Hudson Oil Co. v. Shortstop

Citations: 111 Cal. App. 3d 488; 168 Cal. Rptr. 801; 1980 Cal. App. LEXIS 2376Docket: Civ. 18460

Court: California Court of Appeal; October 29, 1980; California; State Appellate Court

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Hudson Oil Company, Inc. appeals a judgment denying its request for a permanent injunction against Shortstop to prevent gasoline dispensing, claiming a violation of a lease agreement between the Bells (lessors) and A.A.A. Stations, Inc. (Hudson's predecessor). Hudson argues that a restrictive covenant in the lease is enforceable against Shortstop as a subsequent purchaser under Civil Code section 1470, or alternatively, as an equitable servitude on the land Shortstop acquired from the Bells.

The lease, signed on November 11, 1961, included a clause prohibiting the operation of a service station on the Bells' additional property north of the leased site and stipulated that the restrictions would benefit successors of both parties. Hudson, having succeeded A.A.A. Stations, has extended the lease until at least November 10, 1986, though the lease has never been recorded.

On January 4, 1973, the Bells leased the northern property to National Convenience Stores, which included an addendum prohibiting gasoline sales as long as the Bell-Hudson lease remained effective. In 1975, National Convenience assigned its lease to Shortstop, which subsequently purchased the store site on December 3, 1976. At the time of purchase, Shortstop was aware of the Bell-Hudson lease and the restrictive covenant, although the deed did not explicitly prohibit gasoline sales. 

Shortstop began selling gasoline on February 8, 1977, after installing a dispensing system. Hudson has demanded that Shortstop cease this operation, but Shortstop has refused to comply.

The restrictive covenant in the Bell-Hudson lease is deemed unenforceable against Shortstop under Civil Code section 1470 due to non-compliance with recording requirements. Section 1470 mandates that for a covenant to bind successive owners of contiguous real property, the lease must be recorded in a specific manner that provides constructive notice. The lease in question was not recorded as required, thus failing to bind Shortstop. Any legal remedies against Shortstop are also barred since only covenants specified under title 3, including section 1470, run with the land and bind successors.

However, Hudson may still seek equitable relief despite the covenant’s failure to run with the land. The absence of essential covenant requirements does not prevent equity from enforcing restrictions against a transferee who had notice of these restrictions. The trial court's refusal to impose an equitable servitude in favor of Hudson was based on a narrow interpretation of Riley v. Bear Creek Planning Committee, which stated that equitable servitudes must be created by deed. The reliance on this ruling was overly restrictive and did not account for the context, particularly since the cited language pertained to a separate issue of estoppel that was not pursued by defendants in the lower court.

The court clarified that the doctrine of equitable servitudes does not apply in certain contexts and can only be established through deeds. In the case of Riley, the Supreme Court addressed whether properties in a subdivision could be encumbered by mutual equitable servitudes. The court relied on the precedent set in Werner v. Graham, asserting that building restrictions benefit the entire subdivision only if the original grant deed explicitly indicates such an intent. Subsequent grantees are bound by these restrictions if they have actual or constructive notice, even if their deeds lack similar clauses. In Riley, a declaration of use restrictions was recorded after the plaintiff's deed, which contained no restrictions. The trial court allowed evidence of the plaintiff's awareness and acceptance of these restrictions. The court framed the key issue as whether the restrictions were enforceable equitable servitudes without a privity of contract between parties. It concluded that the plaintiff's deed was unambiguous and that no mutual servitudes were created, adhering to the parole evidence rule. The Supreme Court emphasized that equitable servitudes must be documented in the written instruments exchanged between parties. However, the court did not intend to limit the creation of equitable servitudes to deeds alone, recognizing that parties may establish restrictions in various written instruments. This interpretation aligns with established legal principles that allow for restrictions on real property use to be documented in different formats, with equitable principles applicable to all such contracts. Additionally, Civil Code Section 1217 affirms the validity of unrecorded instruments between the involved parties and those with notice.

Shortstop, as the successor in interest of the Bells, had actual notice of the restriction in the Bell-Hudson lease, which was also included in its own lease with the Bells for the same property. The Bell-Hudson lease aimed to bind successors as assigns of the Bells. Shortstop contended that the absence of the term "successive owners" indicated no intent to bind it, but this argument was rejected. The court interpreted the general language as intending to burden all successors of the Bells, including successive owners. 

The court also addressed whether the lease adequately described the contiguous property burdened by the restriction, referencing Civil Code §1470, which requires particular description. Despite legal inadequacies, the court considered equitable relief, stating that if the lease sufficiently delineates the affected property, equity may enforce the covenant. The property was described as north of the leased property, and the court concluded that the intention was to burden the Bells' property directly to the north, not to the northeast. 

Extrinsic evidence from the lease with Shortstop's predecessor indicated the imposition of a gasoline sale restriction, supporting the enforcement of the Bell-Hudson lease as an equitable servitude against Shortstop. The judgment was reversed and remanded for the trial court to consider unresolved factual questions regarding Shortstop's operation of a service station and potential changes in circumstances. A petition for rehearing was denied on November 24, 1980, and the Supreme Court denied a hearing on December 24, 1980.