Bissonnette v. Wylie
| Decision Date | 28 March 1997 |
| Docket Number | No. 96-029,96-029 |
| Citation | 693 A.2d 1050,166 Vt. 364 |
| Parties | , 34 UCC Rep.Serv.2d 724 Donald and Claudette BISSONNETTE v. Nicholas J.H. WYLIE, Daniel E. Mendl and Martin V. Lavin. |
| Court | Vermont Supreme Court |
Donald E. O'Brien, Burlington, for plaintiffs-appellees.
Leslie C. Pratt, Montpelier, for defendants-appellants.
Before GIBSON, DOOLEY, MORSE and JOHNSON, JJ., and ALLEN, C.J. (Ret.), Specially Assigned.
This case is here for the second time. See Bissonnette v. Wylie, 162 Vt. 598, 654 A.2d 333 (1994) (Bissonnette I ). On remand from this Court, the Franklin Superior Court held that two of the defendants, sureties on a promissory note, could not claim discharge of their liability under 9A V.S.A. § 3-606, 1 which discharges a surety of its obligation if the creditor unjustifiably impairs the collateral. This decision was based on the conclusion that plaintiffs, who were creditors on the promissory note, had a legal obligation to subordinate their mortgage, and thus did not unjustifiably impair the collateral when they subordinated their mortgage three times. Defendants contend that the trial court erred in concluding that plaintiffs had a legal obligation to subordinate their mortgage and that plaintiffs did not unjustifiably impair the collateral when they discharged their mortgage, without defendants' consent, to the Bank of Vermont. We affirm the court's holding as to plaintiffs' obligation to subordinate their mortgage, but reverse as to the reasonableness of the discharge. We remand to determine the extent of impairment of the collateral, if any.
In Bissonnette I, we held that comakers of a promissory note may be discharged under 9A V.S.A. § 3-606 when the comaker is in the position of a surety, the creditor obtains actual knowledge of the suretyship, and the creditor unjustifiably impairs the collateral. 162 Vt. at 605-07, 654 A.2d at 338-39. We remanded the case to the trial court to determine whether plaintiffs had used reasonable care to prevent impairment to the collateral and the extent of any impairment. Id. at 611, 654 A.2d at 341.
On February 5, 1986, plaintiffs Claudette and Donald Bissonnette and defendants Nicholas Wylie, Daniel Mendl, and Martin Lavin entered into a sales agreement in which defendants agreed to purchase approximately two acres of land (parcel one) with a ranch house and two-story brick duplex from plaintiffs for $210,000. The property was adjacent to another parcel of land owned by defendants (parcel two). The agreement provided that defendants would pay plaintiffs $110,000 in cash, obtained from the Vermont National Bank and secured by a first mortgage, and $100,000 in the form of a promissory note to plaintiffs, secured by a second mortgage on the property. The sales agreement had an addendum that required plaintiffs to "subordinate the 2nd mortgage at Purchasers [sic] option for any purposes of improving, preserving and developing the property." The sale was completed in June 1986.
During the course of the next three years, plaintiffs subordinated their mortgage three times. In October 1986, defendants wanted to borrow $1,540,000 from Vermont National Bank to construct the Highpoint Office Building. Plaintiffs were asked and agreed to subordinate their mortgage. Defendants' attorney drafted a new mortgage deed for plaintiffs, which was subject to three mortgage deeds--the first mortgage of $110,000 and two others dated November 3, 1986--all in favor of Vermont National Bank, totalling $1,650,000 and covering both parcel one and parcel two. These mortgages also contained future advance clauses. All parties believed that plaintiffs were required by the purchase and sales agreement to subordinate to these new mortgages. There was no discussion as to whether the subordination clause would be part of the new mortgage deed. On October 21, 1987, defendants replaced one of the two existing construction loans created on November 3, 1986 with a new promissory note. The result of this transaction was an increase in the debt owed to Vermont National Bank by $380,000. The new note specified that the whole amount, including the additional $380,000, was secured by the preexisting mortgages.
In April 1989, defendants received preliminary approval for the second phase of development from the Colchester Planning Commission. Defendants were planning to build an additional office building, restaurant, bank, and parking spaces to serve the existing office building.
On May 3, 1989, defendants Mendl and Lavin (hereinafter surety defendants) transferred their interest in the properties to defendant Wylie, who agreed to assume the mortgage to plaintiffs and to indemnify surety defendants if either were obligated to pay any sums as a result of the mortgage or promissory note. Plaintiffs received actual notice of the transfer by letter, but were not asked to consent to the transfer or to Wylie's assumption of the debt. Surety defendants never informed plaintiffs that they would object to further subordination of their mortgage.
On this same day, plaintiffs subordinated a second time to a mortgage to Vermont National Bank, this time in the amount of $2,108,000. This added $458,000 of debt with a priority before plaintiffs' mortgage. 2 Of this amount, $380,000 was attributable to the debt added on October 21, 1987 and $78,000 was new money.
On June 30, 1989, plaintiffs further subordinated their mortgage to a $2,700,000 3 mortgage to the Bank of Vermont. A portion of this money was given to Vermont National Bank to reduce Wylie's debt. This enabled Vermont National Bank to reduce the coverage of its mortgage to include only two of three units in the Highpoint Building and a small area of land surrounding the building, which in turn allowed the Bank of Vermont to secure its mortgage with the balance of the Bissonnette property.
In the spring of 1991, both plaintiffs and Vermont National Bank learned that Wylie was having financial difficulties. Wylie had a debt of $1,623,159 due to Vermont National Bank, which brought a foreclosure action. Wylie also defaulted on plaintiffs' note and on the Bank of Vermont's notes. The amount due on all the notes far exceeded the value of the properties, and plaintiffs filed this suit to recover what was due on their note. Surety defendants claimed that plaintiffs unjustifiably impaired the collateral by subordinating their mortgage to those of the banks.
In August 1991, the Bank of Vermont's agent contacted plaintiffs' attorney by letter and informed plaintiffs that a conditional sales contract for the office building had been signed, but plaintiffs had to discharge their lien to allow the sale to go through. The bank explained that if plaintiffs did not discharge their lien, it would be forced to foreclose on its mortgage, leaving plaintiffs without any payment because of the inadequate equity in the properties. Plaintiffs accepted the bank's offer in order to mitigate their damages, and were paid $10,457.50 from the proceeds of the sale of the building.
Plaintiffs' action was originally decided in favor of surety defendants on summary judgment, but we reversed and remanded because "defendants did not meet their burden of establishing, as a matter of law, unjustifiable impairment, nor the extent of any impairment." Id. at 611, 654 A.2d at 341. On remand, the case was tried to court. By findings and conclusions issued on October 19, 1995, the superior court concluded that plaintiffs had a legal obligation to subordinate their mortgage, and thus surety defendants could not claim "discharge based on impairment of the collateral when it was they who legally obligated the Plaintiffs to [subordinate] and impair the collateral." Judgment was entered for plaintiffs in the amount of $133,111.95, and surety defendants appealed, raising three issues: (1) whether the loan proceeds were actually for the preservation, development, or improvement of the property, (2) whether plaintiffs had a legal obligation to subordinate their mortgage for the development of parcel two, and (3) whether plaintiffs used reasonable care when they discharged their mortgage, without surety defendants' consent, to the Bank of Vermont for $10,457.50.
On the first issue, surety defendants argue primarily that plaintiffs did not have a legal obligation to subordinate their mortgage to the additional $458,000 in debt to Vermont National Bank incurred on May 3, 1989, because the money from the bank loan was not used for the preservation, development, or improvement of the property as specified in the sales agreement. 4 Based on this premise, surety defendants contend that the collateral was impaired by plaintiffs' subordination, and thus they should be discharged from their obligations as sureties.
The evidence on the purpose and use of Wylie's additional debt to Vermont National Bank is sparse. As set out above, the face amount of the mortgage to Vermont National Bank was increased by $458,000 at the same time that surety defendants transferred their interest in the properties to Wylie. Plaintiffs subordinated their mortgage to the new, higher mortgage to Vermont National Bank. This new mortgage actually added only $78,000 to the debt with priority before plaintiffs' mortgage; the additional $380,000 was already secured by the original mortgage under the future advance clause. See 8 V.S.A. § 1207 ().
Surety defendants' complaints are vague and general. They complain that plaintiffs failed to investigate the use of the additional funds before agreeing to subordinate to the new mortgage. Surety defendants did not know what use was made of the additional $78,000 and were suspicious of it because Wylie once told one of the plaintiffs that he was out of money and did not know what he might build.
First, as to the $380,000 amount, we conclude that defendants do not have a valid complaint....
To continue reading
Request your trial
-
Sutton v. Vt. Reg'l Ctr.
...the parties of the meaning that they give and have given to the terms of their contract previously made.’ " Bissonnette v. Wylie, 166 Vt. 364, 371-72, 693 A.2d 1050, 1055 (1997) (quoting 3 A. Corbin, Corbin on Contracts § 558, at 249, 251-53 (1960)). Plaintiffs lean heavily on a case that p......
-
Bloomer v. Gibson
...a different or improper rationale." Sorge v. State, 171 Vt. 171, 174 n. *, 762 A.2d 816, 818 * (2000) (citing Bissonnette v. Wylie, 166 Vt. 364, 370, 693 A.2d 1050, 1055 (1997) ("We agree with the trial court's conclusion, but use a different rationale to reach it."), and Hudson v. Town of ......
-
Sutton v. Vt. Reg'l Ctr.
...by the parties of the meaning that they give and have given to the terms of their contract previously made." Bissonnette v. Wylie, 166 Vt. 364, 371-72, 693 A.2d 1050, 1055 (1997) (quoting 3 A. Corbin, Corbin on Contracts § 558, at 249, 251-53 (1960)). Plaintiffs lean heavily on a case that ......
-
Ferry v. City of Montpelier
...intertwined with the substance of their claims. See Daye, 171 Vt. at 478, 769 A.2d at 633; Hinesburg Sand & Gravel Co., 166 Vt. at 344, 693 A.2d at 1050. We do not take such approach here. In this case, we conclude first that plaintiffs have standing and second that their claims fail on the......