Title: Lloyds Credit Corp. v. Marlin Management

State: vermont

Issuer: Vermont Supreme Court

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, 109 State Street, Montpelier, Vermont 05609-0801 of any errors in
 order that corrections may be made before this opinion goes to press.

                                 No. 90-311


 Lloyd's Credit Corporation                   Supreme Court

                                              On Appeal from
      v.                                      Chittenden Superior Court

 Marlin Management Services, Inc.             December Term, 1991


 Silvio T. Valente, J.


 David Watts of Blodgett, Watts & Volk, Burlington, for plaintiff-appellant

 Patricia L. Rickard and Michael B. Rosenberg of Miller, Eggleston &
   Rosenberg, Ltd., Burlington, for defendant-appellee



 PRESENT:  Gibson, Dooley and Johnson, JJ., and Peck, J. (Ret.), Specially
           Assigned


      JOHNSON, J.   Plaintiff Lloyd's Credit Corporation appeals from a
 superior court order holding that a check, written by defendant Marlin
 Management Services, Inc., and endorsed to Lloyd's Credit by its wholly
 owned subsidiary, Hansman McAvoy Co, Inc., was not supported by
 consideration.  We hold that there was consideration and reverse.
      In September 1983, Air Vermont, Inc., purchased aircraft flight and
 liability insurance from Hansman McAvoy, an insurance agent and broker.
 Lloyd's Credit advanced Hansman McAvoy the money for Air Vermont's
 insurance premiums.  Air Vermont executed a financing agreement promising to
 pay Hansman McAvoy the money advanced for the premiums, and Hansman McAvoy
 assigned the financing agreement to Lloyd's Credit.  Under the agreement,
 Lloyd's Credit had the right to cancel the insurance policy at any time for
 default and, if cancelled, to receive all of the unearned premiums under the
 policy.
      In January of 1984, Hansman McAvoy notified Air Vermont that the
 insurance coverage on the airline was going to be cancelled for nonpayment
 of the amount due under the financing agreement.  Without flight insurance,
 Air Vermont would lose its federal license to fly commercially and would be
 forced to cease operations.  Air Vermont's managers met to discuss the
 airline's financial difficulties.  John F. Chapple, President of Marlin
 Management, a group considering investing in Air Vermont, was present at the
 meeting.  Chapple provided Air Vermont with ten pre-signed blank checks,
 drawn on a Marlin account.  Air Vermont was to use one check to pay the
 delinquent insurance payment and the other checks in case of other emer-
 gencies, so that the airline could continue operating while Marlin
 investigated the viability of investing in Air Vermont.  On January 26,
 1984, one of the pre-signed checks was issued to Hansman McAvoy to pay the
 delinquent insurance balance of $16,473.  Hansman McAvoy endorsed the check
 to Lloyd's Credit, which deposited the check.
      During the last weekend of January 1984, Chapple met with officers of
 Air Vermont to discuss further the airline's financial difficulties.  At
 this meeting, a decision was made that Air Vermont should file for bank-
 ruptcy, which was done on Monday, January 30, 1984.  The bankruptcy court
 issued a stay prohibiting cancellation of the insurance policy; the stay
 remained in effect until May 11, 1984.
      On the morning of the bankruptcy filing, Chapple stopped payment on the
 $16,473 check.  The check was returned unpaid to Lloyd's Credit.  Lloyd's
 Credit brought this action against Marlin for payment of the check.
      The trial court dismissed the case on the merits.  It concluded that
 the check was not a negotiable instrument because it lacked words of negoti-
 ability, such as "pay to the order of" or "pay to bearer."  9A V.S.A. { 3-
 104(1).  Consequently, Lloyd's Credit could not be a holder in due course of
 the check, 9A V.S.A. { 3-805, and took the check subject to a defense of
 failure of consideration.  9A V.S.A. { 3-306(c); Quazzo v. Quazzo, 136 Vt.
 107, 112,