McMillan v. Iserman
120 Mich.App. 785, 327 N.W.2d 559 (1982)
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Rule of Law:
An amended deed restriction is unenforceable against a lot owner who has justifiably and detrimentally relied on the absence of such a restriction prior to the amendment. Furthermore, a private deed restriction that specifically prohibits a state-licensed residential facility for the mentally handicapped is void as it violates the established public policy of the state.
Facts:
- A subdivision was governed by a 1958 restrictive covenant.
- The 1958 covenant contained a clause permitting three-fourths of the property owners to amend the restrictions at any time.
- Defendants Iserman, who owned a lot in the subdivision, entered into a binding lease agreement with defendant Alternative Living Programs and Health Assistance, Inc.
- The purpose of the lease was to operate a state-licensed group residential facility for mentally impaired persons on the Isermans' property.
- After the Isermans had entered into the lease, three-fourths of the subdivision's property owners voted to amend the deed restrictions.
- The amendment specifically prohibited the use of any lot in the subdivision for a state-licensed group residential facility.
Procedural Posture:
- Plaintiffs sued the defendants in the trial court, seeking to enforce an amended deed restriction.
- The trial court granted the defendants' motion for summary judgment.
- The trial court's ruling was based on its finding that the amended deed restriction violated the Fourteenth Amendment of the U.S. Constitution.
- Plaintiffs, the appellants, appealed by right to the Michigan Court of Appeals.
- Defendants, the appellees, filed a cross-appeal challenging other findings of the trial court.
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Issue:
Is an amended deed restriction prohibiting a state-licensed group residential facility enforceable against a lot owner who, relying on the absence of such a restriction, entered into a binding lease for that purpose before the amendment was passed?
Opinions:
Majority - M. F. Cavanagh, P.J.
No. An amended deed restriction is not enforceable against a lot owner who has, prior to the amendment, committed to a land use which the amendment seeks to prohibit. First, the court found it manifestly unfair to enforce a subsequent amendment against a lot owner who has detrimentally relied on the absence of such a restriction. The Isermans justifiably relied on the existing restrictions when they entered into a binding contract, and enforcing the amendment would force them to breach that contract. Second, the court held the restriction unenforceable on public policy grounds. It weighed the public policy of upholding private property restrictions against the state's established public policy of promoting quality care and facilities for the mentally handicapped, and found that the policy favoring such facilities was decidedly stronger. Therefore, a deed restriction specifically prohibiting state-licensed residential facilities is manifestly against the public interest.
Dissenting - Mackenzie, J.
Yes. The amended deed restriction is valid and enforceable. The defendants were on notice from the original 1958 covenant that the restrictions could be amended at any time by a three-fourths vote. The majority's estoppel theory fails because the plaintiffs did nothing to mislead the defendants, and the defendants knew the rules could change. Furthermore, the defendants did not demonstrate prejudice, as they could potentially use frustration of purpose as a defense to a breach of contract action on their lease. The public policy argument is also incorrect because the statutes cited by the majority expressly limit their application to zoning, not private covenants. The court should not invalidate a validly enacted private contract by giving preclusive effect to one of two competing public policies.
Analysis:
This decision establishes an important equitable limitation on the power of property owners to amend restrictive covenants. It creates a reliance-based exception, protecting owners who have already committed to a course of action from being harmed by subsequent, more restrictive amendments. Furthermore, by elevating the state's public policy of supporting group homes over the freedom to contract for private land use restrictions, the case significantly curtails the ability of subdivisions to exclude such facilities through their covenants. This ruling sets a precedent for courts to weigh competing public policies when interpreting and enforcing restrictive covenants, potentially impacting future disputes over land use.
