No. 79-121 INTHE SUPREME COURT OF THE STATE OF MONTANA 1980

RAYMOND V. GOERES, BARBARA K. GOERES, husband and wife; DAN L. OAKLAND and SHARON D. OAKLAND, husband and wife, Plaintiffs and Respondents,

### -vsLINDEY'S INC., a corporation,Defendant and Appellant.

Appeal from: DistrictCourt of the Fourth Judicial District, In and for the County of Missoula, The Honorable James B. Wheelis, Judge presiding.

Counsel of Record: For Appellant: Skelton & Luck, Missoula, Montana Robert Skelton argued, Missoula, Montana For Respondent: Worden, Thane & Haines, Missoula, Montana Ronald Bender argued, Missoula, Montana

Submitted: September 9, 1980 Decided: 

### WkJV

## 2

## 51980Mr. Justice Gene B. Daly delivered the Opinion of the Court. his is an appeal from the DistrictCourt of the Fourth Judicial Districtwhich issued a permanent injunction against the appellantrestraining it from making commercial use of a particular parcel of land located ina subdivision known as Seeley Lake Shore Sites. Seeley Lake Shore Sitesisa platted subdivision which

was filed in 1944 by a corporation later known as Seeley Lake Development Corp. By deed dated February 4, 1947, Seeley Lake Development Corp. conveyed seven lots (Lots 55, 79, 81, and a portion of Lots 83, 85, 87 and 89) toEdward Coyle. This deed contained certainrestrictive covenants which purported toapply to 

### - alllotsinthe subdivision with the exception of several lots, including Lot 1, now owned by appellant, Lindey's, Inc. The covenants, as stated inthe deed, 

### were toprovide a uniform plan for the improvement of the subdivision inwhich alluses were tobe residential and noncommercial. They included specific restrictions on the type, size, and location of structuresbuilt, aswellasa restrictionindicatinguse by "Caucasians" only. There was

no mention of these restrictive covenants inthe original subdivision plat. By a deed dated March 4, 1948, fifty-one lots, includingLots 1, 3, 5 and 7now owned by the parties to this action, 

### were conveyed by the Seeley Lake Development Corp, to itsprincipal stockholders, John and Evelyn Rahn. In the deed therewereno restrictive covenants. On July 13, 1948, the Rahns reconveyed Lot 42 toSeeley Lake Development Corp. In the deed were the same covenants asinthe previous sale toCoyle, which purported torestrict the use of the lots in the subdivision solely to residential use.By a warranty deed dated August 19, 1954, the Rahns granted toGeorge and Eileen Steinbrenner twenty-five of the lotst including Lots 1, 3, 5 and 

### 7, without any restrictions

or reference toany restrictions. The Steinbrenners, by deed dated August 19, 1954, granted twenty-four of the twenty-five lots, including Lots 1, 3, 5 and 7, toJames and Bertha Sullivan, again without subjecting the lots to any restrictions. On May 1, 1962, the Sullivans by deed granted toRobert and Dorothy Lee Lots 1and 3without restriction

or reference to any restrictions; further, the Lees' title insurance policy on said lotsmade no reference to any 

### restrictionsas to the lotsor the subdivision. Through a series of quitclaim deeds, ownership to Lots 1and 3became recorded inthe name of William Forest. Lindey's, Inc., intending toconstruct and operate a commercialrestaurant and bar, acquired these lots from Forest by virtue of a contract for deed dated October 19, 1978. Prior to executing the contract, Lindey's received a title commitment from American Land TitleCo. of Missoula which set forth a specific exception as to the covenants, conditions and restrictions contained in the July 13, 1948, Rahn deed. In spiteof the mentioned restrictive covenants, Lindey's purchased the property and began excavation shortly thereafter. On November 20, 1978, plaintiffs senta letter toLindey's, pointing out the restrictive covenants and their application to Lot 3 and further stating that if the covenants were not complied with, plaintiffs would take legal action to enforce them. Lindey's responded by pointing out that therewere no restrictive covenants inits chain of title.

### ~indey's heard 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 "whether there would be a problem down there," as he was pointing to the restaurant construction,Dan Oakland, one of the plaintiffs herein, informed him there would be none. Lindey's continued with construction, expending over $200,000prior to plaintiffs' commencing their suit, at which time the restaurantwas 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 injunctionand onApril 9 filed a motion to dismiss the suit. Lindey's filed an answer to plaintiffs' complaintand memorandum in support of itsmotions on ~pril 11, 1979. A 

### hearing on the matter was held after which the DistrictCourt issued a permanent injunction finding that there were enforceable covenants and that ~indey's had 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 introducewas available at the original hearing and, in any event,would not be dispositive of the case. Lindey's, Inc., now appeals.Numerous issueshave been raised by both parties on appeal, butwe need only deal with the following: id the ~istrict Court 

### err inconcluding thatLot 3 is subject toa restriction against commercial use as set forth ina July 13, 1948, deed of Lot 42, and thereby errin issuing the permanent injunction? Appellant contends that, since the chain of title as to Lot 3 contains no mention of any restrictive covenants, the restriction against commercial use cannot be enforced in this instance. Respondents contend that, as to allthe lots inSeeley Lake Shore Sites, an implied reciprocal negative easement was createdwhen the restriction against commercialuse was placed inthe 1948 deed of Lot 42. Respondents then conclude, since such an easement is enforceable even though not contained ina deed toeach lotin the subdivision, the DistrictCourtwas proper infinding thatLot 3

was subject to the restrictivecovenant of noncommercial

use. Implied restrictiveeasements orreciprocal negative easements have been recognized inother jurisdictions 

### as coming intoplay where the owner of two ormore lots situated near one another (suchas ina subdivision) conveys one of the lotswith express restrictions, as touse, of benefit to the lotsretained by the grantor. In such a case the servitude becomes mutual, and during the period of restraint, the grantor and owner of the lotretained may do nothing thatis forbidden tothe lotsold. This implied restriction

on the use of the lot(s)retained by the grantor is called a reciprocal negative easement, which can be enforceable against the grantor or subsequent purchasers of the retained lot(s)whether or not saidrestrictions 

### are placed in the

### subsequentdeed. 20 Am.Jur.2d Covenants, Conditions and Restrictions, 5173 at 732-733;ilerJfk6r

## Y. Montealegre (1960), I-cc-n~kr 

### 361Mich. 44, 104N.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 statutory provision pertaining to such an equitable easement. As to the status of implied covenants in this jurisdiction, 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 grantee;

I' 

### (b)

# . .. such estate is at the time of execution of such conveyance free from encumbrances done,made, or suffered by the grantor 

# . .." This sectionwas deemed to abolish 

### - all implied covenants (otherthan the two enumerated exceptions not applicable here) in Simonson v. McDonald (1957),131Mont. 494, 311 P.2d 982. In Simonson the plaintiff purchased a parcel of land fromNorthern Pacific Railway which had no means of

access other than across the defendant's land. Plaintiff brought an action for right-of-way claiming thatwhen 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 plaintiff. 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 easementsby necessity inMontana" and held that the language in Simonson istoo broad and is tobe "1-imited inits application to the factsexistent inthat case," Thisted involved the construction of an apartment building. Before completion of the construction, a contract describing the apartment building asresidential 

### was executed between the builder and a "Mrs. Roberts." ~llsubsequent grantees were given a copy of thiscontract and a brochure describing the general development scheme ascommunal group living arrangements. None of the deeds eventually issued toMrs. Roberts and the subsequent grantees, however, contained any express restrictions as to the use of the apartments. An attempt wasmade by the builder to convert some apartments tocommercial use, but the Court upheld a challenge tothemove by holding there was an implied equitable servitude attached to the units which requires use of them forresidential purposes only. Respondents place a greatdeal of reliance upon Thisted. They contend that thiscase recognizes, atleastby implication, reciprocal negative easements, and thus, it should be applied inthis instance, Wedisagree, however, with the extension offered by respondents and conclude that this case
can be distinguished from Thisted. In the application of implied restrictions on the use of land, principles of equity arecontrolling. Thus, each

case must be determined separately after an examination of theparticular facts and circumstances. ~dditionally, any implied negative easements as to a particular lotare tobe considered with extreme caution since such an action results indepriving a person of the use of hisproperty by imposinga servitude through mere implication. See Bellemeade Company v. Priddle (Ky. 1974), 503 S.W.2d 734; 20 Am.Jur.2d Covenants, Conditions and Restrictions, S173 at735; 21 C.J.S. Covenants, 519 at895. With thisbeing the case, an implied restriction upon the use of land should only be enforced as an equitable servitude against a transferee who takes with knowledge of its terms and under circumstances thatwould make enforcement of the restriction equitable. See Marra v. Aetna Construction Co. (1940), 15Cal.2d 375, 378, 101P.2d 490, 492. In Thisted allthe parties, transferee and transferor,



### were aware that the building was tobe used solely for residential purposes. This knowledge was evident from descriptive brochures shown to allprospective purchasers describing the living arrangement, for allpurposes, as residential. In addition, allcontracts submitted tothe prospective purchasers referred to the building solely as an apartment building with the capacity of only twenty apartments and one caretaker unit. Based upon these representations, which in factwere relied on by the purchasers of the apartments, the court attached inequity a servitude on the transfers of the apartments requiring their use solely for residential purposes. It isobvious that the failure of the court to soprovide would have been inequitable under the circumstances. In the case athand, however, the basis on which respondents wish to imply a restriction against commercial use

as toLot 3 is the July 14, 1948, deed of Lot 42, which purported tomake the restriction applicable toevery lotin the subdivision. In no instance was evidence presented that appellant or itspredecessor was ever informed in a deed,

### contract, or brochure, or by representations of the seller, that the lots were subject to a restriction against commercial 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 notplaced in appellant's chain of title, subsequentpurchasers of various lots in the subdivision have continued to

use their property solely for residential purposes. Therefore, appellant was on constructive notice as to the restriction against commercial use. Respondents also note that appellant's title insurance report indicated that the restrictions contained in the 1948 deed of Lot 42were excepted from their title policy as to Lot 3, 

### thereby further indicating that appellantwas on constructivenotice 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 restrictionsmay 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. Furthermore, 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 purchase. This is especially so when the subdivisionplat makes no mention of any restrictions whatsoever and a singleowner of less than allthe lots inthe subdivision purports to restrict the use of the land as to the whole subdivision. Equity in such a situationrequires more if this Court is to restrict the use of land by mere implication. By holding tHat appellant isnot bound by the restrictive covenant astocommercial use, 

### we do not also find that said covenant does not exist atallas to the subdivision at issue. Wemerely hold that to enforce these implied restrictions so as to be applicable to a particular transfer of land it isnecessary to show knowledge of the restrictions by the transferee atthe 

### timeof purchase and that enforcement of the implied restrictions

### willnot be inequitable. Respondents having failed in this regard, 

### we must reverse the decision rendered by the District Court. The judgment of the District Court is reversed with instructions to enter judgment for defendant, Lindey's Inc.

We concur: 

# Vd4a.4 Chief Justice



### / Justices