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El Di, Inc. v. Bethany Beach - 477 A.2d 1066 (Del. 1984)

Rule:

A court will not enforce a restrictive covenant where a fundamental change has occurred in the intended character of the neighborhood that renders the benefits underlying imposition of the restrictions incapable of enjoyment.

Facts:

El Di purchased the Holiday House in 1969. In December 1981, El Di filed an application with the State Alcoholic Beverage Control Commission (ABC) for a license to sell alcoholic beverages at the Holiday House. On April 15, 1982, finding public need and convenience, the ABC granted the Holiday House an on-premises license. The sale of alcoholic beverages at Holiday House began within 10 days of the ABC's approval. Eighty years earlier, the town of Bethany Beach had been conceived to be a quiet beach community. To insure the quiet character of the community, the Bethany Beach Improvement Company (BBIC) had placed restrictive covenants on many plots, which prohibited the sale of alcohol and restricted construction to residential cottages. Yet, in the 1920s, commercial development began, which included numerous inns, restaurants, drug stores, a bank, motels, a town hall, shops selling various items including food, clothing, gifts and novelties and other commercial businesses, on properties subject to the covenants. This development . Of the 34 commercial buildings presently within the Town limits, 29 were located in the old-Town originally developed by BBIC. In 1952, the Town enacted a zoning ordinance, which established a central commercial district designated C-1 located in the old-Town section where the Holiday House was located. Upon the grant of license to El Di, the town of Bethany Beach filed suit to permanently enjoin the sale of alcoholic beverages under the license. The Court of Chancery (Delaware) granted a permanent injunction against El Di, prohibiting the latter from selling alcoholic beverages. In granting plaintiffs' motion for a permanent injunction, the Court of Chancery rejected El Di’s argument that changed conditions in Bethany Beach rendered the restrictive covenants unreasonable and therefore unenforceable. El Di thereafter appealed.

Issue:

Did the chancery court err in its decision to grant permanent injunction against El Di, thereby, prohibiting the latter from selling alcoholic beverages?

Answer:

Yes.

Conclusion:

The Supreme Court of Delaware reversed the grant of the permanent injunction finding that the trial court erred in holding that the change of conditions was insufficient to negate the restrictive covenant. According to the Court, since 1901, the character of that area of the old-Town section now zoned C-1 was so substantial as to justify modification of the deed restriction. The business uses, the availability of alcohol in close proximity to this section of town, and the repeated use of "brown-bagging" in the C-1 district rendered the originally intended benefits of the covenants unattainable in what had become an area detached in character from the strictly residential surroundings to the west and made enforcement of the covenant unreasonable.

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