Twin Lakes Village Property Ass'n, Inc. v. Crowley

• Decision Date: 29 July 1993
• Docket Number: No. 19134,19134
• Citation: 124 Idaho 132,857 P.2d 611
• Parties: TWIN LAKES VILLAGE PROPERTY ASSOCIATION, INC., a non-profit Idaho corporation, Plaintiff-Counterdefendant-Respondent, and TWIN LAKES INVESTMENT, Intervenor-Counterdefendant-Respondent, v. Eric Aune and Carol Aune, husband and wife, Gib Brumback and Susan Brumback, husband and wife, Buck Brumblay and Barbara Brumblay, husband and wife, Gary Crandall and Dianne Crandall, husband and wife, Phyllis Hardy, a single person, Jim Lowman and Cheryl Vaughn, husband and wife, Harry Stowell, a single person, Charles Strang, a single person, Sherman Blake and Betty Chase Blake, husband and wife, Defendants-Counterclaimants, and John CROWLEY, a single person, Jason Day and Leora Day, husband and wife, Don Dickson, a single person, Stan Moore and Ina Moore, husband and wife, Ferman Pasold, a single person, Udo Zeidler and Pam Zeidler, husband and wife, Augie Klaue and May Klaue, husband and wife, Defendants-Counterclaimants-Appellants. North Idaho, October 1992 Term
• Court: Idaho Supreme Court

Page 611

857 P.2d 611

124 Idaho 132

TWIN LAKES VILLAGE PROPERTY ASSOCIATION, INC., a non-profit Idaho corporation, Plaintiff-Counterdefendant-Respondent and TWIN LAKES INVESTMENT, Intervenor-Counterdefendant-Respondent, v. Eric Aune and Carol Aune, husband and wife, Gib Brumback and Susan Brumback, husband and wife, Buck Brumblay and Barbara Brumblay, husband and wife, Gary Crandall and Dianne Crandall, husband and wife, Phyllis Hardy, a single person, Jim Lowman and Cheryl Vaughn, husband and wife, Harry Stowell, a single person, Charles Strang, a single person, Sherman Blake and Betty Chase Blake, husband and wife, Defendants-Counterclaimants and John CROWLEY, a single person, Jason Day and Leora Day, husband and wife, Don Dickson, a single person, Stan Moore and Ina Moore, husband and wife, Ferman Pasold, a single person, Udo Zeidler and Pam Zeidler, husband and wife, Augie Klaue and May Klaue, husband and wife, Defendants-Counterclaimants-Appellants.

No. 19134.

Supreme Court of Idaho,

North Idaho, October 1992 Term.

July 29, 1993.

Witherspoon, Kelley, Davenport & Toole, P.S., Coeur d'Alene, for appellants. Edward J. Anson, argued.

Paine, Hamblen, Coffin, Brooke, & Miller, Coeur d'Alene, for respondent Twin Lakes Village Property Ass'n, Inc.; Lukins & Annis, Coeur d'Alene, for respondent Twin Lakes Inv. Mary M. Palmer, Spokane, Washington, argued.

BISTLINE, Justice.

The stipulated facts and documentary evidence submitted to the trial court show that the Twin Lakes Village Property Association, Inc., ("the association") is a non-profit corporation. In July of 1973, Pack River Properties, Inc., a Washington corporation, created the Twin Lakes Village Subdivision in Kootenai County, Idaho. The subdivision originally had a nine-hole golf course, a clubhouse, tennis courts, and a swimming pool, as well as other amenities, for the use of the association members. Members paid a separate annual fee in order to use the golf course.

In 1985, Pack River gave notice that it would cease to operate the properties at Twin Lakes Village. After the announcement, the membership of the association explored ways to continue the operation of association's amenities and other necessary services.

In 1986, Twin Lakes Investments ("TLI") purchased the Pack River properties. After the acquisition, meetings were held about the future operation of the amenities and services. By September, the association board of directors had developed, for submission to the membership, a plan which included the acquisition by the membership from TLI of the existing nine-hole golf course, together with additional property for the construction of nine more holes of golf course, and all other of the existing membership amenities. The plan was submitted to the membership. The association's board of directors drafted proposed amendments to the articles of incorporation, the bylaws, and the protective covenants in order to accommodate the purchase of the golf course and to provide for its future development and operation, as well as the other services and amenities. These proposed amendments: 1) changed the voting structure of the membership from a weighted system based upon square footage of property owned within the village to a one lot-one vote system; 2) eliminated provisions which forbid any amendment to the bylaws which would (a) deprive a member of a then existing right or privilege or (b) effect a fundamental change in the policies of the association; and 3) permitted the acquisition and improvement of the golf course.

These proposed amendments were passed by the membership on January 24, 1987. After the approval of the amendments, the issue of the property purchase from TLI was submitted to the membership for vote, and was accepted and passed by the majority. This vote was in accordance with the provisions of the newly adopted amended bylaws. TLI, as owners, did not exercise their rights to act, vote or participate in the voting action to approve the purchase by the association.

The board thereafter levied a new assessment on all memberships for the purposes of acquiring, developing and operating the property and for the further development of the golf course by an additional nine holes. This assessment was in addition to the regular annual assessment previously paid by the members before January 24, 1987. The association and TLI entered into an agreement of purchase on April 3, 1987.

The association instituted a declaratory judgment action against those association lot owners who had failed to pay the assessments. The defendant lot owners counterclaimed, arguing that the actions taken by the association were invalid under the original corporate documents. They also sought a declaratory judgment as to the effect of the assessments.

TLI was allowed to intervene in this matter.

The defendants asserted at trial that they were not required to pay the assessment, in part, because the amendments to the bylaws which permitted the purchase of the golf course and amenities were void because they violated Article 8 of the original bylaws (hereinafter "the protective covenants"), which places limitations on the members' ability to amend the bylaws. The protective covenants provide:

These By-Laws may be repealed or amended by a vote representing two-thirds of the assessable lands held by the members present at any regular meeting of the association, or at any special meeting of the association called for that purpose, except that the members shall not have the power to change the purposes of the association so as to decrease its rights and powers under the laws of the State, or to waive the requirement of bond or other provision for the safety and security of the property and funds of the association and its members, or to deprive any member of rights and privileges then existing, or so to amend the By-Laws as to effect a fundamental change in the policies of the association....

(Emphasis added.) Further, the members argued that the extraordinary assessment imposed to finance the purchase did not pass by the required super-majority of votes as required by the amended bylaws.

The district court, sitting without a jury, ruled for the property association. The court held that:

1. The articles of incorporation, the bylaws, and the original protective covenants were properly and lawfully amended.

2. The amendments to these documents did not effect a fundamental change in the policies of the Association.

3. While the original voting system was changed as a result of the amendments, the defendants did not assert or show that the new "one ownership-one vote" system affected the outcome of the vote or that their rights were prejudiced by this change.

4. The assessments were lawfully imposed upon its members.

5. The plaintiff was entitled to judgment and prejudgment interest against the defendants.

Some but not all of the defendants appealed from the district court's ruling. (The appellants are hereinafter referred to as the members.)

DISCUSSION

The members make four arguments on appeal:

1. That the amendment of the bylaws that eliminated the protective covenants violated those same covenants.

2. That the protective covenants were violated when the bylaws were amended to change member voting rights to a one lot-one vote system from the previous system, which allotted voting strength on the basis of the amount of property owned within the village.

3. That the amendments to the bylaws that permitted the purchase of the golf course violated the protective covenant that forbids any amendment that changes the fundamental policies of the association.

4. That the assessments imposed against the members in order to purchase and operate the golf course did not pass by the required number of votes.

In order to resolve these issues, we must construe the bylaws. Because corporate documents are equivalent to contracts among the members of the association, the normal rules governing the interpretation of contracts apply. See Black v. Glass, 438 So.2d 1359, 1367 (Ala.1983); American Center for Educ. Inc. v. Cavnar, 26 Cal.App.3d 26, 32, 102 Cal.Rptr. 575, 580 (1972). The objective in interpreting contracts is to ascertain and give effect to the intent of the parties. See Luzar v. Western Sur. Co., 107 Idaho 693, 697, 692 P.2d 337, 341 (1984). The intent of the parties should, if possible, be ascertained from the language of the documents. Suchan v. Suchan, 106 Idaho 654, 660, 682 P.2d 607, 613 (1984). The determination of a contract's meaning and legal effect is a question of law when the contract is clear and unambiguous. Bondy v. Levy, 121 Idaho 993, 996-97, 829 P.2d 1342, 1345-46 (1992).

We conclude, for the reasons expressed below, that: 1) the amendment which eliminated the protective covenants is invalid; 2) the change in voting structure is invalid; 3) the purchase of the golf course did not effect a fundamental change in the policies of the association; but 4) the members are not required to pay the assessments because of the irregularities in the voting on those measures. Consequently, we affirm the order of the district court in part and reverse it in part.

1. The Amendment of the Bylaws Which Eliminated the Protective Covenants is Void.

When the bylaws were amended, the prohibition against depriving any member of then-existing rights and privileges and the prohibition against effecting a fundamental change in the policies of the association were eliminated. The members challenge these changes as violative of the provisions they eliminated.

We agree with the members. If the elimination of those covenants are allowed to stand, the members, who invested substantial sums of money believing they were joining a homeowner's association in order to protect and preserve their investment, could, by majority vote of the other owners, be subjected to unrestricted changes in the nature, purposes, policies, and rules of the association....