Mechanics and Farmers Sav. Bank, FSB v. Delco Development Co., Inc.

• Decision Date: 11 April 1995
• Docket Number: Nos. 15119,15120,s. 15119
• Court: Connecticut Supreme Court
• Parties: MECHANICS AND FARMERS SAVINGS BANK, FSB v. DELCO DEVELOPMENT COMPANY, INC., et al.

Page 1034

656 A.2d 1034

232 Conn. 594

MECHANICS AND FARMERS SAVINGS BANK, FSB v. DELCO DEVELOPMENT COMPANY, INC., et al.

Nos. 15119, 15120.

Supreme Court of Connecticut.

Argued Feb. 10, 1995.

Decided April 11, 1995.

Gerald T. Weiner, with whom, on the brief, was Eric Gross, Bridgeport, for appellants (named defendant et al.).

Richard E. Castiglioni, with whom, on the brief, was Geoffrey K. Milne, Stamford, for appellee (substitute plaintiff F.D.I.C.).

Before CALLAHAN, BERDON, NORCOTT, KATZ and PALMER, JJ.

PER CURIAM.

The dispositive issues in this appeal are whether the trial court properly: (1) rejected the special defense of partial payment and satisfaction of a promissory note of the defendants Delco Development Company, Inc. (Delco), Gary R. Ginsberg and Robert A. Ginsburg (defendants) ¹; and (2) calculated the interest on the debt owed by the defendants. The defendants appealed to the Appellate Court from the trial court's judgment of strict foreclosure, and we transferred the appeal to this court pursuant to Practice Book § 4023 and General Statutes § 51-199(c). We affirm the judgment of the trial court.

On May 17, 1988, Delco borrowed $3,500,000 from the Mechanics and Farmers Savings Bank, FSB (bank). On that same date, Delco executed a variable rate promissory note to the bank for that amount. The note was secured by a mortgage on real estate owned by Delco at 249 Putnam Avenue, Hamden. Dennis Nicotra, Gary Ginsberg and Robert Ginsburg, shareholders in Delco, signed written guarantees unconditionally guaranteeing to the bank the prompt payment of all obligations due under the note. Thereafter, the loan to Delco was restructured and the terms of the note were modified by a modification agreement among the parties dated February 21, 1990. The guarantors of the note consented to the modification and their guarantees were not affected. Subsequently, Delco defaulted on its loan and the bank instituted an action for strict foreclosure against Delco and for deficiency judgments against Delco and the guarantors of the note. On August 9, 1991, the Director of the Office of Thrift Supervision determined that the bank was insolvent and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. The FDIC was thereafter substituted for the bank as the party plaintiff in the foreclosure action.

Each of the defendants pleaded five identical special defenses to the plaintiff's action. In their first four special defenses, the defendants claimed, in essence, that the bank had failed to comply with certain federal regulations concerning appraisal and loan to value ratios. The trial court ruled against the defendants on their first four special defenses. Those rulings of the trial court have not been challenged by the defendants on appeal.

In their fifth special defense, the defendants claimed that the note secured by the mortgage had been partially paid and satisfied. The trial court rejected this defense and found that the amount due the plaintiff was the full amount of the note plus interest, attorney's fees and costs. The defendants contend that the trial court was incorrect in so finding.

The defendants argue that the note secured by the mortgage was partially paid and satisfied when the bank entered into a satisfaction agreement and an intercreditor agreement with Nicotra and Nicotra's other creditors in July, 1991. The defendants claim that, although they were not parties to those agreements, they, nevertheless, should be the beneficiaries of the reduction of $2,024,000 in the amount of the debt due the bank. The defendants assert that this was the value placed on the agreements by the bank and that the agreements were accepted as partial payment by the bank for the obligation secured by the mortgage.

The trial court concluded that "there is simply no legal or equitable basis upon which the defendants can argue that an agreement negotiated by Dennis Nicotra to satisfy his debts, which apparently failed in the end, is applicable to them." The court also concluded that the defendants' fifth special defense was not valid as to the FDIC because the agreements on which that special defense was based failed to meet all the requirements of 12 U.S.C. § 1823(e). ² See also D'Oench, Duhme & Co. v. Federal Deposit Ins. Corp., 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). Accordingly, the court found that the FDIC was entitled to judgment on the outstanding principal amount of the note, plus interest.

The defendants also claim on appeal that the trial court improperly used the prime rate of Chase Manhattan Bank of Connecticut, the successor bank to Mechanics and Farmers Savings Bank to determine the interest rate to be applied to the note in question. The trial court concluded that substitution of the prime rate of Chase Manhattan Bank of Connecticut for that of Mechanics and Farmers Savings Bank, the prime rate for which the formula in the note originally provided, was reasonable under the circumstances because Mechanics and Farmers Savings Bank had ceased to exist. It therefore calculated the interest due on the basis of the prime rate of the Chase Manhattan Bank of Connecticut.

We agree with the trial court's...