Montana Supreme Court rules CC&Rs may be adhesion contracts

This very important Montana Supreme Court opinion concerns the explicit issue of CC&Rs as adhesion contracts. Sadly, once again, the gentlemen in black fail in their understanding of the true nature and practicality of the effectiveness of those “grandiose” covenants within the CC&Rs. This judicial blindness to reality and the acceptance of the written word as gospel — “so let it be written and so it is done” — is a mockery of justice as one would expect from banana republic courts.

While the Court ruled the CC&Rs in this case were not adhesive, others may argue that CC&Rs are adhesion contracts.  Plaintiff had failed to address all the requirements of an adhesion contract.

I’ve excerpted relevant parts of the opinion below. Read the discussion on “reasonable expectations.” Be sure to read Justice Nelson’s disagreement at the end of the opinion (emphasis added).

¶ 9 The CCRs here are not a contract of adhesion. First, the CCRs are not a standard form contract without negotiable terms. Further, Graziano has the ability to change the terms of the CCRs. Graziano may not have had the ability to negotiate the terms of the original CCRs, but it is within his power to change and amend the CCRs in accordance with the amendment provisions in Section XVII of the CCRs. . . . ;

[W]e do not foreclose the possibility that a future plaintiff could demonstrate that land use covenants, conditions, and restrictions are adhesive. We simply find that given the facts of this case, the CCRs in question are not adhesive.

<¶ 20 Even if the CCRs did constitute a contract of adhesion, that alone does not make the arbitration clause unenforceable. Assuming a contract of adhesion exists, Graziano must still show the arbitration clause either (1) was not within his reasonable expectations, or (2) was within his reasonable expectations, but when considered in context, is unduly oppressive, unconscionable, or against public policy. Id. Graziano has only argued the first prong; therefore, we limit our analysis to whether or not the arbitration clause was within Graziano’s reasonable expectations.

¶ 22 We conclude, given all the surrounding circumstances, the arbitration clause was within Graziano’s reasonable expectations. First, and significantly, Graziano had notice of the CCRs. While he claims the CCRs were not mentioned in the letter accompanying the original packet of materials sent by Stock Farm, that alone is not dispositive. Both the buysell agreement and the title report indicate the Lot was encumbered by CCRs and easements of record. The buy-sell agreement also states that “Seller has delivered or made available to “Buyer [Graziano] copies of the covenants, conditions, restrictions . . . .” Graziano had actual notice, before finalizing his purchase, that the Lot was encumbered by CCRs. Even if this did not constitute actual notice, Graziano is still charged with ;”>constructive notice< because the CCRs were recorded.

¶ 24 . . . In an affidavit submitted to the District Court, Graziano states that no one explained the CCRs to him, that he did not know the CCRs contained language that would affect his rights, and that he was not represented by counsel. Graziano does not say he did not know of or read the CCRs, only that they were not explained by Stock Farm or the Association. We find Graziano’s affidavit self-serving in light of his extensive business experience and that it constitutes “weak evidence” regarding his understanding of his purchase of the Lot.

¶ 25 After reviewing all the surrounding circumstances, we conclude the CCRs are not a contract of adhesion, and the arbitration provision contained within the CCRs was within Graziano’s reasonable expectations. Therefore, we agree with the District Court’s funding that the arbitration provision is valid and enforceable.

Justice James C. Nelson, specially concurs.

¶ 37 I agree with the result of the Court’s Opinion. I do not necessarily agree that the CCRs here were not adhesive, nor do I agree that, as a general proposition, land use covenants, restrictions and conditions imposed unilaterally by the developer or owner upon a subdivision cannot be adhesive. In my view, upon appropriate proof of the criteria set forth in Woodruff v. Bretz, Inc., 2009 MT 329, ¶ 8, 353 Mont. 6, 218 P.3d 486, a plaintiff could prevail on a claim that land use covenants, restrictions and conditions are adhesive. Imposing and enforcing pre-dispute arbitration requirements in such circumstances is nothing more than a means of depriving landowners of their constitutional rights of access to the courts and to a jury trial under Article II, Sections 16 and 26, respectively, of the Montana Constitution.

¶ 38 That said, in this case I agree that, even assuming that the CCRs were adhesive, the arbitration provisions were within Graziano’s reasonable expectations . . . .

¶ 39 Land use covenants, restrictions and conditions might arguably benefit the land, and the landowner may be granted some illusory—albeit impossible, as a practical matter— method of amending the covenants, restrictions and conditions. Nonetheless, the landowner should not be bound by a pre-dispute arbitration clause imposed by the developer without negotiation on what amounts to be a “take it or leave it”—or, rather, “buy it and you’re stuck with them”—basis. A landowner should retain the right to have disputes over the interpretation and enforcement of land use covenants, restrictions and conditions resolved in court with a jury; forcing mandatory pre-dispute arbitration on landowners should not be a prerequisite to property ownership.

GRAZIANO v. STOCK FARM HOMEOWNERS ASSOCIATION, INC., 2011 MT 194,No. DA 10-0580 (Mont. 2011).

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Published in: on August 13, 2011 at 8:32 am  Leave a Comment  
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