Cloverfields Imp. Ass'n, Inc. v. Seabreeze Properties, Inc.

• Decision Date: 03 June 1977
• Docket Number: No. 114,114
• Citation: 280 Md. 382,373 A.2d 935
• Parties: CLOVERFIELDS IMPROVEMENT ASSOCIATION, INC., et al. v. SEABREEZE PROPERTIES, INC.
• Court: Maryland Court of Appeals

Page 382

280 Md. 382

373 A.2d 935

CLOVERFIELDS IMPROVEMENT ASSOCIATION, INC., et al. v. SEABREEZE PROPERTIES, INC.

No. 114.

Court of Appeals of Maryland.

June 3, 1977.

John W. Sause, Jr., Centreville, for appellants.

Irwin M. Sussman, Baltimore (Sussman & Hirsh, P.A., Baltimore, on the brief), for appellee.

Argued before MURPHY, C. J., and SINGLEY, SMITH, DIGGES, LEVINE and ELDRIDGE, JJ.

SMITH, Judge.

The central issue in this case is whether appellant, Cloverfields Improvement Association, Inc. (Cloverfields), or appellee, Seabreeze Properties, Inc. (Seabreeze), is the party entitled to approve the type and character of buildings and to enforce certain subdivision regulations in a Kent Island development. In order to decide that issue we must determine which has priority, a deed executed by a corporation whose charter had been revoked but which corporation was revived after the institution of these proceedings or a deed from the surviving directors of the corporation, as its trustees, which was executed prior to the revival, under which deed Seabreeze claimed. We conclude that the latter must prevail.

The case was tried in the Circuit Court for Queen Anne's County upon a stipulation of facts, fully detailed by Chief Judge Gilbert for the Court of Special Appeals in Cloverfields Imp. v. Seabreeze Prop., 32 Md.App. 421, 362 A.2d 675 (1976). We shall set forth only such facts here as are necessary to a clear understanding of the issues.

Had the first Chesapeake Bay Bridge never been built and opened in 1952 this case might not have arisen. The improved communication between the Eastern Shore and the Western Shore provided by that bridge sparked extensive development on Kent Island since travel time between it and the Baltimore and Washington metropolitan areas was substantially reduced. One of the prime movers in that direction was the late David M. Nichols who was involved in a number of subdivisions. ¹ Nichols created restrictions applicable to the development he called 'Cloverfields' (henceforth referred to as 'the development'). ²

Title to the development was in Guaranteed Realty Corporation (Guaranteed), about which more will be said. The restrictions may be divided into three classes:

1-Regulation of the character of the subdivision and the use of residential lots. All but three paragraphs of the restrictions deal with these matters. The most significant here are those which require approval by Guaranteed of the type and character of any construction.

2-The right on the part of Guaranteed 'in its absolute discretion at any time to annul, waive, change or modify any of the restrictions, covenants, conditions agreements or provisions . . . as to any part of said tract then owned . . ..'

3-Imposition of a charge of not more than $20 upon all residential lots in Cloverfields 'to be used for the management, supervision, and maintenance (of) the recreational facilities at (the development).'

Seabreeze indicated at argument that it owns the majority of the lots in the development. Cloverfields, as the name would imply, is an improvement association set up by the lot owners in the development.

In due season Cloverfields became vested with title to all of the recreational area in the development. On December 2, 1964, the charter of Guaranteed was declared by the Governor to be 'repealed, annulled and forfeited' pursuant to the provisions of Maryland Code (1957, 1964 Cum.Supp.) Art. 81, § 204(a) for failing to file its annual report and pay its annual franchise taxes. ³ Notwithstanding this fact, on April 24, 1965, Guaranteed and others executed an instrument which assigned to Cloverfields the right to collect and disburse the annual maintenance fee and 'all management, supervision and control of all the facilities at Cloverfields, recreational or otherwise' as might have been previously vested in the grantors in that instrument. The instrument is possibly subject to an interpretation that the right to approve buildings, etc., was also so assigned. Two days later yet another instrument was executed by Guaranteed and others (but not the same parties) in which all of the 'strips of land, or roads, roadways, streets, alleys, walks or lanes used, or entitled to be used by the owners of lands in the subdivision known as 'Cloverfields" were conveyed to Cloverfields. Each instrument was executed by Nichols as president, witnessed by a notary who took his acknowledgement as president of Guaranteed, and attested by Catherine C. Wallman as secretary of Guaranteed. It was stipulated by the parties that Nichols, his wife, and Mrs. Wallman were the officers and directors of the corporation at the time the charter was declared forfeited. Nichols died on November 19, 1965.

Seabreeze obtained title to a substantial part of the land in the development on May 12, 1971. On July 2 of that year Mrs. Nichols and Mrs. Wallman, as surviving directors of Guaranteed and as 'trustees of (its) property and assets,' conveyed to Seabreeze all of the strips of land, roads, etc., in the development and assigned to Seabreeze the right of approving construction, etc., as originally held by Guaranteed, together with the right to collect the lot charge.

On March 5, 1973, Cloverfields and a lot owner filed a bill for a declaratory judgment against Seabreeze. The relief sought included a declaration as to which of the parties was entitled to enforce the restrictive covenants and which was entitled to collect the annual lot assessment. On December 10, 1973, at the request of Cloverfields, Mrs. Nichols and Mrs. Wallman executed and filed articles of revival for Guaranteed.

The chancellor (Turner, J.) filed a comprehensive and well reasoned opinion in which he concluded that Seabreeze was entitled to enforce the restrictive covenants and to collect the annual lot assessment. The Court of Special Appeals affirmed.

The arguments of Cloverfields may be summarized as: (1) the directors of Guaranteed under the facts of this case were not vested with power as trustees to convey; (2) the revival of the corporation gave life to the deed executed by Guaranteed after its charter was revoked; (3) since the 1965 deed was actually signed by a majority of Guaranteed's directors, Mr. Nichols as president and Mrs. Wallman in attestation, this became a valid deed; (4) Seabreeze could not be a bona fide purchaser for value in the face of the conveyance from Guaranteed to Cloverfields; and (5) Cloverfields derived its right to collect the maintenance charge through a 1959 conveyance from Guaranteed and thus the 1964 forfeiture had no effect upon that right. We shall develop such additional facts as may be requisite to the consideration of each point 1 and 2

Points 1 and 2 are so intertwined that we shall discuss them together.

As we have already indicated, Code (1957, 1964 Cum.Supp.) Art. 81, § 204(a) provides that upon the failure of a corporation to file an annual report and to pay its franchise taxes the Governor is to proclaim that the charter is 'repealed, annulled and forfeited, and that the powers conferred by law upon (that corporation are) inoperative, null and void . . ..' Cloverfields does not dispute this but argues that the effect of Code (1957), Art. 23, § 85(d) ⁴ is to validate the instruments in question once articles of revival were filed, as was done here. That section provides:

'Effect of revival.-Such revival of the charter of the corporation shall validate all contracts, acts, matters and things made, done and performed within the scope of its charter by the corporation, its officers and agents during the time when the charter was void, with the same force and effect and to all intents and purposes as if the charter had at al times remained in full force and effect. All real and personal property, rights and credits of the corporation at the time its charter became void and of which it was not divested prior to such revival shall be vested in the corporation, after such revival, as fully as they were held by the corporation at the time its charter became void. The corporation after such revival shall be liable for all contracts, acts, matters and things made, done or performed in its name and on its behalf by its officers and agents prior to such revival as if its charter had at all times remained in full force and effect.'

Cloverfields is quite correct in believing that the provision relative to annual reports, franchise taxes, and forfeiture of charters came into the law as a tax measure. We could spend a lot of time tracing its origin from the enactment of Chapter 244 of the Acts of 1890 down to the present time, all of which would merely confirm this statement without shedding any additional light upon the issues here. This forfeiture statute has been considered by this Court on three occasions. It was tangentially mentioned in a fourth case which considered the effect of the revival statute.

The first consideration came in Distillery v. Distilling Co., 168 Md. 212, 177 A. 473 (1935). There the appellant sought to enjoin the appellee from using the name 'Stewart Distilling Company,' the name of the appellant at the time of the forfeiture of its charter for failure to pay its franchise tax. The charter had been forfeited in 1929 and revived in 1933 under the name of American-Stewart Distillery, Inc. The appellee had been incorporated earlier in 1933 under the name of Stewart Distilling Company. A second purpose of the bill there was to enjoin the appellee from using any of the trade-marks, trade-names, and brands of appellant, said to have been in use as early as 1788. Judge Johnson pointed out for the Court:

'(Code (1924) Art. 82, § 103) under which appellant's charter was forfeited, provides that from and after its effective date of dissolution 'the charters or certificates of incorporation of all such corporations which have not (then) paid all taxes, interest and penalties due as aforesaid, shall be ipso facto...