Alford v. Pierno

Decision Date12 September 1972
Citation104 Cal.Rptr. 110,27 Cal.App.3d 682
CourtCalifornia Court of Appeals Court of Appeals
Parties, Blue Sky L. Rep. P 71,076 L. E. ALFORD et al., Plaintiffs and Appellants, v. Anthony R. PIERNO, Commissioner of Corporations of the State of California, Defendant and Respondent; MARCOM, INC., Real Party in Interest and Respondent. Civ. 30439.

Robert B. Freedman, Weiss & Wald, Oakland, for plaintiffs and appellants.

Evelle J. Younger, Atty. Gen., Mervin R. Samuel, Deputy Atty. Gen., San Francisco, for defendant and respondent.

Thelen, Marrin, Johnson & Bridges, San Francisco, for Marcom, Inc., real party in interest.

BRAY, * Associate Justice.

Plaintiff and appellants appeal from an order and judgment denying their petition for writ of mandamus.

Questions Presented

1. May a curative permit, pursuant to Corporations Code section 25802, be issued to a corporation in process of dissolution?

2. Did respondents' findings support the judgment?

3. Did granting of the curative permit work a fraud on appellants?

4. Did the trial court err in denying findings of fact and conclusions of law?

Record

On August 10, 1970 plaintiffs filed in Alameda County Superior Court a petition for writ of mandamus ordering defendant Commissioner of Corporations to set aside his decision granting real party in interest, Marcom, Inc. (hereinafter, Marcom) the curative permit hereinafter discussed. At the hearing in the trial court, plaintiffs moved for an extension of time to obtain a transcript of the proceedings before the Commissioner of Corporations. The motion was denied. Plaintiffs' request for findings of fact and conclusions of law was first granted and then the order granting was vacated and the request denied. Order and judgment was entered denying the petition for peremptory writ of mandamus.

Facts

Marcom was incorporated in the State of California on September 17, 1962. Its business was the manufacture and sale of a device operated in connection with the telephone and known as a 'call diverter.'

A total of 238 shares of stock was issued in contravention of Marcom's permit issued by the commissioner, in that such shares were issued for cancellation of prior indebtedness rather than for cash as required by the permit. In addition, Marcom issued a total of 14 additional shares to two of the plaintiffs without any permit whatsoever.

On April 18, 1969 Marcom entered into an agreement with Ford Industries whereby Ford agreed to buy all of the assets from Marcom to be liquidated.

On June 27, 1969 an action was filed in the Superior Court of Alameda County, whereby plaintiffs sought to recover the consideration paid by them to Marcom on the grounds that the issuance of the aforementioned stock was either without permit or in contravention of the terms of the existing permit.

Thereafter, Marcom obtained an order from the Superior Court of the City and County of San Francisco, whereby that court assumed judicial supervision of the windup of Marcom's corporate affairs subsequent to Marcom's filing of a Certificate of Election to Wind-Up and Dissolve with the California Secretary of State on June 6, 1969.

On January 16, 1970 Marcom filed an amended application for a curative permit authorizing the sale and issuance of securities previously sold and issued without a permit or in nonconformity with the permit previously obtained.

On June 3, 1970 the commissioner issued his decision adopting the proposed decision of the hearing officer, which recommended the requested curative permit be granted.

On August 10, 1970 plaintiffs filed in the Alameda County Superior Court this petition for writ of mandate ordering the commissioner to set aside the issuance of the curative permit.

At the hearing before the trial court, plaintiffs stated the application for relief was based on the ground that the findings were not supported by the record, and asked for time to obtain the necessary funds for a transcript of the proceedings before the hearing officer. On the ground that plaintiffs had already been given reasonable time for that purpose, the court denied the request. The matter was then heard on the findings of the Corporations Commissioner, plaintiffs contending that the findings did not support the commissioner's decision granting the curative permit.

1. A curative permit may be issued to a corporation in the process of dissolution.

Corporations Code section 25802 provides: 'Upon application in accordance with this division, the commissioner may issue a curative permit authorizing the issuance and sale of any security previously issued or sold without a permit, or in nonconformity with any provision of a permit previously obtained. The commissioner shall issue a curative permit only if he finds that the plan of business of applicant and the issuance of the curative permit are fair, just, and equitable and that the applicant is transacting and intends to transact its business fairly and honestly and that in his opinion the issuance of the curative permit will not work a fraud upon the holders of any of the issued and outstanding securities of applicant.'

Plaintiffs contend that while engaged in dissolution and windup of its corporate affairs, Marcom was not transacting or intending to transact business and thus is not entitled to the relief provided by section 25802.

There is no case law interpreting Corporations Code section 25802. Consequently, this is a case of first impression necessitating an interpretation and construction of the aforementioned statute. One of the cardinal rules of construction requires that words be given such interpretation as will promote rather than defeat the General purpose and policy of the law. City of L.A. v. Pac. Tel. & Tel. Co. (1958) 164 Cal.App.2d 253, 256, 330 P.2d 888.) A statute should be interpreted so as to produce a result that is reasonable. (Ivens v. Simon (1963) 212 Cal.App.2d 177, 181, 27 Cal.Rptr. 801.) If two constructions are possible, that which leads to the more reasonable result should be adopted. (In re Kernan (1966) 242 Cal.App.2d 488, 491, 51 Cal.Rptr. 515.)

In construing a statute, the court should ascertain the intent of the Legislature so as to effectuate the purpose of the law. (Select Base Materials v. Board of Equal. (1959) 51 Cal.2d 640, 645, 335 P.2d 672.) The courts must look to the context of the law, and where uncertainty exists, consideration should be given to the consequences that will flow from a particular interpretation. (Ivens v. Simon, Supra, 212 Cal.App.2d 177, 181, 27 Cal.Rptr. 801.) The court should take into account matters such as context, the object in view, the evils to be remedied, the history of the times and of legislation upon the same subject, public policy, and contemporaneous construction. (Estate of Jacobs (1943) 61 Cal.App.2d 152, 155, 142 P.2d 454.)

The apparent purpose of a statute will not be sacrificed to a literal construction. (Select Base Materials v. Board of Equal., Supra, 51 Cal.2d 640, 645, 335 P.2d 672; Ivens v. Simon, Supra, 212 Cal.App.2d 177, 181, 27 Cal.Rptr. 801.)

Lastly, 'Remedial statutes such as (the one) under consideration are to be liberally construed. (Citation.) They are not construed within narrow limits of the letter of the law, but rather are to be given liberal effect to promote the general object sought to be accomplished. (Citation.)' (California Grape etc. League v. Industrial Welfare Com. (1969) 268 Cal.App.2d 692, 698, 74 Cal.Rptr. 313, 316.)

With the aforementioned principles in mind, we must now determine whether Marcom, while in the process of windup and dissolution, was entitled to a curative permit pursuant to Corporations Code section 25802.

Under the oid law, Corporations Code section 26100, securities sold or issued without a permit were absolutely void and buyers were permitted to rescind long after a transaction was concluded. (Witkin, Summary of California Law, Corporations (1969 Supp.) § 114A at p. 1255.) The old rule and the lack of power in the commissioner to cure substantial defects was subject to much criticism. In 1967, the Legislature authorized the commissioner to grant curative permits for the issuance and sale of any security previously issued or sold without a permit or in contravention of a permit previously obtained. (Id., § 122A at p. 1258; see also 43 State Bar Journal 103.)

The apparent legislative purpose of Corporations Code section 25802 was to enable the Commissioner of Corporations to cure technical defects in the issuance or sale of any security, preventing recission of a transaction long after it had been concluded. In so issuing a permit, the commissioner must find that 'the plan of business of applicant and the issuance of the curative permit are fair, just, and equitable and the applicant is transacting and intends to transact its business fairly and honestly . . .' (Corp.Code, § 25802.)

'When the word 'business' is used in an ordinance or statute its meaning depends upon the context or upon the purpose of the legislature.' (City of Lewiston v. Mathewson (1956) 78 Idaho 347, 352, 303 P.2d 680, 683.) In Hise v. McColgan (1944) 24 Cal.2d 147, 148 P.2d 616, the question before the court was whether a corporation in liquidation was doing business so as to be subject to payment of franchise taxes. The Bank and Corporation Franchise Tax Act defined doing business as '. . . actively engaging in any transaction for the purpose of financial or pecuniary gain or profit.' (Id. at p. 149, 148 P.2d at p. 617.) The court held that during the process of liquidation, business transactions were conducted; and '(w)hile no profit may have been made as that term is usually understood, such factor is not controlling in the definition of the term 'doing business'; rather the criterion is whether or not the goal or aim is financial or pecuniary gain. (Citation.) It should be clear that the commissioner in liquidating . . . (the...

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