Bissonnette v. Wylie

Bissonnette v. Wylie  (97-269); 168 Vt. 561; 711 A.2d 1161

[Opinion Filed 7-Apr-1998]
[Motion for Reargument Denied 6-May-1998]

                                 ENTRY ORDER

                       SUPREME COURT DOCKET NO. 97-269

                             FEBRUARY TERM, 1998


Donald J. and Claudette         }     APPEALED FROM:
Bissonnette                     }
                                }
     v.                         }     Franklin Superior Court
                                }
Nicholas J.H. Wylie and         }
Daniel E. Mendl                 }     DOCKET NO. S294-91Fc


       In the above-entitled cause, the Clerk will enter:

       This case is here for the third time.  See Bissonnette v. Wylie, 162
  Vt. 598, 654 A.2d 333 (1994) (Bissonnette I); Bissonnette v. Wylie, ___ Vt.
  ___, 693 A.2d 1050 (1997) (Bissonnette II).  The litigation is between
  plaintiffs, creditors, and two defendant sureties, from whom plaintiffs now
  seek payment on a promissory note because they are unable to collect from
  the principal debtor.  Before bringing this action, plaintiffs discharged
  their mortgage on the collateral securing the promissory note on which
  plaintiffs are attempting to collect.  Defendants have argued that the
  discharge of the mortgage, in return for a payment of $10,457.50 by the
  bank that held the first mortgage, unjustifiably impaired the value of the
  collateral to the detriment of the sureties who will be required to pay the
  difference between the amount owed on the promissory note and the amount
  plaintiffs received for the mortgage.  We affirm.

       We held in Bissonnette II that plaintiffs' discharge of the mortgage
  violated defendants rights under U.C.C. § 3-606 (1985), 9A V.S.A. § 3-606
  (Supp. 1995) (after the events in this litigation, the section was replaced
  by 9A V.S.A. § 3-605), because they did not obtain defendants' consent to
  the discharge.  We went on to describe defendants' remedy, if any:

     This holding alone, however, is not determinative of the action.
     As we held in Bissonnette I, defendants also have the burden to
     show the extent of any impairment in order to offset that amount
     against their liability. . . .  The proper measure of such offset is
     the extent to which the collateral was discharged for consideration
     below its actual value.  Although evidence was offered on this
     point, the trial court failed to make findings on the extent of
     impairment, if any.  We remand for such determination.

  Bissonnette II, ___ Vt. at ___, 693 A.2d  at 1056.

       The trial court decided the remand issue based on the evidence already
  before it.  That evidence showed that amounts owed on prior mortgages far
  exceeded the value of the property on which plaintiffs held the junior
  mortgage so that the collateral had no value.  It also included testimony
  of a loan officer for the bank that held the first mortgage to the effect
  that the bank would have paid plaintiffs more than $10,457.50 to discharge
  the mortgage although plaintiffs were unaware of the bank's position. 
  Based on this evidence, the superior court ruled that the collateral had no
  value and, although the bank might have paid plaintiffs more to discharge
  the mortgage, the evidence did not clearly show how much more money
  plaintiffs would have

 

  received.  Thus, the court concluded that defendants were not harmed by the
  sale and declined to modify its original judgment for plaintiffs.

       We agree with defendants that the fact that plaintiffs' interest in
  the collateral had no market value is not determinative, where plaintiffs 
  security interest had value to the bank that needed to clear it to protect
  its investment.  The purpose of the rule we are implementing is to protect
  the sureties, and we must look at the impairment of the collateral from
  their perspective. See In re Alcock, 50 F.3d 1456, 1460 (9th Cir. 1995). 
  Under our decisions in Bissonnette I & II, however, this holding helps
  defendants only if they discharged their burden to show the extent of
  impairment of the collateral.  The trial court held that they did not
  discharge their burden because it was not clear how much the bank would
  have ultimately paid to discharge plaintiffs' mortgage.

       In arguing for reversal, defendants first urge us to relieve them from
  the burden of proof imposed in Bissonnette I & II.  They ask that we adopt
  the rule that the surety is discharged if there has been some impairment of
  the collateral, but it is impossible to determine how much. See In re
  Alcock, 50 F.3d  at 1462; Langeveld v. L.R.Z.H Corp., 376 A.2d 931, 937
  (N.J. 1977) ("[T]here are factual situations . . . where a surety may be
  able to establish that he has sustained prejudice, but be unable to measure
  the extent of the prejudice in terms of monetary loss.  Where such a
  situation is presented the surety will normally be completely
  discharged."). For two reasons, we decline to apply the requested rule in
  this case.

       First, we do not believe it was impossible for defendants to prove the
  extent of impairment of the collateral.  Defendants put on one bank
  witness, a vice-president in charge of asset recovery, to show that the
  bank would have paid more to discharge plaintiffs' mortgage had plaintiffs
  refused the first offer.  Defendants did not follow up the issue with the
  bank officer who actually negotiated with plaintiffs or offer an
  independent witness to estimate the value to the bank of discharging
  plaintiffs' mortgage, in view of the time and cost of instituting
  foreclosure to accomplish the same purpose.

       By comparison, in Alcock the creditor impaired the collateral in a
  business by subordinating its security interest in real property to that of
  another creditor, while retaining the first-priority interest in the
  equipment.  When the debtor defaulted, the business could not be sold as a
  unit because of the different security arrangements.  The separate sale of
  the real property and the equipment produced less money than if they were
  sold together.  The court found that determining the extent of the
  collateral's impairment involved  pure conjecture"  and that the sureties
  suffered  "`clear prejudice without precisely calculable loss.'"  In re
  Alcock, 50 F.3d  at 1463 (quoting Langeveld, 376 A.2d at 937).  We do not
  believe that the facts of this case met that standard.

       Second, this argument comes too late.  Although Bissonnette I held
  that defendants bore the burden of proving the extent of the impairment of
  the collateral, they failed to argue in Bissonnette II that it was
  impossible to measure the extent of the impairment and that they should be
  relieved of liability once they showed that some impairment occurred. 
  Obviously, if we had accepted that argument, the remand that led to this
  appeal would have been unnecessary. See Coty v. Ramsey Assocs., Inc., 154
  Vt. 168, 171, 573 A.2d 694, 696 (1990) (on remand, trial court is limited
  to specific directions in the remand order as interpreted in light of the
  opinion).  Having failed to raise this argument when they first had the
  opportunity, defendants have waived it.

       The superior court could not reduce plaintiffs' recovery based on
  speculation on the

 

  extent to which plaintiffs could have obtained more money from the bank to
  discharge the mortgage.  See Rice's Adm'r v. Press, 117 Vt. 442, 450, 94 A.2d 397, 402 (1953).  It is the trial court's function to evaluate the
  evidence, and we will not set aside that court's findings if they are
  supported by the evidence.  See Gokey v. Bessette, 154 Vt. 560, 564, 580 A.2d 488, 491 (1990).  In this case, the trial court's conclusion is based
  on its inability to make a finding on collateral impairment.  We see no
  error.

       Affirmed.



                              BY THE COURT:



                              _______________________________________
                              Jeffrey L. Amestoy, Chief Justice

                              _______________________________________
                              John A. Dooley, Associate Justice

                              _______________________________________
                              James L. Morse, Associate Justice

                              _______________________________________
                              Denise R. Johnson, Associate Justice

                              _______________________________________
                              Marilyn S. Skoglund, Associate Justice