Randolph Nat. Bank v. Vail

• Decision Date: 05 June 1973
• Docket Number: No. 82-72,82-72
• Citation: 131 Vt. 390,308 A.2d 588
• Court: Vermont Supreme Court
• Parties: , 12 UCC Rep.Serv. 906 RANDOLPH NATIONAL BANK v. Carlton W. VAIL.

Page 588

308 A.2d 588

131 Vt. 390, 12 UCC Rep.Serv. 906

RANDOLPH NATIONAL BANK v. Carlton W. VAIL.

No. 82-72.

Supreme Court of Vermont.

June 5, 1973.

Motion for Reargument Denied Aug. 8, 1973.

Thomas P. Wright, Woodstock, for plaintiff.

Robert J. O'Donnell, Woodstock, for defendant.

Before SHANGRAW, C. J., and BARNEY, SMITH, KEYSER, and DALEY, JJ.

SHANGRAW, Chief Justice.

This action was commenced by Randolph National Bank against Carlton Vail to recover the balance due on a promissory note held by the bank. After hearing a motion for summary judgment brought by Randolph National Bank and reviewing the affidavits filed therewith, the trial court granted the motion and ordered judgment for the bank in the amount of $5,473.79, including interest and costs. Soon after, Carlton Vail appealed from that judgment order, thereby bringing this action to this Court for review.

The facts presented in the affidavits, about which there is no material issue, disclose that in October, 1968, Carlton Vail entered into an oral agreement with Gerry Smith and Bruce Stearns, doing business under the name of Smith and Stearns, pursuant to which Smith and Stearns was to construct of home for Mr. Vail and his family in Barnard, Vermont. Smith and Stearns last worked on the house in September, 1969; however, several times thereafter, Mr. Vail requested Smith and Stearns to correct certain deficiencies and errors made in the construction of the house and to make appropriate corrections in their bill.

On November 1, 1969, Gerry Smith of Smith and Stearns, went to the Randolph National Bank to inquire about procuring a loan from the bank to pay some of the building suppliers to whom Smith and Stearns owed money. During this meeting, Mr. Smith informed the bank about the debt owed to Smith and Stearns by Carlton Vail arising from the construction of the Vail residence. In view of this debt the bank agreed to make a loan to Smith and Stearns if they would have Mr. Vail sign a promissory note made payable to Smith and Stearns that could be endorsed to Randolph National Bank. At the time of the meeting there was no mention made to the bank of any conflict between Smith and Stearns and Mr. Vail, or of any dissatisfaction on the part of Mr. Vail with the work of Smith and Stearns.

Mr. Vail agreed to sign such a note and on November 14, 1969, did so at his residence in Barnard, having no contact with Randolph National Bank prior to that time. The promissory note was made payable to Smith and Stearns at the Randolph National Bank and was in the sum of $4,805.94. It was signed by Mr. Vail on the assumption that the work on the house would be completed and that the improperly constructed items would be corrected. On November 18, 1969, the promissory note was endorsed in blank by Gerry Smith and Bruce Stearns, doing business as Smith and Stearns, and then presented to the Randolph National Bank so the loan could be made. At no time prior to the receipt of the promissory note did Randolph National Bank have any knowledge tending to indicate there were any defenses or claims against the note. However, after the promissory note became due and the bank contacted Mr. Vail about his failure to make payment, it learned of Mr. Vail's dissatisfaction with the work of Smith and Stearns.

In this appeal Carlton Vail makes a two-pronged argument in which he contends the Randolph National Bank holds the promissory note subject to all the personal defenses that he had against Smith and Stearns. In so doing, Mr. Vail seeks to have this Court deny Randolph National Bank the rights of a holder in due course provided in 9A V.S.A. § 3-305 that were accorded to the bank by the trial court, and reverse the judgment entered below upon those rights.

Appellant's first argument looks to Chapter 63 of Title 9 which he contends applies to this transaction. This chapter was enacted by the legislature to protect the public against unfair methods of competition and unfair or deceptive acts or practices on the part of the business community. 9 V.S.A. § 2451. In this regard, the legislature sought in part to protect the public against the problems connected with the financing ofconsumer transactions and enacted 9 V.S.A. § 2455, which provides:

'The holder of a promissory note or instrument or other evidence of indebtedness of a consumer delivered in connection with a contract shall take or hold that note, instrument or evidence subject to all defenses of such consumer which would be available to the consumer in an action on a simple contract, and all rights available to him under this chapter.'

The effect of 9 V.S.A. § 2455 is to cut off the rights of a holder in due course of a promissory note found in 9A V.S.A. § 3-305, and to make a subsequent holder subject to all the defenses of a consumer. The protection afforded the consumer through 9 V.S.A. § 2455 is a result of legislative recognition of the substantial differential in bargaining power between the seller and financier on one side and the consumer on the other, and must be viewed as an attempt to equalize that differential by transferring the risk of loss from the note maker to the note holder. See Comment, Judicial and Statutory Limitations on the Rights of a 'Holder in Due Course' in Consumer Transactions, 11 Boston College Industrial and Commercial Law Review 90, 108-111 (1971).

Our inquiry into the argument raised by the appellant must commence with a determination of whether or not 9 V.S.A. § 2455 applies to the unusual facts presented in this case. There can be no doubt that at the time Mr. Vail entered into the agreement with Smith and Stearns he was a consumer contracting for goods and services as defined in 9 V.S.A. § 2454. However, what does remain for our inquiry is whether or not the promissory note was delivered in connection with a contract so as to come within the scope of the...