Opinion
No. CV04-0201068-S
April 20, 2005
MEMORANDUM OF DECISION ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT ( #115)
This is an action to foreclose a mortgage on the defendants' home in New Canaan because of an alleged failure by the defendants to make payments of principal and interest under the mortgage note since the payment due on March 1, 2004 and each month thereafter. The defendants on September 22, 2004 filed their Answer to Amended Complaint in which they did not deny any of the allegations of the complaint, but did plead by way of special defense that "the interest rate charged by Plaintiff is unconscionable and inequitable and hence unenforceable."
The plaintiff has now moved for summary judgment (No. 115) claiming that there is no genuine issue of material fact in this case and the plaintiff is entitled to summary judgment as a matter of law. In support of its motion the plaintiff has submitted a memorandum of law and the November 4, 2004 affidavit of Judy Every, Vice President of the plaintiff Emigrant Mortgage Company, Inc. ("Emigrant") which attests to the making of the $625,000 mortgage note and the execution of the mortgage by the defendants on July 15, 2003; that the note and mortgage are held by the plaintiff; that the installments of principal and interest due on March 1, 2004 and each month thereafter have not been paid, and the entire unpaid balance due under the note has been accelerated by Emigrant; that the defendants are the owners of record of the mortgaged premises and are in possession thereof; that the defendants were mailed a cure notice on March 17, 2004, but failed to take advantage of it; and that the total amount due to the plaintiff under the mortgage note as of November 20, 2004 was $719,738.66. The affidavit of Ms. Every also states, in paragraph 7: "A review of the file, which also contains the note, mortgage, and mortgage commitment letter, shows that the defendants have signed each document and that each document contains disclosure of the 18% default interest rate." In opposition to the motion for summary judgment the defendants have submitted a memorandum of law, a supplemental memorandum of law, and the November 23, 2004 affidavit of the defendant Janice Crismara, which does not rebut or even address any of the facts set forth in the Judy Every affidavit, but does state that the note provided for interest at the rate of 9.63% per annum; that the note provides that interest accelerate 8.33% to 18% per annum in the event of default; that the plaintiff is imposing interest at 18%; that the plaintiff has never demonstrated a connection between the 18% interest rate and any additional cost, risk, potential for loss, administrative burden, opportunity loss or other consequential damage; that the equity in the property sought to be foreclosed is at least $400,000 in excess of the debt to the plaintiff; and that "this imposition of the higher interest rate is a penalty" (¶ 6).
It is clear from the supporting and opposing papers that the only material issue between the parties is the enforceability of the 18% default interest rate contained in the mortgage documents, which is raised by the special defense. That special defense does not allege any facts in support of the defendant's claim that the 18% default rate if interest is unconscionable and inequitable. The special defense would therefore be inadequate to raise a legal defense, and would be subject to a motion to strike. "A motion to strike is properly granted if [the special defenses allege] mere conclusions of law that are unsupported by the facts alleged." Novametrix Medical Systems v. BOC Group, Inc. 224 Conn. 210, 215 (1992). But the plaintiff has not moved to strike the special defense (which remains on file as a pleading in this case). The pending motion is a motion for summary judgment as to which the plaintiff, as the moving party, has the burden of showing that there is no genuine issue of material facts which, under applicable principles of substantive law, entitle him to judgment. Appleton v. Board of Education, 254 Conn. 205, 209 (2000).
The plaintiff asks the court, in deciding this motion for summary judgment, to disregard the claim of unconscionability because the special defense fails to allege supporting facts. But the equitable doctrine of unconscionability is not a legal defense that must be pleaded. It is grounded in the discretionary power of the trial court in a foreclosure case, on equitable considerations and principles, to withhold foreclosure or to reduce the amount of the stated indebtedness. Hamm v. Taylor, 180 Conn. 491 (1980), where the court said:
Before a court strikes down as unconscionable the terms of a note that the legislature has deemed not to be illegal, . . . the court should permit a factual showing of the circumstances that led to the inclusion of the challenged terms in the note or mortgage. The Uniform Commercial Code's provision concerning unconscionability; General Statutes 42a-2-302; although addressed primarily to contracts for the sale of goods, furnishes a useful guide . . . Subsection (2) of 42a-2-302 states: `When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.' (Emphasis added.) 180 Conn. at 495.
In the Hamm case no defendant had raised any defense whatsoever, nor had any party filed any pleading raising any issue of unconscionability. The issue first came up at the foreclosure hearing when the court was "invited by counsel to consider the possible unenforceability of the contested interest rate terms . . ." 180 Conn. at 494. The Hamm trial court had reduced an annual interest rate of 15% to 12% and had disallowed entirely the late charges provided in the mortgage note. The Supreme Court reversed the trial court and remanded the case for further proceedings, not for deciding an issue that had not been formally pleaded, but for doing so without having heard relevant evidence:
Whether interest rates are unconscionable is a question that should not be decided by judicial surmise about prevailing prime interest rates. The financial circumstances of the borrower, the increased risk associated with a second mortgage, an income-producing capacity of the mortgaged property are some of the questions of fact that might appropriately be explored to shed light on whether a designated interest rate is or is not unconscionable . . . the basic test is whether . . . the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract. (Internal citation and quotation marks omitted.) 180 Conn. at 495, 496.
This court finds that the issue of unconscionability was adequately raised by the filing of the special defense, and by the Janice Crismara affidavit in opposition to the pending motion. Once raised, it must be addressed by consideration of evidence as to factors similar to those identified by the Hamm opinion and the UCC. The plaintiff's moving papers fail to even raise, let alone resolve, those types of factual issues. The only reference in the plaintiff's Judy Every affidavit to any fact regarding the default rate of interest is the statement that the 18% default rate of interest was disclosed in each mortgage document and in the commitment letter signed by the defendants. The purpose of the doctrine of unconscionability is to prevent oppression and unfair surprise. Edart Truck Rental Corporation v. B. Swirsky Co., 23 Conn.App. 137, 242 (1990). The unchallenged statement in the Every affidavit would exclude the element of surprise, but neither party has addressed the underlying facts as to oppressiveness, which must be decided by the court as a matter of law based on evidence as to relevant factual considerations. Since there are those open factual issues, the plaintiff has not satisfied its burden of showing entitlement to judgment, and the motion for summary judgment is denied.
The plaintiff's reliance on Ferrigno v. Cromwell Associates, 244 Conn. 189 (1998) in support of its claim that it would be reversible error for this court to fail to enforce an 18% interest rate in a mortgage note is unavailing. The Ferrigno case involved a usury challenge to a mortgage note that bore an 18% annual rate of interest. The issue was whether or not the plaintiff lender in a foreclosure case could rely on the exemption in the usury statute for "any bona fide mortgage of real property for a sum in excess of five thousand dollars." Overruling earlier authority the Ferrigno court held that the usury exemption applies whether the mortgage lender sues on the note or forecloses against the property. There was no claim of unconscionability at issue in Ferrigno. There is no claim of a usurious loan in this case.
Conn. Gen Stat. § 37-9(3) which provides for the "bona fide mortgage" exemption from the maximum 12% rate of interest on loans as set forth in § 37-4.
Order
For the foregoing reasons the plaintiff's pending motion for summary judgment (No. 115) is denied.
BY THE COURT:
Alfred J. Jennings, Jr. Judge