Timberline, Inc. v. Jaisinghani, B103550

• Decision Date: 12 May 1997
• Docket Number: No. B103550,B103550
• Citation: 64 Cal.Rptr.2d 4,54 Cal.App.4th 1361
• Court: California Court of Appeals Court of Appeals
• Parties: , 97 Cal. Daily Op. Serv. 3584, 97 Daily Journal D.A.R. 6090 TIMBERLINE, INC., Plaintiff and Respondent, v. Gul JAISINGHANI, Defendant and Appellant.

Page 4

64 Cal.Rptr.2d 4

54 Cal.App.4th 1361, 97 Cal. Daily Op. Serv. 3584,

97 Daily Journal D.A.R. 6090

TIMBERLINE, INC., Plaintiff and Respondent, v. Gul JAISINGHANI, Defendant and Appellant.

No. B103550.

Court of Appeal, Second District, Division 7, California.

May 12, 1997.

Grossblatt & Booth, Hillary Arrow Booth, Los Angeles, for Defendant and Appellant.

Braufman and Braufman, James R. Braufman, for Plaintiff and Respondent.

JOHNSON, Associate Justice.

In this appeal we are asked to decide whether a corporation which has been suspended for failure to pay franchise taxes may avail itself of the statutory mechanisms for renewing a judgment entered while the corporation was in good standing. We hold it may not. We therefore reverse the trial court's order denying the judgment debtor's motion to vacate the order renewing the judgment.

FACTS AND PROCEEDINGS BELOW

Prior to 1980 plaintiff and respondent, Timberline, Inc., was a woodworking business. In 1980 it sold all its assets to defendant and appellant, Gul Jaisinghani. Thereafter, the corporation ceased doing business.

Defendant apparently did not pay the agreed sales price. On August 21, 1986, the corporation received a judgment against him for $65,463.71. At the time of trial and judgment the corporation was in good standing with the Secretary of State and the Franchise Tax Board.

However, on June 1, 1989, the corporation was suspended by the Secretary of State of California pursuant to Revenue and Taxation Code section 23302 for failure to pay franchise taxes.

Defendant has not paid any part of the judgment and it remains unsatisfied.

On December 19, 1995, the corporation filed an application to renew the judgment under Code of Civil Procedure section 683.110. ¹ The clerk of the court renewed the judgment on that date in the principal amount, plus accrued interest of $62,209.82.

When defendant received notice the judgment had been renewed he filed a motion in the trial court to vacate the renewal of judgment. ² The basis for his motion was that the corporation was suspended, and as such is not entitled to enjoy the benefits of the state court's powers.

The trial court denied the motion to vacate. Defendant filed a timely appeal from the court's order.

DISCUSSION

I. STANDARD OF REVIEW.

" 'Interpretation and applicability of a statute [such as Revenue and Taxation Code " 'The fundamental rule of statutory construction is ... [to] ascertain the intent of the Legislature so as to effectuate the purpose of the law. [Citations.]' (Select Base Materials v. Board of Equalization (1959) 51 Cal.2d 640, 645 .) ' "A court should interpret legislation reasonably ... to give effect to the apparent purpose of the statute." [Citations.]' (Moore v. Powell (1977) 70 Cal.App.3d 583, 588 .)" (Gardiner Solder Co. v. SupAlloy Corp., Inc., supra, 232 Cal.App.3d 1537, 1541-1542, 284 Cal.Rptr. 206 [corporation which was suspended when contract was executed was not precluded from receiving restitution of goods delivered under voidable contract, because it later obtained certificate of revivor by paying delinquent franchise taxes, interest and penalties].)

                section [23301]] ... is ... a question of law.'  (9 Witkin, Cal.  Procedure (3d ed.  1985) Appeal, § 242, p. 247.)   Because the facts are undisputed and '[t]he issues presented ... are solely questions of law ... this court is free to draw its own conclusions of law ..." ' according to ' "applicable principles of law...." '  (Jongepier v. Lopez (1983) 142 Cal.App.3d 535, 538 [191 Cal.Rptr. 131];  accord California Ins. Guarantee Assn. v. Liemsakul (1987) 193 Cal.App.3d 433, 438 [238 Cal.Rptr. 346].)"  (Gardiner Solder Co. v. SupAlloy Corp., Inc.  (1991) 232 Cal.App.3d 1537, 1541, 284 Cal.Rptr. 206.)
                

We review the court's order permitting the suspended corporation to renew its judgment with these principles in mind.

II. A SUSPENDED CORPORATION WHICH HAS NOT REVIVED ITS POWERS BY PAYMENT OF DELINQUENT FRANCHISE TAXES MAY NOT TAKE ADVANTAGE OF CALIFORNIA'S LEGAL PROCESSES FOR RENEWING A JUDGMENT.

Section 23301 of the Revenue and Taxation Code authorizes the suspension or forfeiture of corporate powers of a corporation which has failed to pay its franchise taxes. This section provides: "Except for the purposes of filing an application for exempt status or amending the articles of incorporation as necessary either to perfect that application or to set forth a new name, the corporate powers, rights and privileges of a domestic taxpayer may be suspended, and the exercise of the corporate powers, rights and privileges of a foreign taxpayer in this state may be forfeited, if ...." (1) the corporation fails to pay franchise taxes on time; (2) fails to file a required annual information statement; or, (3) fails to file a franchise tax return, even when no tax is due. (Rev. & Tax Code, § 23301.5.)

When a corporation fails to pay its taxes the Franchise Tax Board informs the Secretary of State of the delinquency, who in turn notifies the corporation of its suspended status. (Rev. & Tax Code, § 23302.) ³

Thus, except for filing an application for tax-exempt status or amending the articles of incorporation to change the corporate name, a suspended corporation is disqualified from exercising any right, power or privilege. (Rev. & Tax Code, § 23301.)

This means a suspended corporation may not prosecute or defend an action in a California court. (Ransome-Crummey Co. v. Superior Court (1922) 188 Cal. 393, 396-397, 205 P. 446; Alhambra-Shumway Mines, Inc. v. Alhambra Gold Mine Corp. (1957) 155 Cal.App.2d 46, 50-51, 317 P.2d 649.) Nor may a suspended corporation appeal from an adverse judgment (Boyle v. Lakeview Creamery Co. (1937) 9 Cal.2d 16, 20-21, 68 P.2d 968; Gar-Lo, Inc. v. Prudential Sav. & Loan Assn. (1974) 41 Cal.App.3d 242, 245, 116 Cal.Rptr. 389), or seek a writ of mandate (Brown v. Superior Court (1966) 242 Cal.App.2d 519, 522, 51 Cal.Rptr. 633). However, if the corporation's status only comes to light during litigation, the normal practice is for the trial court to permit a short continuance to enable the suspended corporation to effect reinstatement (by paying back taxes, interest and penalties) to defend itself in court. (See, e.g., Schwartz v "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 ; A.E. Cook Co. v. K S Racing Enterprises, Inc. 274 Cal.App.2d 499, 500 ; Duncan v. Sunset Agricultural Minerals, 273 Cal.App.2d 489, 493 .) 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 , 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 .) There is little purpose in imposing additional penalties after the taxes have been paid." (Peacock Hill Assoc. v. Peacock Lagoon Construction Co. (1972) 8 Cal.3d 369, 371, 105 Cal.Rptr. 29, 503 P.2d 285, italics added [corporation which was suspended after judgment for nonpayment of franchise taxes was entitled to pursue its appeal after it paid the delinquent tax, interest and penalties and received its certificate of revivor].)

Magyar House, Inc. (1959) 168 Cal.App.2d 182, 190, 335 P.2d 487.)

The plain language of Revenue and Taxation Code section 23301 "expressly deprives the corporation of all 'corporate powers, rights and privileges'...." (Boyle v. Lakeview Creamery Co., supra, 9 Cal.2d 16, 20, 68 P.2d 968.) Thus, it appears from the statutory language and the decisional authority interpreting those provisions, the corporation's action in requesting the court to renew the judgment was an unauthorized act by a suspended corporation which was attempting to exercise the rights, powers and privileges of a going concern. (See 9 Witkin, Summary of Cal. Law (9th ed. 1987) Corporations, § 225 et seq., pp. 716, et seq.; Friedman, Cal. Practice Guide: Corporations 2 p 6:562 et seq., pp. 6-111, et seq.) Consequently, it was error for the trial court to deny defendant's motion to vacate the renewal of judgment.

The corporation seeks to avoid this result. It argues renewing a judgment does not really invoke the powers of a California court. It points out renewal of a judgment is made virtually automatic by statute. ⁴ The corporation argues renewal of a judgment does not require any action by a state court because the court clerk processes the application, making it nothing more than a "ministerial act."

This argument misses the mark. Renewal of a judgment requires judicial intervention for its validity, regardless how minimal the activity. For example, renewal of a judgment involves at least as much judicial intervention in the average case as does the filing of a lien to secure a judgment. The decision in A.E. Cook Co. v. K S Racing Enterprises, Inc., supra, 274 Cal.App.2d 499, 79 Cal.Rptr. 123 is instructive. That case involved the validity of the corporate plaintiff's attachment of the defendant's bank account to secure a judgment. The defendant moved to discharge the attachment, claiming the corporation was suspended for nonpayment of taxes at the time it filed its lien. However, prior to the defendant's motion to discharge the lien, the corporate plaintiff revived its corporate powers by paying all...