Belliveau v. O'Coin, 88-185-A
| Decision Date | 14 April 1989 |
| Docket Number | No. 88-185-A,88-185-A |
| Citation | 557 A.2d 75 |
| Court | Rhode Island Supreme Court |
| Parties | Sandra L. BELLIVEAU et al. v. William J. O'COIN, Jr., et al. ppeal. |
This matter comes before the Supreme Court on the plaintiffs' appeal from a judgment for the defendants in the Providence County Superior Court. The plaintiffs, Sandra L. Belliveau, Ronald L. Belliveau, and Belliveau Building Corporation, appeal a Superior Court decision enforcing the defendants' exercise of a pre-emptive right of first refusal regarding the sale of real property owned by Sandra Belliveau. We reverse.
In 1979 defendants, William J. O'Coin, Jr., and Claire H. O'Coin, purchased a parcel of land in Cumberland, Rhode Island, and subdivided it into five lots. In 1982 and 1983 the Belliveaus purchased two lots, platted lots 1 and 2, as tenants by the entirety for the purpose of developing and reselling two single-family residences. Both lots were built upon and sold by the Belliveaus.
Belliveau Building Corporation (the corporation) was incorporated on March 14, 1985, with Sandra and Ronald Belliveau as the sole officers and stockholders of the corporation.
On June 13, 1985, Sandra Belliveau personally purchased a third lot, platted lot No. 4, from defendants. The property was paid for with a promissory note executed by both Sandra and Ronald Belliveau as comakers. Before conveying title, defendants recorded a declaration of restrictions, which attached twenty-one restrictive covenants to platted lots 3 and 4. All parties discussed and approved these restrictions, which include the pre-emptive right, or right of first refusal, giving rise to this appeal. 1 Lot No. 4 was then developed by the Belliveaus and the corporation and, on May 20, 1986, sold to a third party after the O'Coins executed a waiver of their right of first refusal.
The subject of this appeal is platted lot No. 3, the final lot purchased from the O'Coins. Sandra Belliveau personally purchased lot No. 3 on July 17, 1985, using a promissory note executed by Sandra and Ronald Belliveau. This debt was paid in full in August, 1986, when the corporation turned over a portion of its proceeds from a construction mortgage to pay Sandra Belliveau's personal debt to the O'Coins. Payment was made by endorsing over to the O'Coins a bank check originally made payable to Belliveau Building Corporation. The O'Coins accepted this check as full payment.
On March 19, 1986, the O'Coins entered into a building contract with the corporation to construct a single-family, personal residence for the O'Coins on the remaining lot, platted lot No. 5. Before construction, the O'Coins and Sandra Belliveau agreed that interest due the O'Coins on a promissory note given personally by the Belliveaus would be set off against certain preconstruction costs owed to the corporation by the O'Coins.
Later that year, on December 29, 1986, Sandra Belliveau transferred title to lot No. 3 to the corporation for $60,000. At that time the residence under construction on the lot by the corporation was 70 to 80 percent complete. The stated purpose of this transfer was to take advantage of favorable federal income tax laws regarding capital gains that were to be phased out midnight December 31, 1986, under the 1986 Tax Reform Act. On December 30, 1986, the Belliveaus filed the appropriate forms with the Internal Revenue Service to have the corporation treated as an "S corporation" for income tax purposes. 2
On May 1, 1987, Sandra Belliveau wrote to defendants, explained that a conveyance had occurred, requested a waiver of their pre-emptive rights for the December 29 sale, and assured the O'Coins that the corporation would honor the restriction when the property was sold in an arm's-length transaction. The O'Coins refused to execute a waiver and on May 13 recorded their intent to exercise their pre-emptive rights.
This action was brought by plaintiffs on June 5, 1987, as a declaratory judgment action to determine the validity and effect of defendants' pre-emptive rights under restriction No. 6. On July 13, 1987, the corporation entered into an agreement to sell the lot in question and the house constructed thereon for $349,000. The O'Coins have stated that they will not exercise their pre-emptive right if they will be required to meet the offered price of $349,000.
The matter before us requires this court to make an important initial distinction between the validity of defendants' right of first refusal on its face and the validity of defendants' exercise of that right in the present situation. As conceded by plaintiffs in their posttrial memorandum, on its face, restrictive covenant No. 6 creates a valid right of first refusal on behalf of defendants. As required by Hood v. Hawkins, 478 A.2d 181, 186 (R.I.1984), defendants' intent to create a right of first refusal is clear and unambiguous and the price and conditions of the sale are fixed or easily ascertainable. The fact that both plaintiffs and defendants complied with this same restriction for plaintiffs' previous sale of lot No. 4 shows that both parties believed that the restriction was, at least to some extent, valid and enforceable. Thus, the real issue before this court is not the validity of the restriction but rather the valid enforcement of that restriction, given the objectives it was created to achieve and the facts and circumstances surrounding this case. Our task is to construe the terms of the restriction and the intentions of the parties in order to determine when this otherwise valid restriction may be validly enforced.
The terms of defendants' right of first refusal meet the clarity requirements of Hood. "When the terms of a restrictive covenant are clear and definite, the construction of the covenant is a matter of law for the court." Addison County Automotive, Inc. v. Church, 144 Vt. 553, 557, 481 A.2d 402, 405 (1984). In construing the terms of restrictive covenants this court has repeatedly stated:
Gregory v. State Department of Mental Health, Retardation and Hospitals, 495 A.2d 997, 1000-01 (R.I.1985) (quoting Hanley v. Misischi, 111 R.I. 233, 238, 302 A.2d 79, 82 (1973); see also Farrell v. Meadowbrook Corp., 111 R.I. 747, 750, 306 A.2d 806, 808 (1973); Emma v. Silvestri, 101 R.I. 749, 751, 227 A.2d 480, 481 (1967)).
We believe that the covenant in question can be strictly construed to support both the principle of free alienability and the objectives behind the creation of the restriction.
In construing the right of first refusal contained in restrictive covenant No. 6, we must first determine defendants' intent as grantors of the restricted premises. In ascertaining the intent behind the creation of a restrictive covenant, a court should look to the pertinent language of all the covenants as a whole as well as the apparent objectives of the grantor, and the conditions existing at the time the restrictions were executed. 3 Chase v. Joslin Management Corp., 128 N.H. 336, 338, 512 A.2d 434, 435 (1986); Dreher Township Board v. Solitron Development Co., 333 Pa.Super. 33, 40, 481 A.2d 1207, 1211 (1984); Addison County Automotive Inc., 144 Vt. at 558, 481 A.2d at 406.
When the trial justice's finding is viewed as a whole, we agree that the restrictions were recorded because defendants intended to live on their subdivision. This finding is supported, expressly and impliedly, both by the language of the declaration of restrictions and by defendants' subsequent construction of a personal residence in the subdivision.
The declaration of restrictions expressly sets out defendants' intent:
"Whereas, it is the desire and intention of William J. O'Coin, Jr. and Claire H. O'Coin, to impose certain protective covenants and restrictions in order to provide for and insure the orderly development of said NEW LOT 3 and NEW LOT 4 as an attractive residential community."
This express intent is further supported by the types of restrictions imposed by defendants, giving them the authority to control the type of activities that would directly affect them as local residents. These activities include the type and style of construction, the time within which construction must be completed, various owner activities and property uses, and the identity of the initial occupants through the right of first refusal. At trial William O'Coin's testimony indicates that his decision to record these covenants was heavily influenced by Ronald Belliveau's warnings about another builder who was interested in developing one of the lots adjacent to the O'Coins'. After directing William O'Coin to the builder's residence so he could see the trucks and construction materials stored there, Ronald Belliveau told William O'Coin that he should take precautions by placing restrictive covenants on the lots adjacent to his in order to prevent such unattractive activities. Relying on the language of the restrictions and the facts surrounding their creation, we find that the sole purpose of recording these restrictions was to give defendants control over the creation and preservation of the community in which they were going to live.
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