Restrictive Covenants

Restrictive Covenants The case of Shawver v. Huckleberry was a dispute between the plaintiffs, Scott and Mary Shawver (Shawvers), and the defendant, Huckleberry Estates, L.L.C. (Huckleberry), an Idaho limited partnership, over the applicability of restrictive covenants to a land-sales contract between the parties. The Shawvers alleged that Huckleberry breached the parties' sales agreement by making amendments to the restrictive covenants applicable to the property.

Those amendments rendered the Shawvers proposed house designs nonconforming and Huckleberry refused to allow the Shawvers to build the proposed house design on the property in question. The Shawvers brought suit against Huckleberry for specific performance of the sale agreement. The district court granted judgment in favor of the Shawvers, awarding specific performance of the sale agreement, subject only to the original covenant. Both parties appealed from the district court's decision and the Idaho Supreme Court reversed the district court's decision.

The resolution of the case depended on the applicability of restrictive covenants and amendments to those restrictive covenants to the parties' sale agreement. A brief summary of the factual background is necessary in order to understand why the court determined that the amendments to the restrictive covenants, in addition to the original restrictions, governed the parties' agreement. On November 9, 1999 the parties executed an agreement to reserve a lot for the Shawvers.

At that time, Huckleberry's agent provided the Shawvers with a copy of the draft restrictive covenants (draft CC& Rs). The draft CC& Rs provided specific guidelines for houses built in the Huckleberry Estates. The Shawvers designed a house that met the requirements of the draft CC& Rs. On July 21, 2000, Huckleberry recorded the original restrictive covenants (original CC& Rs) for the subdivision.

The original CC& Rs contained an amendment provision, which provided for amendment of any provision of the CC& Rs upon written approval of at least 75% of the lot owners. On July 28, 2000, a sales agreement was delivered by Huckleberry to the Shawvers. The Shawvers signed the agreement and delivered it to Huckleberry on August 17, 2000. The agreement contained an indication by the Shawvers that they obtained and reviewed the applicable CC& Rs. On August 8, 2000, the Shawvers submitted plans for their home to Huckleberry. On August 11, 2000, Huckleberry rejected the plans.

On August 28, 2000, Huckleberry recorded amendments to the original CC& Rs (first amended CC& Rs), which prevented the Shawvers from building their house as planned. On August 31, 2000, the Shawvers conditionally tendered the balance of the purchase price to a closing agent, on the condition that their purchase be governed by the original CC& Rs and not the first amended CC& Rs.

The Shawvers contended that the first amended CC& Rs were invalid because Huckleberry alone did not constitute 75% of the lot owners, which was the percentage required for the adoption of a valid amendment under the original CC& Rs. However, on July 23, 2001, Huckleberry recorded a second amendment to the original CC& Rs (second amended CC& Rs), which contained the same provisions as the first amended CC& Rs, but was approved by over 75% of the existing lot owners, as required by the original CC& Rs.

The Shawvers did not contest the validity of the second amended CC& Rs. The district court found that Huckleberry had breached the parties' sale agreement by making an invalid amendment to the original CC& Rs. However, the Supreme Court agreed with Huckleberry's contention that the first amended CC& Rs, although invalid, did not violate the terms of the sales agreement. The language in the sales agreement was clear and unambiguous.

The original CC& Rs, which were incorporated by reference into the parties' sales agreement, provided that the original CC& Rs could be amended by written consent of 75% of the property owners. The express terms of the sales agreement provided that the Shawvers were purchasing property governed by restrictive covenants. Restrictive covenants are valid under the law. The Supreme Court determined that the Shawvers had not right under the parties' agreement to override the amendment provision.

Furthermore, the Supreme Court disagreed with the Shawver's contention that Huckleberry's conduct constituted a breach of the covenant of good faith and fair dealing. No covenant of good faith and fair dealing could be implied where to do so would be contrary to the express terms of the contract negotiated and executed.