Case Title: Roy v. Mugford

Citation: 161 Vt. 501, 642 A.2d 688

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 1994-04-08T00:00:00Z

Document:
ROY_V_MUGFORD.92-617; 161 Vt. 501; 642 A.2d 688

[Filed 08-Apr-1994]

 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. 92-617


 Denis A. Roy and Helen Roy                   Supreme Court

                                              On Appeal from
      v.                                      Washington Superior Court

 Wayne and Waldo Mugford,                     December Term, 1993
 M & W Polishing Co., and
 Peerless Granite Company, Inc.


 Stephen B. Martin, J.

 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



 PRESENT:  Allen, Gibson, Dooley, Morse and Johnson, JJ.


      DOOLEY, J.   Plaintiffs Denis and Helen Roy appeal from a decision of
 the Washington Superior Court denying them attorney's fees on their success-
 ful 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 pay-
 ment 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. 1981) ("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,