Bank of America, N.A. v. Ledgercare, Inc. et al. (2012)

MEMORANDUM OF DECISION

FACTS

The Bank of America, N.A. brings this action against Ledgercare, Inc. and Roland West, in his capacity as a Guarantor.   Prior to trial, the parties stipulated to certain facts in a nine-page document (Ex. M).

It was stipulated that Ledgercare, Inc. is the owner of real property known as 2280–82 Barnum Avenue, Stratford, and that it maintains an office on the premises at 2282 Barnum Avenue.

In December of 2002, the Defendant Ledgercare, Inc. and Roland West, Guarantor, executed a series of documents (Ex. A through E), including a promissory note (Ex. A) in the amount of one hundred thirty-three thousand ($133,000.) dollars.   The note was secured by a first mortgage on 2280–82 Barnum Avenue (Ex. C) which is recorded at Volume 2022, page 234 of the land records of the Town of Stratford.   Four documents, the Promissory Note (Ex. A), a term loan agreement (Ex. B), the mortgage (Ex. C) and a guarantee Agreement (Ex. D) are dated December 9, 2002.   A Security Agreement, which included a description of the real property (Ex. E), bears a date of December 6, 2002.

Effective January 13, 2005, Fleet Bank, the lending institution with which the Defendants dealt in December of 2002, merged with Bank of America, N.A. (Ex. G).  The Plaintiff, Bank of America, N.A., is therefore the owner of the five documents signed in December of 2002.

The parties agree (Ex. M, par. 8, p. 4), that:  “Borrower shall be in default if ․ Borrower fails to pay the principal of, or interest on the Note or any other indebtedness of Borrower to Plaintiff within ten (10) days from the date the same or any instrument thereon shall become due and payable.”

On April 23, 2007, the Defendants, Ledgercare, Inc. and Roland West, acting individually, executed a Loan Agreement (Ex. H) with the Plaintiff, Bank of America, N.A. The line of credit was extended to a maximum of one hundred thousand dollars ($100,000.).

The Defendants failed to pay the amount due under the line of credit (Ex. H), and Bank of America demanded payment in full of all monies due under the line of credit.   The bank further demanded that the principal balance due under the December 9, 2002 Promissory Note (Ex. A) be paid in full on or before October 22, 2010.

At the time that demand was made by Bank of America, N.A., the Defendants admit that they were in default pursuant to the line of credit (Ex. H).  The Defendants were, however, current on their obligations contained in the Promissory Note (Ex. A), which obligations were secured by a mortgage on 2280–82 Barnum Avenue, Stratford.

The Defendants contend that they are not in default, concerning the Promissory Note, and other documents signed in December of 2002.   They maintain that their failure to pay the debt owed pursuant to the line of credit does not constitute an “event of default” under the December 2002 Promissory Note and the related documents.

In July of 2011, Bank of America, N.A. obtained a judgment against Ledgercare, Inc. in the amount of $81,297.63.   A judgment lien (Ex. L) has been placed on the property at 2280–82 Barnum Avenue, Stratford.   The property is owned by Ledgercare, Inc.

The operative pleading is the Plaintiff's three-count Amended Complaint dated October 13, 2011.   Count one seeks to foreclose the mortgage on 2280–82 Barnum Avenue, Stratford, dated December 9, 2002.   Count two seeks payment from the Defendant Roland West as Guarantor of the 2002 Promissory Note, pursuant to the Guarantee Agreement (Ex. B) signed in 2002.   Count three seeks possession of certain items of personal property, based upon the Security Agreement (Ex. E) dated December 6, 2002.

The Plaintiff, Bank of America, N.A., claims that the failure of the Defendants to repay the line of credit in accordance with the terms of the agreement (Ex. H), constitutes an event of default, pursuant to the terms of the 2002 Promissory Note (Ex. A).

The 2002 Term Loan Agreement, provides that an “Event of Default” shall include (Ex. B, page 6 of 11):

VII 1.  (b) failure to pay the principal of, or interest on, the Note or other indebtedness of the Borrower to the Bank, within ten (10) days from the date the same or any installment thereon shall become due and payable, whether at the date hereof or at a date fixed for prepayment or by acceleration or otherwise.

Bank of America, N.A. also points to language in the Security Agreement of December 6, 2002, Exhibit E, on page 3:

The security interest in the Collateral is granted to the Bank to secure the payment and performance of all indebtedness and obligations now or hereafter oweing from the Debtor to the Bank of whatever kind or nature, whether presently existing or hereafter arising.

The Defendants counter with the claim that the language of the Term Loan Agreement contained on page 6 is ambiguous.   They argue that the phrase “Note or any other indebtedness of Borrower to the Bank ․” should be read to include only existing indebtedness, not existing and future indebtedness.

The Defendants analogize their plight to a borrower confronted with a so-called “dragnet clause,” which seeks to encompass any indebtedness now or in the future owing by a mortgagor to a mortgagee.

The mortgage (Ex. C) signed by the Defendants contains a “dragnet clause.”   It reads:

This mortgage is granted to secure the following:

․ the payment of all indebtedness now or hereafter owing by the Mortgagor to Mortgagee ․ evidenced by a promissory note or agreement signed by the Mortgagor, whether or not otherwise secured.

The Defendants point out, that Bank of America, N.A. is not relying upon the “dragnet clause” in this litigation.   However, the relief sought in this case by Bank of America, N.A., is consistent with that which would be available under an enforceable “dragnet clause.”

The Bank of America, N.A. seeks to foreclose a mortgage, under circumstances where the underlying debt is not in default, in order to satisfy a subsequent, and unrelated debt.

The Defendants have cited no Connecticut case construing the “dragnet clause,” and the court has not discovered any Connecticut authority.   However, the “dragnet clause” has been the subject of judicial interpretation, in other jurisdictions.  (See First Bank & Trust Co. of Ottumwa v. Welch, 219 Iowa 318, 321 NW 96, 97;  Corn Belt Savings Bank v. Kriz, 207 Iowa 11, 18, 219 NW 503, 506;  First Nat. Bank, Cortez Colorado v. First Interstate Bank, 774 P.2d 645;  First Security Bank of Utah v. Shiew, 609 P.2d 952, 957.)

These cases indicate that “dragnet clauses” are disfavored, and are always strictly construed.   The rationale for strict construction is that such clauses are “boiler-plate,” are invariably drafted by the lender, are not negotiated, and the consumer is unaware of the implications.  First Security of Utah v. Shiew, supra.

A similarly strict construction should be applied to the provisions of the documents in this case.

A contract is to be construed as a whole, and all relevant provisions will be considered together.  Tremaine v. Tremaine, 235 Conn. 45, 57 (1995).   In giving meaning to the terms of a contract, it must be construed to effectuate the intent of the contracting parties.   The intention of the parties is to be determined from the language used, interpreted in the light of the situation of the parties, and the circumstances of the transaction.  HLO Land Ownership Associates Ltd. Partnership v. Hartford, 248 Conn. 350, 357 (1999).

Where the language of the contract is clear and unambiguous, the contract is to be given effect, according to its terms.   A court will not torture words to import ambiguity, where the ordinary meaning leaves no room for ambiguity.   Tallmadge Bros., Inc. v. Iroquois Gas Transmission System.   L.P., 252 Conn. 479, 498 (2000).   Any ambiguity must result from the language of the agreement itself, rather than from a party's selective perception of its terms.   Connecticut Light & Power Co. v. Lighthouse Landings, Inc., 279 Conn. 90, 110 (2006).

If the language of a contract is subject to more than one reasonable interpretation, then the agreement is ambiguous.  Lopinto v. Haines, 85 Conn. 527, 538 (1981).   A finding of ambiguity permits the trier of fact to draw reasonable inferences, based upon the circumstances surrounding the transaction.  Gaudio v. Griffin Hospital Services Corp., 249 Conn. 522, 533 (1999).   Where two or more meanings may be fairly given, the language is to be construed against the party that drew it;  Sturman v. Socha, 191 Conn. 1, 9 (1983);  because language of a contract is typically construed most strongly against the party whose language it is, and for whose benefit it was inserted.  Collins v. Sears Roebuck & Co., 164 Conn. 369, 376 (1973).

Furthermore, where there are multiple documents regarding the same transaction, the writings should be taken together, in ascertaining the intent of the parties.  Mongillo v. Commissioner, 214 Conn. 225, 229 (1990);  Schubert v. Ives, 158 Conn. 583, 587 (1969).

Here, the criteria utilized in evaluating a “dragnet clause,” are applicable.   The terms of the documents, all of which were executed in December of 2002, contain boiler-plate, were drafted by the lender, Fleet bank, were not negotiated, and were not signed under circumstances which gave the consumer an opportunity to be aware of the implications.

The fact that the Defendant, Roland West, is a certified public accountant, and did not read the documents, does not alter the nature of the relationship between the Borrower and the lender.   The terms and conditions which Bank of America, N.A. seeks to enforce in 2012, were not highlighted, or the subject of any specific acknowledgment by Roland West, when he signed the mortgage and related documents.

Four of the documents, Exhibits A through D, were all executed on the same day, and were all part of the same transaction, the mortgage on 2280–82 Barnum Avenue in the amount of $133,000.   It is also found that Exhibit E was designed to secure the mortgage as well.   The fact that Exhibit E contains language which reads:  “existing or hereafter arising,” is explained by the fact that it is dated prior to the remaining Fleet loan documents.

It is found that the failure of the Defendants to promptly pay all monies due pursuant to the line of credit (Ex. H), does not constitute an “event of default,” which triggers the immediate acceleration of the debt evidence by the Promissory Note (Ex. A) executed on December 9, 2002.

Exhibit H, executed more than four years after the 2002 mortgage documents, represents a separate and distinct transaction, as demonstrated by its terms.

The collateral which secured the line of credit involves personal property (Ex. H, p.2).   There is no mention in the line of credit of any security interest in real property, or any language alerting a potential borrower that he was placing any real estate at risk, in the event of a failure to pay.

The agreement, S. 9.9, page 9, provides:

One Agreement.   This agreement and any related security or other agreements required by this agreement collectively:

(a) represent the sum of the understandings and agreements between the Bank and the Borrower concerning this credit;

(b) replace any prior oral or written agreements between the Bank and the Borrower concerning this credit;  and

(c) are intended by the Bank and the Borrower as the final, complete and exclusive statement of the terms agreed to by them.

No provision of Exhibit H references a mortgage written in 2002, by a predecessor lending institution, or makes any reference to a mortgage on real property located at 2280–82 Barnum Avenue, Stratford.

Of course, the fact that no “event of default” has occurred, does not prevent the Bank of America, N.A. from satisfying the obligation due concerning the line of credit, by reaching real property assets of either Defendant.   It has done so, by placing a judgment lien on the 2280–82 Barnum Avenue parcel, which is subject to foreclosure.

Because the failure to pay in accordance with the line of credit, does not constitute an event of default concerning the mortgage obtained from Fleet Bank in 2002 (Ex. A through E), judgment may enter in favor of the Defendants Ledgercare and Roland West, as to all three counts of the October 13, 2011 Amended Complaint.

Costs are awarded to the Defendants.

RADCLIFFE, J.

Radcliffe, Dale W., J.