Willow Funding Co., LP v. Grencom Associates

• Decision Date: 19 June 2001
• Docket Number: (AC 20489)
• Citation: 63 Conn. App. 832,779 A2d 174
• Court: Connecticut Court of Appeals
• Parties: WILLOW FUNDING COMPANY, L.P. v. GRENCOM ASSOCIATES ET AL.

779 A.2d 174

63 Conn. App. 832

WILLOW FUNDING COMPANY, L.P. v. GRENCOM ASSOCIATES ET AL.

(AC 20489)

Appellate Court of Connecticut.

Argued April 2, 2001.

Officially released June 19, 2001.

Foti, Flynn and Peters, Js. Richard L. Albrecht, with whom were Jonathan S. Bowman and, on the brief, Barbara M. Schellenberg, for the appellant (plaintiff).

Matthew J. Forstadt, with whom was John A. Farnsworth, for the appellees (defendants).

Opinion

PETERS, J.

This is a foreclosure action to enforce a note and a second mortgage purchased, through sealed bid, from the Federal Deposit Insurance Corporation. In light of the mortgagor's acknowledged default on the note and mortgage, the trial court granted the plaintiffs motion for foreclosure by sale.¹ The court, however, reduced the amount of the loan secured by the mortgage so as to reflect, inter alia, the mortgagee's conduct with respect to an oral executory refinancing agreement that never came to full fruition.² The principal issue is whether the court, in deciding that the mortgagee had sought equitable relief with unclean hands, placed excessive emphasis on the refinancing agreement and improperly declined to apply the statute of frauds, General Statutes § 52-550.³ We are persuaded that the facts found by the court sustain the manner in which it exercised its equitable discretion over a foreclosure action.

I PROCEDURAL HISTORY

This case is the second round of litigation concerning the efforts of the plaintiff, Willow Funding Company, L.P., as successor mortgagee, to foreclose a mortgage that secured a promissory note executed by the named defendant, Grencom Associates (Grencom). Grencom is a partnership. The note was guaranteed, in part, by the defendants Arthur Collins and Arthur Emil, who are the sole partners in the partnership.

The first round of litigation focused on whether the plaintiff had adduced sufficient evidence to prove the amount of the indebtedness for which the defendants could be held accountable. Our Supreme Court concluded "that the defendants' admissions sufficed to satisfy the plaintiffs burden of proof with respect to the defendants' indebtedness." Willow Funding Co., L.P. v. Grencom Associates, 246 Conn. 615, 623, 717 A.2d 1211 (1998)(Willow Funding Co., L.P., I). That court remanded the case for a new trial to consider the merits of the defendants' counterclaim and their special and affirmative defenses.⁴ Id., 625.

The second round of litigation deals solely with the viability of the defendants' counterclaims and defenses.⁵ After a trial to the court, the court found that the plaintiff could not recover in full because of its violation of the clean hands doctrine. The court also found in favor of the defendants on their other defenses and counterclaims.⁶ As a result, the court exercised its equitable discretion to reduce the amount of the secured debt to $932,877.25 plus attorney's fees.⁷

On appeal, the plaintiff challenges each of the court's adverse rulings.⁸ We need not, however, consider all of these claims if we conclude that the defendants have proven any of their special defenses or counterclaims. We have, therefore, focused our attention on the sustainability of the court's ruling with respect to the issue of unclean hands. We affirm the judgment on that basis.

II FINAL JUDGMENT

Before we discuss the merits of the plaintiffs appeal, we must determine whether the appeal is properly before us. As a matter of first impression, we must decide whether a judgment ordering a foreclosure by sale is appealable before the court has set a date for the foreclosure to take place.

Although the parties did not raise this question, we are required to consider it. "It is axiomatic that, except insofar as the constitution bestows upon [an appellate court] jurisdiction to hear certain cases; see Fonfara v. Reapportionment Commission, 222 Conn. 166, 610 A.2d 153 (1992); the subject matter jurisdiction of the Appellate Court and of [the Supreme Court] is governed by statute. Grieco v. Zoning Commission, 226 Conn. 230, 231, 627 A.2d 432 (1993). It is equally axiomatic that, except insofar as the legislature has specifically provided for an interlocutory appeal or other form of interlocutory appellate review; see, e.g., General Statutes § 52-278l (prejudgment remedies); General Statutes § 54-63g (petition for review of bail); General Statutes § 51-164x (court closure orders); State v. Ayala, 222 Conn. 331, 340, 610 A.2d 1162 (1992); appellate jurisdiction is limited to final judgments of the trial court." (Internal quotation marks omitted.) Conetta v. Stamford, 246 Conn. 281, 289-90, 715 A.2d 756 (1998); Waterbury Teachers Assn. v. Freedom of Information Commission, 230 Conn. 441, 447, 645 A.2d 978 (1994).

We have found only a few analogous cases to guide our resolution of this issue. In Paranteau v. DeVita, 208 Conn. 515, 523, 544 A.2d 634 (1988), our Supreme Court held that "a judgment on the merits is final for purposes of appeal even though the recoverability or amount of attorney's fees for the litigation remains to be determined." The bright line rule articulated in Paranteau was later extended to permit an immediate appeal from a judgment of strict foreclosure in which attorney's fees remained to be determined. Benvenuto v. Mahajan, 245 Conn. 495, 501, 715 A.2d 743 (1998). In coming to that conclusion, the Benvenuto court examined and disagreed with a contrary result reached by this court in Connecticut National Bank v. L & R Realty, 40 Conn. App. 492, 494-95, 671 A.2d 1315 (1996). Benvenuto v. Mahajan, supra, 500.

To answer the final judgment question in this case, we must first consider whether any part of our jurisdictional rulings in Connecticut National Bank survives after Benvenuto. In our decision that a strict foreclosure judgment was not appealable before the setting of law dates, we acted on two independent grounds. We held that the appeal was premature, first because the judgment did not address attorney's fees and second because the judgment did not set law days for redemption of the mortgage. Connecticut National Bank v. L & R Realty, supra, 40 Conn. App. 494-95. On the first, Benvenuto is dispositive. On the second, however, the Benvenuto decision does not give us clear instructions. Benvenuto v. Mahajan, supra, 245 Conn. 500-501.

Benvenuto thus leaves Connecticut National Bank under a cloud of uncertainty. At the least, however, Benvenuto counsels against an expansive reading of our case. If, as Benvenuto holds, piecemeal appeals are appropriate in strict foreclosure actions, they should be equally appropriate in cases of foreclosure by sale.

The conclusion, following Benvenuto, that foreclosure judgments are often appealable immediately is reinforced by a comparison of the function of law days in strict foreclosures with the function of dates for foreclosures by sale. Until law days are set, "the parties' rights remain unconcluded ... [and] a strict foreclosure judgment ... cannot be final...." Connecticut National Bank v. L & R Realty, supra, 40 Conn. App. 494. Such consequences do not attend the failure to set a date for the implementation of a judgment for a foreclosure by sale. Rights to redemption are not cut off by a foreclosure sale. "[S]uch rights survive the auction of the foreclosed property and may be exercised until such time as the judicial authority approves the foreclosure sale." Washington Trust Co. v. Smith, 241 Conn. 734, 742, 699 A.2d 73 (1997); see Raymond v. Gilman, 111 Conn. 605, 613, 151 A. 248 (1930); see also In the Matter of Loubier, 6 B.R. 298, 303 (D. Conn. 1980); D. Caron, Connecticut Foreclosures (2d Ed. 1989 & Sup. 1995-96) § 9.02B, p. 150. As best we can ascertain, no Connecticut appellate case has held that appellate review of judgments of foreclosure must await the setting of a date for a foreclosure sale.⁹ We conclude, therefore, that this appeal is properly before this court.

III MERITS OF THE APPEAL

Turning now to the merits of the plaintiffs appeal, we start with a statement of the essential facts described in Willow Funding Co., L.P., I. "This case arises out of successive assignments of a mortgage debt. On June 13, 1988 ... Grencom ... executed a note for $1,500,000, payable to Citytrust. The note was secured by a second mortgage on real estate in Greenwich. The defendants Arthur Collins and Arthur D. Emil became guarantors of Grencom's debt. The defendants did not repay the loan when it matured on June 15, 1991. Shortly afterward, Citytrust failed, and the Federal Deposit Insurance Corporation (FDIC) became its receiver. The FDIC hired Consolidated Asset Recovery Corporation [CARC] to service the Grencom loan. The plaintiff, Willow Funding Company, L.P., purchased the loan under sealed bid as part of a pool of loans. Accordingly, on December 6, 1994, the FDIC endorsed the note and assigned the mortgage to the plaintiff. On May 19, 1995, the plaintiff commenced this foreclosure action." Willow Funding Co., L.P., I, supra, 246 Conn. 617-18.

After a second trial to the court, the court concurred in the earlier finding of default on the Citytrust note and mortgage. Although the default established the plaintiffs right to foreclosure, further evidence at this trial persuaded the court, in the exercise of its equitable discretion, to reduce the amount of the defendants' indebtedness and, correlatively, the plaintiffs recovery.

One ground for the court's conclusion was that the defendants had sustained their affirmative defense of unclean hands. "The doctrine of unclean hands expresses the principle that where a plaintiff seeks equitable relief, he must show that his conduct has been fair, equitable and honest as to the particular controversy in issue.... Unless the plaintiffs conduct is of such a character as to be condemned and pronounced wrongful by honest and fair-minded people, the doctrine of unclean hands does not apply." (Citation omitted.) Bauer v. Waste...