Exclusionary/Restrictive Covenants and the Constitution – I

An exclusionary covenant (alternatively, a restrictive covenant) is a covenant that restricts the sale or occupation of real property on the bases of race, caste, religion, ethnicity, sex, nationality or other such grounds that we would, prima facie, consider discriminatory. Exclusionary covenants present a troublesome legal problem, because they fall at the intersection of the private right of contract (which capitalist societies, rightly or wrongly, consider sacrosanct) and the pernicious social evil of discrimination. Often, the waters are muddied further by the fact that the groups at the receiving end of the exclusionary covenant have, until recently, been formally treated as second-class citizens in law and/or fact, and only lately been formally emancipated (e.g., blacks in the United States  after the Reconstruction, dalits/scheduled castes and other such groups in India after the Constitution, and so on). Exclusionary covenants then become a substitute for official state-perpetrated discrimination, and other direct forms of suppression that are no longer permitted by law.

Recognising this, courts in a number of jurisdictions have found legal and constitutional reasons to rein in exclusionary covenants. In this first post, I shall consider three such decisions – from the United States, from Canada and from South Africa. In the next post, I shall discuss the locus classicus in India, that is, Zoroastrian Co-op v. Distt. Registrar Co-operativeAnd in the final post, I shall offer some criticisms of this holding, and discuss whether, in light of how IMA v. Union of India interpreted Article 15(2) in 2011, the law has changed.

The United States Supreme Court decided Shelley v. Kramer in 1948. Simplifying multiple fact-situations to the essentials: in that case, the covenant in question prohibited certain property from being “occupied by any person not of the Caucasian race, it being intended hereby to restrict the use of said property for said period of time against the occupancy as owners or tenants of any portion of said property for resident or other purpose by people of the Negro or Mongolian Race.”

Notwithstanding this covenant, there was a contract of sale for part of the property, and the parcel of land was sold to the Shelleys, the petitioners, who were black. The respondents argued that this contract was void in light of the restrictive covenant that prohibited such sales. The petitioners argued, on the other hand, that the restrictive covenant violated their Fourteenth Amendment constitutional right to equal protection of laws.

At the outset, the Court clarified that the question before it was about the judicial enforcement of exclusionary covenants, and not the validity of the covenants qua contracts.  The latter issue had been decided in the 1926 case of Corrigan v. Buckleywhich had held that purely private agreements, that did not involve State action, raised no constitutional questions. Affirming this, the Shelley Court held that “the Fourteenth Amendment erects no shield against merely private conduct, however discriminatory or wrongful.”

Nonetheless, here something more was at stake – it was the Court, one wing of the State, that was being asked to enforce the terms of the exclusionary covenant. Citing a long line of precedent, the Court found that judicial action was undoubtedly State action, and therefore subject to the bill of rights. Indeed, it had already been held, prior, that a state judge’s action in excluding black persons from jury service violated the constitution; and a state court’s decision to uphold a ban on peaceful picketing had been held to be a violation of the First Amendment freedom of discussion; and so on. In the present case, because “the owners of the properties were willing sellers; and contracts of sale were accordingly consummated… it [was] clear that but for the active intervention of the state courts, supported by the full panoply of state power, petitioners would have been free to occupy the properties in question without restraint.” Consequently, this was a clear case of state action.

Thus, given that the freedom from discrimination by the States in the enjoyment of property rights was among the basic objectives sought to be effectuated by the framers of theFourteenth Amendment”, the Court found that judicial enforcement of the exclusionary covenant would violate the constitutional requirement of equal protection of laws. Consequently, it found the covenant non-enforceable, and reversed the state Supreme Court decision to the contrary.

Let us now turn to Canada. In In Re Drummond Wren (1945), a restrictive covenant prohibited land from being sold to “Jews or persons of objectionable nationality.” It was argued that this exclusionary covenant was void as as it was in violation of public policy. In order to determine public policy, the Court went into international instruments like the San Francisco Charter (to which Canada was a signatory), the Atlantic Charter, and local legislation such as The Racial Discrimination Act and the Insurance Act, all of which condemned discrimination – both public and private. Consequently, it held that “nothing could be more calculated to create or deepen divisions between existing religious and ethnic groups in this province, or in this country, than the sanction of a method of land transfer which would permit the segregation and confinement of particular groups to particular business or residential areas, or, conversely, would exclude particular groups from particular business or residential areas.” The Court thus held the covenant void as being against public policy. It also held it void as being an impermissible restraint on the freedom of alienation, as well as being impermissibly vague and uncertain.

It was this last argument that was picked up by the Canadian Supreme Court six years later in Noble v. Alley (1951). At issue was an exclusionary covenant the restricted the sale of land to “any person of the Jewish, Hebrew, Semitic, Negro or colored race or blood.” The majority held the covenant void. Three judges specifically held it void for uncertainty, holding that:

It is impossible to set such limits to the lines of race or blood as would enable a court to say in all cases whether a proposed purchaser is or is not within the ban.”

The uncertainty holdings in both Drummond and Noble were based upon he 1943 House of Lords decision, Clayten v. Ramsden, where a “Jewish parentage” restriction was held void for uncertainty – inter alia – on the ground that it was impossible to tell how much Jewish blood qualified one as belonging to the “Jewish race.”

Lastly, consider the 2010 South African case of The Curators v. University of Kwa-Zulu NatalIn that case, a will created a charitable trust, that was to be administered solely for the benefit of white women seeking a tertiary education. It was argued that the freedom of testation – as a form of the freedom of property – was a fundamental right guaranteed by the South African Constitution (S. 25), and thus the will was entirely valid. At the High Court, this argument was rejected, the Court holding that the “racial discrimination inherent in the application of the will’s provisions is contrary to public policy.” Accordingly, it deleted the racial conditions from the Trust instrument. The Supreme Court of Appeal referred to the equality provisions in the South African constitution. It cited the Preamble of the 2000 Promotion of Equality Act, which called for “the eradication of social and economic inequalities, especially those that are systemic in nature, which were generated in our history by colonialism, apartheid and patriarchy.” That Act, inter alia, prohibited racial discrimination in educational institutions, leading the Court to observe that the principle of equality obtained even in person-to-person relations.

The Court then invoked the German constitutional idea of an “objective order of values”. According to this idea, a Constitution not only lists out a set of rights, liberties and State obligations, but it also expresses an objective order of values (e.g., values of dignity, equality and so on) that may be invoked not only against State action, but also serve as background interpretive principles for adjudicating private law disputes (see here and here for an account). In the famous Luth case, for instance, the German Constitutional Court had held:

“…the Basic Law is not a value-neutral document .. Its section on basic rights establishes an objective order of values, and this order strongly reinforces the effective power of basic rights … Thus it is clear that basic rights also influence [the development of] private law. Every provision of private law must be compatible with this system of values, and every such provision must be interpreted in its spirit.

The South African Court directly linked public policy with the objective order of values embodied within the Constitution, observing that  “Public policy is now rooted in our Constitution and the fundamental values it enshrines, thus establishing an objective normative value system. In considering questions of public policy for purposes of the present application, therefore, the Court must find guidance in “the founding constitutional values of human dignity, the achievement of equality and the advancement of human rights and freedoms, non-racialism and non-sexism”.'” In other words, the meaning of “public policy” was to be gleaned from the constitutional structure, and the objective order of values it sought to establish. Consequently, the Court upheld the deletion of the racial provisions from the Trust instrument. This public policy concern overrode the freedom of testation, and did not unjustiably deprive the individual of his property. Interestingly, the Court held that its fact-specific decision ought not to be taken for a general prohibition on testators benefiting underprivileged sections of society.**

Let us sum up. Exclusionary covenants are private contractual acts. Nonetheless, for reasons explained above, there is a strong governmental interest in preventing them when they are used to discriminate against historically suppressed groups. Because of the respect for private contracts, and a general hesitation to apply fundamental rights horizontally against individuals (despite the South African constitution having an express provision allowing the Courts to do just that), the Courts in various jurisdictions have not directly held them constitutionally invalid, but have searched for other remedies. In the United States, the Court refused to enforce such a covenant; that is to say, it held it neither legal nor illegal, but – in a manner of speaking, extra-legal – wholly beyond the bounds of law, with the consequence that individuals could not use State legislation meant to accord citizens various legal rights and benefits under contract law. This is, admittedly, a weak form of protection; a similarly weak form is the void-for-vagueness doctrine that the House of Lords and the Canadian Supreme Court have used. It works well enough in cases of race, which is inherently fluid, but would presumably fail where the discrimination was on the basis of perceivably more solid – but no less pernicious – categories – like sex, religion etc.

Canada and South Africa, however, have also gone further. They have used a contractual remedy – that of voidness for violating public policy – as their method of choice, drawing this public policy from various constitutional instruments. South Africa, in particular, has invoked the objective order of values – values such as equality and nondiscrimination – to find a public policy argument against enforcing racially exclusionary covenants.

**(There is admittedly, some degree of confusion over whether the publicly-funded nature of the University was a determining factor in the decision – but it is at least clear that the meaning of public policy was arrived at independently of the university’s public nature)

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