Allan v. East Elliot Property Owners Assn

Filed 6/1/06 Allan v. East Elliot Property Owners Assn. CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from a judgment of the Superior Court of San Diego County, Joan M. Lewis, Judge. Reversed with directions.

This appeal by the East Elliott Property Owners Association, a nonprofit mutual benefit corporation (the Association), is from an order and judgment following a summary proceeding under Corporations Code section 7510, subdivision (c),^[1] compelling the Association to hold an annual meeting to elect a board of corporate directors. (§ 7110 et seq.) In addition to the corporate articles and bylaws, many of the owners of the real property who formed the Association also subscribed to a certain recorded declaration of covenants creating equitable servitudes on the land in this planning area (the covenants). After a vote among the Association members was held in October 2003 on whether to renew the term of this declaration of covenants, membership approval of such a renewal was not forthcoming and the declaration of covenants accordingly lapsed. It is the legal effect of that vote allowing the covenants to lapse that gives rise to these issues concerning corporate governance of the Association.

Robert M. Allan, as trustee of the Allan Family Trust (Petitioner), is one of many landowners whose real property lies in the East Elliott area of the county, and who is a member of the Association, and who subscribed to the covenants that have now expired. Petitioner is seeking to develop his property and brought this summary proceeding under section 7510, subdivision (c) to compel the Association to hold an annual meeting to elect a board of corporate directors. After making various evidentiary and legal rulings, the trial court granted the order and judgment as requested.

The Association appeals, contending the trial court incorrectly decided the main issue of law presented: Whether the membership's decision to allow the covenants to expire in October 2003 also operated, as a matter of law, to dissolve the corporation. The Association claims the trial court misapplied Corporations Code provisions pertaining to voluntary dissolution of a corporation in light of the election previously made by the existing board of directors (the Board) on behalf of the Association, to voluntarily dissolve and wind up the corporation. (§ 8610 et seq.) The Association also contends the trial court failed to take into account all of the Association's governing documents as they relate to the covenants, with regard to development plans, and erroneously refused to consider certain evidence and affirmative defenses.

Upon de novo review of the legal issues presented, and an analysis of the record, and after supplemental briefing was received and considered, we conclude the trial court erroneously granted the petition, in light of certain procedural and evidentiary problems in the record, concerning the effectiveness of the governing documents of the Association, such as its amended bylaws, and the effectiveness of the Board's actions regarding dissolution, in light of the applicable statutory provisions. The judgment must be reversed with directions to the trial court to conduct further appropriate proceedings and entertain applications to amend the pleadings to resolve all of the issues presented, as will be explained. (§ 8614.)^[2] The stay issued on June 9, 2005 shall remain in effect until this opinion becomes final and the remittitur has been issued.

FACTUAL AND PROCEDURAL BACKGROUND

A. Association Formation; Disputes; Board's Action to Dissolve

The Association was formed in June 1986 by landowners in the East Elliott area through their execution of articles of incorporation and bylaws. The articles state that the purpose of this nonprofit mutual benefit corporation is first, to engage in any lawful act or activity for which such a corporation may be organized, and second, to pursue the following further purpose: to promote the economic development of this planning area pursuant to the adopted program of the Association, as set forth in a declaration of covenants applicable to the land owned by the members of the Association.

The preamble of the original bylaws, enacted in 1986, expressly referred to this covenant as setting forth the program for the Association, to improve the desirability and marketability of the members' properties. However, the bylaws were amended in 1993, and the new preamble deletes that reference and refers more generally to the Association's goal to facilitate land use planning in the interest of the Association members or nonmembers.^[3] The definitions portion of the amended bylaws defines "members" as owners of property in the planning area who have joined the Association. The amended bylaws' definitions also refer to the mutual covenants running with the land which represent the Association's program for establishing a land use plan and sale of the property.

The term "covenants" is again used in the context of defining "Qualifications for Membership" in the amended bylaws. This "Qualifications for Membership" section provides that a property transfer will result in transfer of the individual membership in the Association of that transferor, and provides for those transferors to record a notice acknowledging the reciprocal covenants to which the land is subject.^[4]

The amended bylaws provide for election of the Board and define the Board's powers as those which are consistent with the law, the articles, the bylaws, and the covenants. Association members are entitled to attend annual meetings to be held on the second Sunday in October of each year, and special meetings are separately authorized. The amended bylaws contain several provisions not present in the original bylaws, regarding voting rights, including one that states Association members have the right to vote on corporate matters, including any action to dissolve the corporation. (§ 3.04.)

Although the Association (a nonprofit mutual benefit corporation) had been formed in June 1986, the record shows that the subject covenants were not recorded until October 1986, for the stated purpose of restricting and committing land use in this planning area to pursue the Association's program (obtaining a general plan and specific plans to enable the owners to market their land profitably). The covenants defined the Association as the nonprofit membership corporation already created, with the Association members to have the rights, powers and duties as set forth in the articles of incorporation and bylaws of the Association. The covenants provide at section 5.01 that they shall run with the land and shall be binding for a period of seven years from recordation (which took place in October 1986), or until all the property was conveyed in accordance with the Association's objectives. By later votes taken, the Association members agreed to extend the effective period of the covenants for two additional periods, or until October 2003.

In October 2003, the Association held its annual meeting to conduct a vote of the members on whether to direct the Board to remove all liens and encumbrances attached to the property that was under the purview of the Association. The minutes of this Association meeting reflect that there was a dispute about whether a quorum was present regarding a proposed additional extension of the current five-year covenant effectiveness period, and a count was taken. The meeting was continued to enable a "verification count" to be taken. The minutes state that the Board president, Stephen Goldfarb, conducted a verification count the next day and determined there were insufficient votes to extend the covenants. (It is not factually disputed that the Association covenants lapsed in October 2003, but the legal effect of that expiration remains at issue here.)

Subsequently, the Board president and Petitioner each sent a number of letters to the members of the Association about their conflicting future plans for the land and their views on how the Association's interests should be pursued. In October 2003, the Board sent a letter to Association members stating that it was contemplating continuing the Association without the covenants. Petitioner was pursuing plans through his development entity (Southwest Development), while the Association's board was having discussions with another prospective developer, Horton-Continental, which led to conflicts between Petitioner and the Association.

The Board sent a letter to landowners in September 2004 describing how it prevailed in a related lawsuit brought against it by one of the landowners, Hi-Lo Investments, concerning the interpretation of the covenants, raising similar issues as Petitioner's interpretation. The Board president was objecting to Petitioner's position that the Association remained viable even after the covenants were not extended.

By letter of September 28, 2004, Petitioner demanded that the former board of the Association schedule an annual meeting for the purpose of electing new directors. The attorney for the former (existing) board responded that no meeting was necessary because when the covenants expired, the land interests they created had reverted to the owners of the real property and there were no longer any members of the Association. The Board adopted a resolution to wind up and dissolve the corporation, dated October 18, 2004, on the basis that the corporation had no members and the Board had made the election to dissolve. (§ 8610, subd. (b)(3).)

Petitioner filed these proceedings under section 7510 in November 2004. Eventually, on December 14, 2004, the California Secretary of State endorsed and filed the Board's certificate of election to wind up and dissolve. The record does not reflect that any certificate of dissolution has been issued to signify that such proceedings have been completed. (§1905 [part of the general corporations law, governing nonprofit mutual benefit corporations, among others].)

B. Litigation

On November 19, 2004, Allan filed this petition to compel an annual meeting and election of corporate directors pursuant to section 7510, subdivision (c), providing that "the superior court of the proper county may summarily order the meeting to be held . . . upon the application of a member . . . after notice to the corporation giving an opportunity to be heard." Opposition was filed and both parties lodged numerous exhibits.^[5]

The Association sought to bring a cross-complaint against petitioner and his development entity (Southwest Development), alleging breach of contract and intentional interference with contract and/or prospective economic advantage. This was based on the theory that Petitioner's discussions with the other prospective developer that the Association had pursued, Horton-Continental, had allegedly killed the Association's deal. However, a stipulation was reached between Petitioner and the Association to set the hearing on the petition only, and to provide for the nondisbursement of Association funds pending the hearing (except for repayment of loans and payment of accrued expenses incurred in the ordinary course of business). The Association also answered the petition and asserted a number of affirmative defenses including laches, waiver, and unclean hands.

At the March 2005 hearing on the summary proceeding (§ 7510, subd. (c)), Petitioner presented a motion in limine to prevent the Association from bringing in evidence on the alleged counterclaims. The trial court noted that the issues had been expanded from those pled to include new questions about whether the Association membership had authorized the Board to dissolve the Association, and stated that evidence was needed to clarify the issues. The Association's affirmative defenses claimed that Petitioner had unclean hands, due to the efforts he had made to interfere with the Association's other efforts to develop the property, and waiver, in terms of delay in seeking new elections. The trial court then limited the issues before it to whether a meeting could be ordered or not, and ruled that it did not have to reach or rule upon the motion or the affirmative defenses. However, the court took evidence on the validity of the 1993 amendments to the bylaws, and found testimony by a former Board member that membership approval must have been obtained was sufficient to make the bylaws amendment valid.

At the close of the hearing, the court stated for the record that it found the strength of the evidence (e.g., the minutes of the meeting) indicated that even though the covenants were terminated in October 2003, the membership in the corporation (Association) did not also end as a matter of law. Accordingly, the court ruled that the Association still existed and should proceed with its annual meeting. At the conclusion of the hearing, the trial court instructed plaintiff to prepare the "decision." Instead, the record contains the trial court's "order and judgment," without a statement of decision.

C

Order and Judgment; Appeal

After the hearing, the court issued its April 2005 order and judgment, ruling that the Association improperly failed to hold its annual meeting of members in October 2004, as required by its bylaws, and the Association must notice and hold the annual meeting for the purpose of electing different directors, and for the purpose of handling other matters that may come properly before the members. The court kept in place the order restraining the Association and its existing officers, directors, agents and representatives from disbursing Association assets, and added an order restraining it "from taking any other corporate action or conducting any other activities on behalf of the Association including, but not limited to making any filings with the Secretary of State, the Department of Corporations or otherwise."

The Association's notice of appeal was filed in Superior Court April 29, 2005 and was received by this court May 6, 2005.

D

Writ of Supersedeas; Further Developments Pending Appeal

Petitioner's group made continuing efforts to hold a special Association meeting and to elect new directors, despite the filing of the notice of appeal, and the mandatory stay pending appeal. (Code Civ. Proc., § 916, subd. (a).) Such a meeting was held in May of 2005. The Association brought a petition for writ of supersedeas to protect its rights on appeal. Petitioner filed opposition, arguing in part that the judgment had not addressed anything but the annual meeting issues. We disagreed and on June 9, 2005, granted the Association's petition and stayed the judgment pending the disposition of this appeal. We also denied a rehearing petition, stating that the prior stipulation of the parties remained in place concerning the nondistribution of Association funds pending litigation.

In reviewing the file, this court determined that there were several issues on which supplemental briefing would be appropriate, concerning the existence of the certificate of election to dissolve the corporation, the interplay between the covenants and the corporate documents, and other matters. Accordingly, the matter was rebriefed and rescheduled for oral argument. (See part IIB, post.)

In requests filed in this court while the appeal was pending, both parties ask us to take judicial notice of certain material. (Evid. Code, §§ 452, 459.) Appellant Association seeks judicial notice of a copy of the recorded declaration of covenants pertaining to a certain property in the East Elliott planning area, similar to other copies in the record pertaining to other such properties, in an effort to show the timing and close relationship of the declaration of covenants and the purposes of the Association. On the other hand, Petitioner seeks to have judicial notice taken of other recorded documents, such as a particular landowner's title documents, as compared to Association membership lists in the record, allegedly to show that nonsignatories to the covenants can be considered members of the Association. These matters were deferred to this merits panel.

DISCUSSION

I

INTRODUCTION AND STANDARDS OF REVIEW

The Association's appeal challenges the trial court's judgment as erroneous as a matter of law, based on its interpretation of the relevant Corporations Code sections in light of the lapsed declaration of covenants. The Association argues that termination of the covenants terminated all authority of the Association governing the real property involved. The Association questions whether the members of the Association can still elect a new board following their vote to terminate the covenants, particularly in light of the steps taken by the existing board to wind up and dissolve the corporation on a voluntary basis, which it believed were done pursuant to direction by Association members. According to the Association, this removed the power of Association members to pursue any new business, although the existing Board retained power to complete the winding up process that it started. (§§ 8610, 8616.)

The Association further argues on appeal that the trial court erroneously disregarded its affirmative defenses of waiver and unclean hands, and should have issued a statement of decision pursuant to Code of Civil Procedure section 632.

We will first outline our standards of review, and then turn to the relationship of the cited Corporations Code sections and the accepted principles concerning declarations of restrictive covenants, with respect to the various transactions among the parties. We review the legal sufficiency of the judgment, and not the reasoning of the trial court. (D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 19.) Although the Association challenges the judgment in substance solely on its interpretation of covenant law (as well as on the procedural points raised concerning affirmative defenses and the statement of decision), it also raises significant issues of statutory interpretation.

Generally, determining the meaning of a statutory provision "entails the resolution of a pure question of law. [Citations.] The soundness of the resolution of such a question is examined de novo. [Citations.]" (People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 432; Committee to Save Beverly Highlands Homes Ass'n v. Beverly Highlands Homes Ass'n (2001) 92 Cal.App.4th 1247, 1261, 1268 (Beverly Highlands).) "Our review of documents in the case is independent as well, provided no conflicting extrinsic evidence on the meaning of the documents was presented to the trial court. [Citation.]" (Id. at p. 1261.)

In the interpretation of written instruments, including a restrictive declaration of covenants containing equitable servitudes on land, as well as the Association's articles of incorporation and bylaws, these rules are applied:

"The fundamental canon of interpreting written instruments is the ascertainment of the intent of the parties. [Citations.] As a rule, the language of an instrument must govern its interpretation if the language is clear and explicit. [Citations.] A court must view the language in light of the instrument as a whole and not use a 'disjointed, single-paragraph, strict construction approach' [citation]. If possible, the court should give effect to every provision. [Citations.] An interpretation which renders part of the instrument to be surplusage should be avoided. [Citations.] [¶] When an instrument is susceptible to two interpretations, the court should give the construction that will make the instrument lawful, operative, definite, reasonable and capable of being carried into effect and avoid an interpretation which will make the instrument extraordinary, harsh, unjust, inequitable or which would result in absurdity. [Citation.]" (Ticor Title Ins. Co. v. Rancho Santa Fe Assn. (1986) 177 Cal.App.3d 726, 730.)

To address the issues presented, we first outline the appropriate scope of this summary proceeding brought as a petition filed under section 7510. Under subdivision (b) of that section, a corporation is required to conduct a regular meeting of members as prescribed by its bylaws, for the purpose of conducting an election of directors, and to transact any other proper business which may be brought before the meeting. If the corporation is required by subdivision (b) to hold such a meeting but fails to do so within a certain period, "then the superior court of the proper county may summarily order the meeting to be held or the ballot to be conducted upon the application of a member or the Attorney General, after notice to the corporation giving it an opportunity to be heard." (§ 7510, subd. (c).)

Here, the petition initially raised the issue of whether the Association failed to hold an annual meeting as required by its bylaws. The Association's appeal now raises the legal issue of whether the declaration of covenants limits and controls the corporate documents, with regard to the membership requirements of the Association. As recognized in the supplemental briefing that we requested, both parties have argued several subsequent factual developments on appeal, including the judicial notice requests made to this court. These raise issues that potentially go beyond the scope of the current summary proceeding brought under section 7510, and that procedure no longer appears to be a sufficient or appropriate forum for the resolution of complex questions of corporate law that are raised here by both parties, especially as those questions are affected by covenant principles that establish equitable servitudes upon land.

For example, the record reflects that pursuant to the existing board's resolution, on December 14, 2004, the California Secretary of State endorsed and filed the Board's certificate of election to wind up and dissolve. The Board made this election on the basis that the covenants had expired and accordingly the Association had no members, and the Board had made the election to dissolve. (§ 8610, subd. (b)(3).) The parties dispute whether this dissolution was effective within the meaning of sections 8611 or 8615, whether membership or approval was required or obtained, or whether such dissolution process remained subject to revocation or correction pursuant to superior court jurisdiction in this action. (§§ 8612, 8614.)

Also, the parties continue to dispute whether the 1993 amendments to the bylaws were effective, or whether the original 1986 bylaws should still control, for purposes of authorizing membership determinations, meeting rights, and voting powers. (§ 7310.) Petitioner refers to sections 7222 and 7223, pertaining to removal of directors, which he apparently sought in the May 2005 special meeting that took place after the judgment. (See part IIIC, post, for further discussion of the special meeting authorization.)

With these various factual developments in mind, most of which have taken place since the filing of the petition itself in November 2004, we next outline the parties' original contentions, as compared to their supplemental briefing, and analyze all of these in light of the record as a whole. We do this to determine what issues of law may now be resolved on those facts that are undisputed, and what additional issues may require further proceedings in the trial court, as beyond the scope of this appeal.

II

ISSUES PRESENTED

A

Original Contentions

Originally, according to the Association, the "term of existence of the Association was defined by its covenants" and that term expired in October 2003, when the membership voted not to extend the covenants. The Association contends that as a matter of law, these events mandated that the Board take action to accomplish the dissolution of the corporation under section 8616. That section provides, "Except as otherwise provided by law, if the term of existence for which any corporation was organized expires without renewal or extension thereof, the board shall terminate its activities and wind up its affairs; and when the affairs of the corporation have been wound up a majority of the directors shall execute and file a certificate [of dissolution]."

The Association further relies on section 8610, to argue that these events amounted to a membership vote on the termination of the corporation as well as the covenants, and were sufficient to meet the statutory requirements, so the Association properly could be dissolved.^[6]

Once the existing board resolved in October 2004 to dissolve the corporation, it pursued the procedures set forth by section 8613, subdivisions (a) through (c):

"(a) Voluntary proceedings for winding up the corporation commence upon the adoption of the resolution required by Section 8610 by the members, by the board and members, or by the board alone, electing to wind up and dissolve. [¶] (b) When a voluntary proceeding for winding up has commenced, the board shall continue to act as a board and shall have full powers to wind up and settle its affairs, both before and after the filing of the certificate of dissolution. [¶] (c) When a voluntary proceeding for winding up has commenced, the corporation shall cease to conduct its activities except to the extent necessary for the beneficial winding up thereof, to the extent necessary to carry out its purposes, and except during such period as the board may deem necessary to preserve the corporation's goodwill or going-concern value pending a sale or other disposition of its assets, or both, in whole or in part . . . ."

The Association argues its board had the authority to dissolve it. It relies on the statement in Beverly Highlands, supra, 92 Cal.App.4th 1247 to the effect that even if an association of property owners is dissolved, its board can continue to act to wind up its affairs. (Id. at p. 1273.) This authority is not helpful here, because it does not answer one of the threshold questions, whether the Association's Board had the authority to dissolve it for lack of membership. (§ 8610, subd. (b)(3).) In any case, the facts in Beverly Highlands are distinguishable, because there, the applicable declaration of restrictions gave the individual Beverly Highlands property owners the right to enforce the declaration, separate from any corporate powers, and there was no contention, as here, that the declaration had expired or been terminated. (Beverly Highlands, supra, at pp. 1252, 1272-1273.)

In contrast to the Association's views, Petitioner argues that the requirements of section 8616 concerning dissolution of the corporation never came into play, because the term of existence of the covenants (expired) should not be equated with the term of existence of the corporation (surviving). Petitioner relies on section 7132, subdivision (a), providing, "The articles of incorporation may set forth any or all of the following provisions, which shall not be effective unless expressly provided in the articles: [¶] (1) A provision limiting the duration of the corporation's existence to a specified date. . . ." Here, the corporate articles refer to the program of the Association, as explained in the covenants, but they do not expressly limit the Association's corporate powers to the objectives set forth in the covenant or the term or time period provided for the continuing validity of the covenants.

Petitioner also relies on section 7340, providing for termination of corporate memberships, and specifically, subdivision (c), "a membership issued for a period of time shall expire when such period of time has elapsed unless the membership is renewed." It argues no such expiration has occurred here, and points to an October 2003 letter from the Association president, after the vote to terminate the covenants, stating that the Association was contemplating continuing to carry out its work notwithstanding the expiration of the covenants.

The Association Board did not file its certificate of election to dissolve until December 2004, after the petition seeking an election was filed in November 2004. Petitioner thus argues, "The Association did not dissolve. Faced with the requirement of an annual meeting, it tried to manufacture a dissolution to justify its wrongful refusal to hold a meeting."

Petitioner therefore contends that substantial evidence supports the trial court's implied finding that there is no "term" of existence of the corporation which has expired, such that the Association was not validly dissolved, and an election was correctly ordered.

B

Supplemental Briefing Issues; Judicial Notice Requests

We asked the parties to more fully address the Association's argument on appeal that termination of the covenants also terminated all authority of the Association concerning the real property involved. We sought comment as follows: "Specifically, may the articles and bylaws be read as stand-alone documents, without being read in conjunction with the declaration of covenants? Do the articles and bylaws allow for any other corporate purposes besides promoting the covenants (i.e., 'any lawful act or activity for which a corporation may be organized'), as well as the 'further' purposes of promoting the adopted program of the Association as set out in the covenant? To what extent are the corporate governing documents limited and controlled by the covenants, with respect to the term of existence of the corporate body?"

Further, we asked the parties to comment upon the appropriate scope of this summary proceeding under section 7510, with affirmative defenses pled including the effect of section 8616, regarding the Association Board's election to wind up and dissolve the corporation. We sought to clarify the effect of the Association Board's filing of its certificate of election to dissolve in December 2004, after the petition seeking an election was filed in November 2004. Our request to counsel for supplemental briefing also asked whether the existing board had the authority to start the voluntary dissolution process, in compliance with section 8610, subdivision (a), providing in relevant part: "Any corporation may elect voluntarily to wind up and dissolve (1) by approval of a majority of all members [citation], or (2) by approval of the board and approval of the members [citation]." (See §§ 2010, subd. (a); 8710; also see Catalina Investments, Inc. v. Jones (2002) 98 Cal.App.4th 1, 7 (Catalina Investments); Friedman, Cal. Practice Guide, Corporations (The Rutter Group 2005) ¶ 8:997, p. 8-110 [A dissolved corporation cannot seek reinstatement in order to conduct acts beyond those that are necessary to wind up its affairs].)

We further sought to have the parties address any limitations on the current scope of the membership's power to replace this Board through a new election, assuming that the record demonstrates that the corporation is currently in the status of dissolution.

It is now appropriate to address the preliminary issue of the respective judicial notice requests, made in connection with the supplemental briefing, regarding the title and covenant documents concerning the various properties owned by various Association members. These must be denied. As we next discuss, we may resolve only those issues of law actually presented and properly reviewable de novo on appeal, and we do not resolve any further factual disputes, but instead must return these issues concerning membership in the Association to the trial court on remand. Even if we were to take notice as requested, we would not do so to establish the truth of the material contained within the recorded documents, as that is not our function on appeal. (Mangini v. R.J. Reynolds Tobacco Co. (1994) 7 Cal.4th 1057, 1063; In re Zeth S. (2003) 31 Cal.4th 396, 405.)^[7]

In light of the above concerns, our analysis must take into account the numerous underlying issues and problems arising from infighting among various factions of the corporation (Association), but only as already demonstrated in this record. We next outline the case law guidance in this area, and then set forth our analysis of the validity of this judgment, as confined to those issues properly before us.

III

STATUTORY AND CASE LAW STANDARDS; APPLICATION

A

Covenants: Their Term of Existence; Effect on Corporation Membership

As set out in Taormina Theosophical Community, Inc. v. Silver (1983) 140 Cal.App.3d 964, 970 (Taormina Theosophical Community): "Generally, restrictive covenants may be modified by less than all affected landowners where the original scheme of restrictions contains a provision so authorizing. [Citations.] The procedure established in the provision must be followed for the modification to be binding. While an individual can give up his or her own rights under a covenant, such individual cannot unilaterally affect the rights of others. [Citation.]"

Where the governing documents of a corporation must be read together with a declaration of covenants containing restrictions on land use, courts will consider the legislative policies found in the statutory provisions applicable to corporate governance. For example, in Taormina Theosophical Community, supra, 140 Cal.App.3d 964, the court considered whether a particular Corporations Code section supported an argument by a party challenging the effect of a declaration of covenants (i.e., § 313 ["[A] written instrument signed by corporate officers 'is not invalidated as to the corporation by any lack of authority of the signing officers in the absence of actual knowledge [by the other party to the instrument].]' "; Taormina Theosophical Community, supra, at p. 971.) The court found that the stated purpose of this section was " 'to allow third parties to rely upon the assertive authority of various senior executive officers of the corporation concerning the execution of any instrument on behalf of the corporation.' [Citation.] Such extra protection for third parties who deal with corporations is warranted since corporations necessarily act through agents." (Ibid.) The facts in that case indicated that this legislative policy was not applicable, so that the particular statute was not controlling. (Ibid.)

In Beverly Highlands, supra, 92 Cal.App.4th 1247, the Court of Appeal held that the trial court had the power under section 7510 to order that an annual meeting and the election be held, even though the trial court judgment was otherwise reversed due to an erroneous conclusion that the provisions of the common interest development statutes applied, which they did not. (Id. at pp. 1254, 1272 [citing and distinguishing Civ. Code, § 1350 et seq.].) However, the Corporations Code provisions regarding the right to a meeting could still be applied in that action, which had been brought to challenge the dissolution of a corporation whose members were owners of buildable lots in the same area. This authority is instructive here because it deals with how to accommodate a corporate structure that is separate from a declaration of covenants applicable to the same property, although the other facts and procedure in Beverly Highlands are distinguishable.

As applied here, the authority of Taormina Theosophical Community, supra, 140 Cal.App.3d 964, 971, and Beverly Highlands, supra, 92 Cal.App.4th 1247, indicates that we should look to the policies behind the Corporations Code sections that are cited here, to assist in interpreting the covenant provisions and the effect of its termination. For example, the policies of the Corporations Code include protection of membership voting rights, particularly concerning voluntary corporate dissolution. Under section 8610, subdivision (a), a corporation "may elect voluntarily to wind up and dissolve (1) by approval of a majority of all members [citation], or (2) by approval of the board and approval of the members [citation]." (Italics added.) Alternatively, where a corporation has no members, under subdivision (b)(3), the board may authorize such action to wind up and dissolve. (Ibid.)

The policies of the Corporations Code also include the statement in section 7132, subdivision (a), that certain provisions must be stated in the articles or are otherwise ineffective, including: "(1) A provision limiting the duration of the corporation's existence to a specified date." This promotes certainty and predictability for those who must deal with corporations. (See Taormina Theosophical Community, supra, 140 Cal.App.3d 964, 971.)

To take into account both the rules regarding the separate corporate structure of the Association and the covenants applicable to the same property, we must consider the undisputed facts regarding the lapsed declaration of covenants, in connection with the rules relating to corporate membership and the voluntary dissolution statutes. It is undisputed that the covenants had a specific term of years, which could be and was twice renewed by amendment. As currently reflected in the record, the June 1986 articles and the original bylaws of the corporation predated the recording of the covenants in October 1986. (We do not consider the Association's judicial notice request alleging other covenants were signed earlier by other property owners; that is a matter for the trial court on remand.) This tends to indicate that the corporation had a separate existence before the covenants were enacted, and could also survive their termination.

Also, the articles do not specify any expiration period for the corporation's existence. (§ 7132, subd. (a).) We do not read the covenants as impliedly or by incorporation through reference creating any such expiration period, to define a similar term of existence for the Association, even though these documents all deal with similar property interests. To do so would be to denigrate the membership voting rights protected under section 8610 and also predictability regarding the term of corporate existence, as well as the identity of members. (§ 7132, subd. (a); see § 7310, subd. (a) [under which a corporation may admit persons to membership, as provided in its articles or bylaws].)

Accordingly, these corporate articles and bylaws may be read as stand-alone documents, because they clearly allow for other corporate purposes and a corporate lifespan besides promoting the covenants (i.e., "any lawful act or activity for which a corporation may be organized," as well as stating the "further" purposes of promoting the adopted program of the Association as set out in the covenants). The lapsing of effectiveness of the covenants itself did not create the legal effect of terminating the corporate existence of the Association.

Also, section 7340, subdivision (c) (providing for termination of corporate memberships that were issued for a period of time) does not provide any basis for a ruling that the expiration of the covenants also impliedly caused the corporate existence to expire. However, the parties continue to dispute whether the corporate articles and bylaws define "membership" separately from the applicability of the covenants, which were prepared later. (See part IIIC, post, regarding further proceedings.) In any case, the Board could not legitimately rely solely on the termination of the covenants, on the ground that the corporation no longer had any members as of October 2003, for its authority to make this election to begin the voluntary dissolution process. (§8610, subd. (b)(3).)

Accordingly, even though the trial court reached a similar conclusion on this narrow question, that was not a complete resolution of all the issues raised by the petition. We now turn to the voluntary dissolution issues, to determine if the Board had any other grounds to pursue dissolution, so as to place the Association beyond the reach of the current petition, or its potential amendments. These issues include the definitions of membership in the Association, and requirements for approval of its voluntary dissolution.

B

Voluntary Dissolution: Powers of Board/Membership

According to the petition, the Association is a nonprofit mutual benefit corporation, formed pursuant to section 7110. Such nonprofit corporations are generally governed by the general corporation law (§ 100 et seq.), of which section 1905 pertains to corporate dissolution. (Catalina Investments, supra, 98 Cal.App.4th 1, 7.) Voluntary dissolution is covered by section 8610 et seq., and is initiated by the officers or board filing a certificate of election to dissolve. (§ 8611.) When the certificate of dissolution has been filed with the Secretary of State, all the corporate powers, rights, and privileges of the corporation shall cease. (§§ 1905, subd. (c), 8615.)

It is well-established that even if a corporation has been formally dissolved, it continues to exist for the limited purpose of winding up its affairs. (§§ 2010, subd. (a); 8710; 9 Witkin, Summary of Cal. Law (10th ed. 2005) Corporations, § 212, pp. 979-981.) It can prosecute and defend actions as necessary for winding up. (Id. at p. 979.) The trial court has jurisdiction to assist it in the voluntary dissolution process as justice and equity require. (Id. at § 214, p. 983; see §§ 1904; 8614; Beverly Highlands, supra, 92 Cal.App.4th 1247, 1272.) "Additionally, 'the corporation shall cease to conduct its activities except to the extent necessary for the beneficial winding up thereof . . . .' [Citation.] [¶] Under Corporations Code section 8613, once voluntary dissolution of the Association was approved, the Board could continue acting to wind up and settle the Association's affairs. No corporate activities unnecessary to the winding up could take place." (Beverly Highlands, supra, at pp. 1272-1273.)

The next question is whether the subject voluntary proceeding for winding up was commenced in accordance with, and within the categories of, section 8610. (Also see, § 8613; Beverly Highlands, supra, 92 Cal.App.4th 1247, 1273.) Under section 8610, subdivision (a), a corporation "may elect voluntarily to wind up and dissolve (1) by approval of a majority of all members [citation], or (2) by approval of the board and approval of the members [citation]." Alternatively, where a corporation has no members, under subdivision (b)(3), the board may authorize such action to wind up and dissolve. (Ibid.)

Section 8615, subdivision (a) sets forth detailed proceedings for the filing of a certificate of dissolution, when a corporation has been completely wound up without court proceedings. However, subdivision (c) of section 8611 alternatively provides: "If an election to dissolve made pursuant to subdivision (a) of Section 8610 is made by the vote of all the members of a corporation with members or by all members of the board of a corporation without members and a statement to that effect is added to the certificate of dissolution pursuant to Section 8611, the separate filing of the certificate of election pursuant to this section is not required."

Here, the record reflects that pursuant to the existing board's resolution, on December 14, 2004, the California Secretary of State endorsed and filed the Board's certificate of election to wind up and dissolve, which it made on the basis that the corporation had no members and the Board had made the election to dissolve. (§ 8610, subd. (b)(3).) However, this was only the beginning of the process of dissolution, and the record does not include an additional "certificate of dissolution." (§§ 1905, 8611, 8615; see Cal. Practice Guide, Corporations, supra, ¶ 8:964, p. 8-106.) The trial court has not been divested of jurisdiction to resolve the issues raised about the viability of the Association, based on Petitioner's questions about authority of the existing Board to take that action, as well as the issues raised concerning the membership's power to replace this Board through a new election. (§ 8616.) The trial court nevertheless erred in granting the petition, as will next be discussed.

C

Application of Standards; Further Proceedings; Guidance to Trial Court

The record reveals that numerous other issues remain for resolution, beyond the threshold legal issue resolved above: That the Association's membership's decision to allow the covenants to expire in October 2003 did not also operate, as a matter of law, to accomplish the dissolution of the corporation. There are remaining factual disputes which must be addressed before the trial court could appropriately issue any order under section 7510 that the Association hold an annual meeting, as requested by Petitioner. These include whether the Board had a reasonable basis to believe, apart from the covenants, that it had been directed by the membership to terminate the existence of the Association, such that it could correctly represent to the Secretary of State that there were no members at that time, based on the nature of the October 2003 election. The Association claims Petitioner made various binding admissions at that time that the Association was defunct.

It also appears that factual disputes remain about whether the amended bylaws were validly enacted in 1993, such that the changes they made should be considered in determining membership and voting rights (e.g., whether persons who did not sign the covenants were nevertheless members of the Association). (See fns. 3, 4, ante.) Also, at oral argument, Petitioner maintained that the judgment on appeal only encompassed issues about entitlement, under the terms of the bylaws and/or amended bylaws, to an annual meeting of the Association, as opposed to a special meeting (such as the one that took place in May 2005). The Association responded that the rights to either kind of meetings are inextricably intertwined and are subject to the existing Board's power to dissolve the corporation. (Also see § 7222 et seq., dealing with removal of directors.)

In light of the current state of this record, further proceedings are necessary to protect the public policies represented by both the membership statutes and the dissolution statutes. We note that in its supplemental briefing, the Association objects that Petitioner never brought any request under sections 8612 or 8614 to challenge the Board's October 2004 resolution to begin the dissolution process or to revoke the December 2004 filing of the certificate of election to dissolve. However, no waiver by Petitioner of any such remedy can reasonably be said to have occurred, in light of all the various developments in the record since the filing of the petition.

Nor may the Association be said to have waived any challenge to the validity of the special meeting held in May 2005, after the judgment was issued and the notice of appeal filed. This court issued the writ of supersedeas over such objections by the Petitioner (i.e., his claims that the special meeting was not precluded by the judgment nor stayed by the appeal). Petitioner did not have the power unilaterally to moot the issues addressed by the trial court by pursuing his special meeting agenda.

Accordingly, the issues of law properly presented in this appeal, concerning the interpretation of the corporate documents and the covenants, require us to reverse the trial court's order, because it was erroneous to order that Petitioner's requested election must take place, in the absence of an appropriate court resolution of the other factual issues currently included in the petition and response, concerning the membership issues and the voluntary dissolution issues as outlined above. (§§ 8612, 8614 [the court may "take jurisdiction over such voluntary winding up proceeding if that appears necessary for the protection of any parties in interest . . . . The court, if it assumes jurisdiction, may make such orders as to any and all matters concerning the winding up of the affairs of the corporation and the protection of its members, creditors . . . , as justice and equity may require."]) Superior court supervision of the dissolution process, including whether it has been validly begun by the Board, would be an appropriate exercise of discretion in this case, because of the disputes already being litigated in the existing petition regarding membership.

Pursuant to the reversal ordered today, the trial court will be directed on remand to entertain applications to amend the pleadings to include applications for such relief, if they are pursued, as well as the filing of any proposed cross-action. Further, the Association must be permitted to pursue its affirmative defenses (e.g., unclean hands), as may be appropriate, at any future hearing.^[8]

DISPOSITION

The judgment is reversed with directions to the trial court to vacate its order granting the petition to order the election, and to issue a new order providing for appropriate further proceedings, which may include applications to amend the petition or to file a cross-action, in order to more fully address the Association membership issues as they affect the authority of the existing board. The requests for judicial notice are denied. The stay issued on June 9, 2005 shall remain in effect until this opinion becomes final and the remittitur has been issued. Each party shall bear its own costs on appeal.

HUFFMAN, J.

WE CONCUR:

McCONNELL, P. J.

AARON, J.

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^[1] All further statutory references are to this code unless noted.

^[2] Section 8614 provides for superior court jurisdiction over the process of voluntary winding up, upon an appropriate petition being brought by either the corporation, members, creditors, or others. The court may "take jurisdiction over such voluntary winding up proceeding if that appears necessary for the protection of any parties in interest . . . . The court, if it assumes jurisdiction, may make such orders as to any and all matters concerning the winding up of the affairs of the corporation and the protection of its members, creditors . . . , as justice and equity may require."

^[3] Both at the trial court hearing and in its supersedeas petition (previously granted by this court in this case), the Association disputes that the 1993 amendments to the bylaws were valid (arguing that although the Board adopted them, a requirement for membership approval of them may not have been satisfied). At the hearing, the trial court took evidence from a former Board member of the Association, who thought that membership approval must have been obtained in 1993, and the court found the 1993 bylaws amendments were valid. Factual disputes remain on this issue and cannot be resolved at this time, but may be raised upon this reversal and remand. (See part III, post.) This is relevant in particular to the requirement of membership approval for dissolution of the Association, and whether this was satisfied expressly by the termination of the covenants vote. As we will show, the termination of the covenants itself was not enough to terminate the Association's existence as well, but the Association appears to contend the 2003 vote also separately included the Association continuation issue, and/or that Petitioner made admissions to that effect.

^[4] Under section 7310, subdivision (a), "A corporation may admit persons to membership, as provided in its articles or bylaws, or may provide in its articles or bylaws that it shall have no members. In the absence of any provision in its articles or bylaws providing for members, a corporation shall have no members." In this case, the articles refer to the members of the Association as "landowners in the East Elliott Planning Area." The bylaws (as amended in 1993) refer to members as property owners who have joined the Association, and then set forth qualifications for membership. Under those qualifications, a property transfer results in a transfer of the owner's membership in the Association. The parties continue to dispute whether nonsignatories to the covenants can be members in the Association.

^[5] Trial exhibit 4 is a register of the Association members and a tally of the October 2003 votes not to extend the covenants, representing approximately 50 different parcels/owners and 916 votes by property owners. Trial Exhibit 11 is a March 2005 demand to the Board to hold a special meeting, made by owners representing 33 percent of the total voting power of the Association. According to counsel for Petitioner at the hearing on the petition, he had proxies for approximately 65 percent of Association members, to continue the existence of the Association and to hold an annual meeting. Other trial exhibits included the corporate documents (articles, bylaws, and amended bylaws), the covenants, and the notice of the election to dissolve the Association. The trial court excluded 32 declarations of Association members offered by the Association to show their understanding that the 2003 vote had directed the Board to terminate the existence of the Association, as well as terminating the covenants.

^[6] Section 8610, subdivisions (a) and (b) provide that: "(a) Any corporation may elect voluntarily to wind up and dissolve (1) by approval of a majority of all members [citation], or (2) by approval of the board and approval of the members [citation]. [¶] (b) Any corporation which comes within one of the following descriptions may elect by approval of the board to wind up and dissolve: [¶] . . . [¶] (3) A corporation which has no members. . . ."

^[7] We need not discuss the references to a May 2004 insurance application letter by the Association, which Petitioner claims shows the Association was not in dissolution status at that time. Petitioner admits this is not a part of the record before the court and only its effect is argued, and no copy has been provided to this court as part of the judicial notice requests.

^[8] At any further proceedings, the Association may resubmit, for further consideration, the previously excluded evidence about whether some Association members believed they had separately directed the Board to dissolve the Association in the October 2003 vote. (See fn. 5, ante.)