Case Title: Southface Condominium Owners Assn. v. Southface Condominium Assoc.

Citation: 169 Vt. 243, 733 A.2d 55

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 1999-05-14T00:00:00Z

Document:
Southface Condominium Owners Assn. v. Southface Condominium Assn. (97-374);
169 Vt. 243; 733 A.2d 55

[Filed 14-May-1999]

       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal  revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter  of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any  errors in order that corrections may be made before this opinion goes
  to press.

                                 No. 97-374

Southface Condominium Owners	                   Supreme Court
Association, Inc. and Kenneth
David Burrows
                                                   On Appeal from
     v.		                                   Washington Superior Court

Southface Condominium Association,	           November Term, 1998
Inc., A. Judson Babcock, and Chittenden
Realty Credit Corporation and Chittenden
Trust Company d/b/a Chittenden Bank

Alan W. Cheever, J.

J. Scott Cameron and Bernard D. Lambek of Paterson & Walke, P.C.,
  Montpelier, for Plaintiffs-Appellees.

Andrew D. Bouffard and Eric A. Peohlmann of Downs Rachlin & Martin
  PLLC, Burlington,   for Defendant-Appellant.

Cynthia L. Amara and Loretta Smith, New England Legal Foundation,
  Boston, Massachusetts,  for Amicus Curiae Vermont Bankers Association, Inc.

PRESENT: Amestoy, C.J., Morse, Johnson and Skoglund, JJ, and Norton, Supr. J., 	
	(Specially Assigned).

       MORSE, J.  Defendants Chittenden Realty Credit Corporation (CRCC) and
  Chittenden  Trust Company (CTC) (FN1) appeal following a jury verdict in
  favor of plaintiffs, Southface  Condominium Owners Association and Kenneth
  Burrows, on a claim that defendants breached an  implied covenant of good
  faith and fair dealing with plaintiffs.  Challenging the exclusion of 

 

  certain evidence under V.R.E. 403, plaintiffs cross-appeal from the jury's
  verdict for defendants  on plaintiffs' claim that CRCC established a
  joint-venture with Southface Condominium Associates  (SCA) and was thus
  equally liable with SCA.  We reverse on both issues and remand for a new 
  trial on plaintiffs' joint-venture claim.

       This action arises out of a proposed maintenance building that was
  never constructed at  Southface Condominiums.  Southface consists of forty
  residential units located at the base of the  Sugarbush ski area in Warren,
  Vermont.  The project was developed by SCA whose sole  shareholder and
  president was defendant Babcock.] (FN2)  The project was financed by CRCC 
  pursuant to a loan agreement reached in 1983 between CRCC and SCA.	

       The terms of the loan designated SCA as the "Borrower" and CRCC as the
  "Lender."   Provisions in the loan agreement included the interest rate on
  the loaned money, payment terms,  security for the loan and action to be
  taken in the event of default.  The loan contained an "initial  loan" of
  $50,000, the purpose of which was to fund Babcock's initial investment in
  SCA.  The  loan also contained a "construction loan" in an amount
  sufficient to allow SCA to purchase the  land on which the project was to
  be built and to fund the construction of the condominiums. 
 
       The loan called for CRCC to be repaid as the individual condominium
  units were sold.  CRCC held the mortgage.  When a unit was sold, CRCC was
  to receive the money from the sales  to repay its loan to SCA, and in
  return, CRCC would release its mortgage interest in that unit.  The loan
  was to be paid back according to the following terms:  

     [The money received from the unit sales] shall be applied first to 
     the payment of any unpaid charges, then to interest and then to the 
     unpaid principal amount of the Loan, until the Construction Loan 
     and all interest and all charges related thereto are paid in full and 
     the Initial Loan has an unpaid principal balance of $50,000.   

 

       Following the execution of the loan agreement, Babcock, acting as the
  agent for SCA,  signed a unilateral declaration of condominium for the
  Southface project.  The declaration  described the property, the
  condominiums, permitted uses, and extended certain rights to SCA and  the
  individual unit owners.  Article IV of the declaration contained the
  following language:   "Phase II (if added) shall also include a management
  building to be constructed on Phase I  property, and to include office and
  storage space and one dwelling unit."  (Emphasis added.)   Neither CRCC nor
  CTC were mentioned in the declaration; however, CRCC executed a "Consent 
  to Declaration of Condominium" on February 21, 1984, which provided that
  CRCC "[s]pecifically  consented to . . . the condominiumization . . . in
  accordance with the terms of a Declaration of  Condominium."  The
  construction of condominium units twenty-one to forty of Phase II was 
  completed but the management building was never built.  The failure to
  construct the building  prompted this suit. 

                                     I.

       The first issue we address is whether the trial court erred in
  submitting to the jury  plaintiffs' claim that CRCC breached an implied
  covenant of good faith and fair dealing to them  as third-party
  beneficiaries.  Plaintiffs contend that CRCC breached the implied covenant
  in the  loan and the declaration by failing to ensure that sufficient funds
  were either budgeted or set aside  to construct the building.   

       Defendants attack the breach of good faith claim on several fronts. 
  First, defendants claim  that that theory was not raised in the pleadings,
  nor was it tried by the express or implied  agreement of the parties. 
  Second, they argue that the trial court erred in determining that 
  plaintiffs could be third-party beneficiaries of the construction loan
  contract between CRCC and  SCA.  Finally, defendants contend that even if
  the jury could find that plaintiffs were third-party  beneficiaries, the
  evidence was insufficient to support a breach of the covenant of good faith
  with  SCA.  

       Plaintiffs' contended that CRCC acted in bad faith by using the money
  from the sale of 

 

  the last two condominiums to pay down the loans instead of using it to
  construct the building.  We  conclude that the evidence did not support the
  verdict for unfair dealing.  We therefore need not  address whether the
  owners were third-party beneficiaries or if the claim was properly raised
  in  the pleadings. 

       In Carmichael v. Adirondack Bottled Gas Corp. of Vermont, we defined
  the implied  covenant of good faith and fair dealing broadly.  Each party
  to a contract makes the implied  promise that each will not do anything "to
  undermine or destroy the other's rights to receive the  benefits of the
  agreement."  161 Vt. 200, 208,