Duncan v. Sunset Agr. Minerals

• Decision Date: 28 May 1969
• Court: California Court of Appeals Court of Appeals
• Parties: Paul DUNCAN et al., Plaintiffs and Respondents, v. SUNSET AGRICULTURAL MINERALS, Defendant and Appellant. Civ. 1085.

Page 339

78 Cal.Rptr. 339

273 Cal.App.2d 489

Paul DUNCAN et al., Plaintiffs and Respondents, v. SUNSET AGRICULTURAL MINERALS, Defendant and Appellant.

Civ. 1085.

Court of Appeal, Fifth District, California.

May 28, 1969.

Rehearing Denied June 23, 1969.

Merle H. Jenkins, Bakersfield, for defendant and appellant.

Rex R. Mull, Bakersfield, for plaintiffs and respondents.

STONE, Associate Justice.

Defendant corporation appeals from an adverse judgment in an action to quiet title to a 20-acre mining claim in Kern County which it acquired by assignment in 1963. Although defendant filed the required proofs of annual assessment work on the claim from date of acquisition through 1967, plaintiffs recorded a notice of location convering the same claim on September 30, 1966. They commenced this quiet title action May 3, 1967, and the trial began February 23, 1968.

During the trial plaintiffs introduced in evidence a certificate by the Secretary of State showing that defendant's corporate powers were suspended on January 3, 1966, for failure to pay franchise taxes. Defendant did not move for a continuance, but informed the court that proceedings were pending to obtain a reinstatement. It is significant that the trial court did not then rule on the question whether the suspension barred defendant from defending the action, but reserved a ruling and proceeded to take testimony and receive documentary evidence on all issues. After the trial was completed, the court granted time for the filing of points and authorities by counsel, and took the case under advisement.

On April 9, 1968, defendant noticed a motion for leave to file an amended answer, accompanied by an affidavit to which was attached a Certificate of Revivor issued by the Franchise Tax Board on March 21, 1968. Before ruling on the motion, the trial court entered a minuted order April 22, which reads as follows:

'Heretofore submitted; now, it is by the Court ORDERED that judgment is granted plaintiff, based on the ground that because of the suspension of the defendant's corporate powers for failure to pay its franchise tax, it has no standing in court to defend the action.

'Counsel for the plaintiff to prepare the judgment.'

On May 10, 1968, the motion of file an amended answer pursuant to the certificate of revivor was denied. On June 17, findings of fact and conclusions of law were filed. Among other things, the court found that the corporate powers, rights and privileges of defendant were suspended on January 3, 1965, and had not been restored on February 23, 1968, the date of trial. Defendant moved for an order vacating the judgment, which was denied, and this appeal followed.

Before getting to the merits of the judgment and appeal, we are met by plaintiffs' contention that the appeal was not timely. The thrust of the argument is that defendant's motion to vacate the judgment was void since it was made pursuant to Code of Civil Procedure section 473, rather than Code of Civil Procedure section 663, and a void motion cannot extend the time to appeal. Since rule 3(b) of the California Rules of Court provides that any valid notice of intention to move to vacate a judgment on any ground will extend the time for taking an appeal, the question is whether a motion to set aside a judgment on the merits can be made pursuant to section 473 of the Code of Civil Procedure, or whether, as plaintiffs contend, relief under that section is limited to judgments entered by default.

Precisely this question was explored in Troxell v. Troxell, 237 Cal.App.2d 147, 46 Cal.Rptr. 723. At page 151, 46 Cal.Rptr. at p. 726 the court held that a motion to set aside a judgment pursuant to section 473 is not so limited, and that

'* * * the first sentence of the above-quoted paragraph of section 473 is not only broad enough to encompass actions which proceed to trial and to judgment in an adversary manner, but in Brackett (Brackett v. Banegas, 99 Cal. 623, 34 P. 344) it was so held. There relief was granted to a plaintiff under section 473 after judgment had been entered in his favor against two defendants, one by way of default and the other after a full trial.'

Garcia v. City and County of San Francisco, 250 Cal.App.2d 767, 58 Cal.Rptr. 760, holds that a motion to vacate a judgment on the merits under section 473 extends the time within which to file notice of appeal until 30 days after entry of the order denying the motion. A hearing in Garcia was denied by the Supreme Court. We conclude that defendant's appeal was timely.

The principal question on appeal, therefore, is whether the trial court abused its discretion in denying defendant's motion to reopen the case and to file the certificate of revivor and an answer. Since the case had been completely tried, the court, by granting the motion, could have decided the case on the merits, rather than on the basis of a technicality that resulted in a forfeiture.

Revenue and Taxation Code section 23301 provides that in the event a corporation fails to pay franchise taxes, except for the purpose of amending the articles of incorporation to set forth a new name 'the corporate powers, rights and privileges of a domestic taxpayer shall be suspended.'

Apparently the trial court found the legislative intent as to the effect of a violation of section 23301 to parallel the legislative intent in the licensing statutes of Business and Professions Code section 7025 et seq., that is, a violation thereof is irremedial. An exposition of the strict forfeiture resulting from a license violation is found in Lewis & Queen v. N. M. Ball Sons 48 Cal.2d 141, 308 P.2d 713. It is there pointed out that the legislative intent behind statutes regulating the contracting business and providing for the licenses of contractors is to protect the public against dishonesty and incompetency in the contracting business and in the performance of contracts. On the other hand, in Boyle v. Lakeview Creamery Co., 9 Cal.2d 16, 19, 68 P.2d 968, 969, the Supreme Court declared the legislative policy of Revenue and Taxation Code provisions imposing sanctions for failure to pay franchise taxes to be 'clearly to prohibit the delinquent corporation from enjoining the ordinary privileges of a going concern, in order that some pressure will be brought to bear to force the payment of taxes.'

Failure to obtain a license is an absolute defense under Business and Professions Code section 7025, but a plea of lack of capacity of a corporation to maintain an action by reason of a suspension of corporate powers for nonpayment of taxes is a plea in abatement which is not favored in the law. (Traub Co. v. Coffee Break Service, Inc., 66 Cal.2d 368, 370, 57 Cal.Rptr. 846, 425 P.2d 790.)

Our conclusion that the trial court erroneously interpreted the effect of a violation of Revenue and Taxation Code section 23301 is supported by Schwartz v. Magyar House, Inc., 168 Cal.App.2d 182, 335 P.2d 487. In that case, at the outset of the trial the plaintiff moved for judgment on the ground the corporate powers of the defendant were suspended, which barred the defendant from defending the action. The defendant moved for a continuance in order that it might obtain reinstatement; the continuance was granted and the defendant paid its taxes, was reinstated, was then granted leave to file amended answers, participated in the trial, and had judgment. The plaintiffs appealed, and the reviewing court, in affirming the action of the trial court, held that even though the suspension was in effect at the time the motion for continuance was made, the trial court could recognize the corporation for the limited purpose of making the motion and that it was permissible for the court to continue the trial on its own motion. At page 189, 335 P.2d at p. 491 the court said:

'By this procedure the court was enabled to pass upon the merits of plaintiff's alleged cause of action and render judgment accordingly, rather than deprive defendant of a meritorious defense upon purely technical grounds, which would not, in the instant situation, advance the underlying fiscal policy of the tax involved.'

Plaintiffs cite cases holding that where judgment has been entered before a certificate of revivor is filed, there is no abuse of discretion in not setting aside the judgment. Here, the certificate of revivor was filed before judgment was entered and, significantly, when the question was raised during trial the court, being fully advised of the circumstances, reserved a ruling and proceeded to thoroughly try the case on the merits. Thus, after the certificate of revivor was filed no retrial was required, simply a submission of the case on the evidence already presented. We deem the court's choice of forfeiture, as against a judgment on the merits, an abuse of discertion. (Traub v. Coffee Break Service, Inc., Supra, 66 Cal.2d 368, 57 Cal.Rptr. 846, 425 P.2d 790.)

Plaintiffs argue that because defendant's motion to set aside the judgment and file an amended answer had attached to it simply the certificate of revivor, and not the amended answer, the court could not consider the certificate of revivor; that is to say, the motion was a nullity because of the failure to attach a copy of the proposed amended answer. The argument might have some validity had the motion been to set aside a default judgment, since in...