Beavers v. Recreation Ass'n Lake Shore Est., No. 25556.

• Court: Missouri Court of Appeals
• Writing for the Court: Robert S. Barney
• Citation: 130 S.W.3d 702
• Parties: Roy L. BEAVERS, Jr. and Valerie E. Beavers, Appellants, v. RECREATION ASSOCIATION OF LAKE SHORE ESTATES, INC., Respondent.
• Decision Date: 27 February 2004
• Docket Number: No. 25556.

130 S.W.3d 702 Roy L. BEAVERS, Jr. and Valerie E. Beavers, Appellants,
v.
RECREATION ASSOCIATION OF LAKE SHORE ESTATES, INC., Respondent. No. 25556. Missouri Court of Appeals, Southern District, Division One. February 27, 2004. Motion for Rehearing or Transfer Denied March 24, 2004. Application for Transfer Denied April 27, 2004.

[130 S.W.3d 706]

Richard L. Schnake, Neale & Newman, L.L.P., Springfield, for Appellants.

Thomas J. O'Neil, O'Neil & Allen, Lebanon, for Respondent.

ROBERT S. BARNEY, Presiding Judge.

Roy L. Beavers, Jr. and Valerie E. Beavers (collectively "Appellants," individually "Roy" and "Valerie," respectively) are owners or have an interest in Lots 6 and 7 of Lake Shore Estate subdivision in Laclede County, Missouri.¹ They appeal from the judgment of the trial court dismissing their petition for declaratory judgment and injunctive relief against Respondent Recreation Association of Lake Shore Estate ("the Association") arising from the Association's assessments and liens placed on Lots 6 and 7 in 2001 and 2002.

In their petition, Appellants sought a declaration that the liens filed by the Association against Lots 6 and 7 based on Appellants' failure to pay the annual assessments were void. Appellants charged that the Association was a "pretended" corporation with no legal existence and, therefore, was incapable of establishing annual

130 S.W.3d 707

assessments and imposing liens against Lots 6 and 7.²

In their action for injunctive relief, Appellants sought to prevent the Association and others from entering any future assessments and liens against Lots 6 and 7. Appellants also appeal from the trial court's finding and judgment in favor of the Association on its counterclaim for past assessments and attorney fees.

The record shows that developers John M. Bailey and Shirley Bailey ("the Baileys") originally incorporated the Association as a not-for-profit corporation on August 21, 1972. The first bylaws of the Association provided that the Association was "organized to further and promote the common interest of the property owners and to organize, operate, maintain and supervise recreational facilities and activities for the benefit of the residents of Lake Shore Estates."

On February 20, 1974, Appellants purchased Lot 7 from the Baileys.³ As part of the real estate contract, Appellants automatically became members of the Association.

In 1980, the Association failed to file the annual report required by section 355.330, RSMo 1986, which, pursuant to section 355.507.1, RSMo 1986, resulted in a forfeiture of the corporate charter effective January 1, 1981.⁴ The Association applied for a rescission of the forfeited corporate charter on April 1, 1991, ten years and three months after the forfeiture was made effective on January 1, 1981. The Secretary of State issued a Certificate of Rescission of Forfeiture ("the rescission") on the same day the application was received.⁵

In 1993, the Association bylaws were revised to require the payment of an annual assessment to qualify as a member of the Association. The bylaws were revised yet again in 2000 to allow the Association to place a lien on the property of any property owner who failed to pay the annual assessment.

On November 7, 2000, Appellants received a letter informing them that if they failed to pay the 2000 annual assessment by December 1, 2000, the Association would place a lien on Lots 6 and 7. Appellants did not pay the annual assessment, and the Association recorded a lien for $225.40 against Lots 6 and 7 on February 1, 2001. The Association filed another lien for $190.45 against Lots 6 and 7 on April 1, 2002.

As previously set out, Appellants filed a petition for declaratory judgment and injunctive

130 S.W.3d 708

relief on May 11, 2001. The Association filed its answer and counterclaim for past assessments and attorneys fees on June 13, 2001. Appellants filed an amendment by interlineation to the petition on November 5, 2002. The trial court dismissed Appellants' petition for declaratory judgment and injunctive relief and found for the Association on its counterclaim for past assessments and attorneys fees.

The trial court included in its judgment several findings of fact and conclusions of law supporting its decision.

The trial court determined that the Association "is a corporation in good standing and validly existing under the laws of the State of Missouri." The trial court found the provisions of section 355.507, RSMo 1986 did not apply because a "certificate of reinstatement by the Secretary of State of Missouri of the corporate status of [the Association] is a final determination of the corporation's right to do business in the State of Missouri and [Appellants] cannot collaterally attack the legal status of the [Association]." The trial court further found section 355.507, RSMo 1986 did not apply because the section is procedural in nature, and newly enacted section 355.716, RSMo 2000, "is to be applied retroactively and the prohibition against reinstatement after ten years is no long[er] applicable." See footnote 6 hereof. The trial court also concluded Appellants were barred from challenging the rescission of the forfeiture of the corporate charter based on the applicable ten-year statute of limitations period. Moreover, the trial court determined Appellants "are contractually bound to recognize the corporate validity of [the Association]," and that "this obligation became contractually binding on them at the time they purchased their first lot in the subdivision." Lastly, the trial court determined Appellants were estopped from challenging the validity of the Association as a corporation and its ability to set, collect, and levy liens for annual assessments.

Although the trial court denied Appellants' declaratory judgment and issued a judgment in favor of the Association, we review this case under the same standard as if the declaratory judgment was ordered. Andresen v. Board of Regents, 58 S.W.3d 581, 585 (Mo.App.2001). "This court reviews a declaratory judgment under the standard applicable to other court-tried cases." Id. The standard of review in a court-tried case is set out in Murphy v. Carron, 536 S.W.2d 30 (Mo. banc 1976). We affirm the trial court's judgment unless there is no substantial evidence to support it, it is against the weight of the evidence, or it erroneously declares or applies the law. Id. at 32.

Appellants raise six points on appeal. Points One, Two, Three and Six are dispositive of the appeal, and for the sake of clarity, will be addressed out of order. Consequently, the remaining points are moot and need not be addressed.

In Appellants' first point on appeal, they maintain that the trial court erred in dismissing their petition, entering judgment against them for unpaid assessments, interest, attorneys fees, and costs and erred by "impressing" Lots 6 and 7 with liens for assessments for the years 2000 and 2001. They reason that the Association is a "pretended corporation with no actual existence" and thereby had no lawful authority to act and as such, Appellants are able to collaterally attack the corporate status of the Association.

Appellants claim the Association's application to rescind the forfeiture of its charter and the purported rescission were untimely under former section 355.507.4, RSMo 1986, in that the Secretary of State had no authority to rescind the forfeiture

130 S.W.3d 709

more than ten years after the forfeiture. See footnote 5 hereof. Consequently, they maintain, the Association had no power to levy assessments or impress liens upon Valerie's lots for the years 2000 and 2001.

Appellants also assert the repeal of section 355.507, RSMo 1986 and the enactment of section 355.716, RSMo 2000 did not retroactively remove the ten-year deadline for rescission of forfeiture.

We initially observe that, generally, the final determination of a corporation's right to do business is made when the Secretary of State issues a certificate of incorporation and such a determination may only be challenged in a direct proceeding by the state. Levey v. Roosevelt Fed. Sav. & Loan Ass'n, 504 S.W.2d 241, 245 (Mo.App.1973). However, as explained below, there are situations in which the corporation's right to do business may be challenged in a collateral attack, either by the state or by private individuals. See Leibson v. Henry, 356 Mo. 953, 204 S.W.2d 310, 316 (banc 1947); see also Pearson Drainage Dist. v. Erhardt, 239 Mo.App. 845, 201 S.W.2d 484, 489 (1947).

We now must determine if the instant case presents such circumstances.

At the time the rescission was entered, the applicable statute guiding the actions of the Secretary of State read, in pertinent part:

4. The secretary of state may, within ten years of forfeiture, rescind the forfeiture of the corporate rights and privileges of any domestic or foreign corporation declared under the provisions of this section, upon the filing of an affidavit signed by either the president, a vice president, the secretary or the treasurer of such corporation, reciting that the annual report for failure to file which the corporation's rights had been forfeited had been duly prepared and filed with the secretary of state prior to or concurrently with the filing of the affidavit.... No rescission shall be made after ten years following forfeiture under this section.

§ 355.507.4, RSMo 1986 (emphasis added). Under this section, when a corporation's charter was forfeited, the corporation ipso facto ceased to exist as of the date of forfeiture, but it remained subject to the possibility of a rescission of the forfeiture within the ten-year time period. See Leibson, 204 S.W.2d at 316-17; see also Bradley v. Reppell, 133 Mo. 545, 32 S.W. 645, 646 (1895).⁶

As previously set out, the Association failed to file the annual report required by section 355.330, RSMo 1986, which, pursuant to section 355.507, RSMo 1986, resulted in a...