Roy v. Mugford

• Decision Date: 08 April 1994
• Docket Number: No. 92-617,92-617
• Citation: 642 A.2d 688,161 Vt. 501
• Court: Vermont Supreme Court
• Parties: , 24 UCC Rep.Serv.2d 963 Denis A. ROY and Helen Roy v. Wayne and Waldo MUGFORD, M & W Polishing Co., and Peerless Granite Company, Inc.

Page 688

642 A.2d 688

161 Vt. 501, 24 UCC Rep.Serv.2d 963

Denis A. ROY and Helen Roy v. Wayne and Waldo MUGFORD, M & W Polishing Co., and Peerless Granite Company, Inc.

No. 92-617.

Supreme Court of Vermont.

April 8, 1994.

Oreste V. Valsangiacomo, Jr. and Judith A. Miles of Valsangiacomo, Detora & McQuesten, P.C., Barre, for plaintiffs-appellants.

Nancy J. Creswell and Bernard D. Lambek of Paterson & Walke, P.C., Montpelier, for defendants-appellees.

Before ALLEN, C.J., and GIBSON, DOOLEY, MORSE and JOHNSON, JJ.

DOOLEY, Justice.

Plaintiffs Denis and Helen Roy appeal from a decision of the Washington Superior Court denying them attorney's fees on their successful action to recover $20,000 due on a 1987 promissory note. Defendants are Wayne and Waldo Mugford; Peerless Granite Company, a business the Mugfords purchased from plaintiffs by stock sale; and M & W Polishing Company, another business owned by the Mugfords. Defendants cross-appeal the court's decision to allow recovery of the $20,000. We affirm the court's award of the $20,000 plus interest, but reverse and remand for determination and award of attorney's fees.

In the fall of 1986, plaintiffs, who were then in the process of divorcing, decided to sell Peerless Granite Company in order to take advantage of favorable capital gains tax treatment that was to be eliminated after 1986. Denis Roy contacted certain local companies about buying Peerless, and defendants Mugford, who had been contemplating expanding their granite polishing business, showed immediate interest. On December 6, the Mugfords took a tour of the Peerless operation. During this visit, Helen Roy gave them computer-generated balance sheets covering the period July 1984 through November 1986. Plaintiffs explained to the Mugfords that the Peerless accounts would change through the end of December, reflecting normal operating expenses.

To expedite the sale, the parties negotiated a straight stock purchase. The purchase and sale agreement was drafted by the Mugfords' attorney. The closing took place on the evening of December 31, 1986, with plaintiffs signing over all sixteen outstanding Peerless shares, twelve owned by Denis Roy and four by Helen Roy, in exchange for consideration of $670,000. The final price was negotiated down from the plaintiffs' asking price of $700,000. Prior to this closing, the Mugfords neither requested, nor were they provided, with any financial information other than that which they received in early December. They relied, however, on advice and analysis supplied by their accountant.

Although the sale was closed on the evening of December 31, defendants did not complete their permanent financing until a second closing on January 30, 1987. During the second closing, Peerless Granite Company, by Wayne Mugford, executed a $59,000 promissory note to plaintiffs, with final payment due July 1, 1987. Like the purchase and sale agreement, this note was also drafted by defendants' attorney. The final paragraph of this note provided: "In the event of the default of this note, the maker and any endorsers hereof hereby agree to pay all reasonable attorney's fees and the costs of collection necessarily incurred."

During the day of December 31, Helen Roy drew herself a $20,000 bonus check. When she drew the check, Helen Roy was not aware that the Mugfords had decided to purchase Peerless and that the closing would occur that evening. The bonus was taken pursuant to a temporary divorce stipulation signed by Helen and Denis Roy in September. Plaintiffs had agreed that Helen would take a bonus before year end, which would be treated as salary for her, and that the bonus would then be deposited into a college tuition account for their children. Helen Roy did not disclose the bonus at the closing.

The Mugfords discovered the bonus payment three months later when Helen Roy stopped working for Peerless and was replaced by a new bookkeeper. At that time, defendants asked plaintiffs to explain the payment. Not satisfied with plaintiffs' answer, defendants withheld $20,000 from their final payment on the $59,000 promissory note and placed it in an escrow account for a time, but later withdrew the funds. Plaintiffs subsequently filed suit to recover the $20,000 withheld from the final note payment.

On appeal, plaintiffs' sole argument is that the trial court abused its discretion in failing to award attorney's fees under the promissory note. We agree and reverse and remand for calculation and award of such fees. On cross-appeal, defendants make four arguments that actually reduce to two: (1) the taking of the bonus by check, cashed after the stock was transferred to the Mugfords, violated the purchase and sale agreement as a matter of law; and (2) the court failed to make essential findings to dispose fully of defendants' affirmative defenses and counterclaims. We are not persuaded by defendants' contentions, and, therefore, we affirm judgment for plaintiffs in the amount of $20,000 plus interest. We address defendants' arguments on the underlying judgment before turning to the matter of attorney's fees.

Defendants first argue that plaintiffs breached the stock purchase agreement, requiring reversal of the trial court's judgment as a matter of law. Specifically, defendants contend that when plaintiff Helen Roy wrote the $20,000 bonus check to herself on December 31, 1986, but did not deposit the check until January 6, 1987, she violated Paragraph 6 of the Stock Purchase and Sale Agreement, which states:

All loans and indebtedness owed to DENNIS A. ROY and HELEN ROY by the [Peerless] corporation will be cancelled on the corporate books as of December 31, 1986, the date of closing.

Citing 9A V.S.A. § 3-802(1) and the accompanying commentary, defendants contend that a check is nothing more than a loan or indebtedness until presented for payment, that is, simply a conditional payment which remains suspended until presented. According to the terms of Paragraph 6, defendants' argument runs, Peerless' indebtedness to Helen Roy in the form of that $20,000 check was cancelled as of the closing and, therefore, plaintiffs breached Paragraph 6 when they took payment on a cancelled obligation from Peerless after December 31.

The short answer to defendants' contention is that payment on a check relates back to the time the check is delivered to the payee. See Ivy v. American Road Ins. Co., 398 So.2d 165, 166 (La.Ct.App.) ("The law is well established that a check is a conditional payment and once the check has made its commercial cycle back to the drawee bank where it is finally accepted and paid, such payment relates back to the time the check was delivered to the payee...."), rev'd on other grounds, 409 So.2d 549 (La.1981); Regents of Univ. of New Mexico v. Lacey, 107 N.M. 742, 744, 764 P.2d 873, 875 (1988) (payment relates back to time of delivery of check; citing 6 R. Anderson, Anderson on The Uniform Commercial Code § 3-802:19 (3d ed. 1984) and collecting cases); see also General Motors Acceptance Corp. v. Abington Casualty Ins. Co., 413 Mass. 583, 602 N.E.2d 1085, 1087 (1992) (underlying debt discharged when check delivered to payee and drawn on account with sufficient funds at solvent bank). In this case, payment on the $20,000 bonus check related back to the December 31 delivery date, and therefore was not a loan or debt outstanding as of the closing. As a Louisiana court has observed, the purpose of allowing payment of a check to relate back to the date of delivery

is both logical and apparent. It is commonplace in today's highly commercialized society to discharge obligations by the use of checks. Many obligations require that payments be made timely or at certain times. Examples are installment notes, insurance premiums ... and many others. The rule ... protects the debtor from such claims as possible additional interest, penalties or breach of contract for untimely payment. The rule is designed to allow ... timely payment by check ... otherwise it would make the timeliness of payment depend upon the actions of the creditor. Thus a debtor who paid by check would not be assured that his payment was timely even though the check was delivered timely.

Ivy, 398 So.2d at 167.

For the defendants' argument to have any merit, we would have to find that there was no agreement that the check constituted payment. See Drew v. Chrysler Credit Corp., 596 F.Supp. 1371, 1376 (D.Mo.1984) ("Where there is no agreement that the check itself shall constitute payment, a 'satisfaction' does not occur until payment of the check has actually been received."). There is no evidence suggesting that Helen Roy did not intend that the check constitute payment of her 1986 bonus salary.

Even outside of the relation-back doctrine, defendants' argument would fail because it neglects other, more relevant sections of Article 3 of the Uniform Commercial Code. Under the Code, the check Helen Roy drew was a negotiable instrument. See 9A V.S.A. § 3-104 (defining negotiable instrument, including check). A check is "a draft drawn on a bank and payable on demand." Id. § 3-104(2)(b). In turn, instruments payable on demand "include those payable at sight or on presentation and those in which no time for payment is stated." Id. § 3-108. Presentment is simply the demand for payment. 1 J. White & R. Summers, Uniform Commercial Code § 13-11, at 649 (3d ed. 1988). Under the terms of § 3-503:

(2) A reasonable time for presentment is determined by the nature of the instrument.... In the case of an uncertified check which is drawn and payable within the United States and which is not a draft drawn by a bank the following are presumed to be reasonable periods within which to present for payment or to initiate bank collection:

(a) with respect to the liability of the drawer, thirty days after date or issue whichever is later....

Helen Roy was well within the thirty-day period for presentment of the Peerless check...