Robert Roy v. Island & Fonda Lakes Association ( 2014 )

STATE OF MICHIGAN
COURT OF APPEALS
ROBERT ROY and TINA ROY, UNPUBLISHED
November 4, 2014
Plaintiffs/Counter-Defendants-
Appellees/Cross-Appellants,
v No. 315124
Livingston Circuit Court
ISLAND & FONDA LAKES ASSOCIATION, LC No. 11-026340-CH
Defendant/Counter-Plaintiff-
Appellant/Cross-Appellee,
and
BURCHFIELD PARK & POLLESCH PC, SHARI
L POLLESCH, and HOWARD HARRINGTON,
Defendants/Counter-Plaintiffs.
Before: FITZGERALD, P.J., and GLEICHER and RONAYNE KRAUSE, JJ.
PER CURIAM.
This matter arises out of a road assessment imposed by defendant Island & Fonda Lakes
Association (IFLA) on property owned by Robert and Tina Roy (Roy) in a subdivision within
IFLA’s geographic boundaries. IFLA is a “summer resort corporation” that, among other things,
maintains the private roads in several nearby subdivisions in a collective manner. Roy owned
Lot 2 in one of those subdivisions for approximately ten years before purchasing an adjacent
parcel, Lot 3. Unfortunately, the 2010-2011 dues assessment for Lot 3 was sent to the seller, as
were the subsequent late notices. IFLA eventually filed a lien against Lot 3, whereupon Roy
undertook to sue IFLA pursuant to a variety of legal theories. IFLA counterclaimed on the lien.
The trial court granted summary disposition in favor of IFLA as to most of the many counts in
Roy’s complaint but held that the dues IFLA imposed that resulted in the subject assessment had
been ultra vires, so it ordered the assessment and its resulting lien void and granted summary
disposition in favor of Roy as to IFLA’s counter-complaint. IFLA appeals and Roy cross-
appeals. We affirm in part, reverse in part, and remand.
IFLA is a nonprofit corporation created in 1942 for the stated purpose of being “[f]or the
upkeep of sanitation and improvement of roads, collecting of garbage” as a “summer resort
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corporation” pursuant to 1929 PA 137, as amended, MCL 455.201 et seq. The original term of
IFLA’s existence was 30 years. In 1972, IFLA, still under its original name, filed a Certificate of
Extension of Corporate Term, which stated that at a meeting of 22 members, at least 4/5 had
voted to extend the corporate term into perpetuity. In 1993 and 1994, IFLA changed its name to
its current name and amended its articles of incorporation to state that its purpose was “for
organized maintenance and improvement of common roads and parks and to promote changes
which affect the health and welfare of all property owners and residents of the area.” IFLA has
promulgated various iterations of bylaws over the years.
Roy purchased Lot 2 on July 26, 2001 and paid all IFLA dues assessed against Lot 2
since that time. Roy was at the time living in Milford and treated the house on Lot 2 as a
summer cottage. On April 27, 2008, at its annual meeting, IFLA first imposed dues assessments
on vacant lots, in the amount of $75.00 a year, by a supermajority vote of 16 members to 3
members. On April 26, 2009, at its annual meeting, IFLA approved a motion, by a unanimous
vote of 28 members to 0, to increase the dues for five years from $165.00 a year to $200.00 a
year for resident lots and from $75.00 a year to $100.00 a year for vacant lots for the purpose of
paying for a drain project. As will be discussed, Roy contends that IFLA did so impermissibly.
IFLA’s dues periods run from July 1 to June 30 of the following year, with fees being added to
delinquent dues after September 1.
On July 1, 2010, Lot 3 in Ewart’s Subdivision was owned by Judith McGowan.
McGowan did not pay the 2010-2011 IFLA dues assessment. Roy purchased Lot 3 on
September 8, 2010. That deed was duly recorded on September 15, 2010. At the time the deed
was recorded, the 2010-2011 dues for Lot 3 were delinquent, but IFLA had yet to record any lien
on the property. Roy did not inform IFLA of the purchase of Lot 3. The possibility of dues
remaining owing on Lot 3 was discussed at the closing; Robert Roy testified that he was aware
that dues might be owing and he was willing to pay them, but ultimately Roy relied on the results
of a title search that found no liens. IFLA did not otherwise become immediately aware of the
transfer; consequently, the late notices it sent regarding the dues for Lot 3 went to McGowan.
On March 30, 2011, IFLA recorded a lien against Lot 3 for the delinquent dues and
additional fees and costs, which had risen by then to $408.21. By that time, IFLA had
discovered the property transfer; it served Roy with notice of the lien on April 5, 2011. Roy and
IFLA attempted some kind of negotiation, but Roy ultimately refused to pay more than the actual
amount of the original dues themselves. The instant litigation followed, Roy asserting eleven
counts against IFLA ranging from quiet title to declaratory relief seeking to invalidate IFLA, and
IFLA counterclaiming to foreclose on the lien and asserting abuse of process. The trial court
entered a very thorough opinion in which it dismissed most of Roy’s claims, but it found the
2010-2011 dues assessment invalid because IFLA’s voting process pursuant to its bylaws
violated MCL 455.219, so it dismissed IFLA’s claims as well. This appeal followed.
A grant or denial of summary disposition is reviewed de novo on the basis of the entire
record to determine if the moving party is entitled to judgment as a matter of law. Maiden v
Rozwood, 461 Mich. 109, 118; 597 NW2d 817 (1999). “When reviewing a grant of equitable
relief, an appellate court will set aside a trial court’s factual findings only if they are clearly
erroneous, but whether equitable relief is proper under those facts is a question of law that an
appellate court reviews de novo.” McDonald v Farm Bureau Ins Co, 480 Mich. 191, 197; 747
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NW2d 811 (2008). This Court reviews de novo questions of statutory construction, with the
fundamental goal of giving effect to the intent of the Legislature. Weakland v Toledo
Engineering Co, Inc, 467 Mich. 344, 347; 656 NW2d 175, amended on other grounds 468 Mich.
1216 (2003).
As an initial matter, Roy challenges IFLA’s act of incorporation and its subsequent acts
of extending its corporate existence, the former of which is so grossly impermissible as to border
on frivolity, and the latter of which appears to be based on a misapprehension of Michigan’s
constitution. Pursuant to MCL 450.1221, filing of articles of incorporation presumptively
creates a corporation and constitutes “conclusive evidence that all conditions precedent required
to be performed under this act have been fulfilled and that the corporation has been formed under
this act, except in an action or special proceeding by the attorney general.” MCL 450.1221 is
part of the business corporation act, MCL 450.1101 et seq, and explicitly refers to prerequisites
“under this act.” However, under MCL 450.1123(1), the business corporation act applies to
summer resort corporations. IFLA was incorporated as a summer resort association pursuant to
MCL 455.201 et seq. Additionally, MCL 450.1221 “codifies Michigan’s longstanding common-
law practice of only permitting the state to challenge corporate status, and to do so only in a
direct proceeding on that issue.” Miller v Allstate Ins Co, 481 Mich. 601, 615; 751 NW2d 463
(2008).
Indeed, Michigan courts have long held it to be the rule for corporations generally that
the incorporation of a corporation may only be challenged by the state, and then only in a direct
proceeding to do so. See Bridge Street & Allendale Gravel Road Co v Hogadone, 150 Mich. 638,
651, 654; 114 N.W. 917 (1908); Detroit & TSLR Co v Campbell, 140 Mich. 384, 394; 103 N.W.
856 (1905); Toledo & AAR Co v Johnson, 55 Mich. 456, 460; 21 N.W. 888 (1885); Swarthout v
Michigan Air Line R Co, 24 Mich. 389, 394-396 (1872); Cahill v Kalamazoo Mut Ins Co, 2 Doug
124, 141 (1845); see also Smith v Sheeley, 79 US (12 Wall) 358, 361; 20 L. Ed. 430 (1870). The
rule may not be a totally inflexible one where a challenge is made against a particular franchise
granted to a corporation after it has come into existence. Grand Rapids Bridge Co v Prange, 35
Mich. 400, 404-405 (1877). However, no such challenge is brought here. Roy’s private suit to
invalidate IFLA’s existence, either at all or as a valid summer resort corporation, is utterly
untenable and, as noted, borders on frivolity.
Additionally, the trial court correctly recognized that under Const 1908, Art XII, § 3,
corporate terms were limited to at most 30 years and could only be extended by 30 years at a
time “on the consent of not less than 2/3 of the capital stock of the corporation.” However,
Const 1963 eliminated that restriction, and pursuant to MCL 450.371, corporate terms may now
be perpetual. See Hogg v Four Lakes Ass’n, Inc, ___ Mich App ___, ___; ___ NW2d ___
(2014) (Docket No. 316898, slip op at pp 3-5). The amendment to IFLA’s articles of
incorporation state that 4/5 of its members approved the extension, which was proper pursuant to
the then-applicable MCL 450.62 and, as the trial court noted, the present MCL 455.251.
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Consequently, Roy’s argument that IFLA’s corporate existence was not properly extended must
also fail.1
The roads in the subdivisions that form IFLA are all private, and no municipality or other
public entity maintains them or has any other responsibility for them. Indeed, the plat maps of
the subdivisions all state that the roads are dedicated for the use of the lot owners only. Roy
lives in Ewart’s Subdivision, one of those member subdivisions. The trial court found that
“[s]ince approximately 1924, through the predecessor of [IFLA], the homeowners within the
three developments [subdivisions] have collectively maintained the roads and other common
property.” We have not found any specific documentary evidence explicitly so stating, but Roy
does not deny that finding, and that finding is an essentially mandatory inference from the 1920
to 1937 dates of the subdivision plats.
Second, it is not clear that Roy has even articulated a valid cause of action under the
Summer Resort Corporation Act. There are some case opinions that imprecisely infer that
declaratory judgment is a cause of action. See Adair v State, 486 Mich. 468, 490; 785 NW2d 119
(2010) (“[a]n action for a declaratory judgment is typically equitable in nature and subject to
different rules than other causes of action.”) However, declaratory judgment is in fact a remedy,
so it is technically improper to plead it as a cause of action. Wiggins v City of Burton, 291 Mich
App 532, 561; 805 NW2d 517 (2011). However, “[i]t is well settled that the gravamen of an
action is determined by reading the complaint as a whole, and by looking beyond mere
procedural labels to determine the exact nature of the claim.” Adams v Adams (On
Reconsideration), 276 Mich. App. 704, 710-711; 742 NW2d 399 (2007). Doing so in this case is
exceptionally difficult due to the nature of the Roy’s arguments.
We choose to give Roy the benefit of the doubt. Under MCL 450.1489(1), shareholders
“may bring an action in the circuit court of the county in which the principal place of business or
registered office of the corporation is located to establish that the acts of the directors or those in
control of the corporation are illegal, fraudulent, or willfully unfair and oppressive to the
corporation or to the shareholder.” The court may then grant relief up to and including
cancellation of an act of the corporation or dissolution of the corporation. Id. Roy owns
property within IFLA’s boundaries, so Roy is an IFLA shareholder. Under MCL 450.1489(1),
“oppressed” shareholders abused by “controlling” persons within “closely held corporations”
may have a direct cause of action. The limitation to “closely held corporations” appears to be a
reference to MCL 450.1489(2), which precludes shareholders “whose shares are listed on a
national securities exchange or regularly traded market maintained by 1 or more members of a
national or affiliated securities association.” The “shares” at issue here certainly are not, and we
find no obvious other reason why MCL 450.1489(1) is not available to Roy through MCL
450.1123(1).
1
We therefore need not consider whether the trial court properly applied the doctrine of laches to
these arguments. Nevertheless, as we discuss infra, we conclude that the trial court’s application
of the doctrine of laches was proper and appropriate, so we would affirm the trial court’s
resolution of these arguments even if they were cognizable.
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With few exceptions not applicable here, “where a new right is created or a new duty is
imposed by statute, the remedy provided for enforcement of that right by the statute for its
violation and nonperformance is exclusive.” Pompey v General Motors Corp, 385 Mich. 537,
552; 189 NW2d 243 (1971). It appears that Roy’s exclusive avenue for relief from the alleged
infirmities in IFLA’s voting procedures is therefore essentially a shareholder oppression suit.
Roy has not expressly asserted anything of the sort, but Roy’s somewhat confusing arguments to
the effect that IFLA is acting illegally, unfairly, and oppressively could, when we look past the
labels and especially in light of IFLA’s alleged violation of its own bylaws and prohibition
against proxy voting, at least arguably constitute “willfully unfair and oppressive conduct” as
defined in MCL 450.1489(3).2 We therefore extend to Roy the benefit of the doubt whether a
cognizable claim has been made out.
Roy challenges the trial court’s application of the doctrine of laches to Roy’s attempt to
invalidate IFLA’s votes and dues assessment. The equitable doctrine of laches “is applicable in
cases in which there is an unexcused or unexplained delay in commencing an action and a
corresponding change of material condition that results in prejudice to a party.” Public Health
Dep’t v Rivergate Manor, 452 Mich. 495, 507; 550 NW2d 515 (1996); see also Regents of Univ
of Mich v State Farm Mut Ins Co, 250 Mich. App. 719, 734; 650 NW2d 129 (2002). Critically, it
is the prejudice caused by some delay that primarily affects whether laches is appropriate.
Lothian v City of Detroit, 414 Mich. 160, 168; 324 NW2d 9 (1982). We find the trial court’s
application of the doctrine appropriate; indeed, the trial court should have applied it further.
Initially, however, Roy apparently seeks to invalidate all votes ever taken by IFLA and
all dues assessments ever made by IFLA. To the extent Roy challenges any such votes or
assessments that occurred before Roy purchased Lot 2, we believe that Roy lacks standing. Dues
assessed against and paid by predecessors in interest simply could not possibly have invaded any
special substantial interest Roy might have. See Lansing Schools Educ Ass’n v Lansing Bd of
Ed, 487 Mich. 349, 378; 792 NW2d 686 (2010). Likewise, it is difficult to guess at how any
votes taken prior to Roy’s purchase of Lot 2 could have affected any of their interests, other than
possibly the adoption of the presently-effective bylaws.
Roy’s arguments against the application of laches are essentially that they did not sit on
their rights after they discovered that they had any such rights to assert, and IFLA did not come
to court with the requisite “clean hands” necessary to enjoy the benefits of equity. Regarding the
latter argument, however, all of the asserted wrongful acts committed by IFLA are the acts to
which IFLA seeks to apply the equitable defense of laches (e.g., disregarding statutory and
2
Therein defined as “a continuing course of conduct or a significant action or series of actions
that substantially interferes with the interests of the shareholder as a shareholder. Willfully
unfair and oppressive conduct may include the termination of employment or limitations on
employment benefits to the extent that the actions interfere with distributions or other
shareholder interests disproportionately as to the affected shareholder. The term does not include
conduct or actions that are permitted by an agreement, the articles of incorporation, the bylaws,
or a consistently applied written corporate policy or procedure.”
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bylaw voting requirements), making this effectively a bootstrapping argument. There appears to
be no dispute that Roy acted promptly to challenge IFLA’s actions when IFLA imposed a lien
against them, and in the process, Roy discovered that IFLA’s corporate existence and corporate
acts might be fatally defective by law. However, there is also no dispute that Roy paid lot
assessments for ten years previously, during which time a potentially material witness for some
of Roy’s claims died and IFLA expended funds and entered into contracts with the expectation
that its dues assessments were valid.
The record discloses no clear error in the trial court’s factual finding that “the Roys have
lived within the bounds of IFLA for over a decade without raising any issue or looking to
enforce any rights regarding formation, governance, or authority[; and i]n the meantime, by
waiting until now to challenge the formation, the IFLA has suffered prejudice by virtue of the
death of their historical record keeper, Carol Setsuda, as well as the fact that it has entered into a
contract with and accepted an advance from Green Oak Township for drainage repair . . . under
the assumption that it was validly formed[.]” Setsuda passed away “in late 2004 or early 2005,”
although other members with historical knowledge had also passed away. It is not immediately
clear when IFLA entered into the agreement with Green Oak Township, but the Township at
least tentatively approved doing so on April 15, 2009, and IFLA voted to approve a dues increase
“for the purpose of completing Phase II of the Island and Fonda Lake Drain” at its 2009 meeting.
The loss of institutional history would have little bearing on events that occurred more recently,
but entering into substantial debt constitutes a substantial act of reliance.
We add that Roy paid their assessed dues for the entire decade and, as IFLA points out,
enjoyed the benefits of the road maintenance conducted by IFLA, so they were not unaffected by
IFLA’s existence or IFLA’s dues assessments. IFLA’s assertion that paying dues should be
considered an act of corporate assent may be going too far, given the undisputed fact that Roy
never had any active participation in IFLA’s business. Nonetheless, Roy had ample basis for
challenging IFLA’s existence or conduct as soon as they paid their first dues. Consequently, the
case at bar is not one in which plaintiffs acted promptly upon being inconvenienced, but rather
one in which plaintiffs did nothing for a long time until they were inconvenienced more. The
trial court did not commit clear error in finding that Roy sat on their rights for a decade and that
IFLA changed its position to its detriment and otherwise suffered prejudice as a result. The trial
court likewise did not commit clear error in finding, as a result, “passage of time, prejudice to the
defendant, and a lack of diligence by the plaintiff.” The prerequisites for the application of
laches are therefore satisfied, at least through the time when IFLA entered into the debt-incurring
drain agreement with Green Oak Township. The trial court correctly precluded Roy from
challenging any of IFLA’s conduct prior to that time.
By necessary inference, of course, the doctrine of laches is inapplicable to any of IFLA’s
conduct after its act of reliance, as the trial court properly found. However, the trial court clearly
committed a significant factual error in declining to apply the doctrine of laches to the 2010-
2011 dues assessment: the trial court repeatedly referred to “the April 2010” vote, but no such
vote was ever mentioned by the parties. The challenged dues assessment that resulted in the lien
that precipitated the instant suit was imposed at the 2009 meeting; the same meeting at which
IFLA entered into the debt-incurring drain agreement with Green Oak Township. The trial court
erroneously stated that Roy brought suit “approximately one and one half years after the vote on
the 2010-2011 year dues assessment and approximately 7 months after the lien was recorded.”
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The latter timing is accurate, but Roy filed their initial complaint on October 24, 2011,
approximately two and a half years after the vote on the 2010-2011 dues assessment. IFLA
argues that Roy’s acquisition of Lot 3 should not “eras[e] the previous decade of delay.”
Although somewhat hyperbolic, IFLA makes a valid point that by the time Roy did assert their
rights, the damage had already been done. As discussed, Roy was well aware of the fact that
IFLA had been imposing dues, and they challenge the fact that IFLA imposes them rather than
just the increase or just the imposition of dues on vacant lots.
Consequently, the trial court properly applied the doctrine of laches, but it erroneously
did not extend the application of the doctrine of laches to the 2010-2011 dues assessment.
Nevertheless, the doctrine of laches does not completely bar Roy’s complaint. In
particular, Roy’s challenges to IFLA’s bylaws as they presently exist present no potential laches
issue. The trial court found various infirmities in IFLA’s bylaws. We agree in part with the trial
court, but we also disagree in part.
IFLA contends that the trial court erred in finding that its voting procedures violated
various provisions of the summer resort corporation act by impermissibly permitting votes by
fewer than all members. IFLA points out that its 1993 bylaws expressly permit less stringent
voting requirements, and furthermore, MCL 455.219 was amended in 2006 to permit votes to be
had by a majority of the members voting, rather than by all members. Specifically, MCL
455.219(2) provides:
Unless the members by a vote of a majority of all of the members have by
resolution specifically provided for approval by a majority of the votes cast by the
members voting, the vote of a majority of all of the members of the corporation is
required to approve an action of the board under subsection (1).
“Resolution” is not defined by statute, but has been defined by this Court as “a formal expression
of the opinion or will of an official body, adopted by a vote,” noting that a motion that has
received a vote of approval becomes a resolution. Gorney v City of Madison Heights, 211 Mich
App 265, 271; 535 NW2d 263 (1995). If an organization adopted bylaws by a vote, the resulting
adopted bylaws would constitute a “resolution.” Under MCL 455.219(2), the requisite resolution
must specifically provide for voting by less than all members, but the statute does not require the
resolution to be specifically and exclusively do to so. Consequently, there is no reason why the
requirements of MCL 455.219(2) could not be satisfied by a corporation adopting bylaws that
provide for votes by less than all members.
The trial court found no evidence that any such resolution had ever been made. We
disagree. IFLA’s original bylaws were adopted effectively contemporaneously with the
formation of IFLA itself. The articles of incorporation list five incorporators and make no
mention of membership. IFLA in its original form must have consisted of only the
incorporators, and although membership eligibility is defined by MCL 455.206, the actual scope
of IFLA’s final membership was not otherwise defined until the bylaws were adopted. Because
it is inconceivable that the original bylaws would not have been adopted by all five
incorporators, we find that those original bylaws constitute a resolution voted on by what was at
the time the entire membership of IFLA. The 2006 amendment to MCL 455.219 refers to a
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corporation having provided for voting by less than all members in the past, so there is no reason
why MCL 455.219(2) could not, as IFLA argues, “ratify” an appropriate resolution that had
occurred prior to that amendment.
We therefore conclude that the trial court erred in holding that IFLA’s bylaws
impermissibly permit votes by fewer than all members.
In contrast, IFLA concedes that MCL 450.1421, which allows shareholders to vote by
proxy, is applicable to summer resort corporations pursuant to MCL 450.1123(1). Pursuant to
MCL 450.1231, bylaws may not contain provisions “inconsistent with law.” Consequently,
IFLA does not challenge the trial court’s ruling that its prohibitions in its bylaws against proxy
voting or voting by delinquent members is unenforceable. However, IFLA points out that Roy
never attempted to vote by proxy and were not delinquent at any relevant time. That fact does
not deprive Roy of standing, which requires only that a plaintiff have some “special injury or
right or substantial interest that would be detrimentally affected in a manner different from the
citizenry at large.” Lansing Schools Educ Ass’n, 487 Mich. at 359. Nevertheless, the remedies
available to the Court under MCL 450.1489(1) are permissive and entirely at the Court’s
discretion, rather than mandatory. The imposition of the lien was essentially a purely ministerial
act that was all but mandated by prior events that Roy may not now challenge. In light of the
fact that Roy never sought to vote by proxy, we conclude that Roy was not harmed by that
particular deficiency in IFLA’s procedures and therefore not entitled to relief beyond a
prospective declaratory judgment.
We conclude that the trial court properly found that IFLA’s bylaws illegally prohibit
proxy voting, but we also conclude that the trial court erroneously invalidated the lien on that
basis.
Roy next argues that irrespective of whether IFLA properly exercised any of its powers,
summer resort corporations’ powers are enumerated in MCL 455.212, and that statute does not
explicitly confer authority to maintain roads that the corporation does not own outright or to
assess dues for that purpose. Roy’s reading of the statute is technically accurate if given the
most constricted reading possible. However, as the trial court found, such powers on the part of
summer resort corporations are necessarily implied by the entirety of the statutory scheme.
Strictly speaking, MCL 455.212 states that a summer resort corporation board of trustees
has “the following jurisdiction over the lands owned by the corporation and its members, viz.: To
keep all such lands in good sanitary condition; . . . to regulate the speed of vehicles over its
streets and alleys and make general traffic regulations thereon; . . . to compel persons occupying
any part of said lands to keep the same in good sanitary condition and the abutting streets and
highways and sidewalks free from dirt and obstruction and in good repair.” However, it is
obvious that MCL 455.212 gives summer resort corporations jurisdiction over lands owned by its
members and to keep such lands in good sanitary condition. Roads owned by the members
would necessarily be included under that jurisdiction.
Additionally, MCL 455.211 provides that:
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Such corporation, through its properly delegated officers, shall have jurisdiction
over the lands owned by the corporation and over the lands owned by the
members of said corporation for the exercise of the police powers herein
conferred. The corporation shall have jurisdiction over the streets and highways
passing through or over such lands: Provided always, That the right of the public
to control, repair and use all such highways and streets as are necessary for the
public travel through or across said lands, shall not be affected hereby: And
provided further, That the public shall not be liable for the condition, safety or
repair of such streets, alleys or highways as may be laid out and used on the
authority of said corporation.
This statute reiterates that summer resort corporations have jurisdiction, including police power
jurisdiction, over lands owned by members, not just lands directly owned by the corporation
itself. Such corporations explicitly have jurisdiction over streets and highways; not to the
exclusion of the public, but by necessary implication from the last sentence, the corporation is
obligated to maintain those streets and highways. Furthermore, MCL 455.204 explicitly
provides that summer resort corporations “shall become and be a body politic and corporate . . .
and shall have and possess all the general powers and privileges and be subject to all the
liabilities of a municipal corporation and become the local governing body.” MCL 455.204.
Finally, such corporations may compel the payment of dues and assessments “for any purpose
authorized under this act.” MCL 455.219(1).
It is unambiguous from reading the statutes within the summer resort owners act together
that summer resort corporations are effectively municipalities with police powers over roadways
within their boundaries and the power to maintain those roads and compel the payment of dues
for the purpose of maintaining those roads. The trial court correctly found that summer resort
corporations do not exceed their statutory powers by assessing dues for the purpose of road
maintenance.
Roy next argues that IFLA’s lien cannot take priority over Roy’s deed and that the lien
slanders Roy’s title to the property. We disagree.
Roy relies on MCL 565.29, which provides in relevant part:
Every conveyance of real estate within the state hereafter made, which shall not
be recorded as provided in this chapter, shall be void as against any subsequent
purchaser in good faith and for a valuable consideration, of the same real estate or
any portion thereof, whose conveyance shall be first duly recorded.
Roy argues that because they recorded their deed first, and they had no notice of any potentially
conflicting interest in the property, their deed necessarily takes priority over IFLA’s
subsequently-recorded lien. However, logically, their approach would mean no document could
ever take priority over any deed.
“Under MCL 565.29, the holder of a real estate interest who first records his or her
interest generally has priority over subsequent purchasers.” Richards v Tibaldi, 272 Mich. App.
522, 539; 726 NW2d 770 (2006). The purpose of the recording statute “is to prevent fraud by
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securing certainty and publicity in such dealings.” Atwood v Bearss, 47 Mich. 72, 73; 10 N.W.
112 (1881). Pursuant to MCL 565.35, a “conveyance” includes, in relevant part, “every
instrument in writing, by which any estate or interest in real estate is created, aliened, mortgaged
or assigned; or by which the title to any real estate may be affected in law or equity.”
Consequently, both a deed and a lien could be “conveyances,” because both are written
instruments that may legally or equitably affect title to real estate, either directly or indirectly.
However, pursuant to MCL 565.34, “purchaser” means “every person to whom any estate or
interest in real estate, shall be conveyed for a valuable consideration, and also every assignee of a
mortgage, or lease or other conditional estate.” A lien simply does not fit this definition.
An encumbrance has been defined broadly in Michigan as “anything . . . which
constitutes a burden upon the title ; a right of way, . . . a condition which may work a forfeiture
of the estate, . . . a right to take off timber, . . . a right of dower, whether assigned or unassigned .
. . In short, every right to, or interest in the land, to the diminution of the value of the land, but
consistent with the passage of the fee by the conveyance.” Post v Campau, 42 Mich. 90, 94-95; 3
N.W. 272 (1879) (internal quotation omitted). This Court has clarified that the term
“encumbrance” should not be defined so broadly as to include prospective burdens that have not
yet attached to the property. See Burcher v Burton Abstract Title Co, 52 Mich. App. 98, 101-102;
216 NW2d 434 (1974). “Hence, although an encumbrance is typically adverse to the interest of
the landowner, it does not conflict with his conveyance of the land in fee. A lien is one type of
encumbrance.” Darr v First Federal Savings & Loan Ass’n of Detroit, 426 Mich. 11, 20; 393
NW2d 152 (1986).
Critically, therefore, “[a] lien is not a property right in, or right to, the thing itself, but
constitutes a charge or security thereon.” Aetna Casualty & Surety Co v Starkey, 116 Mich. App.
640, 645; 323 NW2d 325 (1982); see also Darr, 426 Mich. at 21. In contrast, “[a]n assignment is
a transfer of the property right.” Aetna, 116 Mich. App. at 645. Consequently, a lien is not itself
an interest in real estate, so a lienor is not a “purchaser” within the meaning of MCL 565.34. A
lien is not necessarily exchanged for value, in any event; indeed, the opposite is typically true,
that value must be given to remove the lien. Indeed, recordation of “instruments of
encumbrance,” which explicitly includes liens, is governed by MCL 565.25. Furthermore,
[t]he statute does not declare that the record shall be notice to subsequent
purchasers, but only that unrecorded conveyances shall be void as to subsequent
purchasers in good faith whose conveyances shall be first recorded; and courts
have held uniformly that the effect of the recording laws was that the record of a
conveyance, which is entitled to be recorded under such laws, operates as
constructive notice to subsequent purchasers claiming under the same grantor, or
through one who is the common source of title.” [Edwards v McKernan, 55 Mich.
520, 526; 22 N.W. 20 (1885).]
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Notably, IFLA’s lien was not a prior unrecorded document of any kind, and because an
instrument of encumbrance is not perfected until recorded, MCL 565.25(1), it is not clear that a
“prior unrecorded lien” is a creature that could even exist.3
Roy’s contention that a lien can never take priority over a prior recorded deed, under the
circumstances of the instant case or in any circumstance, is contrary to the law. The basis for
Roy’s slander of title claim, i.e., the alleged inherent invalidity of the lien, therefore also fails.
Roy finally, and bafflingly, purports to appeal certain counterclaims asserted by IFLA
that the trial court, in fact, dismissed. Moreover, IFLA expressly, if conditionally,4 concedes the
trial court’s dismissal of those counterclaims. Roy is not aggrieved by the trial court’s decisions
regarding these issues and therefore has no right to appeal them. MCR 7.203(A). Finally, IFLA
argues that the trial court should have awarded it costs and attorney fees. We decline to address
that issue at this time and direct that IFLA may raise it on remand.
In conclusion, IFLA is a validly incorporated summer resort corporation with the power
to assess and collect dues for the maintenance of roads within its jurisdiction. The trial court
properly applied the doctrine of laches to preclude Roy from challenging any of IFLA’s conduct
prior to IFLA’s entry into the drain contract with Green Oak Township, but it erred by failing to
include the 2010-2011 dues assessment under that bar. The trial court erred in finding that
IFLA’s bylaws impermissibly prohibit voting by fewer than all members. The trial court
correctly found that IFLA’s bylaws impermissibly prohibit proxy voting, but erred by
invalidating IFLA’s lien on that basis. Such liens can validly encumber prior recorded deeds.
IFLA’s lien is a valid such encumbrance.
We therefore affirm the trial court’s judgment to the extent the trial court held in favor of
IFLA; and except for the issues of proxy voting, costs and attorney fees, and the dismissed
counterclaims IFLA concedes on appeal, we reverse to the extent the trial court held in favor of
Roy. We specifically hold, inter alia, that IFLA’s lien is valid and should not have been
3
It may be of some interest that liens appear to have their own prioritization. In the absence of a
statute to the contrary, “[t]he principle, says Chief Justice Marshall, is believed to be universal,
that a prior lien gives a prior claim which is entitled to prior satisfaction out of the subject it
binds, unless the lien be intrinsically defective or be displaced by some act of the party holding
it, which shall postpone him in a court of law or equity to a subsequent claimant.” Denison v
Schuler, 47 Mich. 598, 602; 11 N.W. 402 (1882), citing Rankin v Scott, 25 US (12 Wheat) 177,
179; 6 L. Ed. 592 (1827). Insofar as liens, unlike conveyances, seemingly cannot exist until
recorded, this rule is perfectly logical and, indeed, inevitable.
4
Specifically, IFLA states that it declines to contest the trial court’s dismissal of its
counterclaims only if this Court does not reverse the trial court’s dismissal of Roy’s attempt to
invalidate IFLA’s authority in general to assess and collect dues and to maintain roads.
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invalidated, and IFLA’s counterclaim to foreclose the lien should likewise not have been
dismissed. We express no opinion as to the issue of costs and attorney fees at this time, nor do
we express any opinion as to any issue that we have not explicitly discussed herein. We remand
for further proceedings consistent with this opinion as the trial court may deem necessary or
appropriate. We do not retain jurisdiction.
/s/ E. Thomas Fitzgerald
/s/ Elizabeth L. Gleicher
/s/ Amy Ronayne Krause
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