Johnson v. Pattison

• Decision Date: 09 April 1971
• Docket Number: No. 54140,54140
• Citation: 185 N.W.2d 790
• Parties: A J. JOHNSON, Appellee and Cross Appellant, v. Bernard PATTISON, John Pattison and James Pattison, Appellants and Cross Appellees.
• Court: Iowa Supreme Court

Page 790

185 N.W.2d 790

A J. JOHNSON, Appellee and Cross Appellant, v. Bernard PATTISON, John Pattison and James Pattison, Appellants and Cross Appellees.

No. 54140.

Supreme Court of Iowa.

April 9, 1971.

Rehearing Denied June 21, 1971.

Miller, Pearson & Gloe, Decorah, for appellants and cross-appellees.

D. C. Nolan and Edward W. Lucas, Iowa City, for appellees and cross-appellants.

LeGRAND, Justice.

This is an action in equity asking both an injunction and damages for alleged violation of a restrictive covenant. The same relief is also sought on the ground the use of the property constitutes a nuisance.

The trial court granted the injunction as to part of the property; refused it as to the remainder; held the claim of nuisance was premature; and rejected the claim for damages.

Both plaintiff and defendants appeal. Defendants argue plaintiff was not entitled to any injunction at all while plaintiff by way of cross appeal insists the trial court should have enjoined as illegal the use of all of defendants' property for commercial purposes. Plaintiff also argues the trial court should have awarded damages for substantial decrease in the value of his property.

We affirm on defendants' appeal and reverse on plaintiff's cross appeal. We refer herein to Bernard Pattison, John Pattison, and James Pattison as though they were the only defendants since the other defendants--M. L. Ponsar, C. L. Leitgen, and Villa Maclad, Inc.--have not appealed.

The history of this controversy dates back to 1949 when M. L. Ponsar, C. L. Leitgen and Alvin J. Kregel formed a nonprofit corporation under chapter 504, The Code, 1946, known as Villa Maclad, Inc. The Articles of Incorporation included this provision:

'The objects and purposes of this corporation shall be of an athletic and recreational nature, for the purpose of acquiring, preserving and developing a private camp along the banks of the Mississippi River near the town of Clayton, Iowa, which camp shall be named the Villa Maclad. * * *'

Apparently as part of the incorporation plan, Alvin J. Kregel, one of the incorporators, conveyed certain real estate to the corporation. This is the only real estate the corporation owned and is the tract which the corporate articles said was to be used for 'preserving and developing a private camp along the banks of the Mississippi River.'

A small portion of this real estate was sold in 1950 to John Cvrk. This transaction is not involved here and is mentioned only as part of the general background. The deed to Cvrk provided in part as follows:

'A condition is made in this deed that the premises herein quit claimed will only be used for the purpose of a dwelling or summer cottage residence.'

In 1960, Alvin J. Kregel Withdrew from the corporation, leaving M. L. Ponsar and C. L. Leitgen as the sole stockholders, officers, and directors.

In 1961 Villa Maclad, Inc. conveyed two parcels of real estate to Dean Jones by quit claim deeds, each of which contained the following:

'A perpetual restrictive covenant is made a part of this deed, which restricts the use of this land for residential and cottage use and prohibits all commercial, industrial and such related use. Grantee, his agents and assigns agree in the event of a violation of this restriction title will revert to grantors herein or their agents or assigns then owners of the original tract from which this land is now conveyed.'

On June 6, 1961, Dean Jones entered into a covenant with M. L. Ponsar and C. L. Leitgen (but not with the corporation) covering the real estate acquired by Jones in the deeds already referred to and also some of that retained by the corporation. Except for the formal parts, that covenant was as follows:

'Whereas the undersigned are the owners of property in Blocks 1, 2, 6, 7 in Lower Clayton in Clayton County, Iowa, now therefore for good and valuable consideration passing from one to the other, receipt of which is hereby acknowledged, covenant is made that the above described land shall be perpetually restricted to use for residential and cottage establishment and use and forever prohibits all commercial, industrial and any related uses to commercial and industrial.'

In 1962, Dean Jones conveyed the real estate he had purchased from Villa Maclad, Inc. to A. J. Johnson, the plaintiff herein. That deed repeated the restriction in the deeds by which Jones had acquired title.

On July 27, 1968, Villa Maclad, Inc. sold its remaining real estate (except two small lots) to defendants for $20,000. No restriction on the use of the property was included in that conveyance. Defendants say they had no notice of any covenant against commercial use. They promptly started to build a grain elevator large enough to process a million bushels of grain a year. At the time of trial construction of the elevator had not been completed.

Plaintiff in the meantime had built a home on his property. He promptly objected to defendants' proposed use of their property and threatened action to compel observance of the covenant which he claimed encumbered the property. Defendants insisted 'everything was legal' and went forward with construction in the face of almost certain litigation. The parties now find themselves embroiled in a death struggle which might well have been avoided. It is apparent--at least in retrospect--a determination of this controversy should have been sought Before defendants invested almost $200,000 in a plant the legality of which was challenged. And plaintiff perhaps should have sought a temporary injunction. Either course would have permitted the trial court to reach an equitable solution to avoid irreparable harm.

Instead the trial court was faced with a fait accompli which precluded such a result. Sometimes litigants make it impossible for courts to come up with a satisfactory solution to their problems. This is such a case.

We believe defendants' appeal may be determined solely by the covenant of June 6, 1961, which is hereafter referred to simply as the covenant. The cross-appeal, on the other hand, raises more troublesome issues and requires more extended discussion. Our conclusion to reverse on the cross-appeal is based on the finding plaintiff has established his right to relief under the doctrine of equitable or promissory estoppel.

I. We dispose of defendants' appeal first, although separate discussion of it might be unnecessary in view of our holding on the cross-appeal. However, we believe it advisable to treat it brifly.

The trial court enjoined defendants' proposed use of that part of the property described in the covenant signed by Dean Jones (plaintiff's grantor), M. L. Ponsar and C. L. Leitgen. Defendants assert as their only proposition for reversal that the trial court erred in holding the covenant was binding on Villa Maclad, Inc. They contend it was the Personal covenant of Ponsar and Leitgen only. If this is correct, defendants as the corporation's grantees would not be bound either.

Defendants raise various issues concerning this matter, but we believe they must concede the trial court was right if (1) the covenant executed by Ponsar and Leitgen was binding on the corporation and (2) defendant took title with knowledge of the restriction. We find both these conditions were established by the record.

It is difficult to discover any purpose in the execution of the covenant unless it was meant to bind Villa Maclad, Inc. Ponsar and Leitgen did not hold title to the real estate, either then or later. What good was Their promise not to use the property for commercial or industrial purposes? Are we to say this was intended to be a fraud on Dean Jones, who must have thought he was getting a binding agreement in return for his own? Either Ponsar and Leitgen were acting for the corporation or the whole transaction was to no avail. We hold Ponsar and Leitgen, the sole owners of Villa Maclad, Inc. and its only officers and directors, intended to bind that corporation when they executed the covenant and that Dean Jones, the other signatory, so understood its effect.

We have held that those who completely control a corporation and act toward it as though there were no distinction between its acts and theirs, as the record shows Ponsar and Leitgen did here, cannot subsequently avoid responsibility by placing the onus where it best suits their purpose. We agree with the trial court that the covenant is binding on Villa Maclad, Inc. Central Fibre Products Co. v. Lorenz, 246 Iowa 384, 66 N.W.2d 30 and Central National Bank and Trust Co. v. Wagener, (Iowa 1971), 183 N.W.2d 678, 682.

We attribute no improper motive to either Ponsar or Leitgen in the execution of this covenant. However, if we were to accept defendants' argument we would be compelled to do so. The result for which defendants argue would result in a fraud even though none was intended.

We believe the record is equally persuasive against defendants on the question of notice. The instrument was recorded and shown in the abstract of title. Defendants knew Ponsar and Leitgen were in complete control of the corporation. The abstract also disclosed those two had no right of ownership as Individuals when they executed the covenant. Under these circumstances, there was sufficient evidence to reasonably put defendants on notice to inquire as to the binding effect of this instrument on Villa Maclad, Inc. Having failed to do so, they cannot now escape its terms. See Hayne v. Cook, 252 Iowa 1012, 1029--1030, 109 N.W.2d 188, 197; Raub v. General Income Sponsors of Iowa, Inc., (Iowa 1970), 176 N.W.2d 216, 220, and citations.

We hold the trial court was right in enjoining the use of the real estate covered by the covenant for commercial or industrial purposes.

II. Plaintiff's victory on that score, however, is a hollow one because the covenant covers only Blocks 1, 2, 6, and 7 in Lower Clayton while defendants' grain elevator is not located on the restricted area, which is used only for...