original judgment. Warda v. C.I.R. (C.A. 6 1994), 15 F.3d 533, 537. Collateral estoppel, also known as issue preclusion, applies where (1) the issue at stake is identical to the one alleged in the prior litigation, (2) the issue must have been actually litigated in the prior litigation, and (3) the determination of the issue if the prior litigation must have been a critical and necessary part of the judgment in that earlier action. Smith v. State of Alabama (M.D. Ala. 1998), 996 F.Supp. 1203, 1206-1207. See, also, Warda, at 537; State ex rel. Scripps-Howard Broadcasting Co. v. Cuyahoga Cty. Court of Common Pleas (1995), 73 Ohio St.3d 19, 24. -5- The application of each of these doctrines presumes a valid prior judgment. However, because Sheehan's prior action against TTI was not valid, the above listed doctrines are inapplicable. The promissory note was signed on October 17, 1995. It is undisputed that TTI's charter was cancelled on December 30, 1994. Under R.C. 1701.88(A), when the articles of a corporation have been cancelled, the corporation must cease doing business and only do the acts required to wind up its affairs or to obtain reinstatement of its articles of incorporation. In this case, TTI was not winding up its affairs when it borrowed the money from Sheehan. In his answer to Sheehan's complaint, McRedmond admitted that the money was utilized in the operation of [TTI's] business. At no time did he ever allege that TTI was engaged in winding up its affairs. Furthermore, there is no allegation that TTI was attempting to obtain reinstatement of its articles of incorporation. Accordingly, TTI had no authority to borrow the $25,000 from Sheehan and the contract was void as to TTI. Since the note did not constitute a valid obligation of TTI, Sheehan's judgment against TTI for the money loaned under the note is also void. When McRedmond signed the promissory note, he became personally liable for the $25,000. Under R.C. 1701.88(A), when the articles of incorporation are cancelled by the Secretary of State or otherwise, the authority of the corporation to do business ceases. Corporate officers who conduct new business unrelated to winding up the corporation's affairs, lose the protection of the -6- corporation act, and are personally liable for the obligations which they incur. Buckeye Power Sales Co. v. Hightower (July 2, 1992), Franklin App. No. 92AP-196, unreported, citing Chatman v. Day (1982), 7 Ohio App.3d 281, 282. See also Nabakowski v. 5400 Corp. (1986), 29 Ohio App.3d 82; Consolidated Freightways Corp. v. Allred (Dec. 10, 1991), Franklin App. No. 91AP-747, unreported. In this case, TTI's charter was cancelled due to non-payment of taxes as authorized by R.C. 5733.20. The statute further provides that upon such cancellation, all the powers, privileges, and franchises conferred upon such corporation by such articles of incorporation *** shall cease subject to Section 1701.88 of the Revised Code. Once TTI's articles of incorporation were cancelled, it was no longer authorized to borrow money for the purpose of operating its business. Moreover, because TTI was no longer a valid corporation, McRedmond could no longer take advantage of the corporate form to borrow money. As a result, when McRedmond signed the note, he became personally liable for the amount owed. See Chatman, supra. Because TTI lacked the requisite capacity to enter into the loan agreement, the agreement was invalid as to TTI and the judgment obtained by Sheehan against TTI was also invalid. Consequently, the doctrines of judicial estoppel, collateral estoppel, and res judicata do not apply to bar Sheehan's subsequent complaint against McRedmond. Sheehan's first, second, third, and fourth assignments of error are overruled. -7- In his fifth assignment of error, McRedmond argues the trial court erred in not ruling that his lack of notice of the cancellation of TTI's charter was a defense to Sheehan's complaint. The cancellation of TTI's charter for non-payment of taxes was clearly authorized by R.C. 5733.20. It is undisputed that TTI failed to pay its corporate taxes. As director and sole shareholder of TTI, McRedmond was chargeable with knowing the law as it applied to his corporation. Ignorantia juris neminem excusat. In other words, ignorance of the law excuses no one. McRedmond's fifth assignment of error is overruled. In his sixth assignment of error, McRedmond argues the trial court's damage calculation was based upon Sheehan's erroneous assertion that TTI paid only $1,000 on the amount owed on the promissory note. Sheehan concedes that TTI in fact paid $2000 on the note and agrees to a remittitur. When a verdict is excessive and unwarranted by the evidence presented, the trial court may reduce the verdict by remittitur. Sheets v. Norfolk S. Corp. (1996), 109 Ohio App.3d 278, 292. Therefore, we modify the judgment to show that TTI in fact paid $2,000. Judgment affirmed as modified. This cause is affirmed as modified. It is ordered that appellee and appellant share the costs herein taxed. The Court finds there were reasonable grounds for this appeal. It is ordered that a special mandate issue out of this Court directing the Common Pleas Court to carry this judgment into execution. A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure. Exceptions. PORTER, J., and TIMOTHY E. McMONAGLE, J., CONCUR. PATRICIA ANN BLACKMON ADMINISTRATIVE JUDGE N.B. This entry is an announcement of the court's decision. See App.R. 22(B), 22(D) and 26(A); Loc.App.R. 27. This decision will be journalized and will become the judgment and order of the court pursuant to App.R. 22(E) unless a motion for reconsideration with supporting brief, per App.R. 26(A), is filed within ten (10) days of the announcement of the court's decision. The time period for review by the Supreme Court of Ohio shall begin to run upon the journalization of this court's announcement of decision by the clerk per App.R. 22(E). See, also S.Ct.Prac.R. II, Section 2(A)(1). APPENDIX I. THE LOWER COURT ERRED IN DETERMINING THAT THE APPELLEE-PLAINTIFF WAS NOT BARRED BY THE DOCTRINE OF JUDICIAL ESTOPPEL FROM SEEKING JUDGMENT AGAINST THE APPELLANT-DEFENDANT ON A CERTAIN PROMISSORY NOTE BASED ASSERTIONS THAT WERE CONTRARY TO ASSERTIONS THAT WERE SUCCESSFULLY ADVANCED IN A PRIOR LITIGATION. II. THE LOWER COURT ERRED IN DETERMINING THAT THE APPELLEE-PLAINTIFF WAS NOT BARRED BY THE DOCTRINE OF RES JUDICATA FROM RE-LITIGATING THE CLAIM REGARDING LIABILITY ON A CERTAIN PROMISSORY NOTE WHICH HAD PREVIOUSLY BEEN LITIGATED. III. THE LOWER COURT ERRED IN DETERMINING THAT THE APPELLEE-PLAINTIFF WAS NOT BARRED BY THE DOCTRINE OF COLLATERAL ESTOPPEL FROM RE- LITIGATING THE ISSUE OF LIABILITY ON A CERTAIN PROMISSORY NOTE. IV. THE LOWER COURT ERRED IN DETERMINING THAT THE APPELLEE-PLAINTIFF WAS NOT BARRED BY THE DOCTRINE OF COLLATERAL ESTOPPEL FROM RE- LITIGATING THE ISSUE OF THE CORPORATE STATUS OF TOUCH TECHNOLOGY, INC. AS OF THE DATE OF EXECUTION OF A CERTAIN PROMISSORY NOTE. V. THE LOWER COURT ERRED IN FAILING TO DETERMINE THAT THE NOTICE REQUIREMENTS SET FORTH IN R.C. SECTION 5733.20, ALL AS RELATE TO CANCELLATION OF A CORPORATE CHARTER, ARE NOT MATERIAL TO THE ISSUE OF PERSONAL LIABILITY OF A SHAREHOLDER AND OFFICER OF A CORPORATION WHOSE CHARTER HAS BEEN CANCELED. VI. THE LOWER COURT ERRED IN WEIGHING THE EVIDENCE AS TO THE AMOUNT DUE AND OWING TO THE APPELLEE-PLAINTIFF ON A CERTAIN PROMISSORY .