Magulas v. Travelers Ins. Co., 6942

Decision Date31 October 1974
Docket NumberNo. 6942,6942
Citation327 A.2d 608,114 N.H. 704
PartiesCharles MAGULAS, Individually and d/b/a Peter Pan Pancake House v. TRAVELERS INSURANCE COMPANY and Charter Oak Fire Insurance Company.
CourtNew Hampshire Supreme Court

Boynton, Waldron, Dill & Aeschliman, Portsmouth (Richard E. Dill, Portsmouth, orally), for plaintiff.

Wadleigh, Starr, Peters, Dunn & Kohls, Manchester (Eugene M. Van Loan, III, Manchester, orally), for defendants.

KENISON, Chief Justice.

This action was initiated in superior court to recover payment under a fire insurance policy issued by defendants which covered a restaurant owned and operated by plaintiff on leased premises. By stipulation prior to trial the parties settled plaintiff's claims for losses involving the contents of the restaurant and business interruption expenses. The only matter that remained in dispute was the amount of recovery under the policy for plaintiff's betterments and improvements. Although the insurance company allowed the plaintiff $6,000 for improvements as part of the settlement, he claimed considerably more. Defendants' exceptions to the trial court's ruling for the plaintiff were reserved and transferred by Mullavey, J. The specific question raised by this appeal is the correctness of the trial court's conclusion that the amount of recovery for betterments and improvements is determined on the basis of a two-year oral lease.

The facts may be summarized briefly. In May 1972, plaintiff entered into negotiations with Prescott Farms, Inc. concerning the rental of a building on Route 1 in Seabrook, New Hampshire. Due to the substantial improvements that he contemplated in converting the building into a restaurant, plaintiff wanted a written lease. During the course of negotiations plaintiff was told by Mr. Bruce Noel, operations manager of Prescott Farms, Inc., that a written lease of the premises would not be possible since the corporation anticipated development of the adjoining land into a shopping center which might entail demolition of the building. Mr. Noel indicated, however, that the development would be at least two years in the future and that if the shopping center was constructed, Mr. Magulas as lessee of the building would have a right of first refusal to occupy space in the new center.

Relying on the representations of Mr. Noel as to the probability of a minimum term of two years, plaintiff agreed to rent the premises at $700 per month. From May until July 14, the date the restaurant opened, he made about $20,000 worth of improvements in the building. In recognition of the substantiality of the improvements, Prescott Farms, Inc. did not charge plaintiff rent for about five weeks of occupancy, the period required for converting the building. On October 11, a fire rendered the building unserviceable. Thereafter, Prescott Farms refused to relet the premises to plaintiff, stating that it did not want the building rebuilt. The record makes it clear that plaintiff understood that he could vacate or be evicted from the premises upon proper notice anytime prior to the expiration of the 'minimum term' of two years.

According to the determinative section of the policy, betterments and improvements are valued at that proportion of their original cost 'which the unexpired term of the lease or rental agreement, whether written or oral, in effect at the time of the loss bears to the period from the date such improvements or betterments were made to the expiration date of the lease.' Under this formula the unexpired term of the lease is a critical factor in ascertaining the value of improvements. As the duration of the unexpired term increases, the insured is able to recoup more of the original cost of his improvements. In this case, for example, since the fire occurred only two months after the improvements were made and assuming a two-year rental term, plaintiff could recover 11/12 of the improvements' original cost.

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    ...is a contract that is prepared by one party and submitted to the other on a take-it-or-leave-it basis. Magulas v. Travelers Ins. Co., 114 N.H. 704, 327 A.2d 608, 609 (1974). Although the disparity in bargaining power between the parties requires that, in the event of ambiguity, such contrac......
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    ...policy contains an express provision dealing with the valuation of improvements and betterments. Compare Magulas v. Travelers Ins. Co., 114 N.H. 704, 327 A.2d 608 (1974); Johnson & Dix, Inc. v. Burlington Mutual Fire Ins. Co., 123 Vt. 488, 194 A.2d 401 Under Modern Music, title to improveme......
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    ...306 A.2d 786, 788 (1973), and that "the court will honor the reasonable expectations of the policy-holder." Magulas v. Travelers Ins. Co., 114 N.H. 704, 706, 327 A.2d 608, 609 (1974). An examination of the policy reveals that the provisions of section II relating to insuring agreements and ......
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