Lewis v. LeBaron

• Decision Date: 11 September 1967
• Citation: 254 Cal.App.2d 270,61 Cal.Rptr. 903
• Court: California Court of Appeals Court of Appeals
• Parties: Robert O. LEWIS and Phoebe Schaap, Plaintiffs and Appellants, v. O. J. LeBARON, dba Northern Credit Service, Harry A. Hammond, Clarence J. Robinson and Louis A. Price, Defendants and Respondents. Civ. 11479.

Page 903

61 Cal.Rptr. 903

254 Cal.App.2d 270

Robert O. LEWIS and Phoebe Schaap, Plaintiffs and Appellants, v. O. J. LeBARON, dba Northern Credit Service, Harry A. Hammond, Clarence J. Robinson and Louis A. Price, Defendants and Respondents.

Civ. 11479.

Court of Appeal, Third District, California.

Sept. 11, 1967.

Ross L. Bigler, Yreka, for appellants.

Harry A. Hammond, Yreka, for respondents.

PIERCE, Presiding Justice.

Plaintiffs Robert O. Lewis and Phoebe Schaap, brother and sister, adult children of Orin Lewis, deceased, appeal from an adverse judgment in a suit (for convenience hereinafter called by its number in the superior court, #2061) brought by plaintiffs. In part it sought equitable relief which would effectually vacate an earlier default judgment in action #19901 in which defendant LeBaron herein was plaintiff and Mount Vernon Mines of Nevada, Inc., a Nevada Corporation ('Mt. Vernon') was the sole defendant. ¹

Background facts are these: At the time of his death Orin Lewis was president and sole owner of the shares of Mt. Vernon. Defendant Harry Hammond was the attorney for the personal representative of the Lewis estate. Hammond was also the attorney who had organized the corporation. In February 1962 the estate was distributed to plaintiffs who thereby became owners of all of the corporate shares.

Action #19901 was brought in November 1963 by Hammond through defendant O.J. LeBaron (dba Northern Credit Service, a collection agency) as his assignee. Hammond was LeBaron's attorney. The action was to collect (1) a reasonable attorney's fee allegedly due for Hammond's services to the corporation and (2) repayment of money allegedly advanced and loaned by Hammond to the corporation. One Clarence Robinson was served. He is said to have been vice-president of Mt. Vernon at the time. No appearance was made and pursuant to LeBaron's request a Clerk's default followed by a Clerk's default judgment were entered on November 27, 1963, for the full amount prayed for, $6,343.26, plus interest and costs. Over a year thereafter, on January 4, 1965, plaintiffs herein, as individuals, moved to set aside the default judgment on the grounds of 'fraud, inadvertence, or mistake.' The motion was contested and relief was denied by the court.

Two days later, on January 6, 1965, this action #20601 was commenced against Hammond, LeBaron, Robinson, and Constable Louis A. Price. Price is named because, after the default judgment in action #19901, a writ of execution had issued. A judicial sale of certain real property (the only corporate asset) was held and on January 10, 1964, the property was sold to LeBaron for the amount of the judgment. (Disposal of the property has been restrained, a cash bond having been filed by plaintiffs.)

In action #20601 an amended complaint challenges the default judgment in action #19901 and seeks to have the proceedings in execution of judgment enjoined. It also asks to have plaintiffs declared the owners of the real property mentioned and their title quieted. In addition, damages are sought against Hammond on the grounds of fraudulent acts allegedly committed by Hammond against plaintiffs as individuals. The answer of defendants, represented by Hammond, denies the essential allegations of the complaint, also sets up affirmative defenses, including the bar of the period of limitations fixed by Code of Civil Procedure section 473 and the contention of an incapacity of plaintiffs to sue. A separate 'trial' on the special issues was held. It was there urged by defendants that by nonpayment of franchise taxes and other charges in Nevada, the state of origin, and in California, where the corporation had originally qualified to transact business, Mt. Vernon had become powerless, under the provisions of Revenue and Taxation Code section 23301, ² to defend action #19901. Incident to the latter contention defendants argued that plaintiff's sole rights were as shareholders, hence their action was 'derivative;' thus the proscription of said section 23301 was applicable to action #20601. The court gave judgment for defendants. Tnis appeal followed and, of course, there has been no trial of any of the issues raised by plaintiffs' amended complaint.

The controlling question before us is the validity of the default judgment in action #19901. We hold it is void. That holding requires us to discuss the possible future of this controversy hopefully in avoidance of a future appeal (which, if the proceedings already taken have not already done so, would seemingly dissipate any possibility of ultimate monetary benefit to any of the parties).

RE THE INVALIDITY OF THE DEFAULT AND DEFAULT JUDGMENT

At the trial of special defenses in action #20601 (and possibly in the earlier litigation) defendants themselves offered certifications by the secretaries of state of Nevada and California, showing that the corporate charter of Mt. Vernon had been revoked in Nevada (Nev.Rev.Stat. sec. 78.175, as amended) and 'suspended,' i.e., forfeited, in California (Rev. & Tax.Code secs. 23301--23302). The Nevada revocation was in March 1961; the California suspension in January 1962. In both instances there had been no reinstatement. The corporation is thus in a state of suspended animation in both states but it is not 'dissolved.' (See Nev.Rev.Stat. sec. 78.-180; Rev. & Tax.Code sec. 23305; Castner v. First National Bank of Anchorage (9th Circuit 1960), 278 F.2d 376, 382--383.)

This intelligence, although coming to us through defendants' own evidence in action #20601 is, in legal contemplation, the same as though the facts appeared on the face of the record in action #19901. (Thompson v. Cook, 20 Cal.2d 564, 569, 127 P.2d 909; Akley v. Bassett, 189 Cal. 625, 639, 209 P. 576; Hill v. City Cab etc. Co., 79 Cal. 188, 21 P. 728; Jones v. Walker, 47 Cal.App.2d 566, 570, 118 P.2d 299.) (The forfeiture of Mt. Vernon's charter, at least for one of the delinquencies, was also undoubtedly shown at the time of the hearing of the motion by Lewis and Schaap in action #19901. Although we do not have a reporter's transcript of that hearing, the clerk's minutes refer to the introduction of a certificate from a secretary of state as plaintiff's (i.e., LeBaron's) exhibit #1.)

These facts should have been alleged in the complaint or otherwise brought to the court's attention. Failure to do so constituted a fraud upon the court in action #19901. Instead of a true allegation, the verified complaint contained a false one that Mt. Vernon was 'duly * * * existing' under Nevada laws, and that it was Then 'authorized to transact business' in California.

The true situation hidden when the default was entered was vital. Under Code of Civil Procedure section 411, subdivision 6, summons must be served 'In all cases where a corporation has forefeited its charter or right to do business in this State, * * * by delivering a copy thereof to one of the persons Who have become the trustees of the corporation and of its stockholders or members * * *.' (Emphasis supplied.)

We hold that said subdivision 6 of section 411 was intended by the Legislature to be applicable to domestic and foreign corporations alike. Our reasons for reaching this conclusion are: Firstly, Code of Civil Procedure section 411 is the sole statutory authority expressly providing for service upon suspended corporations (as distinct from corporations dissolved--covered by Corporations Code sections 3305, 3306 as to domestic corporations--or as to 'withdrawn' foreign corporations, by Corporations Code section 6504). Secondly, the entire section read in context covers both domestic and foreign corporations. Where different service requirements for domestic and foreign corporations are contemplated (as in subdivisions 1 and 2) the adjectives 'domestic' and 'foreign' are used to distinguish such methods. No such differentiation is made in subdivision 6. Thirdly, if the provisions of the subdivision had been intended to be restricted to domestic corporations the phrase 'in this state' would have been useless and meaningless; also the subdivision's language 'In all cases where a corporation has forfeited its * * * right to do business * * *' has aptness to foreign corporations. As we have noted (see fn. 2) the Legislature in Revenue and Taxation Code section 23301 uses 'forfeited' as having peculiar application to suspended Foreign corporations. Fourthly, to construe subdivision 2 of said section 411 as having applicability to a suspended foreign corporation would lead to absurd results. Such service would seldom, if ever, bring notice of the pendency of the action--which is the purpose of service--to those interested in protecting the assets of the dormant corporation. Section 411, subdivision 2, especially made applicable to active foreign corporations, cannot reasonably be said to apply to suspended or charterforfeited corporations. It by its terms points to Corporations Code sections 6500--6504. Briefly stated, those sections permit service on active foreign corporations by service upon the usual officers, the general manager or designated agent in this state, or in certain circumstances, upon the California Secretary of State. Not one of these persons is calculated to be one who would be likely to reach any of those actually interested. They are persons who were only interested in the going concern. The facts of the case before us illustrate graphically the ineffectuality of a section 411, subdivision 2 service. On the other hand, 'one of the persons who have become the trustees of the corporation and or its stockholders * * *' Is a person interested in the protection of the corporate assets.

Standard case law aids to statutory interpretation support our conclusions. Enumeration of these aids is unnecessary. (See 45 Cal.Jur,2d Statutes, secs. 116, 117, pp. 625--627, and cases there cited.)

No effort was made in action #19901 to comply with section 411, subdivision 6. There is...