R.F. DADDARIO SONS, INC. v. SHELANSKY, No. CV 08-5016485 (Feb. 3, 2009)

SATTER, JTR.

The plaintiff, R.F. Daddario Sons, Inc. brings this action to foreclose a certain condominium in Windsor Locks formerly owned by the defendants. The complaint alleges that the subject note and mortgage was in the name of R. Daddario Son, Inc. but that was a typographical error, and the true lender, payee of the note and mortgagee of the mortgage is plaintiff, R.F. Daddario Sons, Inc. The defendants move to dismiss on the ground that the plaintiff does not have standing to bring this foreclosure action because it is not thc holder of the note and mortgage, and, as a consequence, the court lacks subject matter jurisdiction.

The court heard evidence on the issue and determines that R. Daddario Son, Inc. is not a legal entity. It is not organized as a corporation or registered with the Secretary of the State's office as one. It has no shareholders, directors or officers. It is a name only.

Robert Daddario, president of plaintiff R.F. Daddario Sons, Inc., testified that the name R. Daddario Son, Inc. on the relevant documents in this case was a mistake of its staff. That name got into the computer and it was repeated over and over again on documents. The court believes this testimony and finds that R. Daddario Son, Inc. is really the plaintiff.

The evidence was that both parties recognized that R.F. Daddario Sons, Inc. was the corporation involved in the subject transaction. The defendant Ira Shelansky, in his deposition testimony, clearly indicated he knew plaintiff was the entity which gave him the money for the mortgage at issue, was the payee of the mortgage note and the mortgagee of the mortgage deed. Plaintiff deposited defendant's mortgage payments in its account and was at all times the real party in interest in the transaction. No evidence was presented that defendants were in any way prejudiced by the use of plaintiff's incorrect name on the note and mortgage. CT Page 2661

Defendants argue that R. Daddario Son, Inc. never negotiated the note or assigned the mortgage to the plaintiff. But R. Daddario Son, Inc. was not an entity and could not have negotiated the note or assigned the mortgage. If it had attempted to do so, it would have acted falsely.

Numerous cases hold that "where the corporate name used in the instrument varies slightly from the correct corporate name, the variation was ignored by the court and the parties apparently because it was thought insignificant." Wyandot, Inc. v. Gracey Street Popcorn Co., 208 Conn. 248, 255 (1998). That case held that "a minor deviation in the name of a corporation has little significance . . ." The Uniform Commercial Code at § 42a-3-110(a) provides, "The instrument is payable to the person intended by the signer even if that person is identified by a name or other identification that is not that of the intended person."

Here the court finds that R. Daddario Son, Inc. is the plaintiff, the plaintiff is the entity intended by both parties to be the payee of the second mortgage note and mortgagee of the mortgage deed, and further, the plaintiff is the owner and holder of the note. Thus, it has standing to bring this action, and the motion to dismiss is denied.

The underlying facts of this case are as follows. In or about 1987, plaintiff developed a condominium complex, known as Oakridge Condominiums in Windsor Locks, Connecticut and advertised the condominiums for sale with no money down. The base offering price of each condominium was $128,900.00.

The defendants entered into a purchase and sale agreement to purchase condominium number 94 Oakridge Drive, Windsor Locks, Connecticut at the agreed-upon price of $131,000.00, the higher price resulting from improvements to the condominium required by the defendants. The defendants made a down payment of $1,000.00 and Citicorp Mortgage, Inc. (hereinafter "Citicorp") committed to granting a mortgage of $117,000.00.

On September 12, 1988, the day of the closing, defendants first went to the office of Robert Daddario. He informed them that the plaintiff was offering them a second mortgage in the face amount of $14,180.00 to cover the balance of the basic price of $128,900.00 and closing costs. The terms of the promissory note were: principal $14,180.00; interest at 12 1/2% per year for five years; monthly payments of $151.34: final payment of $14,030.75 due November 1, 1993; interest in the event of CT Page 2662 default of more than thirty days at 14 1/2% per annum.

As indicated above, although the note and the mortgage were in favor of R. Daddario Son, Inc., that was a misnomer. The evidence clearly indicated that defendants understood they were receiving the second mortgage money from plaintiff R.F. Daddario Sons, Inc. and that they were dealing with that entity.

At that second mortgage closing, Robert Daddario withheld $1,290.00 as points on the second mortgage, and he gave defendants a bank check for $12,890.00 made payable to Attorney Gregory Demanche, the attorney for Citicorp. Robert Daddario testified that he explained the terms of the mortgage note and deed and the truth in lending disclosure to the defendants. Defendant Ira Shelansky denies this. The court believes Robert Daddario. Robert Daddario also testified the second mortgage deed was duly witnessed and notarized. Defendant Ira Shelansky denies this. The court believes Robert Daddario.

Defendants had the opportunity to read the note and mortgage and were not pressured by Robert Daddario to sign the instrument. Defendant Ira Shelansky testified that he agreed to the second mortgage terms because he wanted to buy the condominium.

As the second mortgage was being transacted, defendant Ira Shelansky testified that Robert Daddario told him not to mention the second mortgage to the bank's attorney. Ira also testified that he and Robert Daddario signed an affidavit to the effect there was no secondary financing. Robert Daddario denies he signed the affidavit and none was produced at the trial.

Citicorp's commitment for its first mortgage had a provision that, "There shall be no other financing affecting the premises at Closing unless approved by Citicorp." Robert Daddario testified that that provision was not enforced because he had an arrangement with Citicorp for a no-asset verification loan. Nevertheless, because Citicorp kept using that provision in its commitment form, Robert Daddario eventually shifted to another bank which did not have a such a provision in its commitment form.

At the transfer of title from the plaintiff R.F. Daddario Sons, Inc. to the defendants, defendants were represented by the same attorney who represented Citicorp. The closing statement shows the following:

Purchase Price $131,000.00 Settlement Charges: CT Page 2663 loan origination fee to Citicorp $736.87 lender's inspection fee to Citicorp 50.00 underwriting fee to Automated Mortgage Consortium, Inc. 200.00 freight charge of Citicorp 25.00 tax service fee to Citicorp 55.50 interest from 9/12/88 to 10/1/88 506.35 reserve for city property tax 303.32 closing fee of Clark, Mayo, Gilligan Zito 375.00 title examination fee to Clark, Mayo, Gilligan Zito 150.00 attorneys fees for personal representation of the buyers to Clark, Mayo, Gilligan Zito 150.00 CATIC 318.00 recording deed, mortgage and releases 57.00 Oakridge Homeowners Association two months condo fee reserve 160.00 Oakridge Homeowners Association Condo fees for 9/12 — 9/30/88 47.34 Total Settlement Charges $ 3,124.38 Town Taxes 22.00 Gross amount due from the borrower $134,146.38 Amount paid by the borrower 1,000.00 Citicorp first mortgage 117,900.00 Cash from the borrower 15,246.38 Gross amount paid by borrower $134,146.37

Of the cash amount of $15,246.38 the defendants were required to put up, $12,890.00 came from the second mortgage given to the plaintiff and defendants made up the difference of $2,356.38. However, that amount of $2,356.38 did not equal the settlement charges of $3,124.28 plus the extras of $2,100.00 added to the purchase price. As a consequence, the defendants paid nothing against the base price of $128,900.00 and got exactly what the plaintiff had advertised, namely a condo priced at $128,900.00 without any down payment by them.

Defendant paid the monthly payments on the second mortgage, although sometimes erratically, from November 1, 1988 until December 1991. In December 1991, defendant Ira Shelansky, a businessman, lost his business and because of other financial difficulties stopped paying the second mortgage.

CT Page 2664 In December 1997, plaintiff sued the defendants on the note alone in the name of R. Daddario Son, Inc. When defendants' attorneys pointed out the action was brought in the wrong name, plaintiff withdrew the action two months later, on February 22, 1998.

Defendants moved out of the condominium in 1998 and rented it until June 2008 when they sold it for $179,900.00. After payment of the first mortgage, the balance of the selling price is held in escrow pending the outcome of this case. A number of encumbrancers subsequent to the plaintiff may have claims upon these funds.

For plaintiff to prevail in this foreclosure action, it "ha[s] to prove by a fair preponderance of the evidence that it was the owner of the note and mortgage and that [defendants] had defaulted on the note." Webster Bank v. Flanagan, 51 Conn.App. 733, 750-51 (1999). This plaintiff has done. It also has established the principal balance due on the note as of this date to be $14,011.75, with interest at 14 1/2% from January 1, 1992 (the date of the default) to the present. The stipulated appraised value of the property is $179,900.00.

Defendants have pleaded a number of special defenses which plaintiff asserts are insufficient because they allege naked claims of law without facts to support them. In its post-trial brief, the plaintiff asks this court not to disregard those special defenses. However, plaintiff never moved to strike the defenses before trial and raises this issue after trial when it had full notice all along of them. Plaintiff has not shown that it was prejudiced by the defendants' pleading. The court, at this late date, will not disregard the special defenses, Tedesco v. Stamford, 215 Conn. 450, 459 (1990), but deal with them appropriately and give them the weight they merit.

Among the special defenses defendants assert are that plaintiff lacked clean hands; the mortgage and note were fraudulently induced, the product of duress and their terms unconscionable; and that plaintiff's action is barred by a breach of the covenant of good faith and fair dealing.

All of these defenses rest on defendants' claims that plaintiff falsely promised that they could purchase the condo with 100% financing; that Robert Daddario arranged for the second mortgage in his private office; that defendants were not apprised of the terms of that mortgage before signing it; that they were told not to mention the second mortgage to the bank's attorney; that the bank's mortgage prohibited secondary financing without its prior approval; that defendants signed an affidavit that there were no secondary financing in this transaction CT Page 2665 and that plaintiff fraudulently used the name of R. Daddario Son, Inc., rather than its correct name, to hide the secondary financing.

These special defenses, based on these claims, are without merit. As indicated above, defendants got exactly what they were promised, namely a 100% financed purchase, in which they put no cash down toward the base price of $128,900.00 for the condominium. The closing statement showed that the actual purchase price was $131,000.00 because defendants wanted additional carpeting and other improvements. Defendants obtained a first mortgage of $117,900.00 from Citicorp and a second mortgage from the plaintiff in the net amount of $12,890.00, for a total of $130,790.00, which exceeded the base price. Additional payments were required to close the transaction at the agreed-upon price of $131,000.00 but they consisted of the closing costs and the improvements to the condominium.

Defendants were not pressured to sign the second mortgage note and deed in Robert Daddario's office. They had the time to read them and to determine whether or not they would sign them. Defendant, Ira Shelansky was a businessman and had prior dealings in real estate. If he chose to sign the documents without reading them, that was his choice. Nor is his failure a ground for his avoiding the liability imposed by those documents. Friezo v. Friezo, 281 Conn. 166, 199 (2007). His testimony was that he signed them because he was eager to buy the condominium.

Even if Robert Daddario told the defendants not to mention the second mortgage to the bank's attorney, even if defendants signed a false affidavit about secondary financing (as to which neither Robert Daddario nor his representative did), even if the first mortgage prohibited secondary financing, those facts point to only a deception upon the bank, not upon the defendants. Robert Daddario denies such deception because he testified that his arrangement with the bank was for a no-asset verification transaction, and the prohibition of secondary financing in the bank's commitment form was not to be enforced. The court believes Robert Daddario on this point.

The court finds there was no fraud nor any duress imposed by the plaintiff upon the defendants, the terms of the mortgage were not unconscionable, the plaintiffs did not lack clean hands, nor act in violation of the covenant of good faith and fair dealing. The defendants knew they were getting a second mortgage from the plaintiff, entered into it because they wanted the condo, and in fact, made monthly payments on that mortgage for four years until financial difficulties forced them to default.

Finally, defendants have not proven by clear and convincing evidence CT Page 2666 that plaintiff used the name R. Daddario Son, Inc. in a fraudulent manner. The court believes Robert Daddario when he testified that the mistake in the corporate name was a computer glitch.

Defendants further allege the special defense that this action is barred by the doctrine of laches in that plaintiff waited seventeen years from the date of default in December 1991 until January 2008 to bring this action.

The law is clear that laches consist of two elements: "`First, there must have been a delay that was inexcusable, and, second, that delay must have prejudiced the defendant.' The mere lapse of time does not constitute laches; . . . unless it results in prejudice to the defendant; . . . as where, for example, the defendant is led to change his position with respect to the matter in question." Bozzi v. Bozzi, 177 Conn. 232, 239 (1979).

Here the only prejudice the defendants claim is that they lost some documents which were damaged in their flooded basement that might support the special defenses of fraud, duress and unclean hands. The only document that might have helped them to prove that defense was the affidavit of no secondary findings purportedly signed by Robert Daddario or his representative. But, as indicated above, that affidavit was irrelevant because it did not prove any fraud or improper conduct perpetuated by the plaintiff upon the defendants.

The defendants also allege that plaintiff abandoned the mortgage by not seeking to enforce it for seventeen years. To constitute an abandonment, "there must be an intention to abandon or relinquish accompanied by some act or omission to act by which such intention is manifested . . . Most frequently where abandonment has been held established, there has been present some affirmative act indicative of an intention to abandon, . . ." Glotzer v. Kuis, 125 Conn. 227, 233 (1939).

As more recently stated in McManus v. Roggi, 78 Conn.App. 288, 299 (2003), "Whether that has been an abandonment is a question of intention to be determined from all the surrounding circumstances, and is a question of fact and not of law. The proof must clearly indicate that it was the intention of the owner of the dominant estate to abandon the easement . . ."

The evidence was that the plaintiff did not foreclose because for a long time there was no equity in the property, Robert Daddario knew the defendants had moved out, would eventually sell the property and the CT Page 2667 plaintiff would be paid. There was no proof whatsoever that plaintiffs intentionally abandoned its rights under the mortgage.

Another of defendants' special defenses was that plaintiff engaged in the business of second mortgage financing without obtaining a license, in violation of Conn. Gen. Stat. § 36a-511. However, § 36a-512 provides "The following are exempt from licensing requirements of § 36a-510 to 36a-524, inclusive . . . (2) persons owning real property who take back from the buyer of such property a secondary mortgage loan in lieu of any portion of the purchase price of the property." Clearly plaintiff falls within that exception to the statute.

Another special defense asserted by the defendants is that plaintiff violated Conn. Gen. Stat. § 34-4 by charging usurious interest rate of 12.5%, and upon default, 14.5%. Section 37-9(3) exempts from the application of § 37-4 any bona fide mortgage in excess of $5,000.00. Thus, the defense of usury is unavailable in an action to foreclose a mortgage over $5,000.00. Associated East Mortgage Co. v. Highland Park, Inc., 172 Conn. 395 at 405 (1977); Ferrigno v. Cromwell Development Associates, 244 Conn. 189 (1998). Although the defendants claim the second mortgage is not bona fide, this court finds no evidence for such an assertion.

Finally, defendants allege, as a counterclaim, that the plaintiff engaged in unfair and deceptive lending practices in violation of CUTPA, § 42-110b(a). The court finds that plaintiff's conduct did not offend public policy; was not immoral, unethical, oppressive, or unscrupulous; and it did not cause any injury to the defendants. As a consequence, the court determines that the defendants failed to prove this counterclaim.

Although the defendants did not establish the defense of laches, the circumstances of this case do not justify plaintiff realizing interest at the default rate of 14.5% from thirty days after the date of the default in December 1991 to the present. Courts have recognized that "a trial court in foreclosure proceedings has discretion, on equitable consideration and principles, to withhold foreclosure or to reduce the amount of a stated indebtedness." Hamm v. Taylor, 180 Conn. 491, 497 (1980). Here, this court is not exercising the power to change the interest rate charged by the plaintiffs, as in Hamm v. Taylor, supra, but rather declines to award plaintiff interest beyond an appropriate date when it should have brought this action. Citicorp Mortgage, Inc. v. Upton, 42 Conn.Sup. 302, 305 (1992) [ 7 Conn. L. Rptr. 273]; Federal Deposit Ins. Corp. v. Benson, CV 92 291352, Judicial District of Fairfield at Bridgeport (Fuller, J., July 16, 1993). That date is the date the plaintiff itself, using a misnamed corporation, CT Page 2668 chose to sue the defendants on the note, namely December 1997.

Thus, the court determines the debt due the plaintiff in this foreclosure action as follows: Principal $14,011.75 Interest from January 1, 1992 to January 1, 1997 at 14.5% per annum 10,158.52 TOTAL $24,170.27

The plaintiff is also entitled to a title fee of $225.00 and a reasonable attorneys fee of $20,150, per its attorney's affidavit. The attorneys fee is justified because defendants asserted numerous special defenses, the trial of the case took three days, and counsel filed post-trial briefs. The court accepts the stipulated appraised value of the property to be $179,900.00.

Because the subject condominium has been sold for the price of $179,900.00 and the first mortgagee has been paid off, the plaintiff is entitled to realize its debt of $24,170.27, as determined above, plus title fee and reasonable attorneys fees, for the total amount of $44,545.29, from the proceeds of the funds held in escrow, and subsequent encumbrancers are entitled to claim the balance of the funds in accordance with their priority.

Thus, a judgment of foreclosure by sale may be entered in favor of the plaintiff. Since a private sale has occurred, the court approves that sale, and its net proceeds after payment of the first mortgage, held in escrow, shall be used to pay the plaintiff's debt of $44,545.29.

Subsequent encumbrancers may be paid the amount of their liens in the order of their priority, in accordance with a supplemental judgment to be submitted to this court for its approval.

CT Page 2669