Simoneau v. Northern Terminals, Inc.

• Court: Vermont Supreme Court
• Writing for the Court: Before ALLEN; MAHADY
• Citation: Simoneau v. Northern Terminals, Inc., 569 A.2d 483, 153 Vt. 146 (Vt. 1989)
• Decision Date: 17 November 1989
• Docket Number: No. 85-425,85-425
• Parties: Marcel SIMONEAU v. NORTHERN TERMINALS, INC., The Justin Corporation, and The Morgan Corporation.

Page 483

569 A.2d 483

153 Vt. 146

Marcel SIMONEAU v. NORTHERN TERMINALS, INC., The Justin Corporation, and The Morgan Corporation.

No. 85-425.

Supreme Court of Vermont.

Nov. 17, 1989.

Jerome F. O'Neill and Geoffrey W. Crawford of Manchester & O'Neill, P.C., Burlington, for plaintiff-appellee.

Robert J. Perry, South Burlington, for defendants-appellants.

Before ALLEN, C.J., PECK and MAHADY, JJ., and CONNARN, D.J. (Ret.), Specially Assigned.

MAHADY, Justice.

Northern Terminals, Inc. (Northern) appeals from a superior court decision awarding compensatory and punitive damages for its failure to honor plaintiff's preemptive right of first refusal to purchase property which plaintiff leased from Northern in Burlington. We affirm the judgment as to liability but reverse the trial court's award of damages.

I. Background

Northern acquired the parcel in question, 315 Shelburne Road, Burlington, in 1968 and built a convenience store and service station. Northern's gasoline supplier was Chevron U.S.A., Inc., which guaranteed the financing for Northern's improvements and on March 21, 1969 took a first mortgage on the property, as well as on other properties owned by Northern. The mortgage included an after-acquired indebtedness provision, subjecting the property to any future indebtedness for which Northern might become liable.

Some four months after the parcel was mortgaged, Northern leased the land and improvements to plaintiff for ten years, with a five-year renewal option. The lease gave lessor and lessee mutual rights of first refusal on lessee's business and on lessor's property, referred to as the "demised premises" and described as a parcel with 60 feet of frontage and 135 feet deep. The right of first refusal stated as follows:

In the event the Lessor (Seller) should elect to sell the demised premises at any time during this lease or the renewal thereof, said Lessor (Seller) shall give to the Lessee (Tenant) the right of first refusal to buy. In event the Lessor does elect to sell the demised premises it will give written notice of said intentions to the Lessee.

In 1976, in connection with unrelated litigation, Chevron obtained attachments on all of Northern's property, including 315 Shelburne Road. The trial court found that at about this time it became clear that Chevron would not renew its supply contract with Northern, and found that the seller and Chevron "became embroiled in litigation in both Federal and State courts...."

On July 6, 1976, Northern and affiliated companies leased their gasoline sales business in Vermont and New York to David Adams, operating via the Vermont Morgan Corporation. The lease gave Adams an option to buy most of Northern's properties, including 315 Shelburne Road, which option pertained to a parcel measuring 60 by 300 feet, of which the demised premises of 60 by 135 feet was a portion.

On January 25, 1978, Northern entered into a purchase and sale contract (the 1978 Agreement) with defendant Justin Corporation (a company also controlled by Adams) for all of Northern's properties in Vermont and New York, including 315 Shelburne Road, for an aggregate purchase price of $4,550,000. The greater part of the purchase price, about $2.4 million, represented the assumption by the buyer of Northern's existing debt to Chevron, which in turn was secured by the several properties to be sold under the agreement. The date of sale under the 1978 Agreement was deemed to be November 1, 1977.

It is unclear from the findings whether Northern notified plaintiff of either the 1976 or the 1978 agreements. ¹ In any event, when plaintiff acknowledged that he learned of these agreements and of the pending sale of 315 Shelburne Road, of which the "demised premises" were a part, he filed an action against both Justin and Northern for injunctive relief and damages. On November 9, 1978, the superior court enjoined the parties to the 1978 Agreement from completing the sale of 315 Shelburne Road. That order has remained in effect throughout this litigation, and the property has not been conveyed under the 1978 Agreement, though Northern contends that the conveyance would not have ensued in any event, as Chevron commenced a foreclosure action on the property.

Following a one-day trial on liability, the trial court entered an order finding defendant Northern liable for breach of plaintiff's right of first refusal and retaining jurisdiction "as to the matters not litigated." Subsequent hearings were conducted on the question of plaintiff's remedy, resulting in an order that Northern convey title within 60 days to the plaintiff and pay the sum of $25,000 in punitive damages or, in the event title was not transferred, pay $87,670.78 as compensatory damages and $125,000 as punitive damages. Compensatory damages were awarded based on what the court apparently concluded was the difference between what the offering price to the buyer under the 1978 Agreement should have been and the market value of the property at the time of trial. Northern did not transfer title, and final judgment was entered for plaintiff in the amount of $232,670.78.

II. Discussion

The trial court's finding of liability was based upon Northern's having entered the 1978 Agreement in derogation of plaintiff's preemptive rights. We do not disturb this portion of the trial court decision. Whatever remained of Northern's interest in 315 Shelburne Road and however heavily encumbered it might have been at the time it entered the 1978 Agreement, Northern was required to give formal notice to plaintiff. Circumstances strongly suggest that plaintiff would have been unable to step into the shoes of the prospective buyer under the 1978 Agreement; that, however, was not for Northern to conclude. Plaintiff had a contractual right to learn of the facts and to respond for himself.

The remaining task of the trial court was to determine damages, using as its calculus "the value of the option contract to the optionee at the time of the breach." Tolman v. Carrick, 136 Vt. 188, 190, 385 A.2d 1119, 1121 (1978). The burden of proof in establishing the value was on plaintiff. See Sexton v. Neun, 131 Vt. 372, 380, 306 A.2d 113, 118 (1973).

In determining that value it was first essential to explore the quality of the interest to be tendered by the seller under the first refusal right. Plaintiff does not contend that he had a right to purchase the property free of encumbrances or that his...