Fairchild Square Co. v. Green Mountain Bagel Bakery, Inc.

FAIRCHILD_SQ_CO_V_GREEN_MTN_BAGEL_BAKERY.93-493; 163 Vt 433; 658 A.2d 31

[Filed 27-Jan-1995]

[Motion for Reargument Denied 29-Mar-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. 93-493


Fairchild Square Company                     Supreme Court

                                             On Appeal from
     v.                                      Chittenden Superior Court

Green Mountain Bagel Bakery, Inc.            September Term, 1994
d/b/a Burlington Bagel Bakery, Inc.,
and Andrew B. Golbert


Matthew I. Katz, J.

Sandra A. Strempel of Dinse, Erdmann & Clapp, and Arthur S. Barrett, Jr. of
 Heilmann, Ekman & Associates, Burlington, for plaintiff-appellant 

Lawrence Miller and Barbara R. Blackman of Miller & Faignant, P.C., Rutland,
 for defendants- appellees 


PRESENT:  Gibson, Dooley, Morse and Johnson, JJ., Crucitti, D.J., Specially
          Assigned 

     MORSE, J.  Plaintiff Fairchild Square Company, a corporate landlord
renting space to defendant, Green Mountain Bagel Bakery, appeals from a
Chittenden Superior Court grant of summary judgment in favor of the tenant
and its employee, Andrew Golbert.  The trial court held that plaintiff had
waived recovery for negligently caused fire damages under the terms of the
parties' lease.  We affirm. 

     Fairchild is the owner of the Huntington Building, a four-story office
and apartment structure in Burlington.  Green Mountain leased the first floor
of the building.  Defendant 

 

Andrew Golbert was the president of Green Mountain.  One day in June 1989,
Golbert failed to turn off a gas-fired water boiler before leaving the Bakery
for the night.  That night the boiler started a fire, causing damage to the
Bakery and other parts of the Huntington Building. 

     Landlord sued tenant and Golbert for negligence to recover its losses. 
All parties moved for summary judgment.  The court granted defendants' motion
for summary judgment, ruling that landlord had waived any recovery against
tenant and Golbert under Article 35 of the lease, which stated: 

     Article 35.  Fire insurance:  It is acknowledged and understood by
     the parties hereto that such insurance for fire and extended
     coverage as Lessor elects to purchase shall be for the sole benefit
     of the lessor, and that such insurance shall not cover Lessee's
     personal property, trade fixtures, leasehold improvements, and
     other appurtenances, and that in the event of damage to or loss of
     any such items, Lessor shall have no obligation to repair or
     replace same.  Lessor and Lessee hereby release and waive all
     right of recovery against each other or any one claiming through
     or under each of them by way of subrogation or otherwise and
     arising out of any loss by fire or other similar casualty.

(Emphasis added.)

     On appeal, landlord argues that (1) it did not waive its right to
recover for negligence; (2) even if it waived recovery for damages to the
leased premises, it did not waive damages to parts of the Huntington Building
not leased by tenant; and (3) even if it waived recovery as to Green
Mountain, it did not waive its right to sue Golbert individually for his
negligence. 

                                I.

     Whether landlord waived its right to recover against tenant for
negligently caused fire damage depends on the intent of the contracting
parties as determined by the terms of the contract.  The trial court relied
almost exclusively on the final sentence of Article 35 in holding 

 

the landlord had waived the right to damages:  "Lessor and Lessee hereby
release and waive all right of recovery against each other or any one
claiming through or under each of them by way of subrogation or otherwise and
arising out of any loss by fire or other similar casualty." 

     Landlord, on the other hand, relies primarily on our policy with respect
to exculpatory contract language as set out in Colgan v. Agway, Inc., 150 Vt.
373, 553 A.2d 143 (1988). Although we will enforce such language in
appropriate cases, we noted in Colgan that it is "traditionally disfavored"
and subject to "more exacting judicial scrutiny."  Id. at 375, 553 A.2d  at
145.  Thus, we held that "a greater degree of clarity is necessary to make
the exculpatory clause effective than would be required for other types of
contract provisions" and that exculpatory clauses "must be construed strictly
against the part[y] relying on them."  Id. (emphasis in original). 

     The Colgan holding is an application of, not an exception to,
traditional rules of contract construction.  By these strict rules, "we are
not deprived . . . of the use of common sense" in construing an exculpatory
clause.  Douglass v. Skiing Standards, Inc., 142 Vt. 634, 637, 459 A.2d 97,
98 (1983).  Indeed, only the most wooden application of the Colgan rule would
avoid a waiver here. 

     Without withdrawing from the principles stated in Colgan, we stress that
context is critical to their application.  Colgan involved the sale of a
manure storage facility to a farmer under a standard-form sales contract
prepared by the seller.  The contract contained a provision limiting the
warranty to a term of one year and disclaiming all other warranties and "`any
other obligations or liability on the part of the contractor.'"  150 Vt. at
374, 553 A.2d  at 144.  We held that this language did not waive the farmer's
ability to sue on a negligence theory when a 

 

wall of the storage facility collapsed.  Id. at 377, 553 A.2d  at 146. 
Presumably, application of the exculpatory provision would have left the
farmer no remedy for the seller's negligence. 

     The circumstances here are markedly different.  Article 35 is not a
warranty clause; it allocates the responsibility of purchasing fire insurance
and contemplates that the parties will be reimbursed by their insurance
companies for loss by fire.  Except with respect to the risk of loss of the
tenant's personal property and fixtures, the expectation was that landlord
would purchase any needed fire insurance in the amount it deemed appropriate.
 This cost was necessarily built into the determination of the rent.  By
Article 4 of the lease, tenant was required to pay additional rent if its
activities in any way increased the landlord's fire insurance costs. 
Landlord did, in fact, purchase fire insurance, and this is a subrogation
claim by its insurance carrier. 

     Landlord urges us to look beyond the waiver sentence of Article 35 to
other parts of the lease and the overall context of this dispute.  This
inquiry only reinforces our conclusion that landlord has waived the right to
bring this action against Green Mountain.  The allocation of the risk of loss
is reinforced by Article 14 of the lease, which provides: 

     Article 14. Duty to keep premises in good order: Lessee hereby
     covenants and agrees to keep the premises in as good order, repair
     and condition as the same are in as of the commencement of the
     term thereof, or may be put in thereafter, damage by fire or
     unavoidable casualty and reasonable wear and tear excepted; and
     at the termination hereof, to peaceably yield up such premises and
     those additions, alterations and improvements of Lessor in such
     good order, repair and condition leaving the Premises clean, neat
     and tenantable.

(Emphasis added.)  Again, we interpret the reference to fire to apply
irrespective of its cause. Thus, risk of loss from fire falls on the landlord
and not the tenant. 

     Landlord attempts to distinguish this case from those of other
jurisdictions because the 

 

lease contained no specific requirement that lessor purchase fire insurance. 
We do not place critical significance on the absence of a lease mandate. 
Landlord's purchase of fire insurance was clearly contemplated by the lease,
was critical to its self-protection, and actually occurred. 

     Landlord's main argument is that Article 35 does not contain a waiver of
its right to sue for negligently caused fire damage because the language does
not use the term "negligence." We see no difficulty in finding a waiver even
under the exacting Colgan standard.  Colgan recognized that "a specific
reference to negligence liability is not essential" to the effectiveness of a
waiver provision.  Id. at 376, 553 A.2d  at 146.  Under the Article 35
language, landlord and tenant specifically waive "all right of recovery . . .
arising out of any loss by fire or other similar casualty." (Emphasis added.)
 There is no suggestion of a limitation based on fire resulting from
negligence.  See, e.g., Chazen v. Trailmobile, Inc., 384 S.W.2d 1, 4 (Tenn.
1964) (construing waiver sentence nearly identical to Article 35 and
concluding that use of "any" and "all" included negligently started fires). 

     Landlord argues that the phrase "loss by fire" is modified by the phrase
"other similar casualty," and because "casualty" refers to accidents or other
events not caused by negligence, the phrases read together indicate a waiver
of fire damage not caused by negligence, i.e., accidental fires only.  Such a
strained reading contravenes the meaning of the phrase "loss by fire."  See
United States Fire Ins. Co. v. Phil-Mar Corp., 139 N.E.2d 330, 332 (Ohio
1956) (ordinary meaning of "loss by fire" "is damage resulting from fire
caused by act of God, accident or negligence") (emphasis added). 

     Landlord's arguments based on other provisions of the lease are
similarly unpersuasive. 

 

Primarily, landlord relies upon the fact that Articles 12 (FN1) and 21 (FN2) 
of the lease specifically establish tenant's liability for its negligence or
that of its agents or employees.  Although this is the general undertaking of
the lease, the parties established different rules for fire damage. As a
matter of contract construction, the specific controls the general. 
Parkhurst v. Gibson, 573 A.2d 454, 458 (N.H. 1990) ("generally accepted
interpretive rule is that a general, preliminary clause should not ordinarily
take precedence over specific provisions of a contract") (citing 4 S.
Williston, A Treatise on the Law of Contracts  619 (3d ed. 1961)); cf.
Jackson v. Rogers, 120 Vt. 138, 141, 134 A.2d 620, 622 (1957) ("a special
provision will be held to override a general provision . . . where the two
cannot stand together").  Therefore, Article 35 controls Articles 12 and 21
with respect to liability for fire, whatever its cause.  In fact, the

 

specific reference to negligence in the earlier lease provisions is a further
indication that the parties knew how to spell out negligence liability, and
were equally able to spell out an exemption for negligence in the Article 35
waiver clause had they so desired. 

     We also reject landlord's argument that summary judgment was
inappropriate because the lease is ambiguous as to whether the parties
intended exculpation for negligently caused fire damages.  We find the
language of the lease to be sufficiently unambiguous so that it should be
enforced according to its terms.  See In re New England Tel. & Tel. Co., 159
Vt. 459, 466, 621 A.2d 232, 237 (1993) (plain meaning of contract enforced
when contract language is clear and unambiguous). 

                               II.

     Landlord's second argument -- even if it waived recovery for damages to
tenant's leasehold, it did not waive recovery for damages to other property
within the Huntington Building not leased by tenant -- is also rejected. 
Although other courts have accepted that position in the context of the
specific lease provision before them, see, e.g., Sannit v. Aarons, 297 F. Supp. 798, 800 (D. Del. 1969) (even if surrender clause would protect
defendant from liability claim for damages to leased premises, "no
conceivable reason" to extend protection to shield tenant from liability to
adjoining premises), we reject this argument for two reasons. 

     First, a limitation to the leased premises is not supported by the
language of Article 35. The waiver provision applies to "any loss by fire"
with no limitation to the leased premises. Just as the plain meaning of the
language determined the result with respect to negligence liability, we
believe it also commands a similar result for parts of the building that are
not included in the lease. 

 

     Second, the limitation to the leased premises is not consistent with the
insurance obligations assumed by the parties.  On this point, we agree with
the analysis of the Utah Supreme Court in a similar case: 

     Fundamental to an analysis of the covenant requiring the
     tenant to be liable for all damages except those caused by fire is
     the assumption based on common experience, that the landlord
     itself keeps the premises insured against that type of loss. . . .
     [T]he parties understood that the landlord (plaintiff) was paying the
     fire insurance premiums on the entire premises.  It certainly would
     be discordant to common sense to suppose that the landlord
     insured only the deceased's apartment against loss by fire.  The
     only logical view is that such insurance coverage would indemnify
     the landlord for damages to any part of its building or premises
     caused by fire and that this is the reason for so exempting the
     tenants.

Bonneville on the Hill Co. v. Sloane, 572 P.2d 402, 404 (Utah 1977).  The
juxtaposition of the issues in Article 35 of the lease shows that the parties
contemplated that the waiver of liability would flow from assumption of the
responsibility to purchase fire insurance.  It does not make sense to hold
the tenant responsible for damage to non-demised premises even though
landlord would purchase fire insurance to cover these premises. 

     We must, however, consider landlord's argument that this issue was
resolved in its favor in Manchester Marble Co. v. Rutland R.R., 100 Vt. 232,
136 A. 394 (1927).  Although Manchester Marble also involved an exculpatory
provision of a lease, the plaintiff was a tenant that had leased part of
defendant railroad's right-of-way to construct a factory shed next to the
track.  A fire allegedly caused by the defendant's negligence burned down the
shed as well as the plaintiff's main factory, which was not located on the
defendant's land.  The defendant argued that it was released from liability
for damage to the plaintiff's property, whether on or off the leased
premises.  The Court rejected this argument, finding "that the contract . . .
does 

 

not include by its terms any property that is outside the right of way,"  id.
at 240, 136 A.  at 397, and reasoning that the defendant's reading of the
lease "would be an unreasonable construction, and would put a meaning to the
contract that was not contemplated by the parties when they executed the
lease,"  id. at 245, 136 A.  at 399. 

     Manchester Marble might govern if the tenant were suing for fire damage
to another building, owned by the tenant, and claiming the landlord had been
negligent in starting the fire. In such a case, the tenant would be entitled
to rely on the rule that a "lease will be most strongly construed against the
. . . lessor."  Id. at 242, 136 A.  at 398.  Here, the construction rule
supports the application of the waiver.  The lease provisions are different
and are specifically related to a very different set of insurance
expectations.  Although the highly unlikely scenario set forth above was
beyond the contemplation of the parties in Manchester Marble, that cannot be
said for the likely event that a fire in the Bakery would spread to other
parts of the building in this case.  We find that Manchester Marble does not
control this case and does not undercut our conclusion. 

                               III.

     It follows from the discussion in parts I and II that landlord's third
and final argument -- even if landlord waived recovery as to Green Mountain,
it did not waive its right to sue defendant Golbert individually for his
negligence -- must fail. 

     First, there is no question that this provision was intended to
distribute the risk of loss by fire in a predictable way so that two
commercial entities could insure against potential harm in the most logical
and economic way.  To accomplish that purpose, each party waived all recovery
against the other, and specifically waived rights of their subrogees as to
the other party. 

 

Consequently, we believe that the last sentence of Article 35 shows that
Fairchild and Green Mountain intended that, upon payment of a fire insurance
premium, their respective fire insurers would ultimately assume their
respective risk of loss.  The absence of an express reference to employees
does not alter the purpose of the clause or shake our conviction that the
parties intended that their fire insurers would assume the ultimate risk. 
See Mayfair Fabrics v. Henley, 244 A.2d 344, 351 (N.J. Super. Ct. 1968)
(tenant's employee entitled to limitation of liability despite lack of
explicit language). 

     Second, corporate employers are not responsible for damages unless a
person covered by the doctrine of respondeat superior is negligent.  In every
case of such liability against a corporation, an employee or other agent must
have caused the harm.  Only people cause corporations to be responsible
legally.  Landlord obviously must have contemplated that fires might result
from the negligence of tenant's employees.  In this regard, we agree with the
trial court's assessment:  "To the extent any claim can be made against a
corporate tenant for negligence in causing a fire, such negligence must have
been committed by one or more human beings.  Corporations cannot act except
by the people who staff them."  See In re McGrath, 138 Vt. 77, 80, 411 A.2d 1362, 1364 (1980) (corporations act through agents).  In short, the essential
purpose of Article 35, looking solely to insurance for recovery, would be
significantly undermined by denying employees the insulation from liability
provided their employers. 

     In conclusion, underlying public policy considerations support our
determination.  The court in Tate v. Trialco Scrap, Inc., 745 F. Supp. 458
(M.D. Tenn. 1989), found that fire insurance purchased by the landlord, under
a contractual obligation to do so in the lease, was for the mutual benefit of
landlord and tenant.  The trial court quoted from Tate that the modern 

 

trend has been to prevent landlords from suing tenants for negligently caused
fire damage "unless the rental contract clearly expresses the contrary
intent." Id. at 467.  This reference caused landlord to argue that the trial
court impermissibly shifted the burden of proof onto it in this case.  The
reference correctly stated the trend of the law and was not determinative of
the outcome.  Although the rule in Tate is inapplicable here because there is
no contractual obligation for the landlord to purchase fire insurance, we
nonetheless find the policy arguments persuasive: 

          If the parties agree that one person shall purchase insurance, it is
          only natural that they assume that the insurance is for their mutual
          benefit and that the parties will look only to the insurance for loss
          coverage. . . .
          The realities of who ultimately pays for the insurance also
          support adoption of this rule.  Despite the fact that the lessor may
          actually send the premium check to the insurance company, the
          lessee ultimately pays for insurance through his rent checks,
          because the lessor takes his own costs into account when setting
          rent.  If the lessee is ultimately the source of the insurance
          payment, simple equity would suggest that he be able to benefit
          from that payment unless he has clearly bargained away that
          benefit. . . .

                                   . . . .
  
          Another less important public policy may also be advanced
          by the rule that an agreement to purchase insurance will be
          deemed to be for the mutual benefit of the parties absent a clearly
          expressed contrary intent.  A different rule would promote
          multiple insurance policies on the same building by the various
          parties involved.  This, in turn, is likely to create overlapping
          coverage which inevitably means more premiums paid than
          necessary.  The economic inefficiency then results in higher costs
          being passed down throughout the economy.

Id. at 473.  Multiplicity of insurance policies and overlapping coverage in
commercial settings is economically inefficient and results in higher overall
costs.  Id.  The parties here intended to avoid overlapping coverage.  Under
the lease, tenant was to insure the contents of the leased 

 

premises, and landlord was to insure the building as a whole.  The dissent's
approach would subvert bargained for economic efficiency and equitable
allocation of risk by requiring all employees who want protection to obtain
insurance covering the entire building. 

     Affirmed.

                                             FOR THE COURT:

                                             Associate Justice


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


FN1.  Article 12 provides in relevant part:
               Article 12.  Lessee's Liability:
          . . . .
     (b)  Lessee for itself, its successors and assigns, hereby agrees to
indemnify and save harmless Lessor, its successors and assigns, from and
against any and all loss, cost, damage or expense, including reasonable
attorney's fees, arising out of or in connection with any negligent act by
Lessee or its agents or employees. 

     (c)  Lessee's liability is limited to responsibility for its negligence
and the negligence of its employees to the extent that such liability of
Lessee is insured in accordance with the insurance requirements set forth in
Article 31 [sic] hereof. Lessor accepts such insurance in lieu of any further
liability of Lessee. 


FN2.        Article 21 provides in relevant part:

Article 21.  Lessee's Obligations:  Lessee covenants and agrees as follows:

          . . . .

(c)  that, without limitation of any other provision herein, the Lessor and
its employees shall not be liable for any injuries to any person or damages
to property . . . due to the happening of any accident in or about the
Building or the Premises or due to any act or neglect of any lessee . . . or
any employee or visitor of any lessee. . . . Provided however, that the
Lessor shall be liable for its negligence and the negligence of its employees
to the extent that the liability of the Lessor is insured by virtue of a
general comprehensive Lessor's public liability insurance policy, which the
Lessor agrees to maintain on the Building. 


-----------------------------------------------------------------------------
                       Concurring and Dissenting

 

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. 93-493


Fairchild Square Company                     Supreme Court

                                             On Appeal from
     v.                                      Chittenden Superior Court

Green Mountain Bagel Bakery, Inc.            March Term, 1994
d/b/a Burlington Bagel Bakery, Inc.,
and Andrew B. Golbert

Matthew I. Katz, J.

Sandra A. Strempel of Dinse, Erdmann & Clapp, and Arthur S. Barrett, Jr. of
Heilmann, Ekman & Associates, Burlington, for plaintiff-appellant 

Lawrence Miller and Barbara R. Blackman of Miller & Faignant, P.C., Rutland,
for defendants- appellees 


PRESENT:  Gibson, Dooley, Morse and Johnson, JJ., Crucitti, specially assigned


     DOOLEY, J., Concurring and dissenting.  I concur in parts I and II of
the majority opinion.  Because the lease does not provide for a waiver of
liability against officers or employees of Green Mountain, I dissent from the
holding in part III of the majority opinion that plaintiff cannot proceed
against Andrew Golbert.  The majority is persuasive in its conclusion that
the lease should have extended the waiver to employees and officers of the
defendant, and that it will be less effective if it failed to do so.  It is
unpersuasive that the lease actually contains the extended waiver.  It is not
our role to create a better contract for a business-lessee 

 

than it failed to do for itself. 

     Both parts I and II of the majority opinion are grounded in our
obligation to enforce the plain meaning of the language of the lease.  That
cardinal rule of contract construction is totally missing from part III.  The
parties to the Article 35 waiver of liability are "Lessor" and "Lessee,"
which, by the terms of the lease, mean only Fairchild Square and Green
Mountain. Compare Home Ins. Co. v. National Tea Co., 588 So. 2d 361, 363 (La.
1991) (otherwise similar waiver sentence covers "agents, successors and
assigns"); Alliance Ins. Co. v. First Tape, Inc., 713 S.W.2d 718, 719 (Tex.
Ct. App. 1986) (exculpatory provision covered "agents, officers, and
employees").  Article 12(b) of the lease specifically imposes liability for
any loss caused by "any negligent act by Lessee or its agents or employees." 
Thus, the draftser clearly applied liability to acts of employees but failed
to include employees within the waiver provision. Reinforcing that the
drafter knew how to immunize employees from liability, when that result was
intended, Article 21(c) immunizes the "lessor and its employees" from
liability for injuries caused by disrepair of the building. 

     I agree with the majority that "public policy considerations support"
the result it wants to reach.  My view does not, however, "subvert bargained
for economic efficiency and equitable allocation of risk" as claimed by the
majority.  It refuses to allow unbargained-for immunity to be created just
because this Court likes the result.  We should enforce the contract that was
made; not one we wish they made.  I am authorized to say that Justice Gibson
joins in this dissent. 

                                        _________________________________
                                        John A. Dooley, Associate Justice