Opinion ID: 1059334
Heading Depth: 1
Heading Rank: 5

Heading: Void Transactions and Fairness

Text: The defendants argue that the chancellor erred in failing to hold that the purported sale in 1975 of JMHI's assets to JMHC, or in the alternative, the 1982 transactions with HGV, constituted acts of trustees in dissolution of JMHI to wind-up the non-profit corporation. The defendants also assert that the chancellor erred when he held that the purported sale in 1975 of JMHI's assets to JMHC was void, regardless of the fairness of the sale from the perspective of JMHI. We disagree with the defendants' arguments. In Tauber I, we concluded that the law and the evidence fully supported the chancellor's rulings that JMHI and JMHC did not merge in 1971. Id. at 465, 499 S.E.2d at 844. We also held that the transactions purportedly taken by the directors after the 1973 charter revocation were void. We stated: Because the 1971 transaction never occurred, the 1973 revocation of JMHI's corporate charter converted its directors by operation of law to trustees in dissolution.... The charter revocation terminated JMHI's corporate existence and powers, and it could no longer function as a corporation.... From that day forward, the defendants' actions purportedly taken as corporate officers, and not done to wind up or liquidate the business, were without effect because there was no corporation for which to act. The corporate assets had automatically transferred to the directors as trustees. Id., 499 S.E.2d at 844-45. In addition, as stated above, we concluded that the record clearly demonstrates that the directors of JMHI, now trustees in dissolution, have failed and refused to execute the trust. Id. at 456, 499 S.E.2d at 845. We held that the transactions at issue showed an entire course of self-dealing by the directors of the charity that resulted in the total obliteration of the non-profit corporation [JMHI]. Id. at 453-54, 499 S.E.2d at 844. These holdings in Tauber I mandate our present conclusion that the purported sale in 1975 of JMHI's assets to JMHC, and the 1982 transactions with HGV, did not constitute acts of the defendants as trustees in dissolution to wind-up the corporate affairs of JMHI. This conclusion is amply supported by the record, which contains no indication that the transactions in 1975 and 1982 were entered into by the defendants as trustees in dissolution of JMHI, on behalf of the charity, rather than as directors of JMHC who profited from the transactions. In Tauber I, we also rejected the defendants' contention that we should apply a fairness test to the 1971 failed merger between JMHI and JMHC. Id. at 455-56, 499 S.E.2d at 845. Our conclusion was based on our holding that the defendants were not entitled under any circumstances to property rights or other assets belonging to JMHI, either during or after the life span of the corporation. We stated that [t]o hold otherwise would convert the public nature and purpose of the corporation into a vehicle for the personal pecuniary gain of the members. Id. at 455, 499 S.E.2d at 845 (quoting Hanshaw v. Day, 202 Va. 818, 824, 120 S.E.2d 460, 464 (1961)). This conclusion applies equally to the purported sale in 1975. Moreover, a defense of fairness is inapplicable to the review of a void transaction such as the 1975 purported sale, because that transaction in effect never occurred.