Vermont National Bank v. Clark

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. 90-235


Vermont National Bank                        Supreme Court

                                             On Appeal from
     v.                                      Windsor Superior Court

Michael J. Clark and                         December Term, 1990
Brenda D. Clark


         Silvio T. Valente, J.

Kristensen, Cummings, Murtha & Stewart, P.C., Brattleboro, for plaintiff-
  appellee

Jerome I. Meyers, White River Junction, for defendants-appellants


PRESENT:  Allen, C.J., Gibson, Dooley and Morse, JJ.


     ALLEN, C.J.   Defendants appeal from an order granting summary judgment
to plaintiff bank in a foreclosure suit and denying defendants' motion for
permission to appeal pursuant to 12 V.S.A. { 4601.  We reverse and remand.
     The essence of defendants' argument is that the bank wrongfully induced
them to buy the business, failure of which triggered the foreclosure.
Defendants had filed a tort claim of their own on these grounds prior to the
foreclosure action and thereafter included the same grounds as affirmative
defenses in their answer to the foreclosure complaint.  Plaintiff moved for
summary judgment, and the trial court granted the motion, rejecting these
defenses as insufficient in a foreclosure suit and concluding that the only
issues to be considered were "the validity of the mortgage, the amount of
indebtedness due on the mortgage, and the right of the mortgagee to seek
satisfaction of the indebtedness from the mortgaged property," citing LaFarr
v. Scribner, 150 Vt. 159, 161, 549 A.2d 651, 653 (1988).  The court said
that defendants' claims had to be asserted in a separate action.  As
required by { 4601, and within the time prescribed by V.R.C.P. 80.1(m),
defendants moved for permission to appeal.  The motion was denied and
defendants appeal on the ground that this denial was an abuse of
discretion.
                                    I.
     Plaintiff argues that this Court lacks jurisdiction to hear the present
appeal under { 4601, which states: "When a judgment is for the foreclosure
of a mortgage, permission of the court shall be required for review."
Plaintiff contends that absent express permission of the trial court, this
Court does not have jurisdiction over the appeal, citing Denlinger v.
Mudgett, 151 Vt. 208, 210-11, 559 A.2d 661, 663 (1989).  Denlinger did not
consider or decide the question of whether a trial court's denial of per-
mission to appeal is reviewable in this Court.  In that case defendants did
not seek or obtain permission to appeal under { 4601, and that procedural
failure was fatal to their right to appeal.  We held the same in Webster v.
LaDuke, 126 Vt. 27, 27, 220 A.2d 474, 474 (1966) and Cattle Investors
Management Corp. v. Poutre, 148 Vt. 508, 509, 535 A.2d 787, 788 (1987).
     Our longstanding rule on discretionary rulings by the trial court is
that they will not be disturbed unless an abuse of discretion is clearly
shown.  Abuse of discretion requires a showing that the trial court has
withheld its discretion entirely or that it was exercised for clearly
untenable reasons or to a clearly untenable extent.  Lent v. Huntoon, 143
Vt. 539, 552, 470 A.2d 1162, 1171 (1983).  Plaintiff does not suggest why
these principles should not apply to a trial court's ruling under { 4601.
This Court has previously done so.  In Factory Point National Bank v.
Equinox Co., 110 Vt. 277, 279, 5 A.2d 462, 462 (1939), we reviewed an order
granting an appeal but making it conditional upon a bond that the fore-
closure defendants argued was unreasonably large.  Defendants failed to
meet the bond condition but nevertheless appealed.  We concluded that the
court had not abused its discretion in setting the amount of the bond and
dismissed the appeal, as defendants had not complied with the terms of the
court's permission to appeal.  See also Vermont-People's National Bank v.
Robertson, 102 Vt. 379, 380, 148 A. 408, 408 (1930) (per curiam) (appeal
dismissed because bond condition imposed upon appeal was not complied with).
But see Ludlow Savings Bank & Trust Co. v. Knight, 91 Vt. 172, 173, 99 A. 633, 633 (1917) (appeal dismissed where chancellor had denied motion to
appeal but where defendant had not filed an answer or an affidavit of
defense).
     The important point for the present matter is that in Factory Point
National Bank we reviewed the trial court's exercise of discretion in
granting an appeal from the foreclosure decree, as we may do in the present
matter.  Nothing in { 4601 suggests that we lack the power to review the
trial court's order denying an appeal.  Nor does our consideration of this
denial render the operation of { 4601 meaningless.  It is the grant of
discretion to the court contained in { 4601 that enables the court to impose
reasonable conditions upon its allowance of an appeal.  Factory Point
National Bank, 110 Vt. at 279, 5 A.2d  at 462; Vermont-People's National
Bank, 102 Vt. at 380, 148 A.  at 408.  Further, it is axiomatic that our
review of a trial court's discretionary decisions is deferential.  Together
with V.R.C.P. 80.1(m), which requires a motion for permission to appeal to
be filed within ten days of the date of entry of the foreclosure judgment, {
4601 may be said to promote finality of judgments of foreclosure.  See
Reporter's Notes, V.R.C.P. 80.1 (1985 amendment).
     In sum, we hold that we may review the denial of a motion for per-
mission to appeal under 12 V.S.A. { 4601 for an abuse of discretion in the
issuance of that denial.
                                    II.
     Undertaking this review, we conclude that the trial court misread
LaFarr as precluding affirmative defenses to a foreclosure action based on a
mortgagee's conduct prior to the creation of the mortgage.  In LaFarr we
distinguished the theory of a foreclosure action from that of a suit for a
deficiency judgment.  LaFarr, 150 Vt. at 160-61, 549 A.2d  at 652-53.  Our
holding did not preclude affirmative defenses of the kind here at issue,
which, if successfully asserted, would indeed go to "the right of the
mortgagee to seek satisfaction of the indebtedness from the mortgaged
property."  Id. at 161, 549 A.2d  at 653.  The fact that defendants have
filed an independent action based on the theories set forth in their
affirmative defenses does not preclude use of those defenses in the
subsequent foreclosure action.  As the court said in Joan Ryno, Inc. v.
First National Bank of South Jersey, 208 N.J. Super. 562, 570, 506 A.2d 762,
766 (1986):
         We think it clear that any conduct of a mortgagee known
         to the mortgagor prior to the institution of a fore-
         closure that could be the basis of an independent
         action for damages by reason of the mortgagee having
         brought the foreclosure could be raised as an equitable
         defense in the foreclosure.

See Merchants Bank v. Lambert, 151 Vt. 204, 206-07, 559 A.2d 665, 666-67
(1989) (allowing equitable defense of laches to be raised in mortgage
foreclosure action); see also Wittman v. Chrysler Corp., 199 Cal. App. 3d Supp. 586, 590-91, 245 Cal. Rptr. 20, 22 (1988) ("defense of fraud may be
asserted in a judicial foreclosure proceeding and, if . . . successfully
proved, provides a proper ground for the trial court to rescind the trust
deed and refuse to apply it to a debt"); Snyder v. Potter, 134 A.D.2d 664,
665, 521 N.Y.S.2d 175, 176 (1987) ("Material misrepresentations by a seller
as to the boundaries of a parcel of land or the quantity of property which
are reasonably relied upon by the purchaser . . . may be asserted as a
defense or counterclaim to an action to foreclose a purchase-money
mortgage.").
     We are not, of course, simply reviewing the merits of a grant of
summary judgment.  We are reviewing the trial court's denial of permission
to appeal under an abuse of discretion standard.  An abuse of discretion
"will be found only when the trial court has entirely withheld its dis-
cretion or where the exercise of its discretion was for clearly untenable
reasons or to an extent that is clearly untenable."  Lent, 143 Vt. at 552,
470 A.2d  at 1171.  The trial court's ruling was based on the mistaken
understanding of law outlined above, the effect of which was prejudicial to
defendants.  This prejudicial mistake left the ruling founded upon "clearly
untenable reasons."  See 11 C. Wright & A. Miller, Federal Practice and
Procedure { 2818, at 119 (1973) (abuse of discretion in trial court's denial
of new trial motion may exist where error of law present).  Accordingly,
denial of permission to appeal from the ruling was an abuse of
discretion.
     The trial court's denial of defendants' motion for permission to appeal
is vacated.  In addition, the trial court's grant of plaintiff's motion for
summary judgment is reversed, and the cause is remanded for reconsideration
in light of the law announced in this opinion.
     Reversed and remanded.
                                        FOR THE COURT:




                                        Chief Justice