Opinion
5-16-1956
AUTOMOTRIZ DEL GOLFO DE CALIFORNIA S. A. DE C. V., Plaintiff and Respondent, v. Erwin G. RESNICK, W. D. Cowan and R. William Cowan, Defendants and Appellants.* Civ. 21263.
Levy, Bernard & Jaffe, Los Angeles, for appellants, petitioners for rehearing by Geo. W. Rochester, Beverly Hills, of counsel. Francis B. Cobb, Los Angeles, for respondent.
AUTOMOTRIZ DEL GOLFO DE CALIFORNIA S. A. DE C. V., Plaintiff and Respondent,
v.
Erwin G. RESNICK, W. D. Cowan and R. William Cowan, Defendants and Appellants.*
May 16, 1956.
Rehearing Denied June 6, 1956.
See 298 P.2d 33.
Hearing Granted July 11, 1956.
Opinion, 292 P.2d 578, vacated.
Levy, Bernard & Jaffe, Los Angeles, for appellants, petitioners for rehearing by Geo. W. Rochester, Beverly Hills, of counsel.
Francis B. Cobb, Los Angeles, for respondent.
MOORE, Presiding Justice.
Respondent, a Mexican Corporation, sued appellants for $10,747 as the balance due on the sales' price of eight automobiles sold on February 23, 1953. The complaint was in three counts but the facts simply stated are that the amount agreed upon to be paid by appellants was $13,747; they subsequently paid $3,000; the demand was for $10,747 with interest from date of sale. The defenses pleaded were: (1) the action should be abated for plaintiff's failure to comply with section 6801 et seq. of the Corporations Code in that it obtained no permit to transact business within this state; (2) the sale was made to Erbel, Inc., a California corporation of which defendants were directors; (3) on July 2, 1953, Erbel, Inc., filed a voluntary petition in bankruptcy in the United States District Court, was adjudged a bankrupt and all the property of Erbel, Inc., was paid out to its creditors who filed claims. Action Not Abated
The action should not be abated by reason of the failure of respondent to file in the office of Secretary of State of statement setting forth (1) the location and address of its main office, the location and address of its principal office within this state, a certified copy of its articles in English and the name of an agent upon whom process directed to the corporation might be served within this state. Secs. 6400, 6403. It is further provided that a foreign corporation subject to the provision of the cited sections which transacts business in this State without complying therewith shall not maintain any action or proceeding upon any intrastate business until it has complied with such provisions and has paid the Secretary of State a penalty of $250 in addition to the fees due for filing the documents specified by sections 6400 and 6403 and has filed with the clerk of the court, receipts showing the payment of such fees and penalty and all franchise taxes, etc.
The fact is that at the time of the sale of the eight automobiles to Erbel, Inc., respondent was engaged in conducting an intrastate business in California in its sales of motor vehicles and, also a foreign commerce through sales arranged by telephone from Mexicali to Los Angeles and consummated by shipment from the Mexican City to the California metropolis. Now, while a Mexican exporter may owe to California a duty to comply with the latter's statute requiring certain performances in order to do an intrastate business, that obligation is a thing apart from the right of such exporter to transact foreign commerce by shipments into California of merchandise sold by contract prior to its shipment. That the cited statutes, secs. 6400, 6403, 6801, have been violated by respondent in connection with its sale of the eight cars must first be shown to warrant the penalties prescribed by section 6801 , supra. The burden of proof of such violation is imposed by law upon the party who asserts it. McMillan Process Co. v. Brown, 33 Cal.App.2d 279, 284, 91 P.2d 613; W. W. Kimball Co. v. Read, 43 Cal.App. 342, 346, 185 P. 192; Indian Refining Co. v. Royal Oil Co., Inc., 102 Cal.App. 710, 716, 283 P. 856. Appellant has failed to sustain such burden. The cited statute does not proscribe an action upon interstate or foreign transactions by reason of the foreign corporation's failure to qualify to do an intrastate business. The inhibition contained in section 6801, supra, is confined to suits involving intrastate transactions. It is noted that the act forbidden is to do intrastate business without first complying with the law, secs. 6400, 6403, but when the enforcement statute, sec. 6801, was enacted, it provided that the foreign corporation guilty of noncompliance with the statute, sec. 6400 et seq. 'shall not maintain any action or proceeding upon any intrastate business so transacted in any court of this State, commenced prior to compliance with Chapter 3 [sec. 6403 et seq.] until it has complied with the provisions thereof * * *.'
Inasmuch as the transaction of intrastate business 'means entering into repeated and successive transactions of its business in this State, other than interstate or foreign commerce', sec. 6203, one is likely to become confused with reference to the status of a person or corporation that has done both intrastate and interstate or foreign commerce simultaneously. Appellants herein have proceeded upon the hypothesis that by reason of the fact that respondent consummated transactions of both characters, appellants should be entitled to prevail and that the action should be abated. But, so to construe section 6801 is to disregard the exact language of that section as well as that of the Constitution of the United States, Article I, section 1, and the prerogative of the national government which controls in international relations. The section says that the foreign corporation shall 'not maintain any action or proceeding upon any intrastate business' etc. It is 'beyond the power of a state to impose burdensome conditions or restrictions on interstate or foreign commerce * * *. A foreign corporation may recover on interstate transactions although in other transactions it is doing intra-state business without a permit or license.' 20 C.J.S., Corporations, § 1840 pp. 56, 57; see Little v. Armstrong Manufacturing Co., Tex.Civ.App., 58 S.W.2d 849, 850; Leverett v. Garland Co., 206 Ala. 556, 90 So. 343, 344; 14a C.J., section 3992, pp. 1284, 1286; 20 C.J.S., Corporations, § 1840.
The only evidence received with reference to the nature of appellants' purchase of the eight automobiles was the testimony of respondent's agent, one Hodges: 'Q. I ask you again, you sold at least twenty to thirty cars for which you received payment from Erbel, Inc. before February 23, 1953, isn't that so? A. Possibly, sir, yes, sir. 'Q. Now, these two checks upon which this complaint is based were for cars * * * that were sold to Erbel, Inc. * * * that were picked up by this company at the L. A. automobile auction, isn't that true? A. They were picked up at the automobile auction? 'Q. Yes. A. The last cars? 'Q. The very cars on which you are basing this suit, checks for February 23, 1953. A. It could be possible.'
But Mr. Hodges testified also, that the transactions 'were handled before anything through the phone and we would agree, if he was interested in the automobiles we had, on the price and they would be on approval when they got over here. So when we agreed on the price we call on the Truck Away and we send them over and he would pay for the Truck Away because we more or less have agreed on the price already.'
The foregoing testimony refers to the sale of the eight cars sold to Erbel, Inc., February 23, 1953. Because Erbel had purchased other cars on an intrastate basis, the latter are not to be confused with the purchase made by Erbel, Inc., on February 23. The nearest approach to proving that the sale of the cars on that day was the genesis of the 'rubber' checks then given to respondent is the answer of Mr. Hodges that it could be possible. A possibility of an occurrence is not a fact. The finding is that there is insufficient evidence to support the defense 'that the above action should abate by reason of plaintiff's transacting intrastate business by means of entering into repeated and successive transactions of its business in the State of California other than the transaction of interstate or foreign commerce.' Substantial evidence quoted above supports that finding. Therefore, respondent was properly permitted to maintain its action. There Was No Joint Venture
Prior to the entry of the Cowans into the scene, Resnick had organized Erbel, Inc. His two original associates withdrew, leaving Resnick alone as owner of the corporation and of all rights with respect thereto. It had done nothing except to organize. When the Cowans came they agreed to join in conducting and operating a retail automobile sales business. They agreed upon a division of the profits and W. D. Cowan agreed to 'advance $15,000 as capital for the business.' Mr. Resnick and R. W. Cowan each paid into the bank account of Erbel, Inc., $2,500 to be used as capital and six weeks thereafter W. D. Cowan guaranteed the obligations of Erbel, Inc., to the extent of $100,000. Resnick was to receive 50 per cent of the profits of the company for his services and the Cowans 25 per cent each. Prior to operations, appellants filed a certificate of fictitious firm name as follows: 'Erbel, Inc., d. b. a. Bi-Rite Auto Sales' under which appellants carried the corporation's bank account. The use of such name and the failure of Erbel, Inc., to issue its shares and not to obtain or apply for a permit to sell its securities gave rise to respondent's theory that they had conducted their business as a joint adventure of the three men, and the trial court found accordingly.
But it is now clear that there was no joint adventure. All three men devoted their services to the corporation in its conduct of a retail automobile business. The certificate of fictitious firm name was that 'the corporation will do business fictitiously under the name that is given.' The theory that the failure to issue shares and to obtain a permit to sell securities ipso facto creates a joint venture has no authoritative basis except Geisenhoff v. Mabrey, 58 Cal.App.2d 481, 490, 137 P.2d 36, from which no pertition for a hearing was filed. In that case, Mabrey as Vice President agreed on May 25, 1940, that 'in consideration for the service rendered to date by A. C. Geisenhoff in the promotion of the ice skating rink known as Ice Bowl, Inc., we the undersigned directors, agree to allot to said A. C. Geisenhoff ten per cent of the promotion stock as allowed by the corporation commissioner * * * that the promotion stock is to be distributed on a basis of the effort and contribution to the success of said Ice Bowl, Inc., as rendered by the various individuals engaged in the promotion of said project.' Mabrey was the only signatory to the agreement. He did not seek others. On the day of the agreement, two old directors were out and two new men were in. The court found that in February 1940 an agreement had been made that Geisenhoff should receive for his services an undivided 1/10 interest in said project and business and the property and profits thereof. However, the court held that the weight of the evidence showed he did not have an agreement in February 1940 for a definite percentage in the business but that a definite percentage interest was not fixed until May 25, 1940 and that Mabrey did not purport to bind anyone but himself; that the evidence is insufficient to show that the defendants, except one, ratified an agreement for plaintiff to have a ten per cent interest in the business; that the evidence shows that the promotional services were rendered at the express instance of Mabrey and that there was also an implied promise of Johnson and Hann that the plaintiff be paid the reasonable value thereof.
The court concluded that the finding that individual defendants 'conducted the rink business 'as their individual enterprise and as a joint venture among themselves' under the name of the corporation is supported by the record.' Also, it concluded that 'those managing the business cannot claim immunity from individual liability when the corporate structure over a period of almost twenty-one months had not been completed by the issue of stock.' We do not perceive clearly just why the court should have concluded that the nonissuance of stock had to do with the liability of those individuals who by their own behavior incurred the obligation to Geisenhoff, unless it is because (1) Mabrey acted for himself only and (2) the court may have concluded that by reason of the nonissuance of stock, Mabrey meant to obligate himself only in his dealings with Geisenhoff.
The law of this state is as hereafter demonstrated that the nonissuance of stock does not as a matter of law fasten upon promoters the status of joint adventurers; that the creation of that relationship depends upon the intent of the parties.
After Resnick had differences with his initial associates in the organization of Erbel, Inc., he persuaded the Cowans to join him. Each of them was to buy one fourth of the stock for $2500. The sum of $5,000 was advanced by W. D. Cowan and entered upon the corporate books, $2,500 as a loan to Resnick and R. W. Cowan for the purchase of stock. The three men then became the directors and officers of the corporation and it performed for some eight months as an active, corporate entity. It took a lease upon the La Brea premises; it made corporate returns and paid franchise taxes; it maintained a bank account and corporate books in which its assets and liabilities were carried as those of Erbel, Inc. Its incorporation was found by the court and its continuance is presumed. Section 313. It always paid its franchise tax; it paid respondent and other creditors with corporate checks. It had a certified public accountant to audit its accounts. It dealt with respondent in the transaction involved herein as a corporation; hence respondent is estopped to deny its corporate character. Not only did Cowan Sr. lend it large sums of money and take security therefor from the corporation, but when misfortune came and bankruptcy led the enterprise to judicial intervention, the assets which had been accumulated under the administration of appellants were delivered by the latter to the trustee as the property of the corporation as of the value of $49,000. In all its transactions prior and subsequent to February 23, 1953, respondent dealt with appellants as officers of Erbel, Inc., and accepted its checks in payment for merchandise. No suggestion is found in the record that they ever indicated that they were, or desired to be known as joint adventurers or partners or that they intended to act for themselves personally and not for Erbel, Inc. Finally, after the bankrupt estate had run the gamut of federal proceedings, instead of filing its claim with the trustee in bankruptcy as all other creditors, had done, respondent filed suit in the state court to collect from the directors of Erbel in their individual capacities.
While the Corporations Code authorizes corporate directors to organize by the election of officers, yet, they may in the name of and in behalf of the corporation apply for a permit to issue its shares. Corp.Code, secs. 25154, 25153. However, these sections do not prohibit the transaction of corporate business or the performance of any act by the corporation other than the issue or sale of securities. Prior to the enactment of the last cited sections, the courts had held that a partnership is not necessarily the result of an abortive attempt to organize a corporation or of a mere failure to issue corporate shares. Blanchard v. Kaull, 44 Cal. 440, 451; Williams Co. v. Leong Sue Ah Quin, 44 Cal.App. 296, 298, 186 P. 401. The idea that the organizers of a corporation would be penalized in any way for the transaction of corporate business prior to the issuance of its stock does not appear to have occurred to the authors of section 25154. The only penalties to accrue against directors with reference to the issuance of shares are those which result from the enforcement of the statutes for violations of the Corporate Securities Act. Corp.Code, sec. 25000 et seq. It makes felonious many acts of corporate officers in attempting to issue their company's securities without first having obtained a permit so to do. But nowhere is it there suggested that a corporation is emasculated by virtue of its failure to procure a permit to issue its shares. Nor is there any authority for holding that the failure of directors to obtain a permit makes of them a copartnership or a joint adventure except the Geisenhoff decision, supra, which imposed a sanction without legislative authorization. On the contrary, the point was before this court in Vogel v. Bankers Building Corporation, 112 Cal.App.2d 160, 168, 245 P.2d 1069. It was there held in effect that nonissuance of stock does not as a matter of law fasten upon promoters the status of joint adventurers; that the creation of that relationship depends upon the intent of the parties.
That appellants did or did not violate the Corporate Securities Act was of no concern to respondent. Austin v. Hallmark Oil Co., 21 Cal.2d 718, 727, 134 P.2d 777; Wortley v. Wood-Callahan Oil Co., 17 Cal.2d 762, 767, 112 P.2d 226; Wachner v. Richardson, 14 Cal.App.2d 422, 429, 58 P.2d 714; Pores v. Purity Milk Co., 135 Cal.App.2d 305, 310, 287 P.2d 169; Ramirez v. Thomas Productions, 10 Cal.App.2d 338, 340-341, 51 P.2d 895; German Publishing Co. v. Scheidt, 77 Cal.App. 238, 241, 246 P. 88. Nor can the point be urged by respondent as support for its contention that appellants were not in all transactions with respondent acting for Erbel, Inc.
In view of our conclusion that respondent's transactions were with Erbel, Inc., and not with appellants individually, and that the latter are therefore not personally liable for the debt, a discussion of the other contentions would be of no avail.
The judgment is reversed.
FOX and ASHBURN, JJ., concur. --------------- * Opinion vacated 306 P.2d 1. 1 All sections cited refer to the Corporations Code unless otherwise designated. 2 Section 6801: 'A foreign corporation subject to the provisions of Chapter 3 of this part which transacts intrastate business in this State without complying therewith shall not maintain any action or proceeding upon any intrastate business so transacted in any court of this State, commenced prior to compliance with Chapter 3 until it has complied with the provisions thereof, and has paid to the Secretary of State a penalty of two hundred fifty dollars ($250) in addition to the fees due for filing the copy and statement required by Sections 6400 and 6403, and has filed with the clerk of the court in which the action is pending, receipts showing the payment of said fees and penalty and all franchise taxes and any other taxes on business or property in this State that should have been paid for the period during which it transacted intrastate business.'