Marathon Finance Co. v. HHC Liquidation Corp.
| Decision Date | 03 December 1996 |
| Docket Number | No. 2625,2625 |
| Citation | 325 S.C. 589,483 S.E.2d 757 |
| Parties | MARATHON FINANCE COMPANY, a Delaware corporation, Respondent, v. HHC LIQUIDATION CORP., a Delaware corporation (f/k/a The Hilton Head Company, Inc.), Westin Hilton Head Limited Partnership, a Delaware limited partnership, Property Research Holdings, Inc., a South Carolina corporation, and Town of Hilton Head Island, a South Carolina municipality and body politic, Defendants, of whom Westin Hilton Head Limited Partnership is Appellant. . Heard |
| Court | South Carolina Court of Appeals |
John C. Bruton, Jr., Benton D. Williamson, and Deborah P. Morgan, all of Sinkler & Boyd, Columbia, for appellant.
G. Richardson Wieters, of Hilton Head Island; and Stephen A. Spitz, Columbia, for respondent.
This is an appeal from an action by Marathon Finance Corporation seeking a declaration that certain restrictive covenants and deed restrictions no longer encumbered a tract of its land on Hilton Head Island known as the Barony Tract. The trial court declared the covenants and deed restrictions to be extinguished, null, void, and of no force or effect whatsoever and further ordered the Register for Mesne Conveyances of Beaufort County to note their extinguishment and cancellation on the pertinent documents. The trial court further held that, with the exception of certain specifically enumerated easements, Westin Resort Hilton Head Limited Partnership (Westin), an adjoining landowner and one of the defendants in the lawsuit, had no rights in or to or concerning Marathon Finance's property. Westin appeals. We affirm.
In 1983, the Hilton Head Company owned three adjacent tracts of land: the Barony Tract, the Hotel Tract, and the Mid-Rise Tract. That same year, the Hilton Head Hotel Company (Hotel Company), an affiliate of the Hilton Head Company, together with Aries Property Holdings and R.H./A.E. Hotel Company, formed a general partnership known as The Barony Company. In a joint venture agreement dated November 5, 1983, these three entities proposed to develop the three tracts.
On November 5, 1983, pursuant to the joint venture agreement, the Hilton Head Company, conveyed by separate instruments each of the three tracts to The Barony Company. Covenants executed the same day restricted the Barony Tract to residential, short-term rental, and limited commercial uses. In February, 1984, these covenants restricting the use of the Barony Tract were recorded with the deed conveying the tract. A number of these covenants were identical to restrictions placed on the Hotel Tract and the Mid-Rise Tract.
On September 4, 1985, as hotel construction on the Hotel Tract neared completion, The Barony Company redeemed all partnership interests held by the Hotel Company in The Barony Company. The joint venturers ratified the purposes of the joint venture and agreed to continue to cooperate in the development of all three tracts. As consideration for the redemption, however, The Barony Company conveyed the Barony Tract to the Hotel Company. On September 23, 1985, the Hotel Company, in turn, executed a mortgage on the Barony Tract to Marathon Finance. 1 The mortgage secured a note in the original principal amount of $8,500,000.00.
The deed conveying the Barony Tract from The Barony Company to the Hotel Company contained restrictions limiting the number of dwelling units per acre on the tract, the type of structures to be placed on the tract, and the height of the buildings and structures to be built on the tract. The deed was recorded before Marathon Finance recorded its mortgage from the Hotel Company and further provided that these restrictions were to run with the land.
On December 30, 1985, The Barony Company conveyed the improvements on the Hotel Tract to R-H Hilton Head, Inc. These improvements constituted the present Westin Resort.
Subsequently, on November 24, 1986, the Hotel Company went into bankruptcy. Several months later, on July 27, 1987, the trustee in bankruptcy filed a Motion for Approval of Compromise requesting approval of a settlement agreement between the trustee and Marathon Oil Company, a company related to Marathon Finance. The agreement, which was dated June 24, 1987, provided for the transfers to "a Marathon entity or entities" of certain properties, including the Barony Tract. The transfers were to be "free and clear of all liens, charges and encumbrances whatsoever," and subject only to certain secured real property interests. The settlement was later clarified by the trustee on August 29, 1987, in a report in which the trustee specifically stated that "covenants ... [and] restrictions ... shall be treated as provided for under South Carolina law."
On July 30, 1987, the trustee filed a Notice of Sale of Assets that advised of the proposed sale of the Barony Tract and other properties. The notice stated the sale would be "free and clear of all pledges, security interests, liens, charges, other encumbrances, claims, options and interests" except for certain specifically enumerated mortgage liens. The Barony Company, however, on August 17, 1987, filed an objection to the notice, asserting its right to protection of ten interests. These interests consisted of recorded easements and access and use agreements and did not include any of the covenants and restrictions at issue in this appeal.
On September 10, 1987, Marathon Oil Company and The Barony Company entered into a settlement agreement that provided for the protection of the ten interests asserted by The Barony Company. The bankruptcy court approved the settlement agreement, filing its order on September 24, 1987.
On September 30, 1987, the trustee recorded a document entitled "Release and Cancellation of Restrictions, Covenants & Encumbrances." This document referenced the Barony Tract and an adjoining tract now owned by the Town of Hilton Head Island. It expressly waived, relinquished, released, cancelled and forever discharged all covenants, restrictions, and deed restrictions.
After approval by the bankruptcy court of the settlement agreement, the trustee filed a complaint to sell the properties listed in the June 24, 1987 agreement free and clear "of all liens, encumbrances and other interests" except those otherwise defined.
The Barony Company responded by filing an answer on October 5, 1987, in which it requested protection of the same ten recorded easements and access and use agreements listed in its prior objection to the Notice of Sale of Assets. Later, however, The Barony Company withdrew its answer and entered into a second stipulation. The second stipulation provided for the superior status of only the ten recorded easements and access and use agreements.
On October 31, 1987, the trustee conveyed the Barony Tract to Marathon Properties, Inc. The deed referenced the prior proceedings in the bankruptcy court and conveyed the property free and clear of all liens and encumbrances except as specifically defined in the June 24, 1987 settlement agreement.
On November 4, 1987, the bankruptcy court issued an order stating, among other things, "[t]hat all persons or entities who have failed to assert any lien, encumbrance, or other interest in [the Barony Tract and other properties], other than Permitted Exceptions, are forever barred from doing so."
After the trustee conveyed the Barony Tract to Marathon Properties, a dispute arose between Marathon Properties and The Barony Company concerning the enforceability of one of the restrictions. Marathon Properties commenced an adversary proceeding in the bankruptcy court on May 11, 1988, in which it requested "a declaration of [its] rights with respect to the [effect of the] transfer of [t]he Barony Tract free and clear of the restrictive covenants found in the former deed between The Barony Company and [the Hotel Company]."
On January 4, 1990, the bankruptcy court determined Marathon Properties held title to the Barony Tract unencumbered by the restriction at issue, holding the prior proceeding had extinguished that restriction.
Marathon Properties subsequently conveyed the Barony Tract to Marathon Finance, its affiliate.
AOKI Carolina Hotel Company acquired the Hotel Tract and its improvements from The Barony Company and R-H Hilton Head Company in October, 1988. The contract documents disclosed to AOKI the pendency of the declaratory judgment action in the bankruptcy court concerning a restrictive covenant on the Barony Tract. Westin Hotel Company, an AOKI affiliate, assisted in the acquisition of the property and continued to manage it after the conveyance. On June 27, 1989, AOKI deeded the Hotel Tract to the Westin Hilton Head Limited Partnership.
Westin first argues the designation of the sale of the Barony Tract as "free and clear" of "encumbrances" did not by its terms eliminate the covenants and restrictions in question. Westin maintains (1) the covenants and restrictions were not "encumbrances"; (2) the covenants and restrictions were not "interests" that could be extinguished in a bankruptcy sale; and (3) even if the covenants and restrictions were "interests" in property, the statutory requirements for their extinguishment were not met. We reject all three arguments.
The trial court correctly concluded as a matter of law the term "encumbrance," as used in the context of this litigation, included covenants and restrictions. See Morris v. Lain, 176 S.C. 310, 313, 180 S.E. 206, 208 (1935) (); Grice v. Scarborough, 29 S.C.L. (2 Speers) 649, 652 (1844) (); 20 Am.Jur.2d Covenants, Conditions, and Restrictions § 74, at 518 (1995) (...
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