Opinion
No. CV 09 5026521
February 2, 2010
MEMORANDUM OF DECISION
The plaintiff, TD Bank, N.A., brings this action to foreclose two commercial mortgages and seeking, among other relief, a deficiency judgment against four guarantors to the notes underlying the mortgages. The plaintiff filed its motion to strike in response to the defendants' answer and special defenses. It requests the court to strike all three defenses. The defendants agree that their first special defense alleging that the plaintiff failed to provide notice of acceleration in accordance with the terms of the notes was improperly pleaded, and consent to the granting of the motion on that count.
The plaintiff moves to strike the second and third special defenses asserted by the defendant guarantors wherein they claim that the plaintiff impaired the collateral securing the debt that they guaranteed. For the reasons hereinafter discussed, the plaintiff's motion to strike is denied as to the second and third counts.
The plaintiff alleges in its complaint the following facts that are relevant to determining the issues raised by the plaintiff's motion. The plaintiff is a successor in interest to two mortgage notes originally held by Hudson United Bank and TD Banknorth, N.A., and is the current owner and holder of the notes. Under the terms of the first note, recorded December 22, 2003, the defendant borrower, ARS Partners Poplar Plains, LLC (ARS Partners) promised to pay the sum of $6,150,000 to Hudson United Bank. Under the second note, recorded on November 15, 2006, ARS Partners promised to pay the sum of $7,000,000 to TD Banknorth, N.A. To secure the notes, ARS Partners mortgaged its interest in the parcel of land known as 18 Newtown Turnpike in Westport, Connecticut. Both notes were individually guaranteed by the defendants Ralph Grasso, Steven Folb and Alfred DeMarco, while the defendant, Exeter York, Inc., guaranteed the second note only.
As a result of ARS Partners' default for failure to make payments under the terms of the notes, the plaintiff exercised its option to accelerate payment and declared the entire balance due in June of 2009. Additionally, the plaintiff seeks to foreclose its mortgages against ARS Partners and seeks a deficiency judgment against the defendant guarantors.
In their second and third special defenses, the defendant guarantors allege that certain omissions by the plaintiff impaired the collateral secured by the mortgages in such a way as to discharge them from their obligations under the guarantee agreements. The second special defense alleges that the plaintiff impaired the secured collateral by failing to secure a mortgage on all property owned by ARS Partners as had been agreed by the parties, unreasonably increasing the risk taken by the guarantors. The third special defense alleges that the plaintiff impaired the collateral by failing to perfect a mortgage lien on all of the property owned by ARS Partners, thereby increasing the risk to the guarantors and releasing them from their obligations under their guarantees.
Practice Book § 10-39(a) provides in relevant part: "Whenever any party wishes to contest . . . the legal sufficiency of any answer to any complaint, counterclaim or cross complaint, or any part of that answer including any special defense contained therein, that party may do so by filing a motion to strike the contested pleading or part thereof." "In . . . ruling on the . . . motion to strike, the trial court recognize[s] its obligation to take the facts to be those alleged in the special defenses and to construe the defenses in the manner most favorable to sustaining their legal sufficiency." Connecticut National Bank v. Douglas, 221 Conn. 530, 536, 606 A.2d 684 (1992). "The purpose of a special defense is to plead facts that are consistent with the allegations of the complaint but demonstrate, nonetheless, that the plaintiff has no cause of action . . . A valid special defense at law to a foreclosure proceeding must be legally sufficient and address the making, validity or enforcement of the mortgage, the note or both . . ." Fidelity Bank v. Krenisky, 72 Conn.App. 700, 705, 807 A.2d 968, cert. denied, 262 Conn. 915, 811 A.2d 1291 (2002).
The plaintiff claims in its motion that the defendant guarantors' second and third special defenses should be stricken on the ground that (1) the defenses do not address the making, validity or enforcement of the notes and mortgages, which is required to raise a valid special defense to a foreclosure action; the defendants expressly waived in their guarantees the right to claim impairment of the collateral. The plaintiff has attached copies of the guarantees to the revised complaint as exhibits; and (3) the defenses are barred by the statute of frauds "because the defendants do not identify any written agreement which obligates the plaintiff to further secure its loan by expanding the scope of the mortgage" to other properties.
The defendant guarantors counter that the special defenses are legally sufficient defenses to their obligations as guarantors of the notes secured by the mortgages. They also urge the court to reject the plaintiff's statute of frauds argument because the specific nature of the agreement is not alleged in either the second or third special defense. Further, the defendants claim that their special defenses are valid because they guaranteed the notes in their capacity as accommodation parties. Consequently, the defense of impairment of the collateral is proper pursuant to General Statutes § 42a-3-605. The defendants lastly contend that the issue of waiver presents a question of fact for the trier of fact that is not properly disposed of by way of a motion to strike.
The plaintiffs claim that the second and third special defenses are legally insufficient because they do not relate to the making, validity and enforcement of the notes is misplaced. The plaintiff seeks to foreclose the mortgage against the defendant borrower, ARS Partners, and not against the defendant guarantors. The defenses are not directed towards the plaintiff's claim to foreclose the mortgages. Rather, the defendant guarantors claim in their defenses that certain omissions by the plaintiff impaired the secured collateral to the extent that they are discharged from their obligations as guarantors of the notes underlying the mortgages. The defense of impairment of collateral has been widely recognized in situations factually similar to the present case. See, e.g., Connecticut National Bank v. Douglas, 221 Conn. 530, 606 A.2d 684 (1992); Cadle Company of Conn., Inc. v. C.F.D. Dev. Corp., 44 Conn.App. 409, 689 A.2d 1166, appeal dismissed, 243 Conn. 667, 706 A.2d 975 (1998); Vigil v. Timoney, Superior Court, judicial district of Hartford-New Britain at Hartford, Docket No. CV 93 0520440 (January 4, 1994, Sheldon, J.) ("In a commercial setting, a holder of an instrument may discharge the obligor or some other party if the holder unjustifiably impairs the collateral that secures the debt. See General Statutes § 42a-3-605").
The plaintiff claims that that the second and third special defenses concerning the plaintiff's failure to secure a mortgage on all of the properties owned by ARS Partners is barred by the statute of frauds "because the defendants do not identify any written agreement which obligates the plaintiff to further secure its loan by expanding the scope of the mortgage" to other properties. The plaintiff relies on the provisions of General Statutes § 52-550(a), commonly referred to as the statute of frauds, which provides in pertinent part that "[n]o civil action may be maintained . . . unless the agreement . . . is made in writing and signed by the party . . . to be charged . . . (4) upon any agreement for the sale of real property or any interest in or concerning real property."
The defendants have not alleged in the second and third special defenses whether the agreement referred to therein is oral or signed by the plaintiff as the party to be charged. The plaintiff failed to avail itself of a request to revise the special defenses in order to obtain a more particular statement of the allegations in those defenses. In considering the plaintiff's challenges to the defendants' second and third special defenses on the basis of the statute of frauds, the court is obligated to take the facts as alleged in the special defenses and to construe the defenses in the manner most favorable to sustaining their legal sufficiency. Warner v. Konover, 210 Conn. 150, 152, 553 A.2d 1138 (1989). In view of the foregoing, the court rejects the plaintiff's claim that the second and third special defenses violate the statute of frauds.
The plaintiff maintains that the defendant guarantors waived their right to claim impairment to the collateral as a special defense. It requests, therefore, that the court strike the second and third special defenses. The plaintiff specifically relies on the following language in the guarantees in support of its assertion. "No act or omission of any kind on the part of the bank shall in any way whatsoever impair this Guaranty."
"Both the common law and the Uniform Commercial Code recognize that a guarantor may expressly waive his rights with respect to collateral that secures the debt he has guaranteed." Connecticut National Bank v. Douglas, 221 Conn. 530, 545, 606 A.2d 684 (1992). The plaintiff relies on Connecticut National Bank in claiming that the waiver language contained in the guarantees precludes the defendant guarantors' special defenses asserting impairment of collateral. The court, however, finds that case distinguishable on its facts from the present action.
In Connecticut National Bank, the plaintiff bank had sought to recover the balance due on a debt from parties which had guaranteed it. See, id., 532-33. In response, the guarantors raised two special defenses based on impairment of the collateral pursuant to General Statutes § 42a-3-606 (now § 42a-3-605). See, id., 543. The trial court granted the bank's motion to strike both special defenses on the ground that the guarantors had expressly waived the right to raise the defense of impairment of collateral. See, id., 531. In affirming the trial court's ruling, our Supreme Court noted that "cases in other states uniformly recognize the enforceability of such a waiver if the language of guaranty is sufficiently specific." Id., 545.
The Court noted that the waiver language in the guarantees at issue concerning was sufficiently specific and broad enough in scope to constitute an express waiver of the guarantor's rights relating to the collateral. See, id., 546. The Court discussed the relevant language as follows:
The documents that memorialize [the guarantor's] guaranty of [the borrower's] indebtedness demonstrate, on their face, that [the guarantor] expressly waived any right he might otherwise have had to complain of the impairment of his right to be subrogated to the bank's interest in the secured collateral in the possession of [the borrower]. Each of these documents contains an express waiver of the right to assert any claim with regard to any action the bank might take, or not take, with regard to [the borrower's] collateral. [The guarantor] signed the loan and security agreement as guarantor and thereby agreed that "[t]he bank shall have no duty as to the collection or protection of the Collateral or any income thereon." As a guarantor of the term note and the demand grid note, [the guarantor] agreed that "[u]nless and until all liabilities of the Borrower evidenced by said note have been paid in full, the undersigned hereby individually and collectively waive any and all rights of subrogation, reimbursement or indemnity which may now or hereafter accrue to the undersigned and any and all rights of recourse to or with respect to any assets or property of the Borrower or to any collateral for said liabilities." As a party to an individual guaranty to the bank, [the guarantor] again agreed, in a boldface provision on the face of the guaranty, that his liability to the bank would "not be terminated by, and the undersigned assents to . . . any modification, waiver or amendment of the terms of any agreement relating to liabilities, any substitution, exchange or release of collateral." He therein acknowledged, furthermore, that the bank had "no duty to collect or protect any collateral or any income thereon, nor to preserve any rights against any other parties, and [that the bank could] proceed under this guarantee immediately upon borrower's default without resorting to or regard to any collateral or any other guarantee or source of payment." In these three different forms of guaranty, simultaneously executed for the benefit of the bank in order to induce it to extend credit to [the borrower], [the guarantor] manifested, definitively and unequivocally, his intent to waive any rights that he might have had as guarantor to challenge the bank's conduct with regard to the secured collateral.
Id., 544.
Moreover, the court distinguished the cases relied upon by the guarantor in support of his argument that he did not waive his right concerning the collateral "because the guaranties therein at issue contained no specific waivers of rights with regard to collateral." Id., 546.
In the present case, the language of the guarantees on which the plaintiff relies in support of its motion falls far short of the specific and broad language found in the Connecticut National Bank case. In the plaintiff's memorandum in support of its motion, the plaintiff contends that the following language constitutes an express waiver: "No act or omission of any kind on the part of the Bank shall in any way whatsoever affect or impair this guaranty." Unlike the waiver provisions in Connecticut National Bank, there is no reference to the collateral underlying the subject loans, to the protection or collection of the collateral, or to a waiver of a claim that the collateral has been impaired to the detriment of the defendant guarantors. In fact, the language at issue wholly fails to discuss the defendant guarantors' waiver of any rights they may have to challenge the plaintiff's conduct concerning the secured collateral. Given the lack of specificity and breadth of the waiver language in the guarantees relied upon by the plaintiff in support of its motion, the court concludes that the plaintiff has failed to prevail on its claim of waiver. Therefore, the plaintiff's motion to strike the second and third special defenses based on a claim of waiver is denied.
In view of the foregoing, the plaintiff's motion to strike (119.00) the defendants' first special defense is granted by agreement, and is denied on the second and third counts.