Articles of Incorporation, "specific purpose"

CA Corporations Code sec 7140. enumerates the powers of a nonprofit mutual benefit corporation which we are. It states that the corporations powers are subject to any limitations in the articles of incorporation and any other applicable laws. So here we have the top of the hierarchy of governance, the law.

Our 1-page articles of incorporation state "The specific purpose of this corporation is to Maintain private roads and greenbelt of a X-lot subdivision."

Last section states: "Notwithstanding any of the above statements of purpose and powers, this corporation shall not, except to an insubstantial degree, engage in activities or exercise any powers that are not in furtherance of the specific purpose of this corporation."

The board is having the CC&Rs completely revised but they have let out very little information as to the changes they are making which include items unrelated to road maintenance such as rental restrictions, pets, and clearing private property then billing the owner.

I was advised by an attorney who is an authority on HOA law that our articles are unusually narrow, and he explained that the power to enforce is completely separate from the covenants embodied in the Declaration.

I thought this was an important topic and interesting for discussion.

Say, Terri, What did the attorney mean by this statement: "the power to enforce is completely separate from the covenants embodied in the Declaration" with respects to the Articles?

Hi Kerry, he meant they are apples and oranges. He said you can write whatever covenants you want but you can't enforce them absent the power to do so.

Then the HOA had better be using a competent attorney to draft these proposed amendments.

From much discussion of this over the years, including California case law discussion, if a super-majority successfully passes an amendment applying certain rental restrictions, I have doubts the HOA may lawfully apply these restrictions to any current landlord, like yourself. If you want to know why, ask.

I would never say the power to enforce covenants is completely separate from the covenants. If you want to know why, ask.

Terri

A BOD can make Rules and Regulations but they cannot modify, change, add, delete covenants nor bylaws without an ownership vote.

I should have been clearer: a board can propose amendments to the declaration and even get them passed by the membership but if it doesn't have the power to enforce them - for example because the new restrictions are outside the specific purpose of the corporation -, that is a problem for the board.

The hierarchy applies when there is a conflict. If there is no conflict, it seems the board would have to adhere to the limited power bestowed by the articles.

As I said we still don't know what the final proposed amendments will be but we know for sure they want to clear private land, ostensibly for fire protection, then bill/lien the owner.

I agree.

Again, it's the law that gives an individual owner the right to enforce, by virtue of his ownership.

What do you mean by "law"? Do you mean "statutes"?

Among other things, the articles of incorporation provide a "purpose."

Why is it you think the Articles' "purpose" overrides any purpose (express or implied) in the Declaration?

The words in the Declaration matter, an they do so more than the words in the Articles of Inc. This reality is what you are up against as you try to argue with the Board or the Board's attorney that the HOA cannot do more than "maintain private roads and greenbelt of a X-lot subdivision."

At this point I think you should quote exactly what the Declaration says in its opening paragraphs. Also please consider quoting the first several mentions of the words "the association" (or similar) and the first several mentions of "the corporation" (if any) in context, in the sentence in which the phrases are used. As you do so, keep in mind that any conflict that seems to arise between the Declaration and Articles of Incorporation is resolved by deferring to the Declaration.

Perhaps you could redact the name of the HOA and post the first few pages of the Declaration. Normally these first few pages speak to the subject in which you are interested.

Lastly for now, keep in mind that people come here often saying they think they can dissolve the corporation (and so in their opinion legally terminate the HOA) by following the corporate codes instructions on this. Not so. This is a huge legal deal. For one, the covenants do not just go away when a corporation is dissolved.

TerriS6, I think you somehow have got yourself locked into the belief that only the Articles of Incorporation give a HOA board the power to enforce, or at least you believe this is the case here. I say: Not so.

I hear you about how limited the "purpose" is in the Articles of Incorporation. And I do find that very limited purpose interesting. But this conflicts with the reality that the Declaration is higher in the hierarchy. If the Declaration does in fact speak, one way or another, of the corporation having the powers to do xyz, the Declaration controls.

If you are trying to get your ducks in line to argue against the HOA Board and HOA attorney, then I think you need to read the Declaration carefully, starting with the opening pages. Respectfully, try to do so with an open mind. What powers do the Declaration's opening pages seem to imply that the HOA has?

I appreciate that you quoted the articles of incorporation. How come you will not quote the Declaration?

Please stop attributing statements to me that I never made.

This site explains that being a corporation is not relevant to the exercise of HOA powers: https://www.davis-stirling.com/HOME/A/Association-Defined.

Excerpt:

Association Defined. An "association" is defined as a "nonprofit corporation or unincorporated association created for the purpose of managing a common interest development." (Civ. Code § 4080.) It is a private organization managing private property, whether it be residential, commercial, industrial, mixed-use or otherwise.

Association Powers.Unless the governing documents provide otherwise, and regardless of whether the association is incorporated or unincorporated, the association may exercise the powers granted to a nonprofit mutual benefit corporation, as enumerated in Section 7140 of the Corporations Code. (Civ. Code § 4805.)

I see we both landed at 4805 (per the citation within my post right above). Here is 4805 in its entirety:

Civil Code § 4805. Association's Corporate Powers.

(a) Unless the governing documents provide otherwise, and regardless of whether the association is incorporated or unincorporated, the association may exercise the powers granted to a nonprofit mutual benefit corporation, as enumerated in Section 7140 of the Corporations Code, except that an unincorporated association may not adopt or use a corporate seal or issue membership certificates in accordance with Section 7313 of the Corporations Code.

(b) The association, whether incorporated or unincorporated, may exercise the powers granted to an association in this act [meaning the California HOA statute, a.k.a. the Davis-Stirling Act].

(Bolded and underlined emphasis added by me.)

The "may" above means the association "has the legal right to, but is not required to."

I do not know what you mean by "in harmony."

My conclusion is that the homeowners' association, regardless of its corporate status, and regardless of being subject to the corporate code, has the legal right to exercise the powers given in the Declaration. This is partly (or entirely) because the D-S statute trumps the corporate code, per the rules of statutory interpretation.

This is what I believe you are up against.

ElleN said; "My conclusion is that the homeowners' association, regardless of its corporate status, and regardless of being subject to the corporate code, has the legal right to exercise the powers given in the Declaration. "

With all due respect, that's not what the law says. It says an incorporated or unincorporated association has the powers enumerated in the statute - not in the declaration.

Association can't amend the articles without authority of the membership.

Are you referring to Civil Code 4805? If so, it says that, "unless the governing documents say otherwise" an "association" "may" exercise the powers given in Corp Code 7140. It further says an association "may" exercise the powers in the Davis-Stirling Act. The may means the association has the legal right to, but is not required to, exercise the aforementioned powers.

As pointed out above, in a conflict, the D-S Act trumps the Corporate Code. Also the D-S Act at 4805 says the Declaration trumps the Articles.

I need to see the Declaration. Is it in conflict? Is it not in conflict?

If you went to court, IMO a judge would never rule without reading the Declaration, precisely because of what the D-S Act says.

If you want be prepared as possible, and so want others to judge (as laypeople, but experienced ones), then I think providing to the forum at least the opening pages of the Declaration is key. (Names should be redacted from any attachment.)

You say the board is proposing a complete revision of the CC&Rs. Do you want to object to this? Do you want to use Corporate Code arguments, and only Corporate Code arguments? If so, my position remains that the argument to use is a radical departure from the present CC&Rs is unlikely to be accepted by a court. To say more, then once again, I would have to see the present CC&Rs.

Request:
When you use the phrase "the law," could you please indicate whether you mean statutes or something else?

"The law" can mean everything from statutes, to case law, to administrative agency regulations with authority deriving from statutes, and more.

ElleN said: "As pointed out above, in a conflict, the D-S Act trumps the Corporate Code. Also the D-S Act at 4805 says the Declaration trumps the Articles. "

Our declaration currently does not conflict with our articles, and with respect to the exercise of association powers, the Davis-Stirling Act complements the Corporations Code.

Civil Code 4805(a) which I quoted above gives the association all the powers of a nonprofit mutual benefit corporation except where limited by the governing documents (our articles of incorporation with their strict limits on powers).

Corporations Code 7140 which I quoted above gives the association corporate powers subject to any limitations in the articles of incorporation.

So the Davis-Stirling Act and the Corporations Code authorize the limits of power in the articles of incorporation which, as others have said, can only be changed by a vote of the membership.

Whether paraphrased or verbatim, so what?

The purpose and specific purpose of the corporation are not changed by statute.

As previously stated, our current declaration doesn't conflict with the articles.

If amendments were made to declaration exceeding specific purpose, and artlcles stayed the same, association would be restricted by D/S Act and Corp Code from enforcing them.

TerriS6,

The sparse amount of information that the Board is releasing only DAMAGES their cause. For votes to pass their needs to be as much exposure as possible for Homeowners to discern whether the changes have any merit. Ultimately, any CCR changes have to go before a meeting of the Homeowners with likely a 2/3rds vote. That's darn difficult, not withstanding a lot of Homeowners without any clarity to the changes. If the Board is reluctant to share it could be because A. they themselves are uncertain, and B. it will only hurt their cause to restrict information.

I agree, Mark. Maybe I should be glad they are secretive.