Bernard Livingston v. Todd Frascarelli (2013)

MEMORANDUM OF DECISION

I. Background

This action was brought by writ summons and complaint returnable to the Superior Court judicial district of Stamford/Norwalk at Stamford on May 17, 2011.   The plaintiff asserts in one count that he is the holder, and or owner of a promissory note pursuant to which the defendant promised to pay to the plaintiff's now deceased wife $300,000 with interest thereon in accordance with its terms.   The defendant has denied the material allegations of the complaint and in addition has asserted six special defenses.   The case was tried to the court on January 24, 2013 and February 15, 2013.

II. Facts

1. The defendant had a significant relationship with Jennifer Livingston (Jennifer) over the course of twelve years which eventually resulted in the birth of their daughter in 2005.

2. The plaintiff is the grandfather of Jennifer.

3. In 2001 the defendant and Jennifer purchased a home in Fairfield.   The plaintiff and his now deceased wife Constance Livingston (Constance) provided the funds for the acquisition of that home.   Constance was Jennifer's grandmother.   Though the defendant and Jennifer never married they lived together from 2001, with intermittent breakups, until their final breakup in 2011.

4. In 2004 the defendant and Jennifer sold the Fairfield house and purchased a house in Stamford (the Winesap Road house) for a price of $692,000.   The funds for the purchase came from the plaintiff and Constance as well as the proceeds of the Fairfield property.

5. In consideration of the financial participation of Constance and the plaintiff in the acquisition of the Winesap Road house the defendant signed a promissory note dated May 2, 2005 payable to the order of Constance in the principal amount of $300,000.   The promissory note bears interest at the rate of 5% per annum on the unpaid balance.   The promissory note calls for payment “on demand, or if a mortgage is placed on premises 155 Winesap Road, Stamford, Connecticut or if these premises are sold.”   Jennifer also signed a promissory note which was payable to the plaintiff in the principal amount of $250,000 in consideration of the financial participation of Constance and the plaintiff in the acquisition of the Winesap Road property.

6. The defendant's note was payable to Constance rather than the plaintiff because Constance was in poor health and it was anticipated that she would likely die before the plaintiff.

7. On October 20, 2005 a daughter, Ava Frascarelli, was born to the defendant and Jennifer.   Ava, of course, is the great-granddaughter of the plaintiff and Constance.

8. The plaintiff over the course of his life had built a successful real estate investment and management firm and the plaintiff and Constance were people of significant wealth.   As an example of their wealth the inventory filed for the Estate of Constance upon her death exceeded a value of $16,000,000.   During her relationship with the defendant, Jennifer was employed with the plaintiff's real estate firm.   The defendant was not a person of comparable means.   At one time during the relationship he earned $60,000 a year and towards the end of his relationship with Jennifer he was employed only part-time.

9. In April of 2008 the defendant and Jennifer sold the Winesap Road house for $644,500 and purchased another property at 23 Old Orchard Lane, Stamford, Connecticut for a purchase price in excess of $1,400,000.   Notwithstanding the terms of the May 5, 2005 promissory note, the note was not paid to Constance at that time;  the funds from the sale of the Winesap Road house were used to purchase the 23 Old Orchard Lane home and the balance of the 23 Old Orchard Lane purchase price came from funds owned by Jennifer.   The 23 Old Orchard Lane home was owned by both Jennifer and the defendant.

10. Prior to Constance's death, but while Constance was in poor health, the plaintiff and the defendant had a conversation in which the plaintiff said to the defendant that the defendant's obligation under the note would be forgiven when Constance died.   The defendant did not provide any consideration to the plaintiff in exchange for this promise.   Constance did not forgive the note during her lifetime, and notwithstanding the promise of the plaintiff he did not forgive the note after Constance's death.

11. The defendant made 10 payments on account of the note prior to the death of Constance usually in the amount of $1,500 or multiples thereof.  (One payment was for $750.)   The defendant also made three payments subsequent to the death of Constance each in the amount of $1,500, on July 1, 2008, February 2, 2009 and May 29, 2009.

12. The relationship between the defendant and Jennifer was rocky and turbulent and during the course of the 12–year relationship there were occasions when they temporarily separated or lived in different sections of the same house.   During the term of the relationship the defendant, the plaintiff and Constance all considered themselves as having a family-like relationship.

13. Constance died on January 26, 2008.   The plaintiff was appointed Executor of her Estate and filed an inventory of her Estate on November 16, 2008.   In the November 16, 2008 inventory the plaintiff omitted to list either the promissory note from the defendant or the promissory note from Jennifer as an asset of the Estate.   On January 5, 2009 by a written document the plaintiff in his capacity as Executor of the Estate of Constance assigned both the promissory note executed by the defendant as well as the promissory note executed by Jennifer to himself individually.   On October 4, 2012 the plaintiff in his capacity as the Executor of the Estate of Constance filed an amended inventory which included the promissory note from the defendant (but not the promissory note from Jennifer).

14. Subsequent to Constance's death the defendant and Jennifer decided that they would permanently dissolve their relationship and Jennifer brought an action in the Superior Court of the judicial district Stamford/Norwalk at Stamford, Family Division claiming, inter alia, joint custody of Ava, a parenting plan, and partition of the 23 Old Orchard Lane property.   Jennifer and the defendant reached a written separation agreement dated February 14, 2011 which became an order of the court.   By this time Jennifer had acquired an ownership interest in the business that was formally owned by her grandfather and she was a president and CEO of that business.   The separation agreement included provisions that the defendant and Jennifer would have joint legal custody of Ava in accordance with a final parenting plan, and that Jennifer would pay the defendant $2,500 per month child support for a specified period of time.   At the time of this separation agreement the 23 Old Orchard Lane property had a fair market value of approximately $1,200,000.   There was no mortgage on the property.   The separation agreement included a provision wherein the defendant would transfer all of his right, title and interest in that property to Jennifer and that simultaneously therewith Jennifer would pay the defendant the sum of $300,000.   Both parties were represented by counsel in the negotiation, drafting and execution of the separation agreement.   The separation agreement does not say anything about the disposition of the defendant's May 5, 2005 promissory note.

15. The defendant believed that as a part of the settlement agreement the note to Constance was forgiven.   There is no evidence before the court that the plaintiff ever authorized anyone to represent to the defendant that the note would be forgiven as a part of the settlement agreement.

16. While there were discussions about the forgiveness of the note leading up to the drafting of the settlement agreement, the settlement agreement does not contain any mention of the note or forgiveness thereof.   The settlement agreement was filed with the court on or about February 14, 2011.   The plaintiff made demand on the defendant for payment of the promissory note a little more than two months later on April 21, 2011.

III. Discussion

While it is not inevitable, it is not uncommon for significant loans between people who have familial or quasi-familial relationships to begin with formal documentation only to be followed by a course of conduct that is ambiguous and confusing which leaves the parties with different expectations and understandings.   Both the plaintiff and the defendant have contributed in their conduct to these ambiguities.   For example, the plaintiff claims that he believed the note had been forgiven upon Constance's death.   However, he made three payments on the note subsequent to Constance's death.   This is certainly inconsistent with his position that the note had been forgiven.   Moreover, the plaintiff through his counsel had discussions during the negotiation of the separation agreement about the promissory note and its forgiveness as a part of the separation agreement (though notably the plaintiff was not party to those negotiations).   That too is inconsistent with defendant's position that the note had already been forgiven.

Likewise neither party did anything to amend the note at such time as the Winesap Road property was sold and the proceeds used to purchase the Old Orchard Hill property, notwithstanding the unambiguous terms of the note that required it to be paid upon sale of the Winesap Road property.   The plaintiff participated in discussions with the defendant which may well have left the defendant with an impression the note would be forgiven sometime in the future.   The plaintiff's failure to include the note in the original inventory or to amend the inventory until years after the plaintiff executed an assignment of the note indicates that the plaintiff treated the note with less formality than an arms length transaction would usually dictate.   Moreover, the plaintiff's delay in making demand for payment of the note until a time that was more than three years after the death of Constance, more than two years after the assignment of the note from himself as Executor to himself individually, approximately two years from the last payment by the defendant to the plaintiff, but only two months after the separation agreement and transfer by the defendant of all his right title and interest in the 23 Old Orchard Hill property is troublesome.

Notwithstanding those concerns a review of the evidence in this case, as well as an analysis of the special defenses leaves the court to the conclusion that the plaintiff must prevail.

When all is said and done the evidence is clear that the plaintiff and Constance loaned the defendant funds and that in consideration of that loan the defendant executed the subject promissory note.   The evidence is clear that the defendant made some payments on the note.   The parties stipulated that demand has been made and the evidence shows that there is a balance due on the promissory note.   The special defenses asserted by the defendant either do not act as a bar to the plaintiff's claim, or were not proven.   The note by its terms is to be “construed, governed and enforced” in accordance with New York law, and accordingly, the court will apply New York law where applicable.

In two of his special defenses the defendant asserts that the plaintiff is not a holder in due course.   Under New York law (as well as under Connecticut law) the plaintiff does not need to be a holder in due course in order to collect as an assignee of the note.  Carlin v. Jamal, 819 N.Y.S.2d 391 (App.Div. First Dept.2009).   See also Thomas v. Richardson, 818 N.Y.S.2d 516;  C.G. S. Sec 42a–3–301 and 42a–3–309;  Ninth RMA Partners, L.P. v. Krass, 57 Conn.App. 1, 6 (2000).   In the second special defense the defendant asserts that the promissory note “fails for lack of consideration” but the evidence is clear that there was consideration to support the execution note;  to wit, the providing of funds for the acquisition of the Winesap Road house.   The third special defense asserts that the promissory note is “payable to order, and not payable to order or bearer” and that as such the plaintiff is not entitled to enforce the note as bearer.   As Executor, consistent with Constance's will which was introduced into evidence, he had the power to assign the note.   The evidence demonstrates that he did just that.   As assignee he was empowered to enforce the note.   See e.g. Colburn's Appeal, 74 Conn. 463 (1902).   In special defenses five and six the defendant alleges the notes and debts owed by the defendant to Constance, her assigns, her beneficiaries and/or the plaintiff were either “extinguished and/or satisfied by accord and satisfaction” or “forgiven as part of a previous settlement agreement.”   Presumably the special defenses address the separation agreement entered into between the defendant and Jennifer, or testimony of the defendant concerning promises to forgive the note or testimony of the defendant concerning alleged gifts of partial forgiveness made by the plaintiff or Constance.   However, regarding the separation agreement, at no time did the defendant introduce evidence that even remotely proved that Jennifer was authorized to compromise in any way the rights of either Constance or the plaintiff pursuant to the promissory note for her own benefit.   The separation agreement entered into between the defendant and Jennifer resolved litigation between the defendant and Jennifer to which the plaintiff was not a party.   There is no evidence that the plaintiff authorized Jennifer to forgive the note or to represent that he would forgive the note under any circumstances.   Without such evidence the court cannot find that the plaintiff's interest in the note was compromised or the defendant's debt forgiven regardless of what the defendant may have believed or what the defendant believes is equitable.¹  Moreover, while the defendant did introduce strongly contested testimony concerning the plaintiff's and Constance's intent to make certain gifts of partial forgiveness of the note, he introduced no evidence that could be construed as delivery or constructive delivery of such gifts.   Delivery is an essential element of a gift.  Hebrew University Association v. Nye, 148 Conn. 223, 232 (1961).

Accordingly, the court must conclude that the defendant has failed to prove any of its special defenses.

The original principal and amount of the note was $300,000 and bore interest at the rate of 5% per year.   Interest until July 5, 2013 equals $122,500.   The defendant is entitled to credit for payments made in the amount of $23,250.   Accordingly, judgment shall enter in favor of the plaintiff in the amount of $399,250.   The issue of attorneys fees, as per the agreement of the parties, will be the subject of postjudgment proceedings.   The court will entertain arguments of the parties concerning postjudgment interest as well as an order of payments in appropriate proceedings.

BY THE COURT

GENUARIO, J.

FOOTNOTES

FN1. The court does not suggest, one way or the other that the terms of the separation agreement are or are not fair and equitable in the absence of a forgiveness of the subject note.   Such a determination would involve issues, evidence and parties that were not before the court..  FN1. The court does not suggest, one way or the other that the terms of the separation agreement are or are not fair and equitable in the absence of a forgiveness of the subject note.   Such a determination would involve issues, evidence and parties that were not before the court.

Genuario, Robert L., J.