Case Title: Bissonnette v. Wylie

Citation: 162 Vt. 598, 654 A.2d 333

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 1994-10-28T00:00:00Z

Document:
BISSONNETTE_V_WYLIE.92-406; 162 Vt. 598; 654 A.2d 333

[Filed:  3-Jun-1994]

[Motion for Reargument Denied 28-Oct-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. 92-406


Donald & Claudette Bissonnette               Supreme Court

                                             On Appeal from
     v.                                      Franklin Superior Court

Nicholas J.H. Wylie, Daniel E.               December Term, 1992
Mendl and Martin V. Lavin


Ronald F. Kilburn, J.

Donald E. O'Brien, Burlington, for plaintiffs-appellants

Leslie C. Pratt, South Burlington, for defendants-appellees


PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.



     Gibson, J.     Plaintiffs Donald and Claudette Bissonnette appealed
from a summary judgment, which discharged defendants Daniel Mendl and
Martin Lavin from their obligation on a promissory note on the ground that
plaintiffs had unjustifiably impaired the collateral.  They argued that the
court erred (1) in holding that the comakers of a promissory note could be
discharged from their obligation under 9A V.S.A. { 3-606 when the creditor
unjustifiably impairs the collateral, (2) in applying the standard of
reasonable care in 9A V.S.A. { 9-207 when the collateral was not in the
possession of the creditor, and (3) in granting summary judgment when there
were genuine issues of material fact concerning the extent of any
impairment of the collateral. 

 

     Addressing the first issue, we held that the { 3-606 defense is
available to a comaker if the comaker is in the position of a surety, and
that once plaintiffs had actual knowledge that defendant Wylie had assumed
the obligation under the $100,000 promissory note, defendants Mendl and
Lavin became sureties entitled to assert the { 3-606 suretyship defense. 
Bissonnette v. Wylie, No. 92-406, at 9 (June 3, 1994) (Bissonnette I).
Following this decision, plaintiffs filed a motion to reargue, requesting
that we address the other two issues raised by them. Defendants Daniel
Mendl and Martin Lavin concede that plaintiffs are entitled to a ruling on
these issues.  We address these two issues herein. 

     To set the context, we recapitulate some of the facts set forth in
Bissonnette I.  The record reveals only a sketchy overview of the relevant
facts.  In February 1986, plaintiffs and defendants Wylie, Mendl and Lavin
entered into a purchase and sales agreement in which defendants agreed to
purchase a parcel of land and the buildings thereon (parcel 1) from
plaintiffs for $210,000.  Defendants already owned the land adjacent
thereto (parcel 2).  The agreement provided that defendants would pay
plaintiffs $110,000 in cash, obtained from a bank and secured by a first
mortgage, and $100,000 in the form of a promissory note secured by a second
mortgage.  Although the agreement is not in the record, the parties concur
that plaintiffs agreed "to subordinate the second mortgage at Purchasers'
option for any purposes of improving, preserving and developing the
property." The parties completed the sale in June 1986.      

In November 1988, defendants executed a new mortgage deed to secure the
original promissory note to plaintiffs.  The new mortgage was subject to
three mortgage deeds to the Vermont National Bank in the combined amount of

 

$1,650,000, and covered both parcel 1 and parcel 2.  On May 3, 1989,
defendants Wylie, Mendl, and Lavin transferred their interest in both
parcels to defendant Wylie alone, who agreed to assume the mortgage to
plaintiffs and to indemnify the other two defendants if either were
obligated to pay any sums as a result of the mortgage or promissory note. 
Plaintiffs were notified of this transaction by letter on April 28, 1989. 

      Defendant Wylie subsequently requested that plaintiffs subordinate
their mortgage, pursuant to the original purchase and sales agreement, so
that he could obtain a loan to build an office building on parcel 2.  On
June 30, 1989, plaintiffs subordinated their mortgage, as requested, to a
new mortgage to the Bank of Vermont securing a $2,600,000 loan to defendant
Wylie.  Defendants Mendl and Lavin were not notified of this transaction. 
The parties dispute whether plaintiffs were required to subordinate their
mortgage under the terms of the original purchase and sales agreement. 

     Following default, plaintiffs filed suit against all three defendants
to enforce the original $100,000 promissory note. Defendants Mendl and
Lavin asserted that, pursuant to 9A V.S.A. { 3-606, they had been
discharged from any obligation under the note because plaintiffs had
unjustifiably impaired the collateral securing the note.  On cross motions
for summary judgment, the court concluded that plaintiffs had unjustifiably
impaired the collateral by (1) subordinating their mortgage to the
$2,600,000 Bank of Vermont mortgage, and (2) subsequent to filing this
suit, discharging their mortgage on the portion of property mortgaged to
the Bank of Vermont in exchange for approximately $11,000. The court,
therefore, granted defendants' motion for summary judgment.  Plaintiffs
appealed. 

 

     In Bissonnette I, we held that the { 3-606 defense was available to
defendants Mendl and Lavin although comakers because, once plaintiffs had
actual knowledge that defendant Wylie had assumed the obligation under the
$100,000 promissory note, defendants Mendl and Lavin became sureties and
were entitled to assert the { 3-606 suretyship defense.  Bissonnette, No.
92-406, at 9.  Plaintiffs' first argument herein is that the court erred in
construing the { 3-606 defense by applying the standard of reasonable care
in 9A V.S.A. { 9-207 where the collateral was not in the possession of the
creditor. 

     Section 3-606(1)(b) states:  "The holder discharges any party to the
instrument to the extent that without such party's consent the holder .  . 
. unjustifiably impairs any collateral for the instrument given by or on
behalf of the party or any person against whom he has a right of recourse."
 To obtain a discharge under { 3-606, defendants have a two-fold burden.
First, they must establish that the collateral was unjustifiably impaired,
and second, they must establish the extent of that impairment.  Bank South
v. Jones,