Case Title: O'Donnell v. Bank of Vermont

Citation: 166 Vt. 221, 692 A.2d 1212

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 1997-01-31T00:00:00Z

Document:
O'Donnell v. Bank of Vermont  (95-401); 166 Vt. 221; 692 A.2d 1212

[Filed 31-Jan-1997]

       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.

                                 No. 95-401

Terrence M. O'Donnell                             Supreme Court

                                                  On Appeal from
    v.                                            Windham Superior Court

Bank of Vermont                                   April Term, 1996

Robert Grussing III, J.

       Lisa Chalidze of Hull, Webber, Reis & Canney, Rutland, and Dustin F.
  Hecker and Andrea F. Nuciforo, Jr., of Posternak, Blankstein & Lund,
  Boston, Massachusetts, for plaintiff-appellant

       Arthur P. Anderson and Mary P. Kehoe of Saxer Andersol Wolinsky &
  Sunshine, P.C., Burlington, for defendant-appellee

PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.

       JOHNSON, J.   Plaintiff appeals from a summary judgment decision of
  the Windham Superior Court.  He represents a group of investors who claim
  that defendant Bank of Vermont (Bank) improperly seized four certificates
  of deposit (CDs) that the investors claim to own.  The Bank responds that
  the seizure was proper because the CDs actually belonged to a debtor of the
  bank that had defaulted on a prior loan.  The trial court found that the
  investors did not own the CDs and granted summary judgment in favor of the
  Bank.  Without addressing the question of ownership, we hold that
  principles of banking law entitled the Bank to set off the funds.(FN1)

       This dispute has a complicated factual history.  It involves a real
  estate joint venture between the group of investors and Timber Creek
  Construction Company (TCC), a real estate developer, that was apparently
  formed in 1987, although the agreement was not reduced to writing and
  signed until January 1989.  Under the agreement, the investors provided
  about $1.3

 

  million dollars for the development of two tracts of land, one in Vermont
  and one in New Hampshire.  The agreement named plaintiff as the escrow
  agent for the investors, and made him responsible for collecting the
  financial contributions of the investors and disbursing the funds to TCC. 
  But according to the agreement plaintiff was "under no obligation or duty
  to inquire as to the nature of any disbursement by [TCC]."  Moreover, once
  TCC received funds from the investors, there were "no restrictions on
  [TCC's] use or disbursement" of the money.

       Despite the language giving TCC unfettered discretion in its use of
  the invested funds, the agreement also required TCC to establish, as
  security for the investment, a $500,000 CD with the Bank of Vermont.  The
  funds would become the property of TCC after TCC fulfilled its contractual
  obligations.  The agreement assigned plaintiff responsibility for setting
  up the CD, and stated that the account "shall require the signature of a
  [TCC] representative, [plaintiff] and a neutral third party before
  disbursement" to TCC.

       Four separate CDs were established at the Bank between January and
  September of 1988 (before the joint venture agreement was actually signed),
  totalling slightly more than $500,000. Three of these CDs were designated
  as single-owner accounts in the name of TCC, and required for withdrawal
  the signatures of plaintiff, David Paul, the president of TCC, and a third
  party. A fourth CD was initially established in the name of these three
  signatories, but the name on the account was later changed to TCC.  The
  account applications did not identify plaintiff as an escrow agent or
  explain that the three-signature requirement was for the protection of
  investors; indeed, on one of the applications, plaintiff signed as a
  representative of TCC.  The funds for these CDs came from the investors but
  plaintiff sent the checks to the Bank to deposit in the accounts.  The
  letters accompanying these checks did not mention plaintiff's status as an
  escrow agent or refer to the investors or the joint venture agreement in
  any way.  None of the correspondence gave any indication that plaintiff
  represented anyone other than TCC.

       Meanwhile, David Paul's repeated representations to the Bank, which
  were made because TCC borrowed large sums from the Bank, indicated
  unambiguously that the CDs belonged to TCC.  A letter sent by Paul to the
  Bank in June 1988 states that TCC would soon "have on

 

  deposit with the Bank of Vermont in Certificates of Deposit, $500,000. . .
  . [to] secure approximately half the loan [from the Bank to TCC]."  In
  September, TCC's attorney sent the Bank a copy of a resolution adopted by
  TCC's Board of Directors; the resolution authorized the $500,000 deposit
  with the Bank to be held as collateral for TCC's debt to the Bank.  Paul
  also delivered the passbooks for the CDs to the Bank.(FN2)  Finally, in
  October of 1988, Paul executed an "Assignment of Deposit," purportedly
  assigning the CDs to the Bank for its use in the event TCC defaulted on the
  loan.  The document stated that TCC owned the deposits and had the right to
  assign them to the Bank.

       TCC was consistently in default on its monthly loan payments and there
  was no reduction of the principal after October 3, 1988.  Moreover, only
  four property units (valued by the Bank at approximately $160,000 each)
  were available to secure a debt of over $900,000.  In March 1989, Paul and
  the Bank agreed that the CDs would be used to reduce the loan principal. 
  The Bank withdrew the money in the CDs, using withdrawal slips signed by a
  Bank officer and Paul, and applied the proceeds to TCC's debt.  Plaintiff
  did not discover that the Bank had set off the CDs against TCC's loan until
  September 1989.

       The parties filed cross-motions for summary judgment.  The trial court
  held, as a matter of law, that TCC owned the CDs, and that the Bank
  therefore had the right to set off the CDs against TCC's indebtedness. 
  This appeal followed.

       This Court reviews a motion for summary judgment using the same
  standard as the trial court.  Hodgdon v. Mt. Mansfield Co., 160 Vt. 150,
  158,