Sargent v. Smith

• Decision Date: 08 February 2005
• Docket Number: No. 17093.,17093.
• Citation: 865 A.2d 1129,272 Conn. 722
• Court: Connecticut Supreme Court
• Parties: Thomas C.C. SARGENT, Trustee v. Anne Lena SMITH.

865 A.2d 1129

272 Conn. 722

Thomas C.C. SARGENT, Trustee v. Anne Lena SMITH.

No. 17093.

Supreme Court of Connecticut.

Argued November 24, 2004.

Decided February 8, 2005.

Stephen F. Donahue, with whom was Sabato P. Fiano, Southport, for the appellant (defendant).

Hale C. Sargent, Westport, for the appellee (plaintiff).

SULLIVAN, C.J., and BORDEN, NORCOTT, KATZ and PALMER, Js.

KATZ, J.

In this action alleging breach of a lease agreement, the plaintiff, Thomas C.C. Sargent, trustee, appealed to the Appellate Court from the judgment of the trial court rendered in favor of the defendant, Anne Lena Smith, claiming that the trial court improperly had accepted the conclusions of the attorney trial referee (referee) that: (1) a mortgage foreclosure action against the plaintiff extinguished the defendant's liability to pay water charges under her lease with respect to the mortgaged property; and (2) the plaintiff failed to establish damages as a result of the defendant's nonpayment of those charges. The Appellate Court agreed with the plaintiff and reversed the judgment of the trial court, determining that "neither the mortgage, nor the institution of the foreclosure action, nor the judgment of strict foreclosure extinguished the defendant's obligation under the lease to pay the ... charges and [her] failure to pay the charges damaged the plaintiff." Sargent v. Smith, 78 Conn.App. 691, 699, 828 A.2d 620 (2003).

The defendant thereafter sought reconsideration, asserting, inter alia, that the Appellate Court should remand the case to the trial court for further proceedings to allow her to present evidence on the special defenses that had not been decided as a result of the judgment rendered by the trial court. Following the denial of that motion, the defendant petitioned this court for certification to appeal, which we granted, limited to the following issues: Did the Appellate Court properly reverse the trial court's judgment rendered in favor of the defendant, and, if so, did the Appellate Court properly direct judgment for the plaintiff in the amount of $40,881.37, rather than remand the case for a new trial. Sargent v. Smith, 266 Conn. 926, 835 A.2d 476 (2003). We agree with the defendant that the Appellate Court improperly reversed the judgment of the trial court because the referee reasonably had found that the plaintiff failed to prove that he would have been entitled to, and indeed would have recovered, the money held by the receiver of rents had the receiver not paid the governmental authority that was owed the water charges.¹

The opinion of the Appellate Court sets forth the following relevant procedural history and facts, as found by the referee. "On August 12, 1988, the defendant entered into a written lease with the plaintiff for the rental of property [the plaintiff] owned [located in the city of Bridgeport]. In the lease, the defendant agreed to pay all [r]eal [e]state [t]axes, which included all taxes and assessments levied, assessed or imposed at any time by any governmental authority. The defendant further agreed that it was a net lease in that the intention [thereof] is that the rent and additional rents ... shall be net to the landlord.

"Water charges from the Bridgeport water pollution control authority [water authority] began to accrue on November 30, 1988. At all times throughout the duration of the lease, the [water] authority billed the plaintiff for water. On November 15, 1991, the plaintiff refinanced the property. In doing so, the plaintiff personally guaranteed a note in favor of, and transferred a mortgage deed to, Gateway Bank (Gateway). He also executed an assignment of leases² and an assignment of sales, proceeds, deposits and earnest money to Gateway.

"Subsequently, the plaintiff defaulted on the note, and, thus, Praedium Chief, LLC, an assignee of the mortgage,³ initiated a foreclosure action in February, 1996.⁴ During the pendency of the foreclosure action, the court appointed a receiver of rents (receiver), who was directed by court order on May 12, 1997, to pay the [water] authority the entire balance of the outstanding water charges, which totaled $40,881.37, and [those charges] were paid ... on June 5, 1997.

"On August 25, 1997, the [trial] court rendered a judgment of strict foreclosure pursuant to a stipulation under which a subsequent assignee of the mortgage, Adare, LLC, waived the deficiency⁵ and agreed that the remaining funds held by the receiver, minus certain fees and costs,⁶ would be paid to the plaintiff, who agreed to an accelerated law day. Thereafter, the plaintiff initiated the present action against the defendant to recover the sum of $40,881.37, which the receiver was ordered to pay to cover the [water] authority's charges....

"On the basis of [the aforementioned] facts, the referee concluded, and the court accepted the conclusion, that the plaintiff was not entitled to recover from the defendant the amount of the payment to the [water] authority because the foreclosure action had extinguished all obligations under the lease and the plaintiff had failed to prove he would have ultimately been entitled to the money." (Internal quotation marks omitted.) Sargent v. Smith, supra, 78 Conn.App. at 692-93, 828 A.2d 620. Accordingly, the trial court rendered judgment in favor of the defendant.

On appeal from the trial court's judgment, the Appellate Court determined that the primary issue in the case involved a question of law, specifically, what effect, if any, the plaintiff's assignment of leases and rents, the "mortgage, the foreclosure action and the subsequent judgment of foreclosure had on the lease agreement between the plaintiff and the defendant." Id., at 694, 828 A.2d 620. The court first concluded that it was the defendant's obligation to pay the water authority's charges under the lease, an obligation that was unaffected by the plaintiff's assignment of his leases and rents to the mortgagee, Gateway. Id., at 696-97, 828 A.2d 620; see footnote 2 of this opinion. The Appellate Court next determined that the initiation of the foreclosure action had not relieved the defendant of her obligations under the lease because the defendant continued to pay rent and the mortgagee continued to allow her to remain in possession of the premises. Sargent v. Smith, supra, 78 Conn.App. at 697, 828 A.2d 620. The court further determined that, although the appointment of the receiver of rents was for the protection of the mortgagee's rights, and the trial court had the power to direct the receiver to discharge the taxes due upon the property to aid in discharging the obligations of the mortgagor to the mortgagee, the money in the hands of the receiver ultimately belonged to the plaintiff as the mortgagor in the foreclosure action. Id., at 698-99, 828 A.2d 620. Therefore, the Appellate Court concluded that the finding by the referee, as accepted by the trial court, that the plaintiff had failed to prove that he ultimately would have been entitled to the money, was clearly erroneous. Id. Accordingly, the Appellate Court reversed the judgment of the trial court and remanded the case with direction to render judgment for the plaintiff in the amount of $40,881.37. Id., at 699, 828 A.2d 620. This certified appeal followed.

At the outset, we set forth the standard of review with respect to the factual findings and recommendations made by a referee. "A reviewing authority may not substitute its findings for those of the trier of the facts. This principle applies no matter whether the reviewing authority is the Supreme Court... the Appellate Court ... or the Superior Court reviewing the findings of ... attorney trial referees.... This court has articulated that attorney trial referees and factfinders share the same function ... whose determination of the facts is reviewable in accordance with well established procedures prior to the rendition of judgment by the court.... The factual findings of a [trial referee] on any issue are reversible only if they are clearly erroneous.... [A reviewing court] cannot retry the facts or pass upon the credibility of the witnesses.... A finding of fact is clearly erroneous when there is no evidence in the record to support it ... or when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." (Citations omitted; internal quotation marks omitted.) Elgar v. Elgar, 238 Conn. 839, 848-49, 679 A.2d 937 (1996). With these principles in mind, we now address the defendant's claims. In the first certified issue, the defendant claims that, although the Appellate Court properly determined that funds held in a receivership generally belong to a mortgagor until they are distributed, the court improperly failed to consider whether, under the facts and circumstances of this case, the plaintiff had proven that he, in fact, would have received the funds held in receivership had they not been paid to the water authority. In other words, the defendant contends that the Appellate Court improperly determined that, because the plaintiff was the legal owner of the rents while they were being held in receivership and still subject to the distribution of the trial court, the plaintiff necessarily was entitled to recover those rents postjudgment.

It is well established that, "[a]lthough a receivership takes designated funds out of the control of the mortgagor, it does not vest their control in the foreclosing mortgagee, who `has no claim upon the income and profit in [the receiver's] hands as such'; since the funds are legally in the possession of the court subject to whatever disposition it may order. Desiderio v. Iadonisi, 115 Conn. 652, 655, 163 A. 254 (1932)." Hartford Federal Savings & Loan Assn. v. Tucker, 192 Conn. 1, 7, 469 A.2d 778 (1984). The primary right of the mortgagee is to secure payment of the mortgage debt, and the need to preserve...