Sheppard A. Guryan argued the cause for appellant (Lasser, Hochman, Marcus, Guryan and Kuskin, attorneys; Bruce H. Snyder, on the brief).

Arthur L. Phillips argued the cause for respondent D. Katz & Sons, Inc., a New Jersey Corporation.

Linda K. Anderson, Assistant City Attorney, argued the cause for respondent City of New Brunswick, a Municipal Corporation (William J. Hamilton, Jr., City Attorney, attorney).

Mary M. Cheh argued the cause for respondent C-Town, a Division of Krasdale Foods, Inc., a New York Corporation (George J. Otlowski, Jr., attorney).

Robert J. Lecky argued the cause for respondent New Brunswick Housing Authority, a Body Corporate and Political (Stamberger & Lecky, attorneys).

The opinion of the Court was delivered by Garibaldi, J.

This case presents two issues. The first is whether a restrictive covenant in a deed, providing that the property shall not be used as a supermarket or grocery store, is enforceable against the original covenantor’s successor, a subsequent purchaser with actual notice of the covenant. The second is whether an alleged rent-free lease of lands by a public entity to a private corporation for use as a supermarket constitutes a gift of public property in violation of the New Jersey Constitution of 1947, article eight, section three, paragraphs two and three.

I

The facts are not in dispute. Prior to September 1980 plaintiff, Davidson Bros., Inc., along with Irisondra, Inc., a related corporation, owned certain premises located at 263-271 George Street and 30 Morris Street in New Brunswick (the “George Street” property). Plaintiff operated a supermarket on that property for approximately seven to eight months. The store operated at a loss allegedly because of competing business from plaintiff’s other store, located two miles away (the “Elizabeth Street” property). Consequently, plaintiff and Irisondra conveyed, by separate deeds, the George Street property to defendant D. Katz & Sons, Inc., with a restrictive covenant not to operate a supermarket on the premises. Specifically, each deed contained the following covenant:

 

The lands and premises described herein and conveyed hereby are conveyed subject to the restriction that said lands and premises shall not be used as and for a supermarket or grocery store of a supermarket type, however designated, for a period of forty (40) years from the date of this deed. This restriction shall be a covenant attached to and running with the lands.

 

The deeds were duly recorded in Middlesex County Clerk’s office on September 10, 1980. According to plaintiff’s complaint, its operation of both stores resulted in losses in both stores. Plaintiff alleges that after the closure of the George Street store, its Elizabeth Street store increased in sales by twenty percent and became profitable. Plaintiff held a leasehold interest in the Elizabeth Street property, which commenced in 1978 for a period of twenty years, plus two renewal terms of five years.

According to defendants New Brunswick Housing Authority (the “Authority”) and City of New Brunswick (the “City”), the closure of the George Street store did not benefit the residents of downtown New Brunswick. Defendants allege that many of the residents who lived two blocks away from the George Street store in multi-family and senior-citizen housing units were forced to take public transportation and taxis to the Elizabeth Street store because there were no other markets in downtown New Brunswick, save for two high-priced convenience stores.

The residents requested the aid of the City and the Authority in attracting a new food retailer to this urban-renewal area. For six years, those efforts were unsuccessful. Finally, in 1986, an executive of C-Town, a division of a supermarket chain, approached representatives of New Brunswick about securing financial help from the City to build a supermarket.

Despite its actual notice of the covenant the Authority, on October 23, 1986, purchased the George Street property from Katz for $450,000, and agreed to lease from Katz at an annual net rent of $19,800.00, the adjacent land at 263-265 George Street for use as a parking lot. The Authority invited proposals for the lease of the property to use as a supermarket. C-Town was the only party to submit a proposal at a public auction. The proposal provided for an aggregate rent of one dollar per year during the five-year lease term with an agreement to make $10,000 in improvements to the exterior of the building and land. The Authority accepted the proposal in 1987. All the defendants in this case had actual notice of the restrictions contained in the deed and of plaintiff’s intent to enforce the same. Not only were the deeds recorded but the contract of sale between Katz and the Housing Authority specifically referred to the restrictive covenant and the pending action.

Plaintiff filed this action in the Chancery Division against defendants D. Katz & Sons, Inc., the City of New Brunswick, and C-Town. The first count of the complaint requested a declaratory judgment that the noncompetition covenant was binding on all subsequent owners of the George Street property. The second count requested an injunction against defendant City of New Brunswick from leasing the George Street property on any basis that would constitute a gift to a private party in violation of the state constitution. Both counts sought compensatory and punitive damages. That complaint was then amended to include defendant the New Brunswick Housing Authority.

[The trial court denied plaintiff’s motion for summary judgment, and the Appellate Division affirmed.]

II

 

A. Genesis and Development of Covenants Regarding the Use of Property

 

Covenants regarding property uses have historical roots in the courts of both law and equity. The English common-law courts first dealt with the issue in Spencer’s Case, 5 Co. 16a, 77 Eng.Rep. 72 (Q.B. 1583). The court established two criteria for the enforcement of covenants against successors. First, the original covenanting parties must intend that the covenant run with the land. Second, the covenant must “touch and concern” the land. Id. at 16b, 77 Eng.Rep. at 74. The court explained the concept of “touch and concern” in this manner:

 

But although the covenant be for him [an original party to the promise] and his assigns, yet if the thing to be done be merely collateral to the land, and doth not touch and concern the thing demised in any sort, there the assignee shall not be charged. As if the lessee covenants for him and his assignees to build a house upon the land of the lessor which is no parcel of the demise, or to pay any collateral sum to the lessor, or to a stranger, it shall not bind the assignee, because it is merely collateral, and in no manner touches or concerns the thing that was demised, or that is assigned over, and therefore in such case the assignee of the thing demised cannot be charged with it, no more than any other stranger. [Ibid.]

 

The English common-law courts also developed additional requirements of horizontal privity (succession of estate), vertical privity (a landlord-tenant relationship), and that the covenant have “proper form,” in order for the covenant to run with the land. C. Clark, Real Covenants and Other Interests Which Run With the Land 94, 95 (2d ed. 1947) (Real Covenants). Those technical requirements made it difficult, if not impossible, to protect property through the creation of real covenants. Commentary, “Real Covenants in Restraint of Trade – When Do They Run With the Land?,” 20 Ala.L.Rev. 114, 115 (1967).

To mitigate and to eliminate many of the formalities and privity rules formulated by the common-law courts, the English chancery courts in Tulk v. Moxhay, 2 Phil. 774, 41 Eng.Rep. 1143 (Ch. 1848), created the doctrine of equitable servitudes. In Tulk, land was conveyed subject to an agreement that it would be kept open and maintained for park use. A subsequent grantee, with notice of the restriction, acquired the park. The court held that it would be unfair for the original covenantor to rid himself of the burden to maintain the park by simply selling the land. In enjoining the new owner from violating the agreement, the court stated:

 

It is said that, the covenant being one which does not run with the land, this court cannot enforce it, but the question is, not whether the covenant runs with the land, but whether a party shall be permitted to use the land in a manner inconsistent with the contract entered into by his vendor, and with notice of which he purchased. Of course, the price would be affected by the covenant, and nothing could be more inequitable than that the original purchaser should be able to sell the property the next day for a greater price, in consideration of the assignee being allowed to escape from the liability which he had himself undertaken.

 

 

[Id. at 777-78, 41 Eng.Rep. 1144].

 

The court thus enforced the covenant on the basis that the successor had purchased the property with notice of the restriction. Adequate notice obliterated any express requirement of “touch and concern.” Reichman, “Toward a Unified Concept of Servitudes,” 55 S.Cal.L.Rev. 1177, 1225 (1982); French, “Toward a Modern Law of Servitudes: Reweaving Ancient Strands,” 55 S.Cal.L.Rev. 1261, 1276-77 (1982). But see Burger, “A Policy Analysis of Promises Respecting the Use of Land,” 55 Minn.L.Rev. 167, 217 (1970) (focusing on language in Tulk that refers to “use of land” and “attached to property” as implied recognition of “touch and concern” rule).

Some early commentators theorized that the omission of the technical elements of property law such as the “touch and concern” requirement indicated that Tulk was based on a contractual as opposed to a property theory. C. Clark, supra, Real Covenants, at 171-72 nn. 3 and 4; 3 H. Tiffany, Real Property § 861, at 489 (3d ed. 1939); Ames, “Specific Performance For and Against Strangers to Contract,” 17 Harv.L.Rev. 174, 177-79 (1904); Stone, “The Equitable Rights and Liabilities of Strangers to the Contract,” 18 Colum.L.Rev. 291, 294-95 (1918). Others contend that “touch and concern” is always, at the very least, an implicit element in any analysis regarding enforcement of covenants because “any restrictive easement necessitates some relation between the restriction and the land itself.” McLoone, “Equitable Servitudes – A Recent Case and Its Implications for the Enforcement of Covenants Not to Compete,” 9 Ariz.L.Rev. 441, 444, 447 n. 5 (1968). Still others explain the “touch and concern” omission on the theory that equitable servitudes usually involve negative covenants or promises on how the land should not be used. Thus, because those covenants typically do touch and concern the land, the equity courts did not feel the necessity to state “touch and concern” as a separate requirement. Berger, “Integration of the Law of Easements, Real Covenants and Equitable Servitudes,” 43 Wash. & Lee L.Rev., 337, 362 (1986). Whatever the explanation, the law of equitable servitudes did generally continue to diminish or omit the “touch and concern” requirement.

 

B. New Jersey’s treatment of noncompetitive covenants restraining the use of property

 

Our inquiry of New Jersey law on restrictive property use covenants commences with a re-examination of the rule set forth in Brewer v. Marshall & Cheeseman, supra, 19 N.J. Eq. at 537, that a covenant will not run with the land unless it affects the physical use of the land. Hence, the burden side of a noncompetition covenant is personal to the covenantor and is, therefore, not enforceable against a purchaser. In Brewer v. Marshall & Cheeseman, the court objected to all noncompetition covenants on the basis of public policy and refused to consider them in the context of the doctrine of equitable servitudes. Similarly, in National Union Bank at Dover v. Segur, 39 N.J.L. 173 (Sup.Ct. 1877), the court held that only the benefit of a noncompetition covenant would run with the land, but the burden would be personal to the covenantor. See 5 R. Powell, supra, § 675[3] at 60-109. Because the burden of a noncompetition covenant is deemed to be personal in these cases, enforcement would be possible only against the original covenantor. As soon as the covenantor sold the property, the burden would cease to exist.

Brewer and National Union Bank have been subsequently interpreted as embodying the “unnecessarily strict” position that “while the benefit of [a noncompetition covenant] will run with the land, the burden of the covenant is necessarily personal to the covenantor.” 5 Powell, supra, § 675[3] at 60-109. This blanket prohibition of noncompetition covenants has been ignored in more recent decisions that have allowed the burden of a noncompetition covenant to run, see Renee Cleaners Inc. v. Good Deal Supermarkets of N.J., 89 N.J. Super. 186, 214 A.2d 437 (App.Div. 1965) (enforcing at law covenant not to lease property for dry-cleaning business as against subsequent purchaser of land); Alexander’s v. Arnold Constable Corp., 105 N.J. Super. 14, 28, 250 A.2d 792 (Ch. 1969) (enforcing promise entered into by prior holders of land not to operate department store as against current landowner). Nonetheless, Brewer may still retain some vitality, as evidenced by the trial court’s reliance on it in this case.

The per se prohibition that noncompetition covenants regarding the use of property do not run with the land is not supported by modern real-covenant law, and indeed, appears to have support only in the Restatement of Property section on the running of real covenants, § 537 comment f. 5 Powell, supra, at § 675[3] at 60-109. Specifically, that approach is rejected in the Restatement’s section on equitable servitudes, see Restatement of Property, § 539 comment k (1944); see also Whitinsville Plaza, Inc. v. Kotseas, 378 Mass. 85, 95-96, 390 N.E.2d 243, 249 (1979) (overruling similarly strict approach inasmuch as it was “anachronistic” compared to modern judicial analysis of noncompetition covenants, which focuses on effects of covenant).

Commentators also consider the Brewer rule an anachronism and in need of change, as do we. 5 Powell, supra, ¶ 678 at 192. Accordingly, to the extent that Brewer holds that a noncompetition covenant will not run with the land, it is overruled.

Plaintiff also argues that the “touch and concern” test likewise should be eliminated in determining the enforceability of fully negotiated contracts, in favor of a simpler “reasonableness” standard that has been adopted in most jurisdictions. That argument has some support from commentators, see, e.g., Epstein, “Notice and Freedom of Contract in the Law of Servitudes,” 55 S.Cal.L.Rev. 1353, 1359-61 (1982) (contending that “touch and concern” complicates the basic analysis and limits the effectiveness of law of servitudes), including a reporter for the Restatement (Third) of Property, see French, “Servitudes Reform and the New Restatement of Property: Creation Doctrines and Structural Simplification,” 73 Cornell L.Rev. 928, 939 (1988) (arguing that “touch and concern” rule should be completely eliminated and that the law should instead directly tackle the “running” issue on public-policy grounds).

New Jersey courts, however, continue to focus on the “touch and concern” requirement as the pivotal inquiry in ascertaining whether a covenant runs with the land. Under New Jersey law, a covenant that “exercise[s] [a] direct influence on the occupation, use or enjoyment of the premises” satisfies the “touch and concern” rule. Caullett v. Stanley Stilwell & Sons, Inc., 67 N.J. Super. 111, 116, 170 A.2d 52 (App.Div. 1961). The covenant must touch and concern both the burdened and the benefitted property in order to run with the land. Ibid; Hayes v. Waverly & Passaic R.R., 51 N.J. Eq. 3, 27 A. 648 (Ch. 1893). Because the law frowns on the placing of restrictions on the freedom of alienation of land, New Jersey courts will enforce a covenant only if it produces a countervailing benefit to justify the burden. Restatement of Property § 543, comment c (1944); Reichman, supra, 55 S.Cal.L.Rev. at 1229.

Unlike New Jersey, which has continued to rely on the “touch and concern” requirement, most other jurisdictions have omitted “touch and concern” from their analysis and have focused instead on whether the covenant is reasonable. [A long list of citations is omitted.]

Even the majority of courts that have retained the “touch and concern” test have found that noncompetition covenants meet the test’s requirements. See, e.g., Dick v. Sears-Roebuck & Co., 115 Conn. 122, 160 A. 432 (1932) (holding “touch and concern” element satisfied where noncompetition covenants restrained “use to which the land may be put in the future as well as in the present, and which might very likely affect its value”); Singer v. Wong, 35 Conn. Supp. 640, 404 A.2d 124 (1978) (restrictive covenant in deed providing that premises not be used as shopping center “touched and concerned” land because it materially affected value of land) [other cases omitted].

The “touch and concern” test has, thus, ceased to be, in most jurisdictions, intricate and confounding. Courts have decided as an initial matter that covenants not to compete do touch and concern the land. The courts then have examined explicitly the more important question of whether covenants are reasonable enough to warrant enforcement. The time has come to cut the gordian knot that binds this state’s jurisprudence regarding covenants running with the land. Rigid adherence to the “touch and concern” test as a means of determining the enforceability of a restrictive covenant is not warranted. Reasonableness, not esoteric concepts of property law, should be the guiding inquiry into the validity of covenants at law. We do not abandon the “touch and concern” test, but rather hold that the test is but one of the factors a court should consider in determining the reasonableness of the covenant.

A “reasonableness” test allows a court to consider the enforceability of a covenant in view of the realities of today’s commercial world and not in the light of outmoded theories developed in a vastly different commercial environment. Originally strict adherence to “touch and concern” rule in the old English common-law cases and in Brewer, was to effectuate the then pervasive public policy of restricting many, if not all, encumbrances of the land. Courts today recognize that it is not unreasonable for parties in commercial-property transactions to protect themselves from competition by executing noncompetition covenants. Businesspersons, either as lessees or purchasers may be hesitant to invest substantial sums if they have no minimal protection from a competitor starting a business in the near vicinity. Hence, rather than limiting trade, in some instances, restrictive covenants may increase business activity.

We recognize that “reasonableness” is necessarily a fact sensitive issue involving an inquiry into present business conditions and other factors specific to the covenant at issue. Nonetheless, as do most of the jurisdictions, we find that it is a better test for governing commercial transactions than are obscure anachronisms that have little meaning in today’s commercial world. The pivotal inquiry, therefore, becomes what factors should a court consider in determining whether such a covenant is “reasonable” and hence enforceable. We conclude that the following factors should be considered:

1. The intention of the parties when the covenant was executed, and whether the parties had a viable purpose which did not at the time interfere with existing commercial laws, such as antitrust laws, or public policy.

    

1. Whether the covenant had an impact on the considerations exchanged when the covenant was originally executed. This may provide a measure of the value to the parties of the covenant at the time.

    

1. Whether the covenant clearly and expressly sets forth the restrictions.

    

1. Whether the covenant was in writing, recorded, and if so, whether the subsequent grantee had actual notice of the covenant.

    

1. Whether the covenant is reasonable concerning area, time or duration. Covenants that extend for perpetuity or beyond the terms of a lease may often be unreasonable. Alexander’s v. Arnold Constable, 105 N.J. Super. 14, 27, 250 A.2d 792 (Ch.Div. 1969); Cragmere Holding Corp. v. Socony Mobile Oil Co., 65 N.J. Super. 322, 167 A.2d 825 (App.Div. 1961).

    

1. Whether the covenant imposes an unreasonable restraint on trade or secures a monopoly for the covenantor. This may be the case in areas where there is limited space available to conduct certain business activities and a covenant not to compete burdens all or most available locales to prevent them from competing in such an activity. Doo v. Packwood, 265 Cal. App.2d 752, 71 Cal. Rptr. 477 (1968); Kettle River R. v. Eastern Ry. Co., 41 Minn. 461, 43 N.W. 469 (1889).

    

1. Whether the covenant interferes with the public interest. Natural Prods. Co. v. Dolese & Shepard Co., 309 Ill. 230, 140 N.E. 840 (1923).

    

1. Whether, even if the covenant was reasonable at the time it was executed, “changed circumstances” now make the covenant unreasonable. Welitoff v. Kohl, 105 N.J. Eq. 181, 147 A. 390 (1929).

    

In applying the “reasonableness” factors, trial courts may find useful the analogous standards we have adopted in determining the validity of employee covenants not to compete after termination of employment. Although enforcement of such a covenant is somewhat restricted because of countervailing policy considerations, we generally enforce an employee non-competition covenant as reasonable if it “simply protects the legitimate interests of the employer imposes no undue hardship on the employee, and is not injurious to the public.” Solari Indus. v. Malady, 55 N.J. 571, 576, 264 A.2d 53 (1970). We also held in Solari that if such a covenant is found to be overbroad, it may be partially enforced to the extent reasonable under the circumstances. Id. at 585, 264 A.2d 53. That approach to the enforcement of restrictive covenants in deeds offers a mechanism for recognizing and balancing the legitimate concerns of the grantor, the successors in interest, and the public.

The concurrence maintains that the initial validity of the covenant is a question of contract law while its subsequent enforceability is one of property law. Post at 221, 579 A.2d at 300. The result is that the concurrence uses reasonableness factors in construing the validity of the covenant between the original covenantors, but as to successors-in-interest, claims to adhere strictly to a “touch and concern” test. Post at 222, 579 A.2d at 301. Such strict adherence to a “touch and concern” analysis turns a blind eye to whether a covenant has become unreasonable over time. Indeed many past illogical and contorted applications of the “touch and concern” rules have resulted because courts have been pressed to twist the rules of “touch and concern” in order to achieve a result that comports with public policy and a free market. Most jurisdictions acknowledge the reasonableness factors that affect enforcement of a covenant concerning successors-in-interest, instead of engaging in the subterfuge of twisting the touch and concern test to meet the required result. New Jersey should not remain part of the small minority of States that cling to an anachronistic rule of law. Supra at 210, 579 A.2d at 295.

There is insufficient evidence in this record to determine whether the covenant is reasonable. Nevertheless, we think it instructive to comment briefly on the application of the “reasonableness” factors to this covenant. We consider first the intent of the parties when the covenant was executed. It is undisputed that when plaintiff conveyed the property to Katz, it intended that the George Street store would not be used as a supermarket or grocery store for a period of forty years to protect his existing business at the Elizabeth Street store from competition. Plaintiff alleges that the purchase price negotiated between it and Katz took into account the value of the restrictive covenant and that Katz paid less for the property because of the restriction. There is no evidence, however, of the purchase price. It is also undisputed that the covenant was expressly set forth in a recorded deed, that the Authority took title to the premises with actual notice of the restrictive covenant, and, indeed, that all the defendants, including C-Town, had actual notice of the covenant.

The parties do not specifically contest the reasonableness of either the duration or area of the covenant. Aspects of the “touch and concern” test also remain useful in evaluating the reasonableness of a covenant, insofar as it aids the courts in differentiating between promises that were intended to bind only the individual parties to a land conveyance and promises affecting the use and value of the land that was intended to be passed on to subsequent parties. Covenants not to compete typically do touch and concern the land. In noncompetition cases, the “burden” factor of the “touch and concern” test is easily satisfied regardless of the definition chosen because the covenant restricts the actual use of the land. Berger, supra, 52 Wash.L.Rev. at 872. The Appellate Division properly concluded that the George Street store was burdened. However, we disagree with the Appellate Division’s conclusion that in view of the covenant’s speculative impact, the covenant did not provide a sufficient “benefit” to the Elizabeth Street property because it burdened only a small portion (George Street store) of the “market circle” (less than one-half acre in a market circle of 2000 acres).

The size of the burdened property relative to the market area is not a probative measure of whether the Elizabeth store was benefitted. Presumably, the use of the Elizabeth Street store as a supermarket would be enhanced if competition were lessened in its market area. If plaintiff’s allegations that the profits of the Elizabeth Street store increased after the sale of the George Street store are true, this would be evidence that a benefit was “conveyed” on the Elizabeth Street store. Likewise, information that the area was so densely populated, that the George Street property was the only unique property available for a supermarket, would show that the Elizabeth Street store property was benefitted by the covenant. In this connection the C-Town executive in his deposition noted that the George Street store location “businesswise was promising because there’s no other store in town.” Such evidence, however, also should be considered in determining the “reasonableness” of the area covered by the covenant and whether the covenant unduly restrained trade.

Defendants’ primary contention is that due to the circumstances of the neighborhood and more particularly the circumstances of the people of the neighborhood, plaintiff’s covenant interferes with the public’s interest. Whether that claim is essentially that the community has changed since the covenant was enacted or that the circumstances were such that when the covenant was enacted, it interfered with the public interest, we are unable to ascertain from the record. “Public interest” and “changed circumstances” arguments are extremely fact-sensitive. The only evidence that addresses those issues, the three affidavits of Mr. Keefe, Mr. Nero and Ms. Scott, are insufficient to support any finding with respect to those arguments.

The fact-sensitive nature of a “reasonableness” analysis make resolution of this dispute through summary judgment inappropriate. We therefore remand the case to the trial court for a thorough analysis of the “reasonableness” factors delineated herein.

The trial court must first determine whether the covenant was reasonable at the time it was enacted. If it was reasonable then, but now adversely affects commercial development and the public welfare of the people of New Brunswick, the trial court may consider whether allowing damages for breach of the covenant is an appropriate remedy. C-Town could then continue to operate but Davidson would get damages for the value of his covenant. On the limited record before us, however, it is impossible to make a determination concerning either reasonableness of the covenant or whether damages, injunctive relief, or any relief is appropriate.

In sum, we reject the trial court’s conclusion because it depends largely on the continued vitality of Brewer, which we hereby overrule. Supra at 201-202, 579 A.2d at 290-291. Likewise, we reject the Appellate Division’s reliance on the “touch and concern” test. Instead, the proper test to determine the enforceability of a restricted noncompetition covenant in a commercial land transaction is a test of “reasonableness,” an approach adopted by a majority of the jurisdictions.

III

The other issue before us concerns whether the lease granted by the Housing Authority to C-Town constitutes an impermissible gift of public property in violation of the State Constitution.

… .

We remand to the trial court to determine whether the purchase, lease, and operation of the supermarket constituted a public purpose, and, if so, whether the Housing Authority used justifiable means to attract a supermarket to the area of downtown New Brunswick.

Judgment reversed and cause remanded for further proceedings consistent with this opinion.

Pollock, J., concurring.

The Court reverses the Appellate Division’s affirmance of the Chancery Division’s grant of summary judgment invalidating the restrictive covenant and remands the matter to the Chancery Division for a plenary hearing. Although I concur in the judgment of remand, I believe it should be on different terms.

My basic difference with the majority is that I believe the critical consideration in determining the validity of this covenant is whether it is reasonable as to scope and duration, a point that has never been at issue in this case. Nor has there ever been any question whether the original parties to the covenant, Davidson Bros., Inc. (Davidson), and D. Katz & Sons, Inc. (Katz) intended that the covenant should run with the land. Likewise, the New Brunswick Housing Authority (the Authority) and C-Town have never disputed that they did not have actual notice of the covenant or that there was privity between them and Katz. Finally, the defendants have not contended that the covenant constitutes an unreasonable restraint on trade or that it has an otherwise unlawful purpose, such as invidious discrimination. Davidson, moreover, makes the uncontradicted assertion that the covenant is a burden to the George Street property and benefits the Elizabeth Street property. Hence, the covenant satisfies the requirement that it touch and concern the benefitted and burdened properties.

The fundamental flaw in the majority’s analysis is in positing that an otherwise-valid covenant can become invalid not because it results in an unreasonable restraint on trade, but because invalidation facilitates a goal that the majority deems worthy. Considerations such as “changed circumstances” and “the public interest,” when they do not constitute such a restraint, should not affect the enforceability of a covenant. Instead, they should relate to whether the appropriate method of enforcement is an injunction or damages. A court should not declare a noncompetition covenant invalid merely because enforcement would lead to a result with which the court disagrees. This leads me to conclude that the only issue on remand should be whether the appropriate remedy is damages or an injunction.

Enforcement of the restriction by an injunction will deprive the downtown residents of the convenience of shopping at the George Street property. Refusal to enforce the covenant, on the other hand, will deprive Davidson of the benefit of its covenant. Thus, the case presents a tension between two worthy objectives: the continued operation of the supermarket for the benefit of needy citizens, and the enforcement of the covenant. An award of damages to Davidson rather than the grant of an injunction would permit the realization of both objectives.

 

-I-

 

I begin by questioning the majority’s formulation and application of a reasonableness test for determining whether the covenant runs with the land. The law has long distinguished between the validity of a covenant between original-contracting parties from the enforceability of a covenant against the covenantor’s successor-in-interest. Initial validity is a question of contract law; enforceability against subsequent parties is one of property law. Caullett v. Stanley Stilwell & Sons, 67 N.J. Super. 111, 116, 170 A.2d 52 (App.Div. 1961); R. Cunningham, W. Stoebuck, and D. Whitman, The Law of Property 467 (1984) (Cunningham). That distinction need not foreclose a subsequent owner of the burdened property from challenging the validity of the contract between the original parties. The distinction, however, sharpens the analysis of the effect of the covenant.

In this case, the basic issue is enforceability of the covenant against the Authority and C-Town, successors in interest to Katz. Thus, the only relevant consideration is whether the covenant “touches and concerns” the benefitted and burdened properties. For the Chancery Division, the critical issue was “whether the restriction burdens the land in the hands of the Authority.” As the majority points out, “[i]n contrast to the trial court’s decision, the Appellate Division’s rationale was premised on the failure of the benefit of the covenant to run, not of the burden.” Ante at 202, 579 A.2d at 291. The majority correctly disagrees with the Appellate Division’s rationale, properly observing that a covenant can provide a benefit even without burdening most of the properties in the relevant market area. Ante at 214, 579 A.2d at 297. Concerning the running of the burden on the George Street property, the majority views Brewer v. Marshall & Cheeseman, 19 N.J. Eq. 537 (E. & A. 1868), as an anachronism. It properly overrules the holding of Brewer “that a noncompetition covenant will not run with the land * * *.” Ante at 207, 579 A.2d at 293. Continuing, the majority observes that in most jurisdictions the “‘touch and concern’ test has * * * ceased to be * * * intricate and confounding,” and that “[c]ourts have decided as an initial matter that covenants not to compete do touch and concern the land.” Ante at 209, 579 A.2d at 294. Instead of concluding its analysis, the majority adds: “We do not abandon the ‘touch and concern’ test, but rather hold that the test is but one of the factors a court should consider in determining the reasonableness of the covenant.” Ante at 210, 579 A.2d at 295.

The Court can decide the present case without introducing a new test. On the present record, no question exists about the running of the benefit of the covenant. First, the party seeking to enforce the covenant is Davidson, the original leaseholder, not a successor in interest, of the Elizabeth Street property. Second, as the language of the covenant indicates, the original contracting parties, Davidson and Katz, indicated that the covenant would run with the land. Third, Davidson makes the uncontradicted assertions that both stores were unprofitable before the sale, that the Elizabeth Street store after the sale of the George Street property enjoyed a twenty-per-cent sales increase, and that the reopening of the George Street property caused it to suffer a loss of income. Finally, as the majority recognizes, the lower courts erred in concluding that the covenant did not “touch and concern” the burdened and benefitted properties. Ante at 213, 579 A.2d at 296.

It is virtually inconceivable that the covenant does not benefit the Elizabeth Street property. New Jersey courts have declared variously that the benefit “must exercise direct influence upon the occupation, use or enjoyment of the premises,” Caullett, supra, 67 N.J. Super. at 116, 170 A.2d 52, and that the covenant must confer “a direct benefit on the owner of land by reason of his ownership,” National Union Bank at Dover v. Segur, 39 N.J.L. 173, 186 (Sup.Ct. 1877). Scholars have written that a covenant’s benefit touches and concerns land if it renders the owner’s interest in the land more valuable, Bigelow, The Content of Covenants in Leases, 12 Mich.L.Rev. 639, 645 (1914), or if “the parties as laymen and not as lawyers” would naturally view the covenant as one that aids “the promisee as landowner,” C. Clark, Real Covenants and Other Interests Which Run with the Land 99 (2d ed. 1947) (Clark); see also 5 R. Powell & P. Rohan, Powell on Real Property ¶ 673[2][a] (1990) (Powell) (inclining towards Clark’s view). Like most courts, leading scholars, Powell, supra, § 675[3]; Cunningham, supra, at 474-75; and Clark, supra, at 106, believe that under the “touch and concern” test, the benefit of non-competition covenants should run with the land.

The conclusion that this covenant “touches and concerns” the land should end the inquiry about enforceability against the Authority and C-Town. The majority, however, holds that the “touch and concern” test is “but one of the factors a court should consider in determining the reasonableness of the covenant.” Ante at 210, 579 A.2d at 295. The majority’s inquiry about reasonableness, however, confuses the issue of validity of the original contract between Davidson and Katz with enforceability against the subsequent owner, the Authority. This confusion of validity with enforceability threatens to add uncertainty to an already troubled area of the law. As explained by one leading authority, “[t]he judicial reaction to this confusion [in the law of covenants and equitable servitudes] has often been to state the law so as to achieve the desired result in a particular case. Obviously, this has caused frequent misstatements of the law, which has deepened the overall confusion.” Powell, supra, ¶ 670[2].

The majority inaccurately asserts, ante at 208, 579 A.2d at 294, that most jurisdictions “have focused on whether the covenant is reasonable enough to warrant enforcement.” Not one case cited by the majority has concluded that a covenant that is reasonable against the original covenantor would be unreasonable against the covenantor’s successor who takes with notice. For example, in Hercules Powder Co. v. Continental Can Co., 196 Va. 935, 945, 86 S.E.2d 128, 133 (1955), only after first concluding that the restriction was reasonable did the court consider “whether it is enforceable by Continental Can, an assignee of the original covenantee, against Hercules, an assignee of the original covenantor.” In determining that Hercules was subject to the restriction, the court considered only whether it purchased the land with notice of the restriction. Id. at 946-48, 86 S.E.2d at 134-35. Similarly, in Quadro Stations v. Gilley, 7 N.C. App. 227, 234, 172 S.E.2d 237, 242 (1970), the court first concluded that the restriction was valid, and then held that it was enforceable against defendants, successors in interest to the original covenanting parties. Nothing in the opinion implies that a restriction that was reasonable between the original parties would be unenforceable against a purchaser of the burdened property who bought with notice. Doo v. Packwood, 265 Cal. App.2d 752, 756, 71 Cal. Rptr. 477, 481 (1968), is likewise unavailing to the majority. There, when purchasing a lot on which Doo had operated a grocery store, Packwood agreed to a noncompetition covenant. After concluding that the covenant was reasonable as between the original parties, the court found that it would be binding on a future purchaser with notice. Ibid. In effect, future purchasers would be bound so long as Doo continued to operate a competitive grocery store. Ibid. To conclude, the cited cases hold that a reasonable noncompetition covenant binding on the original covenantor likewise binds a subsequent purchaser with notice. Hence, the majority misperceives the focus of the out-of-state cases. The result is that the majority’s reasonableness test introduces unnecessary uncertainty in the analysis of covenants running with the land.

As troublesome as uncertainty is in other areas of the law, it is particularly vexatious in the law of real property. The need for certainty in conveyancing, like that in estate planning, is necessary for people to structure their affairs. Covenants that run with the land can affect the value of real property not only at the time of sale, but for many years thereafter. Consequently, vendors and purchasers, as well as their successors, need to know whether a covenant will run with the land. The majority acknowledges that noncompetition covenants play a positive role in commercial development. Ante at 210, 579 A.2d at 295. Notwithstanding that acknowledgement, the majority’s reasonableness test generates confusion that threatens the ability of commercial parties and their lawyers to determine the validity of such covenants. This, in turn, impairs the utility of noncompetition covenants in real estate transactions.

As between the vendor and purchaser, a noncompetition covenant generally should be treated as valid if it is reasonable in scope and duration, Irving Inv. Corp. v. Gordon, 3 N.J. 217, 221, 69 A.2d 725 (1949); Heuer v. Rubin, 1 N.J. 251, 256-57, 62 A.2d 812 (1949); Scherman v. Stern, 93 N.J. Eq. 626, 630, 117 A. 631 (E. & A. 1922), and neither an unreasonable restraint on trade nor otherwise contrary to public policy. A covenant would contravene public policy if, for example, its purpose were to secure a monopoly, Quadro Stations, supra, 7 N.C. App. at 235, 172 S.E.2d at 242; Hercules Powder Co., supra, 196 Va. at 944-45, 86 S.E.2d at 132-33, or to carry out an illegal object, such as invidious discrimination, see, e.g., N.J.S.A. 46:3-23 (declaring restrictive covenants in real estate transactions void if based on race, creed, color, national origin, ancestry, marital status, or sex).

Applying those principles to the validity of the agreement between Davidson and Katz, I find this covenant enforceable against defendants. The majority acknowledges that “[t]he parties do not specifically contest the reasonableness of either the duration or the area of the covenant.” Ante at 213, 579 A.2d at 296. I agree. The covenant is limited to one parcel, the George Street property. Defendants do not assert that Davidson has restricted or even owns other property in New Brunswick. Furthermore, they do not allege that other property is not available for a supermarket. In brief, the Authority has not alleged that at the time of the sale from Davidson to Katz, or even at present, the George Street property was the only possible site in New Brunswick for a supermarket. Consequently, the covenant may not be construed to give rise to a monopoly. In all of New Brunswick it restricts a solitary one-half acre tract from use for a single purpose. Indeed, the record demonstrates that the Authority explored other options, including expansion of a food cooperative and increasing the product lines at nearby convenience stores. Nothing in the record supports the conclusion that the covenant might be unreasonable respecting space.

Nor does anything indicate that the forty-year length of the restriction between Davidson and Katz is unreasonable in time. As we have stated, “where the space contained in the covenant is reasonable and proper there need be no limitation as to time.” Rubin, supra, 1 N.J. at 256-57, 62 A.2d 812. That statement echoes the words “certainly it is no objection to an agreement not to compete with a mercantile business that the restraint is unlimited in point of time when [as here] it is reasonably limited in point of space.” Stern, supra, 93 N.J. Eq. at 630, 117 A. 631. To sustain the subject covenant we need not go so far as to say that a covenant could never be unreasonably long. In an appropriate case, a court, drawing on the analogy to restrictive covenants in employment contracts, might reform a covenant so that it lasts only for a reasonable time. Solari Indus. v. Malady, 55 N.J. 571, 264 A.2d 53 (1970). This is not such a case.

Here, Davidson holds a lease on the Elizabeth Street property for a term of twenty years, with two renewable five-year terms. Those lease terms are substantially, if not precisely, coextensive with the term of the covenant. If, on remand, the Chancery Division should find that the additional ten-year period is not enforceable by Davidson, it should also find that the restriction is valid for the thirty-year period during which Davidson’s lease may run. In sum, I believe that the covenant is reasonable at least for the term of Davidson’s lease.

To the extent that noncompetition covenants in real estate transactions are deemed valid if reasonable in scope and duration, they are more readily upheld than similar covenants arising out of employment contracts. Solari Indus., supra, 55 N.J. at 576, 264 A.2d 53. In this regard, Williston points out that “[r]estriction upon the use of real property is considered less likely to affect the public interest adversely than restraint of the activities of individual parties and accordingly, such covenants are usually held not contrary to public policy.” 14 Williston on Contracts § 1642 (3d ed. 1972) (Williston). Nothing in the record supports the conclusion that when made or at present the subject covenant was an unreasonable restraint on trade or otherwise contrary to public policy.

Certain of the factors identified by the majority must be present for a covenant to run apart from the considerations of reasonableness. Such factors are the intent of the parties that the covenant run, clarity of the express restrictions, whether the covenant was in writing, and whether it was recorded. Caullett, supra, 67 N.J. Super. at 116, 170 A.2d 52; Petersen v. Beekmere, 117 N.J. Super. 155, 166-67, 283 A.2d 911 (Ch.Div. 1971); Clark, supra, at 94; Cunningham, supra, at 470. As previously indicated, all those factors are present in this case. If they had not been present, the covenant would have been unenforceable without reference to a reasonableness test. Duplicating those factors in such a test is counterproductive.

The majority’s three remaining factors also pose troubling problems. Without citing any authority, the majority invites review of “[w]hether the covenant had an impact on the considerations exchanged when the covenant was originally executed.” Ante at 210, 579 A.2d at 295. As the majority acknowledges, however, Davidson has made the uncontradicted assertion “that the purchase price negotiated between it and Katz took into account the value of the restrictive covenant and that Katz paid less for the property because of the restriction.” Ante at 213, 579 A.2d at 296.

In contract matters, courts ordinarily concern themselves with the existence, not the adequacy, of consideration. Kampf v. Franklin Life Ins. Co., 33 N.J. 36, 43, 161 A.2d 717 (1960). Because a noncompetition covenant in a commercial-real-estate sale involves the sale of property in exchange for the payment of the purchase price and the noncompetition covenant, it would be difficult to argue that the covenant was not supported by consideration. In fact, the majority does not cite to a single case in which a noncompetition covenant in a real-estate transaction has been declared invalid for lack of consideration.

Recognizing that the covenant should run is consistent with the intent of the contracting parties and reflects the economic consequences of their transaction. As Chief Justice Beasley wrote in National Union Bank at Dover, supra, 39 N.J.L. at 187, “[s]ince these parties most manifestly have thought that the stipulation in question gave additional value to the property, why, and on what ground, should the court declare that such was not the case?” See DeGray v. Monmouth Beach Club House Co., 50 N.J. Eq. 329, 333, 24 A. 388 (Ch. 1892) (“The equity thus enforced arises from the inference that the covenant has, to a material extent, entered into the consideration of the purchase, and that it would be unjust to the original grantor to permit the covenant to be violated.”); Tulk v. Moxhay, 2 Phil. 774, 777-78, 41 Eng.Rep. 1143, 1144 (1848) (“Of course, the price would be affected by the covenant and nothing could be more inequitable than that the original purchaser should be able to sell the property the next day for a greater price, in consideration of the assignee being allowed to escape from the liability which he had himself undertaken.”).

The majority’s other two factors are “whether the covenant interferes with the public interest,” and “whether, even if the covenant was reasonable at the time it was executed, ‘changed circumstances’ now make the covenant unreasonable.” Ante at 212, 579 A.2d at 295. In this regard, the majority adds that

 

[t]he trial court must first determine whether the covenant was reasonable at the time it was enacted. If it was reasonable then, but now adversely affects commercial development and the public welfare of the people of New Brunswick, the trial court may consider whether allowing damages is an appropriate remedy. C-Town could continue to operate but Davidson would get damages for the value of his [sic] covenant. On the limited record before us, however, it is impossible to make a determination as to the reasonableness of the covenant or whether damages, injunctive relief, or any relief is appropriate. [Ante at 215, 579 A.2d at 297.]

 

Implicit in the statement is the notion that a court might declare a covenant invalid even if it is reasonable in scope and duration, does not have a pernicious objective, and creates neither a monopoly nor an unreasonable restraint of trade. In brief, merely because it does not like a covenant, a court may find it invalid. This implication infects the usefulness of such covenants and represents an unwarranted intrusion of the judiciary in private transactions. The statement also points up the problem of blurring the contractual and property aspects of the covenant. Supra at 221-222, 579 A.2d at 300-301. Fairly read, the factors are not relevant to the determination of enforceability, as the Court initially indicated, but to the determination whether the appropriate relief is the award of damages or an injunction. See Welitoff v. Kohl, 105 N.J. Eq. 181, 189, 147 A. 390 (E. & A. 1929).

The decided cases suggest that changed circumstances justify the refusal to enforce an otherwise-enforceable covenant only when the change defeats the covenant’s purpose. Thus, in Doo, supra, 265 Cal. App.2d at 756, 71 Cal. Rptr. at 481, a claim of changed circumstances could not defeat a restrictive covenant against a grocery store as long as the benefitted party continued to operate a competitive store on another property. Analogous New Jersey cases imply a similar conclusion. In Weinstein v. Swartz, 3 N.J. 80, 89, 68 A.2d 865 (1949), when business development elsewhere did not affect the residential character of the neighborhood in which the burdened property was located, the Court recognized the continuing validity of restrictions limiting the use of the property to a single-family residence. Similarly, in Leasehold Estates v. Fulbro Holding Co., 47 N.J. Super. 534, 565, 136 A.2d 423 (App.Div. 1957), the court refused to enforce a 103-year-old covenant limiting the use of the front of an alley to barns and stables because enforcement would not provide the “contemplated benefit to the covenantee.”

Perhaps the majority’s opinion is best read as holding that Davidson is entitled to damages but not an injunction if the covenant was reasonable when formed, but now adversely affects the public welfare of the people of New Brunswick. See Gilpin v. Jacob Ellis Realties, 47 N.J. Super. 26, 31-34, 135 A.2d 204 (App.Div. 1957). Such a holding would ensure that Davidson will not be “left without any redress; * * * [it will be] given what plaintiffs are given in many types of cases – relief measured, so far as the court reasonably may do so, in damages.” Id. at 34, 135 A.2d 204.

Nothing in the record provides any basis for finding that in the six years that elapsed between 1980, when Davidson sold to Katz, and 1986, when Katz sold to the Authority, circumstances changed so much that they render the covenant unenforceable. The record is devoid of any showing that anything has happened since 1980 that has deprived the Elizabeth Street store of the covenant’s benefit. Notions of “changed circumstances” and the “public interest” thinly veil the Authority’s attempt to avoid compensating Davidson for the cost of the lost benefit of an otherwise-enforceable covenant. I am left to wonder whether the majority would so readily condone the Authority’s taking of Davidson’s property if the interest taken were one in fee simple and not a restrictive covenant. It is wrong to take Davidson’s covenant without compensation just as it would be wrong to take its fee interest without paying for it. Shopkeepers in malls throughout the state will be astonished to learn that noncompetition covenants that they have so carefully negotiated in their leases are subject to invalidation because they run counter to a court’s perception of “changed circumstances” and the “public interest.”

 

-II-

 

For me the critical issue is whether the appropriate remedy for enforcing the covenant is damages or an injunction. Ordinarily, as between competing land users, the more efficient remedy for breach of a covenant is an injunction. R. Posner, Economic Analysis of Law 62 (1986) (Posner); R. Epstein, Notice and Freedom of Contract in the Law of Servitudes, 55 S.Cal.L.Rev. 1353-67 (1962); Calabresi and Melamed, Property Rules, Liability Rules, and Inalienability: One View of the Cathedral, 85 Harv.L.Rev. 1089, 1118 (1972) (Calabresi and Melamed). But see Posner, supra, at 59; Calabresi and Melamed, supra, at 119 (discussing situations in which damages are a more efficient remedy than an injunction). If Katz still owned the George Street property, the efficient remedy, therefore, would be an injunction. The Authority, which took title with knowledge of the covenant, is in no better position than Katz insofar as the binding effect of the covenant is concerned. Although an injunction might be the most efficient form of relief, it would however deprive the residents of access to the George Street store.

The economic efficiency of an injunction, although persuasive, is not dispositive. The right rule of law is not necessarily the one that is most efficient. Saint Barnabas Medical Center v. Essex County, 111 N.J. 67, 88, 543 A.2d 34 (1988) (Pollock, J., concurring); see also R. Coase, The Problem of Social Cost, 3 J. Law & Econ. 1, 19 (1960). In other cases, New Jersey courts have allowed cost considerations other than efficiency to affect the award of a remedy.

For example, in Gilpin, supra, 47 N.J. Super. 26, 135 A.2d 204, the court refused to approve an injunction, but upheld an award of damages to the victim of a breach of a covenant. The property right at issue was a covenant restricting the building of any structure more than fifteen feet tall within four feet of one of the parties’ common boundaries. Defendant, a builder, was the successor to the land of the original covenantor. Plaintiff succeeded to ownership of the land originally benefitted by the covenant. Defendant and plaintiff were neighboring landowners. Defendant breached the covenant. Remodeling the structure would have cost defendant $11,500. The trial court had found that the breach harmed plaintiff to the extent of $1,000 in damages. Invoking the “doctrine of relative hardship,” the Appellate Division held that the differences in these two figures were “so grossly disproportionate in amount as to justify the denial of the mandatory injunction.” 47 N.J. Super. at 35-36, 135 A.2d 204. At the same time, the Appellate Division upheld the $1,000-damages award to plaintiff. Id. at 36, 135 A.2d 204. Thus, the court concluded that the appropriate remedy for enforcing the covenant was an award of damages, not an injunction.

Injunctions, moreover, are ordinarily issued in the discretion of the court. Id. at 29, 135 A.2d 204. Hence, “[t]he court of equity has the power of devising its remedy and shaping it so as to fit the changing circumstances of every case and the complex relations of all the parties.” Sears, Roebuck & Co. v. Camp, 124 N.J. Eq. 403, 412, 1 A.2d 425 (E. & A. 1938) (quoting Pomeroy, Equity Jurisprudence § 109 (5th ed. 1941)). In the exercise of its discretion, a court may deny injunctive relief when damages provide an available adequate remedy at law. See Board of Educ., Borough of Union Beach v. N.J.E.A., 53 N.J. 29, 43, 247 A.2d 867 (1968).

In the past, however, an injunction in cases involving real covenants and equitable servitudes “was granted almost as a matter of course upon a breach of the covenant. The amount of damages, and even the fact that the plaintiff has sustained any pecuniary damages, [was] wholly immaterial.” J.N. Pomeroy, Equity Jurisprudence, § 1342 (5th ed. 1941). The roots of that tradition are buried deep in the English common law and are not suited for modern American commercial practices. In brief, the unswerving preference for injunctive relief over damages is an anachronism.

At English common law, as between grantors and grantees, covenants running with the land violated the public policy against encumbrances. See Powell, supra, § 670 n. 27 (citing Keppell v. Bailey, 39 Eng.Rep. 1042 (Ch. 1834)). The policy becomes understandable on realizing that England originally did not provide a system for recording encumbrances, such as restrictive covenants. See Berger, A Policy Analysis of Promises Respecting the Use of Land, 55 Minn.L.Rev. 167, 186 (1970). Without a recording system, a subsequent grantee might not receive actual or constructive notice of such a covenant. As the Court points out, “[a]dequate notice obliterated any express requirement of ‘touch and concern.’” Ante at 204, 579 A.2d at 292.

For centuries, New Jersey has provided a means for recording restrictive covenants. Hence, the policy considerations that counselled against enforcement of restrictive covenants at English common law do not apply in this state. In the absence of an adequate remedy at law, moreover, the English equity courts filled the gap by providing equitable relief, such as an injunction. Tulk, supra, 2 Phil. 774, 41 Eng.Rep. 1143 (discussed by the majority, ante at 204, 579 A.2d at 292.) In this state, unlike in England, covenants between grantor and grantee are readily enforceable. Roehrs v. Lees, 178 N.J. Super. 399, 429 A.2d 388 (App.Div. 1981) (covenant between neighboring property owners arising from a grantor-grantee relationship between original covenanting parties enforceable; matter remanded to trial court to determine whether damages or injunction was appropriate); Gilpin, supra, 47 N.J. Super. at 29, 135 A.2d 204. Hence, the need for injunctive relief, as distinguished from damages, is less compelling in New Jersey than at English common law, where damages were not always available. I would rely on the rule that a court should not grant an equitable remedy when damages are adequate. N.J.E.A., supra, 53 N.J. at 43, 247 A.2d 867.

Here, moreover, the Authority holds a trump card not available to all other property owners burdened by restrictive covenants – the power to condemn. By recourse to that power, the Authority can vitiate the injunction by condemning the covenant and compensating Davidson for its lost benefit. That power does not alter the premise that an injunction is generally the most efficient form of relief. See Calabresi and Melamed, supra, at 1118; Posner, supra, at 62. It merely emphasizes that the Authority through condemnation can effectively transform injunctive relief into a damages award. Arguably, the most efficient result is to enforce the covenant against the Authority and then remit it to its power of condemnation. This result would recognize the continuing validity of the covenant, compensate Davidson for its benefit, and permit the needy citizens of New Brunswick to enjoy convenient shopping.

Forcing the Authority to institute eminent-domain proceedings conceivably would waste judicial resources and impose undue costs on the parties. A more appropriate result is to award damages to Davidson for breach of the covenant. That would be true, I believe, even against a subsequent grantee that does not possess the power to condemn.

Money damages would compensate Davidson for the wrong done by the opening of the George Street supermarket. Davidson would be “given what plaintiffs are given in many types of cases – relief measured, so far as the court reasonably may do so, in damages.” Gilpin, supra, 47 N.J. Super. at 34, 135 A.2d 204. The award of money damages, rather than an injunction, might be the more appropriate form of relief for several reasons. First, a damages award is “particularly applicable to a case, such as this, wherein we are dealing with two commercial properties * * *.” Id. at 35, 135 A.2d 204. Second, the award of damages in a single proceeding would provide more efficient justice than an injunction in the present case, with a condemnation suit to follow. Davidson would be compensated for the loss of the covenant and the needy residents would enjoy more convenient shopping. That solution is both efficient and just.

I can appreciate why New Brunswick residents want a supermarket and why the Authority would come to their aid. Supermarkets may be essential for the salvation of inner cities and their residents. The Authority’s motives, however noble, should not vitiate Davidson’s right to compensation. The fair result, it seems to me, is for the Authority to compensate Davidson in damages for the breach of its otherwise valid and enforceable covenant.

Clark, Emmons, Bryant & Klein, of Detroit, for appellants.

Warren, Cady, Hill & Hamblen, of Detroit, for appellees.

Wiest, J.

Defendant Christina McLean owns the west 35 feet of lot 86 of Green Lawn subdivision, at the northeast corner of Collingwood avenue and Second boulevard, in the city of Detroit, upon which there is a dwelling house, occupied by herself and her husband, defendant John A. McLean. The house fronts Collingwood avenue. At the rear of the lot is an alley. Mrs. McLean derived title from her husband, and, in the course of the opinion, we will speak of both as defendants. Mr. and Mrs. McLean started to erect a gasoline filling station at the rear end of their lot, and they and their contractor, William S. Weir, were enjoined by decree from doing so and bring the issues before us by appeal. Mr. Weir will not be further mentioned in the opinion.

Collingwood avenue is a high grade residence street between Woodward avenue and Hamilton boulevard, with single, double, and apartment houses, and plaintiffs, who are owners of land adjoining and in the vicinity of defendants’ land, and who trace title, as do defendants, to the proprietors of the subdivision, claim that the proposed gasoline station will be a nuisance per se, is in violation of the general plan fixed for use of all lots on the street for residence purposes only, as evidenced by restrictions upon 53 of the 91 lots fronting on Collingwood avenue, and that defendants’ lot is subject to a reciprocal negative easement barring a use so detrimental to the enjoyment and value of its neighbors. Defendants insist that no restrictions appear in their chain of title and they purchased without notice of any reciprocal negative easement, and deny that a gasoline station is a nuisance per se. We find no occasion to pass upon the question of nuisance, as the case can be decided under the rule of reciprocal negative easement.

This subdivision was planned strictly for residence purposes, except lots fronting Woodward avenue and Hamilton boulevard. The 91 lots on Collingwood avenue were platted in 1891, designed for and each one sold solely for residence purposes, and residences have been erected upon all of the lots. Is defendants’ lot subject to a reciprocal negative easement? If the owner of two or more lots, so situated as to bear the relation, sells one with restrictions of benefit to the land retained, the servitude becomes mutual, and, during the period of restraint, the owner of the lot or lots retained can do nothing forbidden to the owner of the lot sold. For want of a better descriptive term this is styled a reciprocal negative easement. It runs with the land sold by virtue of express fastening and abides with the land retained until loosened by expiration of its period of service or by events working its destruction. It is not personal to owners, but operative upon use of the land by any owner having actual or constructive notice thereof. It is an easement passing its benefits and carrying its obligations to all purchasers of land, subject to its affirmative or negative mandates. It originates for mutual benefit and exists with vigor sufficient to work its ends. It must start with a common owner. Reciprocal negative easements are never retroactive; the very nature of their origin forbids. They arise, if at all, out of a benefit accorded land retained, by restrictions upon neighboring land sold by a common owner. Such a scheme of restriction must start with a common owner; it cannot arise and fasten upon one lot by reason of other lot owners conforming to a general plan. If a reciprocal negative easement attached to defendants’ lot, it was fastened thereto while in the hands of the common owner of it and neighboring lots by way of sale of other lots with restrictions beneficial at that time to it. This leads to inquiry as to what lots, if any, were sold with restrictions by the common owner before the sale of defendants’ lot. While the proofs cover another avenue, we need consider sales only on Collingwood.

December 28, 1892, Robert J. and Joseph R. McLaughlin, who were then evidently owners of the lots on Collingwood avenue, deeded lots 37 to 41 and 58 to 62, inclusive, with the following restrictions:

 

No residence shall be erected upon said premises which shall cost less than $2,500, and nothing but residences shall be erected upon said premises. Said residences shall front on Helene (now Collingwood) avenue and be placed no nearer than 20 feet from the front street line.

 

July 24, 1893, the McLaughlins conveyed lots 17 to 21 and 78 to 82, both inclusive, and lot 98 with the same restrictions. Such restrictions were imposed for the benefit of the lands held by the grantors to carry out the scheme of a residential district, and a restrictive negative easement attached to the lots retained, and title to lot 86 was then in the McLaughlins. Defendants’ title, through mesne conveyances, runs back to a deed by the McLaughlins dated September 7, 1893, without restrictions mentioned therein. Subsequent deeds to other lots were executed by the McLaughlins, some with restrictions and some without. Previous to September 7, 1893, a reciprocal negative easement had attached to lot 86 by acts of the owners, as before mentioned, and such easement is still attached and may now be enforced by plaintiffs, provided defendants, at the time of their purchase, had knowledge, actual or constructive, thereof. The plaintiffs run back with their title, as do defendants, to a common owner. This common owner, as before stated, by restrictions upon lots sold, had burdened all the lots retained with reciprocal restrictions. Defendants’ lot and plaintiff Sanborn’s lot, next thereto, were held by such common owner, burdened with a reciprocal negative easement, and, when later sold to separate parties, remained burdened therewith, and right to demand observance thereof passed to each purchaser with notice of the easement. The restrictions were upon defendants’ lot while it was in the hands of the common owners, and abstract of title to defendants’ lot showed the common owners, and the record showed deeds of lots in the plat restricted to perfect and carry out the general plan and resulting in a reciprocal negative easement upon defendants’ lot and all lots within its scope, and defendants and their predecessors in title were bound by constructive notice under our recording acts. The original plan was repeatedly declared in subsequent sales of lots by restrictions in the deeds, and, while some lots sold were not so restricted, the purchasers thereof, in every instance, observed the general plan and purpose of the restrictions in building residences. For upward of 30 years the united efforts of all persons interested have carried out the common purpose of making and keeping all the lots strictly for residences, and defendants are the first to depart therefrom.

When Mr. McLean purchased on contract in 1910 or 1911, there was a partly built dwelling house on lot 86, which he completed and now occupies. He had an abstract of title which he examined and claims he was told by the grantor that the lot was unrestricted. Considering the character of use made of all the lots open to a view of Mr. McLean when he purchased, we think, he was put thereby to inquiry, beyond asking his grantor, whether there were restrictions. He had an abstract showing the subdivision and that lot 86 had 97 companions. He could not avoid noticing the strictly uniform residence character given the lots by the expensive dwellings thereon, and the least inquiry would have quickly developed the fact that lot 86 was subjected to a reciprocal negative easement, and he could finish his house, and, like the others, enjoy the benefits of the easement. We do not say Mr. McLean should have asked his neighbors about restrictions, but we do say that with the notice he had from a view of the premises on the street, clearly indicating the residences were built and the lots occupied in strict accordance with a general plan, he was put to inquiry, and, had he inquired, he would have found of record the reason for such general conformation, and the benefits thereof serving the owners of lot 86 and the obligations running with such service and available to adjacent lot owners to prevent a departure from the general plan by an owner of lot 86.

While no case appears to be on all fours with the one at bar, the principles we have stated, and the conclusions announced, are supported by Allen v. City of Detroit, 167 Mich. 464, 133 N. W. 317, 36 L. R. A. (N. S.) 890; McQuade v. Wilcox, 215 Mich. 302, 183 N. W. 771, 16 A. L. R. 997; French v. White Star Refining Co., 229 Mich. 474, 201 N. W. 444; Silberman v. Uhrlaub, 116 App. Div. 869, 102 N. Y. S. 299; Boyden v. Roberts, 131 Wis. 659, 111 N. W. 701; Howland v. Andrus, 80 N. J. Eq. 276, 83 A. 982.

We notice the decree in the circuit directed that the work done on the building be torn down. If the portion of the building constructed can be utilized for any purpose within the restrictions, it need not be destroyed.

With this modification, the decree in the circuit is affirmed, with costs to plaintiffs.

Wilson, Sonsini, Goodrich & Rosati and Debra Summers for Plaintiffs and Appellants.

Daniel E. Lungren, Attorney General, Roderick E. Walston, Chief Assistant Attorney General, Jan S. Stevens, Assistant Attorney General, Jamee Jordan Patterson, Deputy Attorney General, William M. Pfeiffer, Steven A. Sokol, Sonia M. Younglove, Miller, Starr & Regalia, Harry D. Miller, Rutan & Tucker and Anne Nelson Lanphar as Amici Curiae on behalf of Plaintiffs and Appellants.

Roger Bernhardt, Cooley, Godward, Castro, Huddleson & Tatum, Kenneth J. Adelson, Benjamin K. Riley and Yvonne Gonzalez Rogers for Defendants and Appellants.

Stephen Cavellini as Amicus Curiae on behalf of Defendants and Appellants.

Arabian, J.

The Andersons want to plant and harvest grapes, operate a winery, and keep llamas on their property in Woodside. Some neighbors object, and claim such activities are prohibited by covenants, conditions and restrictions (CC&R’s) that limit the Andersons’ property, and theirs, to residential use. The Andersons counter, thus far successfully, that the CC&R’s are not enforceable because they are not mentioned in any deed to their property. The dispute is now before us.

Its resolution requires us to penetrate a legal thicket entangled by the ancient doctrines of convenants that run with the land and equitable servitudes. The task is not easy. “The law of easements, real covenants, and equitable servitudes is the most complex and archaic body of American property law remaining in the twentieth century.” (French, Toward a Modern Law of Servitudes: Reweaving the Ancient Strands (1982) 55 So.Cal.L.Rev. 1261.) Another commentator uses stronger language: “The law in this area is an unspeakable quagmire. The intrepid soul who ventures into this formidable wilderness never emerges unscarred. Some, the smarter ones, quickly turn back to take up something easier like the income taxation of trusts and estates. Others, having lost their way, plunge on and after weeks of effort emerge not far from where they began, clearly the worse for wear. On looking back they see the trail they thought they broke obscured with foul smelling waters and noxious weeds. Few willingly take up the challenge again.” (Rabin, Fundamentals of Modern Real Property Law (1974) p. 489.)

It is, however, necessary to take up the challenge. In vino veritas. Although the relevant doctrines go back centuries, they are more vital than ever today as California becomes increasingly crowded and people live in closer proximity to one another. Planned communities have developed to regulate the relationships between neighbors so all may enjoy the reasonable use of their property. Mutual restrictions on the use of property that are binding upon, and enforceable by, all units in a development are becoming ever more common and desirable. We recently confronted the question of what restrictions may reasonably be imposed in a condominium setting. (Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361 [33 Cal. Rptr.2d 63, 878 P.2d 1275].) This case addresses an earlier step in the process, considering how a general plan of restrictions is created in the first place.

The CC&R’s of this case were recorded before any of the properties they purport to govern were sold, thus giving all buyers constructive notice of their existence. They state they are to bind and benefit each parcel of property as part of a planned community. Nevertheless, the Court of Appeal held they are not enforceable because they were not also mentioned in a deed or other document when the property was sold. We disagree, and adopt the following rule: if a declaration establishing a common plan for the ownership of property in a subdivision and containing restrictions upon the use of the property as part of the common plan is recorded before the execution of the contract of sale, describes the property it is to govern, and states that it is to bind all purchasers and their successors, subsequent purchasers who have constructive notice of the recorded declaration are deemed to intend and agree to be bound by, and to accept the benefits of, the common plan; the restrictions, therefore, are not unenforceable merely because they are not additionally cited in a deed or other document at the time of the sale.

We therefore reverse the judgment of the Court of Appeal.

 

I. THE FACTS

 

Defendants Jared A. and Anne Anderson (the Andersons) own two adjacent parcels of property in Woodside that were part of separate subdivisions developed at different times.

One parcel was part of Skywood Acres, created in the 1950’s when Joseph and Claire Stadler subdivided land into some 60 residential building lots. On June 5, 1958, an instrument entitled “Declarations Imposing Covenants Restrictions and Agreements Affecting … Skywood Acres,” executed by the Stadlers, was recorded in San Mateo County. It states that the Stadlers owned the property, the map of which had previously been recorded, and expresses their “desire to establish a general plan for the improvement and development of said property and to subject said property to the following conditions, restrictions, covenants and reservations upon and subject to which all of said property shall be held, improved and conveyed….” Numerous restrictions follow, the first of which is that each lot “shall be used for residential purposes only.” The instrument provides that “Dogs, cats, hares, fowls and fish may be kept as household pets provided they are not kept, bred or raised for commercial purposes or in unreasonable number,” and allows keeping horses on specified lots under certain conditions. It also states, “All these conditions and restrictions shall run with the land and shall be binding upon all parties and all persons claiming under them….” It further provides that, as to the Stadlers and “their grantees and successors in interest of any lot or lots” in the subdivision, the conditions are to be “covenants running with the land” enforceable by “the Subdividers, grantees or assigns, or by such owners or successors in interest.”

The portion of Skywood Acres involved here was sold on October 14, 1958, and, after intermediate conveyances, was eventually acquired by the Andersons. Neither the original grant deed nor any other deed in the chain of title leading to the Andersons refers to the recorded restrictions. The Andersons’ title insurance report, however, identifies the Skywood Acres CC&R’s.¹

The second parcel was part of the Friars subdivision, comprised of four lots. On January 24, 1977, the Town of Woodside adopted a resolution approving the parcel map for the subdivision upon certain conditions, including that the developer submit to the town attorney for approval “the convenants, conditions and restrictions applicable to this land division.” On May 10, 1977, a “Declaration Imposing Covenants, Restrictions, Easements and Agreements,” executed by the owner, was recorded.

This declaration describes the property in the subdivision and states that the owner desired and intended “to subject [the property] to certain conditions, covenants and charges between them and all subsequent purchasers….” It declares that the property “shall be conveyed subject to the conditions, convenants and charges” set forth, including that the property is to be used solely for single family residences, and specifically “exclude[s] every form of business, commercial, manufacturing, or storage enterprises or activity….” Keeping animals other than household pets and horses is prohibited. The restrictions “are declared to constitute mutual equitable convenants and servitudes for the protection and benefit of each property in the said subdivision,” and “are to run with the land.” Moreover, “Each grantee of a conveyance or purchaser under a Contract or Agreement of Sale by accepting a Deed or a Contract of Sale or Agreement of purchase, accepts the same subject to any of the covenants, restrictions, easements and agreements set forth in this Declaration and agrees to be bound by the same.” The owner of any of the parcels may enforce the restrictions.

The portion of the Friars subdivision involved here was sold two days after the CC&R’s were recorded, and eventually was acquired by the Andersons at a foreclosure sale. The original deed refers to the parcel map, but not to the CC&R’s. No other deed in the Andersons’ chain of title refers to them. The title insurance report for this lot, purchased by the original buyers, identifies the Friars CC&R’s.

The parties agree that both subdivisions were “developed from a general plan of uniform development.” Both sets of CC&R’s contain provisions regarding possible modification and termination of the restrictions. The record does not indicate whether any other deed to property in either subdivision mentions the CC&R’s.

After purchasing the two parcels of property, the Andersons entered into a limited partnership agreement with a company located in the Island of Guernsey in the United Kingdom to operate a winery under the name Chaine d’Or Vineyards. They have obtained permits from the Town of Woodside to grow grapes and produce wine on their property, subject to specified conditions. In addition, the Andersons have admitted to keeping seven llamas on the property as pets.

The plaintiffs, an unincorporated association named Citizens for Covenant Compliance and individual landowners representing both subdivisions (hereafter, collectively, Citizens), filed this action against the Andersons to enforce both the Skywood Acres and the Friars CC&R’s, which, they claim, prohibit the wine business and the keeping of llamas. The superior court found the CC&R’s unenforceable, and judgment was eventually entered for the Andersons. Citizens appealed.

The Court of Appeal affirmed. For “several reasons,” it determined that the CC&R’s are not covenants running with the land. It also found they are not enforceable as equitable servitudes because no deed or other written instrument exchanged between a buyer and a seller refers to the CC&R’s. For this reason, the court concluded, no parcel in either subdivision was “conveyed pursuant to an express, written, agreement that it was conveyed subject to a general plan of restrictions. Absent that, it is irrelevant that the Andersons may have had actual notice of the CC&R’s.”

We granted Citizens’ petition for review.

 

II. DISCUSSION

 

 

 

A. Background

 

 

 

 

 

1. Covenants and Equitable Servitudes

 

 

 

Modern subdivisions are often built according to a general plan containing restrictions that each owner must abide by for the benefit of all. “Ordinarily, a general plan of restriction is recorded by the subdivider grantor for the purpose of insuring the uniform and orderly development and use of the entire tract by all of the original purchasers as well as their successors in interest. The restrictions are imposed upon each parcel within the tract. These subdivision restrictions are used to limit the type of buildings that can be constructed upon the property or the type of activity permitted on the property, prohibiting such things as commercial use or development within the tract, limiting the height of buildings, imposing setback restrictions, protecting views, or imposing similar restrictions.” (Sain v. Silvestre (1978) 78 Cal. App.3d 461, 466 [144 Cal. Rptr. 478], and quoted in Fig Garden Park etc. Assn. v. Assemi Corp. (1991) 233 Cal. App.3d 1704, 1707-1708 [285 Cal. Rptr. 303], fns. omitted.)

The CC&R’s of this case contain such restrictions. The Andersons contend, however, that they never took effect because they were not referenced in any deed to their property. Citizens contends they are enforceable as either (1) covenants that run with the land, or (2) equitable servitudes, two doctrines of distinct lineage. The dual nature of the argument has substantially complicated the question. Indeed, the differing history, uncertain mutual interplay, and varying technical requirements of these doctrines help explain why the law in the area is “an unspeakable quagmire.” (Rabin, Fundamentals of Modern Real Property Law, supra, p. 489.) One author states that the distinction between the doctrines “can best be understood as an archaic survivor of the former separation of the courts of law and equity. Each type of court developed its own set of requirements for covenants to run with the land…. Unfortunately, the modern union of law and equity has not yet produced a unified law of covenants.” (5 Powell on Real Property (1995) Covenants as to Use, § 670[2], p. 60-12, fns. omitted.) A detailed review of the history and elements of these doctrines is unnecessary but, given modern confusion and, among legal scholars at least, interest regarding the degree to which the doctrines remain separate, a brief overview is appropriate.

The first doctrine to develop was that of real covenants or, as generally stated in California, covenants that run with the land, which dates back at least to Spencer’s Case (1583 Q.B.) 77 Eng.Rep. 72. (See 5 Powell on Real Property, supra, Convenants as to Use, § 670[2], p. 60-12.) A covenant is said to run with the land if it binds not only the person who entered into it, but also later owners and assigns who did not personally enter into it. (Civ. Code, § 1460;²Scaringe v. J.C.C. Enterprises, Inc. (1988) 205 Cal. App.3d 1536, 1543 [253 Cal. Rptr. 344].) In California, only covenants specified by statute run with the land (§ 1461), primarily those described in sections 1462 and 1468. However, prior to the amendments of section 1468 in 1968 and 1969, these sections were written and interpreted very narrowly. Under section 1462, a convenant that benefits the property may run with the land, but not one that burdens the property. Section 1468, as originally enacted in 1905, only applied to a covenant “made by the owner of land with the owner of other land,” and not to a covenant between a grantor and a grantee. (Marra v. Aetna Construction Co. (1940) 15 Cal.2d 375, 377-378 [101 P.2d 490]; see generally, 4 Witkin, Summary of Cal. Law (9th ed. 1987) Real Property, §§ 490-491, pp. 667-669.) Because the convenants in this case are between grantor and grantee and burden the property as well as benefit it, they would not qualify as covenants that run with the land under these provisions.

Beginning with the 1848 English decision of Tulk v. Moxhay (1848 Ch.) 41 Eng.Rep. 1143, courts of equity sometimes enforced covenants that, for one reason or another, did not run with the land in law, and the separate doctrine of equitable servitudes arose. (See 5 Powell on Real Property, supra, Convenants as to Use, § 670[2], pp. 60-7 to 60-9.) California adopted this doctrine, and it accumulated its own body of rules. (E.g., Werner v. Graham (1919) 181 Cal. 174 [183 P. 945].) Because of the statutory limitations on covenants running with the land, at least before section 1468 was amended, California courts have “[t]raditionally” analyzed CC&R’s under the doctrine of equitable servitudes. (Scaringe v. J.C.C. Enterprises, Inc., supra, 205 Cal. App.3d at p. 1544; see also Richardson v. Callahan (1931) 213 Cal. 683, 686 [3 P.2d 927].)

In 1968 and again in 1969, section 1468 was amended to make covenants that run with the land analytically closer to equitable servitudes. Today, that statute applies to covenants between a grantor and grantee as well as between separate landowners. (Scaringe v. J.C.C. Enterprises, Inc., supra, 205 Cal. App.3d at pp. 1543-1544.)³ Covenants governed by the amended statute might run with the land even if they formerly would not. (Id. at p. 1544.) The amendments have been held to apply only to covenants postdating their enactment. (Oceanside Community Assn. v. Oceanside Land Co. (1983) 147 Cal. App.3d 166, 174, fn. 4 [195 Cal. Rptr. 14]; Taormina Theosophical Community, Inc. v. Silver (1983) 140 Cal. App.3d 964, 972, fn. 3 [190 Cal. Rptr. 38].) Thus, they would apply to the 1977 Friars subdivision but not to the earlier Skywood Acres; no matter how the current issue is decided, the CC&R’s of the latter would remain enforceable, if at all, only as equitable servitudes.

Commentators have argued that covenants that run with the land and equitable servitudes should be, or possibly have been, merged into a single doctrine. (French, Design Proposal for the New Restatement of the Law of Property – Servitudes (1988) 21 U.C. Davis L.Rev. 1213, 1223 [“The conceptual identity between real covenants and equitable servitudes, and the courts’ practical fusion of the two has been recognized for at least a quarter of a century.”]; Reichman, Toward a Unified Concept of Servitudes (1982) 55 So.Cal.L.Rev. 1177, 1186, 1230; Newman & Losey, Covenants Running with the Land, and Equitable Servitudes; Two Concepts, or One? (1970) 21 Hastings L.J. 1319.) Whether the amendments to section 1468 have accomplished this fusion in California is beyond the scope of the narrow issue before us. (But see Soman Properties, Inc. v. Rikuo Corp. (1994) 24 Cal. App.4th 471, 484 [29 Cal. Rptr.2d 427]; Note, Covenants and Equitable Servitudes in California (1978) 29 Hastings L.J. 545, 587-588.) Neither the previous statutes nor the current statutes answer this question, which involves how a covenant is created. But we see no difference regarding this issue between convenants that run with the land and equitable servitudes; the rule we adopt applies equally to both.

… .

 

 

B. Analysis

 

 

Two factual circumstances, and the interplay between them, are of paramount importance. First, the CC&R’s were recorded before any of the property was sold, thus giving the Andersons notice of their existence. Second, no written document executed at the time of any of the conveyances of the Andersons’ properties refers to the CC&R’s.

Properly stated, the issue here is not whether the restrictions run with the land, and thus bind successors as well as the original grantees, but whether they ever took effect in the first place so as to bind even the original grantees. Specifically, the issue is whether a purchaser is bound by previously recorded CC&R’s even though none of the written documents executed at the time of the conveyance refer to them. This involves the question whether there is sufficient expression of intent on the purchaser’s part to enter into the convenants. Although notice is relevant to our resolution of the issue, it is not the issue itself.

 

 

 

1. California Cases

 

 

 

In the 1919 decision of Werner v. Graham, supra, 181 Cal. 174 (Werner), a developer subdivided a tract and recorded a map of the tract. “This map showed no building lines or anything else to indicate any purpose of restricting in any way the manner in which the different lots might be built upon or otherwise improved or the uses to which they might be put.” (Id. at p. 177.) He then sold the lots. The early deeds contained “restrictive provisions, which, while differing slightly in some instances, dependent upon the location of the particular lot … are yet so uniform and consistent in character as to indicate unmistakably that [the developer] had in mind a general and common plan which he was following.” (Ibid.) The developer told the purchasers “that he was exacting the same restrictive provisions from all purchasers.” (Id. at p. 179.) He later quitclaimed the property eventually purchased by the plaintiff. The deed to this property contained no restrictions. The issue was whether the restrictions placed in the deeds to the other property were also binding on the plaintiff.

The developer in Riley, supra, 17 Cal.3d 500, sold the property in dispute by a deed that contained no restrictions. “[A]t the time of the conveyance there was no document of record purporting to restrict the use of” the property. (Id. at p. 504.) Nine months after the conveyance, the developer recorded a document purporting to impose uniform restrictions on a number of lots, including the one in dispute. The issue was whether these restrictions applied to the lot sold earlier.

In both Werner, supra, 181 Cal. 174, and Riley, supra, 17 Cal.3d 500, we held the property was not bound by the restrictions. It is readily apparent that both are factually distinguishable from this case. In Werner, there was no recorded document imposing uniform restrictions on the entire subdivision, only individual deeds imposing restrictions on specific parcels. In Riley, the restrictions were recorded after the conveyance at issue. Nevertheless, the Andersons cite some of the language of these decisions as aiding their position.

In Werner, supra, 181 Cal. at pages 181-182, we noted that the restrictions in the earlier deeds did not state that the land was part of a larger tract, that the restrictions were intended to benefit other land, or that the benefit was to pass to other land. “Servitudes running with the land in favor of one parcel and against another cannot be created in any such uncertain and indefinite fashion. It is true, the nature of the restrictions is such that, when considered in connection with the fact that [the developer] still retained the greater portion of the tract, it is not improbable that he exacted them for the benefit of the portion so retained. But the grantee’s intent in this respect is necessary, as well as the grantor’s, and the deed, which constitutes the final and exclusive memorial of their joint intent, has not a word to that effect, nor anything whatever which can be seized upon and given construction as an expression of such intent. If such was their intent, it has not been expressed.” (Id. at p. 182, italics added.)

It made no difference in Werner that the developer “in all his deeds exacted similar restrictions and clearly had in mind a uniform plan of restrictions which he intended to impose, and actually did impose, upon all the lots in the tract as he sold them.” (Werner, supra, 181 Cal. at p. 183.) We recognized that if the deeds contain “appropriate language imposing restrictions on each parcel as part of a general plan of restrictions common to all the parcels and designed for their mutual benefit, mutual equitable servitudes are thereby created in favor of each parcel as against all the others.” (Ibid.) These mutual servitudes “spring into existence as between the first parcel conveyed and the balance of the parcels at the time of the first conveyance.” (Ibid.) But, we stated, the “crux of the present case” was that “here there is no language in the instruments between the parties, that is, the deeds, which refers to a common plan of restrictions or which expresses or in any way indicates any agreement between grantor and grantee that the lot conveyed is taken subject to any such plan.” (Id. at p. 184.)

We went on to explain the significance of these facts. “The intent of the common grantor – the original owner – is clear enough. He had a general plan of restrictions in mind. But it is not his intent that governs. It is the joint intent of himself and his grantees, and as between him and each of his grantees the instrument or instruments between them, in this case the deed, constitute the final and exclusive memorial of such intent. It is also apparent that each deed must be construed as of the time it is given…. Nor does it make any difference that … [the developer] gave each grantee to understand, and each grantee did understand, that the restrictions were exacted as part of a general scheme. Such understanding was not incorporated in the deeds, and as we have said, the deeds in this case constitute the final and exclusive memorials of the understandings between the parties. Any understanding not incorporated in them is wholly immaterial in the absence of a reformation. [Citations.] This whole discussion may in fact be summed up in the simple statement that if the parties desire to create mutual rights in real property of the character of those claimed here they must say so, and must say it in the only place where it can be given legal effect, namely, in the written instruments exchanged between them which constitute the final expression of their understanding.” (Werner, supra, 181 Cal. at pp. 184-185, italics added.)

In Riley, supra, 17 Cal.3d 500, we relied on Werner, supra, 181 Cal. 174, in finding the later recorded restrictions not enforceable. We stressed the key fact distinguishing that case from this – that the restrictions of Riley were recorded after the conveyance – and stated that “quite apart from the rule of Werner v. Graham, it is manifest that acknowledgment and recordation of a declaration of restrictions by the grantor after the conveyance to plaintiffs cannot affect property in which the grantor no longer has any interest.” (Riley, supra, 17 Cal.3d at p. 507.) We rejected the claim that parol evidence may be admitted to show that the parties in fact intended the property to be subject to restrictions like those later recorded, finding that the covenants must be in writing to be effective. “Every material term of an agreement within the statute of frauds must be reduced to writing. No essential element of a writing so required can be supplied by parol evidence.” (Id. at p. 509.) A contrary rule, we said, ”‘“would make important questions of the title to real estate largely dependent upon the uncertain recollection and testimony of interested witnesses. The rule of the Werner case is supported by every consideration of sound public policy which has led to the enactment and enforcement of statutes of frauds in every English-speaking commonwealth.”’” (Id. at p. 510, quoting McBride v. Freeman (1923) 191 Cal. 152, 160 [215 P. 678].) Therefore, there ”‘“should be some written evidence”’” indicating what property was affected by the restrictions. (17 Cal.3d at p. 510, quoting Wing v. Forest Lawn Cemetery Assn. (1940) 15 Cal.2d 472, 480 [101 P.2d 1099, 130 A.L.R. 120], italics added in Riley.) ”‘“As a matter of policy, the understanding of the parties should be definite and clear, and should not be left to mere conjecture.”’” (Ibid.)

We also emphasized the importance of recording the restrictions. ”’[T]he recording statutes operate to protect the expectations of the grantee and secure to him the full benefit of the exchange for which he bargained. [Citations.] Where, however, mutually enforceable equitable servitudes are sought to be created outside the recording statutes, the vindication of the expectations of the original grantee, and for that matter succeeding grantees, is hostage not only to the good faith of the grantor but, even assuming good faith, to the vagaries of proof by extrinsic evidence of actual notice on the part of grantees…. The uncertainty thus introduced into subdivision development would in many cases circumvent any plan for the orderly and harmonious development of such properties and result in a crazy-quilt pattern of uses frustrating the bargained-for expectations of lot owners in the tract.’” (Riley, supra, 17 Cal.3d at pp. 511-512.)

In dicta, we also stated that Murry v. Lovell (1955) 132 Cal. App.2d 30 [281 P.2d 316], “a leading authority in the Werner line, makes clear that even if the restrictions here in question had been recorded prior to the issuance of plaintiffs’ deed, no equitable servitude would have been created absent the inclusion of such restrictions, by recitation or incorporation, in the deed. Compare Martin v. Holm (1925) 197 Cal. 733 [242 P. 718], wherein the deed to defendants contained no restrictions but they took with record notice of a prior deed establishing reciprocal servitudes binding upon their grantor.” (Riley, supra, 17 Cal.3d at p. 507, fn. 4; see also id. at p. 512.)

In both Werner, supra, 181 Cal. 174, and Riley, supra, 17 Cal.3d 500, there was no prior recorded document providing a common plan and stating that the restrictions were to apply to every parcel. The only documents in existence from which the mutual intent and agreement of the parties could be discerned were the deeds themselves, which were silent. No decision by this court invalidating restrictions involves a written plan, like that here, that was applicable to an entire tract and was recorded before conveyancing. However, some intermediate appellate decisions have concluded that for recorded uniform restrictions to take effect, they must at least be referenced in a deed or other instrument at the time of an actual conveyance. (Stell v. Jay Hales Development Co. (1992) 11 Cal. App.4th 1214, 1229-1230 [15 Cal. Rptr.2d 220]; Scaringe v. J.C.C. Enterprises, Inc., supra, 205 Cal. App.3d at pp. 1545-1547; Trahms v. Starrett (1973) 34 Cal. App.3d 766, 770-772 [110 Cal. Rptr. 239]; Anderson v. Pacific Avenue Inv. Co. (1962) 201 Cal. App.2d 260, 262-264 [19 Cal. Rptr. 829]; Murry v. Lovell, supra, 132 Cal. App.2d 30.)

… .

 

 

 

2. The Current Uncertainties

 

 

 

The Andersons argue that the CC&R’s never took effect because they were not mentioned in the deeds to their properties. Under this interpretation, if the developer of a subdivision records a uniform plan of restrictions intended to bind and benefit every parcel alike, implementation of the plan depends upon the vagaries of the actual deeds, and whether they contain at least a ritualistic reference to restrictions of record. When, as may often be the case, some deeds refer to the restrictions, and others do not, the enforceability of the restrictions can hinge upon the sequence of the conveyances, and can vary depending upon what property owner seeks to enforce them and against which property.

For example, if the deed to the first conveyance refers to the restrictions, they might be effective at least as between that property and later properties, even if the later deeds do not refer to them. “From the recordation of the first deed which effectively imposes restrictions on the land conveyed and that retained by the common grantor, the restrictions are binding upon all subsequent grantees of parcels so affected who take with notice thereof notwithstanding that similar clauses have been omitted from their deeds.” (Riley, supra, 17 Cal.3d at p. 507; see also Greater Middleton Assn. v. Holmes Lumber Co. (1990) 222 Cal. App.3d 980, 990-991 [271 Cal. Rptr. 917].) Moreover, under this view, even if a deed fully and expressly incorporates the CC&R’s, they would not be enforceable as to an earlier sale that did not contain such a reference. “But a grantee possessed of a dominant interest could not enforce the restrictions as to lots that were deeded without restriction … prior to the execution of the grantee’s deed.” (Trahms v. Starrett, supra, 34 Cal. App.3d at p. 771.) Thus, the rights and duties of a later purchaser as against earlier ones would not depend on any document executed at the time of the later sale, but solely on the language of earlier sales of separate parcels.

The results can be byzantine. One commentator has reviewed some of the possibilities: “If the subdivider fails to insert the agreement in the first deed but remembers to insert it in the fifth deed, for example, the equitable servitude springs into existence from deed five onwards. The restrictions do not apply to the first four lots because the subdivider no longer has any interest in those lots and cannot place a restriction on them in favor of the rest of the tract. If the subdivider inserts the agreement in deeds five and six and then fails again to put them in seven and eight, the courts have held that lot owners five and six can enforce the restrictions against seven and eight, but seven and eight cannot enforce them against each other. When the subdivider put the agreement in the deeds to lots five and six, he agreed to burden the rest of the unsold subdivision. When he sold lots seven and eight, the burden of his agreement passed as an incident to lots seven and eight in favor of lots five and six. There was no agreement between lot owner seven and the subdivider that the subdivider burden the rest of his tract in favor of lot seven. Thus when the subdivider conveyed lot eight, there was no burden to pass incident to the land in favor of lot seven. Lot seven can enforce the restrictions against lots five and six, however, because just as the burden of the agreement between the subdivider and five and six passed as an incident to lot seven, so should the benefit of that agreement pass. The subdivider had the benefit of enforcing the restrictions against five and six, and that benefit passes to seven.

“If the subdivider resumes placing the agreements in the deeds to lots nine and ten, lot owners seven and eight cannot enforce the restrictions against nine and ten, and similarly nine and ten cannot enforce them against seven and eight. When the subdivider conveyed nine and ten, he no longer had any interest in seven and eight. He could neither impose a restriction on them in favor of anyone else nor confer a benefit on them.” (Note, Covenants and Equitable Servitudes in California, supra, 29 Hastings L.J. at pp. 569-570, fns. omitted.)⁴

As the author plaintively asks, this analysis “may be logical, but is it equitable?” (Note, Covenants and Equitable Servitudes in California, supra, 29 Hastings L.J. at p. 570.) And, to ask an even more pertinent question, is it what anyone intended? Would anyone really intend a subdivision where the order in which property is sold determines what restrictions are enforceable, where some landowners are not bound by restrictions of record and cannot enforce them against anyone, where some owners can enforce them against some property but not others and not against each other, and where some landowners are bound by the restrictions as against some owners but not against others who would be powerless to enforce them?

This situation dramatically complicates title searches. Instead of simply searching for restrictions of record in order to know exactly what is being purchased, a prospective buyer must search the chain of title of all previously sold property in the tract. If the deed to the property in question refers to the restrictions, the search would have to determine which of the earlier deeds, if any, contain a similar reference, for the restrictions would be enforceable only against those and later parcels, and not against earlier parcels whose deeds did not refer to the restrictions. If the deed does not refer to the restrictions, the buyer would nevertheless have to conduct the same search, for any earlier sold property that does refer to them would have a mutual servitude against the later property whether or not the later deed mentioned it.

Moreover, it is not certain exactly what the law is on this subject. “‘When a declaration of restrictions is recorded which describes multiple lots in a subdivision, it is not clear whether the restrictions are enforceable against each lot in the subdivision merely by reference to the restrictions in the first deed to the first lot (the “first deed only” theory), or whether it is necessary that the restrictions be referred to in the first deed to each of the lots (the “all first deeds” theory).’” (Soman Properties, Inc. v. Rikuo Corp., supra, 24 Cal. App.4th at p. 485, quoting 7 Miller & Starr, Current Law of Cal. Real Estate (2d ed. 1990) Covenants and Restrictions, § 22.8, pp. 549-550.) It would appear that the “first deed only” theory is currently ascendant, but the “all first deeds” theory finds support in the cases. (E.g., Wing v. Forest Lawn Cemetery Assn., supra, 15 Cal.2d at pp. 482-483; Terry v. James (1977) 72 Cal. App.3d 438, 444 [140 Cal. Rptr. 201].)

In short, the current state of the law creates the very “crazy-quilt pattern of uses” that we warned against in Riley, supra, 17 Cal.3d at page 512. Moreover, the quilt might have a shifting pattern depending upon whether the court follows the “first deed only” theory or the “all first deeds” theory.⁵

 

 

 

3. The Solution

 

 

 

These uncertainties can be eliminated by adopting the rule stated at the outset. In essence, if the restrictions are recorded before the sale, the later purchaser is deemed to agree to them. The purchase of property knowing of the restrictions evinces the buyer’s intent to accept their burdens and benefits. Thus, the mutual servitudes are created at the time of the conveyance even if there is no additional reference to them in the deed. This rule has many advantages.

The first advantage is simplicity itself. One document, recorded for all purchasers to review, would establish the rules for all parcels, not many documents that may or may not be mutually consistent. There would be no bewildering mosaic of enforceability and nonenforceability. “The rules of law about covenants running with the land are so complex that only a very few specialists understand them. Sometimes complexity in the law is necessary. In this particular case, it is not. If the cases in this area were solved by reference to the underlying policies instead of by reference to outworn precedent, the rules would be reasonably simple to state and the results more consonant with a sound system of private land use control.” (Berger, A Policy Analysis of Promises Respecting the Use of Land (1971) 55 Minn. L.Rev. 167, 234; see also Reichman, Toward a Unified Concept of Servitudes, supra, 55 So.Cal.L.Rev. at pp. 1259-1260.)

A rule allowing the uniform implementation of a general plan from the outset of the development would be good policy, which no doubt helps explain the modern trend in the cases of accepting as sufficient the slightest reference in the deeds to restrictions of record. Although servitudes go far back into history, “Private land use arrangements are increasingly common and useful in the modern world.” (French, Toward a Modern Law of Servitudes: Reweaving the Ancient Strands, supra, 55 So.Cal.L.Rev. at p. 1318.) “In modern times, covenants are most often used in situations where they effectively regulate land uses, such as subdivisions, in the same manner as zoning laws. In these circumstances, running covenants generally enhance alienability, and therefore many authorities feel that they should be encouraged.” (5 Powell on Real Property, supra, Covenants as to Use, § 673[1], p. 60-46, fn. omitted; see also Newman & Losey, Covenants Running with the Land, and Equitable Servitudes; Two Concepts, or One?, supra, 21 Hastings L.J. at p. 1323.) “No longer is there any reason to believe that the average American buying into a residential development would ‘protest vigorously against being compelled to perform promises he has never made.’ [Fn., citing ‘Restatement of Property, Intro. Note at 3156 (1944).’] Since financial viability of the community depends on continued covenant compliance by all, the average buyer is more likely to protest if others in the development are permitted to escape performance of the covenants made by their predecessors.” (French, Design Proposal for the New Restatement of the Law of Property – Servitudes, supra, 21 U.C. Davis L.Rev. at p. 1217.)

Having a single set of recorded restrictions that apply to the entire subdivision would also no doubt fulfill the intent, expectations, and wishes of the parties and community as a whole. “One of the prime policy components of the law of equitable servitudes and real covenants is that of meeting the reasonable expectations of the parties and of the community.” (French, Toward a Modern Law of Servitudes: Reweaving the Ancient Strands, supra, 55 So.Cal.L.Rev. at p. 1282, fn. 113.) A buyer need only know of the single document, not study the current labyrinthine system and try to predict how a later court would apply it to the contemplated purchase. The rule would also better enable the community to protect its interests. Here, for example, Woodside’s approval of the Friars subdivision was conditioned on the town attorney’s review of the CC&R’s. Thus the community was able to exercise oversight as to the original recorded declaration. But it is unrealistic to expect such oversight of all subsequent individual deeds. The community should be able to expect that restrictions it requires as a condition of approving the subdivision will take effect, and not run the risk that they will fall victim to careless deed drafting.

By requiring recordation before execution of the contract of sale, the rule would also be fair. All buyers could easily know exactly what they were purchasing. (See Riley, supra, 17 Cal.3d at p. 512.) Title searches would be easier, requiring only a search of restrictions of record, not of all deeds to all properties in the subdivision. “The danger that subsequent purchasers might not be aware of restrictions in prior deeds, where the developer neglects to incorporate similar restrictions in later deeds, and where the obligation of the title searcher extends only to instruments in the direct chain of title, can be easily avoided by insistence that the developer follow a simple procedure. Where a tract index is in effect, a plan of the proposed development should be recorded against the entire tract, which would give notice to all purchasers by placing the restriction in the direct chain of title to each lot in the tract.” (Newman & Losey, Covenants Running with the Land, and Equitable Servitudes; Two Concepts, or One?, supra, 21 Hastings L.J. at p. 1341, fn. omitted.) “The burden should be upon the developer to insert the covenant into the record in a way that it can be easily found. Recording a declaration of covenants covering the entire area or filing a map which referred to the covenants would be sufficient.” (Berger, A Policy Analysis of Promises Respecting the Use of Land, supra, 55 Minn. L.Rev. at p. 202.) When a developer does follow this simple procedure, it should suffice; future buyers should be deemed to agree to the restrictions.

The rule is consistent with the rationale of the prior cases, and would undermine no legal or policy concerns expressed in those cases. The theoretical underpinning of the rule requiring the restrictions to be stated in the deeds is that a developer cannot unilaterally make an agreement. It takes two parties – in this case the seller and the buyer – to agree. Merely recording the restrictions does not create mutual servitudes. Rather, they “spring into existence” only upon an actual conveyance. (Werner, supra, 181 Cal. at p. 183; see also Rest.3d Property, Servitudes (Tent. Draft No. 1, Apr. 5, 1989) § 2.1, com. c., p. 7 [“Recording a declaration or plat setting out servitudes does not, by itself, create servitudes. So long as all the property covered by the declaration is in a single ownership, no servitude can arise. Only when the developer conveys a parcel subject to the declaration do the servitudes become effective.”].) We agree with all this. The servitudes are not effective, that is, they do not “spring into existence,” until an actual conveyance subject to them is made. The developer could modify or rescind any recorded restrictions before the first sale.

Some of the prior cases, however, simply assumed that the deeds must expressly refer to the restrictions to evidence the purchaser’s intent and agreement. On the contrary, it is reasonable to conclude that property conveyed after the restrictions are recorded is subject to those restrictions even without further mention in the deed. “The issue in these cases is the intent of the grantors and grantees at the time of the conveyance.” (Fig Garden Park etc. Assn. v. Assemi Corp., supra, 233 Cal. App.3d at p. 1709.) This intent can be inferred from the recorded uniform plan. It is express on the part of the seller, implied on the part of the purchaser. The law may readily conclude that a purchaser who has constructive notice, and therefore knowledge, of the restrictions, takes the property with the understanding that it, as well as all other lots in the tract, is subject to the restrictions, and intends and agrees to accept their burdens and benefits, even if there is no additional documentation evidencing the intent at the time of the conveyance. “If future takers purchase a piece of property with notice of a restriction made by a predecessor, then, in the absence of duress or fraud, they may ordinarily be thought to have bargained for the property with the restriction in mind, and to have shown themselves willing to abide by it.” (Rose, Servitudes, Security, and Assent: Some Comments on Professors French and Reichman (1982) 55 So.Cal.L.Rev. 1403, 1405.)

… .

The rule is consistent with the rationale that a covenant requires an agreement between buyer and seller, and not a unilateral action by the developer. We merely reject the unexamined assumption that the intent of the purchaser, and therefore the agreement itself, must be expressed in the deed rather than be implied from the purchase with knowledge of the recorded restrictions. Moreover, as discussed above, the current law is unclear, and at best gives rise to a confusing pattern of enforceability and nonenforceability that no one could have intended. Replacing chaos with certainty need not be reserved for the future only. In Willard v. First Church of Christ, Scientist (1972) 7 Cal.3d 473 [102 Cal. Rptr. 739, 498 P.2d 987], we overruled an old common law of property rule that had outlived its usefulness. “Willard contends that the old rule should nevertheless be applied in this case … because grantees and title insurers have relied upon it. He has not, however, presented any evidence to support this contention, and it is clear that the facts of this case do not demonstrate reliance on the old rule.” (Id. at pp. 478-479, fn. omitted.)

The same is true here. Given current uncertainty in the cases, it would be unreasonable to conclude that the Andersons, or others, have bought property believing that restrictions of record were enforceable as to prior purchasers of property in the same subdivision whose deeds referenced the restrictions, no matter how vaguely, but not otherwise. Rather, the opposite is far more likely, that homeowners buy property in the expectation and intent that recorded mutual restrictions apply uniformly throughout the subdivision.

The rule is not inconsistent with the statutes regarding covenants that run with the land. Neither the current statutes nor the predecessor version of section 1468 directly answers the narrow question here of how a covenant is created. Although the Skywood Acres CC&R’s are not enforceable as covenants under section 1462 and former section 1468, this is not because they were inadequately created but because they burden the property as well as benefit it (§ 1462), and are between a grantor and a grantee (§ 1468).

For these reasons, we see no reason to deviate from the general rule that our decisions operate retrospectively.⁶

 

 

 

4. Resolution of this Case

 

 

 

The CC&R’s of this case were recorded before any of the parcels were sold, thus providing constructive notice to subsequent purchasers; they state an intent to establish a general plan for the subdivisions binding on all purchasers and their successors; and they describe the property they are to govern. Therefore, applying the rule to this case, the fact that the individual deeds do not reference them is not fatal to their enforceability. The superior court erred in finding otherwise, and in granting summary judgment for the Andersons… . .

Keith Adam Button, Conneaut Lake, for William E. Connor, Philadelphia, et al.

Debra Higgins Posego, Harry Faber White, Meadville, for Vernon Township Volunteer Fire Department, Inc.

Before Cappy, C.J., Castille, Nigro, Newman, Saylor, Eakin, Bear, JJ.

 

Justice Newman

 

In a document dated May 15, 1946 entitled “Restrictions” (Agreement), all of the property owners of the Culbertson Subdivision signed a restrictive covenant¹ prohibiting the sale of alcoholic beverages on their land.² The Agreement provides in relevant part that:

 

[I]n consideration of the premises and intending to be legally bound hereby, we, the undersigned owners of the legal and/or equitable title of certain lots, pieces or parcels of land situate, lying and being in Vernon Township, Crawford County, Pennsylvania … do hereby mutually covenant and agree with each other that from and after the date hereof, no vinous, spirituous, malt or brewed liquors, or any admixture thereof, shall be sold, or kept for sale, on any of said lots, pieces or parcels of land, or on any part thereof, or in any building, or any part thereof, now or hereafter erected thereon.

 

 

This agreement shall be binding upon our respective heirs, executors, administrators, successors, assigns, lessees, tenants and the occupiers of any of said lots, pieces or parcels of land, and is hereby specifically declared to be a covenant running with the lots, pieces or parcels of land held by the respective signers thereof, or in which we, or any of us, have an interest.

 

(Reproduced Record (R.R.) at 365a) (emphasis added). The intent of the original signatories, as set forth in the Agreement, is “to protect each for himself and for the common advantage of all, our health, peace, safety and welfare and that of our successors in title….” Id. The Agreement was duly recorded in Crawford County Agreement Book 26, page 9, on June 10, 1946.

On July 3, 1997, the Fire Department purchased a 3.25-acre parcel of land within the Culbertson Subdivision for the purpose of building a new truck room and social hall that would sell alcohol to its patrons.³ This newly acquired parcel is located approximately 2,000 feet from the Fire Department’s existing truck room and social hall in Vernon Township. At the time of purchase, the Fire Department did not have actual notice of the restrictive covenant banning the sale of alcoholic beverages on the land. However, the Fire Department did have constructive notice of the restrictive covenant from a title search that its attorney conducted.⁴ Nevertheless, the alcohol restriction was not brought to the attention of the Fire Department until November of 1999, well after it had already commenced building the new social hall.⁵

At the time that the Agreement was executed, the Culbertson Subdivision was bounded on the north by the Viscose Corporation, which operated a large manufacturing plant. The Viscose Corporation operated twenty-four hours a day and employed more than 2,500 people. Currently, the former site of the Viscose Corporation is now the Crawford County Industrial Park, which houses a variety of small commercial businesses and offices.⁶ The remainder of the restricted tract is bounded by wooded land to the northwest, the Cussewago Creek to the south and west, and the City of Meadville to the east.

Presently, there are no establishments within the Culbertson Subdivision that possess liquor licenses. The closest alcohol-serving establishment is the Fire Department’s current social hall, which is located in Vernon Township, approximately one-half mile from the restricted lots. In addition, there are two bars located within two miles of the restricted tract. One bar is situated approximately one and one-half miles away in Vernon Township, and the other is approximately two miles away in the City of Meadville.

Upon learning of the restrictive covenant, the Fire Department stopped construction of the new social hall and sought to have all of the property owners within the restricted tract sign a Limited Release of Restrictions.⁷ The owners of sixty-eight of the seventy-seven parcels within the Culbertson Subdivision signed the Limited Release of Restrictions and agreed to waive enforcement of the restrictive covenant as to the 3.25-acre parcel purchased by the Fire Department. The owners of three parcels neither signed the release nor sought to enforce the restrictive covenant.⁸ The remaining six parcel owners, now Appellants in this matter, refused to sign the Limited Release of Restrictions. As a result, the Fire Department brought the instant action at law seeking to quiet title to its parcel. In particular, the Fire Department sought to have the restrictive covenant prohibiting the sale of alcoholic beverages invalidated because changed conditions in the immediate neighborhood effectively rendered the restriction obsolete.

On August 29, 2001, following a bench trial, which included a tour of the Culbertson Subdivision and surrounding neighborhood, the trial court granted Judgment in favor of Appellants. The trial court determined that the restrictive covenant prohibiting the sale of alcoholic beverages was valid and enforceable. [On appeal], the Superior Court concluded that the restrictive covenant, dating back to 1946, was a nullity and, accordingly, reversed the Judgment entered by the trial court in favor of Appellants… . .

… .

In reviewing the ruling of the trial court in an action to quiet title, an appellate court’s review is limited to determining whether the findings of fact are supported by competent evidence, whether an error of law has been committed, and whether there has been a manifest abuse of discretion. Similarly, in a declaratory judgment action, an appellate court is limited to determining whether the trial court committed a clear abuse of discretion or an error of law. An appellate court may not substitute its judgment for that of the trial court if the determination of the trial court is supported by competent evidence. Id.

As a general matter, restrictive covenants on the use of land interfere with an owner’s free use and enjoyment of real property and, therefore, are not favored by the law.⁹Mishkin v. Temple Beth El of Lancaster, 429 Pa. 73, 239 A.2d 800, 803 (1968). Because land use restrictions are not favored in the law, they are to be strictly construed, and “nothing will be deemed a violation of such a restriction that is not in plain disregard of its express words….” Jones, 120 A.2d at 537. Although the law may disfavor restrictions on an owner’s free use and enjoyment of real property, restrictive covenants are legally enforceable. See Schulman v. Serrill, 432 Pa. 206, 246 A.2d 643, 647 (1968); Todd v. Sablosky, 339 Pa. 504, 15 A.2d 677, 679 (1940).

A landowner may limit his or her private use and enjoyment of real property by contract or agreement. Lustig v. Facciolo, 410 Pa. 107, 188 A.2d 741, 743 (1963). It is a fundamental rule of contract interpretation that the intention of the parties at the time of contract governs and that such intent must be ascertained from the entire instrument. Heidt v. Aughenbaugh Coal Co., 406 Pa. 188, 176 A.2d 400, 401 (1962). This same principle of contract law is equally applicable to the interpretation of restrictive covenants. McCandless v. Burn, 377 Pa. 18, 104 A.2d 123, 126 (1954).

In order to ascertain the intentions of the parties, restrictive covenants must be construed in light of: (1) their language; (2) the nature of their subject matter; (3) the apparent object or purpose of the parties; and (4) the circumstances or conditions surrounding their execution. Snyder v. Plankenhorn, 398 Pa. 540, 159 A.2d 209, 210 (1960); Baederwood, Inc. v. Moyer, 370 Pa. 35, 87 A.2d 246, 248 (1952). Typically, we will enforce a restriction if a party’s actions are in clear defiance of the provisions imposed by the covenant. Ratkovich v. Randell Homes, Inc., 403 Pa. 63, 169 A.2d 65, 68 (1961); Siciliano v. Misler, 399 Pa. 406, 160 A.2d 422, 424 (1960). Moreover, we will enforce a restrictive covenant where it is established that the restriction is still of substantial value to the owners of the restricted tract. Schulman, 246 A.2d at 647.

As an initial matter, we note that a property owner has the duty to become aware of recorded restrictions in the chain of title and will be bound to such restrictions even absent actual notice. See Finley v. Glenn, 303 Pa. 131, 154 A. 299, 301 (1931) (noting “grantee is chargeable with notice of everything affecting his title which could be discovered by an examination of the records or other [documentary evidence] of title of his grantor”). Instantly, it is undisputed that at the time of purchase, the Fire Department had notice of the restrictive covenant. The covenant was duly recorded in Crawford County Agreement Book 26, page 9, on June 10, 1946, and easily accessible via title search. The Fire Department clearly had constructive notice of the restrictive covenant; therefore, it cannot now avoid the consequences of such restriction because of its own lack of due diligence. This being the case, the restriction is enforceable unless the Fire Department can establish that the restrictive covenant has been discharged.

In order to discharge the covenant, the burden of proof is on the Fire Department to show that the original purpose of the restriction has been materially altered or destroyed by changed conditions, and that a substantial benefit no longer extends to Appellants by enforcement of the restriction. Daniels v. Notor, 389 Pa. 510, 133 A.2d 520, 523 (1957); Henry v. Eves, 306 Pa. 250, 159 A. 857, 859 (1932). As a general rule, a restrictive covenant may be discharged if there has been acquiescence in its breach by others, or an abandonment of the restriction. Kajowski v. Null, 405 Pa. 589, 177 A.2d 101, 106 (1962). In addition, changes in the character of a neighborhood may result in the discharge of a restrictive covenant. Deitch v. Bier, 460 Pa. 394, 333 A.2d 784, 785 (1975). Where changed or altered conditions in a neighborhood render the strict adherence to the terms of a restrictive covenant useless to the dominant lots, we will refrain from enforcing such restrictions. Daniels, 133 A.2d at 523; Henry, 159 A. at 859. This is based on the general rule that “land shall not be burdened with permanent or long-continued restrictions which have ceased to be of any advantage….” Daniels, 133 A.2d at 524-25; Katzman v. Anderson, 359 Pa. 280, 59 A.2d 85, 87 (1948). In considering changed conditions in a neighborhood, the word “neighborhood” is a relative term, and only the immediate, and not the remote, neighborhood should be measured. Daniels, 133 A.2d at 523.

When deciding whether the character of the immediate neighborhood has changed to warrant non-enforcement of a restriction, a court must consider adjoining tracts, as well as the restricted tract. See Deitch, 333 A.2d at 785. In Deitch, this Court determined that the trial court erred by failing to consider and assess changes on a tract of land adjacent to the restricted tract. Id. The Court remanded the matter so that the trial court could consider the changes to an adjoining tract of land and evaluate their effect on the enforceability of the restrictive covenant. Id. In reaching this decision, we recognized that while changes in the immediate neighborhood do not automatically invalidate a restrictive covenant, such changes are material and relevant in determining whether a restrictive covenant should be enforced. Id.

In the matter sub judice, the Superior Court held “that the trial court erred when it only considered the restricted tract as [Appellants’] immediate neighborhood.” Superior Court Memorandum Opinion, December 23, 2002, at 8. However, in reaching its decision, the trial court specifically evaluated the significance of other liquor-serving establishments located outside of the restricted tract. Unlike Deitch, the trial court considered and assessed changes on the land adjacent to the Culbertson Subdivision, and, therefore, did not limit its analysis to the restricted lots. Specifically, the trial court noted:

 

Plaintiff presented evidence that two bars were now located within the neighborhood. One is to the East on Lincoln Avenue, at least a mile away, in the city of Meadville, and the other is the current Fire Department social hall, about a half a mile away, across the Creek and up a wooded hill. Neither is in the immediate neighborhood of the restricted lots. Accordingly, there is no change in the neighborhood making the restriction obsolete.

 

Trial Court Opinion, August 29, 2001, at 6. In holding otherwise, the Superior Court effectively substituted its own judgment for that of the trial court.¹⁰

As such, the relevant inquiry concerning changes to the immediate neighborhood is whether such changes alter or eliminate the benefit that the restriction was intended to achieve. In determining whether changed circumstances rendered enforcement of the present alcohol restriction useless, we find guidance in Benner v. Tacony Athletic Association, 328 Pa. 577, 196 A. 390 (1938). In Benner, property owners sought to enjoin several liquor-serving establishments from selling alcohol in violation of a restrictive covenant contained in their deeds. Id. at 391. Initially, the Court noted that where all of the deeds in the tract contained a restrictive covenant barring the sale of liquor, such a restriction was enforceable. Id. at 392. The alcohol-serving establishments, however, challenged the restrictive covenant, arguing that neighborhood conditions had changed to the extent that the restriction should not be enforced. Id. Nonetheless, the Court explained that “while it is true that some of the tract has become commercial or industrial in character, the larger part remains almost exclusively residential.” Id. The Court noted that “the fact that commercial establishments have crept in here and there does not impair the utility of the restriction against the sale of beer or liquor; that restriction, to the residents of the neighborhood, has a desirability and an object unaffected by the encroachments of business.”¹¹Id. In upholding the enforceability of the restrictive covenant, the Court stated that “[i]t is only when violations are permitted to such an extent as to indicate that the entire restrictive plan has been abandoned that objection to further violations is barred.” Id. at 393.

Contrary to the argument of the Fire Department and the holding of the Superior Court, the existence of three other liquor-serving establishments located outside of the Culbertson Subdivision does not warrant a finding of changed circumstances to invalidate the restrictive covenant.¹² Similar to Benner, the changes in the immediate neighborhood did not affect the benefit conferred upon Appellants by the alcohol restriction. These changes, which involved the introduction of establishments serving alcohol in the immediate neighborhood, but outside of the restricted tract, did not impair the utility of the covenant to the residents of the Culbertson Subdivision. Moreover, changes in the commercial nature of the immediate neighborhood, namely, the closing of the nearby Viscose Corporation, did nothing to impair the significance of the alcohol restriction. As Benner recognized, changed conditions outside of the restricted tract do not necessarily impair the value of an alcohol restriction to the residents of the restricted tract. The stated purpose of the restrictive covenant was to protect the “health, peace, safety and welfare” of the occupants of the land by preventing the sale of alcoholic beverages within the tract.¹³ The original signatories clearly intended to protect themselves and their heirs from the vices of alcohol consumption by restricting the sale of alcohol within the Culbertson Subdivision. As the trial court noted, “[i]f people are not drinking at establishments in the neighborhood, they are not exhibiting objectionable behavior which accompanies overdrinking, like public drunkenness and driving under the influence.” Trial Court Opinion, 8/29/01, at 7. Thus, Appellants will continue to benefit from the restriction as long as alcohol is not sold within the restricted tract.¹⁴

In determining that the restrictive covenant no longer had substantial value to Appellants, the Superior Court found it significant that a majority of the property owners within the restricted tract agreed to release the alcohol restriction. Moreover, the Superior Court noted that Appellants testified that they did not rely upon the restrictive covenant when purchasing their property. However, the restriction clearly benefits Appellants by hindering the nuisances that inherently result from the sale and consumption of alcoholic beverages. Furthermore, the factual record reflects that alcoholic beverages have never been sold within the restricted tract since the covenant was signed in 1946. As in Benner, the trial court had competent evidence before it to conclude that the entire restrictive plan had not been abandoned and that the alcohol restriction still had significant value to Appellants. Accordingly, the Superior Court erred by substituting its factual determinations for those of the trial court.

Because the alleged changed conditions in the immediate neighborhood did not affect the benefits conferred by the restrictive covenant, the Superior Court erred by refusing to enforce the alcohol restriction. The presence of several other liquor-serving establishments in the immediate neighborhood, but outside the restricted tract, did not render the restrictive covenant a nullity. The trial court properly concluded that Appellants would “realize substantial benefit from the enforcement of this restriction” and that the “restriction has not been rendered obsolete by changes in the neighborhood.” Trial Court Opinion, August 29, 2001, at 8. The findings of the trial court were supported by competent evidence of record, and, accordingly, the Superior Court erred in determining otherwise.

… .

In accordance with the foregoing discussion, we reverse the Order of the Superior Court reversing the Judgment entered by the trial court. On direct appeal, the Superior Court found it unnecessary to consider the Fire Department’s third issue concerning the applicability of the principles of estoppel, laches, and waiver to this matter. The Fire Department properly raised and preserved this issue on direct appeal. However, the Superior Court declined to address this issue because it reversed based upon the Fire Department’s first two claims of error. Having concluded that the Superior Court erred in its disposition of the Fire Department’s first two issues, we remand the matter to the Superior Court with instructions for it to consider the Fire Department’s single, unaddressed issue concerning the applicability of the equitable principles of estoppel, laches, and waiver to the instant matter.

Justice Castille, Dissenting.

I agree with the Superior Court that the character of the neighborhood surrounding appellees’ tracts has been altered to the extent that the restrictive covenant has been rendered a nullity and would, therefore, affirm its judgment. Accordingly, I respectfully dissent.

As the Majority notes, it has long been the law in Pennsylvania that a restrictive covenant can be discharged where the original purpose of the covenant is materially altered or destroyed by changed conditions and there is no longer a substantial benefit to be derived from the restriction. Daniels v. Notor, 389 Pa. 510, 133 A.2d 520 (1957); Henry v. Eves, 306 Pa. 250, 159 A. 857 (1932). When determining whether conditions have changed to such an extent as to invalidate the restriction, courts must look to the immediate neighborhood, which includes adjoining tracts of land. Id. See also Deitch v. Bier, 460 Pa. 394, 333 A.2d 784 (1975).

The Majority, like the trial court, focuses on the fact that there are presently no establishments with liquor licenses within the specific confines of the Culbertson Subdivision and dismisses the presence in the immediately adjoining neighborhood of two bars and the Fire Department’s existing social hall, which is located a mere 2,000 feet from the parcel on which the Fire Department seeks to build its new truck room and social hall. The Majority concedes that these three alcohol-serving establishments are located within the immediate neighborhood of the Culbertson Subdivision, “but outside of the restricted tract,” then concludes that these three establishments do not impair the utility of the restriction to the owners of the restricted properties. Op. at 882. In one breath, the Majority states that it must consider not only the restricted tract but also the surrounding neighborhood and notes that three other alcohol-serving establishments exist in the immediate neighborhood. Then, in the next breath, the Majority essentially determines that the presence of those other establishments is irrelevant to its inquiry because the only relevant area is the Culbertson Subdivision itself.

The Superior Court, on the other hand, set forth the same legal principles and applied them in a more straightforward fashion. That court found that the trial court record did not support a finding that the Culbertson Subdivision owners experienced none of the effects of alcohol sales, given that the record established the presence of three alcohol-serving establishments located within two miles of the subdivision. Thus, the Superior Court held that the immediate neighborhood had changed with the introduction of the three establishments, and that the trial court erred in restricting consideration of the immediate neighborhood to the restricted tracts. This finding, in my view, establishes the first prong of the test for discharging a restrictive covenant, i.e., that the original purpose is materially altered by changed conditions.

Moving to the second prong, the Superior Court held that the restriction no longer possessed significant value to the subdivision owners based upon the fact that 68 of the 77 owners agreed to execute a release of the covenant, that three additional owners chose not to defend themselves in this action, and that all of the appellees who refused to sign the release testified and admitted that they had not relied upon the covenant when purchasing their properties. I would find that the Superior Court properly concluded that this record evidence establishes that the covenant lacks significant value to the owners of the restricted tracts.

Because restrictive covenants interfere with property owners’ free use and enjoyment of their property, such covenants are not favored by courts. Mishkin v. Temple Beth El of Lancaster, 429 Pa. 73, 239 A.2d 800 (1968). Thus, in an appropriate case, our courts will invalidate restrictive covenants that have outlived their usefulness, which is what I believe the record demonstrates has occurred in this case. I agree with the Superior Court that the existence of three alcohol-serving establishments in close proximity to the Culbertson Subdivision constitutes a material alteration or change of the original purpose of the restrictive covenant. That 71 of the 77 purportedly affected owners find no value to the covenant and the other six did not rely upon the covenant in purchasing their properties is a clear signal that the covenant lacks significant value to the subdivision owners at this time. Anachronisms need not persist for their own sake. Accordingly, I would affirm the Superior Court’s decision discharging the restrictive covenant in this case.

Justice Saylor, Dissenting.

I agree with the majority’s assessment, in footnote [ten] of its opinion, that the Superior Court, having discerned an error in the trial court’s approach to delineating the boundaries of the immediate neighborhood for purposes of determining the obsolescence of the covenant at issue,¹⁵ should have remanded to the common pleas court. In my view, aside from the requirement that adjoining tracts must be considered, evaluation of what constitutes the relevant immediate (as opposed to remote) neighborhood is a uniquely factual determination that is interdependent with the assessment of impact and the continued viability of restrictions in light of changed circumstances.¹⁶ It appearing, at least to me, that the majority and dissenting opinions here can be read as also embodying fact finding from the appellate vantage, I believe that the remand approach is best.

Wm. M. Maloy and J. A. D. Penniman, both of Baltimore (Maloy, Brady & Yost and Heimiller & Penniman, all of Baltimore, on the brief), for plaintiffs.

Walter C. Mylander, of Baltimore (Nathan Patz, of Baltimore, on the brief), for defendants.

Urner, J.

A deed in fee simple for a lot of ground contained, in addition to various building and use restrictions, a provision that the land should not be subsequently sold or rented, prior to a designated date, without the consent of the grantor. The decisive question in this case is whether the restraint thus sought to be imposed upon the alienation of the property is void as being repugnant to the granted estate.

The covenant to be considered is in the habendum clause of a deed dated August 19, 1927, from the Northwest Real Estate Company to Carl M. Einbrod and wife, conveying a building lot in Ashburton, a suburb of Baltimore city, and is in the following form: “7. And for the purpose of maintaining the property hereby conveyed and the surrounding property as a desirable high class residential section for themselves their successors, heirs, executors, administrators and assigns that until January 1, 1932, no owner of the land hereby conveyed shall have the right to sell or rent the same without the written consent of the grantor herein which shall have the right to pass upon the character desirability and other qualifications of the proposed purchaser or occupant of the property until January 1, 1932, and the said grantor further agrees that all deeds or leases hereinafter made by it of the remaining unimproved lots on the plat of Ashburton Section 6 heretofore referred to shall contain the same covenant as to the sale or renting of such property.”

On March 27, 1928, the grantees contracted in writing to sell the lot to Charles Serio and wife, and, upon payment of the purchase price, to convey the property to them, “by a good and merchantable title,”“subject however to the residential restrictions prevailing in Ashburton.”The Northwest Real Estate Company declined to give its consent to the sale and transfer for which the contract provided. The purchaser then brought this suit against the vendors and the company to compel the specific performance of the agreement without the consent of the company, on the theory that the quoted covenant is void, or with the judicially enforced consent of the company, if the covenant should be held to be valid, the averment being made in the bill of complaint that the company’s refusal to consent was arbitrary and unreasonable. The vendors in their answer stated their willingness to perform the contract of sale, but asserted that a compliance with its terms was not contingent upon the consent of the Northwest Real Estate Company, since the contract provided that the property was to be conveyed subject to the existing “residential restrictions.” That position was not tenable, because the right of the vendors to make the sale was involved in the restriction which is the occasion of this suit. In its answer the company admitted and explained its refusal to consent to a sale or transfer of the property to the plaintiffs, and defended the covenant in controversy as a valid and reasonable provision. A demurrer to the bill was embodied in the company’s answer, and it in turn was challenged by a demurrer which the plaintiffs filed. After a hearing on the questions thus raised, the demurrer to the bill was overruled, and the demurrer to the answer was sustained, with leave to file an amended answer within five days. The company did not avail itself of that privilege, but appealed from the order overruling its demurrer to the bill of complaint. No appeal bond being filed, the case was brought to a final hearing, which resulted in a decree declaring the disputed covenant to be void, and directing a specific performance of the contract of sale, upon payment of the purchase money, by a conveyance of the property subject to all of the prescribed restrictions except the one declared to be inoperative. From the decree, a further appeal was entered by the Northwest Real Estate Company. The purchaser also appealed upon the theory that such action might be a proper precaution, in view of the pendency of the company’s appeal from the decision on the demurrer.

The objections, urged on demurrer, that the bill is multifarious, and that there was a misjoinder of parties, are not sustainable. It was an essential purpose of the specific performance suit to remove the obstacle to the plaintiff’s purchase presented by the assertion of a right on the part of the original grantor to prevent subsequent sales and conveyances, by refusal of consent, during the specified period. The fact that relief was sought by the alternative means of the invalidation or the judicial control of the covenanted right did not render the bill multifarious, and the grantor corporation was properly joined as a defendant in a suit by which its interests were thus affected.

The final decree of the circuit court is in accordance with the policy of the law in this state with respect to provisions in restraint of alienation. In Clark v. Clark, 99 Md. 356, 58 A. 24, where this court had under construction a will which, after a devise of an absolute estate to the seven children of the testator, provided that the property should not be sold within ten years for partition purposes without their unanimous consent, it was said in the opinion: “This provision of the will if effective would practically amount to a restraint for ten years of all alienation by any child of its share of the estate. We have no difficulty in arriving at the conclusion that this attempted imposition of restrictions upon the method of alienation and enjoyment of the absolute estate given to the testatrix’ children was contrary to the policy of the law and therefore inoperative and void. The authorities agree that conditions or limitations in restraint of alienation or essential enjoyment of an estate in fee cannot be validly annexed to the deed or devise by which the estate is created, because they are repugnant to the inherent nature and qualities of the estate granted and tend to public inconvenience. 4 Kent’s Com., 143-4; Vin. Ab., p. 103; Gray’s Restraints upon Alienation, par. 47 to 54; Stansbury v. Hubner, 73 Md. 231 [20 A. 904, 11 L. R. A. 204, 25 Am. St. Rep. 584]; Warner v. Rice, 66 Md. 440, [8 A. 84]; Downes v. Long, 79 Md. 390 [29 A. 827]; Blackshere v. Samuel Ready School, 94 Md. 777 [51 A. 1056]; Mandelbaum v. McDonnell, 29 Mich. 78 [18 Am. Rep. 61]; Potter v. Couch, 141 U. S. 296 [11 S. Ct. 1005, 35 L. Ed. 721].” The principle of that decision has been applied in later Maryland cases (Brown v. Hobbs, 132 Md. 559, 104 A. 283; Gischell v. Ballman, 131 Md. 260, 101 A. 698), and it is controlling in the present litigation.

The restriction imposed by the deed of the Northwest Real Estate Company upon sales by its grantees and their successors was clearly repugnant to the fee-simple title which the deed conveyed. Its object was to deprive the grantees, until 1932, of the unrestrained power of alienation incident to the absolute ownership which the granting clause created. In Clark v. Clark, supra, the attempted restraint was for a period of ten years, and consisted of a requirement for consent by six other devisees, while here it is for a shorter period, and the consent of a single but corporate grantor is the condition of a transfer. But in each instance the intended interference with the normal alienability of the feesimple estate devised or granted is equally apparent. As stated in Tiffany on the Law of Real Property (2d Ed.) p. 2311: “The fact that a restriction upon the right to alienate a vested estate in fee simple is to endure for a limited time only does not, by the weight of authority, render the restriction valid.”In addition to the cases cited by the author in support of that statement are a number collected in a note to Latimer v. Waddell, 119 N. C. 370, 26 S. E. 122, as reported in 3 L. R. A. (N. S.) 668.

In Murray v. Green, 64 Cal. 367, 28 P. 120, it was said: “It is difficult to conceive of a condition more clearly repugnant to the interest created by a grant of an estate in fee simple than the condition that the grantee shall not alien the same without the consent of the grantor. With such a condition, if valid, annexed to the grant, it ‘would be neither a fee simple nor any other estate known to the law.’ ”

In practical effect the reservation in the deed before us would give the grantor company unqualified control for a term of years over the disposition of the property by sale or lease. The recital that the purpose of the restriction is to maintain “a desirable high class residential section,” and to enable the grantor “to pass upon the character desirability and other qualifications of the proposed purchaser or occupant,” was evidently designed to explain rather than to limit the reservation of the power to forbid a transfer of the property by the grantees to any purchaser or lessee who failed to conform, in the opinion of the grantor’s officers, to those indefinite standards. The existence of such a discretionary control would be plainly incompatible with the freedom of alienation, which is one of the characteristic incidents of a fee-simple title.

In Jones v. Northwest Real Estate Co., 149 Md. 271, 131 A. 446, the court considered a restriction, which is included also in the deed, from the same grantor, involved in this case, that no building should be erected on the property without the grantor’s approval in writing, which could rightfully be refused if the proposed structure did not reasonably conform to the general plan of development in the area of which the granted lot formed a part, and it was held that such restrictions did not “interfere with the fee of the land to such an extent as to render them void.”

It has been argued that the real object of the clause now under consideration is simply to regulate the use and occupancy of the property described in the deed. But the provision does not thus qualify its effect. It is a prohibition of any sale of the property prior to 1932, without the grantor’s consent, and such a restraint on its alienation cannot be reconciled with the right of disposition inherent in the fee-simple estate which has been granted.

Certain motions to dismiss the various appeals will be overruled, as they suggest no sufficient reason why the substantial question in the case should not be determined by this court upon the record now presented.

Order and decree affirmed, with costs to the appellees in the first and third appeals.

Bond, C. J. (dissenting).

The restraint upon alienation included in the deed to Eidenbrood and wife seems clearly enough to be one intended merely to give the developer of a suburban area of land power to control the character of the development for a time long enough to secure a return of his capital outlay, and to give early purchasers of lots and buildings some security in their own outlay. In those objects there is nothing against the public interest. We can hardly hold that the modern method of developing city or suburban areas as single large enterprises is detrimental to the public. On the contrary, it seems to be often the only method by which such areas can be conveniently and economically opened, so that houses may be provided upon convenient terms, with all the neighborhood necessities of streets, sewers, and the like ready at the outset. The venture of capital for this purpose appears to be distinctly a public benefit rather than a detriment, one which it is to the public advantage to encourage and promote rather than to hinder. But we know that there are real, substantial dangers to be feared in such ventures, and that, under the modern conditions of rapid city growth and rapid shifts of city populations, one of the most important risks is probably that which comes from the chance of invasion into the new neighborhood of an element of the population which the people to whom the developer must look for the return of his outlay will regard as out of harmony with them. However fanciful may be the aversions which give rise to it, and however deplorable they may be, to the developer they and their consequences must be as real as destructive physical forces. And, if it is to the public interest that this method of development be encouraged rather than hindered, then practically there must be a public gain in removal or diminution of this deterring danger. And the temporary restraint on alienation which the parties here involved have adopted to that end must, I think, be viewed as in point of fact reasonable, and from the standpoint of the public interest actually desirable. And, if this is true, then I venture to think there is no substantial reason why the law should interfere with it denying the parties the right to agree as they have agreed, or denying their agreement full validity.

The general prohibition of restraints on alienation by vendees has been based on three grounds. One has been that of a supposed contradiction between a grant of complete ownership and any qualification of it. That objection, as has been pointed out (3 Tiffany, Real Property, s 592), is a product of judicial fiat, and one of logicians rather than of practical men. A second, and a more substantial, ground, is that the vendor in a conveyance embodying the restriction, having parted with his ownership, is now without interest in the restriction, and there are no rights protected by it. 3 Tiffany, Real Property, s 392. But that may or may not be true in a particular case, and, however true it may be in a transaction concerning simply one piece of property, such as the law has had to consider almost always in the past, it is very commonly not true in modern conveyances of real property. And it is not true in the present instance. The third, and, according to the weight of authority, the only considerable, ground for the law’s interference, is that of public policy, or the public disadvantage in having property withdrawn from commerce and its improvement and development checked. 3 Tiffany, Real Property, s 392. Gray, Restraints on Alienation, s 21. But those detrimental consequences do not exist here. And, if they do not exist, why should the law be taking a stand to resist them, even when by doing so it denies to parties a right to make an agreement which may in fact redound to the public advantage? Public policy, or a policy of the courts looking to the public interest, is a stand with relation to conditions as they exist, and arises from those conditions, or it is without purpose or justification.

Perhaps it is somewhat unusual in the administration of the law with respect to restraints on alienation of real estate to deal with the general prohibition as only an effort to accomplish certain purposes, and to test a particular restriction by those purposes, but it seems nevertheless right to do so. If I am not mistaken, this court has so dealt with a similar restraint in a bequest of personal property; and the rule we are considering is one and the same when applied to conveyances of complete ownership in either personal or real property. Brantly, Personal Property, s 122. In Williams v. Ash, 1 How. 1, 11 L. Ed. 25, in an opinion by Chief Justice Taney, the Supreme Court of the United States upheld a restriction upon a legatee of slaves: “That he shall not carry them out of the State of Maryland, or sell them to any one; in either of which events, I will and desire the said negroes shall be free for life.”In the opinion, this was distinguished as a conditional limitation of freedom rather than a restraint upon alienation, but it has usually been regarded as no more nor less than a restraint. Gray, Restraints on Alienation, s 28; Potter v. Couch, 141 U. S. 296, 316, 317, 11 S. Ct. 1005, 35 L. Ed. 721.In Steuart v. Williams, 3 Md. 425, 429, a similar question was presented to this court, and Williams v. Ash was taken as having established the validity of such a clause. And I believe that, if a plain restriction on a legatee’s sale of slaves could come before the court to-day, we should agree that the lack of any public interest opposed to it, or rather the desirability of it, would save it from the bar of the general prohibition.

We have seen the absolute common-law prohibition against restraints upon the exercise of a trade adapted to conditions of modern life by measuring particular restraints by the present public interest. 8 Holdsworth, History of English Law, 56-62; 31 Harvard Law Review, 193; Guerand v. Dandelet, 32 Md. 561, 566, 3 Am. Rep. 164.The old prohibition of restraints on alienation has itself been adapted to later conditions in part. 3 Holdsworth, 85, 86. Many modern courts have held valid restraints on alienation of real property limited as to time, or as to specified classes of vendees. Roberts v. Boston, 5 Cush. (Mass.) 198; West Chester & P. Ry. Co. v. Miles, 55 Pa. 209, 93 Am. Dec. 744; Plessy v. Ferguson, 163 U. S. 537, 16 S. Ct. 1138, 41 L. Ed. 256.Authorities collected in 38 A. L. R. 1185, note. In Maryland, restrictions upon a vendee’s use of property have been upheld, repugnant as these might be, logically, to the grant of an otherwise absolute title. Peabody Heights Co. v. Willson, 82 Md. 186, 32 A. 386, 1077, 36 L. R. A. 393.It is true that the allowance of such restrictions is distinguished on the ground that they are embodied only in incidental agreements, and are not qualifications on the estates granted, but, assuming that such a distinction is a substantial one, it remains true that the freedom and power of the vendees in dealing with their property are qualified by them, and they have not been found to conflict with considerations of public policy, and so have not been interfered with.

The view I venture to urge, then, is that the general prohibition of restraints on alienation should be considered as having some relation to the facts to be dealt with, not that the law should be changed, but that there should be a recognition of change in the conditions with which the law has had to deal, and a discriminating pursuit among modern conditions of the one object always sought by the law–the protection of the public interest. And this is not to advocate the abandonment of a general rule, leaving the policy of the courts to be adjusted to each conveyance independently; there may be need of some fixed general standard for what has been termed predictability in the law, and that would necessitate ignoring some possible differences in cases. Tide Water Canal Co. v. Archer, 9 Gill & J. 479, 528.But it has seemed to me that, whatever that general standard might be, the restraint adopted in the conveyance now being considered, limited as it is in time, and having a purpose and an effect in which no public disadvantage can in fact be found, need not and should not be included within the general prohibition to forestall a public disadvantage.

Representing Appellant: Timothy M. Stubson and Orintha E. Karns of Brown, Drew & Massey, LLP, Casper, Wyoming. Argument by Ms. Karns.

Representing Appellee: Frank R. Chapman of Chapman Valdez, Casper, Wyoming.

Kite, Justice.

… . The underlying facts of this case are essentially undisputed. Effective March 1, 1990, Frontier Outdoor Advertising (Frontier) entered into a lease with Cyril Rahonce allowing Frontier to maintain a billboard on Mr. Rahonce’s property in Rock Springs, Wyoming. The lease provided that the initial term would be fifteen years, with a provision for automatic renewal if neither party gave notice of its intent to terminate thirty days prior to the end of term. In exchange for allowing Frontier to use his property, Mr. Rahonce was to receive an annual payment of $400. The lease provided it was subject to assignment and its terms would apply to the parties’ successors. The lease was not recorded.

Over the years, ownership of the property changed several times. In 1993, Mr. Rahonce conveyed the property to High Country Landscaping, and Frontier paid the annual lease payment to the new owner. In 1997, Larry and Vickie Nicholls purchased the property from High Country Landscaping. The disputed property was subsequently transferred to the plaintiff limited liability company, Larry and Vickie Nicholls, LLC. Plains Tire and Battery (Plains Tire) was located adjacent to the disputed property, and Mr. and Mrs. Nicholls owned the company that was the majority shareholder of Plains Tire. Plains Tire used the property for parking.

The lessee also changed after the lease was executed. In 1998, Lamar purchased Frontier and acquired its interest in the lease at issue here. During the time that Nicholls owned the property, Lamar tendered the annual lease payments to Plains Tire and the payments were accepted until 2006.

On July 26, 2005, Nicholls notified Lamar that the lease had expired and would not be renewed. Lamar claimed the lease had renewed automatically because Nicholls did not give notice of its intent to terminate thirty days prior to the end of the first term. Nicholls filed a complaint in the district court, seeking a declaratory judgment that Lamar’s lease was not valid and requesting an order quieting title to the disputed property to Nicholls… . . The district court … granted summary judgment to Nicholls on the basis that the lease was void as an unreasonable restraint on alienation. Lamar appealed to this Court.

 

DISCUSSION

 

The district court determined that our decision in Hartnett v. Jones, 629 P.2d 1357 (Wyo.1981) governed in this case. In Hartnett, three parties owned a tract of land and they agreed that each party would have the right to purchase the interests of the others if they decided to sell. This right was described as a “preemptive right,” but it also could be termed a right of first refusal. Hartnett sued Jones and Whitlock because his preemptive right was not honored when Whitlock sold his interest to Jones. Id. at 1359-60. Jones and Whitlock defended on a number of bases, including arguing that the preemptive right was an unreasonable restraint on alienation. We applied a reasonableness standard to determine whether the preemptive right was an invalid restraint on alienation. The factors we considered were: “(1) the purpose for which the restraint is imposed; (2) the duration of the restraint; and (3) the method of determining the price.” We held the restraint was reasonable and did not violate the rule against unreasonable restraints on alienation. Id. at 1363.

The district court applied the “reasonableness” test from Hartnett and determined the lease at issue in this case was an unreasonable restraint on alienation. It ruled:

 

In the current case, the circumstances surrounding the lease reveal an unreasonable restraint on alienation. Because the lease automatically renewed in 2005, due to [Nicholls’] failure to terminate the lease at the end of the term, [Nicholls’] only means of circumventing the lease would be to improve the property by “erecting thereon a permanent industrial[,] commercial or residential building as evidenced by a building permit.” According to the Parties’ arguments heard by this Court on April 23, 2008 on motions for summary judgment, a Rock Springs City ordinance prevents [Nicholls] from ever obtaining a building permit while [Lamar’s] billboard is erected on the property. Though the “purpose for which the restraint is imposed” may be to protect [Lamar’s] leasehold interest, the consequence of the restraint inhibits the marketability of the property. The “duration of the restraint” may be only fifteen years under the terms of the lease, but the inability to improve the property due to the presence of [Lamar’s] sign is indefinite. Finally, the “method of determining price” is fixed by the lease at $400.00 per year. The fixed price leaves little incentive for [Lamar] to accommodate improvements to the property.

 

 

In the current case, the benefits of the purpose behind the restraint are few, but the extent that alienability would be hindered is great. This Court finds that the handicap upon the marketability of the property represents an unreasonable restraint on alienation. Consequently, the lease is void.

 

(citations omitted).

Lamar claims that, although the reasonableness test was appropriate in Hartnett because the preemptive right was a direct restraint on alienation, that test should not have been applied to the lease at issue here because it is only an indirect restraint on alienation. According to Lamar, the Restatement of Property directs that servitudes that impose indirect restraints on alienation should not be tested for reasonableness but, instead, should be found invalid only if they lack a rational justification. Lamar maintains that the record clearly establishes a rational justification for the lease.

Restatement (First) of Property § 404 (1944) defines a direct restraint on alienation as:

 

(1) A restraint on alienation, as that phrase as used in this Restatement, is an attempt by an otherwise effective conveyance or contract to cause a later conveyance

 

 

(a) to be void; or

 

 

(b) to impose contractual liability on the one who makes the later conveyance when such liability results from a breach of an agreement not to convey; or

 

 

(c) to terminate or subject to termination all or part of the property interest conveyed.

 

See also, Smith v. Osguthorpe, 58 P.3d 854, 860 (Utah Ct.App.2002). Phrased another way, a “direct restraint on alienation is a provision in a deed, will, contract, or other instrument which, by its express terms, or by implication of fact, purports to prohibit or penalize the exercise of the power of alienation.” Spanish Oaks, Inc. v. Hy-Vee, Inc., 265 Neb. 133, 655 N.W.2d 390, 399 (2003). Direct restraints on alienation include such things as “prohibitions on transfer without the consent of another, prohibitions on transfer to particular persons, requirements of transfer to particular persons, options to purchase land, and rights of first refusal.” Restatement (Third) of Property: Servitudes § 3.4 cmt. b (2000).

Restatement (Third) of Property: Servitudes § 3.4 states that the test for determining whether a direct restraint on alienation imposed by a servitude is enforceable is the “reasonableness” test:

 

A servitude that imposes a direct restraint on alienation of the burdened estate is invalid if the restraint is unreasonable. Reasonableness is determined by weighing the utility of the restraint against the injurious consequences of enforcing the restraint.

 

Unlike a direct restraint, an indirect restraint does not place express limitations on the owner’s right to convey the property. An indirect restraint on alienation “‘arises when an attempt is made to accomplish some purpose other than the restraint of alienability, but with the incidental result that the instrument, if valid, would restrain practical alienability.’” Smith, 58 P.3d at 860, quoting Redd v. Western Savings & Loan Co., 646 P.2d 761, 764 (Utah 1982). See also, Spanish Oaks, 655 N.W.2d at 399. Restatement (Third) of Property: Servitudes § 3.5 (2000) pertains to indirect restraints on alienation created by servitudes:

 

(1) An otherwise valid servitude is valid even if it indirectly restrains alienation by limiting the use that can be made of property, by reducing the amount realizable by the owner on sale or other transfer of the property, or by otherwise reducing the value of the property.

 

 

(2) A servitude that lacks a rational justification is invalid.

 

“Section 3.5 drops the requirement that an indirect restraint be reasonable, requiring only a rational justification for the restraint.” Smith, 58 P.3d at 861,citing Restatement (Third) of Property: Servitudes § 3.5 cmt. a. Comment a of Restatement § 3.5 explains the logic underlying the “rational justification” requirement:

 

Many servitudes indirectly affect the alienability of property by limiting the numbers of potential buyers or by reducing the amount the owner might otherwise realize on a sale of the property. If the servitude … is not otherwise invalid …, the fact that the servitude results in some diminution in return to the owner, or some reduction in the potential market for the property, is not sufficient justification for refusing to give effect to the intent of the parties to create the servitude…. The parties are usually in a better position than judges to decide the economic trade-offs that will enable a transaction to go forward and enhance their overall value….

 

 

Unlike direct restraints on alienation, which directly interfere with the process of conveying land, and have long been understood and constrained by the common law, indirect restraints may have no overall negative effects on the wealth of a society overall or more narrowly, on the value of its land resources. On the contrary, they may result in an overall increase in wealth. Therefore, this section adopts the position that a servitude is not invalid simply because it reduces the value of a particular piece of land or reduces the amount the owner will realize on sale of the land. Unlike direct restraints, where courts can and should weigh the harm that will be caused by limiting alienation of a particular piece of property against the good that will be accomplished by the restriction, courts should not attempt to weigh the harm caused by an indirect restraint against the overall value of the transaction in which the servitude played a part. There are too many potential variables, and private decision making is more likely than judicial decision making to increase overall wealth and well-being.

 

 

The purpose of this section is to reject the rule that a servitude must be reasonable. If the servitude is not otherwise invalid because it is illegal, unconstitutional, or against public policy, it need not be reasonable. The only requirement is that there be a rational justification for creating it as a servitude. The fact that the servitude limits the market for property by limiting its use or reducing its value … is irrelevant in determining its validity, so long as there is some rational justification for creation of the servitude. The fact that there may be a rational justification for the obligation is not sufficient; there must be a rational justification for imposing the obligation as a servitude that runs with the land. If there is no rational justification for the servitude, it should not be enforced because there is no real trade-off for the resulting decrease in the value of the land, and the legal system should not be used to enforce irrational arrangements against unwilling participants.

 

Nicholls argues that we adopted the reasonableness standard for both direct and indirect restraints in Hartnett. We disagree. The preemptive right at issue in Hartnett was clearly a direct restraint on alienation. Section 3.4 cmt. b. We did not consider in that case whether the reasonableness test applied to indirect restraints. Although some jurisdictions apply a reasonableness test to both direct and indirect restraints, see, e.g., Redd, 646 P.2d at 764; Peavey v. Reynolds, 946 So.2d 1125 (Fla.Ct.App.2006), we are not convinced that is the correct approach. As explained in comments a and b to § 3.5, the economic principles that make direct restraints on alienation suspect do not apply in the context of indirect restraints imposed by servitudes, especially in the commercial context. Instead, parties should be free to decide upon their own contractual terms and it is not the role of the courts to second guess their decision making, so long as there is a rational justification for the servitude.

Lamar’s lease specifically recognized the possibility that title to the property could be transferred during the lease term by requiring that notice of the change of ownership be given to the lessee and the new owner be informed of the lease. Moreover, as our recitation of the facts makes clear, ownership of the property transferred several times during the lease term. The lease clearly did not amount to a direct restraint on alienation, and Nicholls concedes as much.

Lamar’s lease was simply a servitude that had the potential effect of restraining alienation by limiting the value or use of the property. As such, it amounted to an indirect restraint on alienation. The rational justification test set out in § 3.5 for indirect restraints, rather than the reasonableness test, should have been applied to determine whether the lease was invalid. In reviewing a summary judgment, we apply the same analysis as the district court, and, in the interest of judicial economy, we will apply the “rational justification” test to determine whether Lamar’s lease is an improper restraint on alienation. See generally, Wells Fargo Bank Wyoming, N.A. v. Hodder, 2006 WY 128, ¶ 32, 144 P.3d 401, 412 (Wyo.2006) (applying the correct legal analysis to the facts in the record following a bench trial).

The lease at issue here was commercial in nature. Comment b to § 3.5 states that “[s]ervitudes created in commercial transactions seldom lack rational justification.” Lamar’s general manager, Dave Butterfield, had worked for Frontier before it was acquired by Lamar and had personal knowledge of the companies’ leasing practices and the lease with Mr. Rahonce. Mr. Butterfield explained the rationale for such an approach in leasing billboard sites, including the fifteen year term and the automatic renewal, in his summary judgment affidavit. He averred:

 

4. Lamar typically enters into leases with landowners that call for a fifteen or twenty year time period. Because it usually takes years to re-coup the costs of the initial infrastructure, rental payments, and sign up-keep, Lamar has found only leases of these time periods allow Lamar to remain profitable given the relatively small margins of profit.

 

 

5. The leases Lamar executes typically require the Lessor to provide at least a thirty (30) day and no more than a ninety (90) day notice period prior to automatic roll-over as it takes a significant amount of time to find new locations, execute new leases with the land owners and rent the space.

 

As recognized by Mr. Butterfield, the lease could be cancelled without penalty if the lessor gave notice thirty days prior to the end of the lease term that it did not wish to renew the lease. Nicholls presented no evidence refuting Mr. Butterfield’s statements, and those statements provide valid business reasons for the lease terms. As a matter of law, Mr. Butterfield’s explanation establishes a rational justification for the servitude… . .

Gerald E. Rosser, Miami, for appellant.

Gus Efthimiou, Jr., Miami, for appellee.

Before Hendry, Nesbitt, and Daniel S. Pearson, JJ.

Daniel S. Pearson, Judge.

All is not peaceful at the Sholom House Condominium. In disregard of a provision of the declaration of condominium requiring the written consent of the condominium association’s board of directors to any sale, lease, assignment or transfer of a unit owner’s interest, Bertha Albares, a member of the board of directors, sold her condominium unit to the Aquarian Foundation, Inc. without obtaining such consent. Eschewing its right to ratify the sale, the association, expressly empowered by the declaration to “arbitrarily, capriciously, or unreasonably” withhold its consent, sued to set aside the conveyance, to dispossess Aquarian, and to recover damages under a clause in the declaration which provides that:

 

In the event of a violation by the condominium [sic] by the unit owner of any of the covenants, restrictions and limitations, contained in this declaration, then in that event the fee simple title to the condominium parcel shall immediately revert to the association, subject to the association paying to said former unit owner, the fair appraised value thereof, at the time of reversion, to be determined as herein provided.

 

The trial court, after a non-jury trial, found that Albares had violated the declaration of condominium, thus triggering the reverter clause. Accordingly, it entered a judgment for the association, declaring the conveyance to Aquarian null and void, ejecting Aquarian, and retaining jurisdiction to award damages, attorneys’ fees and costs after a determination of the fair appraised value of the property. Aquarian appeals. We reverse.

The issue presented by this appeal is whether the power vested in the association to arbitrarily, capriciously, or unreasonably withhold its consent to transfer¹ constitutes an unreasonable restraint on alienation, notwithstanding the above-quoted reverter clause which mandates that the association compensate the unit owner in the event, in this case, of a transfer of the unit in violation of the consent requirement.

It is well settled that increased controls and limitations upon the rights of unit owners to transfer their property are necessary concomitants of condominium living.²See Hidden Harbour Estates, Inc. v. Norman, 309 So.2d 180 (Fla. 4th DCA 1975); Holiday Out in America at St. Lucie, Inc. v. Bowes, 285 So.2d 63 (Fla. 4th DCA 1973); Chianese v. Culley, 397 F.Supp. 1344 (S.D.Fla.1975).

 

[I]nherent in the condominium concept is the principle that to promote the health, happiness, and peace of mind of the majority of the unit owners since they are living in such close proximity and using facilities in common, each unit owner must give up a certain degree of freedom of choice which he might otherwise enjoy in separate, privately owned property. Condominium unit owners comprise a little democratic sub society of necessity more restrictive as it pertains to use of condominium property than may be existent outside the condominium organization.

 

Hidden Harbour Estates, Inc. v. Norman, 309 So.2d at 181-82.

Accordingly, restrictions on a unit owner’s right to transfer his property are recognized as a valid means of insuring the association’s ability to control the composition of the condominium as a whole. See, e.g., Lyons v. King, 397 So.2d 964 (Fla. 4th DCA 1981); Coquina Club, Inc. v. Mantz, 342 So.2d 112 (Fla. 2d DCA 1977); Seagate Condominium Association, Inc. v. Duffy, 330 So.2d 484 (Fla. 4th DCA 1976); Kroop v. Caravelle Condominium, Inc., 323 So.2d 307 (Fla. 3d DCA 1975); Holiday Out in America at St. Lucie, Inc. v. Bowes, 285 So.2d 63; Chianese v. Culley, 397 F.Supp. 1344. See also White Egret Condominium, Inc. v. Franklin, 379 So.2d 346 (Fla.1980). Indeed, it has been said of a restriction contained in a declaration of condominium that it “may have a certain degree of unreasonableness to it, and yet withstand attack in the courts. If it were otherwise, a unit owner could not rely on the restrictions found in the declaration of condominium, since such restrictions would be in a potential condition of continuous flux.”³Hidden Harbour Estates, Inc. v. Basso, 393 So.2d 637, 640 (Fla. 4th DCA 1981). Thus, strict enforcement of the restrictions of an association’s private constitution, that is, its declaration of condominium, protects the members’ reliance interests in a document which they have knowingly accepted, and accomplishes the desirable goal of “allowing the establishment of, and subsequently protecting the integrity of, diverse types of private residential communities, [thus providing] genuine choice among a range of stable living arrangements.” Ellickson, Cities and Homeowners Associations, 130 U.Pa.L.Rev. 1519, 1527 (1982).

However, despite the law’s recognition of the particular desirability of restrictions on the right to transfer in the context of condominium living, such restrictions will be invalidated when found to violate some external public policy or constitutional right of the individual. Hidden Harbour Estates, Inc. v. Basso, 393 So.2d at 639-40. See Pepe v. Whispering Sands Condominium Association, Inc., 351 So.2d 755 (Fla. 2d DCA 1977). Merely because a declaration of condominium is in the nature of a private compact and a restriction contained therein is not subject to the same reasonableness requirement as a restriction contained in a public regulation, see White Egret Condominium, Inc. v. Franklin, 379 So.2d 346, 350 (Fla.1980), where the restriction constitutes a restraint on alienation, condominium associations are not immune from the requirement that the restraint be reasonable. Thus, while a condominium association’s board of directors has considerable latitude in withholding its consent to a unit owner’s transfer, the resulting restraint on alienation must be reasonable. In this manner the balance between the right of the association to maintain its homogeneity and the right of the individual to alienate his property is struck.

The basic premise of the public policy rule against unreasonable restraints on alienation, see 7 Thompson On Real Property, s 3161 (1962); 31 C.J.S. Estates 8(b)(2) (1964), is that free alienability of property fosters economic growth and commercial development. Davis v. Geyer, 151 Fla. 362, 9 So.2d 727 (1942); Seagate Condominium Association, Inc. v. Duffy, 330 So.2d 484. Because “[t]he validity or invalidity of a restraint depends upon its long-term effect on the improvement and marketability of the property,” Iglehart v. Phillips, 383 So.2d 610, 614 (Fla.1980), where the restraint, for whatever duration, does not impede the improvement of the property or its marketability, it is not illegal. Id. at 615. Accordingly, where a restraint on alienation, no matter how absolute and encompassing, is conditioned upon the restrainer’s obligation to purchase the property at the then fair market value, the restraint is valid. Id. at 614-15, and cases collected.

The declaration of condominium in the present case permits the association to reject perpetually any unit owner’s prospective purchaser for any or no reason. Such a provision, so obviously an absolute restraint on alienation, can be saved from invalidity only if the association has a corresponding obligation to purchase or procure a purchaser for the property from the unit owner at its fair market value. Otherwise stated, if, as here, the association is empowered to act arbitrarily, capriciously, and unreasonably in rejecting a unit owner’s prospective purchaser, it must in turn be accountable to the unit owner by offering payment or a substitute market for the property. When this accountability exists, even an absolute and perpetual restraint on the unit owner’s ability to select a purchaser is lawful. See Chianese v. Culley, 397 F.Supp. 1344 (notwithstanding association’s right to approve any transfer except one to an existing unit owner, requirement that within sixty days association provide another purchaser or approve original purchaser creates a preemptive right in association and saves declaration of condominium from being an unlawful restraint on alienation).⁴

The declaration of condominium involved in the instant case contains no language requiring the association to provide another purchaser, purchase the property from the unit owner, or, failing either of these, approve the proposed transfer. What it does contain is the reverter clause, which the association contends is the functional equivalent of a preemptive right and, as such, makes the restraint on alienation lawful.

In our view, the problem with the association’s position is that the reverter clause imposes no obligation upon the association to compensate the unit owner within a reasonable time after the association withholds its consent to transfer, and the clause is not therefore the functional equivalent of a preemptive right. Cf. Chianese v. Culley, 397 F.Supp. 1344. Instead, the clause and the association’s obligation do not come into effect until a violation of the restriction on an unapproved transfer occurs:

 

In the event of a violation by the condominium [sic] by the unit owner of any of the covenants, restrictions and limitations, contained in this declaration, then in that event the fee simple title to the condominium parcel shall immediately revert to the association, subject to the association paying to said former unit owner, the fair appraised value thereof, at the time of reversion, to be determined as herein provided.

 

The association’s accountability to the unit owner is illusory. There is no reasonable likelihood that a potential purchaser, apprised by the condominium documents that the consent of the association is required and that a purchase without consent vitiates the sale, would be willing to acquire the property without the association’s consent.⁵ Without a sale, there is no violation of the reverter clause. Without a violation of the reverter clause, the association has no obligation to pay the unit owner.

Effectively, then, the power of the association to arbitrarily, capriciously, and unreasonably withhold its consent to transfer prevents the activation of the reverter clause and eliminates the accountability of the association to the unit owner. Therefore, we conclude that the power of the association to arbitrarily, capriciously, and unreasonably withhold its consent to transfer is not saved by the reverter clause from being declared an invalid and unenforceable restraint on alienation. Accordingly, the judgment of the trial court is

Reversed.

T. H. Wyche, Charlotte, and Spottswood W. Robinson, III, Richmond, Va., for Charles W. Leeper, I. P. Farrar, Sadler S. Gladden, Robert H. Greene, James Heath, Henry M. Isley, Russell McLaughlin, Anthony M. Walker, Harold Walker, Edward J. Weddington, James J. Weddington, Willie Lee Weddington, L. A. Warner, G. M. Wilkins, Roy S. Wynn, and Rudolph M. Wyche, Defendants-Appellants.

Cochran, McCleneghan & Miller and F. A. McCleneghan and Lelia M. Alexander, Charlotte, for Osmond L. Barringer, Defendant-Appellee.

John D. Shaw, Charlotte, for Charlotte Park and Recreation Commission, Plaintiff-Appellee.

Parker, Justice.

The decision of the Trial Judge that he had jurisdiction of the property and the parties, and was empowered to enter judgment under the Declaratory Judgments Act is correct.G.S. s 1-253 et seq., Lide v. Mears, 231 N.C. 111, 56 S.E.2d 404.

There are no exceptions to the Judge’s findings of fact.

We shall discuss first the Barringer Deed, which by reference, as well as all the other deeds mentioned in the statement of facts, is incorporated in the findings of fact, and made a part thereof. The first question presented is: Does the Barringer Deed create a fee determinable on special limitations, as decided by the Trial Judge?

This Court said in Hall v. Turner, 110 N.C. 292, 14 S.E. 791:

 

Whenever a fee is so qualified as to be made to determine, or liable to be defeated, upon the happening of some contingent event or act, the fee is said to be base, qualified or determinable.”

 

 

An estate in fee simple determinable, sometimes referred to as a base or a qualified fee, is created by any limitation which, in an otherwise effective conveyance of land, creates an estate in fee simple and provides that the estate shall automatically expire upon the occurrence of a stated event…. No set formula is necessary for the creation of the limitation, any words expressive of the grantor’s intent that the estate shall terminate on the occurrence of the event being sufficient…. So, when land is granted for certain purposes, as for a schoolhouse, a church, a public building, or the like, and it is evidently the grantor’s intention that it shall be used for such purposes only, and that, on the cessation of such use, the estate shall end, without any re-entry by the grantor, an estate of the kind now under consideration is created. It is necessary, it has been said, that the event named as terminating the estate be such that it may by possibility never happen at all, since it is an essential characteristic of a fee that it may possibly endure forever.

 

Tiffany: Law of Real Property, 3rd Ed., Sec. 220.

In Connecticut Junior Republic Association v. Litchfield, 119 Conn. 106, 174 A. 304, 307, 95 A.L.R. 56, the real estate was devised by Mary t. Buell to the George Junior Republic Association of New York with a precatory provision that it be used as a home for children. The New York association by deed conveyed this land to plaintiff, “‘its successors and assigns, in trust, as long as it may obey the purposes expressed in … the will … and as long as the (grantee) shall continue its existence for the uses and purposes as outlined in the preamble of the constitution of the National Association of Junior Republics, but if at any time it shall fail to so use said property for said purposes … then the property hereby conveyed shall revert to this grantor, or its successors.’” The Supreme Court of Connecticut said: “The effect of the deed was to vest in the plaintiff a determinable fee. Here, as in First Universalist Society [of North Adams] v. Boland, 155 Mass. 171, 174, 29 N.E. 524, 15 L.R.A. 231, the terms of the deed ‘do not grant an absolute fee, nor an estate or condition, but an estate which is to continue till the happening of a certain event, and then to cease. That event may happen at any time, or it may never happen. Because the estate may last forever, it is a fee. Because it may end on the happening of the event it is what is usually called a determinable or qualified fee.” See, also, City National Bank v. Bridgeport, 109 Conn. 529, 540, 147 A. 181; Battistone v. Banulski, 110 Conn. 267, 147 A. 820.’

In First Universalist Society of North Adams v. Boland, 155 Mass. 171, 29 N.E. 524, 15 L.R.A. 231, “the grant of the plaintiff was to have and to hold, etc., ‘so long as said real estate shall by said society or its assigns be devoted to the uses, interests, and support of those doctrines of the Christian religion’ as specified; ‘and when said real estate shall by said society or its assigns be diverted from the uses, interests, and support aforesaid to any other interests, uses, or purposes than as aforesaid, then the title of said society or its assigns in the same shall forever cease, and be forever vested in the following named persons, etc.’” The Supreme Court of Connecticut in Connecticut Junior Republic Association v. Litchfield, supra, has quoted the language of this case holding that the grant creates “a determinable or qualified fee.” Immediately after the quoted words, the Massachusetts Court used this language: “The grant was not upon a condition subsequent, and no re-entry would be necessary; but by the terms of the grant the estate was to continue so long as the real estate should be devoted to the specified uses, and when it should no longer be so devoted then the estate would cease and determine by its own limitation.”

In Brown v. Independent Baptist Church of Woburn, 325 Mass. 645, 91 N.E.2d 922, 923, the will of Sarah Converse devised land “to the Independent Baptist Church of Woburn, to be holden and enjoyed by them so long as they shall maintain and promulgate their present religious belief and faith and shall continue a Church; and if the said Church shall be dissolved, or if its religious sentiments shall be changed or abandoned, then my will is that this real estate shall go to my legatees hereinafter named.” The Court said: “The parties apparently are in agreement, and the single justice ruled, that the estate of the church in the land was a determinable fee. We concur. (Citing authorities.) The estate was a fee, since it might last forever, but it was not an absolute fee, since it might (and did) ‘automatically expire upon the occurrence of a stated event.’”

In Smith v. School Dist. No. 6 of Jefferson County, Mo., 250 S.W.2d 795, the deed contained this provision: “The said land being hereby conveyed to said school district for the sole and express use and purpose of and for a schoolhouse site and it is hereby expressly understood that whenever said land shall cease to be used and occupied as a site for a schoolhouse and for public school purposes that then this conveyance shall be deemed and considered as forfeited and the said land shall revert to said party of the first part, his heirs and assigns.” The Court held that the estate conveyed was a fee simple determinable.

In Collette v. Town of Charlotte, 114 Vt. 357, 45 A.2d 203, 204, the deed provided that the land “was ‘to be used by said Town for school purposes, but when said Town fails to use it for said school purposes it shall revert to said Scofield (the grantor), his heirs and assigns, but the Town shall have the right to remove all buildings located thereon. The Town shall not have the right to use the premises for other than school purposes.’” The Supreme Court of Vermont in a well-reasoned opinion supported by ample citation of authority said: “It was held in Fall Creek School Twp. v. Shuman, 55 Ind.App. 232, 236, 103 N.E. 677, 678, that a conveyance of land ‘to be used for school purposes’ without further qualification, created a condition subsequent. The same words were used in Scofield’s deed to the Town of Charlotte, but they were followed by the provision that ‘when said Town fails to use it for said school purposes it shall revert to said Scofield, his heirs or assigns,’ clearly indicating the intent of the parties to create a determinable fee, which was, we think, the effect of the deed. North v. Graham, 235 Ill. 178, 85 N.E. 267, 18 L.R.A., N.S., 624, 626, 126 Am.St.Rep. 189.”

In Mountain City Missionary Baptist Church v. Wagner, 193 Tenn. 625, 249 S.W.2d 875, 876, the deed is an ordinary deed conveying certain real estate. After the habendum clause there appears the following language: “But it is distinctly understood that if said property shall cease to be used by the said Missionary Baptist Church (for any reasonable period of time) as a place of worship, that said property shall revert back to the said M. M. Wagner and his heirs free from any encumbrances whatsoever and this conveyance become null and void.” The grantor was M. M. Wagner. The Court said: “When we thus read the deed, as a whole, we find that the unmistakable and clear intention of the grantor was to give this property to the church so long as it was used for church purposes and then when not so used the property was to revert to the grantor or his heirs. the estate thus created in this deed is a determinable fee.”

In Magness v. Kerr, 121 Or. 373, 254 P. 1012, 1013, 51 A.L.R. 1466, the deed contained the following provision, to-wit: “Provided and this deed is made upon this condition, that should said premises at any time cease to be used for cooperative purposes, they shall, upon the refunding of the purchase price and reasonable and equitable arrangement as to the disposition of the improvements, revert to said grantors.” The Court held that this was a grant upon express limitation, and the estate will cease upon breach of the condition without any act of the grantor.

For other cases of a determinable fee created under substantially similar language see: Coffelt v. Decatur School District No. 17, 212 Ark. 743, 208 S.W.2d 1; Regular Predestinarian Baptist Church of Pleasant Grove v. Parker, 373 Ill. 607, 27 N.E.2d 522, 137 A.L.R. 635; Board of Education for Jefferson County v. Littrell, 173 Ky. 78, 190 S.W. 465; Pennsylvania Horticultural Society v. Craig, 240 Pa. 137, 87 A. 678.

We have held in Ange v. Ange, 235 N.C. 506, 71 S.E.2d 19, that the words “for church purposes only” appearing at the conclusion of the habendum clause, where there is no language in the deed providing for a reversion or forfeiture in event the land ceases to be used as church property, does not limit the estate granted. To the same effect: Shaw University v. Durham Life Ins. Co., 230 N.C. 526, 53 S.E.2d 656.

In Abel v. Girard Trust Co., 365 Pa. 34, 73 A.2d 682, 684, there was in the habendum clause of the deed a provision for exclusive use as a public park for the use and benefit of the inhabitants of the Borough of Bangor. The Supreme Court of Pennsylvania said: “An examination of the deed discloses that there is no express provision for a reversion or forfeiture. the mere expression of purpose will not debase a fee.” To the same effect see: Miller v. Village of Brookville, 152 Ohio St. 217, 89 N.E.2d 85, 15 A.L.R.2d 967; Ashuelot Nat. Bank v. Keene, 74 N.H. 148, 65 A. 826, 9 L.R.A.,N.S., 758.

In North Carolina we recognize the validity of a base, qualified or determinable fee. Hall v. Turner, supra; Williams v. Blizzard, 176 N.C. 146, 96 S.E. 957; Turpin v. Jarrett, 226 N.C. 135, 37 S.E.2d 124.See also: 19 N.C.L.R. pp. 334-344: in this article a helpful form is suggested to create a fee determinable upon special limitation.

When limitations are relied on to debase a fee they must be created by deed, will, or by some instrument in writing in express terms. Abel v. Girard Trust Co., supra;19 Am.Jur., Estates, Section 32.

In the Barringer Deed in the granting clause the land is conveyed to plaintiff “upon the terms and conditions, and for the uses and purposes, as hereinafter fully set forth.” The habendum clause reads, ‘to have and to hold the aforesaid tract or parcel of land … upon the following terms and conditions, and for the following uses and purposes, and none other, to-wit…. The lands hereby conveyed, together with the other tracts of land above referred to (the Shore, Wilson and City of Charlotte lands) “as forming Revolution Park, shall be held, used and maintained by the party of the second part” (the plaintiff here), ”…as an integral part of a park, playground and recreational area, to be known as Revolution Park and to be composed of the land hereby conveyed and of the other tracts of land referred to above, said park and/or recreational area to be kept and maintained for the use of, and to be used and enjoyed by persons of the white race only.” The other terms and conditions as to the use and maintenance, etc., of the land conveyed are omitted as not material. The pertinent part of the reverter provision of the deed reads: “In the event that the said lands comprising the said Revolution Park area as aforesaid, being all of the lands hereinbefore referred to … and/or in the event that the said lands and all of them shall not be kept, used and maintained for park, playground and/or recreational purposes, for use by the white race only … then, and in either one or more of said events, the lands hereby conveyed shall revert in fee simple to the said Osmond L. Barringer, his heirs and assigns,” provided, however, that before said lands shall revert to Barringer, and as a condition precedent to the reversion, Barringer, his heirs or assigns, shall pay unto plaintiff or its successors $3,500.

Barringer by clear and express words in his deed limited in the granting clause and in the habcndum clause the estate granted, and in express language provided for a reverter of the estate granted by him, to him or his heirs, in the event of a breach of the expressed limitations. It seems plain that his intention, as expressed in his deed, was that plaintiff should have the land as long as it was not used in breach of the limitations of the grant, and, if such limitations, or any of them, were broken, the estate should automatically revert to the grantor by virtue of the limitations of the deed. In our opinion, Barringer conveyed to plaintiff a fee determinable upon special limitations.

It is a distinct characteristic of a fee determinable upon limitation that the estate automatically reverts at once on the occurrence of the event by which it is limited, by virtue of the limitation in the written instrument creating such fee, and the entire fee automatically ceases and determines by its own limitations. Collette v. Town of Charlotte, supra; First Universalist Society v. Boland, supra; Brown v. Independent Baptist Church of Woburn, supra; Copenhaver v. Pendleton, 155 Va. 463, 155 S.E. 802, 77 A.L.R. 324; Tiffany: Law of Real Property, 3rd Ed., Section 217. No action on the part of the creator of the estate is required, in such event, to terminate the estate. 19 Am.Jur., Estates, Section 29.

According to the deed of gift “Osmond L. Barringer, his heirs and assigns” have a possibility of reverter in the determinable fee he conveyed to plaintiff. It has been held that such possibility of reverter is not void for remoteness, and does not violate the rule against perpetuities. 19 Am.Jur., Estates, Section 31; Tiffany: Law of Real Property, 3rd Ed., Section 314.

The land was Barringer’s, and no rights of creditors being involved, and the gift not being induced by fraud or undue influence, he had the right to give it away if he chose, and to convey to plaintiff by deed a fee determinable upon valid limitations, and by such limitations provide that his bounty shall be enjoyed only by those whom he intended to enjoy it. 24 Am.Jur., Gifts, p. 731; Devlin: The Law of Real Property and Deeds, 3rd Ed., Section 838; 38 C.J.S., Gifts, s 36, p. 816. In Grossman v. Greenstein, 161 Md. 71, 155 A. 190, 191, the Court said: “A donor may limit a gift to a particular purpose, and render it so conditioned and dependent upon an expected state of facts that, failing that state of facts, the gift should fail with it.” The 15th headnote in Brahmey v. Rollins, 87 N.H. 290, 179 A. 186, 187, 119 A.L.R. 8, reads: “Right to alienate is an inherent element of ownership of property which donor may withhold in gift of property.” We know of no law that prohibits a white man from conveying a fee determinable upon the limitation that it shall not be used by members of any race except his own, nor of any law that prohibits a negro from conveying a fee determinable upon the limitation that it shall not be used by members of any race, except his own.

If negroes use the Bonnie Brae Golf Course, the determinable fee conveyed to plaintiff by Barringer, and his wife, automatically will cease and terminate by its own limitation expressed in the deed, and the estate granted automatically will revert to Barringer, by virtue of the limitation in the deed, provided he complies with the condition precedent by paying to plaintiff $3,500, as provided in the deed. The operation of this reversion provision is not by any judicial enforcement by the State Courts of North Carolina, and Shelley v. Kraemer, 334 U.S. 1, 68 S.Ct. 836, 92 L.Ed. 1161, has no application. We do not see how any rights of appellants under the 14th Amendment to the U. S. Constitution, Section 1, or any rights secured to them by Title 42 U.S.C.A. ss 1981, 1983, are violated.

If negroes use Bonnie Brae Golf Course, to hold that the fee does not revert back to Barringer by virtue of the limitation in the deed would be to deprive him of his property without adequate compensation and due process in violation of the rights guaranteed to him by the 5th Amendment to the U. S. Constitution and by Art. 1, Sec. 17 of the N. C. Constitution, and to rewrite his deed by judicial fiat.

The appellants’ assignment of error No. 1 to the conclusion of law of the court that the Barringer deed vested a valid determinable fee in plaintiff with the possibility of a reverter, and assignments of error No. 3 and No. 4 to the conclusion of the court that in the event any of the limitations in the Barringer deed are violated, title to the land will immediately revert to Barringer and that the use of Bonnie Brae Golf Course by negroes will cause a reverter of the Barringer deed, are overruled.

The case of Bernard v. Bowen, 214 N.C. 121, 198 S.E. 584, is distinguishable. For instance, there is no limitation of the estate conveyed in the granting clause.

Now as to the Abbott Realty Company deed. This deed conveyed as a gift certain lands to plaintiff upon the same terms and conditions, and for the same uses and purposes, and for the white race only, as set forth in the Barringer deed. This deed contains a reverter provision, if there is a violation of certain limitations of the estate conveyed, but the reverter provision does not provide that, if the lands of Revolution Park are used by members of a nonwhite race, the lands conveyed by Abbott Realty Company to plaintiff shall revert to the grantor. In our opinion, the estate conveyed by Abbott Realty Company to plaintiff is a fee determinable upon certain expressed limitations set forth in the deed, with a possibility of reverter to Abbott Realty Company if the limitations expressed in the deed are violated and the reverter provision states that such violations will cause a reverter. That was the conclusion of law of the Trial Judge, and the appellants’ assignment of error No. 2 thereto is overruled. However, the reverter provision does not require a reverter to Abbott Realty Company, if the lands of Revolution Park are used by negroes. Therefore, if negroes use Bonnie Brae Golf Course, title to the lands conveyed by Abbott Realty Company to plaintiff will not revert to the grantor. See: Tucker v. Smith, 199 N.C. 502, 154 S.E. 826.

The Trial Judge concluded as a matter of law that if any of the reverter provisions in the Abbott Realty Company deed were violated, title would revert to Abbott Realty Company, and that if negroes use Bonnie Brae Golf Course, title to the land granted by Abbott Realty Company will revert to it. The appellants’ assignments of error Nos. 5 and 6 are to this conclusion of law. These assignments of error are sustained to this part of the conclusion, that if negroes use Bonnie Brae Golf Course, title to the land will revert to Abbott Realty Company: and as to the other part of the conclusion the assignments of error are overruled.

The appellants’ assignment of error No. 7 is to this conclusion of law of the Trial Judge, that the deed from the city of Charlotte to plaintiff created a valid determiable fee with the possibility of a reverter, and that as the city of Charlotte has only one municipal golf course, the use of Bonnie Brae Golf Course by negroes will not cause a reversion of title to the property conveyed by the city of Charlotte to plaintiff, for that said reversionary clause in said deed is, under such circumstances void as being in violation of the 14th Amendment to the U. S. Constitution.

From this conclusion of law the city of Charlotte and the plaintiff did not appeal. We do not see in what way appellants have been aggrieved by this conclusion of law, and their assignment of error thereto is overruled.

The appellants also include as part of their assignments of error Nos. 3, 4, 5 and 6 these conclusions of law of the Trial Judge numbered 7 and 8. No. 7, that the plaintiff is the owner in fee simple, free of any conditions, reservations or reverter provisions of the property which was conveyed to it by W. T. Shore and T. C. Wilson. The city of Charlotte has not appealed from this conclusion of law, and we are unable to see how appellants have been harmed, so their assignments of error thereto are overruled. No. 8, that Revolution Park, in which is located Bonnie Brae Golf Course, was created as an integral area of land, comprising the various contiguous tracts conveyed to plaintiff by Barringer, Abbott Realty Company, city of Charlotte, Shore and Wilson, and to permit negroes to use for golf any part of said and will cause the reverter provisions in the Barringer and Abbott Realty Company deeds immediately to become effective, and result in title of the plaintiff terminating, and the property reverting to Barringer and Abbott Realty Company. As to this conclusion of law the assignments of error are sustained as to that part which states that, if negroes use Bonnie Brae Golf Course, the reverter provision in the Abbott Realty Company deed will become effective and title will revert to Abbott Realty Company: as to the other parts the assignments of error are overruled.

Judgment will be entered below in accordance with this opinion.

Modified and affirmed.

Knauss, Justice.

For convenience we shall refer to the parties to this writ of error as they appeared in the trial court, where defendants in error were plaintiffs and plaintiffs in error were defendants.

Two claims were stated in plaintiff’s amended complaint, one for a decree quieting title to real property, a second to obtain a declaratory judgment. Plaintiffs alleged that they were the owners of and in possession of certain lots in Block 6 Ashley’s Addition to Denver and that on May 9, 1942 certain owners of lots in said Block, including plaintiffs’ predecessors in title, entered into an agreement among themselves that the lots owned by them should not be sold or leased to colored persons and providing for forfeiture of any lots or parts of lots sold or leased in violation of the agreement to such of the then owners of other lots in said block who might place notice of their claims of record. Plaintiffs further alleged that they were colored persons of negro extraction and that any interest, or claim of any interest of defendants, under said agreement was without foundation or right and in violation of the Constitution of the United States and that said agreement was a cloud on plaintiffs’ title which should be removed. Plaintiffs prayed for a complete adjudication of the rights of all parties to the action. Defendants placed of record in the office of the Clerk and Recorder of the City and County of Denver a Notice of Claim asserting that they were owners of lots in said Block 6 embraced in the agreement above mentioned and asserted title to the property which is the subject matter of the complaint by virtue of said agreement. By their answer and counterclaim defendants alleged that they were the owners and entitled to the possession of the real estate described in the complaint by virtue of the forfeiture provisions in the above mentioned agreement, and prayed for a complete adjudication of the rights of all parties and a decree quieting their title to the property in question.

All facts were stipulated and trial was to the court.

The trial court entered a decree and Declaratory Judgment pursuant to Rules 105 and 57, R.C.P.Colo. The court found that the plaintiffs were the owners in fee simple of the property described in the complaint and quieted their title thereto free and clear of any right of enforcement or attempted enforcement of the restrictive covenant or the Notice of Claim filed by defendants. The court further adjudged and decreed that the restrictive covenant “may not be enforced by this court as a matter of law, as to enforce same by this court would be a violation of the equal protection clause of the Fourteenth Amendment of the United States Constitution, and the enforceability of same is hereby removed as a cloud upon the title of plaintiffs….” From the judgment and decree so entered the defendants bring the case here on writ of error.

The covenant or agreement under consideration was dated May 9, 1942 and the several signatories to the contract agreed for themselves, their heirs and assigns “not to sell or lease the said above described lots and parcels of land owned by them respectively … to any colored person or persons, and covenant and agree not to permit any colored person or persons to occupy said premises during the period from this date to January 1, 1990.” It further provided that if any of said property ‘shall be conveyed or leased in violation of this agreement’ the right, title or interest of the owner so violating the agreement “shall be forfeited to and rest in such of the then owners of all of said lots and parcels of land not included in such conveyance or lease who may assert title thereto by filing for record notice of their claim….”

The agreement also provided for an action to recover damages against any person or persons who violated the restriction, “or such owners may jointly or severally enforce or have their rights hereunder enforced by an action for specific performance, abatement, ejectment, or by injunction or any other proper judicial proceedings, which right shall be in addition to any and all right to the interest so conveyed or leased in violation of this agreement.’”

It is contended by counsel for defendants that the Supreme Court of the United States in Shelley v. Kraemer, 334 U.S. 1, 68 S.Ct. 836, 92 L.Ed. 1161, McGhee v. Sipes, 334 U.S. 1, 68 S.Ct. 836, 92 L.Ed. 1161 and Barrows v. Jackson, 346 U.S. 249, 73 S.Ct. 1031, 97 L.Ed. 1586, did not have before it an agreement “for automatic forfeiture, nor did any of them create a future interest in the land.” Counsel assert that they have no quarrel with these decisions stating that the Supreme Court “has been concerned solely with the question of judicial enforcement of restrictive covenants by injunction or by damages.”

Covenants such as the one here considered whether denominated “executory interests” or “future interests”, as urged by counsel for defendants, cannot change the character of what was here attempted.

Counsel for defendants contend that the agreement in question entered into by the predecessors in interest of plaintiffs and defendants did not create a “private antiracial restrictive covenant.” Instead they claim that it created a future interest in the land known as an executory interest. They assert “Such interest vested automatically in the defendants upon the happening of the events specified in the original instrument of grant, and the validity of the vesting did not in any way depend upon judicial action by the courts. The trial court’s failure and refusal to recognize the vested interest of the defendants, and its ruling that the defendants have no title or interest in or to the property, deprived the defendants of their property without just compensation and without due process of law.” We cannot agree.

In the amended complaint numerous persons, firms and corporations were named as defendants, but in designating the record to be filed in this court only the amended complaint, the answer and counterclaim of the defendants Whitney J. Armelin, Carmelita Armelin and Capitol Federal Savings and Loan Association, together with plaintiff’s reply thereto, the stipulation of facts together with the judgment and decree of the trial court, are specified. The record was amended on motion of Midland Federal Savings and Loan Association to include its answer in which the allegations of the amended complaint were admitted and said association prayed that plaintiffs be awarded the relief demanded in their amended complaint. We are not advised as to pleadings filed by the other defendants, including Robert E. Lee, Public Trustee and the City and County of Denver, who with the Midland Federal Savings and Loan Association are named as defendants in error in the instant case.

We are unable to rid ourselves of a strong impression that this writ of error is being prosecuted in the interest of title examiners, rather than in that of the property owners in Block 6 Ashley’s addition to Denver. In the brief of counsel for plaintiffs in error we find this significant language: “Title examiners are in constant apprehension as to whether a title may be passed where these restrictive covenants prevail, and we feel that we should call upon this Honorable Body as to the doubts of this decision.”

No matter by what arose terms the covenant under consideration may be classified by staute counsel, it is still a recial restriction in violation of the Fourteenth Amendment to the Federal Constitution. That this is so has been definitely settled by the decisions of the Supreme Court of the United States. High sounding phrases or outmoded common law terms cannot alter the effect of the agreement embraced in the instant case. While the hands may seem to be the hands of Esau to a blind Isaac, the voice is by astute counsel, it is still a racial restriction judicial approval or blessing to a contract such as is here involved.

In Shelley v. Kraemer, supra [334 U.S. 1, 68 S.Ct. 845], the Supreme Court of the United States said:

 

We hold that in granting judicial enforcement of the restrictive agreements in these cases, the States have denied petitioners the equal protection of the laws and that, therefore, the action of the state courts cannot stand. We have noted that freedom from discrimination by the States in the enjoyment of property rights was among the basic objectives sought to be effectuated by the framers of the Fourteenth Amendment. That such discrimination has occurred in these cases is clear. Because of the rece or color of these petitioners they have been denied rights of ownership or occupancy enjoyed as a matter of course by other citizens of different race or color. The Fourteenth Amendment declares “that all persons, whether colored, or white, shall stand equal before the laws of the States, and, in regard to the colored race, for whose protection the amendment was primarily designed, that no discrimination shall be made against them by law because of their color.” (Emphasis supplied.)

 

Because the language of the United States Supreme Court suggested that private racially restrictive covenants were not invalid per se, it was believed for some time that an action for damages might lie against one who violated such a covenant. A number of state courts adopted this position, and awarded damages against, those who, contrary to their agreements, had made sales of property to negroes or other persons within the excluded classes. This problem came to the attention of the Supreme Court of the United States in Barrows v. Jackson, 346 U.S. 249, 253-254, 258, 259, 73 S.Ct. 1031, 97 L.Ed. 1586, where it was held that although such a grantor’s constitutional rights were not violated, nevertheless the commodious protection of the Fourteenth Amendment extended to her and she could not be made to respond in damages for treating her restrictive covenant as a nullity.

Because the United States Supreme Court has extracted any teeth which such a covenant was supposed to have, no rights, duties or obligations can be based thereon.

The judgment is affirmed.

Frantz, J., not participating.

CERTIORARI TO THE SUPREME COURT OF MISSOURI.¹

George L. Vaughn and Herman Willer argued the cause and filed a brief for petitioners in No. 72. Earl Susman was also of counsel.

Thurgood Marshall and Loren Miller argued the cause for petitioners in No. 87. With them on the brief were Willis M. Graves, Francis Dent, William H. Hastie, Charles H. Houston, George M. Johnson, William R. Ming, Jr., James Nabrit, Jr., Marian Wynn Perry, Spottswood W. Robinson, III, Andrew Weinberger and Ruth Weyand.

By special leave of Court. Solicitor General Perlman argued the cause for the United States, as amicus curiae, supporting petitioners. With him on the brief was Attorney General Clark.

Gerald L. Seegers argued the cause for respondents in No. 72. With him on the brief was Walter H. Pollmann. Benjamin F. York was also of counsel.

Henry Gilligan and James A. Crooks argued the cause and filed a brief for respondents in No. 87. Lloyd T. Chockley was also of counsel.

Briefs of amici curiae supporting petitioners were filed by Perry W. Howard for the Civil Liberties Department, Grand Lodge of Elks, I.B.P.O.E.W.; Isaac Pacht, Irving Hill and Clore Warne; Robert McC. Marsh and Eugene Blanc, Jr. for the Protestant Council of New York City; Herbert S. Thatcher and Robert A. Wilson for the American Federation of Labor; Julius L. Goldstein for the Non-Sectarian Anti-Nazi League to Champion Human Rights, Inc.; Melville J. France for the General Council of Congregational Christian Churches et al.; Robert W. Kenny, O. John Rogge and Mozart G. Ratner for the National Lawyers Guild; Lee Pressman, Eugene Cotton, Frank Donner, John J. Abt, Leon M. Despres, M.H. Goldstein, Isadore Katz, David Rein, Samuel L. Rothbard, Harry Sacher, William Standard and Lindsay P. Walden for the Congress of Industrial Organizations et al.; Phineas Indritz, Irving R.M. Panzer and Richard A. Solomon for the American Veterans Committee; William Maslow, Shad Polier, Joseph B. Robison, Byron S. Miller and William Strong for the American Jewish Congress; Joseph M. Proskauer and Jacob Grumet for the American Jewish Committee et al.; William Strong for the American Indian Citizens League of California, Inc.; Francis M. Dent, Walter M. Nelson, Eugene H. Buder, Victor B. Harris, Luther Ely Smith and Harold I. Kahen for the American Civil Liberties Union; Earl B. Dickerson, Richard E. Westbrooks and Loring B. Moore for the National Bar Association; Alger Hiss, Joseph M. Proskauer and Victor Elting for the American Association for the United Nations; and Edward C. Park and Frank B. Frederick for the American Unitarian Association.

Briefs of amici curiae supporting respondents were filed by Roger J. Whiteford and John J. Wilson for the National Association of Real Estate Boards; Ray C. Eberhard and Elisabeth Eberhard Zeigler for the Arlington Heights Property Owners Association et al.; and Thomas F. Cadwalader and Carlyle Barton for the Mount Royal Protective Association, Inc.

Mr. Chief Justice Vinson delivered the opinion of the Court.

These cases present for our consideration questions relating to the validity of court enforcement of private agreements, generally described as restrictive covenants, which have as their purpose the exclusion of persons of designated race or color from the ownership or occupancy of real property. Basic constitutional issues of obvious importance have been raised.

The first of these cases comes to this Court on certiorari to the Supreme Court of Missouri. On February 16, 1911, thirty out of a total of thirty-nine owners of property fronting both sides of Labadie Avenue between Taylor Avenue and Cora Avenue in the city of St. Louis, signed an agreement, which was subsequently recorded, providing in part:

 

”… the said property is hereby restricted to the use and occupancy for the term of Fifty (50) years from this date, so that it shall be a condition all the time and whether recited and referred to as [sic] not in subsequent conveyances and shall attach to the land as a condition precedent to the sale of the same, that hereafter no part of said property or any portion thereof shall be, for said term of Fifty-years, occupied by any person not of the Caucasian race, it being intended hereby to restrict the use of said property for said period of time against the occupancy as owners or tenants of any portion of said property for resident or other purpose by people of the Negro or Mongolian Race.”

 

The entire district described in the agreement included fifty-seven parcels of land. The thirty owners who signed the agreement held title to forty-seven parcels, including the particular parcel involved in this case. At the time the agreement was signed, five of the parcels in the district were owned by Negroes. One of those had been occupied by Negro families since 1882, nearly thirty years before the restrictive agreement was executed. The trial court found that owners of seven out of nine homes on the south side of Labadie Avenue, within the restricted district and “in the immediate vicinity” of the premises in question, had failed to sign the restrictive agreement in 1911. At the time this action was brought, four of the premises were occupied by Negroes, and had been so occupied for periods ranging from twenty-three to sixty-three years. A fifth parcel had been occupied by Negroes until a year before this suit was instituted.

On August 11, 1945, pursuant to a contract of sale, petitioners Shelley, who are Negroes, for valuable consideration received from one Fitzgerald a warranty deed to the parcel in question.² The trial court found that petitioners had no actual knowledge of the restrictive agreement at the time of the purchase.

On October 9, 1945, respondents, as owners of other property subject to the terms of the restrictive covenant, brought suit in the Circuit Court of the city of St. Louis praying that petitioners Shelley be restrained from taking possession of the property and that judgment be entered divesting title out of petitioners Shelley and revesting title in the immediate grantor or in such other person as the court should direct. The trial court denied the requested relief on the ground that the restrictive agreement, upon which respondents based their action, had never become final and complete because it was the intention of the parties to that agreement that it was not to become effective until signed by all property owners in the district, and signatures of all the owners had never been obtained.

The Supreme Court of Missouri sitting en banc reversed and directed the trial court to grant the relief for which respondents had prayed. That court held the agreement effective and concluded that enforcement of its provisions violated no rights guaranteed to petitioners by the Federal Constitution.³ At the time the court rendered its decision, petitioners were occupying the property in question.

The second of the cases under consideration comes to this Court from the Supreme Court of Michigan. The circumstances presented do not differ materially from the Missouri case. In June, 1934, one Ferguson and his wife, who then owned the property located in the city of Detroit which is involved in this case, executed a contract providing in part:

 

“This property shall not be used or occupied by any person or persons except those of the Caucasian race.

 

 

“It is further agreed that this restriction shall not be effective unless at least eighty percent of the property fronting on both sides of the street in the block where our land is located is subjected to this or a similar restriction.”

 

The agreement provided that the restrictions were to remain in effect until January 1, 1960. The contract was subsequently recorded; and similar agreements were executed with respect to eighty percent of the lots in the block in which the property in question is situated.

By deed dated November 30, 1944. petitioners, who were found by the trial court to be Negroes, acquired title to the property and thereupon entered into its occupancy. On January 30, 1945, respondents, as owners of property subject to the terms of the restrictive agreement, brought suit against petitioners in the Circuit Court of Wayne County. After a hearing, the court entered a decree directing petitioners to move from the property within ninety days. Petitioners were further enjoined and restrained from using or occupying the premises in the future. On appeal, the Supreme Court of Michigan affirmed, deciding adversely to petitioners’ contentions that they had been denied rights protected by the Fourteenth Amendment.⁴

Petitioners have placed primary reliance on their contentions, first raised in the state courts that judicial enforcement of the restrictive agreements in these cases has violated rights guaranteed to petitioners by the Fourteenth Amendment of the Federal Constitution and Acts of Congress passed pursuant to that Amendment.⁵ Specifically, petitioners urge that they have been denied the equal protection of the laws, deprived of property without due process of law, and have been denied privileges and immunities of citizens of the United States. We pass to a consideration of those issues.

 

I.

 

Whether the equal protection clause of the Fourteenth Amendment inhibits judicial enforcement by state courts of restrictive covenants based on race or color is a question which this Court has not heretofore been called upon to consider. Only two cases have been decided by this Court which in any way have involved the enforcement of such agreements. The first of these was the case of Corrigan v. Buckley, 271 U.S. 323 (1926). There, suit was brought in the courts of the District of Columbia to enjoin a threatened violation of certain restrictive covenants relating to lands situated in the city of Washington. Relief was granted, and the case was brought here on appeal. It is apparent that that case, which had originated in the federal courts and involved the enforcement of covenants on land located in the District of Columbia, could present no issues under the Fourteenth Amendment; for that Amendment by its terms applies only to the States. Nor was the question of the validity of court enforcement of the restrictive covenants under the Fifth Amendment properly before the Court, as the opinion of this Court specifically recognizes.⁶ The only constitutional issue which the appellants had raised in the lower courts, and hence the only constitutional issue before this Court on appeal, was the validity of the covenant agreements as such. This Court concluded that since the inhibitions of the constitutional provisions invoked apply only to governmental action, as contrasted to action of private individuals, there was no showing that the covenants, which were simply agreements between private property owners, were invalid. Accordingly, the appeal was dismissed for want of a substantial question. Nothing in the opinion of this Court, therefore, may properly be regarded as an adjudication on the merits of the constitutional issues presented by these cases, which raise the question of the validity, not of the private agreements as such, but of the judicial enforcement of those agreements.

The second of the cases involving racial restrictive covenants was Hansberry v. Lee, 311 U.S. 32 (1940). In that case, petitioners, white property owners, were enjoined by the state courts from violating the terms of a restrictive agreement. The state Supreme Court had held petitioners bound by an earlier judicial determination, in litigation in which petitioners were not parties, upholding the validity of the restrictive agreement, although, in fact, the agreement had not been signed by the number of owners necessary to make it effective under state law. This Court reversed the judgment of the state Supreme Court upon the ground that petitioners had been denied due process of law in being held estopped to challenge the validity of the agreement on the theory, accepted by the state court, that the earlier litigation, in which petitioners did not participate, was in the nature of a class suit. In arriving at its result, this Court did not reach the issues presented by the cases now under consideration.

It is well, at the outset, to scrutinize the terms of the restrictive agreements involved in these cases. In the Missouri case, the covenant declares that no part of the affected property shall be “occupied by any person not of the Caucasian race, it being intended hereby to restrict the use of said property … against the occupancy as owners or tenants of any portion of said property for resident or other purpose by people of the Negro or Mongolian Race.” Not only does the restriction seek to proscribe use and occupancy of the affected properties by members of the excluded class, but as construed by the Missouri courts, the agreement requires that title of any person who uses his property in violation of the restriction shall be divested. The restriction of the covenant in the Michigan case seeks to bar occupancy by persons of the excluded class. It provides that “This property shall not be used or occupied by any person or persons except those of the Caucasian race.”

It should be observed that these covenants do not seek to proscribe any particular use of the affected properties. Use of the properties for residential occupancy, as such, is not forbidden. The restrictions of these agreements, rather, are directed toward a designated class of persons and seek to determine who may and who may not own or make use of the properties for residential purposes. The excluded class is defined wholly in terms of race or color; “simply that and nothing more.”⁷

It cannot be doubted that among the civil rights intended to be protected from discriminatory state action by the Fourteenth Amendment are the rights to acquire, enjoy, own and dispose of property. Equality in the enjoyment of property rights was regarded by the framers of that Amendment as an essential pre-condition to the realization of other basic civil rights and liberties which the Amendment was intended to guarantee.⁸ Thus, § 1978 of the Revised Statutes, derived from § 1 of the Civil Rights Act of 1866 which was enacted by Congress while the Fourteenth Amendment was also under consideration,⁹ provides:

 

“All citizens of the United States shall have the same right, in every State and Territory, as is enjoyed by white citizens thereof to inherit, purchase, lease, sell, hold, and convey real and personal property.”¹⁰

 

This Court has given specific recognition to the same principle. Buchanan v. Warley, 245 U.S. 60 (1917).

It is likewise clear that restrictions on the right of occupancy of the sort sought to be created by the private agreements in these cases could not be squared with the requirements of the Fourteenth Amendment if imposed by state statute or local ordinance. We do not understand respondents to urge the contrary. In the case of Buchanan v. Warley, supra, a unanimous Court declared unconstitutional the provisions of a city ordinance which denied to colored persons the right to occupy houses in blocks in which the greater number of houses were occupied by white persons, and imposed similar restrictions on white persons with respect to blocks in which the greater number of houses were occupied by colored persons. During the course of the opinion in that case, this Court stated: “The Fourteenth Amendment and these statutes enacted in furtherance of its purpose operate to qualify and entitle a colored man to acquire property without state legislation discriminating against him solely because of color.”¹¹

In Harmon v. Tyler, 273 U.S. 668 (1927), a unanimous court, on the authority of Buchanan v. Warley, supra, declared invalid an ordinance which forbade any Negro to establish a home on any property in a white community or any white person to establish a home in a Negro community, “except on the written consent of a majority of the persons of the opposite race inhabiting such community or portion of the City to be affected.”

The precise question before this Court in both the Buchanan and Harmon cases involved the rights of white sellers to dispose of their properties free from restrictions as to potential purchasers based on considerations of race or color. But that such legislation is also offensive to the rights of those desiring to acquire and occupy property and barred on grounds of race or color is clear, not only from the language of the opinion in Buchanan v. Warley, supra, but from this Court’s disposition of the case of Richmond v. Deans, 281 U.S. 704 (1930). There, a Negro, barred from the occupancy of certain property by the terms of an ordinance similar to that in the Buchanan case, sought injunctive relief in the federal courts to enjoin the enforcement of the ordinance on the grounds that its provisions violated the terms of the Fourteenth Amendment. Such relief was granted, and this Court affirmed, finding the citation of Buchanan v. Warley, supra, and Harmon v. Tyler, supra, sufficient to support its judgment.¹²

But the present cases, unlike those just discussed, do not involve action by state legislatures or city councils. Here the particular patterns of discrimination and the areas in which the restrictions are to operate, are determined, in the first instance, by the terms of agreements among private individuals. Participation of the State consists in the enforcement of the restrictions so-defined. The crucial issue with which we are here confronted is whether this distinction removes these cases from the operation of the prohibitory provisions of the Fourteenth Amendment.

Since the decision of this Court in the Civil Rights Cases, 109 U.S. 3 (1883), the principle has become firmly embedded in our constitutional law that the action inhibited by the first section of the Fourteenth Amendment is only such action as may fairly be said to be that of the States. That Amendment erects no shield against merely private conduct, however discriminatory or wrongful.¹³

We conclude, therefore, that the restrictive agreements standing alone cannot be regarded as violative of any rights guaranteed to petitioners by the Fourteenth Amendment. So long as the purposes of those agreements are effectuated by voluntary adherence to their terms, it would appear clear that there has been no action by the State and the provisions of the Amendment have not been violated. Cf. Corrigan v. Buckley, supra.

But here there was more. These are cases in which the purposes of the agreements were secured only by judicial enforcement by state courts of the restrictive terms of the agreements. The respondents urge that judicial enforcement of private agreements does not amount to state action; or, in any event, the participation of the State is so attenuated in character as not to amount to state action within the meaning of the Fourteenth Amendment. Finally, it is suggested, even if the States in these cases may be deemed to have acted in the constitutional sense, their action did not deprive petitioners of rights guaranteed by the Fourteenth Amendment. We move to a consideration of these matters.

 

II.

 

That the action of state courts and judicial officers in their official capacities is to be regarded as action of the State within the meaning of the Fourteenth Amendment, is a proposition which has long been established by decisions of this Court. That principle was given expression in the earliest cases involving the construction of the terms of the Fourteenth Amendment. Thus, in Virginia v. Rives, 100 U.S. 313, 318 (1880), this Court stated: “It is doubtless true that a State may act through different agencies, — either by its legislative, its executive, or its judicial authorities; and the prohibitions of the amendment extend to all action of the State denying equal protection of the laws, whether it be action by one of these agencies or by another.” In Ex parte Virginia, 100 U.S. 339, 347 (1880), the Court observed: “A State acts by its legislative, its executive, or its judicial authorities. It can act in no other way.” In the Civil Rights Cases, 109 U.S. 3, 11, 17 (1883), this Court pointed out that the Amendment makes void “State action of every kind” which is inconsistent with the guaranties therein contained, and extends to manifestations of “State authority in the shape of laws, customs, or judicial or executive proceedings.” Language to like effect is employed no less than eighteen times during the course of that opinion.¹⁴

Similar expressions, giving specific recognition to the fact that judicial action is to be regarded as action of the State for the purposes of the Fourteenth Amendment, are to be found in numerous cases which have been more recently decided. In Twining v. New Jersey, 211 U.S. 78, 90-91 (1908), the Court said: “The judicial act of the highest court of the State, in authoritatively construing and enforcing its laws, is the act of the State.” In Brinkerhoff-Faris Trust & Savings Co. v. Hill, 281 U.S. 673, 680 (1930), the Court, through Mr. Justice Brandeis, stated: “The federal guaranty of due process extends to state action through its judicial as well as through its legislative, executive or administrative branch of government.” Further examples of such declarations in the opinions of this Court are not lacking.¹⁵

One of the earliest applications of the prohibitions contained in the Fourteenth Amendment to action of state judicial officials occurred in cases in which Negroes had been excluded from jury service in criminal prosecutions by reason of their race or color. These cases demonstrate, also, the early recognition by this Court that state action in violation of the Amendment’s provisions is equally repugnant to the constitutional commands whether directed by state statute or taken by a judicial official in the absence of statute. Thus, in Strauder v. West Virginia, 100 U.S. 303 (1880), this Court declared invalid a state statute restricting jury service to white persons as amounting to a denial of the equal protection of the laws to the colored defendant in that case. In the same volume of the reports, the Court in Ex parte Virginia, supra, held that a similar discrimination imposed by the action of a state judge denied rights protected by the Amendment, despite the fact that the language of the state statute relating to jury service contained no such restrictions.

The action of state courts in imposing penalties or depriving parties of other substantive rights without providing adequate notice and opportunity to defend, has, of course, long been regarded as a denial of the due process of law guaranteed by the Fourteenth Amendment. Brinkerhoff-Faris Trust & Savings Co. v. Hill, supra. Cf. Pennoyer v. Neff, 95 U.S. 714 (1878).¹⁶

In numerous cases, this Court has reversed criminal convictions in state courts for failure of those courts to provide the essential ingredients of a fair hearing. Thus it has been held that convictions obtained in state courts under the domination of a mob are void. Moore v. Dempsey, 261 U.S. 86 (1923). And see Frank v. Mangum, 237 U.S. 309 (1915). Convictions obtained by coerced confessions,¹⁷ by the use of perjured testimony known by the prosecution to be such,¹⁸ or without the effective assistance of counsel,¹⁹ have also been held to be exertions of state authority in conflict with the fundamental rights protected by the Fourteenth Amendment.

But the examples of state judicial action which have been held by this Court to violate the Amendment’s commands are not restricted to situations in which the judicial proceedings were found in some manner to be procedurally unfair. It has been recognized that the action of state courts in enforcing a substantive common-law rule formulated by those courts, may result in the denial of rights guaranteed by the Fourteenth Amendment, even though the judicial proceedings in such cases may have been in complete accord with the most rigorous conceptions of procedural due process.²⁰ Thus, in American Federation of Labor v. Swing, 312 U.S. 321 (1941), enforcement by state courts of the common-law policy of the State, which resulted in the restraining of peaceful picketing, was held to be state action of the sort prohibited by the Amendment’s guaranties of freedom of discussion.²¹ In Cantwell v. Connecticut, 310 U.S. 296 (1940), a conviction in a state court of the common-law crime of breach of the peace was, under the circumstances of the case, found to be a violation of the Amendment’s commands relating to freedom of religion. In Bridges v. California, 314 U.S. 252 (1941), enforcement of the state’s common-law rule relating to contempts by publication was held to be state action inconsistent with the prohibitions of the Fourteenth Amendment.²² And cf. Chicago, Burlington and Quincy R. Co.v. Chicago, 166 U.S. 226 (1897).

The short of the matter is that from the time of the adoption of the Fourteenth Amendment until the present, it has been the consistent ruling of this Court that the action of the States to which the Amendment has reference includes action of state courts and state judicial officials. Although, in construing the terms of the Fourteenth Amendment, differences have from time to time been expressed as to whether particular types of state action may be said to offend the Amendment’s prohibitory provisions, it has never been suggested that state court action is immunized from the operation of those provisions simply because the act is that of the judicial branch of the state government.

 

III.

 

Against this background of judicial construction, extending over a period of some three-quarters of a century, we are called upon to consider whether enforcement by state courts of the restrictive agreements in these cases may be deemed to be the acts of those States; and, if so, whether that action has denied these petitioners the equal protection of the laws which the Amendment was intended to insure.

We have no doubt that there has been state action in these cases in the full and complete sense of the phrase. The undisputed facts disclose that petitioners were willing purchasers of properties upon which they desired to establish homes. The owners of the properties were willing sellers; and contracts of sale were accordingly consummated. It is clear that but for the active intervention of the state courts, supported by the full panoply of state power, petitioners would have been free to occupy the properties in question without restraint.

These are not cases, as has been suggested, in which the States have merely abstained from action, leaving private individuals free to impose such discriminations as they see fit. Rather, these are cases in which the States have made available to such individuals the full coercive power of government to deny to petitioners, on the grounds of race or color, the enjoyment of property rights in premises which petitioners are willing and financially able to acquire and which the grantors are willing to sell. The difference between judicial enforcement and nonenforcement of the restrictive covenants is the difference to petitioners between being denied rights of property available to other members of the community and being accorded full enjoyment of those rights on an equal footing.

The enforcement of the restrictive agreements by the state courts in these cases was directed pursuant to the common-law policy of the States as formulated by those courts in earlier decisions.²³ In the Missouri case, enforcement of the covenant was directed in the first instance by the highest court of the State after the trial court had determined the agreement to be invalid for want of the requisite number of signatures. In the Michigan case, the order of enforcement by the trial court was affirmed by the highest state court.²⁴ The judicial action in each case bears the clear and unmistakable imprimatur of the State. We have noted that previous decisions of this Court have established the proposition that judicial action is not immunized from the operation of the Fourteenth Amendment simply because it is taken pursuant to the state’s common-law policy.²⁵ Nor is the Amendment ineffective simply because the particular pattern of discrimination, which the State has enforced, was defined initially by the terms of a private agreement. State action, as that phrase is understood for the purposes of the Fourteenth Amendment, refers to exertions of state power in all forms. And when the effect of that action is to deny rights subject to the protection of the Fourteenth Amendment, it is the obligation of this Court to enforce the constitutional commands.

We hold that in granting judicial enforcement of the restrictive agreements in these cases, the States have denied petitioners the equal protection of the laws and that, therefore, the action of the state courts cannot stand. We have noted that freedom from discrimination by the States in the enjoyment of property rights was among the basic objectives sought to be effectuated by the framers of the Fourteenth Amendment. That such discrimination has occurred in these cases is clear. Because of the race or color of these petitioners they have been denied rights of ownership or occupancy enjoyed as a matter of course by other citizens of different race or color.²⁶ The Fourteenth Amendment declares “that all persons, whether colored or white, shall stand equal before the laws of the States, and, in regard to the colored race, for whose protection the amendment was primarily designed, that no discrimination shall be made against them by law because of their color.”²⁷Strauder v. West Virginia, supra at 307. Only recently this Court had occasion to declare that a state law which denied equal enjoyment of property rights to a designated class of citizens of specified race and ancestry, was not a legitimate exercise of the state’s police power but violated the guaranty of the equal protection of the laws. Oyama v. California, 332 U.S. 633 (1948). Nor may the discriminations imposed by the state courts in these cases be justified as proper exertions of state police power.²⁸ Cf. Buchanan v. Warley, supra.

Respondents urge, however, that since the state courts stand ready to enforce restrictive covenants excluding white persons from the ownership or occupancy of property covered by such agreements, enforcement of covenants excluding colored persons may not be deemed a denial of equal protection of the laws to the colored persons who are thereby affected.²⁹ This contention does not bear scrutiny. The parties have directed our attention to no case in which a court, state or federal, has been called upon to enforce a covenant excluding members of the white majority from ownership or occupancy of real property on grounds of race or color. But there are more fundamental considerations. The rights created by the first section of the Fourteenth Amendment are, by its terms, guaranteed to the individual. The rights established are personal rights.³⁰ It is, therefore, no answer to these petitioners to say that the courts may also be induced to deny white persons rights of ownership and occupancy on grounds of race or color. Equal protection of the laws is not achieved through indiscriminate imposition of inequalities.

Nor do we find merit in the suggestion that property owners who are parties to these agreements are denied equal protection of the laws if denied access to the courts to enforce the terms of restrictive covenants and to assert property rights which the state courts have held to be created by such agreements. The Constitution confers upon no individual the right to demand action by the State which results in the denial of equal protection of the laws to other individuals. And it would appear beyond question that the power of the State to create and enforce property interests must be exercised within the boundaries defined by the Fourteenth Amendment. Cf. Marsh v. Alabama, 326 U.S. 501 (1946).

The problem of defining the scope of the restrictions which the Federal Constitution imposes upon exertions of power by the States has given rise to many of the most persistent and fundamental issues which this Court has been called upon to consider. That problem was foremost in the minds of the framers of the Constitution, and, since that early day, has arisen in a multitude of forms. The task of determining whether the action of a State offends constitutional provisions is one which may not be undertaken lightly. Where, however, it is clear that the action of the State violates the terms of the fundamental charter, it is the obligation of this Court so to declare.

The historical context in which the Fourteenth Amendment became a part of the Constitution should not be forgotten. Whatever else the framers sought to achieve, it is clear that the matter of primary concern was the establishment of equality in the enjoyment of basic civil and political rights and the preservation of those rights from discriminatory action on the part of the States based on considerations of race or color. Seventy-five years ago this Court announced that the provisions of the Amendment are to be construed with this fundamental purpose in mind.³¹ Upon full consideration, we have concluded that in these cases the States have acted to deny petitioners the equal protection of the laws guaranteed by the Fourteenth Amendment. Having so decided, we find it unnecessary to consider whether petitioners have also been deprived of property without due process of law or denied privileges and immunities of citizens of the United States.

For the reasons stated, the judgment of the Supreme Court of Missouri and the judgment of the Supreme Court of Michigan must be reversed.

Reversed.

Mr. Justice Reed, Mr. Justice Jackson and Mr. Justice Rutledge took no part in the consideration or decision of these cases.