Opinion
No. COA10-114
Filed 15 February 2011 This case not for publication
Appeal by defendants from judgment entered 31 July 2009 by Judge James U. Downs in Clay County Superior Court. Heard in the Court of Appeals 26 October 2010.
James V. Parker, Jr., for plaintiff-appellee. Wake Forest University School of Law Appellate Advocacy Clinic, by John J. Korzen and Megan Curran , for defendants-appellants.
Appearing pursuant to Section .0200, Rules Governing Practical Training of Law Students, Rules and Regulations of The North Carolina State Bar.
Clay County No. 08 CVS 173.
This is an action to declare the rights of the parties with respect to restrictive covenants applicable to the High Homes Subdivision in Clay County, North Carolina. The parties agree that in 1976, J.D. Heiskell and his wife, E. Lorraine Heiskell, developed High Homes Subdivision (the "subdivision"), and recorded a plat in the Clay County Register of Deeds. The Heiskells also recorded "covenants, agreements, conditions and restrictions" (the "covenants") in Deed Book 80 at page 150. The covenants pertain to the use and development of land in the subdivision, and are the subject of this appeal.
The subdivision consists of sixteen lots. Lots 1 and 2 are the southernmost lots; those lots border the north side of U.S. Highway 64, which runs east and west. Lots 1 and 2 are separated by a 30-foot private road which runs north into the subdivision from U.S. Highway 64. Lot 1 is to the west of the private road and is owned by Mountain Home Nursing Service; it is currently a vacant lot. Lot 2 is to the east of the private road; Lots 3 and 4 are adjacent to Lot 2 to the north. Lot 4 borders the east side of the private road, and Lot 3 is located adjacent to, and east of, Lot 4. Lots 3 and 4 each contain approximately 1.2 acres, each roughly half the size of Lot 2, which contains approximately 3.1 acres.
In June 1983, E. Lorraine Heiskell, widow, conveyed Lots 3 and 4 to Michael J. Begley, then Bishop of the Roman Catholic Diocese of Charlotte, North Carolina (the "Diocese"). In November 1983, Richard Berguin and wife, Mildred E. Berguin, conveyed Lot 2 to the Diocese. Currently, the Immaculate Heart of Mary Catholic Church (the "Church") and an accompanying parking lot are located on Lot 2. In 2001, plaintiff, Robert Haas, and his wife, Jo Ann Haas, purchased Lot 13, a 3.4-acre tract, which is located further to the north on the private road.
The deeds to each of these lots reference the recorded covenants and restrictions, which provide, in relevant part:
And, whereas, it is the desire of the owners to place certain restrictions upon these lands in the event of the sale thereof in order to provide a residential area restricted as to the use thereof.
NOW, THEREFORE, in consideration of the premises and for the protection of the purchasers of said lands the following restrictions and conditions are placed upon all the lands as follows:
. . . .
2. No house trailers, mobile homes, or tents shall be placed or parked upon these lands nor permanently attached or affixed to said lands, except that these may be used temporarily while constructing a dwelling house, but no longer than 6 months.
3. Dwellings erected on any lot or tract shall be restricted to single family dwellings with a minimum of 850 square feet of living space, exclusive of porches, carports, garages or basement, with only one utility building or garage with each dwelling. Not more than one dwelling shall be constructed per acre of land.
4. No commercial enterprise may be carried on upon said lands except upon lots 1 and 2, and commercial buildings shall not be limited as to number of buildings per acre or size.
5. No buildings may be located less than 20 feet from any property line.
6. There shall be no outdoor privies and all dwelling houses build [sic] on any parcel shall have inside toilet facilities with underground septic tank sewage disposal as approved by the N.C. State Health Department.
7. No animals or fowls shall be permitted to be kept upon any of these lands except household pets.
8. No junked or disabled automobiles shall be allowed to remain upon any of these lands.
9. No activity shall be carried on or any condition allowed to exist upon these lands which creates a condition offensive to the neighborhood as considered by the prevailing attitudes in the community as to what constitutes offensive conditions.
. . . .
These covenants, agreements, conditions and restrictions shall constitute an easement and servitude upon all lands or sites conveyed by the sub-dividers particularly described herein and shall remain in force and effect for a period of 25 years from date hereof, and shall be binding upon the original purchaser and his/her heirs, successors and assigns, and shall automatically extend for successive periods of 10 years each unless by a vote of the majority of the then owners of the residential lots in this sub-division it is agreed to change them in whole or in part.
(Emphasis added.)
In February 2008, the Church announced plans to expand its facilities on Lot 2 and to construct paved parking areas on Lots 3 and 4 to accommodate 141 parking spaces. In August 2008, plaintiff filed this action seeking a declaratory judgment that defendants are prohibited by the recorded covenants and restrictions from constructing "a parking lot or church structure not used for residential purposes on any lot situated in High Homes Subdivision, including but not limited to Lots 3 and 4." By counterclaim, defendants sought a declaratory judgment "to determine the question of construction of the restrictive covenants, to answer the following question:"
Is the construction of a church parking lot by defendants on Lot Nos. 3 and 4 of High Homes Subdivision prohibited by the restrictive covenants affecting said lots?
After a brief bench trial, the trial court entered its "Order" in which it concluded the Heiskells had, "by prohibiting any and all commercial enterprise therein, except for Lots 1 and 2," restricted the lots in the subdivision to residential use, and declared that the construction of paved parking areas on Lots 3 and 4 is in violation of the restriction. Defendants appeal.
"In construing restrictive covenants, the fundamental rule is that the intention of the parties governs, and that their intention must be gathered from study and consideration of all the covenants contained in the instrument or instruments creating the restrictions." Long v. Branham, 271 N.C. 264, 268, 156 S.E.2d 235, 238 (1967).
Covenants and agreements restricting the free use of property are strictly construed against limitation upon such use. Such restrictions will not be aided or extended by implication or enlarged by construction to affect lands not specifically described, or to grant rights to persons in whose favor it is not clearly shown such restrictions are to apply. Doubt will be resolved in favor of the unrestricted use of property, so that where the language of a restrictive covenant is capable of two constructions, the one that limits, rather than the one which extends it, should be adopted, and that construction should be embraced which least restricts the free use of the land.
Id. at 268, 156 S.E.2d at 239 (internal quotation marks omitted).
I.
Defendants first contend the trial court erred by concluding that "the construction of paved parking areas on Lots 3 and 4 of the High Homes Subdivision . . . is in violation of the restrictive covenants prohibiting commercial activity." We agree.
"[E]ach part of the covenant must be given effect according to the natural meaning of the words, provided that the meanings of the relevant terms have not been modified by the parties to the undertaking." J.T. Hobby Son, Inc. v. Family Homes of Wake Cty., Inc., 302 N.C. 64, 71, 274 S.E.2d 174, 179 (1981). Paragraph 4 of the covenants expressly states, "No commercial enterprise may be carried on upon said lands except upon lots 1 and 2, and commercial buildings shall not be limited as to number of buildings per acre or size." The Church's planned expansion on Lot 2 involves extending its sanctuary to accommodate additional parishioners attending religious services and constructing a community room to accommodate social and community service activities. The paved parking areas on Lots 3 and 4 will accommodate these functions. Such use of Lots 3 and 4 does not fall within the natural meaning of the carrying on of a commercial enterprise. Thus, by its express terms, this covenant does not prohibit the construction of paved parking areas on Lots 3 and 4 to accommodate the Church. See White v. Town of Emerald Isle, 82 N.C. App. 392, 396, 346 S.E.2d 176, 178-79 (holding that covenants prohibiting business and commercial activity, restricting use of land to residential purposes, and allowing "structures . . . commonly associated with the use of ocean beaches [which] are designated, designed and intended primarily for the [convenience] and safety of persons entitled to use said beach" did not preclude using the property for a free, fourteen-space parking lot (second alteration in original)), disc. review denied, 318 N.C. 511, 349 S.E.2d 874 (1986); Fitzwilliam v. Wesley United Methodist Church, 882 S.W.2d 343, 345 (Mo. Ct. App. 1994) (reasoning that "[a] church is certainly not a commercial or business enterprise" because "[f]inancial gain is not the motive of the organization," and therefore holding that a residential use restriction did not preclude the construction of a church parking lot); see also Wiggins v. Young, 57 S.E.2d 486, 487 (Ga. 1950) (holding that a "restriction against the use of property `for any business purpose,' . . . is not violated by the erection of a church building").
II.
Defendants next contend the trial court erred by concluding that "the Heiskells formulated, drafted and recorded restrictive covenants restricting the lots in said subdivision to residential use only by prohibiting any and all commercial enterprise therein, except for Lots 1 and 2." Again, we agree.
Ambiguous terms in covenants must be interpreted according to what they meant when the subdivision became subject to the covenants which, when a subdivision is complete, occurs upon execution of the covenants. Claremont Prop. Owners Ass'n v. Gilboy, 142 N.C. App. 282, 288, 542 S.E.2d 324, 328 (2001). In determining the parties' intention when the language in the instrument is ambiguous, the court "must look to the language of the instrument, the nature of the restriction, the situation of the parties, and the circumstances surrounding their transaction." Runyon v. Paley, 331 N.C. 293, 305, 416 S.E.2d 177, 186 (1992).
None of the covenants themselves restrict use of the lots to residential use. Instead, the preamble to the covenants states, "it is the desire of the owners to place certain restrictions upon these lands in the event of the sale thereof in order to provide a residential area restricted as to the use thereof." Although the covenants contain specific restrictions generally characteristic of residential development, they also permit the carrying on of commercial enterprises on Lots 1 and 2. The only other mention of residential use in the covenants is a reference in a concluding paragraph to the "then owners of the residential lots." (Emphasis added.) Without a covenant clearly restricting use of Lots 3 and 4 to residential purposes, we are not permitted to infer such a restriction. See Long, 271 N.C. at 268, 156 S.E.2d at 239.
Nor are we permitted to infer such a restriction from the preamble. First, the language of this paragraph, which expresses the "desire of the owners to place certain restrictions upon these lands in the event of the sale thereof in order to provide a residential area restricted as to the use thereof," is not itself a restriction; instead it is an expression of the Heiskells' primary purpose of providing a residential area. Cf. Wein II, LLC v. Porter, 198 N.C. App. 472, 481-82, 683 S.E.2d 707, 714 (2009) (discussing "vocabulary and tone" of covenants and holding that, although expressing a preferred location for a driveway, the covenants contained no language preventing the plaintiff from siting its driveway elsewhere). Second, the term "residential area" envisions an area characterized mainly by residential use, in which most, but not all lots will be put to residential use. The evidence shows that Lots 3 and 4, together, contain less acreage than Lot 2 and less acreage than the Haas' property, Lot 13. Therefore, the presence of the parking areas on Lots 3 and 4 still preserves the "residential area" intended by the Heiskells.
Moreover, to interpret the preamble as a residential restriction on all lots would render it inconsistent with paragraph 4, which permits the carrying on of commercial enterprises on Lots 1 and 2. See Winding Ridge Homeowners Ass'n v. Joffe, 184 N.C. App. 629, 641, 646 S.E.2d 801, 808-09 (2007) (Geer, J., dissenting), rev'd per curiam for reasons stated in dissent, 362 N.C. 225, 657 S.E.2d 356 (2008) (reading a single-family dwelling restriction as a use rather than a structural restriction would be "internally inconsistent" because the contract permitted a two-person housekeeping unit with no restriction on who could live in that unit). Furthermore, "each part of a contract which contains a restrictive covenant must be interpreted in such a manner that each portion of the covenant is given effect if that can be done by fair and reasonable intendment." Hobby, 302 N.C. at 74-75, 274 S.E.2d at 181. Even in light of their stated intent to provide a "residential area," the Heiskells deemed it necessary to provide that, "No commercial enterprise may be carried on upon said lands." To interpret the "residential area" preamble as a covenant restricting all lots to residential use would render the "no commercial enterprise" restriction mere surplusage. See id. at 75, 274 S.E.2d at 181.
Our Courts have recognized that the intent of developers at the time of the execution of restrictive covenants "may be gleaned from actions undertaken by the developers, both prior to and subsequent to the execution of the covenants." Claremont, 142 N.C. App. at 289, 542 S.E.2d at 329. An examination of the surrounding circumstances in this case indicates that the Heiskells did not intend to restrict Lots 3 and 4 to residential use. Ms. Heiskell's conveyance of Lots 3 and 4 to the Diocese in 1983 suggests that the Heiskells, in creating the covenants six years earlier, did not intend to restrict all lots to residential use. See Long, 271 N.C. at 274, 156 S.E.2d at 243 (holding that the developers' intent to prohibit the building of a road over lots in a subdivision could be inferred from the developers believing it was necessary to amend the covenants to allow for the building of a semi-private driveway over a lot in the subdivision); Claremont, 142 N.C. App. at 290, 542 S.E.2d at 329 (holding that the developers' intent to assess fees according to the division of the lots as established by the original plat could be inferred from the developers' continued payment of fees for two lots following their filing of a new plat combining them into one).
"[C]ovenants are not favored by the law, and they will be strictly construed to the end that all ambiguities will be resolved in favor of the unrestrained use of land." Hobby, 302 N.C. at 70, 274 S.E.2d at 179 (citation omitted). The application of strict construction to the covenants in this case simply does not permit us to broadly construe the "residential area" preamble and to infer that because the covenants contain restrictions generally characteristic of residential development, Lots 3 and 4 are restricted to residential use. Accordingly, because the covenant prohibiting the carrying on of a commercial enterprise does not preclude the presence of the parking areas on Lots 3 and 4, and because the covenants fall short of restricting lots 3 and 4 to residential use, we must reverse the trial court's declaratory judgment in favor of plaintiff.
Reversed.
Judges STEPHENS and STROUD concur.
Report per Rule 30(e).