No. 93-445 and 93-446 IN THE SUPREME COURT OF THE STATE OF MONTANA

GORDON PATTON,WILLIAM WINN, ROBERT ALLEN, and VAL FARRELL, Petitioners and Respondents,

MADISON COUNTY and THE BOARD OF COUNTY COMMISSIONERS. WILLIAM R.

~ ~ DRINGLE

### , chairman; B~RON BAYERS

### , JOHNALLHANDS, and WALTER WON, 

### Jk3R 87 and HAMBLETONIAN INN, INC., Respondents and Appellants. ~.. . . .i/ ..ti ~-.h*:<>2 CL,a.,i, C.0.. ", .,.I ,Ir.w.; &4VW SiNEOFMUN'PANA DAN R. McCLAIN and MARY ALICE McCLAIN, Trustees under the DAN R. McCLAIN and MARY ALICE McCLAIN DECLARATION OF TRUST, Plaintiffs and Respondents,

WALTER KANNON and HAMBLETONIAN INN, INC., Defendants and Appellants.

APPEAL FROM: District Court of the Fifth Judicial District, In and for the County of Madison, The Honorable Frank M. Davis, Judge presiding. COUNSEL OF RECORD: For Appellant: JamesH. Goetz andRobertK. Baldwin,Goetz,Madden & Dunn, Bozeman,Montana For Respondent: J. Robert Planalp, Landoe, Brown, Planalp & Braaksma, Bozeman, Montana; Loren Tucker, Madison County Attorney, Virginia City,Montana

Filed: Submitted on Briefs: March 31, 1994 Decided: June 21, 1994Justice James C. Nelson delivered the Opinion of the Court.
This is anappealby appellants WalterKannon andHambletonian Inn, Inc., from a Fifth Judicial District Court, Madison County, judgment enforcing the settlement agreement, dated August 17, an order dated July 7, 1993,and an order denying Kannon's motion for summary judgment dated June 15, 1992. We reverse. The following are issues on appeal: I. Did the District Court err in denying summary judgment for respondents and enforcing the oral settlement dictated into the record on June 23, 1992? 11. Did the District Court err in denying Kannon's May 5, 1992, motion for summary judgment regarding Patton's lack of standing? 111. Did the District Court err in denying Kannon's May 4, 1992,motion for summary judgment regarding McClainvsclaim that Kannon was violating the restrictive covenants? IV. Did the District Court err in granting judicial review of the respondents' challenge to the Board of County Commissioners' approval of the recorded covenants in the instant case? BACKGROUND Initially, we provide some framework to assist in a mar? complete understanding of the present case. On October 26, 1993, pursuant to Rule 4(b), M.R.App.P., counsel for the parties stipulated to the consolidation of the appeals in the two above captioned cases because of the numerous identical or overlapping issues. This Court ordered the 

### two cases consolidated on October 2The appellants in the first case are Madison County and the Board of County Commissioners (Board), the Hambletonian Inn, Inc. and Walter Kannon, who, with his family, is a shareholder in Hambletonian 

### Inn,Inc. (collectively,Kannon). Kannon is also the president of Hambletonian Inn Inc. The Inn owns Lots 3 and 4 in the Kenner Estates Minor subdivision. The respondents (Patton respondents) 

### in the first captioned case are owners of real property adjacent to the Kenner Estates Subdivision. The appellants in the second captioned case are Walter Kannon and the Hambletonian Inn, Inc. (collectively Kannon). The respondents (McClainrespondents) inthe second captionedcase live within the four tract Kenner Estates Subdivision. When all respondents fromboth casesare referredto,the term l*respondents'l will be used. The followingbackground material isgleaned Eromthepetition in Patton v. Madison County, one of the two cases consolidated herein. The petition alleges the following: That on or about November 29, 1988, the Madison County Planning Board considered the application of Bay Bank for approval of a four-lot subdivision known as Kenner Estates located on 24.8 acres adjacent to the Madison 

### River. On December 7, 1988, the Madison County Planning Boardrecommendedtothe Respondentsthat thepreliminary plat for Kenner Estates be approved subject to State DepartmentofHealthandEnvironmental Sciences' approval and covenants be recorded that provided no structures would be allowed on any of the four tracts except one single-family dwelling, one garage and one guest house. That 

### at the regular meeting of the Respondents on February 13, 1989, the application for preliminary plat approval of Kenner Estateswas approved

# .... Thisapproval was conditioned on the applicants obtaining approval 

### oftheState DepartmentofHealthandEnvironmentalSciences and the recording of protective covenants that provide that no structure should be allowed on any of the four tracts except one single-familydwelling,

### agarage and a guest house.



# . . . After receipt of thepreliminary plat approval, the applicantrecordeda setof protectivecovenants thatdid not conform to the mandated terms of the approved protective covenants.

# .. . That sincetheapprovalof the subdivision,at least three of the four residential lots have been sold to purchasers. One such purchaser, Walter Kannon, has utilized his tract of land as a commercial hunting and fishing lodge which has housed, fed and entertained sportsmen for a fee. The respondents further state in their brief that the Hambletonian Inn, Inc. closed the sale of Lot 3 on May 23, 1989, receiving title subject to the protective covenants of record, which had been previously filed onMay 12, 1989. They assert that on November 27, 1989,they attended aMadison County PlanningBoard meeting for the express purpose of registering complaints that the Innwas being operated inviolation of theprotective covenantsof the subdivision. Finally, the respondents state in their brief: Theprotective covenantsasrecordedare interpreted to mean that this is a residential subdivision and that there isallowed on each tract of land three structures: a single familydwelling, a two car garage and one guest house on Tracts 1, 2 and 3. There are no dog kennels allowed onany tractnor are thereany stables forhorses allowed on any tract except Tract 4. The phrase ttexisting structuresexceptedtt means that any structures that presently existed within the subdivisionthat were not a dwelling, a two car garage or a guest house need not be torn down. Commercial operations are prohibited from the Kenner Estates Subdivision. On April 30, 1990, the Planning Board passed a motion accepting the Kenner Estates Subdivision and the covenants asrecorded. The covenants as recordedwere accepted even though the covenantsproposedwere not the sameas those recorded. At theMay 7, 1990 meeting of the Board of County ~ommissioners, the County decided togive their full support to the PlanningBoard's decision to acceptthecovenantsto the subdivisionasrecorded and followed their decision with 

### a letter to the Planning Board. The respondents thereafter, filed two separate actions contesting the operation of the bed and breakfast on Lot 3.

I. ORAL SETTLF,MENT AGREEMENT Did the ~istrict Court err in granting sununary judgment for respondents and enforcing the oral settlement dictated into the record on June 23, 1992? Kannon asserts thatthe settlement agreementwas not abinding agreement. Kannon insists thatthe l'~ettlernent~~ which was recorded at the June 23, 1992 hearing was conditioned upon approval of a final settlement agreement. We agree. The transcript of the proceedings 

### on June 23, 1992, reveals the following testimony: Secondly,althoughmy clientsare hereand Ibelieve all respective clients are here and I want them to consent

### to this in sumand substance,this is conditioned upon theapprovalof theappropriate settlementdocuments and covenants by the ~artiesof record and their attorneys. (Emphasisadded.) Additionally, the testimony relates that: We dictated into the record the hope that this matter can be drawn, submitted, approved and then 

### a hearing scheduled by the County Commissioners very soon.

# .

# . .The Court, in reply to this statement, concluded: Well,we'll justcontinue itwithout a date and then counsel can keep in touch with me and keepme advised as to theprogress. And we'll schedule thematter if ithas to be tried. Does there appear to be 

## -- are you in the ballpark? Is there going to be a settlement? Counsel then replied: I think so. (Emphasisadded.) #'Anagreement is binding if made by an unconditional offer, and accepted unconditionally." Hetherington v. Ford Motor Co.

(1993), 257 Mont. 395, 399, 849 P.2d 1039, 1042. In the instant case, the settlement read into the record states that "this is conditioned upon the approval of the appropriate settlement documents and covenants." (Emphasisadded.) There is, therefore, no unconditional offer, and there can also, then, be no unconditional acceptance. The intentions of the parties are those disclosed and agreed to in the course of the negotiations. A party's latent intentionnot tobe bound does notprevent the formation of a binding contract. Such a condition, that it will not be effectiveuntil signed,must be part of the agreement between the parties. (Citations omitted.) Hetherinaton, 849 P.2d at 1042. Here, the intention of the parties, made clear on the record, was that the final settlement documents and covenants would have to be approved. The respondents' attorney said he thouaht that therewas going tobe a settlement. The condition that the settlement would not be effective until signed 

### was a part of the agreement between the parties. Hetherinston, 849 P.2d at 1042. Therefore, therewas no unconditional offer nor was there an unconditional acceptance.Kannon also argues that there was no "meeting of themindswon the material terms of the settlement and therefore, there was no binding agreement. Again, we agree. The transcript of June 23, 1992, revealsthat the agreement was conditional. Moreover, in the correspondence between the attorneys which followed the June hearing,the respondents' attorney added extra restrictions inthe list of covenants in their amended covenantsdated July 13, 1992. Kannon's letter in response to the respondents' amended covenants stated that further discussion would be appreciated regarding possible additions to existing structures. Additionally, the respondents did not reply to another set of amended covenants Kannon had prepared, and instead, wrote Judge Davis to request a trial date. Theseactivities are not those of two partieswho have had a "meetingof theminds.'' Hetherinaton,849 P.2d at 1043. The matters stillat issue were not "s~bsidiary,~ or l'collateral,lv they were central to the very performance of the contract. Hetherinaton, 849 P.2d at 1043. Theparties' disagreementdid not involve any issue which could easily have been settled by the court's ruling that the appropriate covenants could be drafted. Hetherinqton,849 P.2d at 1043. The covenantscould onlyhave been drafted and approved by the parties. The terms of the covenant

were the essential matters at issue. There was meeting of the minds in the instant case, and therefore,no binding settlement. Because there was no unconditional offer, no unconditional acceptance, and no meeting of the minds, there was neither an executory accord nor a substituted contract as argued by theparties. Therewas simplyan attemptedbut non-binding settlement. We hold that the District Court erred in granting summary judgment inthe respondents' favorand also erred in its order enforcing the oral settlement transcribed in the June 23, 1992 record. Accordingly, we reverse the District Court on this issue. 11. STANDING Did the District Court err in denying KannonlsMay 5, 1992 motion for summary judgment regarding Patton's lack of standing? The appellants contend that the respondents in the present case lack standing to enforce the restrictive covenants or compel the county to enforce the covenants. The respondents argue that because they are neighbors, andwere invited toparticipate in the subdivisionprocess, they have standing to enforce the covenants. Moreover, they state that the restrictive covenants constituted a negative easement, enforceable by the neighbors. While the public may be invited to or have a right to provide input into the subdivision process, it does not follow that, without ownership of property within the subdivision, statutory authorization or on the basis of some other legal theory not at issue here, members of the public necessarily have the right to enforce or to insist that the local government enforce restrictiv? covenants once thoseare approvedby the local government as 

### apart of the subdivision. We conclude that here, the neighbors outside of the subdivisiondo not have standing to enforce the restrictive covenants in the instant case. Lillard v. Jet Homes, Inc. (La. 1961), 129 So.2d 109, is instructive as to the rationale for notextending standing rights to those persons not a part of the subdivision. It states: Where a tract of land is subdivided into lots and burdened with restrictive covenants, real rights are created runningwith the land in favor of each and all of thegrantees. Thebasis of the creationof thisright is themutuality of burden and the mutualitv of benefit as between the urantees arisina out of the im~ositionof such restrictions on the land itself. Thismutuality of burden and benefit constitutes reciprocal promises as between the grantees, each supported by that of the other. Lillard, 129 So.2d at 111-112. (Emphasisadded.) Moreover: Anyone not a grantee within the particular area or subdivision covered by the restrictions in question acquires no right thereunder as there is no mutuality of benefit ormutuality of burden as between his lot in one subdivision covered by one set of general restrictions and a lot in another subdivision covered by another different, distinct, and separate set of general restrictions. This lack of mutuality, or privity, prevents the creationof thereal right,or the extension of the real right burdening one defined area to another area not described or included therein. Lillard, 129 So.2d at 112. In the instant case, Pattons,Winns,Allens and Farrells live in the area but do not live in the subdivision. Only Dan and Mary Alice ~c~lain live in the Kenner Estates Minor Subdivision. The McClain respondents are the only respondents who share the mutuality of burden and benefit with Kannon as fellow owners of property in the Kenner Estates Subdivision. The others simply are not party to the reciprocal promises made between the grantees which 

### form the basis upon which to challenge another grantee's right to use his land 

### in a givenmanner. See also qenerally; Town & Country Estates Ass'n v. Slater (1987), 227 Mont. 489, 740 P.2d 668 ("...the free 

### use of 

### theproperty must be balanced against the rights of the other purchasers in the subdivision.,,.[e]ach purchaser in a restricted subdivision is both subjected to the burden and entitled to the benefit of a restrictive covenant.") ;Kosel v. Stone (1965)

### , 146 Mont. 218, 404 P.2d 894 ("Thepurchasers having assented to such restrictions, they and their assigns may ordinarily enforce them inter sese for their own benefit.") (Citationomitted.) The respondents citeReichert v. Weeden (19801,190Mont. 95, 618 P.2d 1216, for their argument that the restrictive covenants constitute a negative easement 

### and are enforceable 

### by the neighbors. However, the %eighborsM involved 

### in Reichert were parties to the agreement which created the negative easement at issue. Moreover, all parties involved in the action inHaggertyv. Gallatin County (1986), 221Mont. 109, 717 P.2d 550,also cited by the respondents, were parties to the agreement in question. Therefore, they do not stand for the proposition that "neighborsm have standing to challenge the restrictive covenants of other parties. The Patton respondents also argued that they had standing to compel the Board to enforce the covenants. In State Etc. 

### v. Board of Cty Commissioners (l979), 181 Mont. 177, 592 P.2d 945, this Court discussed standing and who bas a legal interest in subdivision issues. In concluding that Professional Consultants Inc., whichplatted fiveminor subdivisionsand then subrnittedthem 

### to the Ravalli 

### County planning board 

### for review and approval,had

no standing tomaintain an action to compel the board to act 

### uponthe proposed subdivision, this Court stated: Petitioner has stated no legal interest in any of the minor subdivisions that are the subject of this action. It is not the owner or purchaser of any of the property involved inthis cause,and admits that it lacks any legal or equitable interest in the land. Some form of ownership in the land isnecessary to embark standing to bring a mandamus action. (Citationsomitted.) State. Etc., 592 P.2d at 947. By the same token,parties who live outside of the subdivision do not have any legal interest in the subdivision. Therefore, they do not have any standing to compel the Board to enforce the covenants. The McClain respondents,who do livewithin the subdivision,did not seekto compel the Board to enforce the covenants in their complaint. In conclusion, the Patton respondents are not owners of property within the subdivision and therefore, do not share the mutuality of the benefits and burdens as between grantees of the subdivision. We hold that the neighbors who live outside of the subdivision lack standing to enforce the restrictive covenants under the subdivision. TheMcClain respondents, who are owners of propertywithin the subdivision,do have standing to challenge the restrictive covenants. However, because they did not seek to compel the Board to enforce the covenants, that issue isnot before this Court. 111. RESTRICTIVE COVENANTS Did the District Court err in denying Kannon's May 4, 1992 motion for summary judgment regarding McClainlsclaim that Kannon was violating the restrictive covenants? Kannon states that the restrictive covenant at issue imposesa restriction on the property, but that the exception in the covenant excepts existing structures from that restriction. He contends that because all structures existed at the time of the purchase of the property, they are free from the restrictive covenant. Moreover, the historical use of the property has been that of a lodge or guest house. The Pattons, Winns, Allens, Farrells and McClains took exception to Kannon's use of his property to operate a bed and breakfast, contending that Kannon's commercial operation violated the single family dwelling restrictive covenant. The original covenant at issue,recorded in Madison Countyby the County Recorder on May 12, 1989, stated that: No structure shall be allowed on any tract except one (1) single family dwelling, a two-car garage, and one (1) guest house on Tracts 1, 2 and 3. Existing structures excepted. A stable for horses will be allowed on Tract 4. However, the Chairman of theMadison County PlanningBoard and the Consulting Staff Plannerhad previously written a letter to the County Commissioners on December 7, 1988, stating that the applicable covenant should read: No structure shall be allowed on any tract except one single family dwelling with a two car garage and one guest house. A stable is also allowed on Lot 4. The clause, "existingstructures exceptedMwas omitted. The Board then conditionallyapprovedtheKenner Estates Minor Subdivisionat its February 13, 1989meeting. On May 19, 1989, Bill Dringle, the Chairman of the Board of CountyCommissioners wrote a letter toJim McGee of Bay Bank, stating that its application for preliminaryplat approval for the subdivision had been approved subject to certain conditions and including the modified covenant which did not except existing structures from the restriction. 

## - The discrepancy between the covenants as recorded and the covenants as approved by the County Commissioners was the subject of much debate in Planning Board meetings, Board of County Commissioners meetings and a jointmeeting between the two boards. However, the issue was resolved when the Planning Board, upon advice fromthe CountyAttorney,voted to ''accept theKenner Estate Minor Subdivision and covenants as recorded even though the covenants proposed and those recorded had different wording." At. the May 7, 1990 meeting of the Board, the Commissioners accepted and announced their full support of the Planning Board's decision to accept the covenants as recorded. Therefore, the covenants we address are those recorded on May 12, 1989, including the covenant which excepts existing structures from restrictions. We hold that the operation of the bed and breakfast does not violate the restrictive covenant, for the reason that the covenant does not restrict the 

## use of structures on the property. The covenantmerely states that no structures shall be allowed on any tract except one single family dwelling, a two-car garage and one guest house. This is 

### a restrictionbased on the types and number of buildings allowed on the property. Indeed, historically, the property was used as 

### a guest ranch or 

### a guest resort. Jonesv. Park Lane for Convalescents (1956), 120A.2d 535, is instructiveconcerning the two types of restrictive covenants. TheJones court stated: Restrictions limitingthe rightof theownertodeal with his land as he may desire fall naturally into two distinct classes, the one consisting of restrictions on the type and number of buildings to be erected thereon, and the other on the subsequent use of such buildings. The restrictions in the former class are concerned with the physical aspect or external appearance of the buildings, those in the latter class with the purposes for which the buildings are used, the nature of their occupancy, and the operations conducted therein as affecting the health, welfare and comfort of the neighbors. A building restrictionand a use restriction are wholly independent of one another, and, in view of the legal principles above stated, the one is not to be extended so as to include the other unless the intention so to do is expressly and plainly stated; to doubt is to deny enforcement. Jones, 120 A.2d at 538. The restrictive covenant at issue here states that "[nlo structure shall be allowed on any tract except

one (1)single familydwelling, a two-cargarage,and one (1)guest house. 

# . .." As stated above, this covenant limits the type and number of buildings on theproperty; itdoes

### notplace restrictions

on the use of the property. Moreover, if the developers, Planning Board, Board or interestedparties were concernedthatno commercial operation akin to theHambletonian Innwould be established in Kenner Estate Minor Subdivision, they could have argued for that restriction and so provided in thecovenant. Collinsv. Goetsch (Haw. 1978), 583 P.2d 353, 358. No such actionwas taken. The respondents' brief cites numerous cases standing for the proposition that if the rental of rooms is frequent, the single family dwelling restriction is violated. However, in the cases cited, the covenants at issue all contained language specificallypertaining to the of the buildings. In the instant case, the covenant containsno language addressing the use of thebuildings; the restriction applies to the types and number of buildings. See Sayles v. Hall (Mass. 1911), 96 N.E. 712; Pierce v. Harper (Mo. 1925), 278 S.W. 410; Kiernan v. Snowden (1953), 123 N.Y.S.2d 895; Southhampton Civic Club v. Couch (Tex. 1959), 322 S.W.2d 516; Wallace v. St. Clair (W.Va. 1962), 127 S.E.2d 742. Inconclusion,whether theterm Itexistingstructuresexcepted" is applied or not, because the restrictive covenant does not address the 

## use of the buildings, Kannon's commercial operation does not violate the covenant at issue. The covenant merely describes the type and number of buildings allowable on a lot in the subdivision. If therewas a desire to restrict the use of the buildings, the desired restrictions should have been explicitly included in the covenants. We hold that the District Court erred when it granted summary judgment to the respondents on this issue. Accordingly, we reverse the judgment of the District Court on this issue. IV. JUDICIALREVIEW Did the District Court err in granting judicial review of the respondents1 challenge to the Board of County Commissioners1 approval of the recorded covenants in the instant case? We concluded in Issue I1 that the Patton respondents did not have standing in the instant case. TheMcClain respondents are the only respondentswho have the requisite interest inthe subdivision and its restrictive covenants to acquire standing. The McClainrespondents,however,did not raise the issue

### ofwhether the Board could be compelled to enforce the covenant. Therefore, since the Pattonrespondentsdonot have standingand theMcClain respondents did not take issue with the Board's approval of the covenant, this issue is not before this Court, and accordingly, it will not be addressed. REVERSED.

,IN THE SUPREME COURT OF THE STATE OF MONTANA

GORDON PATTON, WILLIAM WINN, ROBERT ALLEN, and VAL FARRELL, Petitioners and Respondents,

MADISON COUNTY and THE BOARD OF COUNTY COMMISSIONERS,WILLIAM R. DRINGLE, Chairman; BYRON BAYERS, JOHNALLHANDS, and WALTER KANNON, and HAMBLETONIAN INN, INC., Respondents and Appellants.



## .................... DAN R. McCLAIN and MARY ALICE McCLAIN, Trustees under the DAN R. McCLAIN and MARY ALICE McCLAIN DECLARATION OF TRUST, Plaintiffs and Respondents,

WALTER KANNON and HAMBLETONIAN INN, INC., Defendants and Appellants. No. 93-446



### AUG

### 101994

CLERKOF3UFi:z;:.:., :::-.iji:,7 STATE Oi bi~,.ii.'..~;,

NO. 93-445

ORDER

IT ISHEREBY ORDERED that theOpinion of this CourtdatedJune 21, 1994, is amended as follows: On page 2 of the opinionbeginning at line 7,the first issue is amended to read: I. Did theDistrictCourt err inenforcing the oral settlementdictated into the record on June 23, 1992? On page 5 of the opinion beginning at line 10, the issue is amended to read: Did the District Court err in enforcing the oral settlementdictated into the record on June 23, 1992?The Clerk is directed to mail copies hereof to counsel of record for the respective parties.