Opinion ID: 2593799
Heading Depth: 1
Heading Rank: 3

Heading: Prospective Ruling

Text: The Owners contend that the trial court's conclusion that the past acts of the Board were lawful and valid is inconsistent with its determination that the Board was illegally elected. The ruling is not inconsistent. As noted previously, developer control over a board is not unlawful during the marketing phase of a condominium development. The Board argues that the trial judge's ruling as to developer control of the Board should be prospective regardless of when the marketing/development phase of the project ended. The Board argues that this issue is subject to the analysis adopted in In re Estate of McDowell, 245 Kan. 278, 777 P.2d 826 (1989). There, the McDowell court held: A judicial decision may be applied prospectively only if: (1) the decision establishes a new rule of law; (2) retroactive application would not further the principle on which the decision is based; and (3) retroactive application would cause substantial hardship or injustice. 245 Kan. 278, Syl. ¶ 2. The Board also asserts that retroactive application of the ruling would not further the principle of owner control and would cause substantial hardship to other individual condominium owners. The Board points to the fact that many owners bought into the project and invested money with the expectation that special services and facilities, such as the Wellness Center, access to health services, and programs with Bethel College, would be available in the future. The Board argues that invalidating the past acts of the Board would reshape the community and frustrate the legitimate expectations of condominium owners. The Board also asserts that money the Owners paid cannot be traced because that money has long been combined with fees and reimbursements for health services, meals, and charitable contributions, and has not enriched any person. It also claims that invalidation of the prior Board decisions, which includes adoption of the bylaws, could expose individual members of the association to personal liability for the debts and liabilities of the association. The Board argues that under basic corporate principles, the trial court's ruling that the sitting Board was illegally elected must be applied prospectively. The Board cites the de facto corporation doctrine for support. It argues that the Association's directors and officers are de facto directors and officers under Kansas law because they assumed their duties as such under color of authority, performed those duties, and were recognized and accepted as ... officers [or directors] by all who dealt with them. See Olathe Hospital Foundation, Inc. v. Extendicare, Inc., 217 Kan. 546, 558, 539 P.2d 1 (1975). The de facto corporation doctrine is a legal makeshift by which unlawful or irregular corporate and public acts are legalized for certain purposes on the score of necessity. For the most part, the rule applies to third persons dealing with such officers. 2 Fletcher, Cyclopedia of the Law of Private Corporations § 372 (rev. perm. ed. 1998). An officer de facto has been defined by the courts as one who has the color of right or title to the office he or she exercises, or who has the apparent title of an officer de jure. 2 Fletcher, Cyclopedia of the Law of Private Corporations § 373 (rev. perm. ed. 1998). Generally, the contracts and acts of de facto officers, when acting within the scope of their authority, are just as binding as the acts of officers de jure, as least so far as third persons are concerned. 2 Fletcher, Cyclopedia of the Law of Private Corporations § 380 (rev. perm. ed. 1998). The validity of the acts of de facto directors or officers are not affected by the fact that a court declares the election or appointment void and ousts them from the office. Furthermore, so far as third persons are concerned, the rule that the acts of de facto officers are binding in their favor is ordinarily merely another way of stating that the corporation is bound. If a contract between de facto officers and third persons is binding on the latter, then it cannot be attacked by the corporation as the act of de facto officers. 2 Fletcher, Cyclopedia of the Law of Private Corporations § 383 (rev. perm. ed. 1998). Here, since the Board was legally constituted at the inception of the development stage, the trial court correctly ruled that the prior acts of the Board were not void or illegal. Clearly, this establishes a new rule of law in Kansas and therefore must be applied prospectively.