Hudson United Bank v. Cinnamon Ridge Corp.
| Decision Date | 24 February 2004 |
| Docket Number | (AC 23096). |
| Citation | 81 Conn. App. 557,845 A.2d 417 |
| Court | Connecticut Court of Appeals |
| Parties | HUDSON UNITED BANK v. CINNAMON RIDGE CORPORATION ET AL. |
Schaller, McLachlan and Peters, Js. Matthew B. Woods, for the appellant-appellee (plaintiff).
James A. Lenes, for the appellees-appellants (defendants).
The plaintiff, Hudson United Bank (Hudson), appeals from the judgment of the trial court rendered on the jury's verdict in favor of the defendant Cinnamon Ridge Corporation (Cinnamon)1 on count one of the complaint that sought payment on a note and on Cinnamon's counterclaim that asserted that Hudson had breached the terms of a handwritten agreement and the covenant of good faith and fair dealing. Cinnamon cross appeals from the court's declaratory judgment in favor of Hudson on count two of the complaint regarding the ownership of a portfolio of second mortgage loans. On appeal, Hudson claims that (1) the court improperly failed to set aside the verdict in favor of Cinnamon on count one of the complaint, (2) there was insufficient evidence to support the verdict on counts one and two of the counterclaim, and (3) the court improperly determined that Hudson's breach of a handwritten agreement, coupled with its notification to certain subdivision homeowners that they were to pay their second mortgage loans to Hudson rather than to Cinnamon, excused Cinnamon's liability on the note. On cross appeal, Cinnamon claims that the court improperly concluded that Hudson was the owner of the portfolio of second mortgage loans. We affirm the judgment of the trial court.
The following facts and procedural history are necessary to the proper resolution of these appeals. In 1988, Ralph R. Arganese formed Cinnamon for the purpose of purchasing unimproved land and building a subdivision of approximately fifty-six residential home sites in Torrington. Lafayette American Bank and Trust Company (Lafayette)2 loaned Cinnamon $3.5 million to purchase the property. Arganese personally guaranteed the loan. In 1992, Cinnamon borrowed an additional $600,000 from Lafayette to be used to construct the individual homes.3 Arganese personally guaranteed that loan as well. In addition to the mortgages for buying the land and for building the homes, Lafayette and Cinnamon also entered into an agreement under which a prospective home buyer would be able to purchase a home, essentially, without providing a down payment. According to the agreement, Lafayette would provide the purchaser with 90 percent of the financing and, in return, would retain a first purchase money mortgage on the property. Cinnamon would then provide the purchaser with the remaining 10 percent of the financing and retain a second purchase money mortgage on the property.
In 1996, approximately forty-one lots of the subdivision had been improved and sold. Lafayette obtained first mortgages on all forty-one lots, and Cinnamon obtained second mortgages on those same lots.4 Fifteen lots of the subdivision remained undeveloped and unsold. At that same time, however, the real estate market was in decline. In an effort to bring closure to the subdivision project, Arganese entered into discussions with Lafayette in an effort to restructure the loan in a manner that would allow Cinnamon to complete construction of the fifteen remaining lots while also meeting his obligation to repay the loans. Through their attorneys, Lafayette and Cinnamon worked out a loan restructuring plan under which Lafayette would loan Cinnamon an additional $400,000 while agreeing to a friendly foreclosure5 on the fifteen lots. In return, it was agreed that Cinnamon would receive the right of first refusal to purchase the foreclosed lots from Lafayette and an exclusive listing agreement.6 Cinnamon also agreed to secure the note with its portfolio of second mortgages on the forty-one lots.
On June 28, 1996, the parties met to close the deal. Present at the meeting were Arthur E. Miller, the attorney for Lafayette; Robert E. Monaco, the vice president in Lafayette's lending office; Gregory J. Pepe, an attorney representing Cinnamon; Debra L. Arganese, who is Ralph Arganese's daughter and an attorney representing Cinnamon; Gene Arganese, who is Ralph Arganese's son; and Gloria P. Arganese, who is Ralph Arganese's wife. During the closing, representatives from Hudson and Cinnamon signed a handwritten agreement that had been drafted during the closing by Pepe and Miller. That handwritten agreement provided Cinnamon with an exclusive listing agreement to sell the foreclosed property and a right of first refusal to purchase the foreclosed property. The ultimate purpose of that handwritten agreement, as alleged in Cinnamon's special defenses, was to allow Cinnamon to "earn out" the moneys owed by Cinnamon under the note through real estate commissions or through profits realized through the resale of the foreclosed properties that Cinnamon chose to purchase from Hudson. The following day, Hudson acquired Lafayette, and Monaco was discharged from his corporate vice president position.
Cinnamon made interest payments on the $400,000 note and collected payments from the homeowners on the second mortgage loans for two years following the closing. In November, 1998, Hudson completed its friendly foreclosure on the fifteen lots. Hudson sold those lots between December, 1998, and March, 1999, to independent third parties without giving Cinnamon the exclusive listing rights or the right of first refusal. Consequently, Cinnamon stopped paying on the note. In July, 1999, Hudson directed deputy sheriffs in Torrington to hand deliver letters to the forty-one homeowners. In those letters, Hudson demanded that the homeowners pay Hudson the second mortgage loan installments.7
Hudson commenced an action, by way of a two count complaint alleging that (1) Cinnamon had defaulted on the $400,000 note and failed to make installment payments of interest (count one), and (2) requesting the court to render a declaratory judgment with respect to the ownership of the second mortgages (count two).8 Cinnamon filed its special defenses and a counterclaim on March 13, 2002. The first special defense and the first count of the counterclaim alleged that Hudson had breached the terms of the handwritten agreement. The second special defense and the second count of the counterclaim alleged that Hudson had breached the covenant of good faith and fair dealing. The third special defense and the third count of the counterclaim alleged that Hudson had violated provisions of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq.
Following a jury trial, the jury returned a unanimous verdict in favor of Cinnamon on the first count of the complaint. With respect to the second count of the complaint, the court had indicated at the beginning of the trial that it would decide the declaratory judgment issue after the jury returned a verdict on the first count. The court did not decide the declaratory judgment issue after the verdict. On the counterclaim, the jury awarded Cinnamon $190,000 in damages.
On March 19, 2002, Hudson filed a motion to set aside the verdict on the ground that there was insufficient evidence to warrant the jury's finding that Cinnamon was not liable to Hudson. The court denied the motion and, with respect to the second count of the complaint, declared that Hudson was the owner of the portfolio of second mortgages. Hudson appealed from the judgment rendered against it on the jury's verdict as to the first count of the complaint and the counterclaim, and Cinnamon cross appealed from the judgment rendered against it on the declaratory judgment count of the complaint.
Hudson first claims that the court improperly failed to set aside the verdict in favor of Cinnamon on count one of the complaint.9 In support of that claim, Hudson argues that although the jury found that it had breached the implied covenant of good faith and fair dealing, the jury did not find that Hudson had violated CUTPA and, therefore, no basis existed for the jury to fail to return a verdict in favor of the plaintiff on count one of the complaint.10 In other words, the jury's finding that Hudson had breached the covenant of good faith and fair dealing, alone, could not excuse Cinnamon's default on the $400,000 note.11 We disagree.
The following additional facts are necessary to the proper resolution of Hudson's claim. In support of its verdict, the jury answered seven of the eight interrogatories that were submitted to it by the court.12 The jury's answers on the interrogatories indicated that (1) Cinnamon was not liable to Hudson on the $400,000 note, (2) the handwritten agreement, drafted during the June 28, 1996 closing, was an enforceable contract, (3) Hudson breached that contract, (4) as a result of that breach, Hudson violated the implied covenant of good faith and fair dealing, (5) Hudson did not violate CUTPA and (6) Cinnamon was entitled to $190,000 in damages.13
In its motion to set aside the verdict, Hudson argued that there was insufficient evidence to warrant the jury's finding that Cinnamon was not liable to Hudson on the note. In its memorandum of decision on that motion, the court stated that the jury was entitled to find that the commercial revolving loan agreement, the note, the collateral security agreement and the handwritten agreement all were component parts of one larger agreement. The court stated that the jury was entitled to find that when Hudson exercised its rights under the collateral security agreement by requiring homeowners to pay it with respect to the second mortgage loans, Hudson acquired mortgages in excess of the value of the note. On the basis of that reasoning, the court concluded that the jury properly was entitled to find that Cinnamon was not liable to Hudson on the note.
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