Will v. Mill Condominium Owners' Assoc.

Will v. Mill Condominium Owners' Assn. (2003-075); 176 Vt. 380; 848 A.2d 336

2004 VT 22

[Filed 12-Mar-2004]


       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.


                                 2004 VT 22

                                No. 2003-075


  Anne M. Will	                                 Supreme Court

                                                 On Appeal from
       v.	                                 Windsor Superior Court


  Mill Condominium Owners' Association, 	 September Term, 2003	
  Martin Nitka, Esq., Allen and Linda 
  Seiple, Janice Graham and Cecilla McMillen 

  Alan W. Cook, J.

  Stephen S. Ankuda of Parker & Ankuda, P.C., Springfield, for
    Plaintiff-Appellant.  

  Jennifer G. Mihalich of Lynn & Associates, P.C., Burlington, for
    Defendants-Appellees Mill Condominium Owners' Association, Graham and
    McMillen.

  Robert Reis and Matthew D. Anderson of Webber, Reis, Holler & Urso, LLP,
    Rutland for Defendant-Appellee Nitka.

  T. Darrah Moore of Birmingham & Moore, P.C., Ludlow, for
    Defendants-Appellees Seiple.


  PRESENT:  Amestoy, C.J., Dooley, Johnson and Skoglund, JJ., and Allen, C.J.
            (Ret.), Specially Assigned


        
       ¶  1.  AMESTOY, C.J.   Plaintiff Anne M. Will appeals from the trial
  court's order confirming the nonjudicial foreclosure sale of her
  condominium for failure to pay dues, and the summary judgment dismissal of
  her amended complaint for declaratory relief against defendants Mill
  Condominium Owners' Association, Martin Nitka, Esq., Allen and Linda
  Seiple, Janice Graham and Cecilla McMillen.  Appellant argues that: (1) the
  application of the nonjudicial foreclosure sale statute to unpaid
  condominium dues violates the Vermont Constitution; (2) the sale was void
  under the contract doctrine of mutual mistake; (3) the condominium
  association and its agent, Martin Nitka, breached their duties by selling
  her property at below-market value; and (4) deviation from the nonjudicial
  foreclosure statute should void the sale and deed. (FN1)  Because the
  foreclosure sale was not conducted in a reasonable manner, we vacate
  summary judgment and remand to the trial court for entry of judgment
  voiding the foreclosure sale of appellant's condominium unit. 
   
       ¶  2.  Appellant owned a residential condominium unit at The Mill
  Condominiums in Ludlow, Vermont.  After appellant failed to pay her
  condominium dues over a period of time, the officers of the Mill
  Condominium Owners' Association instructed attorney Martin Nitka to
  foreclose on the property.  Attorney Nitka thereafter commenced a
  nonjudicial foreclosure pursuant to 27A V.S.A. § 3-116.  Appellant had
  notice of the foreclosure sale and discussed the matter with attorney
  Nitka.  She informed him that she would wire him the unpaid dues and asked
  him to postpone the sale scheduled for July 12, 2001, to a later time. 
  Appellant's recollection of the discussion was that the sale would not take
  place if she wired the money to attorney Nitka's account by the close of
  the business day, July 16.  According to attorney Nitka, he agreed to delay
  the sale only until July 13, but after the telephone conversation with
  appellant realized that he had other commitments, and moved the sale to
  July 16, 2001.  At 10:00 a.m. on July 16, 2001, attorney Nitka proceeded
  with the auction of appellant's condominium.  Appellant's wire transfer of
  funds sufficient to cover the dues, fees, and costs owed arrived at 11:00
  a.m.  By that time, the property had been sold to defendants Allen and
  Linda Seiple for $3510.10, the amount necessary to pay the delinquent dues,
  attorney's fees, and the costs of foreclosure.  The trial court found that,
  at the time of the sale, attorney Nitka and the Seiples apparently believed
  that the unit was subject to a mortgage of $45,000.  It was later
  determined that the mortgage had been earlier discharged.  The trial court
  found that the fair market value of the condominium at the time of sale was
  approximately $70,000.  Attorney Nitka delivered the deed to the Seiples on
  August 31, 2001.  

       ¶  3.  In October 2001, appellant filed a complaint seeking a
  declaratory judgment setting aside the nonjudicial foreclosure.  In
  December 2001, after trial, the court entered judgment for defendants on
  the record.  The court granted appellant thirty days to amend her complaint
  to include a damages claim.  Appellant filed an amended complaint, and
  defendants Nitka and the Seiples filed motions for summary judgment.  While
  these motions were pending, the court issued an entry order confirming the
  foreclosure sale, and conveying the entire interest in the property to the
  Seiples.  The court then granted summary judgment for defendants Nitka and
  the Seiples on July 5, 2002, after concluding that appellant could not
  maintain any cause of action against them.  On January 17, 2003, the court
  granted summary judgment for the remaining defendants on the same basis. 
  On the same date, the court granted appellant permission to appeal its
  order of confirmation.  This appeal of the trial court's confirmation order
  and the court's summary judgment dismissal of appellant's amended complaint
  followed.
   
       ¶  4.  Appellant first argues that the application of the nonjudicial
  foreclosure sale statute to unpaid condominium dues violates the Vermont
  Constitution.  However, appellant did not adequately raise this argument
  below so as to preserve it for appeal.  We reject appellant's assertion
  that she preserved this issue for our review by mentioning it in a pretrial
  memorandum filed with the trial court.  Appellant did not raise this
  argument in her initial complaint, her amended complaint, or in her
  memorandum in opposition to defendants' motion for summary judgment. 
  Therefore, she has waived her right to raise this argument on appeal.  See
  Bull v. Pinkham Eng'g Assocs., 170 Vt. 450, 459, 752 A.2d. 26, 33 (2000)
  ("Contentions not raised or fairly presented to the trial court are not
  preserved for appeal."). 

       ¶  5.  Appellant also argues that the foreclosure sale was void under
  the contract doctrine of mutual mistake.  The doctrine of "mutual mistake"
  provides that "[w]here a contract has been entered into under a mutual
  mistake of the parties regarding a material fact affecting the subject
  matter thereof, it may be avoided . . . at the instance of the injured
  party, and an action lies to recover money paid under it."  Rancourt v.
  Verba, 165 Vt. 225, 228, 678 A.2d 886, 887 (1996) (internal quotation marks
  and citation omitted).  Appellant maintains that attorney Nitka should be
  considered her agent, and that the mutual mistake here was the parties'
  belief that the property was subject to a $45,000 mortgage.  As the trial
  court pointed out in rejecting this argument, however, this doctrine does
  not apply because appellant was not a party to the sales contract. 
  Attorney Nitka was not appellant's agent; he represented the condominium
  association.  We therefore reject appellant's argument that the contract is
  void under the doctrine of mutual mistake. 
   
       ¶  6.  Appellant next claims that the condominium association and
  attorney Nitka breached their duties when they failed to maximize the sale
  price of the condominium.  The trial court rejected this claim after
  concluding that there is no statutory requirement to conduct the sale in a
  commercially reasonable manner, and that neither the condominium
  association, nor Nitka, owed appellant a fiduciary duty.  Nevertheless,
  appellant argues that 12 V.S.A. § 4532(g) imposes on the mortgagee an
  affirmative duty to conduct the nonjudicial sale in a commercially
  reasonable manner or in such a manner as to maximize the sales price of
  such property. (FN2)
           
       ¶  7.  We note at the outset that although appellant has predicated
  her argument on theories of "fiduciary duty" and "commercial
  reasonableness," it is unnecessary to decide in this case the extent to
  which either theory might be applicable to a mortgagee utilizing the
  nonjudicial foreclosure procedures of 12 V.S.A. § 4532(g).  Appellees'
  resort to the nonjudicial foreclosure statute arises not as a result of a
  mortgagor-mortgagee relationship - but rather because of the provisions of
  the Uniform Common Interest Ownership Act, 27A V.S.A.§§ 1-101 - 4-119
  (UCIOA), which provides a statutory right to the Condominium Association to
  institute a nonjudicial foreclosure proceeding for nonpayment of
  condominium dues.  Thus, the extent of the duty owed by the Condominium
  Association and its agent to the appellant is first established by
  discerning the obligations and rights of the parties under the Act.

       ¶  8.  The Association's commencement of a nonjudicial foreclosure was
  made pursuant to 27A V.S.A. § 3-116(i), which states, "The association's
  lien may be foreclosed pursuant to section 4531a of Title 12 in which case
  the association shall notify all the lienholders of the affected unit of
  its action."
   
       ¶  9.  The official comment to § 3-116 reveals the Legislature's
  intent to provide condominium associations with adequate mechanisms to
  collect unpaid dues while offering alternatives to the radical remedy of
  foreclosure.  Thus, the comment notes that subsection (f) "makes clear that
  the association may have remedies short of foreclosure of its lien that can
  be used to collect unpaid assessments.  The association, for example, might
  bring an action in debt or breach of contract against a recalcitrant unit
  owner rather than resorting to foreclosure."  On the other hand, the
  Legislature reserves what it considers the more expeditious procedures for
  foreclosure on units belonging to a cooperative, since in these
  associations assessments are used to pay each unit's share of the common
  mortgage, and nonpayment may force the whole community into default.  Thus,
  the statute allows for the treatment of units in cooperatives as personal
  property instead of realty, so that they can be foreclosed under the
  generally less expensive and faster procedure provided for under Article 9
  of the Uniform Commercial Code (UCC).  The comment points out that
  condominium communities are generally not burdened by a substantial
  underlying mortgage and therefore, 

    failure to pay assessments on time will have less serious
    consequences for the association than in the case of cooperatives. 
    The section provides that the association lien in a condominium or
    planned community is to be foreclosed according to the rules
    generally applicable to real estate mortgages . . .  rather than
    setting out a special faster method of foreclosure in the statute.  

       ¶  10.  It is clear from these comments that the Legislature intended
  the application of foreclosure rules to afford more protection to the
  condominium unit owner than to the owner of a cooperative, presumably to
  minimize the chances that a condominium could be subject to foreclosure
  merely for nonpayment of dues, which ordinarily, even after nonpayment for
  months (or years), would still be an amount far less than the value of the
  real estate.  
   
       ¶  11.  Although the rules "generally applicable to real estate
  mortgages" do not impose a commercial reasonableness standard on
  foreclosure sales, the UCIOA does provide for this additional layer of
  protection.  Section 1-113 of the UCIOA states that, "[e]very contract or
  duty governed by this title imposes an obligation of good faith on all
  parties in its performance or enforcement."  The official comment explains:

    This section sets forth a basic principle running throughout this
    Act: in transactions involving common interest communities, good
    faith is required in the performance and enforcement of all
    agreements and duties.  Good faith, as used in this Act, means
    observance of two standards: "honesty in fact," and observance of
    reasonable standards of fair dealing.  While the term is not
    defined, the term is derived from and used in the same manner as
    in Section 1-201 of the Uniform Simplification of Land Transfers
    Act, and Sections 2-103(i)(b) and 7-404 of the Uniform Commercial
    Code.

       ¶  12.  The UCC and Uniform Simplification of Land Transfers Act
  sections alluded to in the official comment define and refer to the
  observance of "reasonable commercial standards of fair dealing in the
  trade." 9A V.S.A. § 2-103(1)(b) (UCC).  Hence, the official comment to §
  1-113 expresses in unequivocal terms the Legislature's intent to import the
  commercial reasonableness standard into the UCIOA.    

       ¶  13.  While the intent of the Legislature to impose the commercial
  reasonableness standard on all common interest communities created after
  the effective date of the law is clear, the application of the standard to
  common interest communities created before the enactment of the statute is
  less certain.  This is so because §1-113 is not listed in §1-204(a), which
  enumerates the sections and subdivisions that are applicable to common
  interest communities created before the enactment of the statute: 

    Unless excepted under section 1-203 of this title, all common
    interest communities existing in this state on the effective date
    of this law are subject to the following sections or subdivisions
    of this title: 1-103, 1-105, 1-106, 1-107, 2-103, 2-104, 2-121,
    3-102(a)(1) through (6) and (11) through (16), 3-111, 3-116,
    3-118, 4-109 and 4-117 to the extent necessary to construe the
    applicable sections.  Those sections apply only with respect to
    events and circumstances occurring after the effective date of
    this law and do not invalidate existing provisions of the
    declaration, bylaws, plats or plans of those common interest
    communities.

  27A V.S.A. § 1-204(a)
         
       ¶  14.  The issue is relevant to the instant case because it appears
  that the Mill Condominium Association pre-dated the January 1, 1999
  effective date of the UCIOA.   It would be irrational, however, to conclude
  that the commercial reasonableness standard needs not to be observed in a §
  3-116 foreclosure because the condominium association pre-dated the
  statute.  The foreclosure action deals with appellant's unpaid assessments
  occurring after January 1, 1999, and neither appellant nor appellees
  contest the applicability of the UCIOA in part to preexisting common
  interest communities "with respect to events and circumstances occurring
  after the effective date of [the Act]." 27A V.S.A. §1-204(a).  Moreover, it
  is the applicability of UCIOA that has provided appellees with access to a
  foreclosure remedy they would not otherwise have.  Cf. Alpine Haven Prop.
  Owners Ass'n. v. Deptula, 2003 VT 51,  9, 830 A.2d 78 (where none of events
  and circumstances of case occurred after effective date of Act, UCIOA did
  not apply).  
   
       ¶  15.  It is conceivable that the Legislature omitted § 1-113 from
  the enumeration of sections applicable to pre-existing common interest
  communities because of concerns that applying the commercial reasonableness
  standard to previously acquired rights and obligations "would unduly alter
  the legitimate expectations of [pre-existing] unit owners and declarants,"
  27A V.S.A. § 1-201 (official comment).  It is inconceivable, however, that
  the Legislature intended its omission to insulate pre-existing communities
  from their obligations under the UCIOA when they are availing themselves of
  a remedy provided by the very same act, because the parties could not
  expect that their obligations would be defined by any standard other than
  the one supplied by the statute.  We presume that "the Legislature [did]
  not intend an interpretation that would lead to absurd or irrational
  consequences."   Braun v. Bd. of Dental Exam'rs, 167 Vt. 110, 117, 702 A.2d 124, 128 (1997).  Therefore, we hold that the enforcement mechanisms
  provided for in § 3-116 must be conducted in good faith as defined in §
  1-113, that is, in a commercially reasonable manner.

       ¶  16.  The "commercial reasonableness" standard is well defined in
  Vermont.  A secured party's disposition of collateral is governed by Part 6
  of Article 9 of Vermont's Uniform Commercial Code.  Title 9A, § 9-610(b)
  imposes a positive duty on the secured party to act in a commercially
  reasonable manner in every aspect of the disposition of collateral.  9A
  V.S.A. § 9-610(b).  See also  Chittenden Trust Co. v. Maryanski, 138 Vt.
  240, 244, 415 A.2d 206, 208 (1980) (interpreting previous statute governing
  disposition of collateral).  This duty has been described as an obligation
  on the secured party "to utilize his best efforts to sell collateral for
  the best price and to have a reasonable regard for the debtor's interest." 
  Id. (quoting First Nat'l Bank & Trust Co. v. Holston, 559 P.2d 440, 444
  (Okla. 1976)).  Although a sale is not necessarily unreasonable because a
  better price could have been obtained, "the secured party must make a good
  faith effort to maximize the value of the collateral."  Id. 138 Vt. at 244,
  415 A.2d  at 209.

       ¶  17.  The commercial reasonableness of a sale must be determined on
  a case-by-case basis. Fed. Fin. Co. v.  Papadopoulos, 168 Vt. 621, 623, 721 A.2d 501, 503 (1998) (mem.).  The secured party bears the burden "to prove
  that the disposition of collateral was commercially reasonable."  Id.  In
  the case at hand, in order to support the summary judgment under this
  standard, the court would have to find that the Condominium Association and
  attorney Nitka had proved specific facts which, when "viewed in totality,"
  constituted a commercially reasonable disposition of appellant's property. 
  See Maryanski, 138 Vt. at 245, 415 A.2d  at 209.
   
       ¶  18.  The evidence in the record, however, does not support summary
  judgment under this standard; rather, it supports a finding that, as a
  matter of law, the sale did not conform with the requirements of good faith
  and commercial reasonableness set forth by §1-113 of the UCIOA.  First, the
  disparity between the condominium's sale price and its fair market value,
  although not dispositive, must be taken into account in the assessment of
  the reasonableness of the sale.  See Papadopoulos, 168 Vt. at 623, 721 A.2d 
  at 503.  In this case the discrepancy suggests that no efforts were made to
  attain the best price for the unit.  The trial court found the fair market
  value of the condominium to be "approximately $70,000."  Although the court
  observed that attorney Nitka and the Seiples apparently thought that the
  property was subject to an undischarged $45,000 mortgage, the purchase
  price - even under such an assumption - was less than 15% of the value
  found by the trial court.

       ¶  19.  In addition, this Court has found that, in private sales, the
  seller's exclusive reliance on one bid may be a factor against a finding of
  reasonableness.  Id.  Although this was a public sale, it weighs against
  such a finding in this case as well, considering the alleged statement from
  Mr. Nitka to Mr. Seiple informing him that the minimum acceptable bid for
  this property would be $3510.50.  Although there is no suggestion that this
  was done in bad faith, giving this information to the only bidder was
  certainly not a way to maximize the value of the collateral; rather, it was
  an assurance that the condominium would be sold for exactly that low
  amount.

       Summary judgment is vacated, and the case remanded to the trial court
  for entry of judgment voiding foreclosure sale of appellant's condominium
  unit.



                                       FOR THE COURT:



                                       _______________________________________
                                       Chief Justice
   

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                                  Footnotes


FN1.  Appellant also argues that, as a matter of law, the foreclosure deed
  conveyed only a one-half interest in appellant's property.  Because the
  sale is void, we do not reach this issue.

FN2.  In relevant part, 12 V.S.A. §4532(g) reads:

    At the sale, the premises shall be sold to the highest bidder in
    conformance with the terms of sale set forth in the foreclosure
    notice. The mortgagor is entitled to receive any surplus from the
    proceeds of the sale and the mortgagor shall be liable for any
    deficiency as determined by a subsequent action for a deficiency
    judgment.