Court Opinion

ID: 50618
Source: CourtListenerOpinion
Date Created: 2010-04-26 00:54:45+00
Date Added: 2024-06-11T09:02:33.198693
License: Public Domain

United States Court of Appeals
                                                                                       Fifth Circuit
                                                                                    F I L E D
                    IN THE UNITED STATES COURT OF APPEALS
                                                                                      June 11, 2007
                                 FOR THE FIFTH CIRCUIT                          Charles R. Fulbruge III
                                                                                        Clerk

                                         No. 04-10010

       ART MIDWEST, INC, a Nevada Corporation; AMERICAN REALTY TRUST,
       INC, a Georgia Corporation;
                                   Plaintiffs - Intervenor Defendants -
                                   Counter Defendants - Appellees

       ATLANTIC LIMITED PARTNERSHIP XII, a Michigan Limited
       Partnership; REGIONAL PROPERTIES, LIMITED PARTNERSHIP, a
       Michigan Limited Partnership
                                    Intervenor Plaintiffs - Appellants

                                             versus

       DAVID M. CLAPPER; ATLANTIC MIDWEST LLC, a Michigan Limited
       Liability Company; ATLANTIC XIII LLC, a Michigan Limited
       Liability Company
                                    Defendants - Counter Claimants - Appellants

                    Appeals from the United States District Court for
                             the Northern District of Texas
                                   3:99-CV-2355-R
           _________________________________________________________

Before REAVLEY, DEMOSS, and BENAVIDES, Circuit Judges.

PER CURIAM:*

       *
        Pursuant to 5TH CIR. R. 47.5, the Court has determined that this opinion should not be
published and is not precedent except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
       This appeal arises from a real estate breach of contract suit related to the transfer

of numerous apartment properties from appellant sellers, the Clapper entities, to appellee

purchasers, the ART entities, under a series of interrelated agreements. Ohio law governs

the particular regional transfer agreement that spawned the dispute between the parties.

       The judgment of the district court is reversed. The judgment is predicated upon

the finding of the jury that appellants breached the 1998 agreements, and that finding is

based upon a decision that appellants failed to perform their title commitments under the

Ohio regional agreement because of the legal non-conforming zoning use of a portion of

the Toledo property. But this is not a decision for the jury; it presents a legal question of

the construction of the terms of those agreements. Graham v. Drydock Coal Co., 667

N.E.2d 949, 952 (Ohio 1996) (“The construction of written contracts and instruments of

conveyance is a matter of law.”)(citation omitted).

       That question must be resolved in favor of appellants and against appellees.

Appellants, sellers of the property, warranted “good and marketable title” to the Toledo

property “free and clear of all liens, encumbrances, reservations and restrictions.” The

only objection appellees made to the performance is that part of the property stands on a

site zoned for use inconsistent with that of the apartments. The city’s zoning designation

of this property followed the apartment construction and does not impair its continued use

and operation for that purpose. Ohio Rev. Code. Ann. § 713.15; City of Dublin v.

Finkes, 615 N.E.2d 690, 693 (Ohio Ct. App. 10 Dist 1992). The right to continue that

vested nonconforming use runs with the land and would have inured to the ART entities

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via title transfer. See Edward H. Ziegler, Jr., 4 Rathkopf’s The Law of Zoning and

Planning § 72:20 (4th ed. 2003) (recognizing the right to continue a nonconforming use

as an attribute of land ownership exercisable by a property purchaser); Kenneth H.

Young, Anderson’s American Law of Zoning § 6:40 (4th ed. 1996) (“The right [to

maintain a nonconforming use] attaches to the land itself . . . . [and] can be exercised

equally by the purchaser.”).

       Zoning ordinances always restrict the use of property, but that restriction does not

render the title unmarketable. See Caryl A. Yzenbaard, Residential Real Estate

Transactions § 5.12 (2005); see, also Greenhills Home Owners Corp. v. Village of

Greenhills, 202 N.E.2d 192, 196 (Ohio Ct. App. 1st Dist. 1964), rev’d on other grounds,

5 Ohio St.2d 207, 215 N.E.3d 403 (Ohio 1966) (“A zoning law in itself . . . is not an

encumbrance.”); 77 AM. JUR. 2D Vendor and Purchaser § 170 (“A restriction imposed by

legislative or municipal authority which is in existence at the time of contract is not

generally considered such an encumbrance as may be availed of by the vendee to avoid

an agreement to purchase.”). Here, reading the contract provision promising a clean title

commitment in pari matriae with the remainder of the agreement and the title

commitment itself, it is plain that the “restrictions” referred to relate to restrictions of

record on the sale or transfer of title, not to public use restrictions imposed by zoning

ordinance. See Greenhills Home Owners Corp., 202 N.E.2d at 196 (noting that a zoning

ordinance is not a title instrument included in the chain of title of zoned property and

rejecting the construction that the word “restrictions” in the contract and deed referred to

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zoning ordinance); see generally, Ziegler, §82:2 (recognizing that zoning ordinances and

private restrictive covenants affecting title operate independently of one another and

present separate legal issues). The title commitment schedule of exceptions for the

Toledo property does not refer to zoning restrictions, but rather to restrictive covenants.

Further, the separate ALTA 3.0 zoning endorsement required of the Clapper entities

under the Toledo agreement only identifies and warrants the current zoning classification

at time of contract and makes no representation as to whether the property conforms to

existing zoning regulations. Even the more expansive ALTA 3.1 zoning endorsement

available to the ART entities under the contract at their own election and expense

provides assurance only that no violations of the applicable zoning ordinances currently

exist. Neither endorsement warrants a property free from zoning restrictions.

       We recognize that an existing violation of a zoning ordinance may constitute a title

encumbrance. See Greenhills Home Owners, 202 N.E.2d at 196; Ziegler, § 82:2.

However, the legal non-conforming zoning use at issue here is neither a violation nor a

restriction of record on title; it is a restriction against a change in the use of the property

from the present apartments. This does not render the title to the Toledo property

unmarketable. See, e.g., Milton R. Friedman and James Charles Smith, Friedman on

Contracts and Conveyances of Real Property § 9:10 (Practicing Law Institute 2005) (“A

zoning ordinance is not an encumbrance affecting marketability of title. This is true even

if the property is the subject of a nonconforming use . . . . Zoning differs in this way from

restrictions created by deed or contract.”).

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       Because there was no failure to tender marketable title, there was no default by the

appellants. It follows that a determination of liability and damages must be decided

anew. For that purpose we think it advisable to restart the assignment of the case, and we

direct the chief judge to assign this case to a different judge of the district.

REVERSED AND REMANDED WITH INSTRUCTIONS.

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