Case Title: VT Industrial Development Auth. v. Setze

Citation: 

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 1991-03-01T00:00:00Z

Document:
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, 111 State Street, Montpelier, Vermont 05602 of any errors in order
that corrections may be made before this opinion goes to press.


                                 No. 89-28


Vermont Industrial Development Authority     Supreme Court

     v.                                      On Appeal from
                                             Washington Superior Court

Paul C. Setze, Patricia J. Setze,
Gordon D. Oxx, Jr., and Carol P. Oxx         March Term, 1991



James Morse, J.

Nancy J. Creswell and Emily B. Tartter of Paterson & Walke, P.C.,
  Montpelier, for plaintiff-appellee

Robert A. Gensburg of Gensburg Axelrod & Adler, St. Johnsbury, for
  defendants-appellants Setze

Michael J. Hertz of Hertz and Wesley, Brattleboro, for defendants-
  appellants Oxx


PRESENT:  Allen, C.J., Gibson, Dooley and Johnson, JJ., and Peck, J. (Ret.),
          Specially Assigned


     JOHNSON, J.    Defendants Paul and Patricia Setze appeal from a ruling
on a motion for summary judgment, holding them liable to the plaintiff,
Vermont Industrial Development Authority (VIDA), for the plaintiff's losses
on a contract insuring a commercial loan.  Defendants Gordon Oxx and Carol
Oxx settled with VIDA prior to argument and are no longer parties to this
appeal.  We affirm the trial court judgment with respect to the remaining
parties.
     The underlying facts are not in dispute.  In 1984, defendants created
Precision Technologies, Inc., (PTI) for the purpose of manufacturing and
selling ultra-precision surgical tools.  The venture was financed in part by
a loan from First Vermont Bank and Trust Company (Bank), which was secured
by an interest in PTI's machinery and equipment.  As an inducement to the
Bank to finance PTI's venture, VIDA agreed to insure the loan.  The
insurance agreement provided that, in the event of default by PTI, the Bank
would pursue its remedies under the security agreement, after first
obtaining written consent from VIDA, and apply any proceeds to the principal
outstanding on the loan.  VIDA would then indemnify the Bank for seventy-one
percent of the remaining principal.  Defendants, in a separate document,
entered into a Guaranty and Indemnity Agreement with VIDA, personally
agreeing to indemnify VIDA for any sums it paid to the Bank under the
insurance agreement, plus any expenses of collection, and to waive all
defenses.
     PTI defaulted on the loan, and the Bank took control of the collateral
and sold it.  The collateral was valued at $543,590.  Initially, the Bank
notified interested parties that it would sell the collateral as a package
on a bid basis, setting the minimum bid at $550,000.  It sold the equipment
for $325,000 to a single bidder, VIDA's approval.  The sum was applied to
the principal due on the loan, and VIDA paid the Bank seventy-one percent of
the remaining principal.  VIDA then sued defendants on their guaranty,
seeking reimbursement for the sum paid to the Bank.
     On VIDA's motion for summary judgment the trial court held that the
Guaranty and Indemnity Agreement was an enforceable contract and that
defendants set forth no legally valid defenses to liability.  This appeal
followed.
     Defendants contend that the trial court erred in rejecting their
defenses, which were grounded on Article 9 of the Uniform Commercial Code.
They rely on two theories in an attempt to circumvent liability.  They argue
that in the overall financing scheme, VIDA was the real secured party and
that they are, therefore, the guarantors of a secured loan entitled to
certain protection under Article 9 of the Code.  Under Article 9, a secured
party must notify a guarantor of a secured loan of a sale of the collateral,
and the right to notice cannot be waived.  United States v. Lang,