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Alfaro v. Community Housing and Improvement System & Planning Association

February 19, 2009; as modified March 18, 2009


(Monterey County Super. Ct. Nos. M75546 & M78858). Trial Judge: The Honorable Robert A. O'Farrell.

The opinion of the court was delivered by: Rushing, P.J.



Plaintiffs are owners of 23 single-family residences*fn1 in the Moro Cojo inclusionary housing development projects (sometimes "the Projects") outside of Castroville in the County of Monterey. With two exceptions, they obtained their grant deeds directly from either defendant Community Housing and Improvement System & Planning Association, Inc. (CHISPA) or defendant South County Housing, Inc. (South County), both nonprofit corporations (sometimes collectively "defendants"). They acquired their properties through a special program aimed at creating affordable housing for households of very low to moderate income. In lieu of a cash down payment, plaintiffs invested time and labor in helping to build their own residences and those of their neighbors. The Projects were developed subject to a deed restriction that requires the properties to remain affordable to buyers with very low to moderate income.

In this lawsuit, plaintiffs claim they were surprised to learn of this deed restriction after they had invested their time and labor. They seek either to invalidate it or to recover damages on a variety of theories, including inadequate recording, unreasonable restraint on alienation, fraudulent nondisclosure of the restriction, breach of an implied contract, waiver and estoppel. After the trial court sustained demurrers to three successive complaints, plaintiffs declined leave to amend their remaining cause of action for constructive fraud, and the trial court dismissed the action. For the reasons stated below, we will dismiss the appeal as to the County of Monterey and will reverse the judgment after concluding that plaintiffs' properties are subject to a valid affordable housing deed restriction, that the statutes of limitations have lapsed as to claims by 24 plaintiffs of fraudulent and negligent nondisclosure and breach of implied contracts mostly against CHISPA, and that the same claims by the other 16 plaintiffs against South County remain viable.


On December 20, 1994, the Monterey County Board of Supervisors, by Resolution 94-524, approved development permits subject to 103 conditions for certain property outside of Castroville. Among those conditions was Condition 99: "That all the units in the Moro Cojo Inclusionary Housing Development Projects (SH 93001 and SH 93002) be affordable to very low, low and moderate income households as defined in Section 50093 of the California Health and Safety Code." This project included a subdivision including 175 single family dwellings and a senior housing development. In so doing, the County found "that Northern Monterey County and Castroville, specifically, suffers from an acute need for affordable housing."

Monterey County's approvals of these Projects were challenged in a lawsuit in Monterey County Superior Court (Monterey Co. Sup. Ct. No. 102344) that was settled by agreement filed November 28, 1995. Among the terms of the stipulated judgment was that Condition 99 "shall be a permanent deed restriction on the project parcels, and shall not be subordinated to any financing, encumbrance, loan, development agreement, contract, lease or other document."

On September 30, 1997, the Monterey County Board of Supervisors, by Resolution 97-408, accepted the final subdivision map for the Projects. They found, among other things, that Condition 99 would be implemented by a deed restriction that would be recorded along with the final map.

On October 13, 1997, the owner of the property, CHISPA, on behalf of itself and two limited partnerships, recorded a document (#9759925) entitled "DEED RESTRICTION" with the Monterey County Recorder. The restriction referenced Resolution 94-524 and quoted Condition 99 as the owner's covenant with the County. The restriction provided that it "shall remain in full force and effect during the period that said permit, or any modification or amendment thereof, remains effective, and during the period that the development authorized by said permit or any modification of said development, remains in existence in or upon any part of, and thereby confers benefit upon, the subject property described herein, and to that extent, said deed restriction is hereby deemed and agreed by owner to be a covenant running with the land, and shall bind owner and all his/her assigns or successors in interest."*fn2 The subject property was described in an exhibit as "All of Tract No. 1284 of Moro Cojo," with references to the filing date, volume, and page in the Monterey County Records. According to plaintiffs, this restriction is perpetual and prevents their heirs from inheriting their properties.

According to a brochure distributed by CHISPA, applicants with low or very low income under Monterey County guidelines could become home owners by pooling their efforts and spending 40 hours a week per family for eight to ten months building their own homes under CHISPA supervision. Specialty work such as plumbing and electrical would be done by professionals. Applicants had to qualify for federal Rural Development loans available under the Rural Housing Service Mutual Self-Help Program.

South County distributed a document dated May 3, 2001 explaining the financing in English and Spanish as follows. The home prices were set at fair market value. However, the owners could pay on the following terms. The homeowner made a promissory note to the County of Monterey on which no monthly payments are due so long as the owner is not in default under the terms of the note. The homeowner is to make a one time payment equal to the amount of a first time homebuyer program mortgage subsidy within 30 days of the completion of the home. The amount of the note and accrued interest is due on sale or transfer of the home. The County has a first option to purchase the property at fair market value if the owner wishes to sell. If the County declines, the homeowner may sell the home to any person. The owner is guaranteed a return on a "sweat equity" down payment valued at $16,000 plus specified interest, effected, if necessary, by a forgiveness of principal and interest.

At various unspecified dates, plaintiffs all participated in this program to obtain their properties and fully performed their obligations under their contracts. By working with plaintiffs through these programs, defendants created confidential, fiduciary relationships and were the managing partners in a joint venture. Defendants did not disclose the existence of the deed restriction to plaintiffs before they invested their time and labor. Plaintiffs were not informed before purchasing their properties that they are required to sell them to "persons meeting unspecified income limits" for prices "well under their current fair market values . . . ."

The preliminary title reports given to all plaintiffs "at the time they purchased their property referred to Covenants, Conditions, and Restrictions, and Deed Restrictions of record, but the references did not describe any limits on the sale value of their properties, or the ability of Plaintiffs to encumber their properties for financing."

CHISPA issued 12 grant deeds to 18 plaintiffs on the following dates: January 31, 2000, Jose and Maria Marin; May 11, 2000, Jennifer Cruz; May 12, 2000, Salvador Sanchez;*fn3 May 31, 2000, Napolean and Ligaya Ducusin; June 5, 2000, Efrain and Amparo Ochoa;*fn4 July 12, 2000, Celestino Salazar;*fn5 July 13, 2000, Juan and Silvia Palacios; July 14, 2000, Lorena Maravilla; July 17, 2000, Estee Hurley; December 6, 2000, Howard Carter; February 12, 2001, Raul and Yolanda Perez; June 19, 2001, Panfilo and Isaura Barbaso.

How South County obtained title to property in the Projects is not explained in the record. South County issued 10 grant deeds to 16 plaintiffs on the following dates: February 9, 2000, Jose and Carmen Cervantes, Fermin and Rosario Chavarin, Juventino and Socorro Chavez; February 14, 2000, Jose and Rebecca Pineda; February 15, 2000, Robert Alfaro, Manuel Castro, Tomas Alfaro;*fn6 February 22, 2000, Octavio Martinez and Erendira Sanchez; February 28, 2001, Ramiro and Rosario Castillo; May 22, 2001, Claudio Serrato.*fn7

Each grant deed from CHISPA stated, "See Attached Exhibit for CC & R Incorporation." The incorporation page referenced the three deed restrictions and the covenants, conditions, and restrictions recorded on October 13, 1997.*fn8 The grant deeds from South County did not contain this provision, except for the deeds to the Castillos and Claudio Serrato.*fn9

This deed restriction breached "an unwritten contract the existence and terms of which were implied from the conduct and the" written brochures distributed by defendants containing the terms that, if plaintiffs contributed their time and labor to construct the homes and assumed the indebtedness necessary to purchase the homes, defendants "would convey to said Plaintiffs title to the homes free of any restriction prohibiting said Plaintiffs from selling their homes at fair market value."

Following receipt of their grant deeds, on February 15, 2000, plaintiffs Pinedas executed a note promising to pay South County $38,190. On July 24, 2000, plaintiff Hurley executed a note promising to pay CHISPA $27,500. On May 22, 2001, plaintiff Claudio Serrato executed a note promising to pay Monterey County $101, 270.*fn10 Each of these notes advises that it contains provisions affecting resales and assumptions. Each note provides that the loan was made to make the residence affordable to the borrower, who is not required to make payments of principal or interest so long as the borrower owns the property.

Plaintiffs were "unsophisticated, first-time homebuyers, a substantial number of whom are not literate in English, which is the only language in which the DEED RESTRICTION is expressed . . . ." They "were ignorant in fact of the DEED RESTRICTION and its effect on the marketability of their homes" until plaintiff Rebecca Pineda attempted to sell her home in April 2004 and was informed by CHISPA of the deed restriction and that she could not sell her property for more than $162,000. Plaintiff Estee Perez was told she cannot sell her house for more than $149,688, which is less than the total debt against the property. It was then that plaintiffs first discovered "the restraint on their ability to refinance their properties or to resell them at fair market value to any person of their choosing . . . ." Until then, defendants had failed to disclose the effect of the deed restriction.

Defendants have allowed "some Plaintiffs to encumber their properties through refinancing at debt amounts greater than the less-than-market-value to which the DEED RESTRICTION purportedly limits resale value . . . ."


On August 5, 2005, plaintiffs filed a complaint, naming as defendants CHISPA, South County, and the County of Monterey. After a hearing on November 18, 2005, on December 12, 2005, the trial court sustained the demurrers by all defendants with leave to amend and granted a motion by South County to strike part of the complaint.

A new attorney for plaintiffs filed a 23-page first amended complaint. After a hearing on May 26, 2006, on July 14, 2006, the trial court sustained the demurrers by all defendants to plaintiffs' first seven causes of action without leave to amend, and sustained the demurrers to the remaining four causes of action with leave to amend. The formal order filed August 4, 2006, sustained the demurrers of all defendants, and dismissed the first amended complaint against Monterey County in its entirety with prejudice. A notice of entry of this ruling was served on plaintiffs on August 14, 2006. No appeal was filed from this order.

Plaintiffs filed a 27-page second amended complaint, dropping the County of Monterey as a defendant. After a hearing on October 20, 2006, on November 9, 2006, the trial court granted defendants' requests for judicial notice and sustained the remaining defendants' demurrers to plaintiffs' first 10 causes of action without leave to amend and dismissed these causes of action with prejudice in favor of CHISPA and County. The court granted plaintiffs leave to amend their claim for constructive fraud. A notice of entry of this order was filed on November 16, 2006. Because plaintiffs did not amend their complaint in time, on January 19, 2007, the action was dismissed with prejudice. On January 10, 2007, plaintiffs filed a notice of appeal from a purported judgment of dismissal on November 16, 2006. On January 26, 2007, an amended notice of appeal designated the order of dismissal as filed on January 19, 2007.


On September 18, 2007, the County of Monterey filed a motion to dismiss this appeal as not filed within the time allotted by rule 8.104 of the California Rules of Court. This court initially suspended briefing in light of this motion, and, on March 19, 2008, we deferred the motion for consideration along with the appeal.

The order filed August 4, 2006, dismissed the first amended complaint with prejudice against Monterey County as a defendant, while granting plaintiffs leave to amend some causes of action against CHISPA and South County. When a trial court's ruling on a demurrer leaves one or more causes of action pending or subject to amendment between two parties, that ruling is not appealable by those parties. (Turpin v. Sortini (1982) 31 Cal.3d 220, 224-225, fn. 3; North American Chemical Co v. Superior Court (1997) 59 Cal.App.4th 764, 773; County of Santa Clara v. Atlantic Richfield Co. (2006) 137 Cal.App.4th 292, 312.) On the other hand, "[a]n order dismissing fewer than all defendants from an action is a 'final judgment' as to them, and is thus appealable." (Hydrotech Systems, Ltd. v. Oasis Waterpark (1991) 52 Cal.3d 988, 993, fn. 3; cf. Seidner v. 1551 Greenfield Owners Assn. (1980) 108 Cal.App.3d 895, 901-902; Desai v. Farmer Ins. Exchange (1996) 47 Cal.App.4th 1110, 1115; cf. Code Civ. Proc., §§ 581, subd. (f)(1), 581d.)

Plaintiffs recognize this general rule, but seek to apply the following exception. "Because of the nature of the principal/surety relationship, the courts have carved out a special rule for cases involving sureties and other parties having a unity of interest. The rule is that when one party to a judgment has a unity of interest with another party whose rights are not determined by the judgment, no appeal lies until the rights or duties of the interested party have been resolved by a final judgment." (T&R Painting Construction, Inc. v. St. Paul Fire & Marine Ins. Co. (1994) 23 Cal.App.4th 738, 743, and cases there cited.) We see no allegation in the first amended complaint that Monterey County was in a principal-surety relationship with the other two defendants. The exception by its terms is inapplicable.*fn11

Plaintiffs assert that they dropped Monterey County as a defendant from the second amended complaint in order to comply with the court's ruling on the demurrers to the first amended complaint, but they did not intend, by this pleading amendment, to waive their right to appeal from the August 4, 2006 order. It is not this pleading amendment that bars plaintiffs' appeal from this order, but their failure to file a timely appeal from that order. "Upon an appeal" from an appealable order or judgment, "the reviewing court may review . . . any intermediate ruling, proceeding, order or decision" (Code Civ. Proc., § 906;*fn12 cf. County of Santa Clara v. Atlantic Richfield Co., supra, 137 Cal.App.4th 292, 312), but it may not review an earlier appealable ruling. (Berge v. International Harvester Co. (1983) 142 Cal.App.3d 152, 158; Morrissey v. City and County of San Francisco (1977) 75 Cal.App.3d 903, 906.)

Because plaintiffs have not yet filed a notice of appeal from this earlier ruling, there is no issue before us concerning any potential liability of Monterey County. We will grant the County's motion to dismiss the appeal as to it. In light of this conclusion, we do not consider whether plaintiffs should have exhausted their administrative remedies.


California law requires a complaint in a civil action to contain both "(1) [a] statement of the facts constituting the cause of action, in ordinary and concise language" and "(2) [a] demand for judgment for the relief to which the pleader claims to be entitled. If the recovery of money or damages is demanded, the amount demanded shall be stated." (Code of Civ. Proc., § 425.10, subd. (a).) What is necessary to state a cause of action are the facts warranting legal relief, and not whether a plaintiff has provided apt, inapt, or no labels or titles for causes of action. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38-39; Lee Newman, M.D., Inc. v. Wells Fargo Bank (2001) 87 Cal.App.4th 73, 78-79; Saunders v. Cariss (1990) 224 Cal.App.3d 905, 908.)

A general demurrer is a trial of a pure issue of law and "presents the same question to the appellate court as to the trial court, namely, whether the plaintiff has alleged sufficient facts to justify any relief, notwithstanding superfluous allegations or claims for unjustified relief. [Citations] '[T]he allegations of the complaint must be liberally construed with a view to attaining substantial justice among the parties. (Code Civ. Proc., § 452.)' Pleading defects which do not affect substantial rights of the parties should be disregarded. (Code Civ. Proc., § 475; [citation].)

"In evaluating a demurrer, we assume the truth of all material facts properly pleaded in the complaint unless they are contradicted by facts judicially noticed (Code Civ. Proc., §§ 430.30, subd. (a), 430.70; [citation]) but no such credit is given to pleaded contentions or legal conclusions. [Citations.] Specific factual allegations modify and limit inconsistent general statements." (B & P Development Corp. v. City of Saratoga, supra, 185 Cal.App.3d 949, 952-953.)

An amended complaint may be regarded as superseding the original complaint in some situations (Singhania v. Uttarwar (2006) 136 Cal.App.4th 416, 425), such as when the plaintiff elects to amend a cause of action to which a demurrer is sustained. (See County of Santa Clara v. Atlantic Richfield Co., supra, 137 Cal.App.4th 292, 312.) "Although ordinarily an appellate court will not consider the allegations of a superseded complaint [citation], that rule does not apply when the trial court denied plaintiffs leave to include those allegations in an amended complaint." (Committee On Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 209, superseded by statute on another ground, as stated in Californians for Disability Rights v. Mervyn's, LLC (2006) 39 Cal.4th 223, 227.) When plaintiffs decline to amend a complaint, as this court has explained, they have "clearly elected to stand on the second amended complaint with respect to that cause of action and may challenge the court's ruling on that cause of action on an appeal from the subsequent dismissal of their action." (County of Santa Clara v. Atlantic Richfield Co., supra, 137 Cal.App.4th at p. 312.) When plaintiffs decline an invitation to amend a cause of action, on appeal we assume that the complaint contains their strongest statement of that cause of action. (Reynolds v. Bement (2005) 36 Cal.4th 1075, 1091.)


It is increasingly common for developers of residential subdivisions to impose restrictive conditions on the incoming residents of the subdivision in an attempt to enhance their enjoyment of their homes and to maintain or increase property values. (E.g., Zabrucky v. McAdams (2005) 129 Cal.App.4th 618, 623-624; Dolan-King v. Rancho Santa Fe Assn. (2000) 81 Cal.App.4th 965, 976.) In 1995, the California Supreme Court resolved some confusion in California law and described how to impose effective restrictive covenants. "[I]f a declaration establishing a common plan for the ownership of property in a subdivision and containing restrictions upon the use of the property as part of the common plan is recorded before the execution of the contract of sale, describes the property it is to govern, and states that it is to bind all purchasers and their successors, subsequent purchasers who have constructive notice of the recorded declaration are deemed to intend and agree to be bound by, and to accept the benefits of, the common plan; the restrictions, therefore, are not unenforceable merely ...

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