Lloyd's Credit Corp. v. Marlin Management Services, Inc.

• Citation: 158 Vt. 594,614 A.2d 812
• Decision Date: 02 July 1992
• Docket Number: No. 90-311,90-311
• Parties: LLOYD'S CREDIT CORPORATION v. MARLIN MANAGEMENT SERVICES, INC.
• Court: United States State Supreme Court of Vermont

Page 812

614 A.2d 812

158 Vt. 594

LLOYD'S CREDIT CORPORATION v. MARLIN MANAGEMENT SERVICES, INC.

No. 90-311.

Supreme Court of Vermont.

July 2, 1992.

Motion for Reargument Denied as

Untimely Nov. 18, 1992.

David Watts of Blodgett, Watts & Volk, Burlington, for plaintiff-appellant.

Patricia L. Rickard and Michael B. Rosenberg of Miller, Eggleston & Rosenberg, Ltd., Burlington, for defendant-appellee.

Before GIBSON, DOOLEY and JOHNSON, JJ., and PECK, J. (Ret.), Specially Assigned.

JOHNSON, Justice.

Plaintiff Lloyd's Credit Corporation appeals from a superior court order holding that a check, written by defendant Marlin Management Services, Inc., and endorsed to Lloyd's Credit by its wholly owned subsidiary, Hansman McAvoy Co., Inc., was not supported by consideration. We hold that there was consideration and reverse.

In September 1983, Air Vermont, Inc., purchased aircraft flight and liability insurance from Hansman McAvoy, an insurance agent and broker. Lloyd's Credit advanced Hansman McAvoy the money for Air Vermont's insurance premiums. Air Vermont executed a financing agreement promising to pay Hansman McAvoy the money advanced for the premiums, and Hansman McAvoy assigned the financing agreement to Lloyd's Credit. Under the agreement, Lloyd's Credit had the right to cancel the insurance policy at any time for default and, if cancelled, to receive all of the unearned premiums under the policy.

In January of 1984, Hansman McAvoy notified Air Vermont that the insurance coverage on the airline was going to be cancelled for nonpayment of the amount due under the financing agreement. Without flight insurance, Air Vermont would lose its federal license to fly commercially and would be forced to cease operations. Air Vermont's managers met to discuss the airline's financial difficulties. John F. Chapple, president of Marlin Management, a group considering investing in Air Vermont, was present at the meeting. Chapple provided Air Vermont with ten presigned blank checks, drawn on a Marlin account. Air Vermont was to use one check to pay the delinquent insurance payment and the other checks in case of other emergencies, so that the airline could continue operating while Marlin investigated the viability of investing in Air Vermont. On January 26, 1984, one of the presigned checks was issued to Hansman McAvoy to pay the delinquent insurance balance of $16,473. Hansman McAvoy endorsed the check to Lloyd's Credit, which deposited the check.

During the last weekend of January 1984, Chapple met with officers of Air Vermont to discuss further the airline's financial difficulties. At this meeting, a decision was made that Air Vermont should file for bankruptcy, which was done on Monday, January 30, 1984. The bankruptcy court issued a stay prohibiting cancellation of the insurance policy; the stay remained in effect until May 11, 1984.

On the morning of the bankruptcy filing, Chapple stopped payment on the $16,473 check. The check was returned unpaid to Lloyd's Credit. Lloyd's Credit brought this action against Marlin for payment of the check.

The trial court dismissed the case on the merits. It concluded that the check was not a negotiable instrument because it lacked words of negotiability, such as "pay to the order of" or "pay to bearer." 9A V.S.A. § 3-104(1). Consequently, Lloyd's Credit could not be a holder in due course of the check, 9A V.S.A. § 3-805, and took the check subject to a defense of failure of consideration. 9A V.S.A. § 3-306(c); Quazzo v. Quazzo, 136 Vt. 107, 112, 386 A.2d 638, 641 (1978). The court then held that Lloyd's Credit was not entitled to payment because Marlin received no consideration for the check.

Lloyd's Credit raises four issues on appeal: (1) whether Marlin received or Lloyd's Credit gave consideration for the check, (2) whether Marlin was estopped from raising the defense of failure of consideration, (3) whether there was sufficient evidence to support a finding that Air Vermont's insurance would have been cancelled prior to its bankruptcy if the check had not been issued, and (4) whether Lloyd's Credit was a holder in due course of the check and thus entitled to payment even without consideration. Because we reverse the court's finding of lack of consideration and hold that Lloyd's Credit is entitled to payment of the check from Marlin, we need not reach the other issues.

Marlin argues that there was no consideration for the check because Lloyd's Credit suffered no detriment and Marlin received no benefit in the transaction. It points to two key trial court findings that it contends support its position. First, the court stated that, on the evidence presented, it could not find

that had Lloyd's Credit Corporation not received the check in question on January 26, 1984 that it would have cancelled Air Vermont's insurance policy prior to the date that Air Vermont filed bankruptcy, which was on January 30, 1984.

It further found that

although John Chapple expected [Marlin] to receive some benefit from its infusion of money into Air Vermont, Inc., no evidence was presented and the Court cannot find what immediate benefits [Marlin] received. At the time, [Marlin] had taken no equity position in Air Vermont, Inc.

On the basis of these facts, the court concluded, without further explanation, that Marlin received no consideration in exchange for the check. Marlin asserts that we should apply a clearly erroneous standard to the court's findings and conclusions and affirm. That standard, however, does not apply to the court's conclusion that consideration did not exist.

Whether there is consideration for a contract is a question of law, not fact. See, e.g., Gulden v. Sloan, 311 N.W.2d 568, 572 (N.D.1981); Hargrave v. Canadian Valley Electric Coop., 792 P.2d 50, 56 (Okla.1990); Pierce v. Plogger, 223 Va. 116, 120, 286 S.E.2d 207, 210 (1982). Either a benefit to the promisor or a detriment to the promisee is sufficient consideration for a contract. Howard National Bank & Trust Co. v. Newman, 115 Vt. 61, 69, 50 A.2d 896, 901 (1947). Even assuming the trial court's findings are not clearly erroneous, the issue remains whether, as a matter of law, they support a conclusion that there was no consideration. We hold that the court's findings show consideration, manifested by both a detriment to Lloyd's Credit and a benefit to Marlin.

The first finding--that even if Lloyd's Credit had not received a check from Marlin on January 26, 1984, it would not have cancelled Air Vermont's insurance before January 30, 1984--is irrelevant to whether consideration existed. Consideration must be evaluated at the time the contract was made. See Farmer v. Farmer, 720 P.2d 174, 177 (Colo.Ct.App.1986); Bayshore Royal Co. v. Doran Jason Co., 480 So.2d 651, 653 (Fla.Dist.Ct.App.1985).

According to the court's findings, in January 1984, Lloyd's Credit had the right to cancel Air Vermont's insurance and receive all unearned premiums if the airline defaulted on its payments. Air Vermont was notified that the policy was going to be cancelled for nonpayment. On January 26, 1984, Marlin issued a check for $16,473 to Hansman McAvoy, which endorsed it to Lloyd's Credit. The contract came into existence at that time. By writing the check, Marlin promised to pay the money due for insurance in exchange for Lloyd's Credit's...