Mooney v. GR and Associates, No. 860067-CA

• Court: Court of Appeals of Utah
• Writing for the Court: GARFF
• Citation: 746 P.2d 1174
• Parties: 5 UCC Rep.Serv.2d 1419 Jerome H. MOONEY, Plaintiff and Respondent, v. GR AND ASSOCIATES, a Utah corporation, Grant H. Roylance, an individual, Consolidated Mining and Milling, a Utah corporation, C & H Investments, a Utah partnership, Courtney Wrathall, an individual, and Charles I. Hagan, an individual, Defendants and Appellants.
• Decision Date: 10 December 1987
• Docket Number: No. 860067-CA

Page 1174

746 P.2d 1174 5 UCC Rep.Serv.2d 1419 Jerome H. MOONEY, Plaintiff and Respondent,
v.
GR AND ASSOCIATES, a Utah corporation, Grant H. Roylance, an
individual, Consolidated Mining and Milling, a Utah
corporation, C & H Investments, a Utah partnership, Courtney
Wrathall, an individual, and Charles I. Hagan, an
individual, Defendants and Appellants. No. 860067-CA. Court of Appeals of Utah. Dec. 10, 1987.

Brad L. Swaner, Salt Lake City, for defendants and appellants.

Stephen R. Smith, Jr., Mooney & Smith, Salt Lake City, for plaintiff and respondent.

Douglas P. Simpson, Salt Lake City, for GR & Associates, Roylance and Consolidated.

Before DAVIDSON, GARFF and ORME, JJ.

OPINION

GARFF, Judge:

Defendant/appellant Charles I. Hagan appeals from a summary judgment in favor of plaintiff/respondent Jerome H. Mooney, in which Hagan was found liable for a $457,819.95 judgment on a note; 15% interest on the judgment from July 27, 1984; costs of $201.50; and attorney fees of $11,400.00. We affirm.

Page 1175

In October 1976, Mooney sold real estate located in Salt Lake County to defendant C & H Investments (C & H), a partnership, by means of a uniform real estate contract. Hagan was president and defendant Courtney Wrathall was vice-president of C & H. Hagan executed a personal guaranty on the contract.

During August 1978, Mooney, C & H, Hagan and Wrathall agreed to convey the real property to defendant GR and Associates (GR). On August 17, 1978, Mooney, in exchange for his interest in the property, received a promissory note for $295,756.42. This note was executed by Hagan and Wrathall as partners in C & H and by defendant Grant H. Roylance as president of GR and of Consolidated Mining Corporation (Consolidated) and in his individual capacity. The note was to be secured by milling equipment owned by Consolidated.

To enable Roylance and his corporate entities to buy out C & H's interest in the real property, Roylance, on behalf of GR and Consolidated, simultaneously executed a promissory note for $468,709.00 to C & H and its partners, Hagan and Wrathall. Any payments which GR or Consolidated made on Mooney's note were to be credited as payments on C & H's note.

This transaction released Hagan from his personal guaranty on the October 15, 1976 real estate contract.

Guardian Title Company (Guardian) acted as the escrow agent for the August 17, 1978 transaction. Guardian, as an escrow agent, was acting on behalf of both parties and was not just Mooney's agent. ¹ All parties understood that Guardian was to immediately file the security interest in Consolidated's mining equipment. The parties stipulated that they intended the security interest to be in first place on the full $500,000.00 market value of the unencumbered equipment, and so instructed Guardian. Guardian, however, did not file the security interest until August 22, 1978, five days after the transaction closed.

On August 21, 1978, GR entered into a security agreement with Penguin Investments (Penguin), a non-party to this action, using the same milling equipment as collateral for a $1,500,000.00 debt. Penguin perfected its security interest in the equipment on August 21, 1978, the day before Guardian filed the parties' security interest.

Mooney received payments on the August 17, 1978 note for the months of September and October 1978. Around November 17, 1978, however, Mooney discovered that his security interest in the milling equipment was subordinate to that of Penguin, deemed his security impaired, and proceeded under the default provisions of the August 17, 1978 note to declare the entire principal sum due and payable. Mooney received one more payment on the note after the suit was initiated, receiving, in total, $12,000.00 on the note.

After this action was instituted, the parties discovered that Sandy State Bank had a prior perfected security interest in the milling equipment for $40,727.60, which had been filed on July 10, 1978.

The parties stipulated that C & H, Wrathall and Hagan reasonably relied upon the existence of a perfected, first-place security interest in executing the promissory note, that they never consented to Guardian's failure to properly perfect their security interest, and that they were acting under a mistake of fact in that they believed that the promissory note would be secured by the milling equipment and that the equipment would have a value equal to or greater than the amount of the note.

Mooney immediately attached Consolidated's assets, but took nothing because the security was insufficient to satisfy the prior security interests. Penguin eventually sold the secured property for $330,000.00 on April 9, 1980.

Page 1176

The parties agreed to enter judgment against Roylance, GR and Consolidated for $310,642.00 on March 30, 1979. Wrathall and Hagan stipulated to this entry of judgment against the other defendants on April 2, 1979.

Both parties filed cross motions for summary judgment, Mooney claiming to be entitled to judgment based on the terms of the August 17 note, and defendants seeking to dismiss the complaint. The trial court awarded Mooney judgment on the note in the sum of $456,819.95 plus fifteen percent interest, costs of $201.50, and attorney fees of $11,400.00.

Hagan raises two issues on appeal: (1) Was he an accommodation party to the promissory note, and, therefore, able to claim discharge under Utah Code Ann. § 70A-3-606 (1986) in that Mooney unjustifiably impaired the collateral for the note? (2) Was he entitled to avoid the promissory note on grounds that there was a mutual mistake of material fact?

I.

Utah Code Ann. § 70A-3-606 (1986), under which Hagan claims discharge, provides in pertinent part that:

(1) The holder discharges any party to the instrument to the extent that without such party's consent the holder

* * *

(b) 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.

The Utah Supreme Court, in interpreting this section, stated that:

[a] division of authority exists concerning the scope of the reference to "any party" in subsection 3-606(1) (footnote omitted). We believe that the defense of discharge found in that provision is properly characterized as a "suretyship defense" (footnote...