Bissonnette v. Wylie, 97-269

• Decision Date: 07 April 1998
• Docket Number: No. 97-269,97-269
• Citation: 711 A.2d 1161,168 Vt. 561
• Court: Vermont Supreme Court
• Parties: Donald J. and Claudette BISSONNETTE v. Nicholas J.H. WYLIE and Daniel E. Mendl.

Page 1161

711 A.2d 1161

Donald J. and Claudette BISSONNETTE v. Nicholas J.H. WYLIE and Daniel E. Mendl.

No. 97-269.

Supreme Court of Vermont.

April 7, 1998.

Motion for Reargument Denied

May 6, 1998.

Before AMESTOY, C.J., and DOOLEY, MORSE, JOHNSON and SKOGLUND, JJ.

ENTRY ORDER

This case is here for the third time. See Bissonnette v. Wylie, 162 Vt. 598, 654 A.2d 333 (1994) (Bissonnette I ); Bissonnette v. Wylie, 166 Vt. 364, 693 A.2d 1050 (1997) (Bissonnette II ). The litigation is between plaintiffs, creditors, and two defendant sureties, from whom plaintiffs now seek payment on a promissory note because they are unable to collect from the principal debtor. Before bringing this action, plaintiffs discharged their mortgage on the collateral securing the promissory note on which plaintiffs are attempting to collect. Defendants have argued that the discharge of the mortgage, in return for a payment of $10,457.50 by the bank that held the first mortgage, unjustifiably impaired the value of the collateral to the detriment of the sureties who will be required to pay the difference between the amount owed on the promissory note and the amount plaintiffs received for the mortgage. We affirm.

We held in Bissonnette II that plaintiffs' discharge of the mortgage violated defendants' rights under U.C.C. § 3-606 (1985), 9A V.S.A. § 3-606 (Supp.1995) (after the events in this litigation, the section was replaced by 9A V.S.A. § 3-605), because they did not obtain defendants' consent to the discharge. We went on to describe defendants' remedy, if any This holding alone, however, is not determinative of the action. As we held in Bissonnette I, defendants also have the burden to show the extent of any impairment in order to offset that amount against their liability.... The proper measure of such offset is the extent to which the collateral was discharged for consideration below its actual value. Although evidence was offered on this point, the trial court failed to make findings on the extent of impairment, if any. We remand for such determination.

Bissonnette II, 166 Vt. at 373, 693 A.2d at 1056.

The trial court decided the remand issue based on the evidence already before it. That evidence showed that amounts owed on prior mortgages far exceeded the value of the property on which plaintiffs held the junior mortgage so that the collateral had no value. It also included testimony of a loan officer for the bank that held the first mortgage to the effect that the bank would have paid plaintiffs more than $10,457.50 to discharge the mortgage although plaintiffs were unaware of the bank's position. Based on this evidence, the superior court ruled that the collateral had no value and, although the bank might have paid plaintiffs more to discharge the mortgage, the evidence did not clearly show how much more money plaintiffs would have received. Thus, the court concluded that defendants were not harmed by the sale and declined to modify its original judgment for plaintiffs.

We agree with defendants that the fact that plaintiffs' interest in the collateral had no market value is not determinative, where plaintiffs' security interest had value to the bank that needed to clear it to protect its investment. The purpose of the rule we are implementing is to protect the sureties, and we must look at the impairment of the collateral from their perspective. See In re Alcock, 50 F.3d 1456, 1460 (9th Cir.1995). Under our decisions in Bissonnette I & II, however, this holding helps defendants only if they discharged their burden to show the extent of impairment of the collateral. The trial court held that they did not discharge their burden because it was not clear how much the bank would have ultimately paid to discharge plaintiffs' mortgage.

In arguing for reversal, defendants first urge us to relieve them from the burden of proof imposed in Bissonnette I & II. They ask that we adopt the rule that the surety is discharged if there has been some impairment of the collateral, but it is impossible to determine how much. See In re Alcock, 50 F.3d at 1462; Langeveld v. L.R.Z.H. Corp., 74 N.J. 45, 376 A.2d 931, 937 (1977) ("[T]here are factual situations ... where a surety may be able to establish that he has sustained prejudice, but be unable to measure the extent of the prejudice in terms of monetary loss. Where such a situation is presented the surety will normally be completely discharged."). For two reasons, we decline to apply the requested rule in this case.

First, we do not believe it was...