Smith v. Lewis

295 P. 37, 211 Cal. 294, 1930 Cal. LEXIS 333

• Court: California Supreme Court
• Decided: December 31, 1930
• Docket: Docket No. S.F. 13124.
• Status: Published

Opinions

SHENK, J.

In July, 1925, Millie C. Lewis, defendant herein, commenced an action as a minority stockholder of the Borch Radio Corporation and on behalf of said corporation against O. F. Smith, F. 0. Howe, E. L. Kirk, George E. Sheldon and Max Lowenthal to compel said defendants as directors of said corporation to pay to the corporation the sum of $9,500 alleged to have been the value of certain property and assets wrongfully withdrawn from said corporation and delivered to another -stockholder contrary to the provisions of section 309 of the Civil Code. Said corporation was alleged to be a corporation organized and existing under and by virtue of the laws of the state of California and was made a party defendant in said action under an allegation that it was controlled by the defendant directors and it would be futile for the plaintiff therein to make a demand on said corporation to commence said or any action against said defendants and therefore the plaintiff initiated said action on behalf of said corporation. The defendants therein named, except the defendants Lowenthal and the corporation, answered to the merits but did not allege in their answer, nor otherwise contend or show in said action, that said corporation at the time of the commencement of said action was under the disability of suspension of its powers by reason of the failure to pay its corporation license tax for the year 1923 as required by the Corporation License Act of 1915 as amended in 1917 (Stats. 1917, p. 371). Upon the trial of that action oral and documentary evidence was introduced. The court found the facts and rendered judgment in favor of the plaintiff, Millie C. Lewis, and against the answering defendants and ordered, adjudged and decreed" that the Borch Radio Corporation have judgment against said defendants for the sum of $9,500, interest and costs. This judgment became final in January, 1927.

On March 25, 1927, the plaintiffs herein, defendants in the former action, commenced the present action against Millie C. Lewis and the sheriff of Alameda County to set aside the judgment in the former action, to quash the execution issued thereunder and to enjoin the enforcement thereof, on the ground that said judgment was void for the reason that at the time the former action was commenced the Borch Eadio Corporation was under suspension of its corporate rights, privileges and powers for failure to pay its license tax for the year 1923, and that notwithstanding such suspension said Millie C. Lewis, as agent for and on behalf of said corporation, commenced said action and prosecuted the same to judgment.

Upon the filing of the complaint in the present action the plaintiffs applied to the court for a temporary injunction. An order was issued requiring the defendants herein to show cause on a day certain why the temporary injunction should not issue as prayed. As a return to the order to show cause the defendants filed a general and special demurrer to the complaint and in a separate document, signed" only by the attorney for the defendants, charged also that the complaint in the present action did not state facts sufficient to authorize the issuance of an injunction and presented as a part of the return the answer of the plaintiffs to the complaint and the findings of fact and conclusions of law in the former action. The temporary injunction was issued and the cause came on for trial. It was thereafter stipulated in open court that the plaintiffs’ right to a permanent injunction might be submitted on the demurrer to the complaint and on the application for a temporary injunction and the return thereto and that the court might enter judgment after argument thereon. Thereafter the court overruled the demurrer and found that “all of the allegations of the plaintiffs’ complaint are true”, concluded that the plaintiffs were entitled to the relief prayed for and rendered its judgment of injunction accordingly. This appeal is from that judgment. The record is presented on the judgment-roll and a hill of exceptions.

The judgment-roll is in the usual form. To the complaint are attached a copy of the complaint and the judgment in the former action. The special demurrer charges uncertainty in that it does not appear on the face of the complaint whether the plaintiffs herein pleaded as a defense in the former action the fact that the Borch Radio Corporation was under suspension of its powers when the former action was commenced or what, if any, defense was pleaded in the former action.

The bill of exceptions sets forth merely a copy of the order to show cause and the return thereto and recites the stipulation above referred to. The only specifications of error are the following: 1. The evidence- is insufficient to support the findings that all of the allegations of the complaint are true; and 2, the evidence is insufficient to justify the finding that the plaintiffs are entitled to the relief prayed for in the complaint. The foregoing state of the record is set forth in detail in order to show the limitations thus placed ■ by the appellant upon our inquiry on this appeal.

As to the first specification of error there is no fact or other showing in the record to rebut the truthfulness of the allegations of fact in the complaint. In fact the demurrer upon which the cause was in part submitted on the merits admitted the truth of those facts and the demurrer was properly overruled. Assuming that the attack therein made on the former judgment was collateral, such a judgment may be collaterally impeached by a showing that, by reason of the license statute, the corporation had no legal right to commence the action. (Livermore v. Ratti, 150 Cal. 458 [89 Pac. 327] ; Crossman v. Vivienda Water Co., 150 Cal. 575 [89 Pac. 335] ; 15 Cal. Jur., p. 89.) And a stockholder suing on behalf of the corporation, as in this case, has no greater right or standing as plaintiff than the corporation would have had if the corporation itself had been plaintiff. The stockholder stands in the shoes of the corporation. Pie is the mere nominal plaintiff and the corporation is the real party in interest and if the corporation is not in position to attack the transaction, the stockholder may not. (Turner v. Markham, 155 Cal. 562 [102 Pac. 272] ; 6 Cal. Jur., p. 865, and cases cited.)

The second specification of error, viz., that the evidence is insufficient to justify the finding that the plaintiffs are entitled to the relief prayed for in the complaint, might readily be dismissed as an insufficient specification of error, first, because the record contains no finding of that purport or effect, and secondly, if such a finding were made it would, be misplaced and constitute a conclusion of law. However, assuming this specification to be sufficient to raise the point the defendants assume thereunder to argue a question of estoppel against the plaintiffs by reason of their failure to allege in their answer, or otherwise disclose in the former action, that the corporation was under the disability of the statute at the time said action was commenced. Estoppel was not an issue presented to the court in the present action as disclosed by documents incorporated in the record, and the argument on the demurrer and the order to show cause is not included therein. The defendants argue with great earnestness that the plaintiffs are guilty of fraud in permitting the payment of the license tax to become delinquent and in not alleging the disability of the corporation in their answer in the former action. Fraud is never presumed. When it constitutes an element of defense it must be pleaded. (12 Cal. Jur., p. 800, and cases cited.) Certainly the issue of fraud was not presented in the demurrer to the complaint and the return to .the order to show cause did not otherwise charge it. The trial court was therefore without power to find it as a fact. If the defendants relied upon it they should have filed an answer presenting the issue, which was not done. If that had been done there may have been a defense to the charge. On the record now presented fraud may not therefore be inferred, and inasmuch as the defendants did not tender the issue of fraud or estoppel to the trial court, there was nothing before that court upon which to base a finding on that subject- and the defendants are in no position on this appeal to urge the point.

The defendants further contend that said license tax law, which has since been repealed (Stats. 1927, p. 396), was unconstitutional. This court, in Perkins Mfg. Co. v. Jordan, 200 Cal. 667 [254 Pac. 551], held the act unconstitutional as applied to foreign corporations, and it is argued that the decision in that case is applicable in principle to the imposition of license taxes upon domestic corporations; and that although the provisions of the act relating to license tax on domestic and foreign corporations were severable, the elimination from the act of the requirement of payment on the part of foreign corporations rendered that part of the act applicable to domestic corporations obnoxious to section 15 of article XII of the state Constitution, which provides that no foreign corporation shall be allowed to transact business within this state on more favorable conditions than are prescribed by law to similar corporations under the laws of this state. In the Perkins Mfg. Co. case this court felt impelled, in view of recent pronouncements by the Supreme Court of the United States, to hold that the provisions of the license tax relating to foreign corporations were invalid as constituting a burden on interstate commerce, and as a tax on property beyond the state’s jurisdiction, contrary to the Fourteenth Amendment. But it would be going too far to hold that the state of California is powerless to require the payment of a revenue license tax by a domestic corporation merely because it is powerless to enforce a like measure on property beyond its jurisdiction. We are satisfied that the situation thus presented is not one contemplated by the section of our state Constitution invoked by the defendants.

Reduced to its lowest terms this controversy is one wherein a judgment is sought to be set aside on the ground that the court was without jurisdiction to enter the same. While it may be said that the judgment on its face did not disclose that the corporation was without power to sue or to have suit brought on its behalf, nevertheless jurisdiction thus appearing was only apparent (Bennett v. Wilson, 133 Cal. 379 [85 Am. St. Rep. 207, 65 Pac. 880]), and it may always be shown even collaterally that a corporation had no legal existence when- the action was commenced. (Crossman v. Vivienda Water Co., supra.) The same rule would be applicable where the corporation had, as here under the statute, no power to sue.

It is argued in the briefs of defendants’ counsel that even if the disability of the corporation existed at the time the former action was commenced, such disability was removed by restoration to capacity before the issuance of the execution on the judgment and therefore the injunction should not have been granted. There are two answers to this argument. First, there is nothing in the record upon which to base it, and, secondly, if a revival later occurred, such revival would not have the effect of validating the acts attempted during the period of suspension. (Ransome- Crummey Co. v. Superior Court, 188 Cal. 393 [205 Pac. 446].)

Other points discussed in the briefs do not merit specific mention.

The judgment is affirmed.

Richards, J., Seawell, J., and Waste, C. J., concurred.