Alhambra-Shumway Mines, Inc. v. Alhambra Gold Mine Corp.

• Decision Date: 07 November 1957
• Docket Number: ALHAMBRA-SHUMWAY
• Citation: 317 P.2d 649,155 Cal.App.2d 46
• Court: California Court of Appeals Court of Appeals
• Parties: TheMINES, Inc., a corporation, and B. F. Parsons, Plaintiffs and Appellants, v. ALHAMBRA GOLD MINE CORPORATION, a corporation, Defendant and Respondent. Civ. 9000.

Page 649

317 P.2d 649

155 Cal.App.2d 46

The ALHAMBRA-SHUMWAY MINES, Inc., a corporation, and B. F. Parsons, Plaintiffs and Appellants, v. ALHAMBRA GOLD MINE CORPORATION, a corporation, Defendant and Respondent.

Civ. 9000.

District Court of Appeal, Third District, California.

Nov. 7, 1957.

Rehearing Denied Nov. 27, 1957.

Hearing Denied Dec. 30, 1957.

Rowell, Lamberson & Thomas, Fresno, for appellants.

Entenza & Gramer, Beverly Hills, Jerome Weber, and Jesse Whitehill, Los Angeles, for respondent.

SCHOTTKY, Justice.

Plaintiff The Alhambra-Shumway Mines, Inc., a California corporation, on February 17, 1951, commenced an action against defendant, a Nevada corporation, to declare cancelled a lease of mining property and equipment known as 'The Alhambra Mine.' By an amended complaint filed on February 17, 1953, plaintiff B. F. Parsons, as a stockholder, and in behalf of all the stockholders of the plaintiff corporation and of the corporation itself, joined as a plaintiff in the action. Plaintiffs have appealed from a judgment that plaintiffs are not entitled to any relief upon their complaint to cancel the lease and that the lease is valid and subsisting.

Appellant corporation had operated and mined the Alhambra Mine for several years until it closed in 1942 because of the wartime order of the Federal government to divert manpower to other industries more necessary for the war effort. During the war years no shareholders' meetings were held.

About January 1, 1947, the then officers and directors of appellant corporation executed a lease of the mine and its equipment to the assignor of the respondent corporation for ten years. About March 31, 1948, the lease was amended to extend the term to 20 years from January 1, 1947, and to recite an assignment to respondent corporation. In its findings of fact the trial court found that the mining property and equipment covered by the lease constituted substantially all of the assets of appellant corporation, and that the officers and directors did not advise the shareholders of the lease until May, 1950. However, the trial court concluded that by reason of a discovery in the mine in August, 1949, and the attendant newspaper publicity, an undetermined number of the shareholders obtained knowledge of the lease. As soon as the existence of the lease was officially reported to the shareholders, attempts were commenced to have a shareholders' meeting at which the lease could be discussed, approved or rejected. The then directors and officers of appellant corporation, who were the ones that executed the leases, attempted to and were successful for a time in preventing a vote upon the lease; however, on July 12, 1950, a shareholders' meeting finally occurred at which a contested election of directors resulted. Following the contested election an action was filed which eventually resulted in a court supervised election about January 17, 1951, and a new board of directors. The new board called a meeting of shareholders on February 8, 1951, at which the lease was expressly disapproved. Notice of the results of this meeting was given to respondent on February 10, 1951, and following the claim by respondent that the lease was valid, this action was filed on February 17, 1951, by appellant corporation.

By an amended complaint filed February 17, 1953, appellant B. F. Parsons, as a shareholder and in behalf of all of the shareholders of the corporation and of the corporation itself, joined as a plaintiff in the action.

In its original complaint appellant corporation offered to cancel the lease on such terms and conditions as the court might deem just and reasonable. In succeeding amended complaints the offer was repeated, including the complaint in which appellant Parsons joined. The basis of the action is that the real and personal property leased constituted substantially all of the assets of appellant corporation and, therefore, required the approval of the shareholders pursuant to Sections 3901 and 3902 of the Corporations Code.

The court found: (1) That both appellants had been guilty of laches; (2) that both appellants had failed to comply with Civil Code section 1691 relating to restitution; (3) that appellant corporation was estopped but that appellant Parsons was not estopped to prosecute the action; (4) that appellant corporation was barred by the statute of limitations but that appellant Parsons was not barred by the statute of limitations; (5) that both appellants had legal capacity to sue; (6) that the lease in question is within the ambit of Corporations Code section 3901; (7) that the amended complaint does not state facts sufficient to constitute a cause of action in so far as appellant corporation is concerned but does state facts sufficient to constitute a cause of action in so far as appellant Parsons is concerned.

One further fact upon which the trial court failed to make a finding involves the corporate status of respondent. During the course of the trial it was discovered that respondent, a foreign corporation, had not paid its franchise taxes for a number of years. Appellant thereupon moved to strike all pleadings and evidence of respondent and to enter the default of respondent upon the ground that as a foreign corporation it had forfeited its right to transact business in California, including the right to defend this action. This motion was denied by the trial court upon the submission of the case. The parties stipulated that a certificate of suspension or forfeiture as of August 1, 1950, from the Secretary of State might be received in evidence. (Plaintiffs' Exhibit 19.) Judgment in favor of respondent was entered on August 23, 1955. On September 19, 1955, appellant filed a notice of intention to move for a new trial and also filed a corrected certificate of the Secretary of State reciting that the rights of respondent corporation to transact intrastate business were forfeited on August 1, 1950, and had not been reinstated. At the hearing of the motion for a new trial on October 28, 1955, respondent produced a certificate of revivor, showing that respondent's right to do intrastate business in California was revived and restored to full force and effect on October 28, 1955. The motion for a new trial was denied and this appeal followed.

Appellants contend first that a corporation suspended or which has forfeited its rights under Revenue and Taxation Code, section 23301, may not defend an action against it to declare a lease invalid. In the recent case of Reed v. Norman, 48 Cal.2d 338, at page 343, 309 P.2d 809, at page 812, the court said:

'On the issue of suspension of the corporation for failure to pay franchise tax, it is true that under the corporation law, Rev. & Tax.Code, §§ 23301, 23302, supra, the corporation may not prosecute or defend an action, nor appeal from an adverse judgment in an action while its corporate rights are suspended for failure to pay taxes; Boyle v. Lakeview Creamery Co., 9 Cal.2d 16, 68...