SEABROOK IS. PROP. OWNERS ASSOC. v. PELZER

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Docket Number

0942

Attorney(S)

John P. Algar, of Pelzer Algar, of Charleston, for appellant. Gedney M. Howe, III, and David B. Wheeler, of Holmes Thomson, of Charleston, for respondent.

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Smart Summary

Factual and Procedural Background

Seabrook Island Property Owners Association (the Association) filed suit against J. Randolph Pelzer to recover an unpaid annual assessment for 1984 on two lots owned by Pelzer. Pelzer counterclaimed, challenging the validity of the 1984 assessment and seeking a refund of assessments paid from 1976 through 1983, alleging those assessments were also invalid. The Association defended the counterclaim by asserting estoppel concerning the past assessments. The circuit court ruled in favor of the Association for the unpaid 1984 assessment and dismissed Pelzer's counterclaim with prejudice. Pelzer appealed this decision.

The Association is a South Carolina non-profit corporation tasked with preserving Seabrook Island's amenities and maintaining roads, open spaces, and landscaping. It is governed by protective covenants and bylaws authorizing annual maintenance charges based on assessed valuation fixed by the Charleston County Tax Assessor.

Pelzer received bills for 1984 maintenance charges based on a flat fee system rather than assessed valuation. Although he had paid previous assessments without protest, after investigating related litigation, he concluded the assessments were improper and requested reassessment on a valid basis, refusing to pay the 1984 charges.

Legal Issues Presented

Whether the Association's use of a flat fee system for annual maintenance charges, instead of basing assessments on the property’s assessed valuation as required by the restrictive covenants and bylaws, was valid.
Whether Pelzer is estopped from seeking a refund of assessments paid from 1976 through 1983 despite the alleged invalidity of those assessments.

Arguments of the Parties

Respondent's (Association's) Arguments

The flat fee system of assessment represents a valid "business judgment" of the Board of Directors.
Article VIII, Section 1 of the bylaws authorizes setting maintenance charges at a fixed rate for improved and unimproved property, which they interpret as permitting flat fees.
Regarding past assessments, the Association contends Pelzer is estopped from claiming refunds because he acquiesced and paid the charges without objection, and the Association expended the funds in good faith.

Appellant's (Pelzer's) Arguments

The Association improperly assessed his properties using a flat fee rather than basing charges on the assessed valuation as mandated by the restrictive covenants and bylaws.
He requested reassessment on a valid basis and refused to pay the 1984 charges as billed.
He seeks a refund of prior assessments paid between 1976 and 1983, alleging those assessments were also invalid.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Lovering v. Seabrook Island Property Owners Association, 291 S.C. 201, 352 S.E.2d 707 (1987)	Bylaws require adjustments to annual maintenance charges to be based on assessed property values fixed by the county tax assessor.	The court relied on this precedent to interpret the Association's bylaws as mandating assessments based on assessed valuation, rejecting the flat fee system.
Palmetto Dunes Resort v. Brown, 287 S.C. 1, 336 S.E.2d 15 (Ct.App. 1985)	Restrictive covenants are contractual and bind parties like any other contract.	Used to support the principle that the Association must adhere to the covenants and bylaws and cannot deviate based on a business judgment rule for ultra vires acts.
Lovering v. Seabrook Island Property Owners Association, 289 S.C. 77, 344 S.E.2d 862 (Ct.App. 1986), aff'd as modified 291 S.C. 201, 352 S.E.2d 707 (1987)	Corporations may only exercise powers granted by law, charter, or bylaws; acts beyond these are ultra vires.	The court applied this to hold that the Association's flat fee system was ultra vires and not protected by the business judgment rule.
Dockside Association, Inc. v. Detyens, 291 S.C. 214, 352 S.E.2d 714 (Ct.App. 1987)	The business judgment rule applies only to intra vires corporate acts, not ultra vires acts.	Supported the court's rejection of the Association’s defense that the flat fee was a reasonable business judgment.
McClintic v. Davis, 228 S.C. 378, 90 S.E.2d 364 (1955)	Silence or acquiescence while another changes position estops a party from later seeking relief.	Applied to affirm estoppel against Pelzer's claim for refund of prior assessments due to his acquiescence and acceptance of benefits.

Court's Reasoning and Analysis

The court analyzed the Association’s authority under its restrictive covenants and bylaws, which explicitly require annual maintenance charges to be based on the assessed valuation of property as fixed by the county tax assessor. Although the bylaws allow for a "fixed rate" for improved and unimproved properties, the court clarified that a "rate" means a proportional charge based on value, not a flat fee. The flat fee system employed by the Association was found to be inconsistent with the plain language of the covenants and bylaws.

The court rejected the Association’s argument that the flat fee system constituted a valid business judgment, emphasizing that restrictive covenants are contractual and that corporations may only act within the scope of their granted powers. The flat fee system was deemed an ultra vires act, and thus the business judgment rule did not apply.

Regarding Pelzer’s counterclaim for refunds of prior assessments, the court held that Pelzer was estopped from recovering because he had constructive knowledge of the improper assessment method, had acquiesced by paying the charges without objection, and had received the benefit of the expenditures funded by those payments. Equity favored the Association, which had acted in good faith.

Holding and Implications

The court affirmed in part and reversed in part. It reversed the judgment requiring Pelzer to pay the 1984 assessments based on the flat fee system, holding that such assessments violated the restrictive covenants and bylaws and were therefore invalid. However, it affirmed the dismissal of Pelzer’s counterclaim seeking refunds for assessments paid from 1976 through 1983, holding that Pelzer was estopped from recovering those amounts.

The direct effect of this decision is that Pelzer is relieved from paying the 1984 flat fee assessments, but he cannot recover past payments. The court did not establish new precedent beyond applying existing principles to the facts, reaffirming the contractual nature of restrictive covenants, the limits on corporate powers, and the doctrine of estoppel.

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SEABROOK ISLAND PROPERTY OWNERS ASSOCIATION, Respondent v. J. RandolphPELZER, Appellant.

Heard Jan. 19, 1987.

Decided April 27, 1987.

BELL, Judge:

Seabrook Island Property Owners Association instituted this action against J. Randolph Pelzer to collect an unpaid annual assessment for 1984 on two lots owned by Pelzer at Seabrook Island. Pelzer counterclaimed, alleging the assessment was invalid. He also sought a refund of assessments he had previously paid for the years 1976 through 1983, alleging that they, too, were invalid. The Association replied to the counterclaim, raising the defense of estoppel as to past assessments. The circuit court entered judgment for the Association in the sum of $992.25, representing the unpaid 1984 assessment and dismissed Pelzer's counterclaim with prejudice. Pelzer appeals. We affirm in part and reverse in part.

The Association is a non-profit corporation organized under the laws of South Carolina. Its purpose is to preserve the amenities of Seabrook Island and to maintain roads, open spaces, and landscaping for all property owners of the Seabrook Island development. Its membership is composed of all property owners on Seabrook Island.

The Association is governed by protective covenants and bylaws. These authorize it to collect from each property owner and annual maintenance charge. The authority to assess and the method of assessment are prescribed in Paragraph 7 of the protective covenants and in Article VIII, Section 1, of the bylaws. Paragraph 7 of the protective covenants provides, in pertinent part:

Each lot and lot owner in the subdivision shall be subject to an annual maintenance charge based upon the assessed valuation of the premises and any improvements thereon as fixed each year by the Tax Assessor of Charleston County, South Carolina, for County taxation purposes.

Article VIII, Section 1, of the bylaws states:

The Board of Directors ... shall have the right and power to subject the property situated on Seabrook Island ... to an annual maintenance charge. * * * * The annual charge may be increased, adjusted or reduced from year to year by the Board of Directors ... and such maintenance charge may be set at a fixed rate for unimproved property and a fixed rate for improved property. After reassessment of all the property on Seabrook Island by the Tax Assessor of Charleston County, the annual charge may be increased, adjusted or reduced from year to year by the Board of Directors ... based on the dollar [sic] of the assessed valuation of the premises and any improvements constructed thereon ... as fixed each year by the Tax Assessor of Charleston County, South Carolina, for County taxation purposes.

In 1984, Plezer received two bills for maintenance charges on his improved and unimproved lots, respectively. Although he had paid previous assessments from 1976 through 1983 without protest, he investigated the manner in which the assessments were fixed in connection with litigation for clients challenging special assessments for beach renourishment and bridge repair. As a result of his investigation, Pelzer concluded the Association had been improperly assessing his properties, because the annual maintenance charge was not based upon assessed valuation for taxation purposes as required by the restrictive covenants and bylaws. He, therefore, requested the Association in writing to reassess the property on a valid basis and refused to pay the annual maintenance charges for which he had been billed.

Pelzer was the plaintiffs' attorney in Lovering v. Seabrook Island Property Owners Association, 289 S.C. 77, 344 S.E.2d 862 (Ct.App. 1986), aff'd as modified, 291 S.C. 352 S.E.2d 707 (1987).

The Association admits it has been assessing all property owners on a fixed fee basis without regard to the value of their property. Owners of improved lots are assessed at one uniform fee, regardless of the value of their lots; owners of unimproved lots are assessed at another uniform fee, regardless of the value of their lots. The flat fee for improved property for 1984 was $610.00; and fee for unimproved property was $315.00.

The Association defends this flat fee system of assessment as a "business judgment" of the Board of Directors. It contends a flat fee is authorized under the clause in Article VIII, Section 1, which says "such maintenance charge may be set at a fixed rate for unimproved property and a fixed rate for improved property." We reject this argument.

In Lovering v. Seabrook Island Property Owners Association, 291 S.C. 201, 352 S.E.2d 707 (1987), our Supreme Court construed the Association's bylaws to provide that "adjustments to the annual maintenance charge are to be based on the assessed value of the property as fixed by the county tax assessor." Id. at 203, 352 S.E.2d at 708. This is the plain import of both the restrictive covenants and the bylaws.

The authorization to set the maintenance charge at a "fixed rate" does not permit a "flat fee" system of charges. A "rate" is a proportional charge based on value, not a flat fee. A "fixed rate" is a fixed amount of assessment per stated amount of valuation. The "rate" of assessment is the proportion or ratio the maintenance charge bears to the assessed value of the property. Typically, it is expressed as a percentage or millage of the property's assessed value: i.e., so many cents or mills per dollar of value.

Under the bylaws, the Board of Directors may set one rate for improved property and another rate for unimproved property. For example, improved property might be assessed at 1.5% of value while unimproved property is assessed at 1% of value. This does not, however, authorize the Board to fix the annual maintenance charge on some basis other than assessed value for county tax purposes.

The Association argues that its flat fee system of charges is reasonable and was adopted in good faith in the exercise of business judgment. This argument misses the point. Restrictive covenants are contractual in nature and bind the parties thereto in the same manner as any other contract. Palmetto Dunes Resort v. Brown, 287 S.C. 1, 336 S.E.2d 15 (Ct.App. 1985). Moreover, a corporation may exercise only those powers which are granted to it by law, by its charter or articles of incorporation, and by any bylaws made pursuant thereto; acts beyond the scope of the powers so granted are ultra vires. Lovering v. Seabrook Island Property Owners Association, 289 S.C. 77, 344 S.E.2d 862 (Ct.App. 1986), aff'd as modified, 291 S.C. 201, 352 S.E.2d 707 (1987). The "business judgment" rule applies to intra vires action of the corporation, not to ultra vires acts. See Dockside Association, Inc. v. Detyens, 291 S.C. 214, 352 S.E.2d 714 (Ct.App. 1987).

The restrictive covenants and the bylaws require annual maintenance charges to be based on property values. A system of charges that violates this requirement cannot be defended on the ground that it is a reasonable alternative. The Association is bound to follow the covenants and its own bylaws.

Since the flat fee annual maintenance charge violates the restrictive covenants and the bylaws, we reverse the judgment against Pelzer for the 1984 charges on his two lots.

II.

In his first counterclaim, Pelzer also sought a refund of all assessments paid in excess of what was due under a proper method of assessment for the years 1976 through 1983. The circuit court held Pelzer was estopped to assert his claim for a refund and dismissed the counterclaim with prejudice. We affirm.

As regards refund of payments from 1976 through 1983, the equities clearly favor the Association. The annual charges for those years were assessed in good faith. Pelzer had constructive knowledge that the maintenance charges were not being assessed in accordance with the restrictive covenants and bylaws. Nevertheless, he acquiesced in the method of assessment and paid the charges. The Association expended the moneys for purposes authorized by the bylaws. Pelzer received the benefit of those expenditures. He cannot now return the benefits or restore the Association to its former position.

For these reasons, the circuit court correctly held Pelzer is estopped to claim a refund. If a party stands by and sees another dealing with his property in a manner inconsistent with his rights and makes no objection while the other changes his position, his silence is acquiescence and it estops him from later seeking relief. McClintic v. Davis, 228 S.C. 378, 90 S.E.2d 364 (1955).

Affirmed in part, reversed in part.

GARDNER, and SHAW, JJ., concur.