Realty Growth Investors v. Council of Unit Owners

• Decision Date: 16 June 1982
• Citation: 453 A.2d 450
• Parties: REALTY GROWTH INVESTORS, Defendant Below, Appellant, v. COUNCIL OF UNIT OWNERS, of Pilot Point Condominium, for the Phase I Lessees, Plaintiff Below, Appellee. . Submitted:
• Court: Supreme Court of Delaware

Page 450

453 A.2d 450

REALTY GROWTH INVESTORS, Defendant Below, Appellant, v. COUNCIL OF UNIT OWNERS, of Pilot Point Condominium, for the Phase I Lessees, Plaintiff Below, Appellee.

Supreme Court of Delaware.

Submitted: June 16, 1982.

Decided: Oct. 26, 1982.

Upon appeal from the Court of Chancery. Affirmed as Modified and remanded.

Richard P. Beck (argued), Edward M. McNally, and Barbara D. Crowell of Morris, James, Hitchens & Williams, Wilmington, for appellant.

John T. Jaywork of Hudson, Jones & Jaywork, Dover, and Stephen G. Johnakin, Richmond, Va. (argued) of Thomas & Fiske, P.C., Alexandria, Va., for appellee.

Before HERRMANN, C.J., McNEILLY and QUILLEN, JJ.

QUILLEN, Justice:

The appellant, Realty Growth Investors ("RGI"), is appealing from the Court of Chancery's grant of summary judgment to appellee, Council of Unit Owners of Pilot Point Condominium for the Phase I Lessees ("Phase I owners"). The Phase I owners brought an action for declaratory judgment and injunctive relief in order to define their rights under the Pilot Point Condominium declaration and to prevent further development of the property by RGI. See the thorough opinion of the Court of Chancery, Council of Unit Owners of Pilot Point Condominium v. Realty Growth Investors, Del.Ch., 436 A.2d 1268 (1981).

In 1967, the Lewes City Commissioners executed a 99 year lease with Match Land Co. for 17.35 acres of municipal land located in Sussex County. In 1972, the Match Land Co. assigned the lease to Anderson-Stokes, Inc. ("Anderson-Stokes"). The following year Anderson-Stokes voluntarily recorded a declaration and declaration plan for the Pilot Point Condominium development under the Delaware Unit Property Act, 25 Del.C. § 2201 et seq. The declaration and declaration plan created by the developer provided for 32 town house units in five (5) buildings built on a portion of the leased land ("Phase I units"). All the remaining land was designated as "common elements" and apportioned, in undivided percentage interests, to the 32 Phase I units.

Paragraph two of the declaration provided for future developments in three additional phases, II, III and IV. These phases were to contain "not more than a total of 200 units" in "not more than three additional buildings". As noted by the Court below, "it was the intention of Anderson-Stokes to complete the project by constructing one 100-unit high rise motel and two 50-unit garden court apartment buildings." A site plan drawing by an architect (the declaration plan) filed with the declaration included proposed sites for three "future building[s]". The declaration provided that Anderson-Stokes had the right to amend and supplement the declaration plan to establish "the exact site of each building" after construction was complete and to take other steps required to bring the entire project into full compliance with the Unit Property Act. The declaration could be amended to reflect changes in percentage ownership of the common elements by the recording of an amendment duly executed by all affected unit owners pursuant to 25 Del.C. § 2219 and § 2205. ¹

Paragraph 6 of the declaration also purported to create an irrevocable power of attorney in Anderson-Stokes or its successors, to

"change, amend, reduce or increase the proportionate undivided interest in the common elements by the recording of an amendment to this Declaration executed by Anderson-Stokes, Inc., or its assigns, as attorney-in-fact for the unit owners, for the sole purpose of including in said percentages the additional construction of not more than two hundred (200) units as herein contemplated."

It is clear that the phrase "as herein contemplated" included the overall limitation of "not more than three additional buildings", which was an express limit on the declarant's right to do further construction.

The declaration and plan were recorded on May 14, 1973. Two months later, Anderson-Stokes received permission from the City of Lewes to build four buildings in the second phase (Phase II) in place of the projected one building, 100 unit, motel. Anderson-Stokes did not seek to amend the declaration although some revised drawings of Phase II were evidently filed in 1975. By April 15, 1974, Anderson-Stokes had sold all 32 Phase I units. It then conveyed the Phase II land lease, a 9.5 acre parcel, included as part of the common elements of Phase I, to a bank as security for construction funds. Phase I owners were not consulted nor was the declaration amended. Anderson-Stokes developed Phase II into 28 town house units in four buildings during 1974 and early 1975.

In July, 1975, ASCO, Ltd., a corporate successor to Anderson-Stokes, executed an assignment of the remaining rights under the Match Land Co. assignment to RGI, the initial mortgage lender for the development, in order to stave off foreclosure. This transfer included the Phase I leased land as well as the unimproved Phase III and IV land. Thus, at this point, RGI and the second mortgage lender were holders of the land lease and Phase I owners and ASCO, as Phase II developer, were owners of the improvements. The Phase I owners protested against further development of Phases III and IV but no accord was reached.

In March, 1978, ASCO recorded an amendment to the declaration and declaration plan. This amendment purported to incorporate the completed and occupied Phase II units into the Pilot Point Condominium and to affirm RGI's further development rights in Phases III and IV. The amendment also declared that Phase I owners had waived or acquiesced to the substitution of 28 town house units for the 100 unit motel building originally planned for Phase II and that the three building limitation had been "superseded and nullified ... by acquiescence or waiver" to the four buildings in Phase II. The amendment also purported to permit twelve town house buildings, containing 68 units, in Phases III and IV. Thus, it is important to note that the amendment treated the unit substitution as limited to Phase II but the building limitation as entirely nullified. RGI simultaneously filed a declaration of acquiescence, approval and consent to ASCO's amendment, conditioned on the validity of its future development rights in Phases III and IV. The Phase I owners protested and brought suit to enjoin further development and to declare the rights of all the parties. RGI defended and counterclaimed on various grounds.

The Court of Chancery decided that the power of attorney, through which the Phase I owners were alleged to have given consent to the 1978 amendment, was not validly created. The words of the power are found in paragraph 6 of the declaration submitted under the Unit Property Act, an instrument not signed by the Phase I owners. The asserted execution and acknowledgment of the power by each Phase I owner is found in the lease/conveyance instrument, which incorporates paragraph 6 by reference. The lease said in part: "Subject to the adjustment as provided for in Paragraph 6 of the Declaration, which provision the Lessee herein acknowledges that he has read and consented to." The Court of Chancery agreed that some type of agency was created but held that a power of attorney cannot be created in this manner and, therefore, it was ineffective to convey any interest in land.

The Court also held that RGI's assertion that it was the owner of the Phase I improvements because it acquired the interests of the constructing lessee was a spurious argument. The Court found that any conclusion other than statutory "ownership" by the Phase I occupants was precluded by the designation of "unit owners" that Anderson-Stokes had applied to the Phase I occupiers in the declaration and leases, as well as by the terms of 25 Del.C. § 2217. ² Further, the Court reasoned that, if the RGI theory of ownership were accepted, the attempted creation of a power of attorney in Anderson-Stokes would be pointless and unnecessary. Finally, the Court held that if RGI were found to be the owner, then a fraud would have been perpetrated on the Phase I owners as they would have received nothing from their substantial investment except the right to pay annual ground rent. Therefore, the Court ruled that public policy required that the documents must be construed to create ownership in the Phase I occupiers and against the party, or its successor, who voluntarily created those documents.

Thus, since the power of attorney was invalid and RGI was determined not to be the owner, the Court found that an amendment to the original declaration could only be made with the written consent of all the Phase I owners pursuant to 25 Del.C. § 2219(6) and § 2205. ³ Since this had not occurred, the Phase I owners could not be held to have given consent.

The Court also rejected RGI's arguments that waiver, estoppel or unjust enrichment required a contrary finding. The Court held that the only waiver that had occurred to the overall three building limitation was to the fourth building actually constructed. Otherwise the limitation remained and therefore precluded further construction. The Court of Chancery also found that no unjust enrichment accrued to the Phase I owners by the non-development of Phases III and IV since the Phase I owners were only insisting on their rights under the plan and they had not originally contemplated that the property would be "ringed and packed to the limit with additional buildings and town houses." 436 A.2d at 1279. ⁴

Finally, the Court determined the rights of the Phase II owners and found that they were within the Pilot Point Condominium and the only thing lacking was proper amendment of the declaration to reflect the changed proportionate interest in the common elements.

The Court issued an order declaring the power of attorney contained in paragraph 6 of the declaration null and void and declaring equally null and void portions of the 1978 amendment relating to that power. It enjoined development of...