Title: Licursi v. Sweeney

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, 111 State Street, Montpelier, Vermont 05602 of any errors in order
that corrections may be made before this opinion goes to press.


                                No. 89-277


Jane Licursi                                 Supreme Court

                                             On Appeal from
     v.                                      Lamoille Superior Court

David J. Sweeney                             November Term, 1989


Linda Levitt, J.

Harold B. Stevens, Stowe, for plaintiff-appellee

Goodrich & Rice, Montpelier, for defendant-appellant


PRESENT:  Allen, C.J., Peck, Gibson, Dooley and Morse, JJ.


     DOOLEY, J.   Defendant, David J. Sweeney, purchased a restaurant in
Stowe from plaintiff, Jane Licursi, giving three mortgages, including a
third mortgage to plaintiff, to finance the purchase.  Plaintiff regained
title by foreclosing on her third mortgage and by buying out the second
mortgage.  She then brought this action on the unpaid note, which the
second mortgage secured, and obtained a judgment below.  Defendant appeals,
arguing in various ways that no action lies on this note.  We agree and
reverse.
     In 1983 plaintiff sold the Matterhorn Restaurant in Stowe to defendant
and R. Bruce Nourjian for $240,000.  The sale was financed in part by funds
obtained in return for three promissory notes:  a note to a corporate lender
in the amount of $85,000 and secured by a first mortgage; a note from
defendant to Nourjian in the amount of $60,000 and secured by a second
mortgage; and a note from defendant to plaintiff for $50,000 and secured by
a third mortgage.  Defendant paid the remainder to plaintiff in cash.
Defendant failed to pay on the note to plaintiff, and on October 31, 1984,
plaintiff began a foreclosure action on her third mortgage.  A judgment
order and decree of foreclosure was entered against defendant, Nourjian and
LiBas Corporation (holder of a security interest in the personalty), on
September 27, 1985.  A certificate of non-redemption was issued on October
3, 1985.  The decree of foreclosure granted plaintiff "immediate title to
and possession of" the restaurant.  Plaintiff entered into possession of the
restaurant on October 3, 1985.
     At the time of the foreclosure and the issuance of the certificate of
non-redemption, the value of the Matterhorn Restaurant was $240,000, a sum
in excess of the aggregate due on all three mortgages.  The amount of
principal due on the first mortgage on September 27, 1985 was $75,000; the
amount of principal due on the second mortgage on that date was $60,000.  No
payments were made on either the first or second mortgages after September
22, 1985, and they were in default as of October 22, 1985.  In return for
"value received," Nourjian assigned the second mortgage note and mortgage,
and quitclaimed his interest in the Matterhorn Restaurant, to plaintiff in
November, 1985.
     Thereafter plaintiff demanded payment from defendant on the promissory
note from him to Nourjian, which Nourjian had assigned to her.  Upon
defendant's failure to pay, plaintiff brought the present action.  Defendant
argued at trial that his obligation under the second-mortgage note had been
extinguished by merger, when a greater estate (the fee, obtained from
defendant by plaintiff via foreclosure) and a lesser estate (the second
mortgage) in the same property met in the same person, the plaintiff,
without an intermediate estate.  See  Wright v. Anderson, 62 S.D. 444, 253 N.W. 484 (1934); Annotation, Union of Title to Mortgage and Fee in the Same
Person as Affecting Right to Personal Judgment for Mortgage Debt, 95 A.L.R.
89 (1935).  The trial court, relying on Walker, Smith & Co. v. Baxter, 26
Vt. 710, 715 (1854), concluded that absent a showing of plaintiff's
intention to merge estates, no merger occurred.  Since merger was not in
plaintiff's interest, the court concluded that she did not have the intent
to allow a merger.  The court's conclusion resulted in a judgment for
plaintiff for $60,000, the amount of the note, plus interest due under the
note.  The present appeal followed.
     The trial court and the parties have generally analyzed the issue here
as one of merger of estates. (FN1) The question before us, however, is whether
the plaintiff can collect on the note signed by defendant.  Although the
question may be related to the doctrine of merger, it is a different
question.  See Burkhart, Freeing Mortgages of Merger, 40 Vand. L. Rev. 283,
369 (1987) ("merger is absolutely inapplicable to the debt aspect of the
mortgage transaction").  It must be resolved by the application of contract
principles.  See id.
     To examine this question, we need to examine the independent offices of
the mortgage security and the note.  If a mortgagee holds the note, he or
she may proceed on either to collect the debt owed.  See Shapiro v. Gore,
106 Vt. 337, 339, 174 A. 860, 860 (1934).  If, however, the debt is
satisfied through the mortgage, in whole or in part, the obligation
represented by the note is also satisfied unless a deficiency is owed.  See
Hewey v. Richards, 116 Vt. 547, 551,