TIMBERLINE, INC. v. JAISINGHANI
(1997) 54 Cal.App.4th 1361
Grossblatt & Booth and Hillary Arrow Booth for Defendant and Appellant.
Braufman and Braufman and James R. Braufman for Plaintiff and Respondent.
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
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. [54 Cal.App.4th 1364]
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. fn. 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. fn. 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.
DiscussionI. Standard of Review.
 " 'Interpretation and applicability of a statute [such as Revenue
and Taxation Code section ] ... 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].)
 " 'The fundamental rule of statutory construction is ... [to]
ascertain the intent of the Legislature so as to effectuate the purpose
of the law. [54 Cal.App.4th 1365] [Citations.]' (Select Base Materials v. Board of Equal. (1959) 51 Cal.2d 640,
645 [335 P.2d 672].) ' "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 [138 Cal.Rptr. 914].)" (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
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.) fn. 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 [54 Cal.App.4th 1366] (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,
635 [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. Magyar House, Inc.
(1959) 168 Cal.App.2d 182, 190 [335 P.2d 487].)
"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. [(1967)] 66 Cal.2d 368, 370 [57 Cal.Rptr. 846, 425 P.2d 790]; Diverco Constructors, Inc. v. Wilstein [(1970)] 4 Cal.App.3d 6, 12 [85 Cal.Rptr. 851]; A. E. Cook Co. v. K S Racing Enterprises, Inc. [(1969)] 274 Cal.App.2d 499, 500 [79 Cal.Rptr. 123]; Duncan v. Sunset Agricultural Minerals [(1969)] 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,
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 Assn. v. Peacock Lagoon Constr. 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].)
[4a] 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.) 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 [54 Cal.App.4th 1367] 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.,
p. 716 et seq.; Friedman, Cal. Practice Guide: Corporations 2 (The
Rutter Group 1997) ¶ 6:562 et seq., p. 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.
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. (1969) 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 delinquent taxes.
The trial court denied the defendant's motion to dissolve the attachment
and the appellate court affirmed. It noted the earlier Supreme Court
decisions holding that the effect of a corporation's reviving itself by
payment of delinquent taxes is to retroactively legitimize the
corporation's prior acts. The court then reasoned if revivor can
validate prior actions taken to prosecute or defend an action then
revivor should also operate to validate "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. [Citation.]" (274
Cal.App.2d at pp. 500-501.) [54 Cal.App.4th 1368]
By parity of reasoning, the ancillary remedy of renewing an unsatisfied
judgment is an invalid act if attempted by a suspended corporation which
has not taken the necessary action to revive itself.
We agree with the corporation the original judgment was valid. We also
agree the corporation was not pursuing a new action or seeking a new
judgment, but was instead attempting to extend the life of the earlier
valid judgment. Nevertheless, to do so required invocation of the
benefits of California laws and the assistance of the California
judicial system. These rights and privileges are reserved to those
corporations which pay their franchise taxes in a timely fashion and
remain in good standing with the California Secretary of State and
taxing authorities. As a suspended corporation, it is deprived of these
benefits and was therefore not entitled to renew its judgment.
 (See fn. 5.),[4b] This may seem to be a harsh penalty for a
corporation which has not conducted business since selling its assets to
the defendant, and which has not realized any amount from the sale of
those assets. fn. 5
However, this penalty could have easily been avoided. If the
corporation was not in fact conducting any business after the sale of
its assets in 1980, then someone should have taken steps to formally
dissolve the corporation. After the Franchise Tax Board approves a
corporation's final tax return the corporation is no longer liable for
any taxes (provided it does not continue in business after notifying the
Secretary of State of its intent to dissolve). (Corp. Code, § 1905; see
also Friedman, Cal. Practice Guide: Corporations, supra, ¶ 8:585.1, p.
8-105.) On the other hand, a dissolved corporation maintains
considerable corporate powers to conduct whatever business is required
to wind up its affairs-including prosecuting actions and enforcing [54 Cal.App.4th 1369] judgments. (See, e.g., Corp. Code, § 2010 fn. 6 ; Pensaquitos, Inc. v. Superior Court, supra, 53 Cal.3d 1180,
1185 [dissolved corporation continues to exist for an indefinite period
as a legal entity for the purpose of winding up its affairs].)
Thus, in this case the corporation could have avoided all liability for
franchise taxes and in addition could have renewed or enforced its
judgment had it taken the necessary steps to formally dissolve.
Alternatively, the corporation could have avoided this result by
reviving itself prior to filing its application to renew the judgment,
or at any time before its 10-year life expired. The corporation was
obviously aware the 10-year limitations period was about to elapse and
it would soon have to file an application to renew the judgment. It thus
had more than sufficient time to take the necessary curative action yet
did nothing. fn. 7
Under these circumstances it was not entitled to enjoy the privilege of
renewing its judgment while suspended for nonpayment of California
The order is reversed. The trial court is directed to vacate its order
denying the motion to vacate and enter a new order granting defendant's
motion to vacate renewal of the judgment. Defendant is awarded his costs
Lillie, P. J., and Woods, J., concurred.
Code of Civil Procedure section 683.110 provides in part: "(a) The
period of enforceability of a money judgment or a judgment for
possession or sale of property may be extended by renewal of the
judgment as provided in this article...."
Code of Civil Procedure section 683.170 provides the grounds for
vacation of a renewed judgment. This section provides: "(a) The renewal
of a judgment pursuant to this article may be vacated on any ground that
would be a defense to an action on the judgment, including the ground
that the amount of the renewed judgment as entered pursuant to this
article is incorrect, and shall be vacated if the application for
renewal was filed within five years from the time the judgment was
previously renewed under this article.
"(b) Not later than 30 days after service of the notice of renewal
pursuant to Section 683.160, the judgment debtor may apply by noticed
motion under this section for an order of the court vacating the renewal
of the judgment. The notice of motion shall be served on the judgment
creditor. Service shall be made personally or by mail.
"(c) Upon the hearing of the motion, the renewal may be ordered vacated
upon any ground provided in subdivision (a), and another and different
renewal may be entered, including, but not limited to, the renewal of
the judgment in a different amount if the decision of the court is that
the judgment creditor is entitled to renewal in a different amount."
Revenue and Taxation Code section 23302 provides in pertinent part:
"(c) The Franchise Tax Board shall transmit the names of taxpayers to
the Secretary of State as to which the suspension or forfeiture
provisions of Section 23301 ... are or become applicable, and the
suspension or forfeiture therein provided for shall thereupon become
effective. The certificate of the Secretary of State shall be prima
facie evidence of the suspension or forfeiture."
Code of Civil Procedure section 683.150, subdivision (a) provides:
"Upon the filing of the application, the court clerk shall enter the
renewal of the judgment in the court records." (Italics added.)
The corporation invokes the "unclean hands" doctrine and argues
defendant should be precluded from benefiting from his wrongful breach
of the sales contract. While we may disapprove of his action, we are not
free to interject equitable doctrines into what is otherwise a
comprehensive statutory scheme specifying the requirements and powers of
" ' "Rules of equity cannot be intruded in matters that are plain and
fully covered by positive statute [citation]. Neither a fiction nor a
maxim may nullify a statute [citation]. Nor will a court of equity ever
lend its aid to accomplish by indirection what the law or its clearly
defined policy forbids to be done directly [citation]." [Citation.]'
[Citation.]" (Gardiner Solder Co. v. SupAlloy Corp., Inc., supra, 232 Cal.App.3d 1537,
1543 [court rejected application of unclean hands doctrine to
previously suspended corporation and found doctrine inapplicable in any
event because by "payment of the tax, interest and penalties, Gardiner
washed its hands"]; cf. Pesaquitos, Inc. v. Superior Court (1991) 53 Cal.3d 1180,
1192 [283 Cal.Rptr. 135, 812 P.2d 154] [common law theories are also
preempted by comprehensive provisions of Corporations Code].)
Corporations Code section 2010 provides in part: "(a) A corporation
which is dissolved nevertheless continues to exist for the purpose of
winding up its affairs, prosecuting and defending actions by or against
it and enabling it to collect and discharge obligations, dispose of and
convey its property and collect and divide its assets, but not for the
purpose of continuing business except so far as necessary for the
winding up thereof...."
Code of Civil Procedure section 683.130 specifies one may renew a
judgment at any time prior to the 10-year period of enforceability:
"(a) In the case of a lump-sum money judgment or a judgment for
possession or sale of property, the application for renewal of the
judgment may be filed at any time before the expiration of the 10-year
period of enforceability provided by Section 683.020 ...."