Harper Development, Inc. and Bobby Henley v. Jack Albert et al.

ca01-272

ARKANSAS COURT OF APPEALS

NOT DESIGNATED FOR PUBLICATION

KAREN R. BAKER, JUDGE

DIVISION IV

HARPER DEVELOPMENT, INC. and BOBBY HENLEY

APPELLANTS

V.

JACK ALBERT, ET AL.

APPELLEES

CA01-272

NOVEMBER 28, 2001

APPEAL FROM THE SALINE COUNTY CHANCERY COURT

[NO. E-00-831-1]

HONORABLE ROBERT WILSON GARRETT, CHANCELLOR

AFFIRMED

This appeal is brought from two interlocutory orders of the Saline County Chancery Court granting injunctive relief against appellants, Harper Development, Inc., PMT, LLC, and Bobby Henley, at the request of appellees Jack and Diana Albert, Robert and Doris Cullison, Richard and Sue Weatter, and Rose Lody, who own property in the Shady Meadows subdivision in Alexander. The first preliminary injunction prohibited appellants from using their property in the subdivision in a manner inconsistent with the subdivision's first amendment to the original bill of assurance, and prohibited the placing of mobile or manufactured homes on the property. The second preliminary injunction enjoined appellants from amending any bill of assurance relating to property within the subdivision. We affirm.

Procedural History and Facts

In July 1986, Fred Selz acquired approximately 670 acres in Saline county. On October 8,

1986, Fred and Miriam Selz conveyed their interests in approximately 649 acres of this land to Shady Meadows, Inc. (hereafter "SMI"). Mr. Selz held a controlling interest in Selz Realty Company and SMI. SMI then platted the property into the Shady Meadows subdivision and filed a survey map. SMI filed a bill of assurance referencing 108.151 acres on April 7, 1987, which stated in paragraph ten: "No trailer, Mobile Home, Sectional Structure, basement, tent, garage, or other outbuilding, except as permitted in paragraph one hereof, shall be permitted, temporarily or permanently, and none of such outbuildings, other than guest house or servants' quarters, shall be used for human habitation."

Paragraph one provided in part:

Said land herein platted shall be held, owned, and used only as residential building sites, except as otherwise shown on said plat. No structure shall be erected, altered, placed or permitted to remain on any residential building site other than a single, detached, single-family dwelling, except for such lots which may be identified on the plat for multiple-family dwelling purposes.

Paragraph twenty-three provided for amendments as follows:

Any and all of the covenants, provisions, or restrictions set forth in this Bill of Assurance may be amended, modified, extended, changed, or cancelled, in whole or in part, by a written instrument signed and acknowledged by the owner or owners of over 50% in area of the land in this addition, including lands adjacent to any platted parts of this addition, owned by the Allotter, and included in the overall preliminary plat of the addition filed with the Saline County Planning Board; provided, any such amendment shall be subject to approval by the Saline County Planning Board. The provisions of such instrument so executed and approved shall be binding from and after the date it is duly filed for record in Saline County, Arkansas. The covenants, restrictions, and provisions of this instrument shall be deemed covenants running with the land and shall remain in full force and effect unless and until amended or cancelled as authorized hereinbefore.

SMI filed a first amendment to the bill of assurance that referenced the entire 649 acres on May 18, 1987, which stated:

Allotter hereby adopts the following amendments to Bill of Assurance:

1. Land Use and Building Type. Said land herein platted shall be held, owned, and used only as residential building sites, except as otherwise shown on said plat. No structure shall be erected, altered, placed, or permitted to remain on any residential building site other than a single, detached,

single-family dwelling, except for such lots which may be identified on the plat for multiple-family dwelling purposes....

Appellees purchased their lots between May 18, 1987, and July 24, 1987; therefore, the original bill of assurance and the first amendment were in their chains of title. Except for Ms. Lody, all of the appellees built houses on their lots.

SMI filed a second amendment to the bill of assurance on August 11, 1987, for the stated purpose of "correcting the legal description of the land included under said Bill of Assurance" and describing the property included therein to reflect only the original 108 acres.1 None of the appellees were aware of the second amendment to the bill of assurance until this dispute arose.

SMI filed a bill of assurance covering 76.67 acres, for Phase II of the subdivision, in May 1990. In February 1996, SMI filed a bill of assurance that referenced 40.32 acres for Phase III. The bill of assurance for Phase IV filed in September 1998 contained 38.69 acres. These bills of assurance contained similar amendment provisions and limitations on use.

SMI conveyed property in the subdivision to appellant Bobby Henley in 1994. He placed a mobile home on his property.

Mr. and Mrs. Selz conveyed their remaining property to SMI on May 2, 2000. The same day, appellant Harper Development purchased from SMI approximately 350 acres, whichrepresented most of the unsold land in the subdivision. Harper Development then sold this property, with the exception of forty acres, to PMT, LLC. Harper Development and PMT, which have a joint venture to develop and market this property, and have looked into the feasibility of constructing a mobile-home development there.

After appellees became aware of appellants' interest in developing a mobile-home park, appellees and approximately ninety other owners of property in Shady Meadows subdivision sued

SMI, Fred Selz, Miriam Selz, Selz Realty Company, Kenny Harper, Harper Development, Inc., Weyerhauser Company, and Bobby Henley in July 2000, for injunctive relief forbidding the development of mobile housing within the overall property and requiring appellant Henley to remove the mobile home from his lot.

Appellants filed motions to dismiss on the ground that there is no document of public record restricting the use of their property. The chancellor denied those motions. In September 2000, the plaintiffs moved to sever the claims against "the Selz defendants" (Mr. and Mrs. Selz, Selz Realty Company, and SMI) and the claims of all plaintiffs except the seven appellees from this lawsuit and to transfer them to circuit court, and to non-suit their claims against Weyerhauser. In the alternative, appellees asked the court to dismiss those claims without prejudice. On September 22, 2000, Henley and Harper Development filed a cross-complaint against SMI.

The chancellor held a hearing to address the severance and dismissal issues, as well as the plaintiffs' request for a preliminary injunction, on September 22, 2000. In an order entered November 28, 2000, the chancellor denied the plaintiffs' motion for severance and transfer and dismissed all plaintiffs except appellees from this action. All of appellees' claims against SMI, Fred Selz, Selz Realty Company, and Kenny Harper were dismissed without prejudice. The chancelloralso granted injunctive relief to appellees finding that the placement of mobile homes in the subdivision would diminish appellees' property values and that they stood a substantial likelihood of ultimately prevailing on the merits. The chancellor prohibited appellants from developing the property in a manner inconsistent with the first amendment to the bill of assurance and specifically prohibited the placing of mobile or manufactured homes there.

SMI moved for declaratory judgment and an injunction on November 20, 2000, alleging that appellants' attorney had informed its attorney by letter that appellants intended to file an amendment removing all restrictions to the bills of assurance for Phases I through IV of the subdivision. Appellants admitted that this letter stated:

Should we be unable to come to some agreement ... it is my intention to appeal the granting of the preliminary injunction and to amend the present bills of assurance to permit mobile homes and/or manufactured housing. Since PMT and HDI own well in excess of 50% of the acreage in Shady Meadows subdivision, and in light of the Eagle Mortgage [Corp. v. Johnson, 244 Ark. 765, 427 S.W.2d 550 (1968)] case, such an amendment would appear to be an absolute right. I leave it to you to determine the extent of liability, if any, to which such action might expose your client, and to evaluate this proposal accordingly.

In February 2001, the chancellor granted SMI's request for declaratory judgment and an injunction. He found that appellants "do not have the authority to amend the bills of assurance relating to property located within the Shady Meadows Subdivision, and that said [appellants] are hereby enjoined from amending or attempting to amend any bill of assurance relating to property located within the Shady Meadows Subdivision."

Appellants appeal both preliminary injunctions. Appellants argue that the chancellor erred in entering the first injunction because: (1) appellees made no showing of irreparable harm; (2) appellees did not establish a likelihood of success on the merits. Appellants claim that appellees failed to establish a likelihood of success on the merits because (a) there is no "effective" restriction of use covering their property in the real estate records; (b) the first amendment to the bill ofassurance did not expand the area covered by the original bill; and (c) appellees bought their property subject to restrictions that can be amended. Appellants also contend that the chancellor erred in enjoining them from amending the bills of assurance.

Preliminary Injunctions

Despite the lack of a final order, this court may exercise its appellate jurisdiction over an interlocutory order by which an injunction is granted, pursuant to Ark. R. App. P. - Civ. 2(a)(6). Villines v. Harris, 340 Ark. 319, 11 S.W.3d 516 (2000). When considering an order that grants an injunction, the appellate court will not delve into the merits of the case further than is necessary to determine whether the chancery court exceeded its discretion; the sole question before the reviewing court is whether the court departed from the rules and principles of equity in making its order. Custom Microsys., Inc. v. Blake, 344 Ark. 536, 42 S.W.3d 453 (2001). A preliminary injunction is provisional in nature and is granted before there has been a determination of the rights of the parties. See Dan B. Dobbs Law of Remedies, § 2.11(1) (2d ed. 1993). The common function of a preliminary injunction is to maintain the status quo until the merits of the controversy are decided. See American Investors Life Ins. Co. v. TCB Transp., Inc., 312 Ark. 343, 849 S.W.2d 509 (1993). Even though the merits of the case are not decided, the party seeking a preliminary injunction must demonstrate a likelihood of success on the merits of the claim for a permanent injunction as well as the likelihood that, absent the granting of preliminary relief, irreparable harm will occur. See Smith v. American Trucking Ass'n, Inc., 300 Ark. 594, 781 S.W.2d 3 (1989).

Restrictive Covenants

In this case, the likelihood of success on the merits of the claim involves an analysis of restrictive covenants. The covenants restricting the use of land arise out of a contract imposing on the grantor and grantee of the land the obligation to observe the restrictions. Moore v. Adams, 200Ark. 810, 141 S.W.2d 46 (1940). Restrictive covenants are disfavored because of the repugnance of restrictions on the use of land to trade, commerce, recognized business policy, and common law rights to use lands for all lawful purposes. Casebeer v. Beacon Realty, Inc., 248 Ark. 22, 449 S.W.2d 701 (1970). Consequently, restrictive covenants are strictly construed against limitations upon the free use of property with all doubts resolved in favor of the unfettered use of land. Baldischwiler v. Atkins, 315 Ark. 32, 864 S.W.2d 853 (1993). However, this rule of strict construction is limited by the basic doctrine of taking the plain meaning of the language employed, Holaday v. Fraker, 323 Ark. 522, 920 S.W.2d 4 (1996), and shall not be applied in such a way as to defeat the plain and obvious purpose of the restriction. Holmesley v. Walk, 72 Ark. App. 433, 39 S.W.3d 463 (2001). The general rule governing interpretation, application, and enforcement of restrictive covenants is that the intention of the parties, as shown by the covenant, governs. Holaday v. Fraker, supra. However, one taking title to land with notice that it is subject to an agreement restricting its use will not, in equity and good conscience, be permitted to violate its terms. Holaday v. Fraker, supra; Holmesley v. Walk, supra.

Arkansas Code Annotated section 18-12-103 (1987) provides:

No restrictive or protective covenants affecting the use of real property nor any instrument purporting to restrict the use of real property shall be valid or effective against a subsequent purchaser or owner of real property unless the restrictive or protective covenants or instrument purporting to restrict the use of the real property is executed by owners of the real property and recorded in the office of the recorder of the county in which the property is located.

There must also be a general plan of development. The importance of a general plan of development is that, in its absence, a restrictive covenant cannot be enforced. Forrest Constr., Inc. v. Milam, 345 Ark. 1, 43 S.W.3d 140 (2001); Clifford Family Ltd. Liab. Co. v. Cox, 334 Ark. 64, 971 S.W.2d 769 (1998); McGuire v. Bell, 297 Ark. 282, 761 S.W.2d 904 (1988). However, generalplan of development, standing alone, cannot create a restriction. Forrest Constr., Inc. v. Milam, supra.

··²

d

²····²

_ d

²··Threat of Irreparable Harm

Appellants contend that appellees failed to demonstrate that the creation of a mobile-home development in Shady Meadows was imminent or that one would have a negative impact on the value of appellees' property. We find no abuse of discretion in the chancellor's preliminary finding that the placement of mobile homes on the Shady Meadows subdivision property would materially, imminently, and irreparably harm the appellees in that it would diminish the property values of appellee's property. As discussed above, our review is limited to whether the court departed from the rules and principles of equity in making its order. Custom Microsys., Inc. v. Blake, supra. Appellants contend that appellees' failure to prove that a mobile home development was actually underway precluded the court from entering an order maintaining the status quo of the parties. Appellants' testimony included an appraisal which showed that a mobile home development was a potential use of the property. We hold that the court did not abuse its discretion in prohibiting the appellants from beginning a mobile home development given that the common function of a preliminary injunction is to maintain the status quo until the merits of the controversy are decided, and an acknowledged potential use of the property was for such a development. See American Investors Life Ins. Co. v. TCB Transp., Inc., supra.

Likelihood of Success on the Merits

Appellants assert that there is no document filed of public record that currently restricts the use of their property. They introduced the affidavit of Harry Allen, the president of Saline County Abstract & Guaranty Company, in which he stated that no "effective" bill of assurance was in the chain of title for Mr. Henley's property. Further, appellees admitted in paragraph twenty-five oftheir amended complaint that no document filed of public record restricts the development of one-half of the overall Shady Meadows property (the subdivision and the "buffer" zone). According to appellants, it is undisputed that their property lies within this unrestricted area and that the original bill of assurance and the three later bills did not cover their property.

In support of their position, appellants cite Knowles v. Anderson, 307 Ark. 393, 821 S.W.2d 466 (1991), where the supreme court held that a purchaser of land with respect to which there is no use restriction in his chain of title, may not be required to comply with a general development scheme of which he may have notice by observation of conditions surrounding his land. In so holding, the supreme court relied upon Arkansas Code Annotated section 18-12-103 and rejected the imposition of a reciprocal negative easement on land subsequently purchased by an innocent third party. The supreme court held that there must be restrictions in the grantee's chain of title and a general plan of development before a restrictive covenant is enforceable and added: "As the Harbour [v. Northwest Land Co., 284 Ark. 286, 681 S.W.2d 384 (1984)] opinion makes clear, it is proper to consider whether a general plan of development exists when determining whether a written covenant or restriction contained in the chain of title of the party seeking to avoid the restrictions remains valid." Id. 307 Ark. at 399, 821 S.W.2d at 469.

This case is not entirely similar to Knowles, however, because there is a document purporting to restrict the use of appellants' property in their chains of title - the first amendment to the original bill of assurance, which purported to cover all 649 acres. Whether that amendment effectively covered the entire 649 acres and whether it is still valid in light of the second amendment to the bill of assurance are issues yet to be determined. It can be argued that under the authority of Warren v. Detlefsen, 281 Ark. 196, 663 S.W.2d 710 (1984), there is outstanding question of whether or not SMI's remaining property was subject to a reciprocal negative easement and that SMI's secondamendment to the original bill of assurance was not effective. If the second amendment was not effective, the first amendment would remain in effect. Additionally, it is difficult to characterize Harper and PMI as innocent purchasers. Under these facts, we cannot say that the court departed from principles of equity in issuing the preliminary injunction until the merits of the controversy are decided.

Whether the First Amendment Expanded the Restricted Area

Appellants contend that the first amendment to the bill of assurance did not actually increase the area covered by the bill to 649 acres. According to appellants, the amendment only changed paragraphs one and two and did not purport to amend the legal description of the covered area. Appellants add that the second amendment to the bill of assurance made it clear that the first amendment's legal description was an error. Therefore, appellants argue, the second amendment to the bill of assurance should be given retroactive effect. However, the cases cited by appellants in support of their position, refer only to parties with notice; they do not address situations where the rights of innocent third parties, such as appellees, have arisen in reliance upon a bill of assurance.

Whether Appellees Can Avoid the Effect of the Second Amendment

and Prevent Further Amendments

Appellants argue that appellees cannot contest the validity of the second amendment to the original bill of assurance because the original bill clearly provided for amendments by the owners of over fifty percent of the area of land in this subdivision. They argue that, pursuant to Eagle Mortgage Corp. v. Johnson, 244 Ark. 765, 427 S.W.2d 550 (1968), the provision providing for amendments in the first amendment to the original bill of assurance was valid.

In Eagle Mortgage the homeowners sought an injunction preventing the placing of mobile homes in the subdivision and presented evidence that, before they purchased their lots, they had been assured by the developer that all of the lots were subject to such a restriction; however, theydid not read the bill of assurance, which permitted amendments. Holding the amendment provision effective, the supreme court concluded:

Certainly, we can understand the position of the appellees, and the desire of those who have built their homes, to maintain the original restrictions; however, Paragraph 12 was a part of the bill of assurance when the lots were purchased, and therefore, all lot purchasers were on notice that the restrictions could be modified, or canceled, in whole or in part.

244 Ark. at 772, 427 S.W.2d at 554.

Appellants assert that the chancellor erred in enjoining them from amending the bills of assurance. They contend that the original bill of assurance's amendment provision gave them, as owners of over fifty percent of the area of land in this addition, the power to amend the restrictions. In the second injunction, the chancellor found that appellants do not have the authority to amend the bills of assurance, but did not explain his reasoning. Although the legal arguments on both sides are strong, there are issues of fact to be litigated, and the facts established at trial will determine the applicability of the law. We find no abuse of discretion in the chancellor's decision to grant these preliminary injunctions and maintain the status quo pending resolution of the lawsuit on the merits.

Accordingly, we affirm.

Hart and Vaught, JJ., agree.

1 The record filed in this appeal, however, does not contain a complete copy of this exhibit; in the copy provided at page 136 of the transcript, part of the legal description, including the total acreage, is omitted. According to appellants, there is no dispute that the second amendment to the bill of assurance changed the legal description to include only 108 acres. One could argue, however, that appellants have failed to bring up a record sufficient to demonstrate error. See City of Benton v. Arkansas Soil and Water Comm'n, 345 Ark. 249, 45 S.W.3d 805 (2001).