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Prue v. Royer, Sr., and Department of Liquor Control
Citations: 193 Vt. 267; 2013 VT 12; 67 A.3d 895; 2013 WL 562881; 2013 Vt. LEXIS 9Docket: 2011-417
Court: Supreme Court of Vermont; February 15, 2013; Vermont; State Supreme Court
Original Court Document: View Document
The case involves David and Barbara Prue (plaintiffs-appellants) appealing a foreclosure decision related to a real estate agreement with Larry C. Royer, Sr. (defendant-appellee/cross-appellant) and the Department of Liquor Control. The Supreme Court of Vermont, reviewing a ruling from the Superior Court, confirmed that the agreement constituted an enforceable contract for deed, granting the purchasers an equitable interest in the property. However, the court found the foreclosure decree to be premature since it had not been formally pled. The agreement originated in discussions between the Prues and the Royers about purchasing the Royers' bar, Brewski Pub, leading to a written contract in January 2000, drafted by a real estate agent. The contract was ambiguous, designated as both a "Purchase and Sale Contract" and a "Lease-Option to Purchase," and contained unclear terms regarding the purchase price, deposit, and closing date. The agent had advised the parties to seek legal counsel for proper documentation, a recommendation that was ignored, contributing to the ensuing disputes. A "Financing Property Agreement" details a total purchase price of $190,000 for real estate and equipment, with scheduled payments including three down payments and twelve monthly rental payments of $1,000. The agreement specifies a balance of $178,000 due on January 1, 2001, followed by monthly payments of $1,400 for five years, with a balloon payment due on January 1, 2006. An addendum outlines responsibilities for operating licenses, property damage, utility payments, and insurance requirements, including naming the defendant as a lienholder. Although the arrangement proceeded smoothly initially, plaintiffs later missed payments, which the defendant forgave or delayed. In 2004, they agreed to build an addition, increasing the principal balance to $253,549, but the new amortization schedule did not address the original balloon payment. By 2006, after the balloon payment was due, plaintiffs claimed they could not complete the transfer, likely due to insufficient creditworthiness, yet continued monthly payments. A new payment schedule in August 2006 shifted to weekly payments until 2018. Tensions rose over insurance issues, particularly after a lawsuit and an incident involving gunfire at the bar, leading to inquiries from a state liquor inspector regarding the lease. Plaintiffs’ last payment was made in January 2007, with the original agreement lost, raising concerns about their operational legality. On March 8, 2007, plaintiffs surrendered their liquor license to a state inspector and began removing property from their bar. The trial court determined that plaintiffs took equipment and liquor that belonged to the original inventory and left the premises in disrepair, necessitating cleanup and repair expenses for the defendant. Despite plaintiffs' claims of being under the impression that they were being shut down, the court found that the defendant did not evict them. Instead, the court concluded that plaintiffs voluntarily relinquished possession due to frustrations related to state liquor control issues, insufficient income, and demands for increased liability coverage. Subsequently, plaintiffs sought to regain possession, believing they might have more than just leaseholder rights after consulting an attorney. On March 29, 2007, they filed an action asserting equitable title to the property and seeking monetary damages. The defendant counterclaimed for breach of contract and unjust enrichment, seeking back rent and damages for the missing items and cleanup costs. The trial court had to determine the nature of the contractual arrangement, with plaintiffs arguing it was a contract for deed, granting them equitable title, while the defendant contended it was a lease-option contract, keeping plaintiffs as mere leaseholders until payment was made. The court sided with the plaintiffs, ruling that the agreement constituted a contract for deed, thereby granting them an equitable interest in the property and classifying the contract as a mortgage. This classification allowed for an equity of redemption, meaning the only way to extinguish plaintiffs' interest would be through foreclosure. The court initiated foreclosure proceedings on its own accord, stating that although the defendant had not sought foreclosure, plaintiffs had sufficiently raised the issue. Plaintiffs were given fifty-four days to redeem their interest by paying $244,386.86 plus interest, with a failure to do so resulting in damages of $8,136 for personal property, cleaning, and repairs. Both parties appealed: plaintiffs argued the court improperly ordered foreclosure and imposed a high redemption amount, while defendant contended the agreement should not have been interpreted as a contract for deed, argued that amendments to the agreement were unenforceable under the Statute of Frauds, and claimed plaintiffs abandoned their interest by vacating the property. Defendant also asserted that plaintiffs' appeal was premature due to noncompliance with procedural rules, while maintaining that the court's foreclosure and damages orders were appropriate. The court planned to address these issues sequentially. The trial court's interpretation of the parties' contract is reviewed de novo, meaning there is no deference to the trial court's conclusions. The court aims to determine the parties' intent as expressed in their agreement, referencing previous cases that guide this interpretation. The trial court's order of foreclosure will be assessed for abuse of discretion, as it is considered an equitable remedy. The reviewing court accepts the trial court's factual findings if supported by evidence. The defendant contends that the trial court mistakenly classified the agreement as a contract for deed rather than a lease with an option to purchase. The reviewing court affirms the trial court’s interpretation, emphasizing the importance of the parties' written intent. While the title of the contract contains conflicting descriptors—“Lease-Option to Purchase” and “Purchase and Sale Contract”—the court notes that the title alone is not determinative and that the operative clauses of the contract should guide interpretation. A contract for deed involves a prospective purchaser making payments while occupying the property, which accumulates equitable interest, whereas a lease option to purchase allows one party the discretion to buy the property at a set price without obligation. The distinction between these agreements is critical in understanding the nature of the parties' contract. A lease option is characterized by its unilateral nature and the fact that lease payments are not applied toward the purchase price, resulting in no equity accumulation. In this case, the defendant argues that the agreement was a lease option allowing the plaintiffs discretion to purchase, with no rental payments applied to the purchase price. However, the evidence indicates that the agreement possesses the key features of a contract for deed: it is bilateral, not unilateral, and payments after January 1, 2001, are intended to reduce the purchase price. The language of the agreement reflects a bilateral contract, as it states that the purchaser agrees to buy and the seller agrees to sell the property, with an offer valid until January 2, 2000, and signed by all parties thereafter. Clauses indicating mutual obligations further support this interpretation, contradicting the defendant's claim of an option agreement. While the defendant highlights a reference to an "option down payment," the overall financing agreement is structured as a bilateral contract, specifying that payments starting January 1, 2001, would apply to the purchase price. The Financing Property Agreement reinforces that payments after January 2001 are intended to be applied to the purchase price, detailing a monthly payment plan with principal and interest components. This contradicts the defendant's assertion that the payments were simply rent. The trial court observed that the $1,400 monthly payments were calculated based on an amortization schedule typical of mortgage agreements, further indicating that these payments applied to the principal, as evidenced by a reduction in principal when payments switched to a weekly format in 2006. The court affirmed that the agreement in question constituted a bilateral contract for deed rather than a lease-option agreement, establishing the defendant's role as an equitable mortgagee instead of a landlord. The court referenced the case of Weston v. Landgrove to explain that a purchaser under a contract for deed holds an equitable interest similar to ownership, asserting that the seller cannot dispute this interest as long as the purchaser meets the contract's conditions. The principle of equitable mortgages applies, allowing the purchaser to occupy the property and make payments toward the purchase price until the deed and mortgage are finalized. In instances of breach, foreclosure is the appropriate remedy. Although Vermont's treatment of contracts for deed as equitable mortgages is unique, it aligns with a growing national trend reflected in the Restatement (Third) of Property. The court then addressed the defendant's claim regarding the 2004 and 2006 modifications to the agreement, asserting that these modifications were unenforceable under the Statute of Frauds. The defendant argued, based on Chomicky v. Buttolph, that modifications must meet the same formal requirements as the original agreement. Specifically, the defendant contended that the modifications failed to describe the property and did not amend the original agreement, nor did they include a modified closing date, rendering them incomplete and unenforceable. A modification of a contract under the Statute of Frauds must be written and signed to be enforceable. While the defendant asserts this principle, case law indicates that such requirements primarily apply to oral modifications. Here, the agreement in question is written and signed, albeit with modifications that do not replicate all original terms. Importantly, there are no claims of oral terms not included in writing. The defendant's argument that the modifications fail to reference the property or original agreement does not hold, as other jurisdictions have permitted informal notations to satisfy the Statute of Frauds, provided the connection to the original agreement is clear. For instance, previous cases have validated written modifications despite missing specific details or formalities, as long as the intent and relationship to the original agreement are evident. In this instance, both the 2004 and 2006 modifications clearly relate to the prior agreement, sharing the same parties and financial terms, thus supporting the trial court's conclusion that the modifications were validly connected to the original contract. The defendant argues that the closing date is a material term that must be included in writing to comply with the Statute of Frauds, citing Evarts v. Forte. He contends that since the modified closing date is absent in the 2004 and 2006 modifications, those modifications are unenforceable. However, the court finds Evarts not applicable; in that case, the seller's attempt to change the closing date without the purchaser's written agreement was deemed ineffective, as it constituted a counter-offer. Here, both the 2004 and 2006 modifications were signed by both parties, indicating mutual assent. There is no evidence that the closing date was discussed or agreed upon orally in the current case, suggesting the modifications were not intended to alter the closing date. The court acknowledges that it is standard to modify certain terms of a contract without altering others, and the two modifications should be viewed as parts of a single contract where they do not conflict. Evidence indicates that the parties agreed to a specific financial arrangement, which was documented and initialed, thus creating a binding modification to the land contract. The trial court's evaluation of the modifications determined that the 2004 modification did not intend to extend the original closing date, despite the presence of subsequent dates. The absence of a new closing date in the modification does not imply that a critical element was omitted. Furthermore, the court notes that in a contract for deed, the closing serves as a formality that does not alter the parties' rights unless the purchaser has fully paid the purchase price. The trial court determined that the defendant effectively waived the closing date of the contract through discussions with the plaintiffs and the establishment of a new payment plan in the modification agreement, despite the closing date having passed. Under the Statute of Frauds, time limitations can be waived without a written agreement if both parties act in a manner indicating such a waiver. This principle allows nonwritten modifications to be valid, as waiver and estoppel operate independently of the statute. Although the court affirmed the validity of the two modifications under the Statute of Frauds, this was not essential to the defendant's argument, as the defendant did not contend that the modified contract was unenforceable. The court recognized that if the agreement qualified as a valid contract for deed, the plaintiffs obtained an equitable interest in the property. The defendant contended that the plaintiffs' failure to make payments and their alleged "voluntary abandonment" of the property resulted in the loss of their equitable interest. Citing case law from other jurisdictions, the defendant argued that unperfected equitable title can be lost through abandonment. The trial court, lacking local precedent, applied the abandonment principle and found no abandonment occurred in this case. Upon reviewing the trial court's factual findings, which included the plaintiffs stopping payments and leaving the property, the court concluded that there was insufficient intent to abandon their rights. Evidence indicated the plaintiffs vacated the property due to impending closure by a liquor inspector and sought legal advice shortly after. Furthermore, the cessation of payments was attributed to financial hardship and the history of missed payments without consequence from the seller, suggesting that these actions did not manifest a clear intent to abandon the property. The trial court's decision was upheld, affirming that abandonment is determined by the parties' intentions and the totality of circumstances, rather than a single fact. The defendant argued that the plaintiffs' return of keys and departure from the property in March 2007 constituted abandonment, but the court noted that mere relinquishment does not equate to legal abandonment. Citing the Kansas Supreme Court, the excerpt emphasizes that actual abandonment requires a clear intent to relinquish ownership, which is not established solely by leaving the property. The trial court found that the plaintiffs departed due to an understanding that the liquor department was likely to close the bar, indicating no intent to abandon their interest in the property. Additionally, the court highlighted that awareness of the implications of one's actions is critical to determining abandonment. A referenced case illustrated that a party's surrender of keys without understanding their rights did not amount to abandonment. The trial court also considered the context of the plaintiffs' departure and their subsequent actions, noting that they acted promptly upon realizing their rights. The defendant overlooked this context, which includes assessing the time taken to assert claims and external influences affecting decisions to abandon property. Overall, the trial court's conclusion was supported by the evidence, rejecting the notion that the plaintiffs abandoned their rights. In Hull v. Clemens, the court analyzed the abandonment of property, noting that the purchaser left in 1942, and property values increased before the case was initiated in 1948. Hull attempted to reclaim the land, motivated by its newfound potential value. The trial court correctly assessed that the plaintiffs' consultation with a lawyer and prompt action to sue indicated they did not abandon their interest in the property. Evidence suggested plaintiffs might have thought late payments would be forgiven, were facing financial difficulties, or were unaware of how leaving the property would impact their equitable interest. The court affirmed that plaintiffs maintained their equitable interest and addressed the appeal's validity. The defendant contended that the appeal was improper due to plaintiffs not obtaining trial court permission, as mandated by 12 V.S.A. 4601 for mortgage foreclosures. However, the court determined the appeal was valid, referencing Herrick v. Teachout, which ruled that the statute does not apply when the nature of the instrument is disputed. The court concluded that the agreement constituted a contract for deed, satisfying the Statute of Frauds, and established a mortgagor-mortgagee relationship between the parties. The court evaluated the possibility of mortgage foreclosure due to the plaintiffs’ breach, noting that such matters fall within the jurisdiction of equity courts. The plaintiffs contended that the court erred by considering foreclosure since the defendant based his case on a landlord-tenant theory and did not formally seek foreclosure. The trial court countered that the plaintiffs had adequately pleaded the issue for foreclosure if necessary, as their complaint characterized the contract as a mortgage and sought a declaration of equitable title. The defendant, while not counterclaiming for foreclosure, claimed foreclosure was appropriate under Vermont Rule of Civil Procedure 54(c), which allows a court to grant any relief entitled to a party, even if not explicitly requested. However, Vermont case law imposes limitations on this rule, particularly concerning due process requirements for notice and the opportunity to defend against unpled remedies. The precedent case Johnson v. Dix, Inc. established that remedies must fall within the scope of the ongoing litigation and that a party cannot be disadvantaged by a remedy they were unaware was being considered. An illustrative case, Laquerre v. Martin, demonstrated that a trial court's judgment against third-party defendants, without proper notice or opportunity to defend, warranted reversal due to the implications of the statute of limitations. Additionally, the court referenced the U.S. Supreme Court ruling in Albemarle Paper Co. v. Moody, which interpreted "entitled" in Rule 54(c) to exclude cases where one party's conduct significantly prejudiced the other party. The plaintiffs in this case argued that such prejudice occurred. Rule 54(c) may apply to foreclosure claims, but its application can lead to significant prejudice due to the specific pleading and processing requirements in foreclosure proceedings, as outlined in V.R.C.P. 80.1. In this case, the trial court failed to notify the defendant about the foreclosure process, depriving them of the chance to submit a compliant pleading and address critical issues such as the redemption period, need for an accounting, and potential for foreclosure by sale. Plaintiffs lost essential rights, particularly regarding the redemption period, which is statutorily set at six months unless shortened by a court motion. However, no such motion or oral testimony was presented, and the court provided no reasoning for shortening the redemption time, neglecting the statutory factors that should have been considered. Additionally, the opportunity for foreclosure by sale was denied, as the plaintiffs were not given the chance to motion for a sale contrary to the norm of strict foreclosure under Vermont law. Lastly, while the absence of an accounting (as per V.R.C.P. 80.1(f)) was less critical, it still represented a potential source of prejudice, although the court was able to calculate the owed amount based on the defendant’s evidence of payments made, which the plaintiffs did not contest. Plaintiffs argue against the inclusion of interest in the redemption amount, claiming that the defendant's rental income offsets any owed interest. However, interest is standard in breach of contract judgments and specifically permitted in mortgage foreclosures. Rent income does not offset interest owed. Plaintiffs assert they were unaware of an ongoing accounting process and could have provided counter-evidence, but they had sufficient opportunity to do so. The court determines that "substantial justice" necessitates reversing the foreclosure judgment and remanding for further proceedings, as the plaintiffs were prejudiced by the court’s unprompted introduction of foreclosure, which was not permissible under Rule 54(c). Regarding conditional damages for waste, the trial court awarded $4,036 for cleaning and repairs and $4,100 for missing personal property. The initial contract specified the Brewski Pub and associated equipment, and the defendant testified to the absence of items listed. The court’s decision was based on this testimony. The doctrine of waste is acknowledged as applicable to the mortgagor-mortgagee relationship, and precedents support actions for waste when a purchaser defaults. The plaintiffs do not dispute the occurrence of waste but contest the lack of evidence for the property's diminished value, which is a necessary measure of damages for waste under common law. The law requires that waste results in a permanent decrease in property value, distinguishing it from normal wear and tear. The proper measure of damages for waste is determined by the difference in value of the property before and after the waste occurs, as established in Meyer v. Hansen. A requirement of "permanent injury" is associated with this measure, but courts have not clearly defined what constitutes waste. Commonly, waste is identified in cases of fixture removal or property neglect, which may not result in permanent injuries. Vermont courts have recognized damage as waste even when it involves repairable issues, such as holes in walls or broken windows, as seen in Prevo v. Evarts. The Vermont Supreme Court has indicated that lawful possessors have a duty to maintain property and return it in a substantially similar condition, allowing for reasonable wear and tear. The court explicitly defines waste to include repairable damage, affirming that the plaintiffs' actions of removing items and neglecting property constituted waste. Consequently, the computation of damages may include the cost of repairs. The court aligns with other jurisdictions that allow damages for waste to be established either through before-and-after value assessments or reasonable repair costs. The measure of damages for waste can be determined by either the difference in market value before and after the injury or the cost of restoration. In situations where property damage is easily repairable and the restoration costs are clear, the cost of repair is preferred. In Vermont, damages for waste can be calculated through either property value diminution or the cost of repairs and replacement of removed items. The trial court correctly included costs for cleaning, repairing the premises, and replacing items removed by plaintiffs when calculating damages for waste. Plaintiffs argued that the trial court exceeded its authority by awarding damages for waste, claiming the defendant did not counterclaim for waste. However, the court found that the defendant sought damages related to property damage during the plaintiffs’ possession, and the plaintiffs had sufficient opportunity to respond to the evidence. The trial court clarified that the damages awarded were for waste, distinguishing this case from a prior foreclosure ruling where remedies outside the pleadings were awarded. The court affirmed that the agreement was a contract for deed, that modifications were enforceable under the Statute of Frauds, that plaintiffs maintained an equitable interest in the property, and that they did not abandon this interest. The court also found the case properly before it despite a procedural noncompliance and affirmed the conditional award for damages for waste, remanding for a new foreclosure proceeding. The decision is affirmed in part, reversed in part, and remanded for further proceedings consistent with the ruling. The defendant has filed a cross-appeal, asserting that the notice of appeal encompasses the entire case and all issues litigated in the lower court, provided they are properly briefed, citing Century Indem. Co. v. Mead. The defendant references Vermont Rule of Civil Procedure 15(b), which allows for issues not raised in pleadings to be treated as if they had been when tried by consent of the parties. However, the court did not utilize this rule, and it was deemed that express or implied consent for considering foreclosure was not established. The 2012 legislative amendment repealed the previous foreclosure statute, replacing it with Chapter 172 of Title 12, applicable to mortgage foreclosure proceedings initiated after July 1, 2012. The damages granted to the defendant were conditional upon the plaintiffs not redeeming the property, and since the mortgage foreclosure decree was reversed and remanded, this conditional award is no longer applicable. Issues regarding damages are addressed as they are likely to arise again on remand. The court noted that the concept of waste may not fully account for damages to personal property, particularly liquor, but plaintiffs did not differentiate between damages to the building and personal property, leading to no assessment of differing recovery theories. The defendant's contract included a waste clause, clarifying that the doctrine of waste applies to both property and equipment maintenance. In response to the plaintiffs’ claim of insufficient evidence regarding the premises' condition upon their initial possession, the trial court appropriately considered this when determining labor costs, ultimately deciding not to grant the full amount claimed by the defendant. The court's discretion in this matter was upheld, affirming the damages awarded.