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

• Decision Date: 27 January 1995
• Docket Number: No. 93-493,93-493
• Citation: 163 Vt. 433,658 A.2d 31
• Parties: FAIRCHILD SQUARE COMPANY v. GREEN MOUNTAIN BAGEL BAKERY, INC. d/b/a Burlington Bagel Bakery, Inc., and Andrew B. Golbert.
• Court: Vermont Supreme Court

Page 31

658 A.2d 31

163 Vt. 433

FAIRCHILD SQUARE COMPANY v. GREEN MOUNTAIN BAGEL BAKERY, INC. d/b/a Burlington Bagel

Bakery, Inc., and Andrew B. Golbert.

No. 93-493.

Supreme Court of Vermont.

Jan. 27, 1995.

Motion for Reargument Denied

March 29, 1995.

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.

Before GIBSON, DOOLEY, MORSE and JOHNSON, JJ., and CRUCITTI, District Judge, Specially Assigned.

MORSE, Justice.

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., 215 Tenn. 87, 384 S.W.2d 1, 4 (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., 166 Ohio St. 85, 139 N.E.2d 330, 332 (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 ¹ and 21 ² 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, 133 N.H. 57, 573 A.2d 454, 458 (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...