Squire Industries, Inc. v. Fred Cunningham et al. (2013)

MEMORANDUM OF DECISION

This action was commenced by way of a four-count complaint dated September 5, 2008 and filed in court on October 14, 2008.   In the complaint, the plaintiff Squire Industries, Inc. (Squire Industries or Squire) alleged that the defendant Fred Cunningham (Cunningham) personally, and as the president of the defendant Cunningham Industries, Incorporated, delivered two checks to it in the amount of $6,700.00 and $3,000.00, which were dishonored and never paid.   Squire Industries sought to recover those amounts and interest against Cunningham personally (first and second count) and Cunningham Industries (third and fourth counts).

On August 16, 2013, the defendants filed an answer, special defenses and counterclaims (entry # 122).   In the first special defense, Cunningham alleged payment and a possessory interest in the checks and in the second special defense, Cunningham alleged failure of consideration.   The counterclaim alleged, based on the breach of an oral agreement, that Squire owed Cunningham $13,000.00 plus interest (first count) and that it owed Cunningham $10,000.00 (second count).   In the third count of the counterclaim, Cunningham alleged a violation of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42–110a et seq.

I.

A court trial was held on September 9, 2013.   The court finds the following facts based on the relevant credible evidence ¹ as well as admissions contained in the pleadings.²

On or about January 9, 2008, Cunningham delivered a check that he had executed drawn on the account of “Fred Cunningham, Cunningham Industries Inc.” with Discover Bank and payable to Squire Industries in the amount of $6,700.00.   (Complaint, First Count, ¶ 1 Second Count, ¶ 1;  Answer to First Count, ¶ 1 Second Count, ¶ 1;  exhibit 1.)

On or about January 9, 2008, Cunningham delivered a check that he had executed drawn on the account of “Fred Cunningham, Cunningham Industries Inc.” with Discover Bank and payable to Squire Industries in the amount of $3,000.00.   (Complaint, Third Count, ¶ 1 Fourth Count, ¶ 1;  Answer to Third Count, ¶ 1 Fourth Count, ¶ 1;  exhibit 2.)

Squire Industries presented these checks to the bank for payment but the bank refused payment and the checks were dishonored.  (Complaint, First through Fourth Counts, ¶ 2;  Answer to Complaint, First through Fourth Counts, ¶ 2, exhibits 1, 2.)

Due and timely notice of the dishonored checks was given to Cunningham.   (Complaint, First through Fourth Counts, ¶ 3;  Answer to Complaint, First through Fourth Counts, ¶ 3.)

Squire Industries, which was incorporated in 1995 and is still in existence, was engaged primarily in the check cashing business in 2008.

Claude Narracci (Narracci) was and is the president of Squire Industries.

Before January 2008, Cunningham had executed “a ridiculous number of checks,” in his words, which went through Squire Industries for check cashing.   Some of those checks were written without adequate funds in the relevant account.

Cunningham admits there were insufficient funds in the Discover Bank account to cover the two checks at issue in this case at the time they were executed.

The two checks were delivered to Narracci by one James Delmaro.   Delmaro did not receive any payment from Narracci because the checks did not clear.   (Exhibit G).

Cunningham did not receive anything of value for the two checks.

Narracci claims that Squire Industries never received any payment for the two checks.

In March 2008, Cunningham and James Delmaro went to Hamden for a meeting with Narracci.   Cunningham received $7,000.00 in Western Union money orders from Narracci at that time.

Cunningham claims that at that time he made the dishonored checks good by presenting a a $30,000.00 check dated March 18, 2008 and made payable to Cunningham personally, exhibit A, to Narracci.

Cunningham claims that there was an agreement between him and Narracci that once the $30,000.00 check cleared, $10,000.00 would be credited for the claimed unpaid checks and $13,000 would be delivered to him.

II.

General Statutes § 42a–3–301(i) gives the holder of a check the right to enforce it.   If the bank does not accept the check and it is dishonored, the drawer of a check is obliged to honor it “according to its terms at the time it was issued.”  General Statutes § 42a–3–414(b).  Squire Industries, the payee and holder of the two dishonored checks, claims that it is a holder in due course under General Statutes § 42a–3–302 and is entitled to judgment in its favor on the complaint.

There is an important difference between a holder, defined as “the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof,” Donnelly v. Garvan, 111 Conn. 626, 629–30, 151 A. 168 (1930), and is therefore entitled to enforce the instrument, General Statutes § 42a–3–301, and a holder in due course.   While “the payee of an instrument can be a holder in due course ․ the use of the holder-in-due-course doctrine by the payee is not the normal situation.”  Connecticut General Statutes Annotated § 42a–3–302, UCC Comment 4;  H. Bailey, R. Hagedorn, 1 Brady on Bank Checks (Rev. Ed.1997), ¶ 9.04, p. 9–7 (hereafter “1 Brady”).

Holder in due course status provides immunity from defenses available against a mere holder.  General Statutes §§ 42a–3–305(b).³  “Only a holder in due course may enforce a negotiable instrument without regard to the maker's assertion of a personal defense ․” Funding Consultants, Inc. v. Aetna Casualty & Surety Co., 187 Conn. 637, 640, 447 A.2d 1163 (1962).   Thus, if the holder is protected by the holder in due course doctrine, the obligor loses “all defenses provided elsewhere in Article 3” ⁴ as well as common-law defenses such as failure of or lack of consideration.   J. White, R. Summers, R. Hillman, 2 Uniform Commercial Code (6th Ed.2013), § 18:29, p. 291.

Holder in due course status is not automatic.   When a defendant offers evidence of the existence of a personal defense, the plaintiff must prove it is a holder in due course.  Funding Consultants, Inc. v. Aetna Casualty & Surety Co., supra, 187 Conn. 640.   The determination that a plaintiff is a holder in due course is one of fact.  Cadle Co. v. Errato, 71 Conn.App. 447, 456, 802 A.2d 887, cert. denied, 262 Conn. 918, 812 A.2d 861 (2002).

Cunningham offered evidence that the two checks were issued without consideration, General Statutes § 42a–3–303(b), which the court concludes was sufficient to shift the burden of proving holder in due course status to Squire Industries.   Squire had the burden of proving that the checks were (1) taken for value, (2) in good faith and (3) without notice of certain problems with the instrument.  General Statutes § 42a–3–302(a)(2).⁵  Squire has failed to establish the first and second requirements by a fair preponderance of the evidence and is not entitled to holder in due course status.

A.

Under General Statutes § 42a–3–303(a), “value refers to what the holder or someone else pays or parts with for the check, not to what has been received by or on behalf of the drawer ․ which is consideration.”   1 Brady, supra, ¶ 6.03, p. 6–6.   However, value and consideration are interchangeable when the parties involved in the action are the payee and the drawer.  “[A]ny consideration sufficient to support a simple contract” will support liability on a check.  Id., ¶ 6.01, p. 6–2.   The “consideration [needed to support a contract] consists of a benefit to the party promising, or a loss or detriment to the party to whom the promise is made ․ An exchange of promises is sufficient ․” (Citation omitted;  internal quotation marks omitted.)   Keefe v. Norwalk Cove Marina, Inc., 57 Conn.App. 601, 606, 749 A.2d 1219, cert. denied, 254 Conn. 903, 755 A.2d 881 (2000).

There is no evidence that Squire Industries provided goods or services or any type of performance to Cunningham or to Cunningham Industries, Inc. in exchange for the checks at issue.   The court has already found that Cunningham did not receive anything of value for the two checks.   There is no evidence that there was an exchange of any promises between the parties in consideration for the issuance of the two checks.

B.

The definition of the “good faith” required by § 42a–3–302(a)(2)(ii) is found in General Statutes § 42a–1–201(b)(20).  General Statutes § 42a–3–103(d).  “ ‘Good faith’ means honesty in fact and the observance of reasonable commercial standards of fair dealing.”  (Emphasis added.) § 42a–1–201(b)(20).  Cadle Co. v. Ginsburg, 51 Conn.App. 392, 399, 721 A.2d 1246 (1998), cert. denied, 247 Conn. 963, 724 A.2d 1125 (1999).   In order to qualify as a holder in due course, a holder must establish both the subjective (“honesty in fact”) and objective (“observance of reasonable commercial standards”) components.   See Maine Family Federal Credit Union v. Sun Life Assurance Co., 727 A.2d 335, 340 (Me.1999).   Squire has failed to do so.

The court has already found that before January 2008, Cunningham had executed “a ridiculous number of checks,” in his words, which went through Squire Industries for check cashing.   Some of those checks were written without adequate funds in the relevant account.   The court infers, with respect to the checks at issue, that Narracci knew that there may have been insufficient funds when he accepted them.   His refusal to give any money to James DelMaro, who had delivered the checks to him, until the checks cleared supports the inference that Narracci knew this was a defective transaction.

The objective component of good faith requires the holder to comport with “industry or commercial standards applicable to the transaction” which are reasonable.  Maine Family Federal Credit Union v. Sun Life Assurance Co., supra, 727 A.2d 343.   There has been no evidence presented regarding the industry or commercial standards applicable to the check cashing business in which Squire was engaged.

Fair dealing “is concerned with the fairness of the conduct rather than the care with which an act is performed.”  Cadle Co. v. Ginsburg, supra, 51 Conn.App. 399 (quoting A.L.I. Uniform Commercial Code (14th Ed.1995) § 3–103, official comment 4).   In applying this objective standard in the context of a check cashing operation, one court has concluded that “ ‘fairness' should be measured by taking a global view of the underlying transaction and all its participants.”   Any Kind Checks Cashed, Inc. v. Talcott, 830 So.2d 160, 165 (Fl.App.2002).   Applying that measure to the facts of this case, the evidence is simply insufficient to find Squire Industries observed reasonable commercial standards in the manner in which it accepted the two checks.

III.

Having concluded that Squire Industries is not a holder in due course, the court must consider Cunningham's defenses of payment and a possessory interest in the checks, General Statutes § 42a–3–306 (first special defense), and lack of consideration (second special defense).   As to these special defenses, Cunningham bore the burden of proof.   The court has already determined in II.A, supra, that there is no evidence that the checks were issued for consideration.  “The drawer ․ of an instrument has a defense if the instrument is issued without consideration.”  General Statutes § 42a–3–303(b).

The court concludes that Cunningham has met his burden on the second special defense.   It is therefore unnecessary to address the first special defense.   Thus, the court finds against Squire Industries and in favor of the defendants on all counts of the complaint.

IV.

Cunningham's counterclaims are premised on an agreement between him and Narracci regarding distribution of the proceeds of the $30,000 check (exhibit A).   Cunningham claims that there was an agreement between him and Narracci that once the $30,000.00 check cleared, $10,000.00 would be credited for the claimed unpaid checks and $13,000 would be delivered to him.

“The existence of a contract is a question of fact to be determined by the trier on the basis of all of the evidence ․ In order for an enforceable contract to exist, the court must find that the parties' minds had truly met.”  (Citation omitted;  internal quotation marks omitted.)  Sullivan v. Thorndike, 137 Conn.App. 223, 229, 48 A.3d 130 (2012).   The agreement “must be definite and certain as to its terms and requirements.”  St. Germain v. St. Germain, 135 Conn.App. 329, 333, 41 A.3d 1126 (2012).   Cunningham has failed to establish, by a fair preponderance of the evidence, that there was such a meeting of the minds.

There is simply no credible evidence ⁶ that Narracci, on behalf of Squire Industries, agreed to credit $10,000.00 of the proceeds from the $30,000.00 check towards the payment of the dishonored checks and to return $13,000.00 to Cunningham.   While there is evidence that Narracci provided Western Union money orders in the amount of $7,000.00 to Cunningham at the same time that Cunningham delivered the check to Narracci, that evidence does not support the claimed agreement.   Thus, the court finds against Cunningham and in favor of Squire Industries on the first and second counts of the counterclaim.

Cunningham's claim that Squire Industries violated the Connecticut Unfair Trade Practice Act (CUTPA), General Statutes § 42–110a et seq., in what he has titled the “Third Counter Claim,” likewise is premised on the existence of an agreement regarding the proceeds of the $30,000.00 check.   Cunningham alleges that Squire's action in “withholding the sum of $13,000 despite the agreement” and in “keeping the $10,000 which Mr. Narracci knew was not owed to him, was unreasonable, unconscionable, shocking to the public sense of fair trade” and thus constituted a CUTPA violation.   Third Counter–Claim, ¶ 4.   In light of the court's conclusion that the evidence is insufficient to conclude that there was any agreement between Squire and Cunningham, the court will consider the CUTPA claim only in light of the evidence regarding the circumstances surrounding the underlying transaction.   See Glazer v. Dress Barn, Inc., 274 Conn. 33, 81, 873 A.2d 929 (2005).

A “violation of CUTPA may be established by showing either an actual deceptive practice ․ or a practice amounting to a violation of public policy.”   (Citation omitted;  internal quotation marks omitted.)  Id., 82.   Whether conduct is unfair and violates CUTPA is a question of fact to be determined under the totality of the circumstances, De La Concha of Hartford, Inc. v. Aetna Life Insurance Co., 269 Conn. 424, 432, 849 A.2d 382 (2004), and is typically measured by application of the “cigarette rule” criteria:  “(1) [W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise—in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness;  (2) whether it is immoral, unethical, oppressive, or unscrupulous;  (3) whether it causes substantial injury to consumers, [competitors or other businesspersons] ․ All three criteria do not need to be satisfied to support a finding of unfairness.   A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three.”  (Internal quotation marks omitted.)  Hartford Electric Supply Co. v. Allen–Bradley Co., 250 Conn. 334, 367–68, 736 A.2d 824 (1999).   A party alleging a CUTPA violation must prove wrongful conduct, although the conduct at issue does not necessarily have to independently violate some other law.   Edmands v. CUNO, Inc., 277 Conn. 425, 450, 892 A.2d 938 (2006).

The evidence in support of the CUTPA count is scant:  Cunningham went with James Delmaro in March 2008 to meet Narracci and he had the $30,000.00 check with him.   He met privately with Narracci and left that meeting with money orders.   At that time Cunningham wanted to clear the two dishonored checks and he believed that he had an agreement with Narracci.   This was not the first time that Cunningham, an individual with more than sixteen years of education and a business owner, had dealings with Squire Industries, which was in the check cashing business.

Engaging in the business of check cashing does not offend public policy and such businesses are permitted by statute and regulation.   See General Statutes § 36a–580 et seq.;  Regulations of Connecticut State Agencies § 36a–588–1 et seq.   The court concludes that the evidence is insufficient to establish that Squire Industries engaged in an actual deceptive practice or a practice amounting to a violation of public policy ⁷ in violation of CUTPA.   Accordingly, the court finds against Cunningham and in favor of Squire Industries on the third count of the counterclaim.

V.

For the foregoing reasons, judgment shall enter in favor of the defendants and against the plaintiff on the complaint and in favor of the counterclaim defendant (plaintiff) and against the counterclaim plaintiffs (defendants) on the counterclaim.

LINDA K. LAGER, JUDGE

FOOTNOTES

FN1. As finder of fact, the court is “free to accept or reject, in whole or in part, the evidence presented by any witness” even if that testimony is uncontradicted.  Giulietti v. Giulietti, 65 Conn.App. 813, 878, 784 A.2d 905, cert. denied, 258 Conn. 946, 788 A.2d 95 (2001)..  FN1. As finder of fact, the court is “free to accept or reject, in whole or in part, the evidence presented by any witness” even if that testimony is uncontradicted.  Giulietti v. Giulietti, 65 Conn.App. 813, 878, 784 A.2d 905, cert. denied, 258 Conn. 946, 788 A.2d 95 (2001).

FN2. In his answer, Cunningham admitted the allegations of paragraphs 1, 2 and 3 of all four counts.   These undisputed facts required no additional proof.  West Haven Sound Development Corp. v. West Haven, 201 Conn. 305, 312, 514 A.2d 734 (1986).  “An admission in a defendant's answer to an allegation in a complaint is binding as a judicial admission.   An admission in pleading dispenses with proof, and is equivalent to proof.   It is the full equivalent of uncontradicted proof of these facts by credible witnesses and is conclusive on the pleader.”  (Citations omitted;  internal quotation marks omitted).  Days Inn of America, Inc. v. 161 Hotel Group, Inc., 55 Conn.App. 118, 126, 739 A.2d 280 (1999)..  FN2. In his answer, Cunningham admitted the allegations of paragraphs 1, 2 and 3 of all four counts.   These undisputed facts required no additional proof.  West Haven Sound Development Corp. v. West Haven, 201 Conn. 305, 312, 514 A.2d 734 (1986).  “An admission in a defendant's answer to an allegation in a complaint is binding as a judicial admission.   An admission in pleading dispenses with proof, and is equivalent to proof.   It is the full equivalent of uncontradicted proof of these facts by credible witnesses and is conclusive on the pleader.”  (Citations omitted;  internal quotation marks omitted).  Days Inn of America, Inc. v. 161 Hotel Group, Inc., 55 Conn.App. 118, 126, 739 A.2d 280 (1999).

FN3. General Statutes § 42a–3–305(b) provides that the “right of a holder in due course to enforce the obligations of a party to pay an instrument is subject to defenses of the obligor stated in subsection (a)(1), but is not subject to defenses of the obligor stated in subsection (a)(2) [contract defenses] or claims in recoupment stated in subsection(a)(3) against a person other than the holder.”  (Emphasis supplied.)   The emphasized language could be read to mean “that a typical drawer of a check can always assert its defense against its own payee—even if the payee is technically a holder in due course—because a holder in due course takes free, only of claims and defenses ‘against a person other than the holder’ (i.e., against someone other than me).   In the classic two-party case, the defense will be by the drawer or maker against the payee.”   J. White, R. Summers, R. Hillman, 2 Uniform Commercial Code (6th Ed.2013), § 18:23, p. 276..  FN3. General Statutes § 42a–3–305(b) provides that the “right of a holder in due course to enforce the obligations of a party to pay an instrument is subject to defenses of the obligor stated in subsection (a)(1), but is not subject to defenses of the obligor stated in subsection (a)(2) [contract defenses] or claims in recoupment stated in subsection(a)(3) against a person other than the holder.”  (Emphasis supplied.)   The emphasized language could be read to mean “that a typical drawer of a check can always assert its defense against its own payee—even if the payee is technically a holder in due course—because a holder in due course takes free, only of claims and defenses ‘against a person other than the holder’ (i.e., against someone other than me).   In the classic two-party case, the defense will be by the drawer or maker against the payee.”   J. White, R. Summers, R. Hillman, 2 Uniform Commercial Code (6th Ed.2013), § 18:23, p. 276.

FN4. See General Statutes §§ 42a–3–303, 42a–3–305(a)(2), 42a–3–305(a)(3) and § 42a–3–306..  FN4. See General Statutes §§ 42a–3–303, 42a–3–305(a)(2), 42a–3–305(a)(3) and § 42a–3–306.

FN5. General Statutes § 42a–3–302(a) provide that a holder in due course means “the holder of the instrument if:  (1) The instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity;  and (2) The holder took the instrument (i) for value, (ii) in good faith, (iii) without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series, (iv) without notice that the instrument contains an unauthorized signature or has been altered, (v) without notice of any claim to the instrument described in section 42a–3–306, and (vi) without notice that any party has a defense or claim in recoupment described in section 42a–3–305(a).”.  FN5. General Statutes § 42a–3–302(a) provide that a holder in due course means “the holder of the instrument if:  (1) The instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity;  and (2) The holder took the instrument (i) for value, (ii) in good faith, (iii) without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series, (iv) without notice that the instrument contains an unauthorized signature or has been altered, (v) without notice of any claim to the instrument described in section 42a–3–306, and (vi) without notice that any party has a defense or claim in recoupment described in section 42a–3–305(a).”

FN6. In order to find that there was a contract, the court has to credit Cunningham's testimony because Narracci has denied that they had any agreement and there is no independent evidence to support or corroborate the existence of an agreement.   The court finds Cunningham's testimony about the agreement self-serving and does not credit it.   Moreover, Cunningham testified that he was in a “semi-cloud” at the time due to problems with medications and other personal problems..  FN6. In order to find that there was a contract, the court has to credit Cunningham's testimony because Narracci has denied that they had any agreement and there is no independent evidence to support or corroborate the existence of an agreement.   The court finds Cunningham's testimony about the agreement self-serving and does not credit it.   Moreover, Cunningham testified that he was in a “semi-cloud” at the time due to problems with medications and other personal problems.

FN7. The court's conclusion in part II.B of this opinion that there was insufficient evidence to find Squire Industries observed reasonable commercial standards in the manner in which it accepted the two checks in January 2008 does not support the further conclusion that Squire's check-cashing practices met the cigarette rule criteria or were wrongful..  FN7. The court's conclusion in part II.B of this opinion that there was insufficient evidence to find Squire Industries observed reasonable commercial standards in the manner in which it accepted the two checks in January 2008 does not support the further conclusion that Squire's check-cashing practices met the cigarette rule criteria or were wrongful.

Lager, Linda K., J.