Schwartz v. Magyar House, Inc.

• Decision Date: 25 February 1959
• Court: California Court of Appeals Court of Appeals
• Parties: Grace SCHWARTZ, Plaintiff and Appellant, v. MAGYAR HOUSE, INC., a California corporation, et al., Defendants, Magyar Athletic Club, a California corporation, and American-Hungarian Pioneer Families of California, a California corporation, Respondents. Civ. 23439.

Page 487

335 P.2d 487

168 Cal.App.2d 182

Grace SCHWARTZ, Plaintiff and Appellant, v. MAGYAR HOUSE, INC., a California corporation, et al., Defendants, Magyar Athletic Club, a California corporation, and American-Hungarian Pioneer Families of California, a California corporation, Respondents.

Civ. 23439.

District Court of Appeal, Second District, division 2, California.

Feb. 25, 1959.

Rehearing Denied March 23, 1959.

Hearing Denied April 22, 1959.

Belle Silverman and Judith B. Aaronson, Beverly Hills, A. Marburg Yerkes, Los Angeles, for appellant.

Hunter & Liljestrom, Roger L. Liljestrom, Jr., Gizella L. Allen and Warren M. Goodwin, Los Angeles, for respondents.

FOX, Presiding Justice.

Plaintiff appeals from a judgment entered in favor of defendants, Magyar Athletic Club, and American-Hungarian Pioneer Families of California, in her action to recover damages for personal injuries.

In June, 1955, plaintiff filed her action against Magyar Athletic Club and Magyar House, Inc. ¹ A copy of the complaint and summons was served upon American-Hungarian Pioneer Families as a 'Doe I' defendant. Said complaint did not allege the corporate status of this defendant. Magyar House, Inc., did not appear, and a default judgment was entered as to this defendant. Magyar Athletic Club filed an answer in July, 1955, denying that it was a corporation. The answer filed by American-Hungarian Families in July, 1956, did not make any reference to its status. A pretrial conference order was filed on June 21, 1957, which stated the corporate status of the defendants was in issue, but no determination of this question was made at that time. The case was set for trial on June 28, 1957, but upon defendants' motion was continued until July 22, 1957. At that time a jury was sworn to try the cause. Thereafter, plaintiff moved the court 'for judgment on the ground that the defendants are barred by law from defending the lawsuit.' The trial was continued to the next day and ruling on plaintiff's motion was continued to the same date. At that time, plaintiff renewed her motion and offered documents to establish that the powers, rights and privileges of American-Hungarian Families were suspended on January 25, 1955, and those of Magyar Athletic Club suspended on February 16, 1955, for the failure to pay state franchise taxes. After the motion was argued, the defendants moved for a continuance and that the action be transferred back to Department I for further proceedings. The defendants' motion for transfer to Department I was granted, and all other matters continued to July 24, 1957. On that date the motions were ordered transferred back to Department 12, and plaintiff again renewed her motion to preclude defendants from defending, and defendants again moved for a continuance for the purpose of reviving the corporations. Defendants' motion was granted and the trial continued until August 5, 1957. Plaintiff's motion was continued to that date for further hearing and ruling. An affidavit was filed on July 24, 1957, in support of defendants' motion for a continuance, stating: 'That both of said corporations are exempt from taxation imposed by the Bank and Corporation Franchise Tax Law, except as specifically provided in Section 23731b of the Revenue and Taxation Code. That neither has had sufficient income to subject it to ('Article 2' net income) taxation under Section 23731b of the Revenue and Taxation Code. That Section 23705 of the Revenue and Taxation Code was added by Statutes 1953, Chapter 1503, Section 2, which provide that any organization claiming to be exempt from franchise tax shall annually on or before March 15th of each year file a statement establishing its right to the exemption by executing a declaration that the organization making the statement does not advocate the overthrow of the government of the United States or the State of California by force or violence or other unlawful means or advocate the support of a foreign government against the United States in the event of hostilities. If such a declaration is not made the corporation shall not receive the exemption allowed under the Revenue and Taxation Code to such corporations.

'The officers of both of said corporations are laymen who volunteer their services to said corporations, which corporations are organized for charitable and educational purposes and do not have any capital stock. That the officers of said corporation were unaware of the fact that it was necessary for them under said enactment in 1953 to file on or before the 15th day of March, an annual statement which if they had filed would have exempted them from the payment of any franchise tax. That due to said failure to file said annual statement now required by Section 23705 of the Revenue and Taxation Code, said corporations were suspended. That neither the officers or directors of either of said corporations knew of said suspension, nor were the attorneys for said corporations aware of said suspension.

'That, upon being advised that a suspension was in effect against both corporations, the officers of each of said corporations did execute an Application for a Certificate of Revivor and forwarded the same to the Franchise Tax Board with the statement required by Section 23705 of the Revenue and Taxation Code and the necessary amount to revive said corporations. That affiant has been informed by an employee of the Franchise Tax Board of the State of California, in Sacramento, to wit, a Mr. Eastman, that it is in order for said corporations to file a claim for refund of the moneys requested by the state to revive said corporations, who waived their exemption by failure to file a 'loyalty declaration.'

'Affiant is informed and believes and therefore alleges that the constitutionality of the Act requiring an exempt corporation to file a loyalty declaration as a condition precedent to its exemption from franchise tax has been questioned and an action involving said question is now pending. That upon the receipt by the Franchise Tax Board of the Application for Certificate of Revivor the statement required by Section 23705 of the Revenue and Taxation Code executed by the corporations, and the amount of franchise tax now payable to remove the suspension of the exemption of said corporations, said corporations will be revived.'

The defendants received their certificate of revivor from the State Franchise Tax Board on July 26, 1957. On August 1, 1957, defendants' notice of motion to file amended answers, their amended answers and affidavits in support of the motion were filed. In substance, the affidavit in behalf of the American-Hungarian Pioneer Families stated that it was served with a copy of the complaint and summons on May 23, 1956, and that the complaint contained no allegation as to whether this defendant was a corporation, and the answer to the complaint made no allegation as to the corporate entity; in the pre-trial conference order there was no determination as to whether this defendant was or was not a corporation. The affidavit in support of Magyar's motion stated that in its original answer it denied it was a corporation; that no determination was made as to this question in the pre-trial, and that this defendant is presently a corporation. Both affidavits contained the following:

'The above entitled matter was set for trial on July 22, 1957, and after the jury had been selected, the plaintiff moved that the defendants be barred from setting forth a defense on the ground that each of said defendants was a corporation whose rights had been suspended and that said corporations had no right to appear in the proceedings to defend in the action. That counsel for both defendants made a motion for continuance on the basis among others, that said motion was made without notice and was a complete surprise. That on July 24, 1957, the trial judge continued the matter until August 5, 1957, at 10:00 a. m. That on July 24, 1957, the American-Hungarian Pioneer Families of California [the Magyar Athleta Club] forwarded to the Franchise Tax Board, at Sacramento, the following documents: 1) An application for Certificate of Revivor on behalf of said corporation executed by the directors thereof; 2) annual statement required to be executed by corporations under Section 23705 of the Revenue and Taxation Code; 3) certified check in the sum of $136.00 which represented the amount of franchise tax due at the time; 4) claim for refund of said $136.00 which claim for refund is designated as to be filed by those corporations who waived their exemption by failing to file a loyalty declaration as required by Section 23705 of the Revenue and Taxation Code.

'That said defendant corporation was revived on July 26, 1957, and the corporate powers, rights and privileges of said corporation were revived as of that date and were restored to full force and effect.

'Wherefore, said defendant corporation prays for leave to file an amended answer alleging that it is a corporation in good standing.'

On August 5, 1957, the court, after argument, denied plaintiff's motion to preclude defendants from defending the action and granted defendants' motion for leave to amend their answers.

The case was reset for trial on September 20th, and continued until October 17, 1957, by stipulation, and thereafter continued until February 24, 1958, on plaintiff's motion. At...