Opinion ID: 1122560
Heading Depth: 2
Heading Rank: 1

Heading: Appeal by Kinkai

Text: A covenant, as used in the context regarding the use of property, is an agreement by one person, the covenantor, to do or refrain from doing something enforceable by another person, the covenantee. Roger A. Cunningham et al., The Law of Property § 8.13, at 467 (1984). Every covenant has a burden to the covenantor and a benefit to the covenantee. Before we can answer the question of the interpretation and enforcement of the restrictive covenant, we must first determine the type of covenant created. Restrictive covenants restrain the free use of property and are strictly construed in favor of the grantee of the property and against the grantor. See McKay v. Townson, 528 So.2d 977, 978 (Fla.Dist. Ct.App.1988). The general rule does not favor restrictions imposed upon the use of land, but rather the unrestricted use of property. See generally McIntyre v. Zara, 183 W.Va. 202, 205, 394 S.E.2d 897, 900 (1990); McGuire v. Bell, 297 Ark. 282, 289, 761 S.W.2d 904, 908 (1988); Sea Pines Plantation Co. v. Wells, 294 S.C. 266, 270, 363 S.E.2d 891, 893 (1987). The party seeking to enforce a restrictive covenant in a deed has the burden to prove the parties' clear intention to create a covenant that would run with the land. See Charping v. J.P. Scurry & Co., Inc., 296 S.C. 312, 314, 372 S.E.2d 120, 121 (1988). Real covenants, also known as covenants appurtenant, run with the land and are required to benefit a parcel of land known as the dominant estate. 20 Am. Jur.2d Covenants, Conditions, and Restrictions § 25 at 594 (1965); Reichman, Towards a Unified Concept of Servitudes, 55 S.Cal.L.Rev. 1179, 1286 (1982). A real covenant is one having for its object something annexed to, inherent in, or connected with, land or other real property  one which relates to, touches or concerns, the land granted or demised and the occupation or enjoyment thereof. A covenant is viewed as real in nature, or one that runs with the land, where either the liability to perform the duties therein enumerated or the right to take advantage thereof passes to the vendee or other assignee of the land. 20 Am.Jur.2d § 29 at 599 (footnote omitted). In order to enforce a covenant appurtenant, a covenantee must continue to own the parcel of land benefitted by the covenant appurtenant. Id. § 289 at 854. For a covenant to run with the land: (1) it must touch and concern the land; (2) the covenanting parties must intend it to run with the land; and (3) there must be privity of estate. Flying Diamond Oil v. Newton Sheep Co., 776 P.2d 618, 623 (Utah 1989). In other words, the covenant must have relation to the land or the interest or estate conveyed, and the thing required to be done must be something which touches such land, interest, or estate and the occupation, use, or enjoyment thereof. Whether a particular covenant is sufficiently connected with the use of the land to run with the land must be in many cases a question of degree. There must also be privity of estate between the parties to the covenant, and the covenant must be consistent with the estate to which it adheres and of such character that the estate will not be defeated or changed by the performance thereof. 20 Am.Jur.2d § 30 at 600-01 (footnotes omitted); see also §§ 33-35. The restrictive covenant in the present case states that no building, structure or improvement hereafter constructed on said property shall exceed the lesser of four (4) stories or forty-five (45) feet in height. Clearly, the covenant meets the touch-and-concern requirement because it relates to the use of the land and the ownership interest in it. See Flying Diamond Oil, 776 P.2d at 623. For a covenant to run with the land, it must extend to the land so that the condition required to be performed affects the quality or value of the land. Gallagher v. Bell, 69 Md.App. 199, 209, 516 A.2d 1028, 1033 (1986) (citation omitted). Here, Lot 48 is burdened and its value diminished because any buildings, structures, or improvements thereon cannot exceed the lesser of four stories or forty-five feet in height. It is in this respect that the covenant touches and concerns the land. See Flying Diamond Oil, 776 P.2d at 623. Second, the original covenanting parties must have intended the covenant to run with the land. Whether restrictions imposed upon the land by a grantor impose a personal obligation or a servitude upon the land is determined from the parties' intentions at the time the deed containing the restriction was delivered. Stegall v. Housing Auth. of the City of Charlotte, N.C., 278 N.C. 95, 100, 178 S.E.2d 824, 828 (1971); see generally Collins v. Goetsch, 59 Haw. 481, 583 P.2d 353 (1978). When construing a restrictive covenant, the parties' intentions are normally determined from language of the deed. Stegall, 278 N.C. at 100, 178 S.E.2d at 828. Although the express language of the covenant in this case provides that it shall run with the land, the covenant does not indicate who or what was intended as the beneficiary of the imposed height restriction, and to that extent, the covenant is ambiguous. Substantial doubt or ambiguity is resolved against the person seeking its enforcement. McKay, 528 So.2d at 978; Gey v. Beck, 390 Pa.Super. 317, 324, 568 A.2d 672, 675 (1990); Sea Pines Plantation Co., 294 S.C. at 270, 363 S.E.2d at 894. If the language of the deed is ambiguous, surrounding circumstances may be considered but not parol evidence. Stegall, 278 N.C. at 100, 178 S.E.2d at 828. Because the covenant is unclear as to its intended beneficiary, we look to the circumstances surrounding the creation of the covenant. The use of surrounding circumstances, also known as extrinsic evidence, usually concerns the geographical location of the lands and the physical condition of the structures thereon. 2 Amer. Law of Prop. § 9.29, at 417 (1952). In the case before us, we first note that at the time the covenant was created, the Toms owned both Lot 48 through JMK and Lot 269 through Aina Luana, and the interests of these partnerships and corporations were closely bound. Second, the restrictive covenant prohibits the construction of any building, structure or improvement on Lot 48 above the lesser of four stories or forty-five feet in height. Interestingly, the hotel rooms with views on adjacent Lot 269 begin at approximately the forty-five foot level. Taken as a whole, we believe the extrinsic evidence strongly implicates an intent by JMK, through its owner, the Toms, to have the covenant run with Lot 48 and the benefit to run with Lot 269. Further, proof of such an intent can be gleaned from language used in the covenant. In jurisdictions which refuse to raise any presumption in favor of the benefit being appurtenant to the retained land of the promisee, proof of the intention of the parties to the agreement becomes a necessary element of the complainant's case. Such an intention is clearly shown where the agreement itself expressly designates the land with which the benefit is to run to subsequent land owners. Likewise, the use of the phrase and assigns or and heirs following the name of the promisee has in several cases been held material evidence of an intention to create a benefit appurtenant. 2 Amer. Law of Prop. § 9.29, at 416 (footnotes omitted) (emphasis added). The restrictive covenant at issue specifically states that Grantee [MNS] covenants and agrees with Purchaser [JMK], its successors and assigns,  [4] and that [t]his covenant... shall be binding upon the property, including without limitation, all owners, lessees, licensees, grantees, assigns, and transferees thereof[,] further indicating the intention to create a covenant appurtenant. Finally, there must be privity of estate for a covenant to run with the land. Generally, privity of estate requires a particular kind of relationship between the original covenantor and the covenantee. Flying Diamond Oil, 776 P.2d at 628. There are three types of privity: (1) mutual, i.e., a covenant arising from simultaneous interests in the same land; (2) horizontal, i.e., a covenant created in connection with a conveyance of an estate from one of the parties to another; and (3) vertical, i.e., the devolution of an estate burdened or benefitted by a covenant from an original covenanting party to a successor. Id. `[Vertical privity] arises when the person presently claiming the benefit, or being subjected to the burden, is a successor to the estate of the original person so benefited or burdened.' Flying Diamond Oil, 776 P.2d at 628 n. 12 (quoting 5 R. Powell, The Law of Real Property ¶ 673[2][c], at 60-64 (1988)). Here, Kinkai, the party subject to the burden, is a successor to MNS, the original party so burdened. Kinkai's purchase of Lot 48 from MNS established vertical privity. We therefore hold that the restrictive covenant at issue is a covenant appurtenant running with the land. We further hold that WMH is unable to enforce the covenant against Kinkai because WMH no longer owns nor does it have any interest in Lot 269, the benefitted parcel. We reject WMH's contention that the covenant unambiguously provided for the benefit to be personally held by JMK, its successors and assigns, thereby creating a covenant in gross. A restrictive covenant in gross arises when the covenant does not benefit a specific parcel of land and the benefit is held personally by the grantor. G. Korngold, Private Land Use Arrangements § 9.15, at 332 (1990); Korngold, For Unifying Servitude and Defeasible Fees: Property Law's Functional Equivalents, 66 Tex.L.Rev. 533, 552 (1988). We note that there are strong policy reasons why covenants in gross are disfavored. See Korngold, Private Land Use Arrangements § 9.15, at 335 (citing cases). First, they affect the marketability of the land because it is more difficult to trace the holder of a covenant in gross, inasmuch as that person could be located anywhere; on the other hand, it is fairly easy to locate the holder of interest of an appurtenant covenant. Id. § 9.15, at 332. Second, appurtenancy requirements help to limit the power of the dead hand and reduce the amount of veto rights that could be exercised against the current land owner because the number of appurtenant covenants would be restricted to the particular properties near the burdened tract of land. Id. at 333. Third, covenants in gross allow an outsider to impose his or her views on a community; and finally, appurtenant covenants increase flexibility in enforcing and applying covenants and promote flexible consensual land use arrangements. Id.; see also For Unifying Servitude and Defeasible Fees, supra, 66 Tex.L.Rev. at 554. As we have previously stated, restrictive covenants are strictly construed against the grantor because `[i]t is not too much to insist that they be carefully drafted to state exactly what is intended  no more and no less.' Collins, 59 Haw. at 485, 583 P.2d at 357 (citation omitted). Because the covenantee who personally holds the benefit of a covenant in gross may be geographically removed from the particular area burdened by the covenant, yet may still exercise control over the use of land in such area, we believe that the covenant must clearly and expressly reflect the intent to create a covenant in gross. As this court has stated, [t]he critical time for determining whether there was a sufficient understanding of the covenants on the part of the purchasers with regard to the meaning intended by the original grantors is the time of purchase. Otherwise, there would be nothing to prevent the original grantors from subsequently altering or diminishing the purchasers' ownership rights in the land. Collins, 59 Haw. at 490, 583 P.2d at 359. The express language of the covenant fails to clearly and expressly reflect the intent that JMK would hold the benefit of the covenant personally. Thus, we conclude that a covenant in gross was not created. [5] Despite the ambiguity of the covenant, the extrinsic evidence demonstrates that a covenant appurtenant was created. We note that WMH freely acknowledges that Kinkai correctly points out that [WMH] does not own any land which the height restriction could benefit. Thus, we hold that WMH cannot enforce the restrictive covenant at issue against Kinkai.
Kinkai also argues that because the height restriction is not noted on the 1988 TCT issued to it for Lot 48, WMH is unable to enforce the restrictive covenant. We agree and hold that even if WMH, through Aina Luana and the Toms, still possessed an interest in Lot 269, the benefitted parcel of the covenant appurtenant, or even if the covenant was in gross, WMH would be unable to enforce the covenant because it was not noted on the 1988 TCT. Hawaii's statutory law governing Land Court registration provides that encumbrances be noted on the TCT. Every applicant receiving a certificate of title in pursuance of a decree of registration, and every subsequent purchaser of registered land who takes a certificate of title for value and in good faith, hold the same free from all encumbrances except those noted on the certificate in the order of priority of recordation[.] HRS § 501-82 (1985) (emphasis added). In the present case, there is no dispute that the restrictive covenant is not noted on the 1988 TCT as an encumbrance. Instead, the Consent document was noted on the TCT under encumbrances as follows: Document # Class In Favor of/Terms 1555821 Consent By Outrigger Hotels Hawaii, to the construction of Bldg, in access [sic] of height restriction contained in Doc 1148199 The question presented for our review is whether this reference to the consent constitutes a notation of the height restriction under HRS § 501-82. We first acknowledge WMH's opposing argument that, [t]he TCT which Kinkai put before the court ... mentions the height restriction and sets forth the number of the filed document which contains it. This reference is an adequate notation of the height restriction. Moreover, the very Deed by which Kinkai acquired the property specifically states that the conveyance and grant were subject to the restriction. However, Kinkai's admission to having knowledge of the height restriction is of no consequence because such knowledge was not obtained from the information contained on the TCT. [6] [K]nowledge of an unregistered encumbrance does not disqualify the holder of a certificate of title from the protection afforded him by the title registration statute. Honolulu Memorial Park, Inc. v. City and County of Honolulu, 50 Haw. 189, 192, 436 P.2d 207, 209 (1967). Significantly, we have stated: If, as we hold, a certificate of title is unimpeachable and conclusive except as otherwise provided by law, it would be illogical to say that it may be impeached if the purchaser for value had knowledge of an existing unregistered encumbrance. To do so would be to rob a certificate of title of its conclusive and unimpeachable character and place it in the same category as the ordinary record in the bureau of conveyances. If the intent and purpose of the law pertaining to the registration of land titles is to be preserved, the integrity of certificates of title must be scrupulously observed and every subsequent purchaser of registered land who takes a certificate of title for value, except in cases of fraud to which he is a party, is entitled under the provisions of [Revised Laws of Hawaii 1935] section 5401 [(predecessor of HRS § 501-82)] to hold the same free from all encumbrances except those noted on the certificate and the statutory encumbrances enumerated. In re App'n of Bishop Trust, 35 Haw. 816, 825 (1941). The fundamental intent of HRS § 501-82 is to preserve the integrity of titles. We believe that knowledge of an unregistered encumbrance from an inference or obscure reference on a TCT is inadequate and serves only to frustrate the intent of HRS § 501-82. In order to provide the holder of the transfer certificate of title full notice of the encumbrance from the face of the TCT, such encumbrance must be separately and clearly noted therein. [T]o allow the assertion of unregistered rights, be they legal or equitable, would be to subvert the obvious intent and purpose of the title registration system. The integrity of titles can only be preserved if anyone dealing with registered property is assured that the only rights or claims of which he need take notice are those which are registered in the prescribed manner. If for that reason alone, the provisions of the title registration statute must be allowed to prevail over any contravening doctrine of the common law. Honolulu Memorial Park, 50 Haw. at 193-94, 436 P.2d at 210. In the case before us, we deem the reference to the height restriction on the TCT within the document identified as a Consent to be an insufficient notation of an encumbrance under HRS § 501-82. The notation of the Consent document does not specifically indicate the forty-five foot height restriction. Because such restriction was never explicitly and separately noted on the 1988 TCT, we hold that Kinkai is entitled to hold Lot 48 free from such restriction. See Packaging Products Co., Ltd. v. Teruya Bros., Ltd., 58 Haw. 580, 585-86, 574 P.2d 524, 528-29 (1978).