Joseph Marone et al. v. Drzislav Coric et al. (2011)

MEMORANDUM OF DECISION

Facts and Procedural History

This motion for summary judgment arises from a claim for interest brought by the plaintiffs, Joseph and Rosemarie Marone, against the defendants, Drzislav and Vladmir Coric.   The following facts are undisputed.   In 1985, the plaintiffs purchased a parcel of undeveloped land on Route 32 in Montville (“the property”) with the defendants' parents.   Subsequently, the plaintiffs and the defendants' parents formed a general partnership known as Vizion Enterprises (“the partnership”), in which the plaintiffs and the defendants' parents each held equal ownership interests.   The property was transferred into the partnership and is its sole asset.

In 2005, the parties entered into a purchase agreement in which the defendants agreed to pay one million dollars to the plaintiffs for their fifty percent interest in the partnership.   The defendants intended to develop the property by obtaining a zoning change to increase the allowable density of the real estate in order to build condominiums.   Pursuant to the purchase agreement, half of the purchase price was to be paid at the November 22, 2005 closing, and the remaining $500,000 was due on or before May 30, 2006.

Additionally, the purchase agreement contained the following provisions.   Paragraph two stated:  “Upon request of the buyer, the second payment may be delayed for a maximum period of 180 days for an additional payment of $50,000 ․ However in the event of default in the second payment, interest will accrue after expiration of the 180 days at the rate of 10% per annum until paid.”   Paragraph nine of the agreement is titled “Mutual Release,” in which the parties agreed to release each other from any and all claims or actions, except those specifically reserved.

At the November 22, 2005 closing, the defendants executed and delivered to the plaintiffs a check in the amount of $500,000, a promissory note for $500,000, and a pledge and security agreement to collateralize the defendants' debt to the plaintiffs.   In turn, the plaintiffs executed assignments of their ownership interest in the partnership to the defendants.   The defendants, however, did not tender the second payment by May 30, 2006.   As a result of the delay provision contained in paragraph two of the purchase agreement and an extended maturity provision contained in the promissory note,¹ the extended maturity date became November 27, 2006.

On or about December 1, 2006, the parties entered into an amendment to the purchase agreement.   The amendment acknowledged the defendants' payment of $100,000, “which constitutes the $50,000 payment due for a 180 day extension under current paragraph 2 of the [purchase agreement], plus an additional $50,000 for an extension for an additional 120 days from November 27, 2006 pursuant to the terms and conditions of an extension letter dated September 25, 2006 ․” Paragraph three of the amendment further provided that “[e]xcept as amended herein the purchase agreement shall ․ remain in full force and effect.”

On August 28, 2007, the defendants delivered a $500,000 check for the second payment.   On that same date, the plaintiffs claimed entitlement to $24,999.33 in interest at ten percent per annum for the period of May 26, 2007 through August 28, 2007.   The plaintiffs' demand for the interest was rejected by the defendants.   In their June 25, 2008 complaint, the plaintiffs seek this interest, which the defendants deny that they are obligated to pay.

Moreover, in their special defense and counterclaims, the defendants allege mutual mistake and innocent misrepresentation and seek a refund of a portion of the purchase price of the property.   The basis of the defendants' special defense and counterclaims is that the property only contains 17.65 acres rather than 21 acres.   The defendants conducted a survey of the property in October 2007, which revealed that the land was almost four acres smaller than what was represented by a 1984 DiCesare-Bentley layout of the property,² the records of the Montville town clerk, and the warranty deed attached to the purchase agreement.

In their motion for summary judgment, filed February 16, 2010, the plaintiffs argue the defendants' claims of innocent misrepresentation and mutual mistake must fail as a matter of law and as a result, judgment should be rendered in their favor.   The defendants filed their memorandum in opposition on October 21, 2010, and the plaintiffs filed their reply on November 10, 2010.

Discussion

“Practice Book § 17-49 provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.   In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party.”  (Internal quotation marks omitted.)  Sherman v. Ronco, 294 Conn. 548, 553-54, 985 A.2d 1042 (2010).  “In ruling on a motion for summary judgment, the court's function is not to decide issues of material fact, but rather to determine whether any such issues exist.”  Nolan v. Borkowski, 206 Conn. 495, 500, 538 A.2d 1031 (1988).

The plaintiffs' primary argument in support of summary judgment is that there was no mutual mistake because the acreage differential was not material to the defendants' purchase of their fifty percent interest in the partnership.   The plaintiffs also argue that paragraph nine of the purchase agreement, the “Mutual Release Clause,” provides a complete defense to the defendants' claims and that the defendants assumed the risk of the mistake, given that they failed to conduct a survey of the property prior to entering into the purchase agreement.

“A mutual mistake is one that is common to both parties and effects a result that neither intended ․ In that sense, a mutual mistake requires a mutual misunderstanding between the parties as to a material fact ․ Whether there has been a mutual mistake is a question of fact.”  (Citations omitted;  internal quotation marks omitted.)  BRJM, LLC v. Output Systems, Inc., 100 Conn.App. 143, 148, 917 A.2d 605, cert. denied, 282 Conn. 917, 925 A.2d 1099 (2007) (addressing buyer's appeal of trial court's finding, after a trial on the merits, that parties' agreement was void due to mutual mistake as to the size of the subject property, its ability to be subdivided, and its fair market value).

Moreover, “[t]he legal concept of mistake is similar to the legal concept of misrepresentation in that, under each, a party to a contract may be relieved from his obligations if he was unaware of certain material facts.”  (Internal quotation marks omitted.)  McBurney v. Cirillo, 276 Conn. 782, 815, 889 A.2d 759 (2006).  “A person is subject to liability for an innocent misrepresentation if in a sale, rental or exchange transaction with another, [he or she] makes a representation of a material fact for the purpose of inducing the other to act or to refrain from acting in reliance upon it ․ even though it is not made fraudulently or negligently ․ an innocent misrepresentation is actionable, even though there [is] no allegation of fraud or bad faith, because it [is] false and misleading ․” (Citation omitted;  internal quotation marks omitted.)  Gibson v. Capano, 241 Conn. 725, 730, 699 A.2d 68 (1997).   Thus, “[t]he elements of [a cause of action for innocent misrepresentation] are (1) a representation of material fact, (2) made for the purpose of inducing the purchase, (3) the representation is untrue, and (4) there is justifiable reliance by the plaintiff on the representation by the defendant and (5) damages.”  Matyas v. Minck, 37 Conn.App. 321, 333, 655 A.2d 1155 (1995).

This court has previously determined that a plaintiff's claim for contract reformation on the basis of the existence of a mutual mistake in the contract's execution was inappropriate for summary adjudication.   See HSBC Mortgage Services, Inc. v. Cooper, Ernest, Arley, Superior Court, judicial district of New London, Docket No. CV 05 4003044 (March 4, 2008, Martin, J.).   In HSBC Mortgage Services, Inc. v. Cooper, Ernest, Arley, the plaintiff moved for summary judgment seeking reformation of a mortgage.   Specifically, the plaintiff sought to reform the mortgage to correct a conflict in the mortgage deed description.

The transfer clause of the mortgage deed identified a property located in Groton, Connecticut to be secured by the mortgage, while an exhibit appended to the mortgage deed described a property located in Hamden, Connecticut.   The plaintiff argued that there was no genuine dispute that the mortgage deed was secured by the property located in Groton, Connecticut and the conflicting exhibit was the result of a mutual mistake.   This court disagreed, noting that whether the parties to a contract are mutually mistaken is generally a question of fact.

Similarly, in the present case, the court is satisfied that the existence of a mutual mistake and/or innocent misrepresentation in the purchase agreement raises issues of fact sufficient to defeat the plaintiffs' motion.   The parcel of undeveloped property on Route 32 in Montville is the only asset of the partnership and therefore, is the sole subject of the purchase agreement.   The defendants' 2007 survey of the property revealed that the property contained 17.65 acres rather than the 21 acres as indicated by the 1984 DiCesare-Bentley layout, the warranty deed attached to the purchase agreement, and even the records of the Montville town clerk.   More significantly, the parties' depositions show that since the property was acquired by the partnership in 1985, the plaintiffs, the defendants' parents, and the defendants sincerely believed and repeatedly represented to each other that the property contained around 21 acres.

The court concludes that the materiality of this acreage differential is an issue to be determined by the trier of fact.   While the plaintiffs' attest “[t]he number of acres played no role in the plaintiffs' decision to sell their partnership interest and played no role in the plaintiffs' determination of an agreeable purchase price,” the defendants disagree.   Central to the defendants' special defense and counterclaims is their argument that the sixteen percent reduction in the size of the property is material and entitles them to a refund of a portion of the purchase price.   Specifically, Drzislav Coric, in his affidavit and deposition, argues that a change in acreage effects the density per acre, which in turn impacts the number of units that can be built on the property.

In light of this finding, the court will not address the plaintiffs' argument as to the effect of the purchase agreement's “Mutual Release Clause,” because the enforceability of the purchase agreement itself is a disputed issue at this stage of the litigation.   Finally, the court also declines to address the plaintiffs' argument that the defendants assumed the risk of the mistake by failing to conduct a survey property prior to entering into the purchase agreement.³

Conclusion

For all of the foregoing reasons, the plaintiffs' motion for summary judgment is hereby denied.

Martin, J.

FOOTNOTES

FN1. The promissory note, dated November 22, 2005, stated that the maturity date was “not to exceed 180 days ․ subject to a payment of $50,000 ․ in the event that payment is not made by the extended maturity, interest will accrue on the unpaid principal balance at a rate of 10% per annum until paid.”.  FN1. The promissory note, dated November 22, 2005, stated that the maturity date was “not to exceed 180 days ․ subject to a payment of $50,000 ․ in the event that payment is not made by the extended maturity, interest will accrue on the unpaid principal balance at a rate of 10% per annum until paid.”

FN2. DiCesare-Bentley is a professional land surveyor.   Its 1984 layout of the property referenced “20.89 +/- acres,” but was not an A-2 survey..  FN2. DiCesare-Bentley is a professional land surveyor.   Its 1984 layout of the property referenced “20.89 +/- acres,” but was not an A-2 survey.

FN3. The court notes, however, that “[w]here there is misrepresentation, the fault of the victim in failing to discover the truth does not preclude relief unless it is so extreme as to amount to a failure to act in good faith and in accordance with reasonable standards of fair dealing.”   Pacelli Brothers Transportation, Inc. v. Pacelli, 189 Conn. 401, 409, 456 A.2d 325 (1983)..  FN3. The court notes, however, that “[w]here there is misrepresentation, the fault of the victim in failing to discover the truth does not preclude relief unless it is so extreme as to amount to a failure to act in good faith and in accordance with reasonable standards of fair dealing.”   Pacelli Brothers Transportation, Inc. v. Pacelli, 189 Conn. 401, 409, 456 A.2d 325 (1983).

Martin, Robert A., J.