Bissonnette v. Wylie, 92-406

Citation654 A.2d 333, 162 Vt. 598
Case DateJune 03, 1994
CourtUnited States State Supreme Court of Vermont

Page 333

654 A.2d 333
162 Vt. 598, 27 UCC Rep.Serv.2d 182
Donald and Claudette BISSONNETTE
Nicholas J.H. WYLIE, Daniel E. Mendl and Martin V. Lavin.
No. 92-406.
Supreme Court of Vermont.
June 3, 1994.
Motion for Reargument Oct. 28, 1994.

Page 334

[162 Vt. 599] Donald E. O'Brien, Burlington, for plaintiffs-appellants.

Leslie C. Pratt, South Burlington, for defendants-appellees.

[162 Vt. 598] Before ALLEN, C.J., and GIBSON, DOOLEY, MORSE and JOHNSON, JJ.

[162 Vt. 599] GIBSON, Justice.

Plaintiffs Donald and Claudette Bissonnette appeal from a summary judgment order in favor of defendants Daniel Mendl and Martin Lavin, claiming the court erred in holding that comakers of a [162 Vt. 600] promissory note may be discharged under 9A V.S.A. § 3-606 when the creditor unjustifiably impairs the collateral. 1 We hold that the § 3-606 defense is available to a comaker only if the comaker is in the position of a surety. Because we conclude that defendants Mendl and Lavin were sureties, both as to their comaker Nicholas Wylie and as to plaintiffs, we affirm the decision of the trial court discharging Mendl and Lavin.

On February 5, 1986, plaintiffs and defendants Wylie, Mendl and Lavin entered into a purchase and sales agreement in which defendants agreed to purchase approximately

Page 335

three acres of land with a three-story condominium building from plaintiffs for $210,000. The property was adjacent to another parcel of land owned by defendants. The agreement provided that defendants would pay plaintiffs $110,000 in cash, obtained from a bank and secured by a first mortgage, and $100,000 in the form of a promissory note secured by a second mortgage to plaintiffs. Plaintiffs agreed "to subordinate the second mortgage at Purchasers' option for any purposes of improving, preserving and developing the property." The sale was completed in June 1986.

In November 1986, defendants borrowed approximately $1,600,000 from the Vermont National Bank to finance construction of an office building on the adjoining property, and thereafter executed a new mortgage deed to secure the original promissory note to plaintiffs. The new mortgage was subject to three mortgage deeds--the first mortgage of $110,000 and two others dated November 3, 1986--all to the Vermont National Bank in the total amount of $1,650,000. The new mortgage covered both properties owned by defendants.

On May 3, 1989, defendants Wylie, Mendl and Lavin transferred their interest in the properties to defendant Wylie alone, who agreed to assume the mortgage to plaintiffs and to indemnify the other two defendants if either were obligated to pay any sums as a result of the mortgage or promissory note. Plaintiffs were notified of this transaction by letter but were not asked to consent to the transfer or to Wylie's assumption of the debt. The transfer included the parcel and condominium building purchased from plaintiffs and the adjacent parcel with its newly constructed office building.

[162 Vt. 601] Defendant Wylie subsequently requested that plaintiffs further subordinate their mortgage, pursuant to the original purchase and sales agreement, so that he could obtain an additional loan to build another office building on the adjoining parcel. On June 30, 1989, plaintiffs subordinated their mortgage, as requested, to a new mortgage to the Bank of Vermont securing a $2,600,000 loan to defendant Wylie. Defendants Mendl and Lavin were not notified of, nor did they consent to, this transaction. The parties dispute whether plaintiffs were required to subordinate their mortgage under the terms of the original purchase and sales agreement.

Following default, plaintiffs brought this suit against all three defendants to enforce the original $100,000 promissory note. Defendants Mendl and Lavin asserted as an affirmative defense that plaintiffs had unjustifiably impaired the collateral securing the note by subordinating their mortgage to the $2,600,000 mortgage to the Bank of Vermont, and thereby had discharged them from any obligation under the note. Subsequent to bringing the suit, and in exchange for approximately $11,000, plaintiffs discharged their mortgage on the portion of land mortgaged to the Bank of Vermont. Defendants claim that this discharge also unjustifiably impaired the collateral by reducing the amount of real property that secured the note.

On cross-motions for summary judgment, the court ruled that 9A V.S.A. § 3-606 would apply to discharge the obligation of defendants Mendl and Lavin under the $100,000 note if plaintiffs had unjustifiably impaired the collateral. Because plaintiffs had subordinated their mortgage to the $2,600,000 Bank of Vermont mortgage and then discharged a substantial portion of the real property securing the note, the court concluded that plaintiffs had unjustifiably impaired the collateral. Consequently, it granted defendants' motion for summary judgment. This appeal followed.

Plaintiffs argue that 9A V.S.A. § 3-606(1)(b) provides a suretyship defense that does not apply to defendants Mendl and Lavin as comakers of the $100,000 promissory note. Section 3-606(1)(b) states: "The holder discharges any party to the instrument to the extent that without such party's consent the holder ... unjustifiably impairs any collateral for the instrument given by or on behalf of the party or any person against whom he has a right of recourse." (Emphasis added.) The superior court held that the language "any party to the instrument" was unambiguous and included defendants Mendl and Lavin as comakers of the note.

Page 336

[162 Vt. 602] Plaintiffs maintain, however, that despite the apparent plain language of the statute, the comments to the Uniform Commercial Code (UCC), from which § 3-606 was adopted, indicate that the section was intended to codify a suretyship defense and therefore should not include comakers of a note. The comments provide:

The words 'any party to the instrument' remove an uncertainty arising under the original section. The suretyship defenses here provided are not limited to parties who are 'secondarily liable,' but are available to any party who is in the position of a surety, having a right of recourse either on the instrument or dehors it, including an accommodation maker or acceptor known to the holder to be so. (Emphasis added.)

Based on this language, plaintiffs argue that the Court should hold that comakers cannot be discharged under § 3-606.

Our primary objective in construing a statute is to give effect to the intent of the Legislature. Burlington Elec. Dep't v. Vermont Dep't of Taxes, 154 Vt. 332, 335, 576 A.2d 450, 452 (1990). Generally, we presume the Legislature intended the plain meaning of the words it used, but where doubt exists, we rely on other rules of statutory construction. State v. Papazoni, 159 Vt. 578, 580-81, 581 n. 1, 622 A.2d 501, 503, 503 n. 1 (1993). "When our statute is taken from a model act, it is often helpful to examine the intent behind the model act." Id. at 581, 622 A.2d at 503.

Section 3-606 is adopted from the UCC. See Uniform Commercial Code § 3-606, 2A U.L.A. 481 (1991). "To aid in uniform construction the [ ] [UCC] Comments set forth the purpose of various provisions of this Act to promote uniformity, to aid in viewing the Act as an integrated whole, and to safeguard against misconstruction." 9A V.S.A. Introduction to Uniform Laws Comments, at xxix. We regard the comments to the UCC as a strong indication of the Legislature's intent in adopting a particular UCC provision. In construing § 3-606, the vast majority of courts have relied on the accompanying UCC comment and ruled that the section is intended to provide a suretyship defense that is available only to a party in the position of a surety. Great Southwest Life Ins. Co. v. Frazier, 860 F.2d 896, 900 (9th Cir.1988); see also 1 J. White & R. Summers, Uniform Commercial Code § 13-15, at 666 (3d ed. 1988) (surety may claim discharge under § 3-606).

The history of this section also supports this construction. Vermont adopted the UCC in 1966 and simultaneously repealed the [162 Vt. 603] Uniform Negotiable Instruments Act. 1966, No. 29, §§ 1, 3. The predecessor to § 3-606 was § 120 of the Uniform Negotiable Instruments Act, which provided the circumstances under which a "person secondarily liable on the instrument is discharged." Uniform Negotiable Instruments Act § 120, 5 (Part 2) U.L.A. 545 (1943); 9 V.S.A. § 572 (1958). The comment to § 3-606 makes clear that the intention of using the words "any party" in the new provision was to ensure that the defense was available to all persons in the position of sureties, not only those secondarily liable as in the original provision. In view of the statutory history and the UCC comment, we join the majority of courts and hold that § 3-606 provides a defense to any party who is in the position of a surety.

Defendants rely on Bishop v. United Missouri Bank, 647 S.W.2d 625, 629 (Mo.Ct.App.1983), which held that the words "any party," as used in § 3-606, includes comakers. In reaching this holding, the Missouri court stated: "It is well-settled law that in ascertaining the meaning of the statute, we must look to the express language of the law irrespective of what may have been intended." Id. This is not the rule in Vermont. 2 See Papazoni, 159 Vt. at 580 n. 1, 622 A.2d at 503 n. 1. Further, only a small minority of courts have adopted the strict plain-meaning approach, discharging a comaker under § 3-606 without any showing that the comaker

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was a surety. See, e.g., Rushton v. U.M. & M. Credit Corp., 245 Ark. 703, 434 S.W.2d 81, 83 (1968) ("any party to the instrument" is broad enough to include all makers under § 3-606); Southwest Florida Prod. Credit Ass'n v. Schirow, 388 So.2d 338, 339 (Fla.Dist.Ct.App.1980) (clear and unambiguous language "any party" includes comaker). But see Lyons v. Citizens Commercial Bank, 443 So.2d 229, 232 (Fla.Dist.Ct.App.1983)...

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