Vermont Nat. Bank v. Chittenden Trust Co.

• Decision Date: 27 July 1983
• Docket Number: No. 82-441,82-441
• Parties: VERMONT NATIONAL BANK v. CHITTENDEN TRUST COMPANY, The Merchants Bank and Lake Realty, Inc.
• Court: Vermont Supreme Court

Page 284

465 A.2d 284

143 Vt. 257

VERMONT NATIONAL BANK v. CHITTENDEN TRUST COMPANY, The Merchants Bank and Lake Realty, Inc.

No. 82-441.

Supreme Court of Vermont.

July 27, 1983.

Douglas C. Pierson and James W. Coffrin of Pierson, Affolter & Wadhams, Burlington, for plaintiff-appellee.

Stevens & Clark, Winooski, for defendant-appellant Chittenden Trust Co.

Matthew I. Katz of Latham, Eastman, Schweyer & Tetzlaff, Burlington, for defendants-appellees Lake Realty, Inc. and Merchants Bank.

Before UNDERWOOD, J., BARNEY, C.J. (Ret.), Specially Assigned, and KEYSER, DALEY and LARROW, JJ. (Ret.), Specially Assigned.

ALBERT W. BARNEY, Chief Justice (Ret.), Specially Assigned.

Seeking to enforce a restrictive covenant in its lease, plaintiff Vermont National Bank [Vermont National] brought this action to enjoin defendant Lake Realty, Inc. [Lake Realty] from leasing space in the Champlain Mill shopping center in Winooski, Vermont, to defendants Chittenden Trust Company [Chittenden] and The Merchants Bank [Merchants]. By order dated September 10, 1982, the court below issued an injunction prohibiting the defendants from leasing or operating any competitive banking facilities in the Mill until March 31, 1984, when plaintiff's lease term expires. Defendant Chittenden appeals, raising numerous grounds for error, while defendants Merchants and Lake Realty contest the result on a more limited basis. In addition, plaintiff Vermont National has cross-appealed, seeking to extend the injunction beyond its current lease term, and to expand its scope.

Viewing the evidence in the light most favorable to plaintiff as the prevailing party, Lanphere v. Beede, 141 Vt. 126, 128-29, 446 A.2d 340, 341 (1982), the facts are as follows. The Winooski Real Estate Trust, not a party to this action, undertook to develop in three phases the Riverside Renewal Area of Winooski into a shopping area. The Trust, as developer, was interested in locating a branch bank in the second phase portion of the area. As an incentive, it offered plaintiff Vermont National a five year lease with a clause binding the lessor to rent no other space in the shopping area to any other bank for a period of five years. At the end of that five year period, Vermont National had the option of purchasing the site, the deed to contain an ongoing covenant of exclusivity. In April of 1979, plaintiff agreed to lease premises in the second phase portion of the shopping area, and upon that site constructed a bank building which currently houses its Winooski operations. The five year lease has not yet expired and the purchase, although unquestionably intended, has not yet occurred.

The conflict arose when a third portion of the shopping area, known as the Champlain Mill [the Mill], was sold in October of 1979 to a second developer, defendant Lake Realty. Although the restrictive covenant in plaintiff's lease was known to Lake Realty and was, in fact, included in the deed of transfer, Lake Realty proceeded nevertheless to lease space in the Mill portion of the shopping area to the two defendant banks. In September of 1981, the Vermont Commissioner of Banking and Insurance issued Certificates of General Good, granting to the defendant banks permission to open branch offices in the Mill, whereupon the banks commenced banking operations. On September 21, 1981, plaintiff brought suit against the three defendants to enforce its rights under the restrictive covenant. The lower court decided generally in favor of the plaintiff, enjoining the defendant banks from conducting business in the Mill. The court made extensive and careful findings of fact and conclusions of law involving a number of issues. These issues are now before us on appeal, thereby mandating that our review be equally comprehensive.

Defendant Chittenden raises four arguments on appeal: (1) that the restrictive lease covenant violates Vermont public policy and is therefore void and illegal; (2) that the court erroneously admitted and relied upon hearsay evidence concerning the existence of other available real estate surrounding the Mill property; (3) that the court erroneously refused to admit evidence regarding plaintiff's failure to disclose the existence of its restrictive covenant to the U.S. Comptroller of Currency; and (4) that the court erroneously granted plaintiff's requested relief, notwithstanding plaintiff's failure to meet an alleged condition precedent.

Plaintiff counters defendant Chittenden's claims of error, and in its cross-appeal argues: (1) that the court erred in limiting the injunctive period to the lease term; and (2) that automatic teller machines [ATMs] operated by defendant Merchants were erroneously excepted from the scope of the court's injunction order and should have been prohibited as well.

The remaining defendants professed partial satisfaction with the court's order, but "having been drawn into this appeal ... contend that the trial court erred in some respects." Specifically, they maintain: (1) that the injunctive relief correctly ends with the lease expiration; (2) that ATMs were correctly excepted from the injunctive order; and (3) that the court failed to make adequate findings regarding plaintiff's fulfillment of the alleged condition precedent in its lease.

The first and principal issue raised by Chittenden relates to the policy concerns inhering in the enforcement of restrictive covenants limiting competition between banks. There is a generalized concern that expresses itself in various governmental policies, some being part of decisional and statutory law, against combinations and agreements that operate to restrain or encumber trade. See, e.g., State v. Heritage Realty, 137 Vt. 425, 407 A.2d 509 (1979); The Consumer Fraud Act, 9 V.S.A. § 2453; The Sherman Anti-Trust Act, § 1, 15 U.S.C. § 1 (1974); The Clayton Act, § 3, 15 U.S.C. § 14 (1914); The Federal Trade Commission Act, § 5(a)(1), 15 U.S.C. § 45(a)(1) (1960). The interests of the consumer in goods and services are seen as better served by competitive forces in the market place, and contracts and agreements that represent common action between businesses to remove the discounting effect of price challenge in arms length purchase and sale are not only not favored, but may be conspiratorially illegal.

However, it is a far cry from that policy to the restrictive covenant at issue here. It is well established that restrictive covenants in leases relating to land use are enforceable. Albright v. Fish, 138 Vt. 585, 422 A.2d 250 (1980); McDonough v. W.W. Snow Construction Co., 131 Vt. 436, 306 A.2d 119 (1973). Moreover, the geographic area here involved is neither industry-wide nor even community-wide, but is measured in a few city blocks. Restraints triggering policy concerns are of much broader scope, requiring real impact on the whole industry, or upon areas significant enough to allow the benefited business to operate independently of competitive pressures. See, e.g., Optivision, Inc. v. Syracuse Shopping Center Associates, 472 F. Supp. 665, 677-78 (N.D.N.Y.1979); Elida, Inc. v. Harmor Realty Corp., 177 Conn. 218, 225-26, 413 A.2d 1226, 1232 (1979); see generally Brown Shoe Co. v. United States, 370 U.S. 294, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962); Chicago Board of Trade v. United States, 246 U.S. 231, 38 S.Ct. 242, 62 L.Ed. 683 (1918). There is certainly no such impact here, nor is there cited to us any case that so holds.

On the contrary, restrictive covenants in shopping center leases have, for the most part, been found not to restrain competition unreasonably and, in fact, have been found to be consistent with the public interest. See, e.g., Valley Properties, Inc. v. King's Department Stores of Tewksbury, Inc., 505 F. Supp. 92 (D.Mass.1981); Optivision, Inc. v. Syracuse Shopping Center Associates, supra; Borman's Inc. v. Great Scott Super Markets, Inc., 433 F. Supp. 343 (E.D.Mich.1975); Whitinsville Plaza, Inc. v. Kotseas, 378 Mass. 85, 390 N.E.2d 243 (1979); Pensacola Associates v. Biggs Sporting Goods Co., 353 So.2d 944 (Fla.App.1978); Parker v. Lewis Grocer Co., 246 Miss. 873, 153 So.2d 261 (1963); see also Note Restrictive Covenants in Shopping Center Leases, 34 N.Y.U.L.Rev. 940 (1959).

From this general contention Chittenden moves to an argument that because 8 V.S.A. § 1 contains a statement encouraging competition among banks and financial institutions, as part of the state regulatory policy of such institutions, restrictive covenants in bank leases are necessarily illegal per se. Moreover, Chittenden argues, since the means for effectuating this policy is through the Commissioner's power to issue Certificates of Public Good to banks seeking to open branch offices, 8 V.S.A. § 651, and since the Commissioner did issue such Certificates to the defendant banks in this case notwithstanding Vermont National's objection based on the restrictive lease provision, the lease provision contravenes state policy. In so arguing, however, Chittenden relies more on the literal meaning of the words than their substance.

In the first place, § 1 is merely a broad policy statement of the legislative purpose for regulating the banking and insurance industry:

The legislative policy of this state is to promote and maintain the solvency and liquidity of financial institutions doing business in the state, to regulate their affairs in the interests of financial order and stability, to encourage competition among them, and to protect the public against unfair and unconscionable lending and insuring policies.

8 V.S.A. § 1. Clearly, this section directs the regulatory authority to exercise its powers in ways that will not foster the growth of banking monopolies. Mergers and even branch banking, if unsupervised, can lead to the absorption of small banks and the concentration of the banking business in so few institutions that the competitive effect of customer shopping is lost through reduction of consumer choice....