Caroline HIRSCHFELD v. Robert B. MACHINIST.
The plaintiff, Caroline Hirschfeld, appeals from the judgment of the trial court, which, in relevant part, held her responsible for payment of 55 percent of the costs and fees incurred by the defendant, Robert B. Machinist, in extending and providing security for a line of credit from First Republic Bank. On appeal, the plaintiff claims that the court committed error when, in allocating an escrow fund in which both parties had an interest, it added terms to the plain language of the parties' separation agreement, improperly held her responsible for 55 percent of those costs and fees, and authorized payment thereof from the escrowed proceeds. We reverse the judgment of the trial court.
The following facts are relevant to this appeal. As explained by the trial court: “The marriage of the parties was dissolved by decree ․ on February 2, 2007. At that time, the parties filed with the court a Separation Agreement ․ which the court approved and incorporated in its decree by reference. More than five years, several appeals, and one hundred [and] fifty motions later, the parties continue unabated their litigious ways․
“At the time of the dissolution, the parties had two outstanding lines of credit, one to [First] Republic Bank in the amount of $990,400 and another to Citibank in the amount of $595,000. Each line carried interest. The parties agreed that the [plaintiff] would pay 55 [percent] and the [defendant] 45 [percent] of the principal of each loan from their respective shares of the proceeds from the sales of the Greenwich and St. Barth[elemy] properties. In addition, while the [defendant] would continue to pay the monthly interest on these loans until such time as ‘the liabilities are extinguished,’ he would be entitled to a credit from the [plaintiff] in the amount of 55 [percent].”
On October 26, 2010, the defendant filed a motion for order with the trial court stating that the property in Vermont and in Greenwich had been sold, but that the property in St. Barthelemy still was for sale. The motion provided that the proceeds from the sales had been divided pursuant to the agreement, but that $45,468.27 remained in escrow, and the defendant requested that the court make a determination as to the proper allocation of the escrow. On April 9, 2012, the defendant amended his prayer for relief, requesting that the court award attorney's fees and any other equitable or legal relief that was warranted. The court held a series of hearings on this motion and several other motions that were pending before it. Specifically related to this motion, the defendant presented evidence that because of the delay in selling the properties, much of which he attributed to the plaintiff's behavior in “serially disrupt[ing] the sale of [the] property over a period of three and a half years,” he incurred $26,774 in costs and fees as a result of his need to enter into a secured contract with First Republic Bank on the line of credit he had with that bank. He explained that First Republic Bank wanted some security for the line of credit, which previously had been unsecured; that he secured the debt with another of his homes, not related to the dissolution action; and that he incurred costs and fees in doing so. He contended that the plaintiff, pursuant to the agreement, was responsible for 55 percent of those costs and fees. In response, the plaintiff argued that the defendant had entered into this new secured line of credit with the bank on his own, that the agreement did not contain any provision requiring her to pay additional costs and fees incurred by the defendant, and that she was not responsible for those costs and fees.
The court issued its memorandum of decision on August 3, 2012, finding in relevant part that there remained a “home equity line balance” in the amount of $26,774, together with interest, on the bank line of credit, and that both parties were obligated to pay this pursuant to paragraphs 6.8 and 6.9 of the agreement. The court explained that pursuant to the agreement, the defendant bore the sole responsibility of maintaining a line of credit with First Republic Bank, with the understanding that he would be reimbursed for 55 percent of his expenditures. The court further explained that this balance was due to the costs and fees incurred by the defendant when he was required to enter into a secured line of credit with First Republic Bank to extend the unsecured line of credit that he was required to maintain under the parties' agreement, and that the need for this extension was due in large part to the actions of the plaintiff, which resulted in substantial delays in selling the properties. Accordingly, the court ordered that the plaintiff was responsible for 55 percent of the balance on the secured line of credit, along with any interest and late fees that the plaintiff had paid on the lines of credit. This appeal followed.
On appeal, the plaintiff claims that the court committed error when it added terms to the plain language of the agreement and improperly held her responsible for a portion of the costs and fees incurred by the defendant when he entered into a secured line of credit with First Republic Bank. We agree.
“It is well established that a separation agreement, incorporated by reference into a judgment of dissolution, is to be regarded and construed as a contract․ Accordingly, our review of a trial court's interpretation of a separation agreement is guided by the general principles governing the construction of contracts․ A contract must be construed to effectuate the intent of the parties, which is determined from the language used interpreted in the light of the situation of the parties and the circumstances connected with the transaction․ If a contract is unambiguous within its four corners, the determination of what the parties intended by their contractual commitments is a question of law․ When the language of a contract is ambiguous, [however] the determination of the parties' intent is a question of fact, and the trial court's interpretation is subject to reversal on appeal only if it is clearly erroneous․ In interpreting contract items, we have repeatedly stated that the intent of the parties is to be ascertained by a fair and reasonable construction of the written words and that the language used must be accorded its common, natural, and ordinary meaning and usage where it can be sensibly applied to the subject matter of the contract.” (Citations omitted; internal quotation marks omitted.) Hirschfeld v. Machinist, 137 Conn.App. 690, 694–95, 50 A.3d 324, cert. denied, 307 Conn. 939, 56 A.3d 950 (2012).
For purposes of this appeal, three paragraphs of the agreement are claimed to be relevant. Each of the paragraphs is contained within Article VI of the agreement, which concerns the equitable division of assets. Paragraph 6.27 provides: “The parties shall each be responsible for the debts and liabilities shown on their respective financial affidavits and they shall share the balance of the First Republic [Bank] and Citibank loans, with the Wife paying 55 [percent] and the Husband paying 45 [percent]; except that the parties shall be equally responsible for the first $430,000 of the amount borrowed from Defendant's mother by the Defendant. The timing of payments of said liabilities shall be made pursuant to Paragraphs 6.9(b) and 6.9(c).”1
Paragraph 6.8 provides: “Upon the sale of any or all of the properties, all closing costs shall be paid 55 [percent] by the Wife and 45 [percent] by the Husband, including any mortgage balances, home equity line balances, real estate taxes, attorney fees, recording fees, typical and customary expenses for sale as determined in the jurisdiction where the property has been located.”
Paragraphs 6.9(a) and (b) provide: “(a) The net proceeds remaining shall be divided 55 [percent] to the Wife and 45 [percent] to the Husband. Each of the parties shall pay such federal, state and foreign taxes as may be imposed by any appropriate taxing authority in direct proportion to the percentage of the net proceeds received by the parties. The Wife shall be obligated to pay 55 [percent] of such taxes assessed and the Husband shall be obligated to pay 45 [percent] thereof.
“(b) From their respective net proceeds, the Wife shall be obligated to pay 55 [percent] and the Husband shall be obligated to pay 45 [percent] of the First Republic [Bank] liability ($990,400) and the Citibank liability ($595,000). Accordingly, simultaneously at the closing of the Greenwich and St. Barth[elemy] property, whichever closing shall first occur, the Wife shall pay First Republic [Bank] $544,720 and the Husband shall pay First Republic [Bank] $445,680. In addition and at the same time, the Wife shall pay Citibank $327,250 and the Husband shall pay Citibank $267,750. The Wife shall be obligated to pay 55 [percent] and the Husband shall be obligated to pay 45 [percent] of the interest associated with these liabilities for the time period from January 1, 2007 and until such time as the liabilities are extinguished. The Husband shall continue to pay the interest monthly and he shall receive a credit for 55 [percent] of the amount he paid against the sum owed to the Wife as described on the attached Schedule A.”
The plaintiff contends that there is no obligation contained within the clear and unambiguous language of the relevant portions of the agreement that requires her to pay for the costs and fees associated with the defendant's new secured line of credit from First Republic Bank. The defendant argues that “the principles of contract interpretation demonstrate that the plaintiff is responsible for a portion of the principal, interest and remaining balance pursuant to the plain language of the parties' separation agreement.” Accordingly, he argues, the court correctly determined that the agreement required him to maintain a line of credit with First Republic Bank and, read as a whole, the agreement also required the parties to share, proportionally, the expenses associated therewith, which remain as a “balance” on the line of credit. We agree with the plaintiff.2
The portions of the integrated agreement that the defendant cites in support of his argument and in support of the court's decision simply do not set forth the requirement that the plaintiff pay the costs and fees associated with the defendant's unanticipated refinancing of the unsecured line of credit by obtaining a new secured line of credit from First Republic Bank.3 Paragraph 6.27 of the agreement provides in relevant part that the parties shall share the balance of the First Republic Bank loan, with the plaintiff paying 55 percent and the defendant paying 45 percent, and that the timing of those payments be made in accordance with paragraph 6.9(b). Paragraph 6.9(a) provides in relevant part that the remaining net proceeds remaining after the property sales shall be divided 55 percent to the plaintiff and 45 percent to the defendant and that the parties are responsible for the payment of federal, state and foreign taxes that may be imposed according to their respective percentages. Paragraph 6.9(b) provides in relevant part that the plaintiff is obligated to pay 55 percent, and the 45 percent, of the interest associated with the First Republic Bank liability ($990,400) for the time period from January 1, 2007, and until such time as that liability is extinguished. The defendant was responsible for the payment of monthly interest, but he was entitled to receive a credit for 55 percent of the amount he paid against the sum owed to the plaintiff. The relevant portion of paragraph 6.8 provides that, from their respective shares of the property sales, each party shall pay, proportionally, all closing costs, including any mortgage balances, home equity line balances, real estate taxes, attorney fees, recording fees, and customary sale expenses.
Considering the plain language of the relevant terms of the agreement, we conclude that the costs and fees incurred in connection with the defendant's refinancing of the unsecured line of credit by obtaining a new secured line of credit from First Republic Bank were not included in the delineated closing costs set forth in paragraph 6.8 related to the sales of the parties' properties, nor were any closing costs and fees in connection with any subsequent refinancing provided for in paragraphs 6.9 or 6.27 of the agreement. We also conclude, therefore, that the court erred in holding the plaintiff responsible, pursuant to either paragraph 6.8, 6.9 or 6.27 of the agreement, for 55 percent of the costs and fees incurred by the defendant in refinancing the unsecured line of credit by obtaining a new secured line of credit from First Republic Bank, an event not referred to in that agreement.
The judgment is reversed and the case is remanded for further proceedings not inconsistent with this opinion.
In this opinion SHELDON, J., concurred.
This case presents an important issue concerning whether delay in the performance of a contractual promise that causes loss to another party to the contract is properly the responsibility of the delaying party to the extent she caused it. In my opinion, under the particular facts of this case and based on the implied covenant of good faith and fair dealing, the court properly found that it was. Accordingly, I respectfully dissent and would affirm the decision of the court.
When the parties to this dissolution action could not agree on whether the losses suffered by the defendant, Robert B. Machinist, due to the delay in selling their property in St. Barthelemy should be shared by the plaintiff, Caroline Hirschfeld, the defendant filed a motion with the court requesting that it make a determination as to the proper allocation of funds held by the couple in escrow. He later amended this motion to seek attorney's fees and other legal and equitable relief as warranted.
As part of a signed separation agreement, which pursuant to their request, the court approved and incorporated into the decree of dissolution of their marriage, the plaintiff and defendant agreed that they had two lines of credit. The one from First Republic Bank that was unsecured in the amount of $990,400 is in controversy on appeal. Paragraph 6.1 of the separation agreement provided that the parties owned three properties, located, respectively, in Greenwich, Vermont, and St. Barthelemy in the French West Indies. Paragraph 6.8 of the separation agreement provided that: “Upon the sale of any or all of the properties, all closing costs shall be paid 55 [percent] by the Wife and 45 [percent] by the Husband, including any mortgage balances, home equity line balances, real estate taxes, attorney fees, recording fees, typical and customary expenses for sale as determined in the jurisdiction where the property has been located.”
After the Greenwich and Vermont properties were sold, the defendant filed a motion with the court to determine how $45,468.27 remaining in escrow with the closing attorney should be distributed in light of the defendant's claim that there was an unpaid balance incurred by him in costs of collateralizing the First Republic Bank loan. He later amended this motion to request that the court award attorney's fees and any other legal or equitable relief. The court found that: “As to the Republic line, the original principal balance has been paid, however, there remains an outstanding balance due in the amount of $26,774, together with interest to date, which balance is due mainly to the husband's efforts to extend this line prior to the sale of the Greenwich property.”
The defendant presented evidence that the plaintiff serially disrupted the sale of the properties “over a period of three and a half years.” He offered evidence that because of these delays, he was required by First Republic Bank to secure the note and did so by mortgaging other property he owned. The court found that: “In viewing the Separation Agreement as a whole, in particular Articles 6.8 and 6.9, it is clear that the parties contemplated the payment of the loans from the ultimate sale of the marital properties as and when each sold. The parties also clearly agreed to divide both the principal, as well as the carrying costs, on a 55/45 basis. The husband was given the responsibility for maintaining these loans, with the understanding that he would be reimbursed for 55 [percent] of his expenditures. Given the considerable length of time it took to market and sell the properties, much of the delay attributable to the actions of the wife, this court finds that the husband's actions were reasonable and not beyond the contemplation of the parties at the time of the original agreement.”
As the defendant noted in his brief, on appeal, the plaintiff does not claim that the court's finding with respect to her part in causing delay is “clearly erroneous.” Instead her claim is that the court improperly found her responsible for a share of the costs and expenses of extending the First Republic Bank line of credit by granting it the security for its unsecured note that it demanded because of the delays in selling the properties, thus going beyond the plain language of the agreement. We generally review a case on the theory upon which it was tried and decided in the trial court. Lashgari v. Lashgari, 197 Conn. 189, 196, 496 A.2d 491 (1985). “It is equally true that we need not address other issues raised on appeal if the trial court has correctly decided an issue that is sufficient to sustain the judgment.” (Emphasis in original.) Id.
In interpreting divorce judgments that incorporate written separation agreements, our courts look to contract principles. See Hirschfeld v. Machinist, 137 Conn.App. 690, 694–95, 50 A.3d 324, cert. denied, 307 Conn. 939, 56 A.3d 950 (2012). The court found that the defendant's actions in collateralizing the First Republic Bank note, as the bank requested, given the delays in its repayment, were not beyond the contemplation of the parties at the time of the original agreement. If the plaintiff had delayed the sale for one day, it is doubtful that either the parties or this court would be concerned. However, if she had delayed the sale for twenty years, requiring that the defendant undergo the additional expense of collateralizing the loan with other property, should it be the defendant's sole responsibility to pay that cost caused by the plaintiff's delay because there was no express contractual provision providing for that? My point is that the length of the plaintiff's delay in fulfilling her performance of the separation agreement can reach a point where it deprives the defendant of what he had the right to expect under the contract's terms.
“[E]very contract carries an implied duty requiring that neither party do anything that will injure the other to receive the benefits of the agreement.” (Internal quotation marks omitted.) De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., 269 Conn. 424, 432, 849 A.2d 382 (2004). This principle is called the implied covenant of good faith and fair dealing.1 The implied covenant of good faith and fair dealing exists in every contract, although not expressed, precisely because no written agreement can ever contemplate every possible way that a party's performance can injure the right of the other party to receive the benefits of the agreement. The separation agreement provided that three marital properties were to be sold, and that after the note obligation and expenses of sale were satisfied, the parties would split the net proceeds on a 55 percent to 45 percent basis. It presumed that each party would act in good faith and fairly in the performance of the contract. If the plaintiff did not so act, and was responsible for much of the three and a half year delay, causing the defendant expense, it would not be fair to require the defendant to bear that expense solely, because it would diminish the return he was entitled to receive under section 6.8 of the parties' separation agreement from the equity in these properties. Where a short delay would be de minimis, given a three and one half year delay here, the court held that the defendant's actions in collateralizing the note were not beyond the contemplation of the parties when they executed their separation agreement.
Paragraph 6.9 of the separation agreement provided that after payment of the closing costs set out in paragraph 6.8, the net proceeds remaining shall be divided 55 percent to the plaintiff and 45 percent to the defendant. From these net proceeds, the defendant was to pay First Republic Bank $445,680 and the plaintiff was to pay First Republic Bank $544,720. The plaintiff's position is that although the court found her responsible for delaying her performance in connection with the sale of the marital real estate, she should not be obligated to pay any of the additional collateralization costs incurred by the defendant. She maintains this position, even though the court found that after the execution of the contract, she had delayed her performance of that very contract, causing detriment to the defendant compensable in money damages.
Although the defendant-appellee did not brief the implied covenant of good faith and fair dealing, I believe that this doctrine correctly resolves the present case. Where the trial court has decided a particular case properly, I know of no case which stands for the proposition that the prevailing party as appellee can “abandon” the grounds of the court's decision by some claimed lack of reference in its brief to the principle of justice that guided the court. A trial court's proper ratiocination is relevant and is entitled to review. Although the appellee has not briefed the covenant of good faith and fair dealing, there could be no surprise to the parties by its invocation because it is a covenant that is implied in all contracts, of which the trial judge is presumed to know and which exactly fits within the court's factual findings. Moreover, an aggrieved party appeals from the judgment of the trial court, which is what we review; the arguments advanced by counsel are not necessarily dispositive of this court's scope of review. A trial court cannot be ambushed if it is affirmed on the basis of the principles that guided its judgment, regardless of the arguments advanced by an appellee in defending that court's judgment. Any concern that the plaintiff-appellant has not had an opportunity to address this doctrine could be accommodated by giving both parties the opportunity to brief it before judgment enters on the appeal.
The trial court in the present case did not specifically mention the implied covenant of good faith and fair dealing in its decision. However, we have previously held that courts are presumed to know the law, unless something of record indicates otherwise. Fenton v. Connecticut Hospital Assn. Workers' Compensation Trust, 58 Conn.App. 45, 54–55, 752 A.2d 65, cert. denied, 254 Conn. 911, 759 A.2d 504 (2000). “Effect must be given to that which is clearly implied as well as to that which is expressed.” (Internal quotation marks omitted.) Lashgari v. Lashgari, supra, 197 Conn. at 197, 496 A.2d 491. In applying that prescription, our Supreme Court, in considering a distinct issue, has held that while a court must consider all of the criteria set forth in General Statutes § 46b–81 governing assignment of marital assets in dissolution proceedings at the time of entry the decree of divorce, it need not make explicit reference to them or make express findings as to each statutory factor. Dombrowski v. Noyes–Dombrowski, 273 Conn. 127, 137, 869 A.2d 164 (2005).
There is no good reason why a court should not also be excused from making particular reference to the principle of good faith and fair dealing in postjudgment proceedings, either. This is particularly so where the court has found that the plaintiff was responsible for much of the postjudgment delays in performance.2 “The covenant of good faith and fair dealing presupposes that the terms and purpose of the contract are agreed upon by the parties and that what is in dispute is a party's discretionary application of a contract term.” (Internal quotation marks omitted.) De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., supra, 269 Conn. at 433, 849 A.2d 382. “Effect must be given to that which is clearly implied as well as to that which is expressed.” (Internal quotation marks omitted.) Lashgari v. Lashgari, supra, 197 Conn. at 197, 496 A.2d 491. The plaintiff claims that the court improperly “added terms to the agreement.” However, a court does not “add” an implied covenant, which is a part of every contract. Professor Corbin's treatise says succinctly: “Probably the most we can say is that ‘implied’ generally means ‘not express', and that implication deals with things not expressly in the contract.” 6 P. Linzer, Corbin on Contracts (Rev. Ed.2010) § 26.1, p. 397.
It is well settled that a breach of the implied covenant of good faith and fair dealing is, in essence, a breach of contract—and, therefore, subject to the general rules governing the law of contracts. “The general rule in breach of contract cases is that the award of damages is designed to place the injured party, so far as can be done by money, in the same position as that which he would have been in had the contract been performed․ Traditionally, consequential damages include any loss that may fairly and reasonably be considered [as] arising naturally, i.e., according to the usual course of things, from such breach of contract itself.” (Citation omitted; internal quotation marks omitted.) Sullivan v. Thorndike, 104 Conn.App. 297, 303–304, 934 A.2d 827 (2007), cert. denied, 285 Conn. 907, 908, 942 A.2d 415, 416 (2008).
This court addressed the specific issue of a party's breach of the implied covenant of good faith and fair dealing in Landry v. Spitz, 102 Conn.App. 34, 925 A.2d 334 (2007). In that case, we held that: “[W]hen one party performs the contract in a manner that is unfaithful to the purpose of the contract and the justified expectations of the other party are thus denied, there is a breach of the covenant of good faith and fair dealing, and hence, a breach of contract, for which damages may be recovered; reasonable or justified expectations, in turn, are to be determined by considering the various factors and circumstances that surround the parties' relationship and thereby shape or give contour to the expectations in the first instance. 23 S. Williston [Contracts (4th Ed. Lord 2002) ] § 63:22, p. 514.” (Internal quotation marks omitted.) Landry v. Spitz, supra, at 44–45, 925 A.2d 334; see also Atlantic Mortgage & Investment Corp. v. Stephenson, 86 Conn.App. 126, 144, 860 A.2d 751 (2004) (“nothing in the contract [prohibits] an award of damages to the defendants for the plaintiff's breach of the implied covenant, which is an implicit provision in every contract” [emphasis in original] ). Thus, “[a] claim for breach of good faith and fair dealing is ․ nothing more than a breach of contract claim and is analyzed like a claim for the breach of any other contractual duty.” (Footnote omitted.) 17B C.J.S. 274–75, Contracts § 826 (2011). The appropriate remedy for a breach of the implied covenant of good faith and fair dealing, therefore, is money damages.
In Landry, this court further considered how it should review a trial court's decision to award damages for breach of the implied covenant of good faith and fair dealing. “[T]he trial court has broad discretion in determining damages․ The determination of damages involves a question of fact that will not be overturned unless it is clearly erroneous․ When, however, a damages award is challenged on the basis of a question of law, our review [of that question] is plenary.” (Citation omitted; internal quotation marks omitted.) Landry v. Spitz, supra, 102 Conn.App. at 49–50, 925 A.2d 334; see also Spilke v. Wicklow, 138 Conn.App. 251, 262, 53 A.3d 245 (2012), cert. denied, 307 Conn. 945, 60 A.3d 737 (2013).
The defendant-appellee did in fact offer evidence that the expenses associated with collateralization had not been paid off and his counsel argued before the trial court that the $26,744 is an unpaid balance and on appeal briefed the argument that the term “balance” means “any charges above and beyond the principal and interest already accounted for in the agreement. This would include the carrying costs and fees that the [defendant] incurred in extending the First Republic home equity line of credit pending the sale of the parties' property.” The court rightly determined that “the husband is entitled to be reimbursed by the wife 55 [percent] of any interest and late fees that he expended for both the First Republic Bank and Citi lines of credit, and, in addition, the wife is responsible for 55 [percent] of any outstanding balances on either or both lines of credit.” This would include the unpaid fees and expenses incurred by the defendant-husband to extend the First Republic Bank loan.
In analyzing the foregoing, our law suggests that: (1) the breach of the implied covenant of good faith and fair dealing is one species of a breach of contract; (2) the ordinary remedy for breach of contract is money damages; and (3) the trial court has broad discretion to fashion the appropriate measure of damages. Applying this law to the present case, I conclude that upon finding the plaintiff was responsible for much of the delay, the court did not abuse its discretion in awarding damages to the defendant for the plaintiff's failure to timely effectuate the sale of the couple's property.3
Did the written agreement concerning the sale permit the plaintiff to neglect or delay to close the sale contrary to the defendant's justified expectations and pass the costs of the attendant delay solely to the defendant? The court found that it did not. I would affirm the court's judgment.
I respectfully dissent.