Gannon v. Quechee Lakes Corp.

GANNON_V_QUECHEE_LAKES_CORP.93-087; 162 Vt. 465; 648 A.2d 1378

Filed:  26-Aug-1994

 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. 93-087


 Donald Gannon, et al. and                    Supreme Court
 Quechee Lakes Landowners'                    
 Association, Inc.
                                              On Appeal from
      v.                                      Windsor Superior Court

 Quechee Lakes Corporation, et al.            March Term, 1994



 Matthew I. Katz, J.

 W.E. Wittington IV of Brooks McNally Whittington Platto & Vitt, Norwich,
   for plaintiff-appellant Quechee Lakes Landowners' Association, Inc.

 James B. Anderson of Ryan Smith & Carbine, Ltd., Rutland, for defendants-
   appellees


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


      ALLEN, C.J.   Defendant Quechee Lakes Corporation (QLC) is the
 developer of Quechee Lakes Development, a planned second-home community in
 Quechee.  Plaintiff Quechee Lakes Landowners' Association, Inc. (QLLA), is a
 nonprofit corporation representing the interests of individual unit owners
 in the community.  QLLA appeals from a superior court decision construing a
 1981 order that followed settlement of a class action suit by unit owners
 against QLC.
      QLC drafted the Quechee Lakes Master Plan for development of the land;
 prepared and recorded covenants, declarations and bylaws to govern the
 development; and created QLLA in accordance with those governing documents.

 

 Thereafter, QLC developed and sold units within the development to third-
 party purchasers.  QLLA holds title to and administers the common lands,
 including golf courses, ski areas, lakes, common buildings and other areas
 sometimes referred to by the parties as "greenbelt."  QLLA also administers
 other facilities shared by members of the community, sets and collects dues
 and assessments, and represents members' interests generally.  All "bona
 fide third party purchasers" of units are required to be QLLA members and
 pay dues and assessments to the association.  Memberships are based on unit
 ownership.  QLC is required to make contributions to QLLA's capital
 improvement fund on the sale of units to bona fide third parties.
      This action originated in a class action brought in 1978 by certain
 individual unit owners against QLC and its affiliated companies.  QLLA was
 not a member of the original class because QLC controlled QLLA from its
 inception in 1970 until after the action was filed, when QLC lost its
 majority share in QLLA through sale of units.  The class representatives and
 QLC held negotiations in late 1979 and early 1980, and reached an agreement
 resolving many of their disputes.  The parties executed the agreement and
 submitted it to the court for approval, pursuant to V.R.C.P. 23(e), in
 November 1980.
      In February 1981, after QLC lost its controlling interest, QLLA moved
 for admission to the plaintiff class so it could file objections to the
 proposed settlement.  In March 1981, QLC moved for "clarification" of the
 agreement as to stated issues.  The court granted QLLA's motion for
 admission to the plaintiff class, but found the settlement to be fair and
 approved it over QLLA's objections.  On August 5, 1981, the court entered an
 order incorporating the terms of the settlement agreement.  The court also

 

 denied QLC's motion to "clarify" the agreement.  Neither QLC nor QLLA
 appealed.
      Though numerous questions arose after entry of the 1981 order, no
 litigation ensued in the years immediately thereafter.  The parties entered
 an "Open Space Agreement" in 1987 in an attempt to define and describe
 "common land" within the meaning of the 1981 settlement.  By 1988, however,
 at least three major issues had arisen, and both parties moved for relief
 under the 1981 order.  QLLA requested that QLC be compelled to pay dues and
 assessments to QLLA with respect to units it has reacquired from individual
 owners, and that QLC be ordered to convey to QLLA the common lands it holds,
 free of any encumbrance.  QLC sought an amendment to the provision in the
 1981 order relating to its obligation to pay capital contributions to QLLA
 upon sale of units.
      After hearing, the court ruled that QLC was not required to pay dues or
 assessments on lots or units previously conveyed to "ultimate user" third
 parties but thereafter reacquired by QLC.  The court also held that QLC was
 obligated to convey the "common lands" to QLLA, but was not obligated to
 secure mortgage releases with respect to those lands.  In addition, the
 court concluded that there was no complete and definitive description of
 common lands under the 1981 order, and directed QLLA to draft and submit
 deeds to be executed by QLC in furtherance of its conveyance covenant.
 Finally, regarding capital contributions, the court concluded that QLC was
 not obligated under the 1981 order to pay into QLLA's capital improvement
 fund for what the court termed "bulk land sales."  QLLA unsuccessfully
 moved for reconsideration of the court's order, and now appeals.  We affirm
 the trial court's ruling regarding dues for reacquired units and capital

 

 contributions, but remand for further proceedings on QLLA's rights to
 capital contributions from bulk transferees.  We reverse the trial court's
 ruling regarding conveyance of common lands and remand for further
 proceedings.
                                     I.
      Before addressing the substantive issues on appeal, we first consider
 the appropriate standard of review.  The trial court's findings of fact will
 not be disturbed unless they are clearly erroneous, V.R.C.P. 52(a)(2).  The
 1981 judgment order essentially ratified an agreement between the parties to
 the class action, a clear quid pro quo in which QLLA and QLC each advanced
 vital interests in exchange for surrender of certain claims and recognition
 of rights and interests of the other party.  On appeal, the parties agree
 that the order should be construed as a contract.  QLLA may have wanted a
 different bargain after it entered the action, but as a party it took the
 bargain incorporated into the order without appeal, and its prior objections
 and misgivings did nothing to deprive the consent decree of its essential
 contractual nature.  Construction of a contract is a matter of law, not a
 factual determination.  Ianelli v. Standish, 156 Vt. 386, 389, 592 A.2d 901,
 903 (1991).  Thus, this Court must make its own inquiry into the proper
 legal effect of the terms of the agreement, Hospitality Inns, Inc. v. South
 Burlington R.I., Inc., 153 Vt. 410, 415, 571 A.2d 40, 43 (1990), employing
 the trial court's valid findings of fact.
      QLLA argues for a strict construction of the order, contending that the
 intended meaning of the order is plain from the language of the document
 itself, and alternatively argues that any ambiguities must be resolved
 within the four corners of the judgment itself.  Therefore, QLLA argues, the

 

 trial court erred in considering extrinsic evidence of the parties' actions
 and intentions to discern the proper meaning of the order.  We agree with
 the trial court that the intended meaning of the contested provisions is not
 self-evident from the text of the order and that extrinsic evidence was
 permissible.  See Stratton v. Cartmell, 114 Vt. 191, 194,  42 A.2d 419, 421
 (1945) (when the language used will admit more than one interpretation,
 parole evidence is admissible).  We reach this conclusion, however, for
 different reasons which are outlined in the discussion below.  Moreover,
 QLLA fails to demonstrate how our review of the court's decision would
 differ in any significant way if we agreed that the terms of the 1981 order
 were strictly court-imposed and not based on an underlying settlement
 between the parties.
                                     II.
      QLLA first disagrees with the trial court's construction of the
 provision dealing with unit dues and assessments payable by QLC to QLLA.  In
 relevant part, paragraph 9 of the 1981 order states:
           Except as otherwise provided herein, [QLC] shall not be
           obligated to pay any dues, assessments, fees or special
           charges, including delinquent dues which may be owing on
           repossessed lots, on any membership attributable to a
           lot which is owned, both legally and equitably, by
           [QLC].

 (Emphasis added.)  The court concluded that QLC's exemption for repossessed
 units also covers units that QLC had conveyed to ultimate-user third parties
 and subsequently reacquired.  The term "repossessed" is defined nowhere in
 the order, but we conclude that, in light of the general purpose and
 context of the agreement incorporated in the 1981 order, "repossession"
 should not be limited to a retaking by a creditor in the wake of a debtor's
 default.  Stratton, 114 Vt. at 194, 42 A.2d  at 421 (in construing contract

 

 terms, the court may look to the intended purpose and circumstances).  In
 exchange for an exemption from dues and assessments for properties held in
 inventory, QLC relinquished the votes associated with the memberships it
 held in inventory, effectively yielding control of QLLA to the end
 purchasers.
      The parties' conduct after 1981 confirms the strong implication of the
 language of the settlement.(FN1)  See Murphy v. Britton, 109 Vt. 522, 525, 1 A.2d 724, 725 (1938) ("[I]n determining the meaning of an indefinite or
 ambiguous contract, the construction placed upon it by the parties may be
 considered by the court.").  After entry of the order, QLLA amended its
 bylaws to exempt units held by QLC from dues, and did not bill QLC for dues
 between the settlement and consent decree and 1988.  Between 1984 and 1986,
 QLC and QLLA entered into six agreements designed to prevent the Town of
 Hartford from foreclosing on liens for delinquent taxes.  Under each of
 these agreements, QLC paid the delinquent taxes, QLLA foreclosed its lien
 for delinquent membership dues, and then QLLA sold the foreclosed unit to
 QLC for the amount of the foreclosed dues.  The trial court found that under
 this arrangement, QLC paid QLLA over $200,000.  The court added:
         There is no evidence that any party expected the lots so
         reacquired would hold a status different than others in
         developer's inventory.  At a time when developer was not



         selling all that many of its own lots, why would it
         acquire new ones on which it was to be obligated for
         association dues?

 The soundness of this conclusion is supported by the conduct of the parties
 after each of these transactions, specifically the absence of any demand for
 dues by QLLA.  It may be inferred that if, after the first such transaction
 in 1984, QLLA had demanded membership dues with respect to the foreclosed
 lot, QLC would have raised the issue in the subsequent foreclosure
 agreements.
      QLLA also argues that QLC incurred a dues obligation on reacquired
 properties because of language in paragraph 12 of the order, which provides
 that "all memberships [that QLC] transfers or assigns shall then be
 dues-paying memberships."  The effect of this provision, QLLA contends, is
 that once a property is sold, the transferred membership (heretofore non-
 dues-paying under the order) becomes dues-paying, "then" meaning "forever
 after."  We disagree that paragraph 12 unambiguously demands that QLC be
 treated as any other individual buyer after the first conveyance of the lot
 from QLC to a purchaser activates the dues obligation.  That construction
 flies in the face of the general principle -- the very heart of the
 settlement -- that QLC "shall not be obligated to pay any dues,
 assessments, fees or special charges . . . on any membership attributable to
 a lot which is owned, both legally and equitably, by [QLC]."  Considering
 the order as a whole, its general intention to reduce QLC's financial
 obligations regarding memberships held in exchange for a relinquishment of
 voting power in QLLA, and the conduct of the parties, we conclude that QLC
 does not have to comply with dues and assessments obligations associated
 with its ownership of reacquired memberships in the development.

 

                                    III.
      QLLA next contends that the court erred in construing the order so that
 QLC is not obliged to pay a "capital contribution" fee upon transfer of
 lots as part of a "bulk sale."  The court relied on the following definition
 of sale in paragraph 17:
           A "sale by [QLC]" shall be deemed to have occurred on a
           regular sale when a closing takes place and shall be
           deemed to have occurred on an installment sale contract
           when the Buyer has made his initial deposit in full and
           the Agreement has been approved by the financing bank.

 (Emphasis added.)  At issue are two transactions:  (1) a sale of properties
 worth between twelve and twenty million dollars to Quechee Development and
 Land Corporation, a company wholly owned by the owner of the controlling
 interest in QLC; and (2) a second, smaller sale to an unrelated entity also
 in the business of selling lots at retail.  The trial court concluded that
 these were not "regular" sales and therefore they did not trigger the
 payment of capital contributions for each lot in the group conveyed.  QLLA
 contends that the provision in paragraph 17 unambiguously makes no exception
 for the sale of large numbers of lots to other than end users, and therefore
 the court had no viable basis to exempt bulk transfers from the capital
 contribution requirement.
      We agree with the trial court that bulk sales do not themselves
 obligate QLC to make capital contributions, but for different reasons.  See
 Harlow v. Miller, 147 Vt. 480, 483, 520 A.2d 995, 998 (1986) (Court may
 affirm right result reached for wrong reasons).  First, paragraph 9 clearly
 distinguishes between QLLA memberships held directly or indirectly by QLC
 and memberships assigned to third-party purchasers, which become subject to
 the obligations to pay dues, assessments and special charges.  This

 

 distinction is carried through in the provisions of paragraph 17 relating to
 capital contributions, which provide for increasing levels of capital
 contribution by QLC as "memberships" increase in total number -- memberships
 assigned to third-party purchasers as end users of the units.  If a "sale"
 for capital contribution purposes meant all sales, including bulk sales,
 then all buyers, including bulk purchasers, would become QLLA members for
 all purposes.  This result would threaten or defeat the main premise of the
 settlement -- wresting control of QLLA from QLC and its "successors in
 interest, individually and collectively, and all persons or entities acting
 in concert or in participation with them."
      Based on the court's findings, the two bulk sales raised none of the
 issues of control of QLLA sought to be addressed in paragraph 9 and met none
 of the criteria for capital contributions addressed in paragraph 17.  Though
 assets were "sold," the larger of the two bulk sales was an asset
 restructuring by the principal owner of QLC, done for reasons that do not
 appear on the record.  The trial court acknowledged that the second bulk
 sale was more problematic, since it was to a business entity apparently
 unrelated to QLC, but the court's finding that it was not a "triggering
 event" and that "[w]ithout new members, the association does not have the
 compelling need for the contributions" is sustained by the record.
      Sale of some or all of the assets of a company can be one of the
 methods of transferring part or full ownership in the underlying business.
 See Bader v. Alpine Ski Ship, Inc., 505 A.2d 1162, 1168 (R.I. 1986).  In the
 present case, however, it appears that the motive for the asset transfers
 was not to transfer control of QLC.  Instead, it was rather a means for QLC
 to raise capital and lower its overall investment risk.  The record does

 

 not suggest that the bulk purchasers occupied any lots as end users, but
 rather purchased the property to engage in essentially the same development
 sales business as that of QLC.  While the 1981 order did not discuss bulk
 sales or asset transfers, the omission does not mean the transaction was
 proscribed or that the court was compelled to treat the transfer under a
 provision intended to govern sales to end users.  Neither the language of
 the documents nor the sense of the underlying transactions supports QLLA's
 argument that bulk transfers were covered in the settlement agreement and
 consent decree.  If the order did not specify standards for determining what
 constituted a bulk sale and the respective rights of the parties under the
 1981 order following such sales, the court was free, within its discretion,
 to determine those questions under principles of equity and fairness.  Pike
 Industries, Inc. v. Middlebury Assocs., 140 Vt. 67, 73, 436 A.2d 725, 728
 (1981) (on reargument); see also Berkeley Dev. Co. v. Great Atlantic &
 Pacific Tea Co., 518 A.2d 790, 796-97 (N.J. Super. Ct. 1986) (drug store,
 assignee of lease to supermarket once located in shopping center, could not
 enforce noncompetition clause in original lease to bar shopping center from
 seeking new supermarket; court was free to determine "what the lease would
 have provided had the parties anticipated the present situation").  In this
 pursuit the court was only partially successful.
      The trial court declined to rule on the association's rights in
 various interests in real property, when those interests are now held by
 third parties not present in this lawsuit, particularly the obligation of
 bulk transferees to pay dues to QLLA.  The court reasoned that it could not
 enter an order binding on persons not parties to the litigation.  But if the
 theory underlying allowance of bulk transfers was that they did not affect

 

 QLLA's rights to capital contributions, the court could not simply decline
 to consider the issue of QLLA's post-transfer rights simply because the
 transferees were not before it.(FN2)  Stavros v. Karhomi, 349 N.E.2d 599, 608
 (Ill. App. Ct. 1976) (lis pendens having been filed, assignee of rights of
 buyer in purchase and sale agreement was not necessary party in suit to
 declare rights between original buyer and seller).
      QLC was before the court and subject to its direction to take whatever
 steps might be necessary to protect QLLA's rights under the 1981 order.  The
 court accommodated QLC in a reasonable manner, given the uncertainty of the
 future in August 1981 and given the broad authority of paragraph 21
 regarding retained jurisdiction to adjudicate disputes and modifications of
 the 1981 order.(FN3)  But there was no authority under the 1981 order to,
 allow, in effect, the transfer of the bulk assets without recourse to QLC in
 the event transferees did not honor underlying covenants.  The ruling that

 

 QLC could transfer assets in bulk free of the capital contribution covenant
 should have taken into account QLLA's rights to capital contributions under
 the 1981 order, and we remand so that the trial court may modify its order
 accordingly.


                                     IV.
      Finally, QLLA argues that the court erred in not finding QLC in
 contempt for failure to convey common lands free of encumbrances.  As to
 common lands, paragraph 14 of the 1981 order states in relevant part:
           [QLC] . . . [is] enjoined permanently from encumbering
           in any manner to third parties any of the remaining
           unconveyed Common Land or Green Belts and [is] further
           enjoined permanently from cutting or selling any timber
           or timber rights on such unconveyed Common Land or Green
           Belts.  [QLC] shall convey such unconveyed Common Land
           to [QLLA] within a reasonable period of time free and
           clear of all liens and encumbrances.

 There is no disagreement that the terms regarding conveyance and
 encumbrances are unambiguous.  The trial court found that QLC "deeded
 relatively little greenbelt to the association" and that QLC had encumbered
 common land by mortgaging certain properties and allowing judgment creditors
 to obtain liens on other property.  But the court also found that the
 parties had yet to reach agreement as to all parcels to be included as
 common lands.  The court directed QLLA to prepare deeds reflecting the
 extent of common land in accordance with both the 1981 order and the 1987

 

 "Open Space Agreement" defining common lands.  QLC was given thirty days to
 file an objection.(FN4)
      Given the uncertainty of the record, this aspect of the appeal must be
 remanded to the trial court.  Since QLLA had not submitted its proposed
 deeds at the date of the court's order, this issue cannot be resolved at
 this time.  Only when the deeds are submitted and QLC's possible objections
 resolved will the court be able to state finally, on the basis of evidence
 before it, whether or not any part of the common land is in fact encumbered.
      Regarding two parcels that apparently were clearly denominated as
 future common lands at the time of the 1981 order, the trial court found
 them subject to mortgages and judgment liens.  The court concluded that the
 lands should be conveyed to QLLA, but saw no practical purpose in requiring
 QLC to secure mortgage releases and judicial relief from the judgment liens.
 These conclusions are based entirely on the court's speculations and
 surmises, not on the plain and unambiguous language of the 1981 order.  The
 court makes no findings with respect to its numerous pronouncements
 concerning the likely effect of directing QLC to convey common land in
 accordance with the 1981 order, and offers no theory in support of its
 conclusion.  Whether or not conveyance by QLC of common land free of
 encumbrances might "accomplish anything" is not a judicial question.
      The court noted that, in any event, the mortgagees in question were not
 before it, which precluded enforcement of the common land provisions of the
 1981 order.  But as we conclude above with respect to bulk sales, the
 absence of third parties does not necessarily prevent resolution of the

 

 common lands question.  The 1981 order directs QLC to act and does not
 condition that action on the willingness of a lienor to cooperate or
 negotiate, other than to release the lien upon payment of the underlying
 obligation secured by the lien, as the law requires.  In sum, the court
 erred in ruling that the existing common areas could be conveyed without
 respect to the encumbrance provisions of the 1981 order.
      Therefore, we reverse the trial court's ruling regarding the common
 lands issue.  Once the QLLA deeds describing common lands have been
 approved, the trial court must determine whether QLC has complied with
 paragraph 14 of the 1981 order regarding conveyance to QLLA without
 encumbrance and within a reasonable time.  As for the common lands already
 identified and encumbered, the trial court shall order QLC to discharge or
 obtain release on the obligations and convey the lands to QLLA, under fair
 and reasonable terms.
      Affirmed in part and reversed in part, and remanded for further
 proceedings in accordance with this opinion.

                                    FOR THE COURT:



                                    _____________________________
                                    Chief Justice



-------------------------------------------------------------------------------
                               Footnotes


FN1.    QLLA maintains that the subsequent conduct of the parties is
 irrelevant.  But again, its argument rests on the faulty premise that QLLA
 never "consented" to the agreement or the settlement decree, and hence there
 was never any agreement which later conduct might be used to interpret.  Not
 only was QLLA bound by the 1981 order as a consent decree, having not
 pursued its objections by appeal of the order, but even if the order were
 not grounded in the consent of the parties, QLLA's post-order conduct -- its
 actions and inactions -- would be relevant to an understanding of what the
 order meant to each of the parties.  The court could justifiably rely on a
 longstanding, common understanding of the meaning of the order.


FN2.    The record does not indicate the extent of actual or potential legal
 harm to QLLA resulting from bulk transfers, and we make no assumptions in
 that regard.  Though third-party purchasers from a bulk transferee would be
 charged with notice of restrictions and conditions included in recorded
 deeds, we cannot assume that deed restrictions would address all potential
 problems.  We do know from the court's decision that the question of QLLA's
 rights after bulk transfers by QLC was raised and that the court declined to
 address it.  The court should have done so.



FN3.    In relevant part, paragraph 21 provides:
     Jurisdiction is retained by [the superior court] over
     this action for the purpose of enabling any of the
     parties named in or affected by this JUDGMENT ORDER, at
     any time, to apply to this Court requesting by motion
     that this mater be reopened and be brought forward on
     the docket for such further orders and directions as may
     be necessary or appropriate, for the construction or
     carrying out of this JUDGMENT ORDER, for the
     modification or termination of any provisions herein,
     for the enforcement of compliance therewith and the
     punishment of violations thereof . . . .


FN4.      The record does not indicate if any of these steps have been
 taken, and in any event they would not be part of the present record.