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 , JOHN ALLHANDS, and WALTER WON, Jk3R 8 7 

and HAMBLETONIAN INN, INC., 

Respondents and Appellants. ~.. . . .i/ ..ti ~-.h*:<>2 

CL,a.,i, C.0.. ", .,.I ,Ir.w.; &4VW 

SiNE OF MUN'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: 

James H. Goetz and Robert K. 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, 1994 
Justice James C. Nelson delivered the Opinion of the Court. 

This is an appeal by appellants Walter Kannon and Hambletonian 

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 McClainvs claim 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 

2 
The 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 (McClain respondents) in the second captioned case live 

within the four tract Kenner Estates Subdivision. When all 

respondents from both cases are referred to, the term l*respondents'l 

will be used. 

The following background material is gleaned Eromthe petition 

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 

Board recommended to the Respondents that the preliminary 

plat for Kenner Estates be approved subject to State 

Department of Health and Environmental 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 Estates was approved .... This approval 

was conditioned on the applicants obtaining approval of 
the State Department of Health and Environmental Sciences 

and the recording of protective covenants that provide 

that no structure should be allowed on any of the four 

tracts except one single-family dwelling, a garage and a 

guest house. . . . After receipt of the preliminary plat approval, the 

applicant recorded a set of protective covenants that did 

not conform to the mandated terms of the approved 

protective covenants. . . . That since the approval of 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 on May 12, 1989. They assert that 

on November 27, 1989, they attended a Madison County Planning Board 

meeting for the express purpose of registering complaints that the 

Inn was being operated in violation of the protective covenants of 

the subdivision. 

Finally, the respondents state in their brief: 

The protective covenants as recorded are interpreted 

to mean that this is a residential subdivision and that 

there is allowed on each tract of land three structures: 

a single family dwelling, a two car garage and one guest 

house on Tracts 1, 2 and 3. There are no dog kennels 

allowed on any tract nor are there any stables for horses 

allowed on any tract except Tract 4. The phrase 

ttexisting structures exceptedtt means that any structures 

that presently existed within the subdivision that 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 as 
recorded. The covenants as recorded were accepted even though the 

covenants proposed were not the same as those recorded. At the May 

7, 1990 meeting of the Board of County ~ommissioners, the County 

decided to give their full support to the Planning Board's decision 

to accept the covenants to the subdivision as recorded 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 that the settlement agreement was not a binding 

agreement. Kannon insists that the 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, although my clients are here and I believe 

all respective clients are here and I want them to 

consent to this in sum and substance, this is conditioned 

upon the approval of the appropriate settlement documents 

and covenants by the ~arties of record and their 

attorneys. 

(Emphasis added.) 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 just continue it without a date and then 

counsel can keep in touch with me and keep me advised as 

to the progress. And we'll schedule the matter if it has 

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. (Emphasis added.) 

#'An agreement 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." (Emphasis added.) 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 intention not to be bound does not prevent 

the formation of a binding contract. Such a condition, 

that it will not be effective until 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 there was going to be 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, there was no 

unconditional offer nor was there an unconditional acceptance. 
Kannon also argues that there was no "meeting of the mindsw on 

the material terms of the settlement and therefore, there was no 

binding agreement. Again, we agree. The transcript of June 23, 

1992, reveals that the agreement was conditional. Moreover, in the 

correspondence between the attorneys which followed the June 

hearing, the respondents' attorney added extra restrictions in the 

list of covenants in their amended covenants dated 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. These activities are not those of two parties who have 

had a "meeting of the minds.'' Hetherinaton, 849 P.2d at 1043. The 

matters still at 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. The parties' disagreement did 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 covenants could only have 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 the 
parties. There was simply an attempted but non-binding settlement. 

We hold that the District Court erred in granting summary judgment 

in the respondents' favor and 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 Kannonls May 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, and were invited to participate in the 

subdivision process, 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 those are approved by the local government as a part 

of the subdivision. We conclude that here, the neighbors outside 

of the subdivision do 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 not 
extending 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 running with the land in favor of each and all of 

the grantees. The basis of the creation of this right is 

the mutuality of burden and the mutualitv of benefit as 

between the urantees arisina out of the im~osition of 

such restrictions on the land itself. This mutuality 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. (Emphasis added.) 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 or mutuality 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 creation of the real 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 given manner. 

See also qenerally; Town & Country Estates Ass'n v. Slater 

(1987), 227 Mont. 489, 740 P.2d 668 ("...the free use of the 
property 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 ("The purchasers having assented to such 

restrictions, they and their assigns may ordinarily enforce them 

inter sese for their own benefit.") (Citation omitted.) 

The respondents cite Reichert v. Weeden (19801, 190 Mont. 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 in Haggerty v. 

Gallatin County (1986), 221 Mont. 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., which platted five minor subdivisions and then subrnittedthem 

to the Ravalli County planning board for review and approval, had 

no standing to maintain an action to compel the board to act upon 
the 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 in this cause, and admits that it lacks 

any legal or equitable interest in the land. Some form 

of ownership in the land is necessary to embark standing 

to bring a mandamus action. (Citations omitted.) 

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 live within the subdivision, did not seek to 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. The McClain respondents, who are owners of 

property within 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 is not before 

this Court. 

111. RESTRICTIVE COVENANTS 

Did the District Court err in denying Kannon's May 4, 1992 

motion for summary judgment regarding McClainls claim that Kannon 

was violating the restrictive covenants? 

Kannon states that the restrictive covenant at issue imposes 
a 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 County by 

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 the Madison County Planning Board and 

the Consulting Staff Planner had 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, "existing structures exceptedM was omitted. The Board 

then conditionally approvedthe Kenner Estates Minor Subdivision at 

its February 13, 1989 meeting. On May 19, 1989, Bill Dringle, the 

Chairman of the Board of County Commissioners wrote a letter to Jim 

McGee of Bay Bank, stating that its application for preliminary 
plat 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 joint meeting between the two boards. 

However, the issue was resolved when the Planning Board, upon 

advice from the County Attorney, voted to ''accept the Kenner 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 

covenant merely 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 restriction based 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. 

Jones v. Park Lane for Convalescents (1956), 120 A.2d 535, is 

instructive concerning the two types of restrictive covenants. The 
Jones court stated: 

Restrictions limiting the right of the owner to deal 

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 restriction and 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 family dwelling, a two-car garage, and one (1) guest 

house. . . ." As stated above, this covenant limits the type and 

number of buildings on the property; it does not place restrictions 

on the use of the property. 

Moreover, if the developers, Planning Board, Board or 

interested parties were concerned that no commercial operation akin 

to the Hambletonian Inn would be established in Kenner Estate Minor 

Subdivision, they could have argued for that restriction and so 

provided in the covenant. Collins v. Goetsch (Haw. 1978), 583 P.2d 

353, 358. No such action was 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 specifically 
pertaining to the of the buildings. In the instant case, the 

covenant contains no language addressing the use of the buildings; 

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. 

In conclusion, whether the term Itexisting structures excepted" 

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 there was 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. JUDICIAL REVIEW 

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. The McClain respondents are the 

only respondents who have the requisite interest in the subdivision 

and its restrictive covenants to acquire standing. The McClain 
respondents, however, did not raise the issue of whether the Board 

could be compelled to enforce the covenant. Therefore, since the 

Patton respondents do not have standing and the McClain 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, 

JOHN ALLHANDS, 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 1 0 1994 

CLERK OF 3UFi:z;:.:., :::-.iji:,7 

STATE Oi bi~,.ii.'..~;, 

NO. 93-445 

ORDER 

IT IS HEREBY ORDERED that the Opinion of this Court dated June 

21, 1994, is amended as follows: 

On page 2 of the opinion beginning at line 7, the first issue 

is amended to read: 

I. Did the District Court err in enforcing the oral 

settlement dictated 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 

settlement dictated into the record on June 23, 1992? 
The Clerk is directed to mail copies hereof to counsel of 

record for the respective parties.