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.
On December 19, 1995, the corporation filed an application to renew the judgment under Code of Civil Procedure section 683.110.
When defendant received notice the judgment had been renewed he filed a motion in the trial court to vacate the renewal of judgment.
The trial court denied the motion to vacate. Defendant filed a timely appeal from the court's order.
I. Standard of Review.
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.)
This means a suspended corporation may not prosecute or defend an action in a California court. (Ransome-Crummey Co. v. Superior Court
"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].)
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.
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.)
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.
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.
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 of appeal.
Lillie, P.J., and Woods, J., concurred.
"(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." (Italics added.)
"`"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. Pensaquitos, 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].)
"(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...."