Graceland v. Peebler

HANSON, J. pro tem.

The sole question presented for decision is whether the surviving directors of a California corporation, whose charter was suspended in 1926 for nonpayment of its franchise tax, may now maintain an action in behalf of its stockholders and creditors to quiet title to realty. The trial court was of the view that the action could not be maintained and so sustained a motion of the defendants for judgment on the pleadings. In so holding we think the court was correct.

While the appellant directors concede that neither the corporation nor they, in its behalf, may maintain the action, as the statutes applicable bar a corporation which has failed to make timely payment of its franchise tax from exercising any corporate powers, rights or privileges (with exceptions not here material), they contend they may do so as its surviving directors. Their right so to do is rested upon the theory that the second license tax act, enacted in 1917—the provisions of which are here controlling—was, like the first license tax act of 1905, a “forfeiture” act and not a “suspension” act. Accordingly, they argue that when the corporation in 1926 failed to pay its franchise tax its charter was forfeited and not merely suspended, and that this involved a dissolution of the corporation. If their premise that the corporation was dissolved is correct it follows, as they contend, that Civil Code section 400 as it then existed—and as it is continued in substance in Civil Code section 399a—is sufficiently expansive to vest them with the authority for

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which they contend. However, we think that the premise is false and that the cases upon which they rely show it to be false.

As originally enacted in 1905 the first license tax act not only specifically provided that a domestic corporation’s charter should be forfeited for nonpayment of its license or franchise tax, but it made no provision for a revivor thereof or for settling the affairs or disposing of the property of the corporation. On the following day the legislature cured this defect in part by amending Civil Code section 400 so as to give the surviving directors the power to settle the affairs of the corporation and to dispose of its property. But no provision was made to enable a revivor of the corporation if it chose to pay the tax liability which had accrued against it. In 1907 the legislature not only provided for such a revivor but amended the statute (section 10a) so as to give express power to the directors to settle the corporation’s affairs and dispose of the property for the stockholders but not for the creditors. However, the rights of the latter were similarly provided for by Civil Code section 400.