Wednesday, July 26, 2017

Effects of Debtor’s Corporate Suspension Accrue to Claims Seized by Creditor

Bovet v. Chang, No. D070797 (D1d4 Jun. 7, 2017)

Plaintiff is a judgment creditor to a suspended corporation. In enforcement of judgment proceedings, Plaintiff was assigned certain of debtor’s assets, including certain funds held for potential escheat by the State Controller. Plaintiff filed claims for the property with the Controller, which the Controller denied based on the debtor’s being a suspended corporation. Plaintiff sued, but the court dismissed, on the grounds that the assignee of a suspended corporation can’t enforce that corporation’s rights in court because the corporation has no capacity to sue or defend on its own.

It’s not controversial that a suspended corporation can’t voluntarily assign rights to another, who then can sue to enforce the rights. That make it too easy avoid the consequences of the suspension, which include a disability to prosecute or defend actions in court. Plaintiff, however, claims that it stands in different stead because the assignment here was an involuntary judicial assignment obtained to collect on a debt. 

That has some intuitive sense to it, but the Court of Appeal doesn’t agree, resting on the formalism that the assignee takes subject to whatever defenses the assignor was subject to. According to the court, “It makes no difference if the assignment is voluntary or through a judicial assignment made in the enforcement of judgment process for a corporation refusing to pay a judgment or obligation. The result is the same and should not be permitted.”


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