Kroop & Kurland, P.A. v. Lambros

BYRNES, Judge. This case raises the question whether the revival of a corporation whose charter was forfeited validates its previously ineffective notice to renew a judgment, filed before the judgment’s twelve-year expiration date, thereby restoring the judgment to the corporation after the twelve-year expiration date. We hold that expiration of the judgment during the period of corporate non-existence divests the corporation of a right, within the meaning of Section 3-512(2) of the Corporations and Associations Article, so that the right cannot be restored by corporate revival. FACTS On September 23, 1983, Nellie B. Widener executed a confessed judgment note for $15,000.00, payable to the law firm of Kroop & Kurland, P.A.(“K & K”).

Two weeks later, K & K instituted an action for judgment by confession against Ms. Widener, in the Circuit Court for Baltimore County. Ms. Widener resided in Baltimore County and owned real property situated on York Road, in Sparks. On October 3, 1983, judgment by confession for $15,000.00 plus court costs was entered in favor of K & K. The judgment was duly indexed and recorded. In 1983, when it obtained the confessed judgment against Ms. Widener, K & K was a Professional Association, incorporated in the State of Maryland.

On October 8,1985, the State Department of Assessments and Taxation forfeited K & K’s ⁶⁵⁵ corporate charter, for failure to file the necessary corporate personal property report and to pay certain late fees. 1 Several years elapsed. On December 8,3994, K & K filed a notice to renew the judgment against Ms. Widener, pursuant to Md. Rule 2-625. The notice was signed by Kenneth D. Man, Esquire and “Kroop & Kurland.” On December 31, 1994, K & K purportedly was dissolved, under the terms of a voluntary dissolution agreement that called for the accounts receivable and assets of K & K to be transferred to Ronald I. Kurland, P.A. In 1995, Ms. Widener died. An estate was opened in the Orphans’ Court for Baltimore County.

On November 1, 1995, Ronald I. Kurland, Esquire and Ronald I. Kurland, P.A. filed a claim for $15,000.00 against the Widener estate and an accompanying petition for allowance for $15,000.00, pursuant to Md. Rule 6-^113. They cited the October 3, 1983 confessed judgment against Ms. Widener in favor of K & K as the basis for their claim and explained that they had become the owners of the assets of Kurland & Kurland, P.A., including the Widener judgment, as of December 31,1994. On December 11, 1995, appellee Michael J. Lambros, Personal Representative of the Widener estate, notified Mr. Kurland and his P.A. that their claim was disallowed. Five months later, on May 9,1996, the State Department of Assessments and Taxation received and approved articles of revival, by which K & K’s corporate charter was reinstated.

Thereafter, the Orphans’ Court conducted a hearing on Mr. Kurland’s and the Kurland P.A.’s petition for allowance and, on June 12, 1996, granted it, in the amount of $15,000.00. On June 26, 1996, the Personal Representative appealed the decision of the Orphans’ Court to the Circuit Court for Baltimore County, pursuant to Md.Code (1995 RepLYoL), § 12-502 of the Cts. & Jud. Proc. Article (“C.J.”). ⁶⁵⁶ On January 14, 1997, the case was called for a de novo hearing before the circuit court.

The parties proceeded on stipulated facts and agreed exhibits. On February 5, 1997, the court issued an Amended Memorandum Opinion reversing the Orphans’ Court’s allowance of the claim of Mr. Kurland and the Kurland, P.A. against the Widener estate. 2 A timely appeal was noted, presenting the following question for review, which we have rephrased: I. Did the circuit court err in ruling that the notice of renewal of judgment filed by Kroop & Kurland, P.A. was null and void and was not cured by the later revival of its corporate charter? We answer the question posed in the negative, and affirm the judgment of the circuit court. 3 DISCUSSION Standard of Review In an action tried before a court without a jury, we review the case on both the law and the evidence. Md. Rule 8-131(c).

The lower court’s findings of fact will not be set aside unless they are clearly erroneous. In this case, the facts were stipulated and undisputed. The “clearly erroneous” standard does not apply to appellate review of a question of law. Bagley v. Bagley, 98 Md.App. 18, 34 , 632 A.2d 229 (1993), cert. denied, 334 Md. 18 , 637 A.2d 1191 (1994).

Review of a purely legal issue, such as the one before us, is “expansive.” In re Michael G., 107 Md.App. 257, 265 , 667 A.2d 956 (1995). ⁶⁵⁷ Analysis i A circuit court money judgment expires twelve years from its date of entry or twelve years from the date on which it was most recently renewed. Md. Rule 2-625. A notice of renewal may be filed by the judgment holder at any time before the expiration of the judgment. Id.

K & K’s confessed judgment against Ms. Widener was a money judgment that, unless renewed, expired automatically on October 3, 1995, twelve years after it was entered and one month before attorney Kurland and his P.A. lodged their claim against Ms. Widener’s estate. When a corporation’s charter is forfeited for nonpayment of taxes or failure to file an annual report, the corporation is dissolved by operation of law and ceases to exist as a legal entity. Atlantic Mill & Lumber Realty Co. v. Keefer, 179 Md. 496, 499-500 , 20 A.2d 178 (1941); Patten v. Board of Liquor License Com’rs for Baltimore City, 107 Md.App. 224, 233-34 , 667 A.2d 940 (1995); Scott v. Seek Lane Venture, Inc., 91 Md.App. 668, 685-86 , 605 A.2d 942 , cert. denied, 327 Md. 626 , 612 A.2d 257 (1992); Cloverfields Improvement Assoc., Inc. v. Seabreeze Properties, Inc., 32 Md.App. 421, 424-26 , 362 A.2d 675 , modified in part and aff'd, 280 Md. 382 , 373 A.2d 935 (1977); Md.Code (1993 Repl.Vol., 1997 Cum.Supp.), § 3-503(d) of the Corps. & Ass’ns. Article (“C.A.”). 4 Until a court appoints a receiver, the directors of a corporation whose charter is forfeit function as trustees of the corporation’s assets, for purposes of “winding up,” and may exercise enumerated general and specific powers to that end. ⁶⁵⁸ C.A. § 3-515; Patten, 107 Md.App. at 234 , 667 A.2d 940 .

As we stated in Cloverfields: ‘[t]he forfeiture for non-payment of taxes puts an end to the corporate existence, and the rights of creditors become fixed at that time. The corporate assets are automatically transferred to the directors, as trustees, for use of the creditors and stockholders or members, and are held by such trustees until revival of the charter of the corporation.’ 32 Md.App. at 424-25 , 362 A.2d 675 , (quoting H. Brune, Maryland Corporation Law and Practice, § 406 (Rev. Ed.1953 & Supp.)); American-Stewart Distillery, Inc. v. Stewart Distilling Company, 168 Md. 212, 220 , 177 A. 473 (1935). The charter of a corporation that is forfeited for nonpayment of taxes and failure to file an annual report may be revived, and the corporation brought back into existence, under C.A. §§ 3-507, 3-508, and 3-509, by the filing of articles of revival. Section 3-512 provides that reinstatement of a corporation’s existence through articles of revival has the following effects: (1) If otherwise done within the scope of its charter, all contracts or other acts done in the name of the corporation while the charter was void are validated, and the corporation is liable for them; (2) All the assets and rights of the corporation, except those sold or those of which it was otherwise divested while the charter was void, are restored to the corporation to the same extent that they were held by the corporation before the expiration or forfeiture of the charter.

(emphasis supplied). ii Appellants do not dispute that K & K’s December 8, 1994 attempt to renew its confessed judgment against Ms. Widener was ineffective at the time that it was undertaken. They acknowledge that, by virtue of the forfeiture of its charter, K & K had been rendered a legal non-entity, without capacity to ⁶⁵⁹ take any legal action, including the filing of a notice to renew judgment. Moreover, appellants do not contend that the December 8, 1994 notice to renew judgment, signed by Mr. Man on behalf of “Kroop and Kurland,” was filed by a director of K & K, as trustee of the defunct corporation, a proposition plainly not supported by the evidence. Appellants’ assertion that K & K’s October 3, 1983 judgment against Ms. Widener gives rise to a viable claim against the Widener estate is premised entirely upon K & K’s 1996 corporate revival, and the effect that they contend the revival had on the judgment that had been entered more than twelve years before.

Appellants maintain that, under C.A. § 3-512(2), K & K’s corporate revival retroactively validated the December 8,1994 notice to renew judgment, thereby restoring to it the judgment against Ms. Widener. They assert that the passage of more than twelve years from the date of the entry of the judgment to the date of the revival of K & K’s charter did not “divest” K & K of the judgment against Ms. Widener, because a right that has expired has not been divested, within the meaning of C.A. § 3-512(2). Cloverfields Imp. Ass’n, Inc. v. Seabreeze Properties, Inc., 280 Md. 382 , 373 A.2d 935 (1977), upon which appellants place primary reliance, is one of the earliest cases to address the meaning of the word “divested,” as it was used in the statutory predecessor to C.A. § 3-512(2). 5 In that case, Guaranteed Realty Corporation held title to land in a residential development in Queen Anne’s County.

The State forfeited Guaranteed’s corporate charter, for failure to file an annual report and for non-payment of taxes. Thereafter, in 1965, the directors and officers of Guaranteed executed instruments assigning certain rights of Guaranteed respecting the develop ⁶⁶⁰ ment and conveying certain property in the development to Cloverfields Improvement Association. Six years later, in 1971, the surviving directors of Guaranteed, acting expressly as its “trustees,” assigned the same rights and conveyed the same property to Seabreeze Properties, Inc. Cloverfields filed a declaratory judgment action, seeking determination of the ownership of the various interests that had been twice assigned and conveyed. After suit was filed, Guaranteed filed articles of revival.

The chancellor found that the rights and assets at issue were validly held by Seabreeze, not by Cloverfields. This Court affirmed, 32 Md.App. 421 , 362 A.2d 675 (1976), and the Court of Appeals granted certiorari. In an opinion written by Judge Smith, the Court of Appeals affirmed, holding that the revival of Guaranteed’s charter did not validate the 1965 transaction. The Court reasoned that the 1965 assignment/conveyance by Guaranteed to Cloverfields was ineffective, as Guaranteed had been without legal existence when it engaged in the transaction; the 1971 assignment/conveyance to Seabreeze was effective, however, because it had been carried out by Guaranteed’s directors, in their capacities as trustees, during the period of corporate non-existence.

The subsequent revival of Guaranteed did not “breathe life” into the 1965 transaction with Cloverfields, under the Corporations and Associations Article, because the valid assignment and conveyance by Guaranteed to Seabreeze had “divested” Guaranteed of the same rights and assets, within the meaning of the predecessor statute to C.A. § 3-512(2), before it was revived. The Court explained: We agree with the conclusion of the Court of Special Appeals: We think former § 85(d) to be clear and unambiguous in that the revived corporation may only take title to those assets which were legally not disposed of during the period of corporate demise. Inasmuch as the surviving trustees had, in 1971, validly conveyed and assigned the very property (Cloverfields) thought it had acquired in 1965, the total ⁶⁶¹ effect of the revival in this case is naught. The act of revival cannot divest a bona fide purchaser of his title.’ 280 Md. at 398 , 373 A.2d 935 (quoting 32 Md.App. at 434-35 , 362 A.2d 675 ).

Contrasting its holding with that in Redwood Hotel, Inc. v. Korbien, 197 Md. 514 , 80 A.2d 28 (1951), in which the noting of an appeal by a defunct corporation was held to have been validated by the subsequent revival of the corporation, the Court commented, “[i]n that case intervening rights did not exist as here.” Id. Appellants argue that Cloverfields establishes that an asset is not “divested,” within the meaning of C.A. § 3-512(2), unless it has been transferred to a third party or, in some fashion, “intervening rights exist.” In further support of that position, they cite Psychic Research and Development Institute of Maryland, Inc. v. Gutbrodt, 46 Md.App. 21 , 415 A.2d 611 (1980). There, a corporation was named residual legatee of an estate, on the condition that it be “in existence” when the testatrix died. The testatrix named an alternate beneficiary, who would take in the event that the corporation was not in existence when death occurred.

When the testatrix died, the corporation was not “in existence,” as its charter had been forfeited for nonpayment of taxes and failure to file necessary reports. Six days after the testatrix’s death, the corporation filed articles of revival. The alternate beneficiary initiated a declaratory judgment action against the corporation, asserting that she, not it, was entitled to the residuary estate. The chancellor ruled in her favor.

We affirmed, holding that, under C.A. § 3-512(2), 6 revival of the corporation after the testatrix’s death did not restore to it the right to take under the will, which had passed to the alternate beneficiary: The Articles of Revival can spontaneously generate life in a dead corporation, but they cannot restore to it rights that ⁶⁶² passed to others during the period of corporate abiosis. The subsequent revival of [the corporation named in the ■will] did not again vest property and rights in the corporation which were divested during the period of forfeiture.