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Needle v. Byram Cove, Inc.

A-1196-08T3 (N.J. Super. App. Div. 2010) (Unpublished)

CORPORATIONS — Where an officer or a former officer of a corporation, who also acts as a registered agent, seeks to avoid a law suit against him or her based upon a lapse of the corporation’s charter of which he or she had or should have had knowledge, he or she will be estopped from doing so even though the corporation would otherwise have no standing to sue, but a court should withhold the ability of the corporation to realize any resultant monetary judgment until the corporation’s charter has been reinstated.

Summer homeowners formed a corporation to own their community. As a result, a group of eight families owned individual lots and, by deed, were entitled to use certain property owned by the corporation. For thirty years, one owner served as president. During that time, the corporation’s charter was voided for non-payment of taxes. The president was also the registered agent when the charter lapsed. From its inception, the corporation was governed by written bylaws. These called for the payment of annual dues. The bylaws also provided that each owner-shareholder was liable for the corporation’s legal fees if a suit against the owner was required to enforce the bylaws. The owners were also obligated to correct any dangerous condition on their own property if it created a danger to the common walkways.

The former president was notified of a dangerous tree on his property that threatened the safety of community members using a common walkway. The corporation paid for the tree’s removal when the owner failed to remove the tree. The owner also failed to pay two years’ assessments. The corporation sued to recover its costs. The owner responded with claims against the corporation for wrongfully restricting his property rights. Both matters were consolidated. The former present failed to appear for depositions and his testimony was suppressed by the lower court. The lower court also found that the owner failed to present documentation in support of his position. As a result, it granted summary judgment in favor of the corporation for damages plus additional costs and legal fees. Prior to taking an appeal, the owner attempted to vacate the judgment by filing a series of consecutive motions, chiefly asserting that the corporation had no standing to file the action as it had lost its charter more than thirty years earlier. The lower court entered a final ruling anyway, dismissing the last motion based upon the equitable doctrine of laches. It ruled that the owner – as former president and former registered agent – had knowledge of the charter revocation, but attempted to surprise the court and the corporation with such a defense at the litigation’s end.

The Appellate Division affirmed that ruling, finding the former president was uncooperative during the litigation, and only at an extremely late moment raised a defense to the corporation’s detriment. It held the doctrine of equitable estoppel could be applied to allow the corporation to maintain its suit. The former president had, or should have had, knowledge of the charter’s lapse, but permitted the corporation to rely upon its bona fides throughout the litigation. The Court also pointed out the law permitted corporations to pay back taxes in order to be reinstated and regain all of their privileges, and the corporation offered evidence that it was waiting for reinstatement after paying the taxes. On the other hand, the Court held the lower court’s judgment could not be enforced until such time as the charter was reinstated.

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