Howard Bank v. Lotus-Duvet Co.

 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. 91-022



 The Howard Bank                              Supreme Court

                                              On Appeal from
      v.                                      Caledonia Superior Court


 The Lotus-Duvet Company, Inc.,               March Term, 1992
 James Garland, Leighton Hazlehurst
 and Patricia Hazlehurst


 Alan W. Cheever, J.

 Robert A. Gensburg of Gensburg Axelrod & Adler, St. Johnsbury, for
   plaintiff-appellee

 Spencer R. Knapp and Noah Paley of Dinse, Erdmann & Clapp, Burlington, for
   defendant-appellant


 PRESENT:  Gibson, Dooley, Morse and Johnson, JJ.



      GIBSON, J.   Defendant James Garland appeals a superior court judgment
 of $49,987 in favor of plaintiff, The Howard Bank.  The judgment represents
 the balance due on two loans the bank made to defendant's company, Lotus-
 Duvet Co., Inc., before he purchased it in 1985.  Defendant argues he was
 not liable for the debt and that the bank should not have been allowed to
 proceed against him under the rights of the company's former owners.  We
 affirm.
      The dispute arose as follows.  In 1983 and 1984, the bank made two
 loans totalling $200,000 to Lotus-Duvet.  The loans were guaranteed by the
 company's owners, Leighton and Patricia Hazlehurst, who also delivered to
 the bank a mortgage on their home as partial security.  In November 1985,
 the Hazlehursts sold their stock in the company to defendant for $1.  The
 sale was made under an agreement that left the Hazlehursts' mortgage and
 guarantees in place, subject to defendant's promise to take the steps
 necessary to have them discharged by January 15 and March 1, 1986,
 respectively.  In a separate agreement signed the same day, the bank
 consented to the sale, and agreed to release the Hazlehursts from their
 obligations if defendant made payments of $50,00 and $20,000 by the
 specified dates.  Defendant paid $20,000 on January 15, and the bank
 mistakenly discharged the mortgage.  It also assured the Hazlehursts that
 they had no reason to be concerned about their guarantees.  Defendant,
 however, failed to complete the required payments, and the loans went into
 default.
      In October 1986, the bank sued the Hazlehursts, Lotus-Duvet, and
 defendant.  It sought the balance due on the notes, approximately $162,000,
 from the company and the Hazlehursts, and $50,000 from defendant for his
 breach of the sales agreement.  The Hazlehursts filed a counterclaim seeking
 substantial damages.  They alleged that the bank's misrepresentations had
 caused them to forego taking action against defendant and the company to
 protect their interests.  They also filed a cross-claim against defendant,
 alleging that his failure to make the payments required under the sales
 agreement entitled them to recover from him any amount found due from them
 to the bank.  Defendant and the company failed to respond to the bank's
 suit, leading to default judgments against them of $50,000 and the balance
 due, respectively, of which the bank recovered $62,000 by selling the
 company's assets.  Defendant answered the cross-claim, denying liability to
 the Hazlehursts.
      As trial approached, the bank and the Hazlehursts settled their
 differences: the Hazlehursts acknowledged indebtedness of $49,987 (the
 balance on the notes remaining after the judgment against defendant and the
 sale of Lotus-Duvet's assets), dropped their counterclaim, and assigned to
 the bank their claim against defendant.  In return, the bank released the
 Hazlehursts from any liability in connection with the loans and agreed to
 pay their legal fees.  The bank then proceeded to trial against defendant on
 the Hazlehurst's cross-claim, and won the judgment from which he now
 appeals.  The court found defendant had become liable for the debts of
 Lotus-Duvet under the sales agreement and that the Hazlehursts' assignment
 to the bank of their claim against defendant was valid.
                                     I.
      Defendant first argues that he never became liable for repayment of
 the notes, and that the Hazlehursts thus had no claim to assign to the bank.
 He cites the 1985 sales agreement, which reads in part:
 2. Consideration.

 * * * *

           b. Garland and the Company will take all action
         required by the Bank to discharge the Mortgage on or
         before, but in no event later than, January 15, 1986;
         and

           c. Garland and the Company will make reasonable
         efforts to have the Hazlehursts removed from the
         Guarantees on or before January 15, 1986, and [] Garland
         and the Company will take all action required by the
         Bank, including but specifically not limited to a
         personal guarantee of Garland, if necessary, to have the
         Hazlehursts removed from the Guarantees on or before but
         in no event later than March 1, 1986.

         * * * *

         7. Covenants of Garland and the Company.  . . . Garland
         and the Company jointly and severally covenant and
         agree:

           a. To take all necessary and requisite actions to
         perform the obligations of Garland and the Company to
         Leighton Hazlehurst and the Hazlehursts under Sections
         [2.b and 2.c] above.

 Defendant argues that the agreement obligated him to take the steps
 necessary to relieve the Hazlehursts of liability, but did not make him
 liable for the debt itself.  He points to other sections of the agreement
 where he e xpressly promised to indemnify and hold the Hazlehursts harmless
 from liability for the company's taxes, trade debts, and contract
 obligations.  Under the rule of construction that the inclusion of certain
 language in one part of a document indicates that it was intentionally
 omitted from a related part, Mt. Mansfield Television, Inc. v. Farrell, 126
 Vt. 103, 105, 223 A.2d 477, 479 (1966), defendant concludes that he never
 promised to indemnify the Hazlehursts if they were to be found liable for
 the company's debt.
      The bank counters that defendant's position ignores the cardinal rule
 of construction, that a document should be interpreted to further the
 intentions of the parties.  See id. ("application of the rule depends upon
 the intention of the parties as it may be discovered from the full text of
 the contract and the nature of the transaction involved").  The conclusion
 that defendant is not liable for the debt guaranteed by the Hazlehursts, the
 bank argues, can rest only on the absurd assumption that the Hazlehursts
 intended to have no remedy if defendant did not meet his obligations under
 the sales agreement.
      We agree with the bank.  In light of the nature of the transaction, in
 which the Hazlehursts sold their company to defendant for $1 and certain
 promises, the disputed language can only be read to reflect the parties'
 intention that defendant would relieve the Hazlehursts of any liability to
 the bank by the spring of 1986.  In order to give effect to that intention,
 defendant must bear the consequences of his failure to do what he promised.
 Once the Hazlehursts became liable to the bank on the notes, defendant
 became liable to the Hazlehursts for the same amount.
                                     II.
      Defendant next argues that any liability he may have had dissolved when
 the bank dropped its claim against the Hazlehursts.  Because the bank's
 claim against him for the balance on the notes arose from the Hazlehursts'
 liability, he claims that as soon as the Hazlehursts escaped liability, he
 did too.  As the court noted, had the bank simply forgiven the debt, it
 would not have been able to pursue defendant on a derivative claim.  The
 bank did not release the Hazlehursts without charge, however.  Rather, it
 exchanged its right to sue them on a liquidated debt for their counterclaim
 and their right to sue defendant for the same debt.
      Defendant cites Vermont law that a surety cannot claim against a
 principal unless the surety has paid the principal's debt.  Bullard v.
 Brown, 74 Vt. 120, 124, 52 A. 422, 423 (1902) (lawyer, his client's surety,
 "had no right" to recover costs he had not paid); cf. Hulett v. Soullard, 26
 Vt. 295, 298 (1854) ("If [the surety pays the principal's debt], in any
 mode, it is, so far as the principal is concerned, equivalent to the payment
 of money for his benefit . . . .").  In the present case, the Hazlehursts
 assigned their claim against defendant to the bank instead of first paying
 the bank and then suing defendant.  Under the circumstances, where
 defendant's ultimate liability for breaching the sales agreement is in
 little doubt, we hold that the assignment and the forbearance of the
 Hazlehursts from pursuing their counterclaim against the bank were
 sufficient payment of a debt owed by defendant to allow the bank to proceed
 against him in the Hazlehursts' shoes.
      Affirmed.

                                              FOR THE COURT:



                                              ______________________________
                                              Associate Justice