Weale v. Lund, 93-384

• Citation: 162 Vt. 622,649 A.2d 247
• Decision Date: 06 September 1994
• Docket Number: No. 93-384,93-384
• Court: United States State Supreme Court of Vermont
• Parties: , 27 UCC Rep.Serv.2d 68 William W. WEALE, III v. David R. LUND, Isabel R. Lund and Nikao Concepts, Inc.

Page 247

649 A.2d 247

162 Vt. 622, 27 UCC Rep.Serv.2d 68

William W. WEALE, III v. David R. LUND, Isabel R. Lund and Nikao Concepts, Inc.

No. 93-384.

Supreme Court of Vermont.

Sept. 6, 1994.

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

ENTRY ORDER

In 1987, defendants David and Isabel Lund incorporated a construction company, defendant Nikao Concepts, Inc. The Lunds were the sole directors and shareholders until 1991 when they sold their stock. Nikao declared bankruptcy in January 1992.

On June 19, 1988, Nikao applied for credit with Connval, Inc., a hardware and building supplies business then owned by plaintiff William Weale. The document, entitled "Confidential Credit Application and Credit Agreement," was signed by the Lunds under the following language:

The undersigned hereby agree to pay all bills according to the terms of the sale. We further agree to pay interest charges, to the extent allowed by law, for past due accounts, and to pay if applicable, all costs of collection, including, but not limited to, attorney's fees.

Elsewhere in the agreement, a paragraph provided:

Please briefly state the intended use for the materials purchased from Connval, Inc. and the approximate amount of the monthly credit you need. I.E. "Building materials for my remodeling business--$2,000." or "Materials for our new addition--$2,000."

In response, the Lunds wrote they were "looking for a line of $2,000." The agreement authorized three named individuals to charge to the account.

From June 1988 to August 1989, Nikao's monthly purchases from Connval on the account ranged from $5,900 to $31,600 and averaged over $11,000. In connection with these transactions, Connval issued signed invoices and monthly statements to Nikao showing the status of the account. These invoices and statements set forth the terms of service charges as follows: "A maximum service charge of 2% per month will be added to all accounts over 30 days. Annual rate of 24%." The invoices also restated the terms of collection costs as set forth in the credit agreement.

Although individuals other than those named on the agreement were charging goods on the account in amounts above $2,000 a month, Nikao never complained to Connval. During this period, Nikao paid Connval on a regular basis for goods purchased and service charges, when applicable. In the summer of 1989, Nikao stopped making payments to Connval, and by February 14, 1990, Nikao owed Connval $37,132.77. This sum included service charges and interest computed according to the terms set forth in the invoices. At that time, the Lunds executed a promissory note in favor of Connval in exchange for a cancellation of the accounts receivable. The note specified the principal sum as $37,132.77 "or as much as may be finally determined to be due and owing under the Credit Application and Credit Agreement referred to herein."

Under the terms of the note, the Lunds agreed to pay interest on the unpaid balance of the note as specified in the agreement. Beginning March 14, 1990, interest payments only were to be made monthly to the holder with a final payment of all principal and unpaid interest due on February 14, 1993, or upon the sale of the property secured by the note. On February 23, Connval transferred and assigned this note to Weale, who notified the Lunds of the transfer. Weale received regular monthly payments from March 1990 to May 1991, after which no further payments were made.

Weale brought suit on the note. The superior court determined the amount due and owing under the terms of the Credit Application and Credit Agreement, which had been incorporated into the note, and awarded Weale the principal sum of $37,132.77; $19,066 in accrued interest at an annual rate of 24%; $779.73 in accrued late charges; and $9,196.14 in collection costs, for a total of $66,174.64. The Lunds appeal this award.

First, the Lunds claim they signed the credit agreement as guarantors, not principals, and are therefore only secondarily liable for the outstanding debt of Nikao. On the basis of this claimed guarantor status, the Lunds also assert that any modifications in the credit agreement with respect to a credit limit or authorized individuals are rendered unenforceable by the Statute of Frauds because they were not in writing. See 12 V.S.A. § 181(2) (a special promise to answer for the debt or default of another must be in writing to be enforceable); Chomicky v. Buttolph, 147 Vt. 128, 130, 513 A.2d 1174, 1175 (1986) (modifications made in a contract controlled by the Statute of Frauds are subjected to the same requirements of form as the original provisions). We will not disturb the trial court's finding that the Lunds were principals if it is...