CIT v. Sam Wibberley Tire, Inc. (2013)

MEMORANDUM OF DECISION ON MOTION FOR SUMMARY JUDGMENT (# 116) and on OBJECTION TO MOTION FOR SUMMARY JUDGMENT (# 121)

Plaintiff moves for a summary judgment as to liability on a promissory note issued to it by the defendants Sam Wibberley Tire, Inc., (“SWT”), and the individual, Sam Wibberley.¹

The revised complaint alleges that defendants issued that note on September 10, 2002, in the principal amount of $953,000.00, and that the note was secured by a mortgage on property in the town of Killingly, Connecticut, owned by the individual defendant and occupied by him and the corporation.   Defendants' answer dated May 7 admits the foregoing allegations.   Defendants claim lack of sufficient knowledge as to plaintiff's further allegations that it is now the owner and holder of both note and mortgage, and that the sum of $749,983.57 is due and owing on the note as of June 25, 2013.   Additionally, plaintiff alleges that the note is in default, which defendants deny.   By way of special defense they allege that the note's terms were modified via an oral modification or forbearance agreement made in June of 2011, and claim that filing this foreclosure action is inequitable and that plaintiff is proceeding with unclean hands in pursuing this case.

I. Legal Standards

Recently, in Marinos v. Poirot, 308 Conn. 306 (2013), at pages 311–12, the Supreme Court articulated how deliberations on a motion for summary judgment must proceed:

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.”   A party moving for summary judgment is held to a “strict standard.”   To satisfy his burden the movant must make a showing that it is quite clear what the truth is, and that excludes any real doubt as to the existence of any genuine issue of material fact ․ As the burden of proof is on the movant, the evidence must be viewed in the light most favorable to the opponent ․ When documents submitted in support of a motion for summary judgment fail to establish that there is no genuine issue of material fact, the nonmoving party has no obligation to submit documents establishing the existence of such an issue ․ Once the moving party has met its burden, however, the opposing party must present evidence that demonstrates the existence of some disputed factual issue ․ It is not enough, however, for the opposing party merely to assert the existence of such a disputed issue.   Mere assertions of fact are insufficient to establish the existence of a material fact and, therefore, cannot refute evidence properly presented to the court under Practice Book § 17–45 (citations omitted).

This court has utilized that process in its review of this motion so as to require of plaintiff a showing excluding any real doubt as to any issue of material fact as to its right to a judgment on the allegations of its complaint, and so as to require of defendants a showing establishing that their special defenses address material factual issues and are sufficient to show that such issues are genuinely disputed.

II. Plaintiff's Case in Chief

Since defendants have admitted the existence and execution of the 2002 promissory note and mortgage in the terms alleged by plaintiff, the remaining questions plaintiff must answer in order to warrant the entry of a judgment in its favor are whether those instruments are in default, and, if so, what amount is owed to plaintiff on the note.   The affidavit of plaintiff's Loan Management Specialist, Marcia Philbin, dated June 27, 2013 and submitted in support of this motion, satisfies this court that the balance due plaintiff as of June 25, 2013, is $749,983.57, with interest and other charges continuing to accrue thereafter;  see paragraph 19.

Paragraph 14 of that same affidavit provides proof that defendants failed to pay certain monthly installments of principal and interest, that this omission is an instance of default under the terms of the note, and that in response plaintiff had exercised its option to accelerate and declare immediately due and payable the entire remaining balance.   The defendants admit the nonpayment of the full balance, but rely upon their special defense to defeat plaintiff's predicate claims to entitlement to accelerate the debt.  “In a mortgage foreclosure action [t]o make out its prima facie case, [the foreclosing party] ha[s] to prove by a preponderance of the evidence that it [is] the owner [or holder] of the note and mortgage and that [the mortgagor] ha[s] defaulted on the note.”  Franklin Credit Management Corp. v. Nicholas, 73 Conn.App. 830, 838 (2002), cert. denied, 262 Conn. 937 (2003) (internal quotation marks omitted).   Unless the special defense is sufficient, this court must find that the plaintiff's pleadings and affidavit satisfy its burden of establishing a right to summary judgment as to liability in this case;  see, Citimortgage, Inc. DLJ Mortgage Capital, Inc. v. Speer, Docket No. CV09 6001411, Superior Court, New London Judicial District (2011;  Devine, J.);  OneWest Bank, FSB v. Reinoso, Docket No. CV10 6006307, Superior Court, judicial district of Fairfield (2012;  Hartmere, J.).

III. Special Defense

Defendants claim that plaintiff is acting with unclean hands, and that a court of equity should thus refuse to indulge its demand for foreclosure of their mortgage.   In Thompson v. Orcutt, 257 Conn. 301 (2001), it was held that since an action to foreclose a mortgage is an equitable proceeding, a party seeking its benefit must establish that he comes into court with clean 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 ․”;  257 Conn. 301, 310.   While that language may seem to place upon plaintiff the burden of proving its faultlessness as an element of standing to sue, the Court immediately went on to indicate that “[u]nless the plaintiff's 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;” (citations omitted).   Shortly after Thompson, the Appellate Court clarified that the burden of proving unclean hands rests upon the party asserting the defense, when it held, in Town of Ridgefield v. Eppoliti Realty Co., Inc., 71 Conn.App. 321 (2002), that “[t]he party seeking to invoke the clean hands doctrine to bar equitable relief must show that his opponent engaged in wilful misconduct with regard to the matter in litigation;” 71 Conn.App. 321, 335.

The Thompson decision characterized the clean hands doctrine as existing not for the protection of the parties but for the protection of the court, and ruled that a trial court enjoys broad discretion in determining whether the promotion of public policy and the preservation of the courts' integrity dictate that the clean hands doctrine be invoked.

According to the defendants here, the behavior on the part of plaintiff that warrants invocation of the clean hands doctrine consists of interactions between the parties occurring between the summer of 2011 and the early spring of 2012.   When the note began ² to go into default around the beginning of that time frame, defendants claim that the parties orally negotiated an agreement by which the monthly payments commencing in July of 2011 would rise from $7,569 to $8,000 per month;  $431 of each payment would be applied to whatever arrearage had accumulated.   Defendants further claim that the $8,000 payments were made from July through December of that year.   Plaintiff denies that this oral modification occurred or was permissible under the note, which contains a condition that “Borrower may not use an oral statement of Lender ․ to contradict or alter the written terms of this Note.” Defendants seize upon this denial as a disputed factual issue warranting denial of the instant motion, and go to great pains in their brief to explain how parties may modify a contract verbally, even when the contract expressly negates verbal modification.   For fear of conceding the issue, plaintiff wades into the fray as well.

The court finds this dispute to be over a point that is rather moot at this time.   If the foregoing rendition of the facts were all that defendants set forth in their special defense, this court might be inclined to view this dispute more favorably to their position.   They do face the hurdle, of course, of establishing as a matter of law that an oral forbearance agreement is enforceable at all.   In Sovereign Bank v. Licata, 116 Conn.App. 483 (2009), the court discussed this issue while resolving the case on other grounds.   In the course of that discussion, it opined that

If the claim were based solely on the alleged failure of Seven Oaks to live up to the terms of an oral forbearance agreement, it would be barred by the statute of frauds.   Although neither this court nor our Supreme Court appears to have addressed the question previously, well reasoned Superior Court decisions have held that an oral mortgage forbearance agreement is made unenforceable by the statute of frauds.   Thus, in Glastonbury Bank & Trust Co. v. Corbett Construction Co., Superior Court, judicial district of New London, Docket No. 521355 (October 15, 1992), 1992 WL 316472 (7 Conn. L. Rptr. 519, 520), the court stated:  “[T]he alleged oral agreement not to foreclose was between the mortgagor and the mortgagee.   As between these parties, the mortgage represented an interest in land.   The agreement not to foreclose was therefore an agreement to surrender an interest in land.   As such, the agreement was within the [s]tatute of [f]rauds.”  (Internal quotation marks omitted);  see also Wells Fargo Bank Minnesota, N.A. v. Dougherty, Superior Court, judicial district of Litchfield, Docket No. CV–03–089747–S, 2003 WL 22080467 (August 22, 2003) (35 Conn. L. Rptr. 399) (oral forbearance agreement violative of statute of frauds because it had not been reduced to writing).

116 Conn.App. 483, 496–97.

It is defendants' position that their alleged reliance upon the alleged agreement, and their performance of their part of the bargain in the second half of 2011, would combine to provide them with an exception to the statute.   They cite the foreclosure case of Three Sixty Five (365) Cherry, LLC. v Siseman, LLC., Docket No. FST CV09 6001196, Superior Court, judicial district of Stamford–Norwalk (2010;  Mintz, J.), in which the court held that defendants performing according to the tenor of an oral agreement to forbear from foreclosure showed sufficient part performance to be entitled to continuation of the status quo and to rely upon that agreement, even where the mortgage and note forbade oral modification.

That case is of little fundamental value to them, however, because of a distinction which becomes evident in the very next clause of the special defense, immediately following defendants' claim that payments were made from July through December.   That is their admission that “SWT inadvertently missed the January 2012 payment and subsequently had an unexpected cash flow problem that interfered [with] the timely payment of the February 2012 payment ․” Unlike the 365 Cherry case, this case thus involves two defaults.   The first occurred in the summer of 2011 and was arguably resolved by the purported modification agreement.   As to the second, arising in early January of 2012, all that defendants claim is that they offered one payment schedule and plaintiff demanded another.   Their special defense sets forth nothing upon which one can find any meeting of the minds as to events after the defaults of January and February 2012, and yet claims for them the benefit of the 2011 understanding.   In essence, they demand that plaintiffs adhere to the purported earlier arrangement even while admitting that they themselves have breached that agreement.

In Lasalle National Bank v. Freshfield Meadows, 69 Conn.App. 824, 835 (2002), the Appellate Court upheld the entry of a summary judgment as to liability in a case that was, if anything, a stronger one for the mortgagor as it did not involve a breach on their part during the term of a forbearance agreement.   Defendant claimed that plaintiff had unclean hands for refusing to accept future payments on a delinquent note and opting instead to accelerate and demand payment in full.   The Court ruled that the doctrine of unclean hands simply does not apply to a situation wherein the plaintiff refused to renegotiate the terms of a loan agreement after the defendant's default, as it had no obligation to do so, nor did plaintiff have to accept partial payments after the indebtedness was accelerated due to the default.   The LaSalle court concluded that the plaintiff's business decisions were not of such a character as to be condemned and pronounced wrongful by honest and fair-minded people, and there was thus no genuine issue of material fact that the clean hands doctrine would not apply.

In doing so, it adhered to the general principle that a party is not ordinarily obligated to modify its contractual rights, and that acts of forbearance on its part do not automatically give rise to any privilege to compel continued forbearance by the other party at a later date.   This principle was recognized explicitly in the landlord-tenant case of S.H.V.C. v. Roy, 188 Conn. 503 (1982), in which the tenant often paid rent when overdue, which the landlord accepted, and who then claimed an equitable right to pay late when the landlord finally decided upon eviction.   The voluntary forbearance was an act of grace which S.H.V.C. had indulged for the defendant's own benefit.   The Court deemed landlord's eventual decision to no longer extend that courtesy to be well within its contractual rights, particularly since the lease contained language indicating that any leniency on landlord's part could not be interpreted as precluding later, stricter adherence to the terms of the lease.   The ruling was clear that a trial court need not countenance a dilatory party's embrace of equity after he has consistently violated the terms of the parties' agreement.   To do so would be to punish the plaintiff's restraint and reward the true wrongdoer.   This court notes that plaintiff's note contains a provision at paragraph 9D which is quite similar to one in the S.H.V.C. lease to which the Supreme Court gave considerable weight:  “Lender may exercise any of its rights separately or together, as many times and in any order it chooses.   Lender may delay or forgo any of its rights without giving up any of them.”   This court sees no reason why if such a provision is effective as applied to contracts in the landlord-tenant domain it ought not to apply in the foreclosure context as well.

The Appellate Court again approved the entry of a summary judgment over a defense of unclean hands in the case of Ulster Savings Bank v. 28 Brynwood Lane, Ltd., 134 Conn.App. 699 (2012).   The defendant there claimed plaintiff had issued a letter amounting to a promise by the plaintiff to extend the term and rate of the original note and mortgage (which were due to mature about three months following) without specifying a new date certain by which time the loan had to be paid off or converted.   After the original maturity date had passed, plaintiff began a foreclosure demanding payment in full.   The defendant claimed it relied on the letter as a modification of the terms of the original note and mortgage and that it had sent payments to the plaintiff in accordance with the letter, which the plaintiff accepted.   The defendant claimed that by accepting those payments the plaintiff acted unfairly and inequitably in declaring the defendant in default on the original note.   The only evidence presented by the defendant in support of its claim of unclean hands was an affidavit from one of the defendant's officers attesting that the defendant had relied on the letter as a modification.   The trial court had concluded that, even considering all the evidence most favorably to the defendant, no reasonable fact finder could conclude that the letter modified or offered to modify the terms of the loan so as to eliminate the loan's maturity date.   The Appellate Court concluded that to construe the limited modification plaintiff had agreed to in its letter as amounting to plaintiff's agreement to indefinitely waive or to forgive repayment of a three million dollar loan it would otherwise be entitled to collect would be unreasonable, perhaps bizarre.

In the case at bar, the only evidence presented by defendants relative to the events of 2012 consist of essentially identical affidavits of the named individual defendant and of SWT's office manager, both asserting that after the payment defaults of January and February of 2012 plaintiff refused to acquiesce in the terms of the 2011 deal and that defendants thus ceased making payments.³  This court believes that any weight which ought to be given to the 2011 forbearance agreement (if it existed) is relevant only as long as both parties performed in accordance with its alleged provisions.   To hold that the purported agreement must be honored in the face of subsequent breaches such that plaintiff could never demand payments of defendants of more than $8,000 per month—and that even these would be overlooked if they inadvertently forgot to make them, or was unable to do so because of unexpected cash flow problems—would seem to be unreasonable, if not bizarre.

Two Appellate Court decisions sustaining the unclean hands defense demonstrate how different a factual showing from that made here must be made by one invoking that defense.  McKeever v. Fiore, 78 Conn.App. 783 (2003) saw the defense succeed against a mortgagee who delayed pursuit of his foreclosure over a period of almost a decade, all the time allowing interest to accrue on the underlying note at a rate exceeding market value;  even then, notably, the equitable remedy which the trial court had imposed in its discretion, and which the Appellate Court upheld, was not to preclude the foreclosure, but merely to limit the award of interest to a one-year period.   Later, in Monetary Funding Group, Inc. v. Pluchino, 87 Conn.App. 401 (2005), plaintiff ran afoul of the rule when it sued for foreclosure after offering an unsophisticated borrower in dire financial circumstances a refinancing option which would have cost him exorbitant transactional charges and lender premiums amounting to over a third of the value of his indebtedness.   Although not employing the term, the trial court construed the behavior of the mortgagee as tantamount to unconscionable, and that decision was upheld on the appeal.   Each case has elements of an unfair and oppressive disparity in the parties' bargaining positions and exploitation of that disparity by the party accused of acting inequitably.   In this case, defendants are parties to a near million-dollar commercial transaction.   They had succeeded in persuading their mortgage holder to forego from foreclosing in consideration of adding $431 (about 5%) a month to their scheduled payments, and they then twice defaulted on that arrangement due to “inadvertence” and “cash flow problems.”   They cannot claim to be in similar circumstances as those afflicting the mortgagors in McKeever or Pluchino.

They are, instead, more accurately comparable to the many who have failed in recent invocations of the unclean hands defense to forestall the mortgage holders foreclosing upon them.   Thus in Citimortgage, Inc. DLJ Mortgage Capital, Inc. v. Speer, above, the court granted summary judgment on liability over the unfounded assertions of defendant that she had, among other defenses, achieved a modification of her obligations to the mortgage holder;  no credible basis for such a conclusion was apparent.   In Blue Spruce Capital, LLC v. Northern Heights, LLC, Docket No. NNH CV10 6013914, Superior Court, judicial district of New Haven (2012;  Zemetis, J.), the court rejected the unclean hands defense when raised by a defendant who asserted only that one of lender's agents had entered into an agreement with them which allegedly resolved their default status.   The court held that “defendants' mere assertion that an accord and satisfaction occurred is legally insufficient;  they failed to plead any facts whatsoever in support thereof.”   The results in both those cases favor plaintiff's position here, as both court's observations as to the deficiencies in showing adequate evidence of a modification apply equally to this case;  defendants' claim of an agreement following the 2012 missed payments is made without an iota of detail as to what such agreement consists of.

This is hardly an exhaustive list, as the court has located scores of decisions at least tangentially involving this defense in recent years.   The court has carefully read defendants' brief to see which of that number they believe to support their cause.   In addition to the Three Sixty Five (365) Cherry, LLC. v Siseman, LLC decision discussed above, defendants cite Brady v. Phelan, Docket No. CV08 6000736, Superior Court, judicial district of Danbury (2008;  Shaban, J.), Sharon Motor Lodge, Inc. v. Tai, Docket No. CV98 0077828, Superior Court, judicial district of Litchfield (2004;  Pickard, J.), and Bascom/Magnotta, Inc. v. Magnotta, Docket No. X04 CV04 4034706, Superior Court, judicial district of Middlesex, (2008;  Beach, J.).   Brady concerns the modifiability of a written agreement by subsequent oral conduct, and might be relevant if what occurred in 2011 were not a red herring once the 2012 defaults are taken into account;  it is of no use in establishing defendants' reliance upon this defense in light of their breach of the very agreement they invoke.   The Sharon Motor Lodge decision denied a party's attempt to strike five counts of a complaint alleging a complete agreement between the contenders in the matter;  it, too, is unavailing, as the problem defendants here face is not in the eye of the court that plaintiff seeks to rule out evidence of their agreement, but that they have failed entirely to articulate any agreement pertinent to the situation created by their 2012 defaults.   All that the decision in the Magnotta case says about the defense of unclean hands is that it had been stricken by the court on an earlier motion.   That is the issue under scrutiny here.   Defendants cite the case for its language on the subject of whether or not Magnotta and his pursuers had reached an accord and satisfaction, a different issue that is not before this court unless one equates “unclean hands” with “accord and satisfaction;” this court does not.

IV. Conclusion and Orders

The court concludes that the plaintiff has set forth a sufficient basis upon which to conclude that defendant is liable to it upon the promissory note secured by its mortgage, and that the defendants' special defense of unclean hands is unsupported by any material evidence.   The motion for summary judgment is granted, and the objection thereto overruled.

The court notes that defendants' brief raises a claim of equitable forfeiture, though that is not expressed in the special defense and is discussed in the brief in cursory fashion.   Whatever response this concern evokes is more appropriately deferred to the hearing to be held on the form and terms of a foreclosure judgment, when the value of the mortgaged premises, the demands of each party (including subsequent encumbrancers) and other pertinent details can all be taken into account.

Boland, J.

FOOTNOTES

FN1. U.S. Bank National Association, and Putnam Bank are two other corporate defendants named as parties here.   Their interest is alleged to be that of subsequent encumbrancers.   Neither has taken a position with respect to the instant motion, and references throughout this memorandum to “the corporation” or “the corporate defendant” are to SWT only, and references to “the defendants” are to SWT and Sam Wibberley, individually..  FN1. U.S. Bank National Association, and Putnam Bank are two other corporate defendants named as parties here.   Their interest is alleged to be that of subsequent encumbrancers.   Neither has taken a position with respect to the instant motion, and references throughout this memorandum to “the corporation” or “the corporate defendant” are to SWT only, and references to “the defendants” are to SWT and Sam Wibberley, individually.

FN2. Both the revised complaint and the answer allude to a 2008 note modification agreement.   Defendants' brief indicates that a default in payments precipitated that agreement, so what occurred in 2011 is not the first problem between the parties with respect to this loan.   The 2008 document apparently only changed the due date of the monthly payments from the first to the fifteenth of the month.   Neither party has claimed that the 2008 modification or the negotiations leading up to it have anything to do with the present controversy..  FN2. Both the revised complaint and the answer allude to a 2008 note modification agreement.   Defendants' brief indicates that a default in payments precipitated that agreement, so what occurred in 2011 is not the first problem between the parties with respect to this loan.   The 2008 document apparently only changed the due date of the monthly payments from the first to the fifteenth of the month.   Neither party has claimed that the 2008 modification or the negotiations leading up to it have anything to do with the present controversy.

FN3. Those affidavits are unclear as to what payments if any defendants have made between the communications breakdown of March 2012, and the signing of their affidavits on July 24, 2013, a span of over sixteen months.   The court makes no findings as to the performance on the note following the events of March 2012..  FN3. Those affidavits are unclear as to what payments if any defendants have made between the communications breakdown of March 2012, and the signing of their affidavits on July 24, 2013, a span of over sixteen months.   The court makes no findings as to the performance on the note following the events of March 2012.

Boland, John D., J.