Peacock Hill Assn. v. Peacock Lagoon Constr. Co.

• Decision Date: 29 November 1972
• Docket Number: S.F. 22907
• Citation: 503 P.2d 285,105 Cal.Rptr. 29,8 Cal.3d 369
• Court: California Supreme Court
• Parties: , 503 P.2d 285 PEACOCK HILL ASSOCIATION, Plaintiff and Respondent, v. PEACOCK LAGOON CONSTRUCTION COMPANY, Defendant and Appellant. In Bank

Page 29

105 Cal.Rptr. 29

8 Cal.3d 369, 503 P.2d 285

PEACOCK HILL ASSOCIATION, Plaintiff and Respondent, v. PEACOCK LAGOON CONSTRUCTION COMPANY, Defendant and Appellant.

S.F. 22907.

Supreme Court of California,

In Bank.

Nov. 29, 1972.

Burd, Hunt & Friedman, Peter Hunt and Michael J. Flynn, San Francisco, for defendant and appellant.

Kerner, Colangelo & Imlay, James D. Hobbs and Francis Kerner, San Francisco, for plaintiff and respondent.

PETERS, Justice.

Peacock Hill Association, a nonprofit corporation managing the common areas and affairs of a condominium project moves to dismiss the appeal from an adverse judgment by Peacock Legoon Construction Co. (hereinafter referred to as 'Construction'), the developer of the project.

The motion to dismiss is made on the ground that Construction's corporate powers had been suspended pursuant to section 23301 of the Revenue and Taxation Code. ¹

Construction has filed a declaration in opposition to the motion to dismiss accompanied by a receipt from the Franchise Tax Board indicating that it had recently filed its delinquent return, paid the penalty assessment, and applied for a certificate of revivor pursuant to section 23305 of the Revenue and Taxation Code. Subsequently, Construction filed a certificate of revivor issued by the Franchise Tax Board showing that Construction has been reinstated and revived to good standing.

In a number of situations the revival of corporate powers by the payment of delinquent taxes has been held to validate otherwise invalid prior action. (Traub Co. v. Coffee Break Service, Inc., 66 Cal.2d 368, 370, 57 Cal.Rptr. 846, 425 P.2d 790; Diverco Constructors, Inc. v. Wilstein, 4 Cal.App.3d 6, 12, 85 Cal.Rptr. 851; A. E. Cook Co. v. K S Racing Enterprises, Inc., 274 Cal.App.2d 499, 500, 79 Cal.Rptr. 123; Duncan v. Sunset Agricultural Minerals, 273 Cal.App.2d 489, 493, 78 Cal.Rptr. 339.) In all of the above cited cases it was held that the purpose of section 23301 of the Revenue and Taxation Code is to put pressure on the delinquent corporation to pay its taxes, and that purpose is satisfied by a rule which views a corporation's tax delinquencies, after correction, as mere irregularities. This reasoning is in accord with our language in Boyle v. Lakeview Creamery Co., 9 Cal.2d 16, 68 P.2d 968, declaring the legislative policy of Revenue and Taxation Code provisions imposing sanctions for failure to pay taxes to be 'clearly to prohibit the delinquent corporation from enjoying the ordinary privileges of a going concern, in order that some pressure will be brought to bear to force the payment of taxes.' (At p. 19, 68 P.2d at p. 969.) There is little purpose in imposing additional penalties after the taxes have been paid.

Traub Co. v. Coffee Break Service, Inc., Supra, 66 Cal.2d 368, 370, 57 Cal.Rptr. 846, 425 P.2d 790, involved an appeal by the cross-defendants from an order denying their motion to vacate and set aside a judgment which had already become final in favor of cross-complaint, a California corporation. The basis of the motion was that before entry of the judgment and continuously to the time of the motion the corporate powers of cross-complainant had been suspended under section 23301 for failure to pay certain taxes levied pursuant to the Bank and Corporation Tax Law. This court concluded that the trial court was correct in its view that a final judgment is immune from the collateral attack attempted.

In Traub we cited with approval several Court of Appeal decisions in which the corporate plaintiff was allowed to maintain a lawsuit even though it had been suspended at the time it filed its complaint. In each case, the corporation had secured reinstatement prior to the date set for trial, but after the defendant had brought the suspension to the attention of the trial court. The appellate courts reasoned that the plea of lack of capacity of a corporation because of its suspension for failure to pay taxes, is a plea in abatement which is not favored in law and must be supported by the facts at the time of the plea. In each case it was held that revival of the corporate powers before trial was sufficient to permit the corporation to maintain the action. ² (Pacific Atlantic Wine, Inc. v. Duccini, 111 Cal.App.2d 957, 967, 245 P.2d 622; Hall v. Citizens Nat. Tr. & Sav. Bank, 53 Cal.App.2d 625, 630, 128 P.2d 545; Maryland C. Co. v. Superior Court, 91 Cal.App. 356, 361, 267 P. 169.)

Traub has subsequently been cited as authority in at least three recent Court of Appeal decisions which extended the Traub rule to other situations.

A. E. Cook Co. v. K S Racing Enterprises, Inc., Supra, 274 Cal.App.2d 499, 500, 79 Cal.Rptr. 123, presented the question of whether a corporation was entitled to the benefit of an attachment where it filed suit and obtained a writ of attachment at a time its corporate powers were suspended for nonpayment of taxes, but where it thereafter revived its powers by the payment of its back taxes prior to the filing of a motion to discharge the attachment. The court held that '(o)n revivor of its corporate powers a corporation may continue an action commenced during the period of suspension and not previously dismissed, even though the opposing party pleaded the suspension prior to the revivor. . . . ( ) The same logic which sustains actions commenced prior to the revivor of corporate powers sustains the validity of provisional remedies ancillary to such actions. If a corporation may shore up its entire cause of action by reviving its corporate powers and thereby validate its complaint, it seems appropriate to permit it to do the same thing on behalf of a provisional remedy wholly dependent on the main cause of action, provided, of course, that in the meantime substantive defenses have not accrued nor third party rights intervened. . . . The effect of such revivor and validation is comparable to that of an amendment to (an) irregular(ly) issued attachment, which amendment by statute may relate back to the time of issue and cure defects and omissions in the original attachment.'

In Duncan v. Sunset Agricultural Minerals, Supra, 273 Cal.App.2d 489, 493, 78 Cal.Rptr. 339, the court held that as long as the certificate of revivor is filed prior to the entry of judgment, it is an abuse of discretion not to determine the case on its merits.

The most recent case to cite the Traub decision is Diverco Constructors, Inc. v. Wilstein, Supra, 4 Cal.App.3d 6, 12, 85 Cal.Rptr. 851, where the plaintiff corporation was suspended during the pendency of a lawsuit. Just before expiration of the five-year period within which an action must be brought to trial (Code Civ.Proc., § 583), plaintiff filed a motion requesting an early trial setting conference. The cause was dismissed by the trial court when the defendant notified the court that plaintiff's corporate powers had been suspended at the time the motion was made, even though plaintiff was reinstated before the suspension was brought to the court's attention. The trial court reasoned that all action taken by the corporation while it was suspended was null and void and any procedural steps undertaken while it was suspended would be inoperative unless undertaken anew after reinstatement. In reversing, the Court of Appeal held that since 'appellant's corporate powers had been revived two days before respondents made their motion to dismiss, the motion was groundless. The prior activities of appellant corporation, in undertaking discovery and appearing on and filing motions, were not a nullity. Its legal rights were merely suspended and were revived, . . .' (At p. 12, 85 Cal.Rptr. at p. 855.) The court made it quite clear that suspension of corporate powers is a defense which may be asserted so long as the party-corporation is under disability, and that upon revival of these powers, the corporation may proceed with the prosecution or defense of an action.

The foregoing authorities make clear that as to matters occurring prior to judgment the revival of corporate powers has the effect of validating the earlier acts and permitting the corporation to proceed with the action. We are satisfied that the same rule should ordinarily apply with respect to matters occurring subsequent to judgment. Ransome-Crummey Co. v. Superior Court, 188 Cal. 393, 398, 205 P. 446, relied upon by the Peacock Hill Association, was limited in Traub to 'the special jurisdictional problems incident to a motion for new trial' (66 Cal.2d at p. 372, 57 Cal.Rptr. at p. 848, 425 P.2d at p. 792), and we see no valid reason to extend the rule enunciated in that case to other post-judgment procedures.

In the instant case, the corporate powers of Construction have been revived by the payment of the taxes, and it may proceed with its appeal.

The motion to dismiss the appeal is denied and the matter transferred to the Court of Appeal, First District.

WRIGHT, C.J., and TOBRINER, SULLIVAN and BURKE, JJ., concur.

MOSK, Justice (dissenting).

I dissent.

The majority concede that 'The purpose of section 23301 of the Revenue and Taxation Code is to put pressure on the delinquent corporation to pay its taxes . . ..' (Ante, p. 30.) Yet that purpose is frustrated by permitting a delinquent corporation, merely through tardy payment of taxes, to validate all of the actions taken during its period of suspension. Under that concept the stick becomes a carrot; all incentive to avoid punitive disabilities dissolves. Upon exposure of its delinquency the corporation suffers little more than fleeting embarrassment, and, indeed, it is then rewarded by authentication of all its previous illegal acts.

In the present case, for example, Construction's powers had been suspended prior to trial and remained in that status until after judgment and the filing of the notice of appeal. It was not until plaintiff brought the suspension to the attention of the appellate court by its motion to dismiss the appeal that Construction at...