Pack 2000, Inc. v. Cushman

• Decision Date: 20 May 2014
• Docket Number: No. 18789.,18789.
• Citation: 89 A.3d 869,311 Conn. 662
• Court: Connecticut Supreme Court
• Parties: PACK 2000, INC. v. Eugene C. CUSHMAN.

311 Conn. 662

89 A.3d 869

PACK 2000, INC.

v.Eugene C. CUSHMAN.

No. 18789.

Supreme Court of Connecticut.

Argued March 12, 2013.

Decided May 20, 2014.

Eric W. Callahan, New London, for the appellant (plaintiff).

Andrew J. O'Keefe, with whom, on the brief, was Joseph M. Busher, Jr., Hartford, for the appellee (defendant).

ROGERS, C.J., and NORCOTT, PALMER, ZARELLA, EVELEIGH, McDONALD and VERTEFEUILLE, Js.^*

PALMER, J.

In July, 2002, the plaintiff, Pack 2000, Inc., and the defendant, Eugene C. Cushman, entered into a series of agreements pursuant to which the defendant was to transfer the management and, ultimately, at the option of the plaintiff, the ownership of two Midas automobile repair shops to the plaintiff. The agreements also provided the plaintiff with options to purchase the realty on which the shops were located, on condition that the plaintiff, at the time it exercised the options, was and previously had been in compliance with the terms of the agreements. In August, 2003, the plaintiff sought to exercise the options, but the defendant refused to convey the properties, claiming that the plaintiff had not strictly complied with the terms of the agreements. The plaintiff thereafter brought the present actions, alleging entitlement to specific performance of the options to purchase the realty.¹ Following a court trial, the court concluded that the plaintiff was entitled to specific performance of the options because it had substantially complied with the terms of the agreements. The defendant appealed to the Appellate Court, claiming that the trial court improperly had applied a standard of substantial compliance, rather than a standard of strict compliance, with the terms of the parties' agreements in determining whether the plaintiff had satisfied the conditions precedent for exercising the options.See Pack 2000, Inc. v. Cushman, 126 Conn.App. 339, 340–41, 345–46, 11 A.3d 181 (2011). The defendant also claimed that the evidence established that the plaintiff had not strictly complied with the agreements. Id., at 346, 11 A.3d 181. The Appellate Court agreed with both of the defendant's claims and, accordingly, reversed the judgments of the trial court and remanded the case to that court with direction to render judgments for the defendant. Id., at 341, 351, 11 A.3d 181. We granted the plaintiff's petition for certification to appeal, limited to the following issues: “Did the Appellate Court properly determine that lease/option agreements are subject to a strict compliance standard? If so, should the [judgment of the] Appellate Court be reversed under the applicable standard?” Pack 2000, Inc. v. Cushman, 301 Conn. 907, 19 A.3d 177 (2011). We agree with the plaintiff that, contrary to the conclusion of the Appellate Court, the trial court properly applied a standard of substantial rather than strict compliance in resolving the plaintiff's claim and, further, that the trial court properly determined that the plaintiff is entitled to specific performance of the options because it had substantially complied with the terms of the parties' agreements. We therefore reverse the judgment of the Appellate Court and remand the case to that court with direction to affirm the judgments of the trial court.

The opinion of the Appellate Court sets forth the following relevant facts and procedural history, as supplemented by the record. “In July, 2002, the plaintiff, the defendant and ARCO Corporation (ARCO),² a corporation controlled by the defendant, entered into a business transaction in which two Midas [automobile repair] shops ³ (shops) were to be transferred from ARCO to the plaintiff. As part of the transaction, the parties executed a number of agreements, including [1] two lease agreements, under which the defendant leased [to the plaintiff] the [real property on which] the shops are located ... [2] a management agreement, under which the plaintiff assumed responsibility for the management and operation of the shops ... [3] a letter of intent ... and [4] two promissory notes. [The defendant, an experienced attorney, drafted all of the agreements between the parties.]

“Each lease agreement contains a clause ... that provide[d] the plaintiff with an option to purchase the leased [property] subject to certain terms and conditions. The language of the two clauses is essentially identical. Each clause provides in relevant part: ‘So long as [the plaintiff] has been in compliance with the terms and conditions of this Lease, the Letter of Intent, and Management Agreement ... and is in compliance with such instruments when the option is exercised, [the plaintiff] shall have the option to purchase the real estate subject to this lease.... The option shall be exercised by [the plaintiff] giving [the defendant] three months advanced notice, in writing. The option may be exercised by giving the aforesaid notice between the date of this Lease [July 25, 2002] and the fifth anniversary of [the] same.’

“The management agreement also refers to the plaintiff's options to purchase the defendant's realty and contains the following language ... as it relates to the options: ‘The [plaintiff] shall be given an option to purchase the real estate upon which the shops are located. Said option shall be by separate agreement and signed by the titleholder and the party designated by [the plaintiff] to take title. Such option shall cite separate consideration and shall contain the terms as generally outlined herein. (a) Such option may be exercised between [the] date of commencement herein and the fifth anniversary of [the] same.... (f) [The plaintiff] must be in full compliance with this agreement and any lease agreement at the time of exercise.’ [The management agreement also contains a provision granting the plaintiff an option to purchase the shops ‘[s]o long as [the plaintiff] is in compliance with all of the terms and conditions of [the management] agreement, the letter of intent and any option agreement....’]

“In addition to the two lease agreements and the management agreement, the letter of intent also contains language that refers to the options [to purchase the realty]. It provides in relevant part: ‘[The plaintiff] has the option to purchase from [the defendant] the buildings and the land housing the [s]hops, if this agreement and the ... Management Agreement are executed. The option is for five years from the date of the Management Agreement. The price will be as appraised.’

“Under the terms of the two lease agreements, the management agreement and the promissory notes, the plaintiff was required to make a number of periodic payments both to the defendant and to certain third parties in order to exercise the options. Specifically, the plaintiff was required to pay rent to the defendant by the first day of each month during the term of the lease[s], to make payments on both promissory notes by the eighth day of each month until the notes were fully paid and to pay all accounts, including, but not limited to, utilities, telephone service, real estate taxes, and hazard and liability insurance as well as an equipment lease. At trial, the defendant testified that timely payment of the aforementioned accounts was vital and that he informed the plaintiff that untimely payments would jeopardize his franchise agreements with Midas and his mortgages on the two shops.

“Nevertheless, the record reveals that the plaintiff was often late in making the aforementioned payments. Specifically, the record reveals that the following payments were late: the rent payment due on May 1, 2004; three payments on the promissory notes due on February 8, 2003, and May 8 and June 8, 2006; one payment to Groton Utilities, which resulted in a shutoff notice that the defendant forwarded to the plaintiff on January 23, 2003; several payments to a telephone company, which resulted in several collection letters and telephone calls that the defendant received in late 2002 and early 2003 as well as a threat to terminate telephone service to the defendant's unrelated business in March, 2003; two real estate tax installments on the New London shop due January 1, 2005, and January 1, 2007; one real estate tax installment on the Groton shop due July 1, 2007; twelve hazard and liability insurance installments between November, 2002, and January, 2004, that resulted in cancellation notices issued on July 30, 2003, and November 29, 2004; twenty health insurance installments between October, 2002, and September, 2005; and several installments under the terms of an equipment lease that resulted in several collection calls to the defendant in 2002 and 2003. [With respect to these late payments, however, the trial court found that all ‘were, on the whole, made within a commercially reasonable time’ and, further, that the tardiness of the payments was attributable to ‘administrative inefficiency as opposed to financial insolvency.’] “On August 22, 2003, the plaintiff's vice president, M. Paulina Anderson, faxed a letter to the defendant in which she stated that she wanted ‘to finalize the purchase of the shops and exercise the option[s] to purchase the real estate by the end of 2003.’ On August 29, 2003, Anderson sent a second letter to the defendant in which she sought information about ... possible appraisal[s] and indicated that Banterra Bank (bank) could not commit to financing the purchase until it had ascertained the value of the defendant's realty.

“On September 2, 2003, the defendant, on behalf of ARCO, sent a letter to Anderson in which he stated that the plaintiff was not in compliance with the terms and conditions of the management agreement. Specifically, the letter stated: ‘The installment payment regarding the ... Management Agreement which was due September 1, 2003 has not been received. Per the provisions of said agreement, the monthly installments are due on the first day of each month. Your monthly payments have been consistently late and...