An Appellate Court Reminds Us That Rules Of Contract Interpretation Do Not Trump Evidence Of The Parties’ Intent

For as long as there have been contracts, there have been judges, lawyers, and parties who have struggled to divine the meaning of documents that were – shall we say – “inartfully” drafted.  To address ambiguities in such documents, common law courts have developed a host of rules of interpretation to assist in the quest for elucidation.  With its recent decision in Lynch v. Town of Pelham, No. 2013-064, the New Hampshire Supreme Court reminds us of the proper role of such rules in the interpretive process.

The dispute at issue in Lynch finds its genesis in a 1985 deed by which a trust sold land to the Town of Pelham for the development of municipal buildings.  That deed contained several restrictive covenants, including restrictions on the architectural style of the buildings to be built, but did not specify whether those covenants were appurtenant (tied to the ownership or occupancy of a particular parcel of land) or in gross (not tied to the ownership or occupancy of a particular parcel of land).
 
Years later, the Trustee took issue with the design of a proposed fire station and sought to enforce the covenants in the Superior Court.  The Town moved to dismiss the Trustee’s complaint.  According to the Town, the restrictions were appurtenant, and, because the Trust owned no land in the Town benefiting from the covenants, the Trustee lacked standing to enforce them.  The Superior Court agreed, reasoning that any deeded covenant not expressly identified as “in gross” is, under New Hampshire’s rules of interpretation, an appurtenant covenant.

The New Hampshire Supreme Court reversed, concluding that the covenants were in gross.  In doing so, the Court noted that the touchstone in interpreting contracts, including deeds, is to ascertain the intention of the parties, and that the rules of interpretation are merely aids employed by the courts when there is little or no evidence of that intention.  It concluded that the Superior Court went astray when it gave dispositive significance to New Hampshire’s preference for appurtenant covenants over covenants in gross.  In other words, the Superior Court erroneously treated an interpretive aid as establishing a per se rule.
 
The Court observed that Lynch was not a case where evidence of the parties’ intent was entirely lacking.  To the contrary, the Court pointed out that the parties’ intent could be discerned both from the language of the deed itself and the circumstances surrounding its execution; most notably, the fact that by the time the deed was signed, the Trust owned no other land in the Town to which the covenants could possibly be appurtenant.  The Court had little trouble dispensing with the notion that the parties intended a situation where the restrictive covenants would have been unenforceable from the moment they were created.
 
With determining the parties’ intent as the ultimate goal in contract interpretation, the Court in Lynch was justifiably unwilling to give primacy to a rule of interpretation favoring appurtenant covenants over evidence that the parties actually intended to create covenants in gross.  At times it is easy to seize upon a rule of interpretation as the be-all and end-all in a case involving an ambiguous contract.  What Lynch reminds us is that the rules of interpretation are merely aids used to discern the parties’ intent – they do not trump the evidence of what the parties actually intended.

Recent Amendments To Rule 80B Should Provide Needed Clarity

In case you missed it over the summer, the Supreme Judicial Court approved a couple of amendments to M.R.Civ.P. 80B effective September 1, 2014, that are of interest to those handling appeals from decisions of municipal agencies.  The first amendment clarifies when the clock begins to run on the deadline for filing a petition for review in the Superior Court.  The new amendment establishes that the general rule is that the time for filing a petition for review begins to run on the date of the public vote or announcement of a final decision by the municipal agency.  There are, however, two exceptions – when a statute, ordinance, or rule requires the action at issue to be made or evidenced by a written decision, the clock starts when the written decision is adopted; when a written decision is required by a statute, ordinance, or rule to be delivered to a person or persons, the clock starts upon delivery.  The new amendment should go a long way toward eliminating the uncertainty caused when, for example, a planning board votes to deny an application on September 5, but issues a written decision on September 19.

The second amendment makes clear in a re-written subsection (m) that when the Superior Court remands a case to a municipal agency for further action or proceedings, the Superior Court’s decision is not a final judgment – so, if you want to get to the Law Court immediately, you’d better be able to bring the case within one of the exceptions to the final judgment rule.   Although this amendment simply codifies the holdings of several recent Law Court decisions, it is helpful to have this rule set forth in the text of Rule 80B, particularly for those who may not practice extensively in this area.

Sometimes Trial Courts Really Get It Wrong; Or, That’s Why We Have Appellate Courts

I am now comfortably settled into my new professional home and, with the onset of fall, the appellate courts are back in the business of providing me with blog fodder – also known, more formally, as issuing written decisions in furtherance of their constitutional and statutory obligations to decide cases.  So, let’s get to it with a decision that has me wondering how the trial court could have possibly reached the decision it did.

The subject of today’s post comes to us courtesy of the Massachusetts Appeals Court in the form of Rodman v. Commonwealth, No. 12-P-223, an eminent domain case decided last week.  In Rodman, the Commonwealth’s Department of Highways took by eminent domain a portion of the plaintiffs’ land in 2001 in order to complete an elevated vehicle/pedestrian ramp extending from the large complex then being constructed across U.S. Route 1.  At the time of the taking, a portion of the property had been used for many years as a temporary parking lot, but the remainder was undeveloped.  Dissatisfied with the amount of the Commonwealth’s pro tanto award, the plaintiffs filed suit seeking more, but were ultimately awarded less.

The appeal centered on the Superior Court’s exclusion of evidence offered by the plaintiffs on the issue of fair market value, which consisted of plans for the potential development of the property for hotel, manufacturing, and warehouse uses.  Two of the Commonwealth’s arguments, accepted by the Superior Court, were that:  (1) since the property was essentially vacant and there were no pre-taking plans to develop it, the property had to be valued consistently with comparable sales of similar, large undeveloped parcels; and (2) the potential hotel, manufacturing, and warehouse uses were not permitted as of right in the applicable zoning district. 

In its decision, the Appeals Court provided a nice synopsis of Massachusetts law regarding the determination of fair market value in eminent domain cases.  The court noted that fair market value is based on “the highest price that a hypothetical arm’s-length willing buyer would pay to a hypothetical willing seller in a free and open market, based on the highest and best use of the property.”  It then followed up by pointing out that the concept of “highest and best use” is not limited to consideration of the then-current use, but also takes into account “potential uses [] that a reasonable buyer would consider significant in deciding how much to pay.”1

Having established that the concept of fair market valuation is based on a hypothetical transaction giving due regard to potential uses that could reasonably be made of the property, it should come as no surprise that the Appeal Court rejected the Superior Court’s analysis – or what I will call the “of course you should ignore the construction of the gigantic, half-billion dollar stadium across the street” method of valuation. Indeed, the court had little trouble concluding that a reasonable buyer interested in purchasing property across the street from Gillette Stadium would have explored the property’s development potential in determining how much to pay for it, particularly where that the zoning district’s stated goal was to “allow[] flexibility in facilitating economic development of the ‘Route One corridor.’”

The court had only slightly more difficulty dispatching the notion that only uses allowed as of right in the zone could be considered. The court stated that the hotel, manufacturing, and warehouse uses contemplated the by the plaintiffs were allowed in the zone by special permit and that there was testimony in the record to the effect that a request for such a permit would likely be granted since no waivers or other zoning relief would be necessary. The court further noted that a reasonable buyer would account for the uncertainty of obtaining such a permit by discounting for what it called “futurity and likelihood” in determining the amount it is willing to pay and that the jury could account for this in arriving at a valuation.

Frankly, given the state of Massachusetts law regarding “fair market value” and “highest and best use,” I don’t see how the Appeals Court could have done anything other than vacate the Superior Court’s decision, which effectively prevented any consideration of the property’s development potential on the question of its value. So, my friends, Rodman is as good an example as any why we have (and need) appellate courts; it will be interesting to see how it all plays out on remand.

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1 Maine law appears to be in accord.  See Curtis v. Maine State Highway Comm’n, 160 Me. 262, 266-68, 203 A.2d 451, 453-54 (1964).