67 A.3d 895 (Vt. 2013)
In 1999, David and Barbara Prue, who were friends with Larry Royer and his now-deceased wife, began discussing with the Royers the possibility of purchasing or taking over operation of the Brewski Pub that the Royers owned in Irasburg, Vermont.1 In January 2000 the parties executed a document on a preprinted realtor form entitled Purchase and Sale Contract with the words Lease-Option to Purchase handwritten below the title; the form listed a $190,000 purchase price and a $4,000 deposit, with an attached Financing Property Agreement that scheduled three $4,000 down payments, twelve monthly rental payments of $1,000 through December 2000, and then $1,400 monthly payments starting January 1, 2001 for five years at one point over prime with a balloon of all principal and interest due January 1, 2006.2 An addendum required the Prues to obtain fire, theft, and one-million-dollar liability insurance naming Royer as lienholder before opening, to pay all utilities, taxes, and maintenance, and to obtain Royer's approval for renovations during the lease period.3
The arrangement continued without major incident for several years, although the Prues missed some payments after the first year that Royer forgave or deferred. In 2004 the parties agreed to build an addition that Royer paid for and added to the principal balance; they signed a new amortization schedule for $253,549 over twenty-five years.4 After the January 1, 2006 balloon date passed without a closing, the Prues remained in possession and continued payments; in August 2006 they signed a new weekly payment schedule extending through 2018.5
Insurance problems surfaced after a 2004 Dram Shop Act lawsuit and intensified following gunshots at the bar in early 2007. Royer learned he had not been named lienholder and that coverage was only $100,000. A state liquor inspector required proof of an active lease, which neither party could locate, and the Prues made their last payment in mid-January 2007.6 On March 8, 2007 the Prues tendered their liquor license, removed some equipment and original inventory liquor, and vacated the premises, leaving the bar damaged and messy.7
On March 29, 2007, the Prues filed suit seeking a declaration that they held equitable title and money damages; Royer counterclaimed for breach of contract and unjust enrichment seeking back rent and damages for missing items and cleanup.8 The trial court found the agreement was a contract for deed, declared an equitable interest, and on its own initiative ordered foreclosure giving the Prues fifty-four days to redeem for $244,386.86 plus interest or pay $8,136 in conditional waste damages.9 Both parties appealed to the Supreme Court of Vermont.10
Whether the January 2000 agreement between the Prues and Royer constituted a contract for deed rather than a lease with an option to purchase?11
A contract for deed is a bilateral agreement under which the purchaser occupies the premises and makes payments applied to the purchase obligation, accumulating an equitable interest that requires foreclosure to extinguish.12 A lease-option to purchase is a unilateral contract leaving acceptance to the optionee's discretion with payments not applied to the purchase price.13
Yes. The ESTABLISHED FACTS establish that the agreement was bilateral because the preprinted Purchase and Sale Contract stated that the purchaser agrees to purchase and the seller agrees to sell and convey the property.14 The attached Financing Property Agreement specified that after the initial down payments the buyer/lessee will pay starting January 1, 2001, $1,400 per month for five years with interest at one point over prime and a balloon of all principal and interest due January 1, 2006.15 The payments were applied to the purchase price, as shown by the calculation of the balance due after the three $4,000 down payments and by the 2004 and 2006 amortization schedules that reduced the principal balance.16
The January 2000 agreement constituted a contract for deed rather than a lease with an option to purchase.17
Whether the 2004 and 2006 modifications to the payment schedule were enforceable under the Statute of Frauds?18
Yes. The ESTABLISHED FACTS show that the 2004 modification was a signed amortization schedule increasing the principal to $253,549 to reflect the addition Royer paid for, and the 2006 modification was a signed weekly payment schedule extending through 2018.21 Both modifications were written, signed by the Prues and Royer, and related directly to the original contract by using the same parties and deriving the refinanced amount from the prior balance.22 No essential term such as a new closing date was required because the modifications did not change the closing date and the original closing date had been waived by the parties' conduct.23
The 2004 and 2006 modifications to the payment schedule were enforceable under the Statute of Frauds.24
Whether the Prues abandoned any equitable interest in the property by stopping payments in January 2007 and vacating the premises in March 2007?25
Abandonment of an equitable interest requires voluntary and intentional relinquishment of a known right, determined from all facts and circumstances including the purchaser's intent and actions after leaving the property.26
No. The ESTABLISHED FACTS show that the Prues stopped payments in mid-January 2007 because of financial difficulties and the history of Royer forgiving missed payments, and they vacated on March 8, 2007, after tendering their liquor license under the impression that the state inspector would shut down the bar.27 They immediately consulted an attorney and filed suit on March 29, 2007, seeking a declaration of equitable title.28 These circumstances demonstrate that the Prues did not intend to relinquish a known right and did not abandon their equitable interest.29
The Prues did not abandon any equitable interest in the property.30
Whether the Prues' appeal was properly before the Supreme Court despite their failure to obtain trial court permission under 12 V.S.A. § 4601?31
The statutory requirement of trial court permission for appeal in foreclosure cases applies only to mortgages that are such on their face or recognized as such by the parties. It does not apply to cases where the character of the instrument is in issue.32
Yes. The ESTABLISHED FACTS establish that the central dispute was whether the agreement constituted a contract for deed creating an equitable mortgage. This question was litigated from the outset when the Prues sought a declaration of equitable title and Royer counterclaimed on a lease-option theory.33 Because the character of the instrument was contested rather than conceded, the permission requirement of 12 V.S.A. § 4601 did not bar the appeal.34
The Prues' appeal was properly before the Supreme Court.35
Whether the trial court could initiate foreclosure proceedings sua sponte when Royer had not pled or sought foreclosure as a remedy?36
Although a court may grant relief to which a party is entitled even if not demanded in the pleadings, foreclosure requires specific procedural safeguards including notice, opportunity to be heard on redemption period, accounting, and foreclosure by sale.37 Sua sponte foreclosure without these protections prejudices the parties and exceeds the ambit of the controversy.38
No. The ESTABLISHED FACTS show that Royer never pled or sought foreclosure and instead defended solely on a lease-option theory. The trial court on its own initiative ordered foreclosure with a fifty-four-day redemption period and conditional waste damages.39 The Prues had no opportunity to address the statutory factors for shortening redemption time, to move for foreclosure by sale, or to present evidence on an accounting. This resulted in prejudice that required reversal.40
The trial court could not properly initiate foreclosure proceedings sua sponte without affording the parties notice and opportunity to litigate the required foreclosure procedures.41
Whether the trial court properly awarded conditional damages for waste measured by repair and replacement costs?42
Waste includes repairable damage to property in the mortgagor-mortgagee relationship, and damages may be measured by the reasonable cost of repairs and replacement rather than solely by diminution in market value.43
Yes. The ESTABLISHED FACTS show that the Prues removed equipment and original inventory liquor present when they took possession and left the bar damaged and messy, requiring Royer to expend repair and clean-up costs.44 The trial court awarded $4,036 for cleaning and repairs plus $4,100 for personal property and liquor taken, amounts based on the cost of restoration, which is a proper measure of damages for waste that includes repairable injury.45
The trial court properly awarded conditional damages for waste measured by repair and replacement costs.46