New England Sav. Bank v. Bedford Realty Corp.

• Decision Date: 13 August 1996
• Docket Number: No. 15235,15235
• Citation: New England Sav. Bank v. Bedford Realty Corp., 680 A.2d 301, 238 Conn. 745 (Conn. 1996)
• Court: Connecticut Supreme Court
• Parties: , 31 UCC Rep.Serv.2d 1059 NEW ENGLAND SAVINGS BANK v. BEDFORD REALTY CORPORATION, et al.

Page 301

680 A.2d 301

238 Conn. 745, 31 UCC Rep.Serv.2d 1059

NEW ENGLAND SAVINGS BANK v.BEDFORD REALTY CORPORATION, et al.

No. 15235.

Supreme Court of Connecticut.

Argued April 26, 1996.

Decided August 13, 1996.

J. Michael Sulzbach, New Haven, for appellant(named defendant).

Charles D. Houlihan, Jr., Simsbury, for appellee(plaintiffGHR D.C., Inc.).

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

NORCOTT, Associate Justice.

The named defendant, Bedford Realty Corporation(Bedford), appeals from a judgment of strict foreclosure rendered by the trial court in favor of the plaintiff, GHR D.C., Inc.(GHR).¹Bedford claims that the trial court improperly: (1) admitted certain evidence at trial; (2) determined that the named plaintiff mortgagee was entitled to accelerate the mortgage debt; and (3) determined that GHR was not required to satisfy the requirements of General Statutes §§ 42a-3-301and42a-3-309, ² governing the enforcement of a lost instrument.We reverse and remand the case to the trial court for a new trial.

The relevant facts are as follows.In August, 1986, Stelle M. Mahler obtained a mortgage loan in the amount of $372,000 from the named plaintiff, New England Savings Bank (New England).At that time, Mahler executed a note evidencing her promise to repay the loan and executed a mortgage deed to New England on her residence in Madison.In 1991, Mahler transferred the mortgaged property to Bedford, as a result of which, New England accelerated the loan, claiming that the transfer violated a nontransfer clause in the mortgage deed.

In September, 1992, New England brought this action for foreclosure, alleging that Mahler had transferred the property in violation of the mortgage and had failed to make payments on the debt secured by the mortgage.In October, 1992, the trial court, Dorsey J., defaulted Bedford for failing to disclose its defenses to New England's allegations, at which point New England moved for strict foreclosure.Subsequently, Bedford filed a motion to set aside the default judgment.The trial court denied the motion to set aside the judgment.Thereafter, the trial court granted New England's motion for a judgment of strict foreclosure, and set a hearing date to determine the exact amount of the outstanding debt and to set law days.

At a hearing in damages before Judge Dorsey in May, 1993, Bedford requested that the trial court reconsider its ruling denying Bedford's motion to set aside the default.The trial court did not immediately act upon the request.New England then called Sandra Reid, an assistant vice president and loan collections manager of the bank, to establish the amount due on the debt.New England introduced Reid's affidavit of debt, in which she attested to the current debt owed and its components.³Reid testified that she had prepared the affidavit from bank records and that the amounts stated in the affidavit were accurate.Specifically, she testified that she had determined the amount of principal from certain computer records maintained by the "pay off" department at New England, and that she had manually calculated the interest to "prove" the records on which she had relied.The mortgage deed, which was also introduced into evidence, also referred to the interest rate.Reid did not manually calculate the escrow or late charges.Bedford objected both to the admission of the affidavit and to Reid's testimony as to the amount of the debt, arguing that both were hearsay because they were based on documents not in evidence.The trial court overruled Bedford's objections.⁴

One week after the adjournment of the hearing in damages, New England became insolvent and the Federal Deposit Insurance Corporation(FDIC), was appointed as receiver of New England's assets.The FDIC assigned New England's interest in the mortgage loan executed by Mahler to Citizens Savings Bank (Citizens), which was substituted for New England as the partyplaintiff.Thereafter, Citizens assigned its interest in the mortgage and the note to GHR.GHR was then substituted for Citizens as the partyplaintiff.Eventually, the mortgage and note were assigned to Alaska Seaboard Partners Limited Partnership.See footnote 1.Subsequently, on January 25, 1994, Judge Dorsey reconsidered Bedford's motion to open the default judgment, and vacated the default judgment and the judgment of strict foreclosure.Thereafter, the case proceeded to trial as a contested foreclosure matter before Judge Silbert.

At trial, GHR requested that the court take judicial notice of the evidence presented at the hearing in damages before Judge Dorsey, including a transcript of Reid's testimony and the exhibits admitted at the hearing.Bedford objected, arguing that the transcript was hearsay and that, because GHR had not shown that Reid was unavailable to testify, the transcript could not properly be admitted.The trial court overruled the objection and took judicial notice of the transcript.⁵

GHR next called Linda Currie, an asset manager at Greenthal/Harlan Realty(Greenthal), to establish the current amount of the debt.Currie stated that GHR was a wholly owned subsidiary of Greenthal, that GHR owned the debt and mortgage at issue, and that Greenthal managed the asset on behalf of GHR.Currie testified that Citizens, pursuant to its sale of the asset, had transferred to Greenthal a file that contained certain records relating to the loan and mortgage.Additionally, she testified that Greenthal did not service the loans it managed, but used a subservicer, from whom she had obtained computer records in order to determine the current payment status of the loan.

On the basis of her review of the file and the computer records, Currie testified that Bedford had defaulted on the mortgage loan.She further testified to the outstanding principal on the loan, the interest accrued on the debt up to the date of trial from the date of default, insurance, property tax and late charges, and the total amount of the debt.⁶Bedford objected, arguing that Currie's testimony in this regard was hearsay because it was based on documents that had not been authenticated as business records and had not been admitted into evidence.⁷The trial court overruled the objection, stating that it would permit Currie to "summarize what her records reflect[ed]."On cross-examination, Currie testified that GHR had never been in possession of the original promissory note and that she had no personal knowledge of the repayment history of the loan prior to July 15, 1994.The parties stipulated that the fair market value of the property was $410,000.They further stipulated to the amount of an appraisal fee and to the amount of reasonable attorney's fees.

Bedford presented no evidence at trial.It argued that the court should deny a judgment of strict foreclosure because GHR had never been in possession of the promissory note.In this regard, Bedford contended that a party seeking to foreclose on a mortgage must also be able to enforce the promissory note, even if it is lost, in accordance with §§ 42a-3-301and42a-3-309.See footnote 2.Bedford argued that, because GHR had not shown that it had ever possessed the lost note, a condition of enforcement of a lost instrument under § 42a-3-309, GHR was precluded from recovery in an action for strict foreclosure.

The trial court rendered a judgment of strict foreclosure in favor of GHR.In a written memorandum of decision, the trial court rejected Bedford's argument that GHR's failure to demonstrate that it had possessed the note was fatal to its action for strict foreclosure.The trial court reasoned that an action on a mortgage is separate and distinct from an action on a promissory note and, accordingly, that GHR was not required to satisfy the requirements of §§ 42a-3-301and42a-3-309, for the enforcement of a lost instrument.The trial court determined that GHR had "established its chain of title to the mortgage ... [and had] proved default under the mortgage in that there had been no payments on the debt since September of 1991 ... [and that] the original borrower, Stelle Mahler, transferred the property to Bedford without the consent of [New England] ... [and that GHR] had proved a total debt in the amount of $466,812.98, based on the principal balance, interest, late charges, and expenses for insurance and property taxes, plus the appraisal fee of $450 and attorney's fees in the stipulated amount of $13,750, for a grand total of $481,012.98."On the basis of these findings and the parties' stipulation that the fair market value of the mortgaged property was $410,000, the trial court rendered a judgment of strict foreclosure and set law days.Bedford appealed to the Appellate Court and we transferred the appeal to this court pursuant to Practice Book§ 4023andGeneral Statutes § 51-199(c).

On appeal, Bedford claims that the trial court improperly: (1) admitted the transcript from the hearing in damages; (2) admitted Currie's testimony concerning the amount of the debt at the time of trial; (3) alternatively, concluded that New England was entitled to accelerate the mortgage debt; and (4) determined that GHR was not required to satisfy the requirements of §§ 42a-3-301and42a-3-309 in order to foreclose the mortgage.We agree with Bedford that the trial court improperly admitted the transcript and Currie's testimony and, on these grounds, we reverse the trial court's judgment and remand the case to the trial court for a new trial.Additionally, because it is an issue likely to resurface at the new trial, we also reach Bedford's claim that GHR was required to satisfy the Uniform Commercial Code requirements for the enforcement of a lost instrument in order to obtain strict foreclosure of the mortgage.We conclude that it was not.

I

We turn first to Bedford's claims regarding the admissibility of the evidence from Reid and Currie of the amount of the debt.It is well...