Union Bank v. Neylon, No. 186-6-09 Oscv (Morris, J., Aug. 17, 2010)
[The text of this Vermont trial court opinion is unofficial. It has been reformatted from the original. The accuracy of the text and the
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STATE OF VERMONT
SUPERIOR COURT
UNION BANK, ) ORLEANS UNIT
Plaintiff, )
) CIVIL DIVISION
vs. )
) DOCKET NO. 186-6-09 Oscv
J. DAVID NEYLON, JANET K. )
NEYLON, JAMES P. SEDORE, )
and SUSAN M. SEDORE )
Defendants. )
OPINION AND ORDER
This collections case is before the court on the parties’ cross-motions for partial summary
judgment. Defendant David Neylon has also filed a motion to dismiss his late wife Janet from
this suit pursuant to V.R.C.P. 25(a)(1). Plaintiff Union Bank is represented by Gail E. Westgate,
Esq., and the Defendants are represented by Craig Weatherly, Esq.
FACTS
Defendants David and Janet Neylon and James and Susan Sedore (Defendants) are
members of the Lakeview Inn Partners, LLC (Lakeview), a company with its principal place of
business in Greensboro, Vermont. On February 3, 2004, Lakeview executed and delivered to
Plaintiff a promissory note in the principal amount of $750,000 (Note 1). On the same day, each
Defendant executed and delivered to Plaintiff personal guaranties guaranteeing the repayment of
Note 1. On March 18, 2004, Lakeview executed and delivered to Plaintiff a second promissory
note in the principal amount of $15,645 (Note 2). On that day, each Defendant also executed and
delivered to Plaintiff personal guaranties guaranteeing the repayment of Note 2. Both of the
notes were also secured by a mortgage deed to land located in Greensboro.
Lakeview defaulted on both notes, and on February 13, 2006, Plaintiff brought a strict
foreclosure action against Lakeview and Defendants. This court entered a judgment of
foreclosure and found that the amount due under the notes was $792,302.27 plus interest as of
November 7, 2007. See Union Bank v. Lakeview Inn Partners, No. 32-2-06 Oscv (Vt. Super. Ct.
Mar. 20, 2008). The mortgaged property was not redeemed, and the land became Plaintiff’s
property by operation of law on September 17, 2008. At that point, Lakeview’s total debt to
Plaintiff was $856,147.72 ($792,302.27 at the time of judgment plus $63,845.45 accumulated
interest from the time of judgment until the redemption period expired).
After the foreclosure decree was entered, but before the redemption period expired,
Plaintiff expended an additional $9,122.16 on insurance for the property. Plaintiff also expended
an additional $13,043.50 in attorneys’ fees on the foreclosure action. This additional $22,165.66
was not reflected in the court’s March 20, 2008 foreclosure decree; however, Plaintiff claims
Defendants owe it this amount by virtue of the guarantees.
After the redemption period expired, Plaintiff incurred additional expenses in order to sell
the property. These expenses, including appraisal fees, insurance, taxes, utilities, brokerage fees,
marketing fees, and legal fees, totaled $53,667.62. Plaintiff claims Defendants also owe this
amount by virtue of the guarantees. Plaintiff then sold the property for $500,000, and the sale
closed on February 28, 2009. The parties dispute what the fair market value of the property was
on September 17, 2008.
Plaintiff seeks to recover from Defendants the amount owed on the notes, which
Defendants guaranteed, plus post-judgment expenses set-off by the fair market value of the
property on September 17, 2008. Defendants dispute that the guaranties require them to pay any
expenses Plaintiff incurred after the foreclosure decree was entered or any prejudgment interest.
Each Defendant’s guaranty contains the same relevant language. The guaranties purport to make
Defendants liable for each and every debt of Lakeview’s. Specifically, Defendants’
unconditional liability for the debts was unlimited, and included attorneys’ fees, collections
costs, and enforcement expenses related to the underlying debt. Under the guaranties,
Defendants purported to
waive[] any and all defenses, claims and discharges of [Lakeview] . . . . Without
limiting the generality of the foregoing, the [guarantors] will not assert, plead or
enforce against [Plaintiff] any defense of . . . res judicata . . . or unenforceability
which may be available to [Lakeview] . . . . The [guarantors] expressly agree[]
that [they] shall be and remain liable, to the fullest extent permitted by applicable
law, for any deficiency remaining after foreclosure of any mortgage or security
interest securing Indebtedness, whether or not the liability of [Lakeview] or any
other obligor for such deficiency is discharged pursuant to statute or judicial
decision. The [guarantors] shall remain obligated, to the fullest extent permitted
by law, to pay such amounts as though [Lakeview’s] obligations had not been
discharged.
(Pl.’s Exs. 4-7 ¶ 7.)
STANDARD OF REVIEW
The parties each move for partial summary judgment on this issue of liability. Summary
judgment is appropriate “if the pleadings, depositions, answers to interrogatories, and admissions
on file, together with the affidavits . . . referred to in the statements required by Rule 56(c)(2),
show that there is no genuine issue as to any material fact and that any party is entitled to
judgment as a matter of law.” V.R.C.P. 56(c)(3). The party moving for summary judgment “has
the burden of proof, and the opposing party must be given the benefit of all reasonable doubts
and inferences in determining whether a genuine issue of material fact exists.” Price v. Leland,
149 Vt. 518, 521 (1988). However, “[s]ummary judgment is mandated . . . where, after an
adequate time for discovery, a party ‘fails to make a showing sufficient to establish the existence
of an element’ essential to his case and on which he has the burden of proof at trial.” Poplaski v.
Lamphere, 152 Vt. 251, 254-55 (1989) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322
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(1986)).
The court derives the undisputed facts from the parties’ statements of fact under V.R.C.P.
56(c)(2). Facts in the moving party’s statement are deemed undisputed when supported by the
record and not controverted by facts in the nonmoving party’s statement which are also
supported by evidence in the record. See Boulton v. CLD Consulting Eng’rs, Inc., 2003 VT 72, ¶
29, 175 Vt. 413 (citing Richart v. Jackson, 171 Vt. 94, 97 (2000)).
DISCUSSION
As a preliminary matter, Defendant David Neylon moves to dismiss his late wife Janet
from this suit pursuant to V.R.C.P. 25(a)(1). Mr. Neylon filed a suggestion of death upon the
record on July 20, 2009.
If a party dies and the claim is not thereby extinguished, the court may order
substitution of the proper parties. The motion for substitution may be made by
any party . . . . Unless the motion for substitution is made not later than 90 days
after the death is suggested upon the record by service of a statement of the fact of
the death as provided herein for the service of the motion, the action shall be
dismissed as to the deceased party.
V.R.C.P. 25(a)(1). No party has filed a motion for substitution in this case, and more than 90
days have passed since the suggestion of death was filed. Therefore, Mr. Neylon’s motion to
dismiss is GRANTED, and Janet Neylon is dismissed from this action.
It bears repeating what the parties agree on and what they do not. This focuses the
court’s attention on those few legal issues that are the subject of the instant motions. It is
undisputed that the Defendants signed separate identical guaranties guaranteeing Lakeview’s
notes. It is undisputed that Lakeview defaulted on the notes, and its property was foreclosed
upon. It is undisputed that Defendants are liable under the guaranties to Plaintiff, at a minimum,
for Lakeview’s deficiency. The court’s strict foreclosure decree assessed Lakeview’s total debt
(principal plus interest plus costs) to Plaintiff at $856,147.72 as of September 17, 2008. Under
the guaranties, Defendants are liable, at a minimum, for the difference between $856,147.72 and
the fair market value of Lakeview’s property as of September 17, 2008. See Vt. Nat. Bank v.
Leninski, 166 Vt. 577, 578 (1996) (mem.) (“In strict foreclosure actions, the deficiency is the
difference between the fair market value of the premises and the debt. The value of the property
is to be determined as of the day the decree of foreclosure becomes absolute.” (citation omitted)).
The fair market value of the Greensboro property on September 17, 2008 is a genuine issue of
disputed material fact. In addition to the deficiency described above, Defendants are also liable
under the guaranties, at a minimum, for Plaintiff’s attorney’s fees in the instant action to collect
on the guaranties. These facts are undisputed.
Parties seek summary judgment on the following disputed legal obligations of the
Defendants under the guaranties: (1) Defendants’ liability for the $22,165.66 in expenses
Plaintiff incurred in the foreclosure action after the decree was entered but before the redemption
period expired; (2) Defendants’ liability for the $53,667.62 in expenses Plaintiff incurred in
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selling the foreclosed property after the redemption date; and (3) Defendants’ liability for the
interest on the deficiency after the redemption period expired, i.e., prejudgment interest. The
court will address each issue in turn.
A. Defendants’ liability for pre-foreclosure expenses
Plaintiff argues that Defendants are liable under the guaranties for Plaintiff’s additional
foreclosure expenses (insurance and attorney’s fees) it incurred after the foreclosure decree was
entered on March 20, 2008 but before the redemption date expired on September 17, 2008.
Undoubtedly these costs claimed by Plaintiff are the costs it incurred in its original foreclosure
suit to collect from the principal debtor, Lakeview. According to the guaranties, Defendants are
unconditional guarantors of payment, as opposed to conditional guarantors of collection. (Pl.’s
Exs. 4-7 ¶¶ B, 2.) “An unconditional guarantor of payment . . . is not liable for the expenses
incurred by the creditor in attempting to collect from the principal debtor, unless the parties agree
otherwise.” 38 Am. Jur. 2d Guaranty § 73 (1999). This rule is consistent with Vermont law.
See Woodstock Bank v. Downer, 27 Vt. 539, 544 (1855) (the costs of suit against the maker of a
note cannot be recovered from a person who absolutely guarantees its payment because such suit
is not necessary to charge the guarantor).
Ordinarily, Defendants would not be liable for such collections costs incurred in the
foreclosure suit. However, it appears that the Defendants expressly agreed to such liability.
“The liability of the [guarantors] shall be . . . UNLIMITED (if unlimited . . . the [guarantors]
shall be liable for all Indebtedness, without any limitation as to amount), plus accrued interest
thereon and all attorneys’ fees, collection costs and enforcement expenses referable thereto.”
(Pl.’s Exs. 4-7 ¶ 4 (emphasis added).) “When the guarantor expressly agrees to repay the
guarantee for the expenses of attempted collection from the primary debtor there seems to be no
reason for refusing to enforce such an agreement, and the courts have accordingly held
guarantors liable on such agreements.” W.E. Shipley, Guaranty of Payment at Maturity as
Covering Expense of Collection, 4 A.L.R.2d 138 § 3 (1949). Furthermore, under the notes,
Lakeview was liable for Plaintiff’s attorney’s fees for collection on the notes and Plaintiff’s costs
of insuring and protecting the mortgaged property. Therefore, Plaintiff is not restrained by the
absolute and unconditional form of the guaranty from collecting its enforcement expenses
associated with the foreclosure action from Defendants.
Plaintiff argues that Defendants are liable for its pre-foreclosure expenses under the broad
liability provision of the guaranties which makes Defendants liable for “any” of Lakeview’s
debts and deficiencies after foreclosure, regardless of whether Lakeview itself would continue to
be liable under the law. (Pl.’s Exs. 4-7 ¶ 7.)
Clearly, Lakeview is no longer liable for Plaintiff’s pre-foreclosure expenses because
they were not included in the foreclosure decree. Under the doctrine of res judicata, the amount
of indebtedness set forth in the foreclosure decree ($856,147.72) is the only amount Lakeview is
liable for. See LaFarr v. Scribner, 150 Vt. 159, 161 (1988) (a foreclosure decree bars litigation
on the amount of indebtedness due on the mortgage in another action by virtue of the doctrine of
res judicata). Plaintiff could have moved to amend the foreclosure decree before the redemption
period expired to include these additional costs, but it did not. See In re Tariff Filing, 172 Vt.
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14, 20 (stating that res judicata “does not require that the claims were actually litigated in the
prior proceeding; rather it applies to claims that were or should have been litigated in the prior
proceeding.”). Therefore, Plaintiff is barred from seeking these additional expenses from
Lakeview now.
Of course, Plaintiff is not seeking these additional expenses from Lakeview now; it is
seeking them from Defendants under the guaranties. However, Defendants argue that they are
also entitled to raise the defense of res judicata as to these pre-foreclosure expenses. As a
general rule, “a guarantor steps into the shoes of the original debtor and has all the same
obligations and defenses of the original debtor.” City of Lincoln v. Hershberger, 725 N.W.2d
787, 791 (Neb. 2007).
[U]nder the doctrine of res judicata a judgment may be conclusive against one
who is liable over to the judgment debtor in respect to the cause of action
adjudicated, or one derivatively responsible to the judgment creditor, at least
where there has been notice to the third party of the prior action and an
opportunity to defend afforded. The principle applies to indemnitors, sureties and
guarantors.
Scaglione v. St. Paul-Mercury Indem. Co., 145 A.2d 297, 306 (N.J. 1958). Defendants were
parties in Plaintiff’s prior foreclosure suit, and therefore the defense of res judicata is available to
them in this action.
Plaintiff counters that the Defendants explicitly waived the res judicata defense in their
guaranties. “[A] guarantor can waive its right to raise the legal defenses of the principal.”
O’Brien v. Ravenswood Apartments, Ltd., 862 N.E.2d 549, 555 (Ohio Ct. App. 2006); see also
HSH Nordbank Ag New York Branch v. Swerdlow, 672 F. Supp. 2d 409, 418 (S.D.N.Y. 2009)
(“a guarantor cannot assert defenses that it expressly waived in the guaranty agreement”).
Parties may agree to waive the defense of res judicata specifically. “Applying the doctrine of res
judicata enforces the rule against claim-splitting by barring further litigation of claims which
‘could have been litigated’ between the parties in an earlier proceeding. The rule against claim-
splitting is not absolute, however. A defendant may waive the rule by express or implied
consent.” Bill Greever Corp. v. Tazewell Nat. Bank, 504 S.E.2d 854, 857 (Va. 1998). As such,
Defendants may not assert that res judicata precludes Plaintiff from recovering its pre-
foreclosure expenses because Defendants expressly waived such a defense.
However, even if foreclosure expenses can be relitigated by the parties, Defendants are
only liable for those expenses allowed under the guaranties.
[A] guaranty is an undertaking or promise on the part of one person which is
collateral to a primary or principal obligation on the part of another and which
binds the obligor to performance in the event of nonperformance by such other,
the latter being bound to perform primarily.
Merrimack Sheet Metal, Inc. v. Liv-Mar, Inc., 147 Vt. 85, 88 (1986) (quotations and citation
omitted). “While ordinarily the liability of a guarantor will not exceed in scope that of his
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principal, the guarantee is a separate undertaking and may impose lesser or even greater
collateral responsibility on the guarantor.” Am. Trading Co., Inc. v. Fish, 364 N.E.2d 1309, 1312
(N.Y. 1977) (citations omitted). Under the guaranties in this case, Defendants are “absolutely
and unconditionally” liable for the payment of “each and every debt, liability and obligation of
every type and description which [Lakeview] may now or at any time hereafter owe to [Plaintiff]
(. . . hereinafter collectively referred to as the ‘Indebtedness’).” (Pl.’s Exs. 4-7 ¶ B.)
This language indicates that Defendants’ liability is co-extensive with Lakeview’s, and
because Lakeview’s liability is limited to the amount in the foreclosure judgment Defendants’ is
as well. However, a closer reading of the guaranties reveals that Defendants are liable for all of
Lakeview’s debt plus the costs of collecting that debt. (Pl.’s Exs. 4-7 ¶ 4.) Additionally,
Defendants
expressly agree[d] that [they] shall be and remain liable, to the fullest extent
permitted by applicable law, for any deficiency remaining after foreclosure of any
mortgage or security interest securing Indebtedness, whether or not the liability of
[Lakeview] . . . for such deficiency is discharged pursuant to statute or judicial
decision. The [guarantors] shall remain obligated, to the fullest extent permitted
by law, to pay such amounts as though [Lakeview’s] obligations had not been
discharged.
(Pl.’s Exs. 4-7 ¶ 7 (emphasis added).)
This provision indicates that Defendants’ liability to Plaintiff exceeds Lakeview’s.
Although Lakeview is liable to Plaintiff only for the judgment debt in the foreclosure decree, the
clause quoted above indicates that Defendants’ liability extends to additional costs associated
with the foreclosure suit, such as pre-foreclosure attorney’s fees and insurances costs, which
Lakeview is “discharged” from paying (because they were not included in the foreclosure
decree) but which Lakeview would have been obligated to pay if the claims were not barred by
res judicata. Therefore, Defendants are liable to Plaintiff under the guaranties for foreclosure
costs which should have been, but were not, included in the foreclosure decree, i.e., expenses
incurred after the decree was issued but before the redemption period expired. Summary
judgment is GRANTED in Plaintiff’s favor on this issue; however, the court reserves its right to
set reasonable foreclosure costs, and it is not bound by Plaintiff’s representations of what those
costs should be. See V.R.C.P. 80.1(f) (upon defendants’ objection, attorney’s fees shall be set by
the court after notice and hearing in foreclosure cases); see also Parker, Lamb & Ankuda, P.C. v.
Krupinsky, 146 Vt. 304, 307 (1985) (trial courts have wide discretion in determining reasonable
value of legal services).
B. Defendants’ liability for post-foreclosure sales costs
Plaintiff next seeks to collect from Defendants the costs Plaintiff incurred selling the
property after the redemption date. Plaintiff maintains that Defendants are liable for such costs
under the broad language of guaranties. Plaintiff asserts that the following provisions make
Defendants liable for Plaintiff’s post-foreclosure sales costs.
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The liability of the [guarantors] shall be . . . UNLIMITED (if unlimited
. . . the [guarantors] shall be liable for all Indebtedness, without any limitation as
to amount), plus accrued interest thereon and all attorneys’ fees, collection costs
and enforcement expenses referable thereto. . . .
The [guarantors] will pay or reimburse [Plaintiff] for all costs and
expenses (including reasonable attorneys’ fees and legal expenses) incurred by
[Plaintiff] in connection with the protection, defense or enforcement of this
guaranty in any litigation or bankruptcy or insolvency proceedings.
(Pl.’s Exs. 4-7 ¶¶ 4, 5 (emphasis added).) As indicated above, Lakeview is not liable for any
expenses other than those assessed in the strict foreclosure decree. Furthermore, Lakeview is not
liable for any post-foreclosure sales costs. See Leninski, 166 Vt. at 578. Defendants are liable
only for Lakeview’s debts and the “collection costs and enforcement expenses referable” to
collecting on that underlying debt. However, Plaintiff’s post-foreclosure sales costs are not
“collections costs” or “enforcement expenses” as contemplated under the guaranties.
Although paragraph 7 of the guaranty specifically allowed Plaintiff to recover “any” of
the underlying costs of the foreclosure suit, despite any claim of res judicata, the guaranties
contain no similar provision allowing Plaintiff to recover post-foreclosure costs. “If the terms of
the [guaranty] are plain and unambiguous, ‘they will be given effect and enforced in accordance
with their language.’” O’Brien Brothers’ P’ship, LLP v. Plociennik, 2007 VT 105, ¶ 9, 182 Vt.
409 (quoting KPC Corp. v. Book Press, Inc., 161 Vt. 145, 150 (1993)). “A contract term [in a
guaranty] is ambiguous if ‘reasonable people could differ as to its interpretation.’” Id. (quoting
Trs. of Net Realty Holding Trust v. AVCO Fin. Servs. of Barre, Inc., 144 Vt. 243, 248 (1984)).
Paragraph 5 is plain and unambiguous. It allows Plaintiff to recover its costs in
connection with the enforcement of the guaranty. So while this provision would allow Plaintiff
to recoup its reasonable attorneys’ fees and legal expenses for bringing the instant litigation,
Paragraph 5 does not allow for the recovery of similar expenses in bringing the foreclosure
litigation because that action was not in connection with the enforcement of the guaranty.
Therefore, Plaintiff cannot recover its post-foreclosure sales costs under paragraph 5 of the
guaranties.
Paragraph 4 is much broader, and its meaning is more open to interpretation. According
to paragraph 4, Defendants are liable for all of Lakeview’s debt, “plus accrued interest thereon
and all attorneys’ fees, collection costs and enforcement expenses referable thereto.” (Pl.’s Exs.
4-7 ¶ 4 (emphasis added).) Plaintiff interprets paragraph 4 of the guaranty as implicitly
encompassing the post-foreclosure sales costs. “These expenses were both ‘referable’ to
Lakeview’s debt and made ‘in connection with’ the enforcement of the Guarantees.” (Pl.’s
Mem. Opp’n Summ. J. filed 1/6/10 at 11.) However, “the obligation of the guarantor must be
strictly interpreted in favor of the guarantor.” O’Brien Brothers’, 2007 VT 105, ¶ 11. “Nothing
can be clearer, both upon principle and authority, than the doctrine that the liability of a surety is
not to be extended by implication beyond the terms of his contract.” Stern v. Sawyer, 78 Vt. 5,
11 (1905) (citation and quotation omitted), quoted in id. Plaintiff’s interpretation of paragraph 4
is unreasonably broad, and the link between Plaintiff’s post-foreclosure sales costs and
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Lakeview’s underlying debt is too tenuous to be covered by the general language contained in
paragraph 4 of the guaranty. Unlike the pre-foreclosure costs, which were directly attributable to
Plaintiff’s enforcement expenses in the foreclosure case and which were specifically referenced
in Lakeview’s notes, Plaintiff’s expenses in selling the property are not referenced in either the
notes or the guaranties. If the parties had intended for these costs to be covered by the
guaranties, then the guaranties should have explicitly provided for these costs.
We have addressed Plaintiff’s argument in an earlier order regarding the dissolution of an
ex parte attachment.
Despite the breadth of the dragnet provision in the guaranty, the bank has not
pointed to any law which creates any obligation by the borrower to pay the bank
its expenses for holding the property once the property belongs the bank, nor is
this court aware of any such law. This conclusion is buttressed by the law that the
measure of a lender’s remedy in a deficiency action upon strict foreclosure is
limited to the difference between sums due under the mortgage note and the fair
market value of the property at the time of non-redemption. See Leninski, 166 Vt.
at 578. While selling expenses and the expenses for preserving the property until
sale and confirmation would be available if the property was being sold by public
auction under a power of sale, see V.R.C.P. 80.1(j)(2), the fact is that there
appears to be no support for a claim by a mortgagee for ownership and disposition
expenses incurred after a strict foreclosure.
Union Bank v. Neylon, No. 186-6-09 Oscv, slip op. at 3-4 (Vt. Super. Ct. Nov. 10, 2009) (Bent,
J.). The law does not recognize Plaintiff’s post-foreclosure costs as ordinary collections
expenses within the strict meaning of the guaranties. Therefore, Plaintiff’s post-foreclosure
expenses are beyond the reach of the guaranties, and Defendants are not liable for them.
Summary judgment is GRANTED on this issue in favor of Defendants.
C. Defendants’ liability for prejudgment interest
Finally, Plaintiff seeks to recover prejudgment interest on the amount of Indebtedness
Defendants owe Plaintiff under the guaranties from September 17, 2008. “Prejudgment interest
may be awarded as damages for detention of money due for breach or default. This interest is
awarded as of right when the principal sum recovered is liquidated or capable of ready
ascertainment and may be awarded in the court’s discretion for other forms of damage.”
Newport Sand & Gravel Co. v. Miller Concrete Const., Inc., 159 Vt. 66, 71 (1992) (citing
Reporter’s Notes, 1981 Amendment, V.R.C.P. 54). “Interest ordinarily runs from the time of
maturity or demand for payment or the time of default, which may be the date when the action is
commenced.” Id. at 72. Prejudgment interest is available in deficiency proceedings after a
decree of strict foreclosure is entered. See F.D.I.C. v. Thompson, 741 A.2d 972, 973 (Conn.
App. Ct. 1999) (affirming award of interest from date of strict foreclosure judgment to date of
deficiency judgment).
Defendants argue that an award of prejudgment interest would be improper in this case
because the value of the property on September 17, 2008 is an issue of disputed fact and is
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therefore incapable of ready ascertainment. In support of this proposition, Defendants cite Winey
v. William E. Dailey, Inc., 161 Vt. 129 (1993). In Winey, a home purchaser sued her building
contractor for breach of the construction contract. The superior court declined to award
prejudgment interest for the period between the date of improper construction of the house and
the date of the judgment. See id. at 141. The superior court found that the amounts awarded for
repair of the construction to comply with the plans were determined as of the date of trial so that
an award of interest from the date of construction would result in double recovery. See id. The
Supreme Court affirmed and held that the trial court had not abused its discretion because “the
damages were not readily ascertainable and were the subject of conflicting expert testimony. . . .
Thus, we do not believe plaintiff was entitled to interest on most of her damages as a matter of
right.” Id.
Defendants argue that the damages in the instant case, i.e., Lakeview’s total deficiency,
are a disputed issue of fact which is likely to be resolved after experts testify at trial as to the
market value of the Greensboro property on September 17, 2008. Defendants essentially argue
that anytime damages are the subject of conflicting expert testimony then the damages are not
readily ascertainable, and therefore prejudgment interest is improper.
The Winey case is distinguishable from the case at bar. Although both are essentially
breach of contract cases, the instant case involves collection of a known debt and the valuation of
real property, whereas Winey involved breach of a construction contract under four separate legal
theories and the valuation of needed repairs. See id. at 132. Estate of Fleming v. Nicholson, 168
Vt. 495 (1998), involved an award of prejudgment interest in a case involving the valuation of
real property. In Nicholson, the court found a lawyer liable to a client for failing to perform a
proper title search. The client purchased the land in 1988 with an unknown defect in the title,
and the property was foreclosed upon seven years later after the defect had been discovered. See
id. at 500. “[T]he trial court calculated damages by taking the difference between the value of
the unencumbered property [in 1988] and the value of the encumbered property [in 1995]. . . .
The trial court then awarded prejudgment interest based on this calculation of damages.” Id.
The defendant in Nicholson, like the Defendants here, argued that the award of prejudgment
interest was improper because the damages were not readily ascertainable.
In affirming the superior court’s award of prejudgment interest, the Supreme Court
undermined Defendants’ argument that a dispute over the value of damages means prejudgment
interest is always unavailable.
The mere fact that plaintiff and defendant presented conflicting theories of
damages does not, as defendant argues, automatically lead to the conclusion that
the damages were not reasonably ascertainable. Plaintiffs and defendants in a tort
action will always have an incentive to characterize the correct measure of
damages in a way that is advantageous to them. Despite this fact, where the court
has the option to rely on an established method of calculation, the damages may
be said to be reasonably ascertainable. If we accepted defendant’s argument,
defendants would always be able to unilaterally defeat an award of prejudgment
interest simply by presenting a conflicting theory of damages.
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Id. at 502 n.3.
The defendants in Nicholson further argued “that it is unfair to award prejudgment
interest because defendant could not have been aware of the extent of damages in 1988, given
that damages were ultimately calculated based on a figure obtained from a 1995 transaction.” Id.
at 503. However, the Court held that “[t]he fact that damages were ultimately calculated on the
basis of a 1995 figure does not work an unfairness against defendant. The property always
possessed an implicit price; it simply could not be established through a market transaction until
it went up for sale in 1995.” Id.
We find the Nicholson Court’s reasoning to be dispositive of the instant dispute. We
reject Defendants’ argument that prejudgment interest is unavailable because the value of the
mortgaged property was, as yet, unknown on September 17, 2008. Even though the Greensboro
property was not sold that day, it “always possessed an implicit price; it simply could not be
established through a market transaction until it went up for sale in” 2009. Id. Because the
market value of the Greensboro property on September 17, 2008 is reasonably ascertainable
through an established method of calculation, e.g., appraisal or the subsequent sale price,
prejudgment interest is available in this case. Therefore, summary judgment is GRANTED in
favor of Plaintiff on this issue.
ORDER
For the reasons stated, Defendants’ motion to dismiss Janet Neylon is GRANTED.
Defendants’ motion for partial summary judgment is GRANTED IN PART and DENIED IN
PART. Plaintiff’s motion for partial summary judgment is DENIED IN PART and GRANTED
IN PART.
Dated at Newport, Vermont, this ____ day of August, 2010.
__________________________________
Walter M. Morris, Jr.
Presiding Judge
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