Case Name: Tim & Judy CLEM, et al., Appellants (Plaintiffs Below), v. CHRISTOLE, INC., Appellee (Defendants Below); James M. RICHARDS, et al., Appellants (Plaintiffs Below), v. HOPEWELL CENTER, INC., Appellee (Defendants Below)
Court: Supreme Court of Indiana
Jurisdiction: Indiana
Decision Date: 1991-12-04
Citations: 582 N.E.2d 780
Docket Number: No. 53S04-9112-CV-950
Parties: Tim & Judy CLEM, et al., Appellants (Plaintiffs Below), v. CHRISTOLE, INC., Appellee (Defendants Below). James M. RICHARDS, et al., Appellants (Plaintiffs Below), v. HOPEWELL CENTER, INC., Appellee (Defendants Below).
Judges: SHEPARD, C.J., and GIVAN, J., concur.
Reporter: North Eastern Reporter 2d
Volume: 582
Pages: 780–788

Head Matter:
Tim & Judy CLEM, et al., Appellants (Plaintiffs Below), v. CHRISTOLE, INC., Appellee (Defendants Below). James M. RICHARDS, et al., Appellants (Plaintiffs Below), v. HOPEWELL CENTER, INC., Appellee (Defendants Below).
No. 53S04-9112-CV-950.
Supreme Court of Indiana.
Dec. 4, 1991.
Philip C. Hill, Len E. Bunger, Blooming-ton, for appellants Tim and Judy Clem, et al.
Michael R. Withers, Anderson, for appellants James M. Richards, et al.
Thomas N. Olvey, Schnorr Good & 01-vey, Indianapolis, Gary J. Clendening, Harrell Clendening & Coyne, Bloomington, for appellee Christole, Inc.
Scott Webb, Anderson, for appellee Hopewell Center, Inc.
Linley E. Pearson, Atty. Gen., Brenda Franklin Rodeheffer, Indianapolis, for ami-cus curiae, Indiana Dept, of Mental Health and Community Residential Facilities Council.
Ernest M. Beal, Jr., Fort Wayne, for amicus curiae, Ass’n for Retarded Citizens of Indiana, Inc.

Opinion:
ON JOINT PETITION TO TRANSFER
DICKSON, Justice.
In this consolidated appeal, the plaintiffs-appellants, residential subdivision property owners, are appealing from grants of summary judgment permitting the defendants-appellees, developers of group homes for developmental^ disabled persons, to operate such homes in the residents' subdivisions. The Court of Appeals reversed, finding that the statutory provisions purporting to invalidate certain subdivision restrictions were unconstitutional. Clem v. Christole, Inc. (1990), Ind.App., 548 N.E.2d 1180.
The appellees jointly petition for transfer, asserting that Ind.Code § 16-13-21-14 (since repealed, effective January 1, 1992, Ind.Pub.L. No. 9-1991, § 98) is a valid and constitutional exercise of the state's police power. Enacted in 1988, the statute provides:
(a) This section applies to each restriction, reservation, condition, exception, or covenant that is created before April 1, 1988, in any subdivision plat, deed, or other instrument of, or pertaining to, the transfer, sale, lease, or use of property.
(b) A restriction, reservation, condition, exception, or covenant in a subdivision plat, deed, or other instrument of, or pertaining to, the transfer, sale, lease, or use of property that would permit the residential use of property but prohibit the use of that property as a residential facility for developmentally disabled or mentally ill persons:
(1) on the ground that the residential facility is a business;
(2) on the ground that the persons residing in the residential facility are not related; or
(3) for any other reason;
is, to the extent of the prohibition, void as against the public policy of the state.
Ind.Code § 16-13-21-14.
The decision of the Court of Appeals was based upon its conclusion that the statute constitutes a prohibited taking in violation of the Fifth and Fourteenth Amendments of the United States Constitution and Article 1, Section 21 of the Indiana Constitution. Clem, 548 N.E.2d 1180. A few months later, Judge Miller, who dissented in Clem, wrote for the majority in Minder v. Martin Luther Home Foundation (1990), Ind.App., 558 N.E.2d 833. Minder addressed the same question as Clem, but reached the opposite conclusion. Because of these conflicting decisions, we grant transfer.
In the first of the two consolidated cases, Defendant-Appellee Christole, Inc. (Chris-tole), a not-for-profit corporation licensed and regulated by the Indiana Department of Mental Health, purchased a single-fami ly residence in Fairwood Terrace Addition in Bloomington, Indiana, for use as a group home for the care of five unrelated developmentally disabled autistic children to be supervised by thirteen full and part-time staff members. Plaintiffs Tim and Judy Clem, along with other residents of Fair-wood Terrace, sought injunctive relief alleging Christole was in violation of the restrictive covenants prohibiting the use of buildings "for business or commercial purposes of any kind," and providing that the one single-family dwelling allowed per lot "may be used for single-family or two family dwellings."
In the second consolidated case, Defendant-Appellee Hopewell Center, Inc. (Hopewell) purchased a single-family residence in Mustin Manor subdivision in Anderson, Indiana, for use as a facility for the developmentally disabled or mentally ill, which would house eight unrelated adult persons continuously and permanently supervised by a staff of one or more persons. The Plaintiff-Appellant James M. Richards and other owners of residential lots in Mustin Manor subdivision sought injunctive relief to prevent Hopewell from modifying the existing residential structure for such purposes, alleging that such use would violate the existing restrictive covenants.
In each of these two cases, the trial courts granted summary judgment for the defendant group home, applying Ind.Code § 16-13-21-14(a) to prohibit the enforcement of restrictive covenants which prevent the operation of a residential facility for developmentally disabled persons.
While numerous issues are presented and argued by the parties, we find a single issue determinative: whether retroactive application of the statute violates the contract clause embodied in Article 1, Section 24 of the Indiana Constitution:
No ex post facto law, or law impairing the obligation of contracts, shall ever be passed.
Restrictive covenants are contract rights subject to the Indiana contract clause. Adult Group Properties, Ltd. v. Imler (1987), Ind.App., 505 N.E.2d 459. In Pulos v. James (1973), 261 Ind. 279, 302 N.E.2d 768, this court treated restrictive covenants as contracts, and stated:
Although the defendants correctly state that the Legislature may prohibit contracts that are against public policy, it, nevertheless, may not impair previously legal contracts after the rights thereunder have vested.
261 Ind. at 290, 302 N.E.2d at 775.
However, it has long been recognized that the prohibitions contained in the Indiana contract clause do not necessarily restrict the exercise of the State's power to protect the public health, safety, and general welfare. Finerty v. State ex rel. School City of Gary (1938), 213 Ind. 470, 12 N.E.2d 941 (public school corporation did not have vested contract right to receive county dog tax fund surplus collected pursuant to prior statute later amended to alter the distribution).
[T]he prohibition as to impairment of contract obligations does not extend to subjects affecting the health, safety or general welfare of the public.
Grand Trunk W. Ry. Co. v. City of South Bend (1910), 174 Ind. 203, 222, 91 N.E. 809 (ordinance granting right to construct and use railroad tracks across city streets may be repealed). Valid existing contracts cannot be impaired by future legislation "except in a proper exercise of the police power of the state." Bruck v. State ex rel. Money (1950), 228 Ind. 189, 198, 91 N.E.2d 349, 352 (statute imposing mandatory retirement upon existing permanent and indefinite teacher contracts contrary to contract clause and not valid as exercise of police power). The police power of the state is "the power inherent in a government to enact laws, within constitutional limits, to promote the order, safety, health, morals, and general welfare of society." Id.
Notwithstanding the general rule of construction favoring the interpretation of statutes as constitutional, Miller v. State (1987), Ind., 517 N.E.2d 64; Short v. Texaco, Inc. (1980), Ind., 406 N.E.2d 625, we cannot ignore the clear mandate of our state constitution limiting the power of legislation to impair the obligation of contracts. If the police power exception is construed too broadly, it would operate to eviscerate the constitutional protection. Virtually every legislative enactment could arguably be related to order, safety, health or welfare as a justification for legislative interference with pre-existing contractual rights and duties.
In determining whether legislation is vio-lative of constitutional restraints the courts will confine themselves to the question, not of legislative policy, but of legislative power. The law must not be arbitrary, unreasonable or patently beyond the necessities of the case. The legislature may not under the guise of protecting public interests arbitrarily interfere with private business or impose unnecessary restrictions upon lawful occupations. If the law prohibits that which is harmless in itself, or if it is unreasonable and purely arbitrary, or requires that to be done which does not tend to promote the health, comfort, morality, safety or welfare of society, it is an unauthorized exercise of power.
Dep't of Financial Institutions v. Holt (1952), 281 Ind. 293, 301-02, 108 N.E.2d 629, 634. Legislation which does invade freedom of contract "can only be sustained as a valid exercise of the police power if it both relates to the claimed objective and employs means which are both reasonable and reasonably appropriate to secure such objective." Holt, 231 Ind. 293, 305, 108 N.E.2d 629, 635. In Kirtley v. State (1948), 227 Ind. 175, 181, 84 N.E.2d 712, 714, we stated:
If the law prohibits that which is harmless in itself, or requires that to be done which does not tend to promote the health, comfort, morality, safety or welfare of society, it will be an unauthorized exercise of power, and upon proper presentation it is the duty of the courts to declare such a law void.
In Wencke v. City of Indianapolis (1982), Ind.App., 429 N.E.2d 295, Judge Shields provides the following perspective:
A retrospective application of a statute to a contract entered into before the effective date of that statute can impair contractual obligations contrary to both the United States and Indiana Constitutions. There are, however, exceptions to the general rule. The prohibition against impairment of contracts is not an absolute one. The contract clause of either constitution does not restrict the exercise of the state's police power to protect the public health, safety, and welfare. In order to justify the impairment of a contractual obligation, there must be a necessity for the legislation and the legislation must be reasonable under the circumstances.
429 N.E.2d at 298 (citations omitted).
We also find helpful guidance from the reasoning employed in Allied Structural Steel Co. v. Spanaus (1978), 438 U.S. 234, 98 S.Ct. 2716, 57 L.Ed.2d 727, which reviewed the federal counterpart to our contract clause in Article 1, Section 24 of the Indiana Constitution.
If the [federal] Contract Clause is to retain any meaning at all, however, it must be understood to impose some limits upon the power of a State to abridge existing contractual relationships, even in the exercise of its otherwise legitimate police power.
438 U.S. at 242, 98 S.Ct. at 2721, 57 L.Ed.2d at 734 (emphasis in original). In Spanaus the Supreme Court identified the first inquiry as determining whether, and to what extent, the state law operated as a substantial impairment of a contractual relation ship, noting that the severity of impairment may be measured by "factors that reflect the high value the Framers placed on the protection of private contracts." 438 U.S. at 245, 98 S.Ct. at 2723, 57 L.Ed.2d at 737.
Contracts enable individuals to order their personal and business affairs according to their particular needs and interests. Once arranged, those rights and obligations are binding under the law, and the parties are entitled to rely on them.
Id. The Court considered whether the "disruption of contractual expectations was necessary to meet an important general social problem," and whether the law was "enacted to protect a broad societal interest rather than a narrow class." 438 U.S. at 249, 98 S.Ct. at 2724, 57 L.Ed.2d at 739. In addition, the Supreme Court considered whether in enacting the statute the legislature was entering a field it had never before sought to regulate. Invalidating a Minnesota law under the federal Contract Clause, the opinion concluded in part:
The law was not even purportedly enacted to deal with a broad, generalized economic or social problem. It did not operate in an area already subject to state regulation at the time the company's contractual obligations were originally undertaken, but invaded an area never before subject to regulation by the State. It did not effect simply a temporary alteration of the contractual relationships of those within its coverage, but worked a severe, permanent, and immediate change in those relationships — irrevocably and retroactively.
438 U.S. at 250, 98 S.Ct. at 2725, 57 L.Ed.2d at 740 (citations omitted).
Our General Assembly is empowered to enact laws in the exercise of the police power of the state. However, simply because a statute is a valid exercise of legislative authority pursuant to such general police power does not necessarily immunize it from our state constitution's contract clause. Only those statutes which are necessary for the general public and reasonable under the circumstances will withstand the contract clause. It is only this latter necessary police power, rather than the general police power, which provides the exception to the contract clause.
We recognize that the state's general police power authorizes the legislature's enactment of laws which promote the mainstreaming of developmentally disabled persons by prohibiting future subdivision contract restrictions which permit residential use but prohibit use by a residential facility for such persons. However, statutory impairment of existing restrictive covenants does not fall within the necessary police power exception to the contract clause because of the absence of societal necessity.
When juxtaposed against the broad and explicit mandate of the contract clause in Article 1, Section 24 of the Indiana Constitution, we find that the legislative justification for Ind.Code § 16-13-21-14 fails to fall within the necessary police power exception. Notwithstanding the social utility in providing homes for the developmentally disabled in ordinary residential areas and the resulting indirect societal benefits, several countervailing considerations compel our decision. The enactment is not reasonably necessary for the protection of the health, safety, and welfare of the general public. It does not address a broad problem general to society. Its effect is not temporary but permanent, irrevocable, and retroactive in altering the contractual relationships created in restrictive covenants. The provision imposes statutory regulation in a field not traditionally subject to legislation. In seeking to alter the enforceability of restrictive covenants, the statute represents a considerable impairment of contractual obligations.
Restrictive covenants permit property owners to collectively provide or obtain protections significantly contributing to the peace, safety, and well-being of themselves and their families. These purposes are consistent with values identified in our Indiana Constitution. Article 1, Section 1 expressly recognizes that government is instituted for the peace, safety, and well-being of the people. Article 1, Section 31 protects the right of citizens to assemble together in a peaceable manner to consult for their common good.
Application of these considerations leads us to conclude that the statute falls outside of the necessary police power exception to the contract clause, Art. I, Section 24, of the Constitution of Indiana.
The summary judgments granted by the trial courts in favor of both Christole and Hopewell were based upon the retroactive application of Ind.Code § 16-13-21-14, which we have just determined is constitutionally prohibited.
As to the cause of action brought by the Clems and other Fairwood Terrace residents against Christole, the trial court initially granted the plaintiffs' motion for summary judgment, finding the covenant restricting the use of a building to a single-family dwelling enforceable against the defendant and applicable to the structure and to the use of the lot. Following the Indiana' General Assembly's 1988 adoption of Ind.Code § 16-13-21-14, however, the Court of Appeals remanded the case to the trial court for consideration of the effect of the 1988 enactment. The trial court then vacated its prior order and found the statute applicable. The initial decision of the trial court correctly determined that the Christole group home, a residential facility for five unrelated persons, violated the restriction. See Imler, 505 N.E.2d at 467.
The same result is required in the second case, involving the action by Richards and other residents of Mustin Manor subdivision against Hopewell. In granting summary judgment, the trial court found that the restrictive covenants "would clearly operate to prohibit" Hopewell's use of its lot "as a residential facility for developmentally disabled persons." The subdivision's restrictive covenants demand that no buildings shall be permitted to remain on any lot other than one detached single-family dwelling. Eight unrelated adults were to reside in the Hopewell group home. As in the Christole facility, this constituted a violation of the applicable restrictive covenants.
Transfer is granted. The summary judgments entered in favor of Christole and Hopewell and against the plaintiffs are each now reversed. This cause is remanded to the respective trial courts for further proceedings consistent with this opinion.
SHEPARD, C.J., and GIVAN, J., concur.
KRAHULIK, J., dissents with opinion in which DeBRULER, J., concurs.
. Prior to the 1988 amendments, Ind.Code § 16-13-21-14 (West 1984) did not specify retroactive application. Such language was added following Adult Group Properties, Ltd. v. Imler (1987), Ind.App., 505 N.E.2d 459.
. Among the Mustin Manor restrictive covenants were the following provisions:
1. LAND USE AND BUILDING TYPE. No lot shall be used except for residential purposes. No buildings shall be erected, altered, placed or permitted to remain on a lot, other than one detached single-family dwelling not to exceed two (2) stories in height and a private attached garage for not more than two (2) cars. No building unattached to dwelling shall be permitted. No lot shall be replatted or subdivided.
. "No State shall . pass any . Law impairing the Obligation of Contracts." U.S. Const., Art I, § 10.