Any time an individual, company, corporation or other entity decides that it wants to file a lawsuit against another individual or company, etc., the plaintiff must establish that it has the capacity as well as the right to sue. These are two separate legal concepts.
"Standing to sue" is defined as the one who has the right to relief in court. What this means is that the person who is suing the other person in court has a claim against that other person. A simple example would be where one person might be injured as a result of an automobile accident, but another person attempts to sue for those injuries. This other person clearly lacks standing to sue because he or she has no right to that relief in court.
The "capacity to sue," however, is a different concept. "Capacity" is defined as the ability to sue. A minor may not have the capacity to sue. Some business examples of the capacity issue are corporations and businesses doing business under a different name. Corporations are granted authority of specific corporate powers given to them by the Secretary of State. Other entities operate under fictitious business names, i.e., Jim Jones doing business as ACME Construction. In order to have the capacity in court, you must be able to prove to the court that you are in fact a corporation, or alternatively, you are in fact the individual you say you are and that you are doing business under the fictitious business name that you have sued under. Failure to establish this capacity will keep you from either prosecuting your action or defending yourself if you are being sued.
"Capacity to sue" is much different than "standing to sue." If an individual or business lacks standing, it more than likely will never be able to correct that lack of standing. However, lack of capacity often times can be corrected.
Common situations with regard to the lack of capacity come up in the area of corporations and fictitious business names. Corporations may have their corporate powers suspended for one reason or another and the likely reason is for failure to pay taxes. If a corporation filed a lawsuit, and its corporate powers have been suspended, it will be kept from prosecuting its action or defending itself.
In one case, the issue of whether a corporation could defend itself due to lack of capacity came before the court. The defendant who was being sued was a corporation. The plaintiff found out that the corporation had been suspended several months previously for failure to pay taxes. On the day of trial, the plaintiff brought this fact up to the court and upon review, the court determined that the corporation had lacked capacity because its corporate powers had been suspended. The attorneys representing the defendants asked the court for a continuance of the trial to correct its corporate status and bring it back in line. The trial court denied this request and allowed the plaintiff to obtain the relief that they had requested by way of a default judgment. This is basically a judgment entered without any defense whatsoever.
The defendant filed an appeal and upon review the Appellate Court overruled the lower court stating that the lower Court abused its discretion by not allowing the corporation to be given an opportunity to revive itself by bringing the corporate taxes current. As you can see, capacity can be, and often is, corrected. In this set of facts, the corporation must be given an opportunity to revive itself and if it does so before the matter has actually gone to trial, the corporation is deemed to have revived itself and thus can proceed with the prosecution and/or defense of itself without any penalty.
This same situation applies for those with fictitious business names. One of two things generally happens in this area. Either the individual just forgets altogether to file and publish a fictitious business name statement and operates under the name without filing any type of paperwork to establish their entitlement to that name, or, they forget to renew their fictitious business name. In these instances, the business must be given an opportunity to correct itself, i.e., publish and file a renewed fictitious business name statement. As long as you have your filing in place before you go to trial, you will be given the opportunity to bring your case to the court and seek the relief that you feel you are entitled to. Even if you don't have your status correct, you should always ask for a continuance to give yourself the opportunity to correct your problems.
In conclusion, it is best if all of you who are involved in litigation check with the Secretary of State, if you are a corporation, and make sure that the status of your company is in line with both the Franchise Tax Board and the Secretary of State. For those of you who do not operate under a fictitious business name, make sure that your filing is up-to-date and that you have filed the documents that you are required to file.
