Art Midwest, Inc. v. Clapper , 242 F. App'x 130 ( 2007 )

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 R. 47.5, the Court has determined that this opinion should not be
published and is not precedent except under the limited circumstances set forth in 5TH CIR.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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