Reinstated Corporations have a retroactive legal existence, but not necessarily an actual one

In Woodbury v. Res-Care Premier, Inc., a published opinion, the Michigan Court of appeals reversed the trial court's decision to grant summary disposition in favor of the subdivision, Center Woods, reasoning that Center Woods had automatically dissolved in 1993 and was not a valid legal entity at the time of defendant Res-Care's purchase of defendant Averill's property, so Averill was not required to give notice or right of first refusal to Center Woods.

Governing the subdivision are Articles of Agreement dated 1941 stating that all owners must give 30 days notice of a potential sale as well as the right of first refusal to Center Woods. In 1993, Center Woods was automatically dissolved for failure to pay its annual fee.

The seller, Averill, gave notice to Center Woods via the head of the homeowner's association in July about a pending sale. In October, she sent another notice when the purchaser was changed from an individual to Res-Care, this time also sending the notice to her neighbor. The neighbor was concerned about the group home and was appointed by Center Woods to file for an injunction. Center Woods was reinstated with the state the same day that it filed its lawsuit.

The trial court agreed with Center Woods that the sale was invalid because Averill failed to give 30 days notice and the right of first refusal to Center Woods. The trial court found that Center Woods' status as an automatically dissolved corporation did not excuse the notice requirement.

MCOA reversed, pointing out that at the time of the notice, Center Woods did not exist. MCL 450.2925 allows dissolved corporations to be reinstated as if dissolution had never taken place. The rights of a reinstated corporation are the same as though dissolution had not taken place, and all contracts entered into and other rights acquired during the interval are valid and enforceable. The court points out that reinstatement grants the benefits of corporate status, such as no individual liability. However, it is just a retroactive legal existence. It cannot retroactively require third parties to have done something in the past that the third party would not otherwise have been required to do had there been no corporation.

A party is not required to provide notice to a dissolved corporation in the off-chance that the corporation will seek reinstatement. Simply because a corporation can be reinstated does not mean every dissolved company will. The law does not require people to assume otherwise. A dissolved company might continue to exist beyond the date of dissolution for a reasonable time to wind up its affairs. The court mentions that it had held 32 years to be unreasonable, but does not come out and say it is finding 16 years unreasonable. Instead, it states that the reinstatement created some type of legal existence for those 16 years.

Lesson: While reinstatement will establish a legal existence for your dissolved corporation, it's not the same as having been in existence. If your company has dissolved and you wish to continue doing business, file the necessary papers for reinstatement so the company has an actual existence, not just a legal one.

Categories: Real Estate Law