Telemaco Faienza et al. v. LLC (2013)

MEMORANDUM OF DECISION

This is an action brought by the plaintiffs to obtain payment on a promissory note given in connection with a purchase money mortgage for real property.   Testimony was received from three witnesses and 29 documents were admitted as full exhibits.   This court, having carefully reviewed the documentary exhibits and evaluated the demeanor and credibility of the witnesses, having analyzed and weighed the evidence according to the applicable standards of law, and having considered the parties' arguments in their memoranda of law, makes the following findings of fact and conclusions of law.

I. FINDINGS OF FACT

On August 16, 2005, the defendant Caceres–Ferez Realty, LLC executed a promissory note in favor of Roberto Faienza, Telemaco Faienza, and Itria Faienza in the original principal amount of $275,000, with interest at a rate of 6.00 percent per annum.   The note was secured by a mortgage upon premises located at 237–239 Ledyard Street in Hartford.

The note was to be repaid in monthly installments of $2,423.40, to be tendered in three separate payments of $807.80 (i.e., one-third of $2,423.40) to Roberto, Telemaco, and Itria Faienza respectively.   In addition to the monthly installments, a balloon payment of $100,000 was to be paid on September 1, 2006, and $25,000 on August 1, 2012.

At the rear of the premises at 237–39 Ledyard Street there was (and still is) a retaining wall, built in 1988, which was over 450 feet in length and over fifteen feet in height.   Prior to closing, an inspection of the retaining wall had revealed some shifting, movement and cracking in the retaining wall.   During the purchase negotiations, the condition of the retaining wall was a matter of concern and negotiation.   Language was incorporated in the parties' purchase and sale agreement making reference to the retaining wall, which language and representations therein were intended to survive the closing on the property.   That agreement language is discussed in detail elsewhere in this memorandum.

On August 16, 2005, the defendant received title to the premises at 237–39 Ledyard Street.   All monthly installments from September 2005 through December 2012 were timely paid under the promissory note;  the September 2006 $100,000 balloon payment was also timely paid.

Between 2005 and 2010, no repairs were made to the retaining wall.   In 2010 the retaining wall began to fail and was in danger of collapse.   Emergency repairs were made to the wall by the City of Hartford.   After making the repairs, the City of Hartford filed suit against several adjacent landowners, including the defendant, to recover the costs of the emergency repairs (approximately $45,000).   The litigation between the defendant and the City of Hartford was resolved in November of 2010 by a written settlement agreement and the payment of $10,000.

By e-mail letter dated January 19, 2012, the defendant informed the plaintiff that effective with the January 2012 installment, payments on the promissory note would cease.   The letter explained that the basis for the refusal to pay was that the defendant was entitled to an “offset for damages it had suffered as a result of misrepresentations by Faienza Realty to Caceres–Ferez Realty through its legal counsel prior to the transfer of 237 Ledyard Street from Faienza Realty to Caceres–Ferez Realty.”

The plaintiffs declared the defendant in default and demanded payment as to all amounts due and owing under the note.   The parties represented to the court that Roberto Faieza had reached an accommodation with the defendant as to all amounts due and owing to him under the note.   However, the defendant continued to refuse payment in full of the amounts owed to Telemaco Faienza, and Itria Faienza.   Thereafter, suit was brought in the name of Telemaco Faienza, and Itria Faienza, seeking damages as to the seven remaining monthly payments of $807.80 owed to them;  along with their one-third share each of the August 2012 balloon payment, with interest, costs of collection and reasonable attorneys fees pursuant to the terms of the promissory note.

The principal balance due and owing to the two plaintiffs under the note as of January 2012 was $28,047.78.

II. CONCLUSIONS OF LAW

A. The Plaintiffs have Proven by a Fair Preponderance of the Evidence Their Claim for Breach of Contract.

“A promissory note is nothing more than a written contract for the payment of money, and, as such, contract law applies.”  (Internal quotation marks omitted.)  Fidelity Bank v. Krenisky, 72 Conn.App. 700, 707, 807 A.2d 968, cert. denied, 262 Conn. 915, 811 A.2d 1291 (2002).   The plaintiffs have proven sufficient facts to establish their claim for breach of contract.   It is all but undisputed that a contract for payment existed and that the defendant has failed to fully perform that contract by refusing to pay.   The issue before the court is whether the defendant's special defense justifies the refusal to pay, or whether any amounts owed by defendant to plaintiffs are subject to a setoff for amounts claimed by the defendant as contractual indemnification from the plaintiffs.

B. The Defendant has Failed to Prove its Special Defense of Fraud in the Inducement.

In its special defense, the defendant alleges that the plaintiffs misrepresented the ownership and/or maintenance responsibility for the retaining wall and, in making that misrepresentation, “fraudulently induced the defendant into purchasing the property.”

“Fraud is not to be presumed, but must be strictly proven.   The evidence must be clear, precise and unequivocal.”  (Citations omitted.)  Lewis v. Lewis, 162 Conn. 476, 481, 294 A.2d 637 (1972).

“The essential elements of an action in common law fraud ․ are that:  (1) a false representation was made as a statement of fact, (2) it was untrue and known to be untrue by the party making it;  (3) it was made to induce the other party to act upon it;  and (4) the other party did so act upon that false representation to his injury ․ In contrast to a negligent representation, [a] fraudulent representation ․ is one that is knowingly untrue, or made without belief in its truth, or recklessly made and for the purpose of inducing action upon it.   This is so because fraudulent misrepresentation is an intentional tort.”  (Citations omitted;  internal quotation marks omitted.)  Sturm v. Harb Development, LLC, 298 Conn. 124, 142, 2 A.3d 859 (2010).

The evidence before the court does not establish by clear and convincing evidence that statements made to the defendant regarding the retaining wall, either by the plaintiffs themselves or by any agent or attorney acting on their behalf, were “knowingly untrue, or without belief in its truth, or recklessly made.”   The defendant appears to concede this, commenting in its post-trial brief:

it is not the Defendant's position that statements made by the Plaintiffs or their counsel during negotiations were knowingly false.   Statements such as those made in the Defendant's Exhibit 4 (“My clients aver that the exterior wall is the adjoining landowner's responsibility”) appear to be made in good faith and after diligent investigation.

Defendant's Trial Brief, May 28, 2013, at p 7.

Accordingly, an essential element of the special defense has not been proven, and therefore the court finds for the plaintiff as to the special defense.

C. The Defendant has Failed to Prove its Entitlement to a Set Off, Based on a Claim for Indemnification Under the Terms of the Purchase and Sale Agreement.

The defendant claims that the language of the purchase and sale agreement between the parties obligates the plaintiffs to “pay damages related to the [retaining] wall repair.”  (Defendant's Trial Brief, May 28, 2013, at p. 4.) Defendant asserts that since the losses sustained by the defendant in reimbursing the City of Hartford for repairs to the retaining wall exceed the unpaid balance due under the promissory note, it is entitled to a set-off for that amount.

Paragraph 18(s) of the agreement provides:

Seller agrees to pay one half (1/2) of the expenses relating to repair work to the exterior retaining wall which connects to the interior wall at 237–239 Ledyard Street, up to Eight Thousand and 00/1 00 ($8,000) Dollars of a total price of Sixteen Thousand and 00/100 ($16,000) Dollars.   This amount shall be credited against the amount owed by Buyer on the second mortgage.

Paragraph 18(t) of the agreement provides:

Seller will indemnify Buyer for any damages and costs resulting from the exterior retaining wall of the premises from date of closing until 30 days after completion of repair work on said wall.

A contract of indemnity is an undertaking to save the indemnitee harmless against loss or damage of a specified character that may happen in the future.  Wolthausen v. Trimpert, 93 Conn. 260, 265, 105 A. 687 (1919).   “Indemnity clauses in contracts entered into by businesses ․ should be viewed realistically as methods of allocating the cost of the risk of accidents apt to arise from the performance of the contract.”  (Citation omitted;  internal quotation marks omitted.)  Dow–Westbrook v. Candlewood Equine Practice, 119 Conn.App. 703, 712–13, 989 A.2d 1075 (2010), citing Laudano v. General Motors Corp., 34 Conn.Sup. 684, 687, 388 A.2d 842 (1977).

Courts recognize claims of contractual indemnification only to the extent that one party voluntarily assumes risk of loss or liability connected with a given transaction.  Cirrito v. Turner Construction Co., 189 Conn. 701, 706–07, 458 A.2d 678 (1983).   Thus, an indemnity agreement will be construed to cover such losses which appear to have been intended by the parties.  Leonard Concrete Pine Co v. C.W. Blakeslee & Sons, Inc., 178 Conn. 594 (1979).   The scope of an indemnity agreement—i.e., the risk assumed by the indemnitor—is usually determined by its express written terms.  Leonard Concrete Pipe Co., supra, 598–99;  Cirrito v. Turner Construction Co., supra, 706–07.

The plaintiffs entered into a contractual agreement to indemnify the defendant “for any damage and costs resulting from the exterior wall of the premises from the date of closing until 30 days after completion of the repair work on said wall ․ “ (Emphasis added).

The defendant argues that “there are no conditions necessary to trigger the indemnification provision in Paragraph 18(t).”  The court disagrees.   Assuming for argument's sake that the City of Hartford's expenditures for emergency repairs to the retaining wall were “damages and costs” within the meaning of Paragraph 18(t), the plaintiff's obligation to indemnify the defendant for those damages and costs ended “30 days after completion of repair work on the wall.”   The City's repair work on the wall was completed sometime in 2010.   Paragraph 19 of the purchase and sale agreement requires the defendant to provide “written notice” as to any demand for performance under the agreement.   No evidence was offered in this case to suggest that, prior to the filing of this lawsuit in March of 2012, the plaintiff was ever given written notice of a demand for indemnification under the terms of the purchase and sale agreement.

Moreover, the court is not persuaded that the language of the agreement expresses an intent by the parties that the plaintiff indemnify the defendant for “costs and damages” incurred in defending and ultimately settling litigation brought by a third party.  “A contract must be construed to effectuate the intent of the parties ․ [T]he intent of the parties is to be ascertained by a fair and reasonable construction of the written words and ․ the language used must be accorded its common, natural, and ordinary meaning and usage ․” (Internal quotation marks omitted.)  Eckert v. Eckert, 285 Conn. 687, 692, 941 A.2d 301 (2008).

In this case, the language used by the parties to describe the nature of the liability triggering the obligation to indemnify is written narrowly to include “damages and costs” rather than the more expansive terms “liability” or “claims” or “actions.”   The phrase “damages and costs resulting from exterior retaining wall” also has to be read in logical conjunction with the phrase “completion of repair work on said wall” to evidence an intent that the indemnity be limited to repair costs of the wall itself and damage to other property (presumably since the retaining wall was connected to the building) “resulting from” a condition in the retaining wall.

Giving effect to the intent of the parties as set forth in the language of their agreement, the court does not find that there existed a contractual duty on the part of the plaintiffs to indemnify the defendant for the cost of defending and settling the lawsuit brought by the City of Hartford.   Accordingly, the court finds the issues in favor of the plaintiffs as to the defendant's claims for setoff based on contract indemnification.

III. CONCLUSION

The court finds in favor of the plaintiffs on their claim of breach of contract.   The court finds the plaintiffs are entitled to damages as follows:

Principal balance:  $28,047.78

Interest at 6.00 percent per annum from

January 15, 2012 to September 16, 2013:  $ 2,821.32

Total damages. $30,329.10

The plaintiff has submitted as Exhibit 6 in the trial of this matter a summary of services performed and time expended in the pursuit of collection of the amounts due on the promissory note.   Exhibit 6 indicates that a total of 24.99 hours of attorney time had been spent in the prosecution of this matter up until the date of trial.   From that exhibit and the court's general knowledge of the case file and the trial of this matter, it can estimate the total number of attorney hours devoted thereto.   See Appliances, Inc. v. Yost, 186 Conn. 673, 681 n.5, 443 A.2d 486 (1982).   The amount of time and labor spent is one factor which the court may consider in awarding a reasonable attorneys fee.   See Shapero v. Mercede, 262 Conn. 1, 7, 808 A.2d 666 (2002).  “Where a contract expressly provides for the recovery of attorneys fees, an award under such a clause requires an evidentiary showing of reasonableness ․ A trial court may rely on its own general knowledge of the trial itself to supply evidence in support of an award of attorneys fees ․” (Citations omitted and internal quotation marks omitted.)  Rizzo Pool Co. v. Del Grosso, 240 Conn. 58, 77–78, 689 A.2d 1097 (1997).

Based on the evidence, including the case file, observation of the trial, and Exhibit 6 submitted by the plaintiff, the court concludes that the amount of $6,000.00 represents a reasonable attorneys fee in connection with the claim made on the promissory note.

Therefore, judgment will enter for the plaintiffs in the amount of $36,329.10, plus costs to be taxed by the clerk.

Post-judgment interest will accrue at a rate of 6 percent per annum pursuant to General Statutes Section § 37–3a.

BY THE COURT,

Sheridan, J.

Sheridan, David M., J.