Title: Streets v. J M Land & Developing Co.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Streets v. J M Land & Developing Co.1995 WY 100898 P.2d 377Case Number: 94-44Decided: 06/28/1995Supreme Court of Wyoming

Susan 
STREETS, an individual; and James Keiderling, an individual,

 Appellants 
(Defendants),

v.

J M LAND & DEVELOPING CO., a Wyoming 
corporation,

 Appellee 
(Plaintiff).

 

Appeal 
from District Court, Campbell County, Terrence L. O'Brien, 
J.

Paul J. Drew of Drew & 
Carlson, Gillette, for 
appellants.

Carol Seeger of Maycock Law 
Office, P.C., Gillette, for 
appellee.

Before GOLDEN, C.J., and THOMAS, MACY, TAYLOR, and 
LEHMAN, JJ.

THOMAS, 
Justice.

[¶1]      The only issue in 
this case is: Can a purchaser of land under a contract for deed impose 
restrictive covenants on that land which can be enforced against subsequent 
purchasers with notice? The trial court adopted the contract theory of 
enforcement of restrictive covenants in equity, and it entered an injunction 
against Susan Streets (Streets) and James Keiderling (Keiderling) to enforce 
certain provisions of restrictive covenants imposed on a tract of land by J M 
Land & Developing Co. (J M) by recordation in the office of the Campbell 
County Clerk. J M was a purchaser under a contract for deed at the time the 
restrictive covenants were recorded. Streets and Keiderling contended 
restrictive covenants could only be imposed by the owner of the legal title, and 
covenants recorded by the owner of an equitable title are invalid. We hold the 
restrictive covenants recorded by J M are enforceable as equitable servitudes 
against Streets, a purchaser with notice of the covenants, and Keiderling, her 
tenant. We affirm the Order for Permanent Injunction entered by the district 
court.

[¶2]      Streets and 
Keiderling, in the Brief of Appellants, state the issue to be: 

I. Can an installment land sale purchaser who holds 
no legal title to the land burden that land with restrictive 
covenants.

J M, in its Brief of 
Appellee, restates the issue in this way:

Whether the District Court erred in finding that the 
restrictive covenants filed of record on December 12, 1978, are binding and 
enforceable against the appellants.

[¶3]      The facts in this 
case are not in dispute. On May 24, 1977, Ruby Ranch Investments (Ruby Ranch), a 
partnership formed by Max and Jesse Ruby, purchased 4,708 acres of land from 
Lowery Land and Livestock Trust (Lowery) by a contract for deed. Notice of the 
contract for deed was recorded in the office of the Campbell County Clerk on 
June 3, 1977. On August 24, 1978, J M, a corporation of which Jesse Ruby was 
president, purchased the same tract of land from Ruby Ranch Investments also by 
a contract for deed. Notice of this second contract for deed was recorded on 
December 12, 1978.

[¶4]      In the meantime, 
J M executed a document entitled Restrictive Covenants on August 29, 1978. The 
Restrictive Covenants recognized that J M was the equitable owner of the 4,708 
acres and was dividing the land into forty-acre parcels. The Restrictive 
Covenants stated that J M "makes the following declaration as to limitations, 
restrictions, and uses to which the said subdivision may be put, hereby 
specifying that said declarations shall constitute covenants to run with all of 
the land above described, as provided by law, and shall be binding upon all 
parties and all persons claiming under them, and for the benefit of and 
limitation of all future owners in said lands, or present owners consenting 
thereto by their signatures being affixed thereto." The Restrictive Covenants 
were recorded in the office of the Campbell County Clerk on December 12, 1978, 
the same day that the second contract for deed was 
recorded.

[¶5]      J M did not have 
legal title at the time the Restrictive Covenants were recorded. On May 24, 
1977, Lowery executed a warranty deed to Ruby Ranch, but that deed was not 
recorded until January 3, 1983. During the intervening period of time, J M sold 
a number of the subdivided forty-acre tracts to various purchasers. J M never 
did receive legal title to all 4,708 acres from Ruby Ranch Investments. At the 
time the complaint in this case was filed, J M did have legal title to 
approximately 430 acres.

[¶6]      Streets owns a 
tract of land, consisting of about twenty-two acres, within the 4,708 acres. 
Twenty acres of land were acquired by Streets by a quitclaim deed from the 
Federal Deposit Insurance Corporation dated September 21, 1988 and recorded 
September 27, 1988. The additional two acres Streets obtained by a special 
warranty deed from the Secretary of Housing and Urban Development, which was 
dated October 5, 1992 and recorded on October 8, 1992. Legal title to the 
forty-acre parcel that included the land owned by Streets was received by J M 
pursuant to a warranty deed dated October 8, 1984 and recorded March 20, 1985. 
Keiderling owns no interest in the property, but he resides on the property 
owned by Streets.

[¶7]      J M commenced 
this action by a complaint, filed September 17, 1992, naming Streets and 
Keiderling as defendants and alleging violations of provisions of the 
Restrictive Covenants. The particular covenants relied upon 
state:

4. Any livestock, poultry or other animals shall be 
kept in an area which shall be adequately fenced to keep the same within the 
owner's area * * *.

*           
*           
*           
*           
*           
*

7. All existing roads shall remain for the use of the 
public, and auto gates shall be supplied at the expense of the lot owner 
desiring to build a fence across such existing road.

J M sought injunctive relief 
to prohibit Streets and Keiderling from allowing stock to migrate onto J M's 
property and from blocking a roadway running across Streets' property. The trial 
court granted a permanent injunction to J M, contingent upon J M obtaining 
ratification and recordation of the Restrictive Covenants by Ruby Ranch. J M did 
obtain and record that ratification, and the permanent injunction was entered on 
January 4, 1994. Streets and Keiderling appeal from that 
order.

[¶8]      The essence of 
Streets' position is that the twenty-two acres cannot be burdened at law by 
restrictive covenants recorded by J M in 1978. At the time the Restrictive 
Covenants were recorded, J M, the purchaser under a contract for deed, acquired 
only an equitable title, the legal title still being held by Lowery. J M could 
not impose restrictive covenants that would run with the land. See cases cited 
in 20 AM. JUR.2D Covenants, Conditions, and Restrictions § 33, 604 (1965). 
Streets' and Keiderling's position, however, begs the question resolved by the 
district court, and we deal in this decision with that issue. We decide for 
Wyoming that a restrictive covenant imposed by the equitable owner of land can 
be enforced in an equitable action against a purchaser of land chargeable with 
notice of the restrictive covenant.

[¶9]      Many of our 
sister jurisdictions have recognized the distinction between the legal concept 
of covenants that run with the land and the enforcement in courts of equity of 
equitable servitudes. See Maurice T. Brunner, Annotation, Who May Enforce 
Restrictive Covenant or Agreement as to Use of Real Property, 51 A.L.R.3d 556 
(1973). In deciding to enforce the Restrictive Covenants, the trial court quoted 
this proposition from 20 AM. JUR.2D Covenants, Conditions, and Restrictions § 
304, 868 (1965):

The general view is that a restrictive covenant is 
not strictly an easement and does not run with the land in the true sense of 
that term. Such agreements are, however, 
enforceable in equity against all those who take the estate with notice of them, 
although they may not be, strictly speaking, real covenants so as to run with 
the land or of a nature to create a technical qualification of the title 
conveyed by the deed. The question is not whether the covenant runs with the 
land, but whether a party shall be permitted to use the land in a manner 
inconsistent with the contract entered into by his vendor, and with notice of 
which he purchased. It has been noted that the enforcement of restrictive 
covenants or equitable servitudes is based on the equitable principle of notice; 
that is, a person taking title to land with notice of a restriction upon it will 
not, in equity and good conscience, be permitted to violate such restriction. 
(Footnotes omitted, emphasis added.)

[¶10]   The distinction between equitable 
servitudes and covenants which are said to run with the land is made more 
pointed by language that immediately follows that quoted by the trial 
court:

Accordingly, whether such a covenant runs with the 
land is material only in equity on the question of notice; if the covenant runs 
with the land, it binds the owner whether or not he had knowledge of it, whereas if it does not run with the land, 
the owner is bound only if he has taken the land with notice of it. Thus, 
since ordinarily such a covenant does not run with the land and since it is not 
a true easement, it is enforceable against a purchaser or assignee of the 
property only if he takes with notice. One who purchases for value and without 
notice takes the land free from the restrictive covenant. (Footnotes omitted, 
emphasis added.)

20 AM.JUR.2D Covenants, 
Conditions, and Restrictions § 304, 868 (1965).

[¶11]   Enforcement of covenants 
restricting the use of land in equity was recognized in the common law of 
England after the middle of the Nineteenth Century. In Sun Oil Co. v. Trent Auto 
Wash, Inc., 379 Mich. 182, 150 N.W.2d 818, 820 (1967), the Michigan court 
said:

The principle is stated by the Lord Chancellor in the 
case of Tulk v. Moxhay (1948), 2 Ph 774 (41 Eng Rep 1143), affirming 11 Beav 571 
(50 Eng Rep 937):

"* 
* * the question does not depend upon whether the covenant runs with the land * * * if there was a mere agreement and no 
covenant, this Court would enforce it against the party purchasing with notice 
of it; for if an equity is attached to the property by the owner, no one 
purchasing with notice of that equity can stand in a different situation from 
the party from whom he purchased." (Emphasis added.)

See also Thodos v. Shirk, 
248 Iowa 172, 79 N.W.2d 733 (1956).

[¶12]   The Restrictive Covenants imposed 
by J M did not result in easements that would run with the land, but they 
constituted contractual rights which, as demonstrated by the extant authorities, 
can be enforced in equity. This contract theory of restrictive covenants is 
articulated in this way in 20 AM.JUR.2D Covenants, Conditions, and Restrictions 
§ 167, 726:

[T]he view has been taken that such covenants do not 
create true easements, but merely contractual rights. Moreover, it has been said 
that the restriction arising from a restrictive covenant is not an estate in 
land, as is a legal easement, but is purely a creature of equity arising out of 
contract, and that restrictive covenants as to the use of land, though 
enforceable as between the parties thereto and their successors with notice, do 
not convey an interest in the land. Under this view, a restriction does not run 
with the land, nor is it a legal exception or reservation out of it. (Emphasis 
added.)

[¶13]   We have never been confronted with 
the doctrine of enforcement in equity of equitable servitudes pursuant to a 
contract theory. This approach has not been endorsed nor rejected by our court. 
However, in Hein v. Lee, 549 P.2d 286 (Wyo. 1976), the court suggests that we 
have embraced the contract theory of enforcement of covenants, not only as 
between the contracting parties, but also as to third parties with notice of the 
contract. In Hein, we held recorded restrictive covenants were not effective to 
provide constructive notice to a third-party purchaser because the recorded 
document was not properly acknowledged. Hein, the third-party purchaser, had 
received copies of those covenants from the original seller of the land, and 
this court ruled the covenants were effective against Hein because of his actual 
notice. We there stated:

Neither the fact that they [restrictive covenants] do 
not appear in this deed nor the fact that they are not properly placed on public 
record relieves the appellant [Hein] of their burden because he had actual 
notice. (Citations omitted.)

Hein, 549 P.2d  at 
292.

A covenant, neither included 
in a deed nor properly placed of record, cannot be one that runs with the land. 
Still, in Hein, we approved the enforcement of such 
covenants.

[¶14]   The availability of a doctrine of 
equitable enforcement of restrictive covenants is perhaps more clearly approved 
in Bowers Welding and Hotshot, Inc. v. Bromley, 699 P.2d 299, 303 (Wyo. 1985), 
where we said, relying upon 20 AM.JUR.2D Covenants, Conditions, and Restrictions 
§§ 307, 308, 871-72:

If the purchaser has actual notice of an agreement 
containing restrictions, it is not material that the agreement is not of record. 
At least, where it does not appear that the agreement was of record, the 
purchaser with actual notice has been held bound by the restrictions. Even notice of a parol agreement binds the 
purchaser to comply with the restrictions. (Emphasis 
added.)

[¶15]   We are in accord with the statement 
by the district court that, "[a] contract theory of restrictive covenants, 
enforceable through the courts, makes sense in contemplation of modern land 
use." It is not unusual for land, even substantial tracts, to be purchased by a 
contract for deed with the intent of creating a subdivision. Even though the 
purchaser under the contract for deed is an owner of an equitable interest, that 
owner should not be foreclosed from structuring restrictive covenants for the 
subdivision. Such a limitation would not comport with logic or valid public 
policy in the late Twentieth Century. The only prerequisite to enforcement 
should be the notice to the subsequent owner of the restrictions coupled with 
the requisite intent on the part of the seller that those covenants would be 
binding upon subsequent purchasers with notice. See Bowers 
Welding.

[¶16]   The trial court charged Streets 
with record notice of these Restrictive Covenants. The intention of J M, the 
seller of tracts within the subdivision, is plain that these forty-acre tracts 
were to be developed according to a common scheme or plan, and that each tract 
would be both burdened by, and receive the benefit of, the Restrictive 
Covenants. Streets had notice by virtue of the recording of the Restrictive 
Covenants by J M, which were applicable to the entire 4,708-acre tract. Streets 
was bound by them, and Keiderling had no greater rights than 
Streets.

[¶17]   Streets offers a litany of awkward 
scenarios that are claimed to arise from the recognition of equitable servitudes 
that can be enforced in equity. While unique problems may arise in other cases, 
none of those evil spirits are present in the case before us. We do not perceive 
them to be valid concerns. There is no possibility the holder of an equitable 
interest, who creates equitable servitudes, could claim them to be valid against 
the owner of the legal title in the event of default. There is a possibility 
under certain circumstances that a lack of uniformity could develop within the 
tract which is the subject of the subdivision. The pertinent authorities in this 
area indicate those possibilities are not unusual. Problems such as those can be 
resolved, however, and the fact they may exist in other cases should not excuse 
Streets and Keiderling from compliance in this case. These parties simply chose 
not to comply with valid conditions imposed upon use of their land, which they 
understood and knew about when the land was acquired.

[¶18]   We affirm the Order for Permanent 
Injunction entered in the trial court in all respects.

MACY, 
Justice, dissenting.

[¶19]   I dissent from the majority's 
decision in this case. I would reverse the district court's decision and remand 
the case because I am of the opinion that a party who is simply an equitable 
owner of real property cannot impose effective restrictive covenants against the 
property and that the covenants should not be enforced as being equitable 
servitudes.

[¶20]   The majority glosses over the 
primary legal question which must be answered in order to decide this case: Who 
can impose valid restrictions on the use of real property? The majority fails to 
take into account the difference between the rights of a party who holds legal 
title to the property and the rights of a party who owns only equitable title to 
the property. See Cliff & Co., Ltd. v. Anderson, 777 P.2d 595, 601 (Wyo. 
1989); McKone v. Guertzgen, 811 P.2d 728, 730 (Wyo. 1991).

[¶21]   I agree with the majority's 
conclusion that J M Land could not impose valid restrictive covenants that run 
with the land. In order for restrictive covenants to run with the land, privity 
of estate must exist between the original parties to the covenants. See Hein v. 
Lee, 549 P.2d 286, 292 (Wyo. 1976); Lingle Water Users' Ass'n v. Occidental 
Building & Loan Ass'n, 43 Wyo. 41, 297 P. 385, 391-92 (1931). "It is . . . a 
general principle that covenants run only with the legal title to lands and 
tenements, as distinguished from the equitable title." 20 AM.JUR.2D Covenants, 
Conditions, and Restrictions § 33, at 604 (1965). Since J M Land was the only 
party who signed the restrictive covenants and it did not have legal title to 
the property, the covenants were not effective.

[¶22]   The majority holds that, even 
though the restrictive covenants recorded by J M Land were not valid covenants 
that run with the land, the covenants were enforceable as being equitable 
servitudes pursuant to a contract theory. The majority indicates that a valid 
agreement imposed restrictions upon the property and that the agreement was 
binding against Streets because she took the property with notice of the 
restrictions.1 That analysis presupposes that J M 
Land created a valid contractual obligation. In order to have an enforceable 
equitable servitude, a covenant must exist which, "under the rules of contract 
interpretation, is binding between covenantor and covenantee." ROGER A. 
CUNNINGHAM ET AL., THE LAW OF PROPERTY § 8.23 at 488 
(1984).

An essential element of an equitable servitude is a 
written instrument between the grantor and the grantee showing their joint 
intent that the grantee's title is conveyed subject to the common plan of 
restrictions. The grantor's intent, although readily ascertainable from the 
common plan of restrictions, is insufficient.

Scaringe v. J.C.C. 
Enterprises, Inc., 205 Cal. App. 3d 1536, 253 Cal. Rptr. 344, 349 (1988) (citation 
omitted). The majority does not explore how this supposed "contract" came into 
existence.

[¶23]   J M Land did not have legal title 
to the property when it recorded the restrictive covenants. Ruby Ranch 
apparently supplied deeds to the individual purchasers as J M Land sold the 
tracts in the subdivision. J M Land, therefore, does not appear in the chain of 
title to many of the tracts, and, for many of the transactions, the record does 
not demonstrate that J M Land was actually involved. The evidence simply does 
not reflect that J M Land and all the individual tract owners had a joint intent 
to restrict the use of the property. A legal basis does not exist for enforcing 
the covenants as being equitable servitudes.

[¶24]   It is a change in Wyoming law for 
us to enforce restrictions on the use of real property simply because a party 
takes the property with notice of the restriction, without requiring that the 
other requirements for binding restrictions be met. See, e.g., Hein, 549 P.2d 286; Remilong v. Crolla, 576 P.2d 461 (Wyo. 1978). Therefore, at the very least, 
this ruling should apply prospectively only so that landowners will have the 
opportunity to address this issue when they enter into land sale 
contracts.

FOOTNOTE

1 J M Land does not argue cogently that 
it should have been able to enforce the restrictions against Streets under the 
equitable servitude theory. Instead, J M Land argues that it could impose valid 
restrictive covenants against the property because, under the doctrine of 
equitable conversion, its interest in the property should be considered as being 
an interest in real property.