Dominion Oil Co. v. Lamb

• Decision Date: 29 November 1948
• Docket Number: 15957.
• Citation: 119 Colo. 62,201 P.2d 372
• Parties: DOMINION OIL CO. v. LAMB et al.
• Court: Colorado Supreme Court

201 P.2d 372

119 Colo. 62

DOMINION OIL CO. v. LAMB et al.

No. 15957.

Supreme Court of Colorado, en Banc.

November 29, 1948

Rehearing Denied Jan. 3, 1949.

Error to District Court, Boulder County; George H. Bradfield Judge.

Action by Dominion Oil Company, a corporation, against John J. Lamb and Elizabeth D. Lamb, for specific performance of a contract to assign one-half of the oil and gas content of land to plaintiff, or in the alternative for damages. To review an adverse judgment, plaintiff brings error, and defendant assigns cross-specifications of error.

Judgment reversed in part and affirmed in part and cause remanded with instructions.

BURKE C.J., and JACKSON and STONE, JJ., dissenting.

Warwick M. Downing and Richard Downing, both of Denver, for plaintiff in error.

Huffman, Sutliff & Rogers, of Denver, for defendant in error John J. lamb.

HAYS Justice.

Dominion Oil Company, a Colorado corporation, to which we herein refer as plaintiff, brought action against John J. Lamb for specific performance of a written contract between the parties, or in the alternative, in case specific performance could not be had, for damages. In said contract defendant being the owner of certain Wyoming oil land, agreed, 'in consideration of the efforts to be put forth by the party of the second part [plaintiff] to restore the mineral rights of said land' to defendant, that the latter 'shall make, execute, and deliver to' plaintiff 'an assignment of one-half of the oil and gas content of said land.'

Defendant's demurrer to the complaint on the ground that it did not state facts sufficient to constitute a cause of action, was sustained, resulting in a judgment for dismissal, which on review here, was reversed and the cause remanded with directions. Dominion Oil Company v. Lamb, 112 Colo. 420, 149 P.2d 660. That opinion should be read in connection herewith. The answer of defendant, filed in due course, contained eleven separate defenses. The trial court found all issues in favor of plaintiff and against defendant except those raised by the second defense, wherein it is alleged that at the time said contract is said to have been executed, plaintiff was, and since has been, 'defunct and inoperative,' and that it 'therefore had no power to enter into the contract in question.'

We think it proper to observe in passing that plaintiff concedes that it was in default, as alleged, with respect to payment of annual corporation license taxes, and under the statute was defunct and inoperative at the time of the execution and performance of the contract, but in that connection its counsel contends that it was revived by the subsequent payment of said taxes with penalties, thereby removing all questions as to the validity of the contract, and it is now asserted that it is entitled to the relief sought by its complaint.

The trial court found as to the second defense:

'In our view of the statute we feel in this case plaintiff corporation, on becoming defunct, thereby became 'defunct and inoperative' and while so defunct and inoperative could not transact business; and its subsequent revival would not make valid the invalid acts done by it while so defunct and inoperative.'

Plaintiff in error challenges the correctness of this ruling, and the same is assigned as the only error.

Chapter 41, section 83, '35 C.S.A.Supp., provides that a corporation which fails to pay its annual corporation license taxes and other fees required by law, shall, after publication of a list of such corporations by the secretary of state and upon proof thereof being filed with such secretary,

'be deemed defunct and inoperative and no longer competent to transact business within the state of Colorado * * *. Any corporation now defunct or hereafter declared defunct may become reinstated, revived and operative by the payment of the excise license tax fixed by section 93 of chapter 142, of the 1935 Colorado Statutes Annotated, for two years, plus the penalty of one percent (1%) of said tax for each month or fractional part of each month during which said tax may be delinquent, but in no event exceeding two years, and upon payment to the secretary of state of all delinquent fees and an additional fee of five dollars ($5.00) for a certificate of reinstatement, whereupon such defunct and inoperative corporation shall become reinstated, revived and operative.'

Section 103, chapter 142, '35 C.S.A., provides:

'Every corporation, which shall have failed to pay the tax provided for by this article, shall, by reason of such failure forfeit its right to do business within the limits of the state, except as otherwise provided in this article, until such tax is paid; and every such corporation in default for said tax after the first day of May each year, shall, in addition to said tax, pay a penalty of one per cent of said tax for every month or fractional part of every month during which said tax may be delinquent; and such corporation during its delinquency shall not be permitted to file any instruments, documents, reports or papers in the office of the secretary of state of Colorado, except its annual report, until said tax due and delinquent has been paid. And upon paying said tax, and penalty, of not exceeding two (2) years for such delinquency, such corporation shall forthwith be relieved from the forfeiture of its right to do business within this state by reason of such failure.'

A proper determination of the question here presented calls for an interpretation of the above statutes in the light of the following facts and circumstances: Both contracting parties had actual or constructive knowledge at all times of plaintiff's default in the payment of corporation license taxes and of its failure to make the necessary annual reports; that plaintiff was defunct and inoperative at the time the contract was made and the services thereunder rendered by it; that as a result of plaintiff's efforts under the contract, oil royalties were paid to defendant up to March 1, 1945, in the total sum of $64,330.45, one-half of which, under the terms of the contract, should be paid to plaintiff in the event it is in a position to enforce payment; and that prior to the commencement of this action plaintiff corporation was reinstated, revived, and made operative by the payment of all taxes and penalties required by law.

The sole question presented for decision is whether or not, in the light of the foregoing, the defunct corporate status of the plaintiff constitutes a good defense in a suit by the revived corporation for specific performance of the contract.

Defendant, in effect, contends that in addition to the legislative penalties already admittedly paid, plaintiff should further be judicially penalized in the additional sum of $32,000, no part of which should go to the state, but all thereof be turned over to defendant. We are asked to order the above sum taken from plaintiff and given to defendant, an individual, in order that plaintiff may be punished for not paying its state corporation taxes when due, instead of paying them with penalties later. We find nothing in the statutes to indicate such an intention, or to justify to such extent the enrichment of defendant, especially when the alleged incompetency of plaintiff to do business was, as above indicated, equally known to both parties at the time the contract was made and when the same was performed.

It should be remembered that corporations are creatures of the statute. It is within the province of the legislature to prescribe the rules by which they may be created, and those with which they must comply in order to continue their existence. It likewise is for the legislature to determine what penalties, if any, should be imposed for failure of corporations to comply with the laws regarding payment of license taxes, and the making of corporation reports. The legislature not only has such power to inflict penalties, but it has at all times exercised it in various ways, sometimes against the corporation itself, and at other times against the officers who manage the affairs of the corporation, making them liable in some instances for the payment of all debts of the corporation incurred during delinquency and subjecting them to fines in other instances. Under previous statutes the defaulting corporation has been barred from maintaining any court proceedings as an additional penalty for failure to pay taxes and make reports. It is obvious from an examination of previous legislative enactments that the main purpose of imposing penalties upon a corporation or its officers has been to facilitate the collection of public revenue for the support of the government and not to collect the same in the interest of private litigants.

Section 103 of the statutes, supra, when originally enacted as section 66, chapter 3, S.L. '02, contained the provision:

'Every corporation which shall have failed to pay the tax provided for in sections 64 and 65, shall, by reason of such failure, forfeit its right to do business within the limits of this state until such tax is paid, and shall be absolutely and wholly deprived of all such rights and privileges, and the fact of such failure may be pleaded and maintained as an absolute defense to any and all actions, suits, or proceedings, in law or in equity, brought or maintained by or on behalf of such corporation, in any court of competent jurisdiction within

...