DUNNING V. BUENDING, 2011-NMCA-010, 149
N.M. 260, 247 P.3d 1145
ROBERT DUNNING, MICHELLE DUNNING, DON
MARVEL, BARBARA HAU, RICHARD GOLDMAN, USUN GOLDMAN, LARRY WALL, BETSY WALL,
JOHN KERN, LOUISE KERN, JOHN CULLINAN AND THE JEANNE C. COMPTON TRUST, Plaintiffs-Appellants,
v.
NANCY BUENDING and PENOBSCOT DEVELOPMENT CO., a New Mexico
corporation, Defendants-Appellees.
COURT OF APPEALS OF NEW MEXICO
2011-NMCA-010, 149 N.M. 260, 247 P.3d 1145
APPEAL FROM THE DISTRICT COURT OF TAOS COUNTY, Sam B.
Sanchez, District Judge.
Certiorari Denied, January 3, 2011, No.
32,718. Released for Publication February 15, 2011.
Natelson Law Firm, Jacob D. Caldwell,
Taos, NM, for Appellants.
Carol A. Neelley, P.C., Carol A. Neelley,
Taos, NM, for Appellee.
CYNTHIA A. FRY, Chief Judge. WE CONCUR:
JAMES J. WECHSLER, Judge, TIMOTHY L. GARCIA, Judge.
{1} Plaintiffs, the
owners of nine lots in the Eastern Nighthawk Trail area of a subdivision near
Taos, New Mexico, appeal the district court’s entry of summary judgment in
favor of Defendant Nancy Buending, the owner of one lot in the same area.
Plaintiffs filed suit against Defendant for declaratory judgment, seeking
enforcement of a restriction allegedly prohibiting Defendant from subdividing
her property. Defendant filed a motion for summary judgment, arguing that the
restriction was unenforceable because Defendant had no notice of the existence
of a common development scheme at the time she purchased her property. The
district court granted summary judgment in Defendant’s favor, and Plaintiffs
appeal. We reverse.
{2} In 1988, Edmund
Lary formed two corporations, Penobscot Development Company (Penobscot) and
Cumberland Land Corporation (Cumberland), to own, divide, and sell a 123-acre
tract of property in Taos County, New Mexico. Lary was the president and owner
of both corporations. Through the two companies, Lary acquired the majority of
the 123-acre tract. Within the 123 acres was a 37.875-acre tract on the eastern
side of Nighthawk Trail, which the parties refer to as the Eastern Nighthawk
Trail tract (the Tract). Individually and through his two corporations, Lary
then divided the 37.875 acres into thirteen individual lots. Of the thirteen
lots, Penobscot and Lary each owned four and Cumberland owned five. The entire
123-acre tract was governed by a declaration of covenants (the Restriction)
recorded on July 15, 1988, that, among other things, provided that “no lot may
be subdivided into less than one acre.”
{3} In 1989, Defendant
purchased a 4.2-acre lot in the Tract from Penobscot. According to Defendant,
when she entered into the purchase agreement for her property, the real estate
agent told her that she would be able to subdivide her 4.2-acre lot into
one-acre parcels, and she received written restrictions that reflected her
ability to subdivide. After closing, however, Defendant received a deed to the
property in the mail that contained a restriction prohibiting all subdivision.
The warranty deed provided to Defendant stated that it was “[s]ubject to patent
reservations, restrictions, easements, mineral rights, and water rights of
record, if any, except that the restrictions attached hereto as Exhibit B are
substituted for those of record.” Contrary to the recorded Restriction, the
restrictions attached to the deed provided that “[n]o lot may be subdivided.”
According to Defendant, she called her real estate agent to express her dismay and
was told that the restriction in the deed “meant [that she] would be able to
subdivide if [she] lived on the property for more than three years.” Defendant
also attested that she visited the property three times prior to purchasing it
and that none of the surrounding land had any improvements by which she could
have inferred that there was a plan for restriction other than the one-acre
subdivision limitation contained in the Restriction.
{4} According to the
affidavit of one of Plaintiffs’ witnesses, Lary had expressed a desire to
prohibit subdivision in the Tract because he wanted to limit the density of
construction in that area due to the enhanced desirability of those lots. Of
the thirteen lots in the Tract, two comprised less than two acres each and thus,
they could not be subdivided further due to the one-acre subdivision limitation
contained in the Restriction. The deeds to three lots sold in 1989, including
Defendant’s, contained the restriction that expressly prohibited all
subdivision. The remaining lots were all sold after Lary’s death in 1990, and
the deeds to those lots did not contain express restrictions against
subdivision. However, subsequent purchasers of lots in the Tract were informed
prior to their purchases that they could not subdivide their properties and
received copies of restrictions that reflected the prohibition on all
subdivision.
{5} In 2000, Defendant
sought and obtained a “corrected” warranty deed from Penobscot that purported
to revert the restrictions imposed by Defendant’s initial deed back to the
Restriction of record, thereby allowing Defendant to subdivide her property
into separate parcels as long as each parcel was at least one acre. Plaintiffs
filed suit seeking either to invalidate the corrected warranty deed or to reform
the corrected deed and obtain a judicial declaration that Defendant is bound by
the prohibition against subdivision contained in her initial deed. Plaintiffs
alleged that the restriction in Defendant’s initial deed was intended to
benefit the properties adjoining and surrounding her lot and that the
Plaintiffs relied on the existence of the restrictions when they purchased
property in the area. Plaintiffs contended they were told that this restriction
applied to all of the lots in the Tract and prohibited any subdivision.
{6} Defendant filed a
motion for summary judgment, arguing that Plaintiffs were seeking to enforce an
implied restriction that existed solely by virtue of a common plan of
development and that she did not have actual or constructive notice of the
plan. Defendant contended that the only restriction in place at the time she
purchased her property was the Restriction’s prohibition on dividing lots into
parcels smaller than one acre and that there were no facts or circumstances
putting Defendant on notice that there was a common plan to completely prohibit
subdivision. In response, Plaintiffs argued that they were seeking to enforce
the express covenant attached to Defendant’s deed, not an implied covenant
stemming from a common plan. Following a hearing, the district court concluded
that there were no issues of material fact and that Defendant was entitled to a
judgment as a matter of law. The court entered summary judgment in favor of
Defendant, and this appeal ensued.
{7} We review a
district court’s decision to grant summary judgment de novo.
Maestas v.
Zager,
2007-NMSC-003, ¶ 8,
141 N.M. 154,
152 P.3d 141. In doing so, we view
the facts in the light most favorable to the non-moving party and indulge all
reasonable inferences in support of a trial on the merits.
Ocana v. Am.
Furniture Co.,
2004-NMSC-018, ¶ 12,
135 N.M. 539,
91 P.3d 58. Summary
judgment is appropriate when, viewing the facts in the light most favorable to
the non-moving party, there is no genuine issue of material fact and the movant
is entitled to judgment as a matter of law.
Id.
{8} Defendant argues
that summary judgment was appropriate because Plaintiffs failed to show that
there was a common development plan in existence at the time she purchased her
property that would have put her on notice of the restriction prohibiting
subdivision. Plaintiffs argue that summary judgment was improper because
Defendant failed to make a prima facie case for summary judgment. Specifically,
Plaintiffs contend that there are genuine issues of material fact regarding
whether the restriction in Defendant’s deed was intended to run with the land
such that they are entitled to enforce it. Plaintiffs argue that the fact that
Defendant was not aware of any neighborhood characteristics evidencing a common
scheme or plan is irrelevant because Defendant had actual notice of the
restriction on her property.
Servitudes versus Covenants
{9} As one commentator
has aptly noted, “[t]he law of easements, real covenants, and equitable
servitudes is the most complex and archaic body of American property law
remaining in the twentieth century.” Susan F. French,
Toward a Modern Law of
Servitudes: Reweaving the Ancient Strands, 55 S. Cal. L. Rev. 1261, 1261
(1982). Because of this complexity, we begin our analysis of Plaintiffs’ appeal
by attempting to clarify the law of restrictive covenants and equitable
servitudes in New Mexico. Plaintiffs sued Defendant to enforce the covenant
contained in Defendant’s deed. The law relied on by both parties appears to use
the terms “equitable servitude” and “restrictive covenant” interchangeably.
See,
e.g.,
Lex Pro Corp. v. Snyder Enters., Inc.,
100 N.M. 389, 390-91,
671 P.2d 637, 638-39 (1983) (using the test for an equitable servitude to
determine when “a restrictive covenant [runs] in equity” and holding that the
language created a restrictive covenant binding on the defendant);
Sharts v.
Walters,
107 N.M. 414, 416,
759 P.2d 201, 203 (Ct. App. 1988) (noting that
the doctrine of implied reciprocal negative servitudes is also referred to as
implied restrictive covenants or equitable servitudes).
{10} Fortunately, the
Restatement (Third) of Property: Servitudes recently clarified that
“[h]istorically, there were significant differences between real covenants and
equitable servitudes” because the former were enforceable only at law and the
latter only in equity. Restatement (Third) of Property: Servitudes § 1.4, cmt.
a (2000). The Restatement explains that under modern law, “the differences
between the two were gradually reduced to the point where they made little
difference in the world of land development” and concludes that “[b]ecause
continued use of the terms ‘real covenant’ and ‘equitable servitude’
perpetuates the idea that there is a difference between covenants at law and in
equity,” those terms should be abandoned in favor of the more accurate term,
“covenant running with [the] land.”
Id. (internal quotation marks
omitted). Because we see no practical distinction in our case law between
equitable servitudes and restrictive covenants that would necessitate the
continued use of separate terms,
see Lex Pro, 100 N.M. at 390-91, 671
P.2d at 638-39, we adopt the reasoning of the Restatement and conclude that the
term “covenant running with [the] land” is a more accurate description of these
restrictions on the use of property. Consequently, this appeal centers on
whether the restrictions attached to Defendant’s initial deed created an
enforceable covenant running with the land.
{11} New Mexico case law
sets out the following requirements to establish an enforceable covenant
running with the land: “(1) the covenant must touch and concern the land[,] (2)
the original covenanting parties must intend the covenant to run [with the
land,] and (3) the successor to the burden must have notice of the covenant.”
Id.
at 391, 671 P.2d at 639. The Restatement appears to have abandoned the first
and third requirements for a variety of reasons.
See Restatement (Third)
of Property: Servitudes § 1.4, cmt. a (noting that “[t]he notice requirement of
equity was never significant in American law because constructive notice given
by a recorded instrument met the requirement, and the recording acts protected
bona fide purchasers without notice”); Restatement (Third) of Property:
Servitudes § 3.2 (2000) (stating that “[n]either the burden nor the benefit of
a covenant is required to touch or concern land in order for the covenant to be
valid as a servitude”). However, because our Supreme Court has not formally
rejected the requirements set out in
Lex Pro, we analyze the evidence in
this case in accordance with those requirements.
See Aguilera v. Palm Harbor
Homes, Inc.,
2002-NMSC-029, ¶ 6,
132 N.M. 715,
54 P.3d 993 (explaining that
the Court of Appeals is bound by Supreme Court precedent).
Defendant Failed to Make a Prima
Facie Showing Entitling Her to Summary Judgment on Two Elements of a Covenant
Running with the Land, and Plaintiffs Established Material Issues of Fact on
the Third Element
{12} Having established
the elements of a covenant running with the land, we consider whether summary
judgment in favor of Defendant was appropriate. Plaintiffs argue that Defendant
failed to make a prima facie showing entitling her to summary judgment because
she “obfuscated the legal issue” central to the case. In the district court and
on appeal, Defendant relies exclusively on the contention that she could
subdivide her lot if she established that there was no general plan of
development of which she had notice that would give rise to an implied
non-subdivision restriction. We conclude that this contention begs the question
of whether the restriction in Defendant’s initial deed constituted a covenant
running with the land.
{13} The existence of a
general plan of development can be relevant to the determination of whether an
enforceable covenant running with the land exists in three ways. First, a
general development plan can be used to prove that the covenanting parties
intended a covenant to run with the land.
See Rowe v. May,
44 N.M. 264,
272,
101 P.2d 391, 396 (1940) (noting that the inclusion of identical language
in all deeds in an area expressed the grantor’s intention that the restriction
was for the benefit of all lots in the area). Second, the existence of a common
development plan can be used to prove that a purchaser had notice of the
covenant.
Pollock v. Ramirez,
117 N.M. 187, 192,
870 P.2d 149, 154 (Ct.
App. 1994) (explaining that, in the absence of actual notice, if “the land in
question exhibits a uniform appearance, and the property, along with the
buildings or other structures thereon, evidence a general plan or common scheme
of development, sufficient to place the purchasers upon notice of the plan or
scheme,” the purchaser is on inquiry notice of the existence of the
restrictions). Third, the existence of a common development plan can be used to
impose restrictions on parcels of land in a common development even if the
restrictions have been omitted from the deeds of the property against which a
party seeks to enforce the restrictions.
See Sharts, 107 N.M. at
417, 759 P.2d at 204.
{14} While the existence
of a common development plan can be used to determine whether a covenant is
enforceable and whether a restriction applies to property in a subdivision that
is not expressly restricted, a covenant running with the land “does not require
a common scheme or plan.”
Cypress Gardens, Ltd. v. Platt,
1998-NMCA-007,
¶ 15,
124 N.M. 472,
952 P.2d 467. Instead, as we have explained, the covenant
will be enforceable if the covenant touches and concerns the land, if the
original parties intended the covenant to run with the land, and if the
successor to the burden is on notice of the covenant.
Lex Pro, 100 N.M.
at 391, 671 P.2d at 639 (analyzing whether a restriction was intended to run
with the land without considering whether a common plan or scheme existed).
Once the three requirements have been met, a covenant may be enforced against
the party who bears the burden of the covenant by the party who receives the
benefit of the burden.
See Rowe, 44 N.M. at 267, 101 P.2d at 393 (noting
that surrounding property owners may enforce a covenant if it runs within the
land for the benefit of all property owners with a restricted area).
{15} Consequently, in
order to establish her entitlement to summary judgment, Defendant had to make a
prima facie showing that one of the three requirements of an enforceable
covenant running with the land was absent. We conclude that either Defendant
failed to make such a showing or Plaintiffs raised genuine issues of material
fact.
First Requirement: That the
Covenant Touches and Concerns the Land
{16} With respect to the
first element, determining whether the covenant touches and concerns the land
requires an objective analysis that focuses on the contents of the covenant
itself.
Cypress Gardens, Ltd.,
1998-NMCA-007, ¶ 8. A burden touches and
concerns the land if its performance renders the covenantor’s interest in the
land less valuable while rendering the covenantee’s interest in the land more
valuable.
Lex Pro, 100 N.M. at 391, 671 P.2d at 639. The restriction in
Defendant’s initial deed by its express terms placed a burden on Defendant’s
interest in her property while placing a benefit on Plaintiffs’ interest in
their property. Defendant’s property is burdened by the restriction prohibiting
subdivision, and Plaintiffs are benefitted by being able to enjoy a lower
density of construction in their area. Defendant’s evidence established only
that she did not see anything in the area surrounding her lot suggesting that
there was a general plan limiting subdivision other than the one contained in
the Restriction. However, this absence of an observable general plan does not
negate the express language in the initial deed.
{17} Although Defendant’s
arguments lack clarity, she appears to contend that the only written
restriction on the use of her property was that contained in the Restriction
and that she can ignore the covenant included in her initial deed because of
the contrary representations made by her real estate agent prior to the
delivery of the deed, to the effect that Defendant would be allowed to
subdivide her lot into one-acre parcels. We fail to understand this contention,
especially given the established law that “[t]hough the terms of [a] deed may
vary from those contained in the contract [to convey], the deed alone must be
looked to to determine the rights of the parties.”
Norment v. Turley,
24
N.M. 526, 529,
174 P. 999, 1000 (1918). In our view, Defendant failed to make a
prima facie showing that the covenant in the deed did not touch and concern the
land.
Second Requirement: That the
Parties Intended the Covenant to Run with the Land
{18} In assessing the
second requirement, because the deed does not specify that the covenant is to
run with the land, we consider “the circumstances surrounding the transaction
and the object of the parties in making the restriction.”
Lex Pro, 100
N.M. at 391, 671 P.2d at 639. This requires us to consider whether both the
burden and the benefit of the covenant were intended to run with the land.
Id.
Defendant made a prima facie showing that the grantor may not have intended the
benefit of the covenant to run with the land because all of the deeds to
property in the Tract did not contain the language Plaintiffs were seeking to
enforce.
Cf. Rowe, 44 N.M. at 272, 101 P.2d at 396 (noting that the
inclusion of identical language in all deeds in an area expressed the grantor’s
intention that the covenant was for the benefit of all lots in the area).
{19} However, Plaintiffs
presented evidence raising a question of fact on this element. Specifically,
Plaintiffs provided evidence that identical restrictions were placed in the deeds
to some of the lots surrounding Defendant’s lot and that purchasers whose deeds
did not contain the express restriction were told that they were prohibited
from subdividing. Further, Plaintiffs presented evidence that Lary had
expressly stated that he wanted the Tract to be bound by a restriction against
subdivision because of the unique layout of the land in that area and his
desire to limit the density there. This evidence raises a question of fact
regarding whether the grantor’s intent was to create a covenant running with
the land.
Third Requirement: That
Defendant Had Notice
{20} Finally, with
respect to the third requirement, notice, Defendant’s primary argument on
appeal is that Plaintiffs failed to produce evidence that she had knowledge of
a common development plan at the time she purchased her property. Defendant
contends that knowledge of the plan is the “
sin[e] qua non for
enforcement of a ‘common plan.’” Contrary to Defendant’s argument, however,
“[w]hen a party has actual notice, there is no legal need to imply notice from
the existence of a common scheme or plan.”
Cypress Gardens, Ltd.,
1998-NMCA-007, ¶ 15. Thus, if Defendant had actual knowledge of the covenant,
it is irrelevant that the characteristics of the neighborhood did not alert her
to the fact that she was prohibited from subdividing her property.
{21} Defendant
acknowledges that the deed she received contained an express restriction on her
ability to subdivide her property. Despite this acknowledgment, Defendant
argues that she did not have actual notice of the restriction because her real
estate agent told her prior to the purchase that she could subdivide as long as
the ensuing parcels were not less than one acre each.
{22} As previously noted,
“[t]hough the terms of the deed may vary from those contained in the contract,
the deed alone must be looked to to determine the rights of the parties.”
Norment,
24 N.M. at 529, 174 P. at 1000. Because the deed Defendant accepted expressly
stated that she was prohibited from subdividing her property, Plaintiffs had a
factual basis for arguing that Defendant had actual notice of the covenant,
despite her agent’s oral representations. As a result, Defendant failed to make
a prima facie showing that she did not have notice.
{23} For the foregoing
reasons, we reverse summary judgment in favor of Defendant and remand for
proceedings consistent with this opinion.
CYNTHIA A. FRY, Chief Judge
Topic Index for Dunning v. Buending, Docket No.
28,836
PR-RC Restrictive
Covenants