Laguna Royale Owners Assn. v. Darger

• Decision Date: 28 May 1981
• Citation: Laguna Royale Owners Assn. v. Darger, 174 Cal.Rptr. 136, 119 Cal.App.3d 670 (Cal. App. 1981)
• Court: California Court of Appeals
• Parties: LAGUNA ROYALE OWNERS ASSOCIATION, Plaintiff and Respondent, v. Stanford P. DARGER et al., Defendants and Appellants. Civ. 21950.

Page 136

174 Cal.Rptr. 136

119 Cal.App.3d 670

LAGUNA ROYALE OWNERS ASSOCIATION, Plaintiff and Respondent, v. Stanford P. DARGER et al., Defendants and Appellants.

Civ. 21950.

Court of Appeal, Fourth District, Division 2, California.

May 28, 1981.

Hearing Denied August 26, 1981.

Layman, Hanson, Jones & Voss, Rondell B. Hanson and Steven H. Sunshine, Newport Beach, for defendants and appellants.

Feldsott & Lee and Martin L. Lee, Newport Beach, for plaintiff and respondent.

KAUFMAN, Associate Justice.

Defendants Stanford P. Darger and Darlene B. Darger (the Dargers) were the owners of a leasehold condominium ¹ in Laguna Royale, a 78-unit community apartment complex on the ocean front in South Laguna Beach. The Dargers purported to assign three one-quarter undivided interests in the property to three other couples: Wendell P. Paxton and Daila D. Paxton, Keith I. Gustaveson and Elsie Gustaveson, and Keith C. Brown and Geneva B. Brown (collectively the other defendants) without the approval of Laguna Royale Owners Association (Association). Association instituted this action to obtain a declaration that the assignments from the Dargers to defendants were invalid because they were made in violation of a provision of the instrument by which the Dargers acquired the property, prohibiting assignment or transfer of interests in the property without the consent and approval of Association's predecessor in interest. Following trial to the court judgment was rendered in favor of Association invalidating the assignments from the Dargers to the other defendants. Defendants appeal.

Facts

The Laguna Royale development is built on land leased by the developer from the landowner in a 99-year ground lease executed in 1961. As the units were completed, the developer sold each one by executing a Subassignment and Occupancy Agreement with the purchaser. This document conveyed an undivided 1/78 interest in the leasehold estate for a term of 99 years, a right to exclusive use of a designated unit and one or more garage spaces and a right to joint use of common areas and facilities; it also contained certain restrictions. The restriction pertinent to this action is paragraph 7, which provides in relevant part: "7. Subassignee (the purchaser) shall not assign or otherwise transfer this agreement, ... nor shall subassignee sublet ... without the consent of and approval of Lessee ...." ²

Upon the sale of all units and completion of the project, the developer entered into an "Assignment Agreement" with the Association, transferring and assigning to the Association all the developer's rights, powers and duties under the Subassignment and Occupancy Agreements, including inter alia the "right to approve or disapprove assignments or transfers of interests in Laguna Royale pursuant to Paragraph 7 of the Subassignment and Occupancy Agreements."

In 1965, Ramona G. Sutton acquired unit 41, consisting of some 3,000 square feet, by a Subassignment and Occupancy Agreement with the developer. In 1973 the Dargers purchased unit 41 from the executrix of Mrs. Sutton's estate. ³ As owner of a unit in the project, the Dargers automatically became members of the Association and were bound by the Association's bylaws. ⁴

The Dargers reside in Salt Lake City, Utah, where Mr. Darger became a vice president of a large banking chain not long after the Dargers acquired their unit at Laguna Royale. The responsibilities of Mr. Darger's new position made it difficult for them to get away, and they attempted unsuccessfully to lease their unit through real estate agents in Laguna Beach. On October 30, 1973, Mr. Darger wrote to Mr. Yount, then chairman of the board of governors of the Association, in which he stated in part: "It has been suggested that we might sell shares in our apartment to two or three other couples here. These associates would be aware of the restrictions regarding children under 16 living there, as well as the restrictions regarding pets, and would submit themselves to the regular investigation of the Board given prospective purchasers and lessees. I would expect that the apartment will remain vacant most of the time, as now, and not more than one of the families will occupy the apartment at one time."

By letter dated November 12, 1973, Mr. Yount responded in relevant part: "Following receipt of your letter of October 30, 1973 regarding the possibility of selling shares in your apartment # 41, we discussed the matter at the regular meeting of the Board of Governors held on November 10, 1973. (P) Prior to the meeting we had referred the letter to our attorney, Mr. James Ralston Smith, for Laguna Royale Owner's Association for his opinion. We received his opinion prior to the meeting and this is quoted as follows: 'As to the request of Mr. Darger, as owner of apartment # 41, to sell undivided interests in that apartment to other parties, it is my opinion that if such other parties otherwise qualified and indicate no intended use of the apartment other than single family owner's use, there would be no legal basis to refuse such transfers. However, State law restricts more than four (4) transfers of undivided interests, without qualifying as a subdivision.' "

The letter then indicated that a number of members of the board of governors had voiced some objections to multiple ownership of a unit and then stated: "The Board of Governors is quite sympathetic with your problem of being unable to lease your apartment; however, because of the reasons given above, it is our opinion that the multiple ownership would not be beneficial to the other unit owners. We believe that our opinion is shared by the majority of the unit owners of Laguna Royale. (P) Even in view of the Boards' (sic) opinion, we would have no alternative except to approve the transfer which you suggested, providing you would comply with the legal opinion of Mr. Smith."

Thereafter Mr. Darger discussed the possibility of joint ownership with some of his associates in Salt Lake City and in late 1974 or early 1975 he reached a point where he believed he was ready to proceed. He made an appointment with John Russell Henry, then chairman of the board of governors of the Association, and met with him for the purpose of going over the agreement that Mr. Darger's Salt Lake City attorney had prepared, to make sure that everything that the board might want to be in the agreement was included from the beginning. Mr. Darger agreed in writing to pay the fees incurred by the board in having the board's attorney review the instrument.

The document prepared by Mr. Darger's attorney contemplated five owners, ⁵ and the board's attorney indicated both to the board and Mr. Darger personally that, in his opinion, ownership of undivided interests in the unit by more than four persons would violate California subdivision laws. Thereafter, in a letter dated November 25, 1975, to Mr. Henry, Mr. Darger stated that because of a possible violation of the subdivision laws and for other reasons, "we plan for a total of four shares, including my own."

Subsequently Mr. Darger received from Mr. Henry a letter dated January 12, 1976, which read in part: "The matter of multiple ownership of Apt. 41 has been studied in depth and detail with our own attorney, and the ultimate decision being that to do so would be contrary to recorded Lease, Subassignment and Occupancy agreement. In this connection you are respectfully requested to refer to Paragraphs 4 ( ⁶ ) and 7 of such Agreement which limit use of units solely to residential purposes, without exception, and require written consent by your Board of Governors for any assignment thereof."

A few days later Mr. Darger received from Mr. Henry another letter dated January 16, 1976, that read in part: "The Board has determined that the transfer as you requested would create and impose an undue, unreasonable burden and disadvantage on the other owners' and residents' enjoyment of their apartments and the common facilities. Further, your requested transfer would be contrary to and in conflict with the close community living nature of Laguna Royale and would be contrary to the single family character of the private residential purpose to which all apartments are restricted under the recorded Master Lease and the Subassignment and Occupancy Agreement, as well as the By-Laws and House Rules, by which all owners are bound."

On February 23, 1976, Mr. Darger sent a formal letter request for approval to transfer unit 41 from the Dargers to themselves and the other defendants on condition that "the three new couples subsequently receiv(e) individual approvals after a 'Request For Approval Of Sale Or Lease' form has been filed with the Board for each, and each has submitted to a personal interview by the Board for its consideration." The letter further requested that if approval was not given, "the Board specify its reasons for denial and indicate how the request made herein differs from the situation of the owners of at least two other units where there is multiple ownership between more than one party who have no family or corporate relationship, (and) in light of the written and verbal approvals for such a transfer of apartment # 41 that have been extended by the Board to us over the past two and one half years."

By a letter from its attorney to the Dargers dated March 16, 1976, Association advised the Dargers that it would not consent to the requested transfer. It was denied that written and verbal approvals had been given the Dargers in the past, and it was stated in relevant part: "The reason the Association will not consent to your requested transfer is that the Board feels it is obligated to protect and preserve the private single family residential character of Laguna Royale, together with the use and quiet enjoyment of all apartment owners of their respective apartments and the common facilities, taking into consideration the close community living...