Hunter Broadcasting, Inc. v. City of Burlington

HUNTER_BROADCASTNG_V_CITY_OF_BURLNGTON.94-498; 164 Vt 391; 670 A.2d 836

[Filed 01-Dec-1995]

       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.

                                 No. 94-498


Hunter Broadcasting, Inc.                         Supreme Court

                                                  On Appeal from
       v.                                         Chittenden Superior Court

City of Burlington                                March Term, 1995


Matthew I. Katz, J.

       William F. Ellis of McNeil, Leddy & Sheahan, Burlington, for
  plaintiff-appellee

       Paul D. Jarvis and Richard R. Goldsborough of Jarvis and Kaplan,
  Burlington, for defendant-appellant


PRESENT:  Allen, C.J.,(FN1) Gibson, Dooley, Morse and Johnson, JJ.


       GIBSON, J.   Defendant City of Burlington appeals from a grant of a
  directed verdict to plaintiff Hunter Broadcasting, Inc. on the issue of the
  City's liability for breach of a covenant against encumbrances under a
  warranty deed.  The City also appeals the trial court's jury instructions
  regarding consequential damages for a breach of covenant.  We affirm.

       In 1982, the City and Hunter entered into a "land swap" agreement
  under which Hunter deeded 3.23 acres of land to the City and the City
  leased 9.7 acres of a 400-acre parcel to Hunter with an option to buy.  In
  1987, the City conveyed the 9.7 acres to Hunter by warranty deed, in which
  the City covenanted that the property was free of encumbrances.

       In 1989, Hunter agreed to sell its assets, including the 9.7-acre lot,
  to Atlantic Ventures of Vermont, L.P.  Atlantic's title search revealed,
  however, that the 9.7 acres lacked both local and state subdivision
  approval, and that the property was then subject to several liens.  In
  August 1989, the City applied for and obtained local subdivision approval
  for the parcel, but neither the

 

  City nor Hunter took action to obtain state subdivision approval.  On
  October 3, 1989, having expressed concern over Hunter's lack of progress on
  the lien and subdivision problems, Atlantic terminated its asset-purchase
  agreement with Hunter.  On October 4, 1989, Hunter applied for a deferral
  of state subdivision permit, which the Department of Environmental
  Conservation issued on October 16, 1989.  Hunter subsequently sold the
  9.7-acre property to another company for substantially less money, and also
  incurred significant expenses to close the sale.

       Hunter brought action against the City for breach of the covenants of
  title.  Hunter's claims were tried to a jury on May 19-20, 1994.  At the
  close of evidence, both Hunter and the City moved for directed verdicts on
  the issue of the City's liability for breach of the covenant against
  encumbrances.  The trial court denied the City's motion and granted
  Hunter's motion on the ground that the City's failure to obtain a
  subdivision permit constituted a breach of the City's covenant against
  encumbrances as a matter of law.  The court reserved only the issue of
  damages for presentation to the jury, and instructed the jury that Hunter
  could recover direct damages as well as damages for injuries sustained "in
  consequence of the breach of the convenant."  The jury awarded $112,000 to
  Hunter, which the court later reduced to $98,500 to reflect a setoff for a
  settlement in a related proceeding.

       An appeal from a grant of a directed verdict tests whether the result
  is sound in law on the evidence produced.  Foote v. Simmonds Precision
  Prods. Co., 158 Vt. 566, 569-570, 613 A.2d 1277, 1279 (1992).  In reviewing
  a trial court's grant of a directed verdict, we view the evidence in the
  light most favorable to the nonmoving party and exclude all modifying
  evidence. Coll v. Johnson, 161 Vt. 163, 164, 636 A.2d 336, 338 (1993).  A
  motion for directed verdict cannot be granted where there is any evidence
  fairly and reasonably tending to justify a verdict in the nonmoving party's
  favor.  Id.

       The instant case raises the question of whether a landowner who
  conveys subdivided land by warranty deed without first having obtained
  state subdivision approval has breached the covenant against encumbrances. 
  An encumbrance is a right to or interest in land that may

 

  subsist in third persons, to the diminution of the value of the land,
  but consistent with the passing of the fee.  Olcott v. Southworth, 115 Vt.
  421, 424, 63 A.2d 189, 191 (1949).

       In the instant case, the evidence showed that the City created a
  single, 9.7-acre lot, which it conveyed to Hunter without having obtained
  state subdivision approval.  Under the public health act, conveyors of land
  must comply with "[t]he Vermont health regulations pertaining to
  subdivisions."  18 V.S.A. § 1218.  Those regulations provide, "No
  proprietor of land shall subdivide it, or otherwise establish and create a
  subdivision, without first obtaining a permit from the Division of
  Protection."  Agency of Envtl. Conservation, Envtl. Protection Rule § 3-
  04, 5 Code of Vt. Rules, at 20 (1982) (current version at Agency of Natural
  Resources, Envtl. Protection Rules § 3-04, 7 Code of Vt. Rules, Rule
  12033001, at 19 (1994)).  A "subdivision" for public health purposes is
  defined, in relevant part, as "the dividing of a parcel of land by . . .
  lease . . . where the act of division creates one or more parcels of land
  of less than 10 acres in area."  Id. § 3-02(D)(1), 5 Code of Vt. Rules, at
  20 (emphasis added).  At the time of the City's 1982 lease to Hunter,
  Vermont law imposed a fine of not more than $1000 for each violation of the
  public health regulations regarding subdivisions.  18 V.S.A. § 1219 (1982)
  (repealed by 1989, No. 98, § 4(c), eff. July 1, 1989).  Vermont law further
  provided that "[a]ny penalty arising under section 1219 of this title shall
  be secured by a lien against the real estate which is unlawfully subdivided
  in the same manner as taxes assessed against real estate are a lien under
  section 5061 of Title 32."  18 V.S.A. § 1220 (1982) (repealed by 1993, No.
  48, § 7).

       The court found that the City's creation by lease of a single,
  9.7-acre lot to Hunter was subject to the subdivision provisions of the
  public health act, 18 V.S.A. § 1218,(FN2) and concluded

 

  that the lack of state subdivision approval constituted an encumbrance
  as a matter of law.  The court therefore directed a verdict in Hunter's
  favor on the issue of liability.  We agree with the court's ruling.

       In enacting the public health act, the Legislature gave notice to
  landowners that certain conveyances require state subdivision approval. 
  The public health regulations make clear that the duty to obtain the
  necessary permit rests with the "proprietor of land [who] shall subdivide
  it, or otherwise establish and create a subdivision."  Envtl. Protection
  Rule § 3-04, 5 Code of Vt. Rules, at 20.  The City, as proprietor of the
  land at the time of conveyance to Hunter, cannot now disclaim
  responsibility for its failure to obtain subdivision approval prior to the
  conveyance.

       The City contends, however, that the parties contracted to shift
  responsibility for obtaining subdivision approval onto Hunter.  The 1982
  lease between the City and Hunter provided, "In the event there shall be
  any subdivision expenses or relating [sic] to subdividing, they shall be
  born [sic] by [Hunter]."  The trial court found no ambiguity in the
  foregoing provision, concluding that the lease shifted only the costs of
  subdivision to Hunter while the obligation to obtain the subdivision
  permits remained with the City.  The question of whether a contract term is
  ambiguous is a matter of law for the court to decide.  In re New England
  Tel. & Tel. Co., 159 Vt. 459, 466, 621 A.2d 232, 237 (1993).  "Where the
  terms of a lease are plain and unambiguous, they will be given effect and
  enforced in accordance with their language."  KPC Corp. v. Book Press,
  Inc., 161 Vt. 145, 150, 636 A.2d 325, 328 (1993). Here, the lease expressly
  obligated Hunter to bear only the expenses of subdividing and was silent
  concerning the duty to obtain subdivision approvals.  There was no
  ambiguity.  Moreover, it is hornbook law that existing laws form a part of
  a contract.  3 A.L. Corbin, Corbin on Contracts § 551 (1960); see Hilder v.
  St. Peter, 144 Vt. 150, 160, 478 A.2d 202, 208 (1984) (landlords must
  comply with applicable state and local housing codes when entering into
  residential leases); see also Koval v. Peoples, 431 A.2d 1284, 1285 (Del.
  Super. Ct. 1981) (in

 

  absence of express contract provision to contrary, quality of work
  performed under construction contract was controlled by existing
  governmental regulations).  At the time the City created the 9.7-acre
  subdivision, existing law placed the duty of obtaining the necessary
  approvals upon the City as proprietor of the land.  The lease did not alter
  that duty.(FN3)

       The City contends that, even if it had a duty to obtain state
  subdivision approval, its failure to do so did not constitute a breach of
  the covenant against encumbrances.  See, e.g., Frimberger v. Anzellotti,
  594 A.2d 1029, 1033-34 (Conn. App. Ct. 1991) ("Latent violations of state
  or municipal land use regulations . . . do not constitute an encumbrance
  for the purpose of the deed warranty."); see also Marathon Builders, Inc.
  v. Polinger, 283 A.2d 617, 622 (Md. 1971) ("[Z]oning and other ordinances
  and statutes concerned with the use of land involved do not constitute an
  encumbrance on the land and their lawful impact upon that use does not
  result in a breach of the covenant against encumbrances.").  According to
  the City, Hunter had "constructive notice" of the applicable subdivision
  laws and should therefore be deemed to have contracted with due regard to
  the effect these laws had upon the subject property.  The City argues that
  a contrary holding will create uncertainty in the law of conveyances, title
  search and title insurance.  See Frimberger, 594 A.2d  at 1034.

       We believe the decisions in Frimberger and Marathon Builders are
  distinguishable from the present case.  Frimberger involved a "latent
  violation of a land use statute or regulation." Id. at 1032.  The violation
  arose from the filling of land abutting a state wetland area by a prior
  owner without having obtained the necessary permits from the state
  department of environmental protection.  The appeals court held that the
  violation did not constitute an encumbrance, such

 

  that conveyance of the property would be a breach of a covenant
  against encumbrances.  Id. at 1034.  In so holding, the court relied on the
  decision of the New Jersey Supreme Court in Fahmie v. Wulster, 408 A.2d 789, 792 (N.J. 1979), which, in the words of the Frimberger court:

     refused to expand the concept of an encumbrance to include structural
     conditions existing on the property that constitute violations of statute
     or governmental regulation.  The court concluded that such a
     conceptual enlargement of the covenant against encumbrances would
     create uncertainty and confusion in the law of conveyancing and title
     insurance because neither a title search nor a physical examination of
     the premises would disclose the violation.

  594 A.2d  at 1033.

       In the present case, by contrast, the City's violation of the
  subdivision regulations was not "latent," but should have been obvious to
  the City from the very nature of the transaction. The applicable regulation
  required public health approval whenever "the act of division creates one
  or more parcels of land less than 10 acres in area."  Envtl. Protection
  Rule § 3-02(D)(1), 5 Code of Vt. Rules, at 20.  The City divided a parcel
  of land more than 400 acres in area to create a parcel 9.7 acres in area. 
  We have observed that Vermont's subdivision regulations are sufficiently
  precise that an ordinary person, using ordinary common sense, can
  understand and comply with them.  Rogers v. Watson, 156 Vt. 483, 492, 594 A.2d 409, 414 (1991).  The violation was not latent, and the City's
  reliance on Frimberger is therefore misplaced.

       In Marathon Builders, the Maryland Court of Appeals looked to the
  public nature of land use restrictions to distinguish such restrictions
  from the traditional concept of an encumbrance. According to the Court:

     Zoning laws are imposed pursuant to the police power by the exercise
     of the legislative power of the state and of its municipalities by
     delegation of the zoning power and not by the grantor or his
     predecessors in title.  They do not affect the title, vel non, to the land.

  283 A.2d  at 623-24 (citation omitted).  The instant case also involves
  public regulations, to which both parties to the 1982 lease may be deemed
  to have had constructive notice.  Unlike

 

  the ordinance at issue in Marathon Builders, however, Vermont's public
  health regulations do affect title to the land.  The regulations provide,
  "A parcel purchased under the provisions of this section may not be resold
  unless a subdivision permit is obtained."  Envtl. Protection Rule § 3-06, 5
  Code of Vt. Rules, at 21.  Vermont does not adhere to the majority rule
  that regards covenants against encumbrances as not running with the land. 
  See Cole v. Kimball, 52 Vt. 639, 643 (1880) ("The covenant against
  incumbrances runs with the land, and can be enforced for the benefit of the
  party holding legal title."); see also 4 H.T. Tiffany, The Law of Real
  Property § 1022, at 312 (3rd ed. 1975) (collecting cases).  The restriction
  thus imposed under the public health regulations is more akin to the
  definition of "incumbrances" relied upon by the court in Marathon Builders:

     "`[I]ncumbrances upon, or claims against' the lands . . . bind the
     realty[,] . . . fasten upon it and follow it into the hands of all
     purchasers, who take it with notice of their existence; and . . . may be
     enforced by a sale of the property.  They are called `incumbrances,'
     because they rest as a burden on the title, until they are removed by
     payment or release; they are described as `claims against the land,'
     because the land is the debtor, and may be sold to discharge the debt,
     without regard to the personal liability of the owner."


  Marathon Builders, 283 A.2d  at 622 (quoting Gordon v. McCulloch, 7 A. 457, 458 (Md. 1886)).

       Finally, the City contends that the court erred in instructing the
  jury that Hunter could recover consequential damages for the breach.  The
  jury awarded Hunter $112,000, including the lost profits resulting from
  Atlantic's termination of the asset-purchase agreement.  It is well settled
  that the proper measure of damages for a breach of the covenant against
  encumbrances is the cost incurred in removing the encumbrance.  6A R.
  Powell, Powell on Real Property,  900[4], at 81A-148 (P. Rohan rev. ed.
  1995).  But consequential damages are also recoverable in such cases.  Id.
  at 81A-149; see Albright v. Fish, 138 Vt. 585, 589, 422 A.2d 250, 253
  (1980) ("The measure of damages for a breach of a covenant [against
  encumbrances] . . . generally includes consequential damages for attorney's
  fees, costs, interest, and money spent


 

  to avoid damage from a breach.").

       The City argues that the principle of causation should limit
  consequential damages to harm that was reasonably within the contemplation
  of the parties at the time of the conveyance. According to the City, there
  was no evidence to suggest that Hunter was acquiring the subject property
  from the City for the purpose of resale when the property was leased in
  1982 or deeded in 1987.  The trial court found, however, that, where the
  deed is silent, parties to a conveyance are presumed to contemplate the
  eventual resale of the property by the purchaser.  We agree with the
  court's reasoning.  Subdivision regulations must be enforced according to
  an objective standard.  Rogers, 156 Vt. at 490, 594 A.2d  at 413.  As we
  noted, those regulations explicitly provide that "[a] parcel purchased
  under the provisions of this section may not be resold unless a subdivision
  permit is obtained."  Envtl. Protection Rule § 3-06, 5 Code of Vt. Rules,
  at 21. The City cannot avoid liability by disclaiming Hunter's right to
  resell its property.  We see no error in the court's instruction on
  damages.

       Affirmed.


                                   FOR THE COURT:


                                   _______________________________________
                                   Associate Justice



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                                  Footnotes


FN1.  Chief Justice Allen sat at the hearing in this case but did not
  participate in the decision.


FN2.  Act 250 imposes a separate permitting requirement for
  subdivisions.  10 V.S.A. § 6081. An Act 250 subdivision is created when "a
  tract or tracts or land . . . [is] partitioned or divided for the purpose
  of resale into 10 or more lots within a radius of five miles of any point
  on any lot . . . within any continuous period of five years."  10 V.S.A. §
  6001(19) (emphasis added). There is no evidence that the City created
  additional lots within a five-mile radius within five years of its
  conveyance to Hunter.  For the purposes of the present appeal, therefore,
  we assume that the conveyance was not subject to Act 250 permitting
  requirements.

FN3.  The City also argues that paragraph 8 of the lease, which
  obligated Hunter to "conform and comply with all ordinances, laws, rules,
  and regulations of federal, state, county or municipal authorities with
  respect to said leased premises or the use and occupation thereof," shifted
  the duty to Hunter to obtain the necessary subdivision approvals.  The City
  does not explain how a provision can require Hunter to "conform [to]" and
  "comply with" state regulations and simultaneously supersede those
  regulations by relieving the City of a legal duty. In any event, the City
  did not raise this argument below and is precluded from raising it here for
  the first time.  Bensen v. Gall, 158 Vt. 106, 114, 605 A.2d 841, 845
  (1992).