Dartmouth Sav. Bank v. F.O.S. Associates

• Citation: 486 A.2d 623,145 Vt. 62
• Decision Date: 24 August 1984
• Docket Number: No. 83-002,83-002
• Parties: DARTMOUTH SAVINGS BANK and General Housing of New England, Inc. v. F.O.S. ASSOCIATES and Rutland Savings Bank.
• Court: United States State Supreme Court of Vermont

Page 623

486 A.2d 623

145 Vt. 62

DARTMOUTH SAVINGS BANK and General Housing of New England, Inc. v. F.O.S. ASSOCIATES and Rutland Savings Bank.

No. 83-002.

Supreme Court of Vermont.

Aug. 24, 1984.

Reargument Denied Dec. 13, 1984.

Stebbins, Bradley, Wood & Harvey, P.A., Norwich, for plaintiffs-appellees.

Divoll & Doores, P.C., Bellows Falls, for defendants-appellants.

Before BILLINGS, C.J., and HILL and PECK, JJ., and LARROW, J. (Ret.) and COSTELLO, District Judge (Ret.), Specially Assigned.

PECK, Justice.

Defendants appeal a judgment rendered against them by the Windsor Superior Court in an action for breach of contract. They contend that the court erred in its construction of the contract, and deny any liability for breach. We agree and reverse.

At all times material to this case, defendant F.O.S. Associates (F.O.S.) was engaged in the construction of condominium units at Okemo Mountain in Ludlow, Vermont. For that purpose, F.O.S. obtained construction mortgage financing from defendant Rutland Savings Bank (Rutland) in the summer of 1979. F.O.S. engaged Sutherland Associates, Inc. (Sutherland) as the general contractor on the project. This was accomplished by two separate contracts: a construction agreement and a site improvement agreement, which were executed on July 16, 1979, and July 23, 1979, respectively. In turn, Sutherland employed plaintiff General Housing of New England, Inc. (General Housing) as a subcontractor to supply labor and materials in erecting shells for some of the condominium units.

Sutherland and General Housing needed to obtain advance funding to begin work on the project. As is customary in the contracting business, they were to be paid later in increments as each phase of construction was completed and approved by the construction mortgage lender. See, e.g., Reitz, Construction Lenders' Liability to Contractors, Subcontractors, and Materialmen, 130 U.Pa.L.Rev. 416 (1981); Hall, How to Build Lender Protection Into Construction Loan Agreements, 6 Real Estate L.J. 21 (1977). They both financed their start-up costs through plaintiff Dartmouth Savings Bank (Dartmouth).

The arrangement between Sutherland and General Housing consisted of a series of separate contracts, each covering one of five single six unit condominium buildings numbered 18 through 22. Appended to each of these contracts was a face sheet containing a provision that authorized payment under the contracts to F.O.S., Sutherland, General Housing and Dartmouth jointly. This authorization was agreed to by F.O.S. and accepted by Rutland. Plaintiff styles this provision as a "set aside" agreement. For purposes of further discussion, it will be referred to as the "General Housing set aside agreement." After the last of the Sutherland-General Housing contracts had been executed, F.O.S., Sutherland, Dartmouth and Rutland entered into a separate and distinct contract entitled "Lender Set Aside Agreement." For purposes of further discussion, this contract will be referred to as the "lender set aside agreement."

The controversy underlying this action arose on March 25, 1980, when Sutherland filed for bankruptcy. At that time, the outstanding balance on its loans from Dartmouth was $49,571.89 with interest accruing at a rate of fourteen percent per annum from October 25, 1979. As of March 25, 1980, Sutherland also had an unpaid balance of $32,357.00 under its contract with General Housing for building number 22. It was then that Dartmouth became aware that nearly all of the funds available under the F.O.S. construction mortgage with Rutland had been exhausted without enough remaining to satisfy Sutherland's debts. Dartmouth discovered that over $140,000 had been paid out of the F.O.S. construction mortgage in checks that did not include Dartmouth as a payee. Dartmouth brought suit to recover its loans on the theory that all monies paid out from the mortgage loan were required to pass through Dartmouth's hands under the two set aside agreements, and that defendants' failure to abide by its terms constituted an actionable breach.

Defendants' position is that the lender set aside agreement only required payments made for the construction of the units to be made out to Dartmouth jointly. They contend that monies used for site improvement under the site agreement were not subject to the terms of the lender set aside agreement. Plaintiffs prevailed at trial and recovered the full amount of Sutherland's debts.

Although reference is made in the briefs to the General Housing set aside agreement, it is the terms and scope of the lender set aside agreement that are chiefly in dispute. However, there is some ambiguity in the court's judgment order that must be addressed before we proceed on the merits. In that order, judgment for Dartmouth on its claim for the unpaid balance on Sutherland's debt is expressly predicated on defendants' liability under the lender set aside agreement. The judgment for General Housing and Dartmouth under Sutherland's contract with General Housing, however, refers to neither of the set aside agreements mentioned above. As previously stated, the parties chiefly argued liability under the lender set aside agreement. Reference to the General Housing set aside agreement was tangential only, which appears to leave open the question of which agreement formed the basis of defendants' liability for the Sutherland-General Housing contract.

This confusion is perhaps due to a patent inconsistency between finding number 10 and conclusion number 19 of the court's order. Finding number 10 provides:

Although General Housing claims an independent, express contractual relationship with F.O.S. based on F.O.S.'s execution of the set-aside agreement for condominium No. 22, we find that it was the intention of the parties to bind F.O.S. only with respect to the method of payment, i.e., the set-aside arrangement. In the absence of other confirming evidence, the placement of Alan Senie's signature over the line marked "Purchaser" is insufficient evidence of an intent to bind F.O.S. as a principal or guarantor of the contract between General Housing and Sutherland. We find that it was the intention of the parties that Sutherland alone was to be responsible for the payment of monies owed General Housing. (Emphasis added).

Conclusion number 19 provides:

F.O.S. is also liable to General Housing for breach of contract by occupying Condominium No. 22 before paying General Housing the balance owed to it. There was no contract modification or waiver or estoppel by General Housing that would mitigate this obligation.

These two provisions are in direct conflict and cannot be reconciled. Although the parties did not undertake to clear up this inconsistency, we are compelled to resolve this issue in order to render a dispositive judgment on the merits.

It is the nature of appellate review that the misapplication of law to supported or unchallenged findings is subject to correction on appeal. Bolduc v. Coffin, 133 Vt. 67, 69, 329 A.2d 655, 656 (1974). Moreover, the legal effect of a written instrument is a matter of law determinable at the appellate level. Stevens v. Cross Abbott Co., 129 Vt. 538, 545, 283 A.2d 249, 254 (1971). The question presented here is whether defendants are liable for breach under the General Housing set aside agreement on the basis of the court's findings. The matter is therefore clearly within our scope of review. Ordinarily, a trial court's conclusions will be upheld where they are supported by the findings. Dessureau v. Maurice Memorials, Inc., 132 Vt. 350, 353, 318 A.2d 652, 654 (1974). However, conclusions not supported by the findings cannot stand. Stevens v. Cross Abbott Co., supra; see Steele v. Steele, 142 Vt. 112, 114-15, 453 A.2d 400, 401 (1982).

Finding number 10 is couched as a conclusion of law insofar as it absolves defendants of any contractual liability for payment under the General Housing contract. Based on the facts also contained within that finding and the supporting evidence, we...