No. 79-121
I N THE SUPREME COURT OF THE STATE O M N A A
F OTN
1980
RAYMOND V. GOERES, BARBARA K . GOERES,
husband a n d w i f e ; DAN L. O K A D and
A L N
SHARON D. OAKLAND, husband a n d w i f e ,
P l a i n t i f f s and Respondents,
-vs-
LINDEY'S I N C . , a corporation,
Defendant and Appellant.
Appeal from: D i s t r i c t Court o f t h e Fourth J u d i c i a l District,
I n and f o r t h e County o f M i s s o u l a , The Honor-
a b l e James B. W h e e l i s , J u d g e p r e s i d i n g .
Counsel o f Record:
For Appellant:
S k e l t o n & Luck, M i s s o u l a , Montana
R o b e r t S k e l t o n a r g u e d , M i s s o u l a , Montana
F o r Respondent :
Worden, Thane & H a i n e s , M i s s o u l a , Montana
Ronald Bender a r g u e d , M i s s o u l a , Montana
Submitted: September 9 , 1980
Decided : WkJV 2 5 1980
Mr. J u s t i c e Gene B. Daly d e l i v e r e d t h e Opinion of t h e C o u r t .
his i s an a p p e a l from t h e D i s t r i c t C o u r t of t h e F o u r t h
J u d i c i a l D i s t r i c t which i s s u e d a permanent i n j u n c t i o n a g a i n s t
t h e a p p e l l a n t r e s t r a i n i n g i t from making commercial u s e o f a
p a r t i c u l a r p a r c e l of l a n d l o c a t e d i n a s u b d i v i s i o n known a s
S e e l e y Lake S h o r e S i t e s .
S e e l e y Lake S h o r e S i t e s i s a p l a t t e d s u b d i v i s i o n which
was f i l e d i n 1944 by a c o r p o r a t i o n l a t e r known a s S e e l e y
Lake Development Corp. By deed d a t e d F e b r u a r y 4 , 1947,
S e e l e y Lake Development Corp. conveyed s e v e n l o t s ( L o t s 55,
79, 81, and a p o r t i o n of L o t s 8 3 , 85, 87 and 89) t o Edward
Coyle. T h i s deed c o n t a i n e d c e r t a i n r e s t r i c t i v e c o v e n a n t s
which p u r p o r t e d t o a p p l y t o - l o t s i n t h e s u b d i v i s i o n w i t h
all
t h e e x c e p t i o n o f s e v e r a l l o t s , i n c l u d i n g L o t 1, now owned by
appellant, Lindey's, Inc. The c o v e n a n t s , a s s t a t e d i n t h e
d e e d , were t o p r o v i d e a uniform p l a n f o r t h e improvement of
t h e s u b d i v i s i o n i n which a l l u s e s were t o be r e s i d e n t i a l and
noncommercial. They i n c l u d e d s p e c i f i c r e s t r i c t i o n s on t h e
t y p e , s i z e , and l o c a t i o n o f s t r u c t u r e s b u i l t , a s w e l l a s a
r e s t r i c t i o n i n d i c a t i n g u s e by " C a u c a s i a n s " o n l y . There was
no mention o f t h e s e r e s t r i c t i v e c o v e n a n t s i n t h e o r i g i n a l
subdivision p l a t .
By a deed d a t e d March 4 , 1948, f i f t y - o n e l o t s , i n c l u d -
i n g L o t s 1, 3 , 5 and 7 now owned by t h e p a r t i e s t o t h i s
a c t i o n , w e r e conveyed by t h e S e e l e y Lake Development Corp,
t o i t s p r i n c i p a l s t o c k h o l d e r s , John and Evelyn Rahn. In the
deed t h e r e w e r e no r e s t r i c t i v e c o v e n a n t s . On J u l y 1 3 , 1948,
t h e Rahns reconveyed L o t 4 2 t o S e e l e y Lake Development Corp.
I n t h e deed were t h e same c o v e n a n t s a s i n t h e p r e v i o u s s a l e
t o Coyle, which p u r p o r t e d t o r e s t r i c t t h e u s e of t h e l o t s i n
t h e subdivision s o l e l y t o r e s i d e n t i a l use.
By a w a r r a n t y deed d a t e d August 1 9 , 1954, t h e Rahns
g r a n t e d t o George and E i l e e n S t e i n b r e n n e r t w e n t y - f i v e o f t h e
l o t s t i n c l u d i n g L o t s 1, 3, 5 and 7, w i t h o u t any r e s t r i c t i o n s
o r r e f e r e n c e t o any r e s t r i c t i o n s . The S t e i n b r e n n e r s , by
deed d a t e d August 1 9 , 1954, g r a n t e d twenty-four o f t h e
t w e n t y - f i v e l o t s , i n c l u d i n g L o t s 1, 3, 5 and 7 , t o James and
B e r t h a S u l l i v a n , a g a i n w i t h o u t s u b j e c t i n g t h e l o t s t o any
restrictions. On May 1, 1962, t h e S u l l i v a n s by deed g r a n t e d
t o R o b e r t and Dorothy Lee L o t s 1 and 3 w i t h o u t r e s t r i c t i o n
o r r e f e r e n c e t o any r e s t r i c t i o n s ; f u r t h e r , t h e L e e s ' t i t l e
i n s u r a n c e p o l i c y on s a i d l o t s made no r e f e r e n c e t o any re-
s t r i c t i o n s as t o t h e l o t s o r t h e subdivision.
Through a s e r i e s o f q u i t c l a i m d e e d s , ownership t o L o t s
1 and 3 became r e c o r d e d i n t h e name of W i l l i a m F o r e s t .
Lindey's, Inc., i n t e n d i n g t o c o n s t r u c t and o p e r a t e a commer-
c i a l r e s t a u r a n t and b a r , a c q u i r e d t h e s e l o t s from F o r e s t by
v i r t u e of a c o n t r a c t f o r deed d a t e d October 1 9 , 1978. Prior
t o e x e c u t i n g t h e c o n t r a c t , L i n d e y ' s r e c e i v e d a t i t l e commit-
ment from American Land T i t l e Co. of Missoula which s e t
f o r t h a s p e c i f i c exception a s t o t h e covenants, conditions
and r e s t r i c t i o n s c o n t a i n e d i n t h e J u l y 1 3 , 1948, Rahn deed.
I n s p i t e o f t h e mentioned r e s t r i c t i v e c o v e n a n t s ,
L i n d e y ' s p u r c h a s e d t h e p r o p e r t y and began e x c a v a t i o n s h o r t l y
thereafter. On November 20, 1978, p l a i n t i f f s s e n t a l e t t e r
t o L i n d e y ' s , p o i n t i n g o u t t h e r e s t r i c t i v e c o v e n a n t s and
t h e i r a p p l i c a t i o n t o L o t 3 and f u r t h e r s t a t i n g t h a t i f t h e
c o v e n a n t s were n o t complied w i t h , p l a i n t i f f s would t a k e
l e g a l a c t i o n t o e n f o r c e them. L i n d e y ' s responded by p o i n t -
i n g o u t t h a t t h e r e w e r e no r e s t r i c t i v e c o v e n a n t s i n i t s
c h a i n of t i t l e .
~indey'sheard nothing further from plaintiffs until
January 25, 1979, when plaintiffs sent a follow-up letter
reiterating what was said in the first letter. Lindeyls
presented testimony, however, that shortly after receiving
the second letter, when asked by an agent of Lindey's "whe-
ther there would be a problem down there," as he was point-
ing to the restaurant construction, Dan Oakland, one of the
plaintiffs herein, informed him there would be none.
Lindey's continued with construction, expending over
$200,000 prior to plaintiffs' commencing their suit, at
which time the restaurant was 80 percent complete.
On April 2, 1979, plaintiffs, as owners of Lot 7 and
the north half of Lot 5 of the Seeley Lake Shore Sites
subdivision, brought suit to enjoin defendant from building
the restaurant, bar and lounge on Lots 1 and 3. Plaintiffs
alleged that defendant, in commencing to construct the
restaurant, was in violation of restrictive covenants running
with the land. At the time of filing the suit, the District
Court issued an ex parte injunction and an order to show
cause why a restraining order should not issue.
On April 4, 1979, defendant Lindey's, Inc., moved to
dissolve the injunction and on April 9 filed a motion to
dismiss the suit. Lindey's filed an answer to plaintiffs'
complaint and memorandum in support of its motions on ~ p r i l
11, 1979. A hearing on the matter was held after which the
District Court issued a permanent injunction finding that
there were enforceable covenants and that ~indey'shad
adequate notice of them. The court later denied a motion
for a new trial filed by defendant, stating that any new
evidence which Lindey's wished to introduce was available at
the original hearing and, in any event, would not be dis-
positive of the case. Lindey's, Inc., now appeals.
Numerous i s s u e s have been r a i s e d by b o t h p a r t i e s on
a p p e a l , b u t we need o n l y d e a l w i t h t h e f o l l o w i n g :
id t h e ~ i s t r i c C o u r t err i n c o n c l u d i n g t h a t L o t 3 i s
t
s u b j e c t t o a r e s t r i c t i o n a g a i n s t commercial u s e a s s e t f o r t h
i n a J u l y 1 3 , 1948, deed of Lot 4 2 , and t h e r e b y e r r i n
i s s u i n g t h e permanent i n j u n c t i o n ?
A p p e l l a n t c o n t e n d s t h a t , s i n c e t h e c h a i n of t i t l e a s t o
L o t 3 c o n t a i n s no mention of any r e s t r i c t i v e c o v e n a n t s , t h e
r e s t r i c t i o n a g a i n s t commercial u s e c a n n o t be e n f o r c e d i n
t h i s instance. Respondents contend t h a t , a s t o a l l t h e l o t s
i n S e e l e y Lake Shore S i t e s , a n i m p l i e d r e c i p r o c a l n e g a t i v e
easement was c r e a t e d when t h e r e s t r i c t i o n a g a i n s t commer-
c i a l u s e was p l a c e d i n t h e 1948 deed of L o t 4 2 . Respondents
t h e n c o n c l u d e , s i n c e s u c h a n easement i s e n f o r c e a b l e even
though n o t c o n t a i n e d i n a deed t o e a c h l o t i n t h e s u b d i v i -
s i o n , t h e D i s t r i c t C o u r t was p r o p e r i n f i n d i n g t h a t L o t 3
was s u b j e c t t o t h e r e s t r i c t i v e c o v e n a n t of noncommercial
use.
I m p l i e d r e s t r i c t i v e easements o r r e c i p r o c a l n e g a t i v e
easements have been r e c o g n i z e d i n o t h e r j u r i s d i c t i o n s a s
coming i n t o p l a y where t h e owner of two o r more l o t s s i t u -
a t e d n e a r one a n o t h e r ( s u c h a s i n a s u b d i v i s i o n ) conveys one
o f t h e l o t s w i t h e x p r e s s r e s t r i c t i o n s , a s t o u s e , of b e n e f i t
t o t h e l o t s r e t a i n e d by t h e g r a n t o r . I n such a case t h e
s e r v i t u d e becomes m u t u a l , and d u r i n g t h e p e r i o d of r e s t r a i n t ,
t h e g r a n t o r and owner o f t h e l o t r e t a i n e d may do n o t h i n g
t h a t i s forbidden t o t h e l o t sold. This implied r e s t r i c t i o n
on t h e u s e of t h e l o t ( s ) r e t a i n e d by t h e g r a n t o r i s c a l l e d a
r e c i p r o c a l n e g a t i v e easement, which c a n be e n f o r c e a b l e
a g a i n s t t h e g r a n t o r o r s u b s e q u e n t p u r c h a s e r s of t h e r e t a i n e d
l o t ( s ) whether o r n o t s a i d r e s t r i c t i o n s are p l a c e d i n t h e
subsequent deed. 20 Am.Jur.2d Covenants, Conditions and
Restrictions, 5173 at 732-733;ilerJfk6r Y. Montealegre (1960),
I-cc-n~kr
361 Mich. 44, 104 N.W.2d 772; Price v. Anderson (1948), 358
Pa. 209, 56 A.2d 215; McQuade v. Wilcox (1921), 215 Mich.
302, 183 N.W. 771. An easement of this type, however, has
not been recognized by this Court, nor is there any statu-
tory provision pertaining to such an equitable easement.
As to the status of implied covenants in this jurisdic-
tion, section 70-20-304, MCA, provides:
" (1) . ..in any conveyance by which an estate
of inheritance or fee simple or possessory title
is to be passed, the following covenants and
none other ...are implied unless restrained
by express terms contained in such conveyance:
"(a) . . . grantor has not conveyed the same
estate . . . to any person other than the gran-
tee;
I' (b) ...such estate is at the time of execu-
tion of such conveyance free from encumbrances
done, made, or suffered by the grantor . . ."
This section was deemed to abolish - implied cove-
all
nants (other than the two enumerated exceptions not appli-
cable here) in Simonson v. McDonald (1957), 131 Mont. 494,
311 P.2d 982. In Simonson the plaintiff purchased a parcel
of land from Northern Pacific Railway which had no means of
access other than across the defendant's land. Plaintiff
brought an action for right-of-way claiming that when
Northern Pacific sold the land to the defendant it reserved
by implication an easement across the land for the benefit
of the retained land which was later conveyed to the plain-
tiff. This Court, relying on section 70-20-304, MCA, concluded
no such implied easement is valid in Montana.
In Thisted v. Country Club Tower Corp. (1965), 146
Mont. 87, 405 P.2d 432, however, this Court stated, "there
can be implied reservations or implied grants of easements
by n e c e s s i t y i n Montana" and h e l d t h a t t h e language i n
Simonson i s t o o broad and i s t o be "1-imited i n i t s a p p l i -
cation t o the f a c t s existent i n t h a t case,"
T h i s t e d i n v o l v e d t h e c o n s t r u c t i o n of a n a p a r t m e n t
building. B e f o r e c o m p l e t i o n of t h e c o n s t r u c t i o n , a c o n t r a c t
d e s c r i b i n g t h e a p a r t m e n t b u i l d i n g a s r e s i d e n t i a l w a s exe-
c u t e d between t h e b u i l d e r and a "Mrs. R o b e r t s . " ~ l subse-
l
q u e n t g r a n t e e s were g i v e n a copy of t h i s c o n t r a c t and a
b r o c h u r e d e s c r i b i n g t h e g e n e r a l development scheme a s com-
munal group l i v i n g a r r a n g e m e n t s . None of t h e d e e d s even-
t u a l l y i s s u e d t o M r s . R o b e r t s and t h e s u b s e q u e n t g r a n t e e s ,
however, c o n t a i n e d any e x p r e s s r e s t r i c t i o n s a s t o t h e u s e of
t h e apartments. An a t t e m p t w a s made by t h e b u i l d e r t o
c o n v e r t some a p a r t m e n t s t o commercial u s e , b u t t h e C o u r t
u p h e l d a c h a l l e n g e t o t h e move by h o l d i n g t h e r e was a n
i m p l i e d e q u i t a b l e s e r v i t u d e a t t a c h e d t o t h e u n i t s which
r e q u i r e s u s e of them f o r r e s i d e n t i a l p u r p o s e s o n l y .
Respondents p l a c e a g r e a t d e a l of r e l i a n c e upon T h i s t e d .
They c o n t e n d t h a t t h i s c a s e r e c o g n i z e s , a t l e a s t by i m p l i c a -
t i o n , r e c i p r o c a l n e g a t i v e e a s e m e n t s , and t h u s , i t s h o u l d be
applied i n t h i s instance, W e d i s a g r e e , however, w i t h t h e
e x t e n s i o n o f f e r e d by r e s p o n d e n t s and c o n c l u d e t h a t t h i s case
c a n be d i s t i n g u i s h e d from T h i s t e d .
I n t h e a p p l i c a t i o n of i m p l i e d r e s t r i c t i o n s on t h e u s e
of l a n d , p r i n c i p l e s of e q u i t y a r e c o n t r o l l i n g . Thus, e a c h
case must be d e t e r m i n e d s e p a r a t e l y a f t e r a n e x a m i n a t i o n of
t h e p a r t i c u l a r f a c t s and c i r c u m s t a n c e s . ~ d d i t i o n a l l y ,any
i m p l i e d n e g a t i v e easements a s t o a p a r t i c u l a r l o t a r e t o be
c o n s i d e r e d w i t h e x t r e m e c a u t i o n s i n c e such a n a c t i o n r e s u l t s
i n d e p r i v i n g a p e r s o n of t h e u s e of h i s p r o p e r t y by imposing
a s e r v i t u d e t h r o u g h mere i m p l i c a t i o n . See Bellemeade Com-
pany v. P r i d d l e (Ky. 1 9 7 4 ) , 503 S.W.2d 734; 20 Am.Jur.2d
Covenants, C o n d i t i o n s and R e s t r i c t i o n s , S173 a t 735; 21
C.J.S. Covenants, 519 a t 895. With t h i s b e i n g t h e c a s e , an
i m p l i e d r e s t r i c t i o n upon t h e u s e o f l a n d s h o u l d o n l y be
e n f o r c e d a s a n e q u i t a b l e s e r v i t u d e a g a i n s t a t r a n s f e r e e who
t a k e s w i t h knowledge o f i t s t e r m s and under c i r c u m s t a n c e s
t h a t would make e n f o r c e m e n t of t h e r e s t r i c t i o n e q u i t a b l e .
See Marra v. Aetna C o n s t r u c t i o n Co. ( 1 9 4 0 ) , 1 5 Cal.2d 375,
378, 1 0 1 P.2d 490, 492.
I n Thisted a l l the p a r t i e s , t r a n s f e r e e and t r a n s f e r o r ,
w e r e aware t h a t t h e b u i l d i n g was t o be used s o l e l y f o r
r e s i d e n t i a l purposes. T h i s knowledge was e v i d e n t from
d e s c r i p t i v e b r o c h u r e s shown t o a l l p r o s p e c t i v e p u r c h a s e r s
d e s c r i b i n g t h e l i v i n g arrangement, f o r a l l purposes, a s
residential. I n a d d i t i o n , a l l c o n t r a c t s submitted t o t h e
prospective purchasers r e f e r r e d t o the building s o l e l y a s an
a p a r t m e n t b u i l d i n g w i t h t h e c a p a c i t y of o n l y twenty a p a r t -
ments and one c a r e t a k e r u n i t . Based upon t h e s e r e p r e s e n t a -
t i o n s , which i n f a c t w e r e r e l i e d on by t h e p u r c h a s e r s o f t h e
a p a r t m e n t s , t h e c o u r t a t t a c h e d i n e q u i t y a s e r v i t u d e on t h e
t r a n s f e r s of t h e a p a r t m e n t s r e q u i r i n g t h e i r u s e s o l e l y f o r
r e s i d e n t i a l purposes. I t i s o b v i o u s t h a t t h e f a i l u r e of t h e
c o u r t t o s o p r o v i d e would have been i n e q u i t a b l e under t h e
circumstances.
I n t h e c a s e a t hand, however, t h e b a s i s on which r e -
s p o n d e n t s wish t o imply a r e s t r i c t i o n a g a i n s t commercial u s e
a s t o L o t 3 i s t h e J u l y 1 4 , 1948, deed of L o t 42, which
p u r p o r t e d t o make t h e r e s t r i c t i o n a p p l i c a b l e t o e v e r y l o t i n
t h e subdivision. I n no i n s t a n c e was e v i d e n c e p r e s e n t e d t h a t
a p p e l l a n t o r i t s p r e d e c e s s o r was e v e r informed i n a d e e d ,
contract, or brochure, or by representations of the seller,
that the lots were subject to a restriction against commer-
cial use. Furthermore, no evidence was presented that the
restriction was ever placed in the original subdivision
plat.
Respondents argue that even though the restriction was
not placed in appellant's chain of title, subsequent pur-
chasers of various lots in the subdivision have continued to
use their property solely for residential purposes. There-
fore, appellant was on constructive notice as to the restric-
tion against commercial use. Respondents also note that
appellant's title insurance report indicated that the re-
strictions contained in the 1948 deed of Lot 42 were ex-
cepted from their title policy as to Lot 3, thereby further
indicating that appellant was on constructive notice as to
those restrictions.
We must disagree with respondents' contentions. As to
the uniform appearance of the land, there was conflicting
evidence which indicated that some commercial use of a
number of lots was being made. However, even if this was
not the case, the fact that a party may be aware, and thus
on notice, that certain restrictions may be applicable to
other parcels of property does not also create a presumption
that the person has knowledge that said restrictions are
applicable to the property he is purchasing as well. Fur-
thermore, the fact that a party is informed by a title
company of a single deed, outside his chain of title, is not
enough to impute knowledge that the restrictions contained
in that deed are applicable to the lot he is about to pur-
chase. This is especially so when the subdivision plat
makes no mention of any restrictions whatsoever and a single
owner of less t h a n a l l t h e l o t s i n t h e s u b d i v i s i o n p u r p o r t s
t o r e s t r i c t t h e u s e of t h e l a n d a s t o t h e whole s u b d i v i s i o n .
E q u i t y i n such a s i t u a t i o n r e q u i r e s more i f t h i s C o u r t i s t o
r e s t r i c t t h e u s e of l a n d by m e r e i m p l i c a t i o n .
By h o l d i n g t H a t a p p e l l a n t i s n o t bound by t h e r e s t r i c -
t i v e c o v e n a n t a s t o commercial u s e , w e do n o t a l s o f i n d t h a t
s a i d covenant does n o t e x i s t a t a l l a s t o t h e subdivision a t
issue. W e merely hold t h a t t o enforce t h e s e implied r e s t r i c -
t i o n s s o a s t o be a p p l i c a b l e t o a p a r t i c u l a r t r a n s f e r of
l a n d i t i s n e c e s s a r y t o show knowledge of t h e r e s t r i c t i o n s
by t h e t r a n s f e r e e a t t h e t i m e of p u r c h a s e and t h a t e n f o r c e -
ment of t h e i m p l i e d r e s t r i c t i o n s w i l l n o t be i n e q u i t a b l e .
Respondents h a v i n g f a i l e d i n t h i s r e g a r d , w e must r e v e r s e
t h e d e c i s i o n r e n d e r e d by t h e D i s t r i c t C o u r t .
The judgment of t h e D i s t r i c t C o u r t i s r e v e r s e d w i t h
i n s t r u c t i o n s t o e n t e r judgment f o r d e f e n d a n t , L i n d e y ' s
Inc.
W concur:
e
V d 4 a . 4
Chief J u s t i c e
/ Justices