DocketNumber: No. 700674
Citation Numbers: 1992 Conn. Super. Ct. 1844
Judges: BURNS, J. CT Page 1845
Filed Date: 2/18/1992
Status: Non-Precedential
Modified Date: 7/5/2016
By virtue of the Guaranty the defendants agree to be jointly and severally liable for the payment of 50% of the outstanding principal balance due under the Note and 100% of the outstanding interest, and for the completion of the project, as well as the costs and expenses incurred in connection with collection of any amounts due under the Note. The Guaranty also provides in paragraph "7" that the guarantors expressly waive "the right to assert in any action or proceeding hereupon any setoff, counterclaim or other claim which it may have against Lender."
The plaintiff claims to be the present holder and owner of the Note, which is alleged to be in default, and now seeks payment from the defendants as provided in the Guaranty. The substituted complaint dated May 26, 1991 contains two counts,
the first for payment due on the Note, and the second for a temporary and permanent injunction with respect to certain assets defendant Martin Trust holds outside the State.1 In its answer dated August 26, 1991 defendants set forth five special defenses: (1) the second count fails to state a claim upon which relief can be granted; (2) breach of the implied covenant of good faith; (3) material alteration of the principal contract between the Bank and the Borrower; (4) unclean hands; (5) estoppel. The defendants also assert four counts by way of CT Page 1846 setoff and counterclaim: (1) negligence on the part of the Bank in the administration of the loan proceeds; (2) negligent misrepresentation; (3) breach of the duty of good faith and fair dealing; (4) violation of the Connecticut Unfair Trade Practices Act ("CUTPA"). On September 6, 1991 plaintiff filed a reply to the special defenses and answer to the counterclaim.
Plaintiff has moved for partial summary judgment on liability on the complaint and for summary judgment on all counts of the counterclaim, and has submitted a memorandum of law in support thereof. Attached to the memorandum is the affidavit of John B. Valletta, Jr., First Vice President of plaintiff. The defendants have submitted a memorandum of law in opposition to said motion, and the affidavits of Georgina Macdonald and Martin Trust. The pleadings are closed as between the parties as required by Practice Book section 379. Oral arguments were presented at a session of short calendar held on October 28, 1991.
DISCUSSION
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." Practice Book 384; Connecticut National Bank v. Great Neck Development Co.,
The burden of proof falls on the movant to show that there are no material facts. Connell v. Connell,
1. Summary Judgment on the Complaint and Count Three of the Counterclaim
The plaintiff has moved for "partial summary judgment on liability on the complaint." While there appears to be no dispute that the loan in question was guaranteed by the defendants, or that the plaintiff is the holder of the Note and said Note is in default, the defendants have raised several special defenses thereby contesting plaintiff's right to collect from them under the Guaranty. It appears that the second special defense alleging that plaintiff breached its duty of good faith toward the defendant raises issues of fact precluding the granting of summary judgment.
"Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement." Restatement (Second), Contracts, sec. 205. "An implied covenant of good faith and fair dealing arising out of a contractual relationship has been explicitly recognized in Connecticut." Economic Development Associates v. Cititrust,
The covenant of good faith "emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party." Restatement (Second), Contracts, sec. 205 comment a; Magnan, supra, 566. "Essentially it is a rule of construction designed to fulfill the reasonable expectations of the contracting parties as they presumably intended." Magna, supra, 567. See also Connecticut National Bank v. Douglas,
"In common usage, [good faith] has a well defined and generally understood meaning, being ordinarily used to describe that state of mind denoting honesty of purpose, freedom from intention to defraud, and generally speaking, means being faithful to one's duty or obligation." 35 C.J.S. 488, and cases cited. It has been well defined as meaning "An honest intention to abstain from taking an unconscientious advantage of another, even through the forms or technicalities of law, together with an absence of all information or belief of facts which would render the transaction unconscientious." Bouvier's Law dictionary (3d Rev.), p. 1359.
Snyder v. Reshenk,
The plaintiff argues that the holding in Connecticut Bank Trust v. Carriage Lane Associates,
It is clear that the plaintiff misconstrues that case. Connecticut Bank Trust clearly states that a lender owes third parties a duty of good faith, which duty defendants herein assert in their special defense and third count of the counterclaim. Further, this case is clearly distinguishable in that the defendants Martin Trust and Georgina Macdonald are not "strangers" to the transaction between RIHT and Mill at Maritime as was the second mortgagee in Connecticut Bank Trust. "A guaranty contract is a contract which is collateral to a primary obligation between a debtor and a creditor . . . ." 38 Am.Jur.2d Guaranty, sec. 19; American Oil Co. v. Valenti,
In sum, it appears that the plaintiff herein owed a duty of good faith and fair dealing to the defendants with respect to the transactions undertaken by the parties. Whether plaintiff breached that duty is not ascertainable from the papers and must await trial. Thus, plaintiff's motion for partial summary judgment on its complaint is denied.
It is also clear that plaintiff's motion for summary judgment on the third count of the counterclaim (breach of the duty of good faith and fair dealing) must also be denied. Such a breach "gives rise to a distinct tort claim." Economic Development Associates, supra, 519, citing Grand Sheet Metal Products Co. v. Protection Mutual Ins. Co.,
The implied covenant of good faith and fair dealing cannot be waived.3 Although no cases have been found on this issue, General Statutes
2. Summary Judgment on Counts One, Two and Four of the Counterclaim.
Defendants assert by way of setoff and counterclaim, actions for negligence, negligent misrepresentation and violations of CUTPA. Defendants have no right to assert their claims as setoff for the reasons set forth below. The defendants may assert their CUTPA claim as a counterclaim, but the negligence and negligent misrepresentation claims fail and, thus, cannot go forward.
Since the basis for setoff is distinct from that for counterclaim, each will be addressed separately. See Savings Bank of New London v. Santaniello,
a. Setoff
Defendants in their allegations purport to set off against the plaintiff's complaint the claims or Mill at Maritime, the Borrower. Defendants have no right to set off claims of the Borrower where the Borrower is not a party to the action.
The general rule regarding when a surety may set off the claims of its principal against a creditor when the surety is sued alone is set forth in the Restatement of the Law of Security:
The surety cannot set off against the creditor the principal's claims against the creditor unless
(a) the principal has assigned his claim to or consented to its use by the surety; or instituted by the creditor; or (c) the principal is insolvent.
Restatement of the Law of Security, Sec. 133(2) (1941). Accord F. Childs, Law of Suretyship and Guaranty, Sec. 148 (1907); E. Spencer, Suretyship, Sec. 194 (1913); Note, The Availability of a Principal's Defense to His Uncompensated Surety, 46 Yale L.J. 833, 942 (1937). The Comment to the Restatement gives three reasons for this rule: (1) judgment for the surety on the principal's claim does not in all instances bar the principal from asserting the same claim against the creditor, since the principle was not a party to the first action; (2) judgment for the surety on the principal's claim could bar the principal from recovering any excess over the creditor's claim; and (3) if several sureties were sued separately, each might assert the same claim. Comment on Subsection (2)b.
There is no Connecticut case which resolves the issue of whether a surety when sued alone may set off the claims of its principal. Cases in other jurisdictions, however, support the general rule set forth in the Restatement. See, e.g., In re Yale Express System, Inc. v. Nogg,
Even if a surety were entitled to set off the claims of its principal in Connecticut, the claims the defendants herein purport to set off, namely negligence, negligent misrepresentation and CUTPA, are not of the sort that can be set off. The right of setoff is governed by General Statutes
Where there are equitable considerations involved, courts may allow setoff even though the requirements of section
Based on the above discussion, it is clear that the defendants herein cannot assert the claims of the Borrower to set off the claims of the Bank. No where is it alleged that the Borrower assigned its claims to the defendants or consented to their use by the defendants. Nor is the Borrower insolvent or a party to this action. Further, the requisites of General Statutes
b. Counterclaims
(1) Negligence
Defendants' first count of their counterclaim is for negligence. Plaintiff Bank has moved for summary judgment on CT Page 1852 this count on the grounds that the Bank owes no duty of reasonable care to the defendants. It is clear that the plaintiff is correct. In Connecticut Bank Trust Co., supra, the Supreme Court in dicta stated:
`Outside the contract, the major duty which a construction lender owes to any other party is the duty of good faith; though a loan may be inefficiently managed and with adverse consequences, have nay recourse against the lender unless it is alleged and proved that the lender acted in bad faith.'
Connecticut Bank Trust Co., supra, 782, quoting National Bank of Washington v. Equity Investors,
(2) Negligent Misrepresentation
The second count of the defendants' counterclaim is for negligent misrepresentation. The elements of this cause of action are summarized in D'Ulisse-Cupo v. Board of Directors of Notre Dame High School,
`One who, in the course of his business, profession or employment . . . supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused by them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.'
(quoting Restatement Second), Torts sec. 552 (1979)). "[O]ne who relies upon information in connection with a commercial transaction may reasonably expect to hold the maker to a duty of care only in circumstances in which the maker was manifestly aware of the use to which the information was to be put and intended to supply it for that purpose." Restatement, supra, 552, comment a.
The defendants' allegations are insufficient to withstand summary judgment. The alleged misrepresentations concern statements made by the Bank;s architect about the progress of construction and the financial health of the project. The CT Page 1853 statements that they assert as untrue all occurred after the guaranty agreement was signed. It is unclear how defendants could possible have relied on them when they signed the guaranty agreement, the business transaction upon which they are sued here. Further, the statements were allegedly made to the Bank by the Bank's architect. No where do the defendants assert that the architect made the statements directly to defendants. Defendants claim that their reliance on these statement caused them "to spend in excess of $4 million on the project which, but for the Bank's negligent misrepresentations [defendants] would not have had to spend." Meridian Group, not a party to this action, was the entity that spent the $4 million (see affidavit of Georgina Macdonald, sworn to October 24, 199_, paragraph "21"). Since the defendants have not sufficiently plead a cause of action for negligent misrepresentations, it appears that plaintiff's motion as to this count of the counterclaim should be granted.
(3) CUTPA
"No person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." General Statutes
(a) Nothing in this chapter shall apply to: (1) transactions or actions otherwise permitted under law as administered by any regulatory board or officer acting under statutory authority of the state or of the United States . . . .
(b) The burden of proving exemption . . . from the provisions of this chapter shall be upon the person claiming the exemption."
General Statutes
Connecticut superior courts are divided on the issue of whether CUTPA applies to banks and the Supreme Court has not yet resolved the issue. Westledge Real Estate, Inc. v. Suffield Bank f/k/a Suffield Savings Bank,
A majority of the courts, however, have determined that CUTPA does apply to banks. See, e.g., Lafayette Bank Trust Co. v. Javis,
The following criteria should be applied to determine if a practice violates CUTPA:
"`(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 — whether, in other words, it is within at least the penumbra of some common law, statutory, or other established concept or unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers [(competitors or other businessmen), Conaway v. Prestia, [
191 Conn. 484 ,490-91 ,464 A.2d 847 (1983)], quoting FTC v. Sperry Hutchinson Co.,405 U.S. 233 m 244 n. 8,92 S.Ct. 898 ,31 L.Ed.2d 170 (1972)."
Sportmen's Boating Corp. v. Hensley,
In this case, under the allegations as set forth in defendants' counterclaim, whether plaintiff's conduct offends an "established concept of unfairness" or whether such conduct is "unethical" or "oppressive" or "causes substantial injury to consumers or other businessmen", see Sportsmen's Boating Corp., supra, 490-91, raises factual issues inappropriate on a summary judgment motion.
Further, a CUTPA claim cannot be waived by contract, given that the intent of the statute is remedial. See General Statutes
CONCLUSION
It is so ordered that:
(1) the motion for summary judgment on the first and second counts of the counterclaim (negligence and negligent misrepresentation) is granted;
(2) the motion for summary judgment with respect to liability on the complaint is denied;
(3) the motion of summary judgment on the third count of the counterclaim (breach of good faith) is denied; and
(4) the motion for summary judgment on the fourth count of the counterclaim (CUTPA) is denied.
BURNS, J. CT Page 1856
Whaley v. Henderson , 227 Ala. 158 ( 1933 )
In the Matter of Yale Express System, Inc., Debtor. Boston ... , 362 F.2d 111 ( 1966 )
Conaway v. Prestia , 191 Conn. 484 ( 1983 )
Kakadelis v. DeFabritis , 191 Conn. 276 ( 1983 )
American Oil Co. v. Valenti , 179 Conn. 349 ( 1979 )
McColl v. Pataky , 160 Conn. 457 ( 1971 )
Essex Savings Bank v. Leeker , 2 Conn. App. 98 ( 1984 )
Fedor v. Mauwehu Council , 21 Conn. Super. Ct. 38 ( 1958 )
United Oil Co. v. Urban Redevelopment Commission , 158 Conn. 364 ( 1969 )
Savings Bank of New London v. Santaniello , 130 Conn. 206 ( 1943 )
Wolthausen v. Trimpert , 93 Conn. 260 ( 1919 )
Sullivan v. Merchants National Bank , 108 Conn. 497 ( 1928 )
Snyder v. Reshenk , 131 Conn. 252 ( 1944 )
Hartford Natl. Bank Trust Co. v. Riverside Trust Co. , 117 Conn. 276 ( 1933 )
National Bank v. Equity Investors , 81 Wash. 2d 886 ( 1973 )
Grand Sheet Metal Products v. Protection Mutual Ins , 34 Conn. Super. Ct. 46 ( 1977 )
Federal Trade Commission v. Sperry & Hutchinson Co. , 92 S. Ct. 898 ( 1972 )