author: WEST, J.

text:
    TD BANK, N.A. v. M.J. HOLDINGS, LLC, ET AL.
    (AC 33777)
    Alvord, Sheldon and West, Js.

      Argued September 20, 2012
    officially released June 18, 2013

      James R. Winkel, for the appellants (named defendant et al.)

      Patrick M. Fryer, for the appellee (plaintiff).
   Opinion

WEST, J.

The defendants, M.J. Holdings, LLC (M.J. Holdings), Mountain Top, LLC (Mountain Top), Debra Schlachter Hall, and Pierce Hall, appeal from the trial court’s judgment of foreclosure by sale rendered in favor of the plaintiff, TD Bank, N.A. On appeal, the defendants claim that the court improperly granted the plaintiffs motions (1) to strike their special defenses and (2) for summary judgment. We reverse the judgment of the trial court.

The following facts and procedural history are relevant to our resolution of this appeal. M.J. Holdings executed a promissory note, dated April 5, 2004, in which it promised to pay the plaintiff the principal sum of $970,000. To secure the note, M.J. Holdings mortgaged to the plaintiff its interest in properties located at 125, 139, 141 and 143 Shaw Street in New London. Mountain Top executed a promissory note, dated April 27, 2005, in which it promised to pay the plaintiff the principal sum of $920,000. To secure the note, Mountain Top mortgaged to the plaintiff its interest in properties located at 106 and 156 Summit Street in Norwich. Debra Schlachter Hall and Pierce Hall each guaranteed the amounts due and payable under both notes by guaranty agreements, dated April 5, 2004, and April 27, 2005.

In March, 2010, the plaintiff commenced this action to foreclose the mortgages on the subject properties. In its revised complaint, dated June 11, 2010, the plaintiff alleged that M.J. Holdings and Mountain Top defaulted under the terms of their respective notes and mortgages, and that the plaintiff exercised its option to declare the entirety of the balances due but, despite due demand, the defendants failed to pay the balances due and owing. On August 4, 2010, the defendants filed an answer and four special defenses. On August 19, 2010, the plaintiff filed amotion to strike the defendants’ special defenses, which was granted by the court on February 17, 2011. On March 8, 2011, the plaintiff filed a motion for summary judgment as to liability only, which was granted by the court on July 1, 2011. Thereafter, the court rendered a judgment of foreclosure by sale. This appeal followed.

I

The defendants first claim that the court improperly granted the plaintiffs motion to strike their second, third and fourth special defenses. We agree in part.

The defendants alleged the following facts, which are germane to these defenses. M.J. Holdings agreed to sell its property located at 125 Shaw Street in New London “based upon the promise of the [p]laintiff that if the sale were allowed to proceed, and the [pjlaintiff was provided with all of the net proceeds, it would modify certain of the [defendants’ loans, including those made the basis of the current foreclosure. The [defendants were all beneficiaries of the promised loan modifications. . . . Specifically, the [p]laintiff agreed to modify the loans to interest only which would have reduced the [defendants’ monthly debt and allowed them to remain current on all their loan obligations. . . . [M.J. Holdings] only agreed to the sale . . . based on the benefit it and the other [defendants were to receive in the form of the loan modifications. . . . The sale was conducted on July 17, 2009 and the full amount of the sale proceeds, $687,637.17, was forwarded to, and accepted by the [p]laintiff. . . . The [p]laintiff thereafter breached its agreement with [M.J. Holdings] and failed and refused to restructure or modify the loans.”

“Our standard of review is undisputed. Because a motion to strike challenges the legal sufficiency of a pleading and, consequently, requires no factual findings by the trial court, our review of the court’s ruling on [a motion to strike] is plenary. ... A party wanting to contest the legal sufficiency of a special defense may do so by filing a motion to strike. 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. ... In ruling on a motion to strike, the court must accept as true the facts alleged in the special defenses and construe them in the manner most favorable to sustaining their legal sufficiency.” (Citations omitted; internal quotation marks omitted.) Barasso v. Rear Still Hill Road, LLC, 64 Conn. App. 9, 12-13, 779 A.2d 198 (2001).

At the outset we note that “[b]ecause a mortgage foreclosure action is an equitable proceeding, the trial court may consider all relevant circumstances to ensure that complete justice is done. . . . The determination of what equity requires in a particular case, the balancing of the equities, is a matter for the discretion of the trial court. . . . Where the plaintiffs conduct is inequitable, a court may withhold foreclosure on equitable considerations and principles.” (Citations omitted; internal quotation marks omitted.) Southbridge Associates, LLC v. Garofalo, 63 Conn. App. 11, 15, 728 A.2d 1114, cert. denied, 249 Conn. 919, 733 A.2d 229 (1999).

We farther note that “[e]quitable remedies are not bound by formula but are molded to the needs of justice. . . . Our Supreme Court has endorsed the principle that [a] court of equity does full and equal justice to all having an interest in the subject-matter by tersely expressing that [ejquity never does anything by halves. . . . The principle of [this] maxim embraces the well-established doctrine . . . that when equity once acquires jurisdiction it will retain it so as to afford complete relief. . . .

“Moreover, it is necessary to keep in mind . . . that equity looks to substance and not mere form. ... In speaking about the meaning and effect of the equitable concept of substance rather than form, Pomeroy . . . opines that it is one of great practical importance, [which] pervades and affects to a greater or less degree the entire system of equity jurisprudence .... Equity always attempts to get at the substance of things, and to ascertain, uphold, and enforce rights and duties which spring from the real relations of parties. It will never suffer the mere appearance and external form to conceal the true purposes, objects, and consequences of a transaction.” (Citations omitted; emphasis in original; internal quotation marks omitted.) Morgera v. Chiappardi, 74 Conn. App. 442, 457-58, 813 A.2d 89 (2003), quoting 2 J. Pomeroy, Equity Jurisprudence (5th Ed. 1941) § 378, pp. 40-41.

“Historically, defenses to a foreclosure action have been limited to payment, discharge, release or satisfaction ... or, if there had never been a valid lien. ... 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. . . . [O]ur courts have permitted several equitable defenses to a foreclosure action. [I]f the mortgagor is prevented by accident, mistake or fraud, from fulfilling a condition of the mortgage, foreclosure cannot be had .... Other equitable defenses that our Supreme Court has recognized in foreclosure actions include uncon-scionability . . . abandonment of security . . . and usury.” (Internal quotation marks omitted.) Fidelity Bank v. Krenisky, 72 Conn. App. 700, 705-706, 807 A.2d 968, cert. denied, 262 Conn. 915, 811 A.2d 1291 (2002).

Practically speaking, however, neither this court nor our Supreme Court has ever expressed a finite list of equitable defenses available in a foreclosure action. Typically, “[t]he assertion of equitable defenses to a mortgage foreclosure requires that the defenses [also] challenge the making, validity and enforcement of the loan note and mortgage. This principle was . . . considered to include events leading up to the execution of the loan documents, exclusive of issues involving administration of the loan, such as misapplication of payments.” D. Caron & G. Milne, Connecticut Foreclosures (4th Ed. 2004) § 28.05A, p. 612. Nevertheless, given the equitable nature of a foreclosure action, events subsequent to the execution of the loan documents also have been considered. See, e.g., Thompson v. Orcutt, 257 Conn. 301, 311-14, 777 A.2d 670 (2001).

In Thompson, our Supreme Court considered actions by the plaintiff subsequent to the execution of the note and mortgage—in particular, fraudulent conduct in a bankruptcy proceeding—to be “directly and inseparably connected” to the foreclosure action to support the defendants’ equitable defense of unclean hands. (Internal quotation marks omitted.) Id., 313. In doing so, our Supreme Court found that “[t]he original transaction creating the . . . mortgage was not tainted with fraud, but the plaintiffs ability to foreclose on the defendants’ property . . . depended upon his fraudulent conduct in the bankruptcy proceeding. If the . . . mortgage had been administered as an asset of the bankruptcy estate, the plaintiff would have had no means of bringing this foreclosure action. . . . The plaintiff perpetrated the fraud in the bankruptcy court in order to retain title to the . . . mortgage; he would have had no cause to foreclose on the . . . mortgage without the fraud.” (Citations omitted.) Id., 313-14. Thus, although the actions constituting unclean hands occurred after the execution of the original loan documents, those actions directly impacted the enforceability of those loan documents. Id. With these principles in mind, we turn to the defendants’ special defenses.

A

In their second special defense, the defendants specifically alleged that “[t]he [c]ourt should use its equitable power to prevent the [p]laintiff from foreclosing as a result of its actions.” The court indicated that the second special defense appeared to raise equitable estoppel as a defense to this foreclosure action and concluded that allegations of a promise to modify a loan are an insufficient basis for an equitable estoppel defense. In their fourth special defense, the defendants expressly raised equitable estoppel as a defense. The defendants argue that the court did not properly address their second special defense but incorrectly grouped it with their fourth special defense and improperly analyzed both as defenses of equitable estoppel. The defendants contend that their second special defense alleged the plaintiffs breach of the loan modification agreement. We agree.

“The interpretation of pleadings is always a question of law for the court .... Our review of the trial court’s interpretation of the pleadings therefore is plenary. . . . [T]he modem trend, which is followed in Connecticut, is to construe pleadings broadly and realistically, rather than narrowly and technically.” (Citation omitted; internal quotation marks omitted.) Grenier v. Commissioner of Transportation, 306 Conn. 523, 536, 51 A.3d 367 (2012). The allegation that the plaintiff breached the loan modification agreement is expressly set forth in the defendants’ second special defense. This allegation, however, also is set forth and incorporated by reference into the defendants’ fourth special defense. The only difference between the defendants’ second and fourth special defenses is that their second special defense alleged that “[t]he [c]ourt should use its equitable power to prevent the [p]laintiff from foreclosing as a result of its actions” while their fourth special defense alleged that “the [p]laintiff should be [equitably] estopped from foreclosing on this [property.” Although these allegations may bear a close resemblance to one another, we must construe the pleadings broadly and realistically and, therefore, we take into account the fact that the defendants expressly set forth these allegations into two separate defenses. We further take into account that their second special defense appears to refer to the trial court’s broad equitable powers in foreclosure actions, while their fourth special defense refers to the specific defense of equitable estoppel. Thus, to the extent that the second special defense alleged that the plaintiff breached the loan modification agreement, we will consider this defense.

The defendants argue that modification has been found to be a valid defense to a foreclosure action. The plaintiff counters that the alleged loan modification agreement is inconsistent with the allegations set forth in the plaintiffs revised complaint and, furthermore, cannot be said to attack the making, validity or enforcement of the note and/or mortgage. We agree with the defendants.

It appears that neither this court nor our Supreme Court has addressed whether breach of a loan modification agreement constitutes a valid defense to a foreclosure action. A number of decisions of the Superior Court, however, have asserted that “[a]llegations of modification directly attack the validity or enforcement of the original note or [mortgage such that] a special defense alleging modification is properly raised in a foreclosure proceeding.” (Internal quotation marks omitted.) ALI, Inc. v. Veronneau, Superior Court, judicial district of Waterbury, Docket No. CV126431 (October 11, 1996) (17 Conn. L. Rptr. 677); see also BAC Home Loans Servicing, L.P. v. Presutti, Superior Court, judicial district of Hartford, Docket No. CV-09-5029746 (April 8, 2010) (49 Conn. L. Rptr. 609). Although we find this rationale persuasive, we recognize that in order to raise this defense, the defendants must allege a valid loan modification agreement that attacks the making, validity or enforcement of the original note and/or mortgage.

“A promissory note is nothing more than a written contract for the payment of money, and, as such, contract law applies.” (Internal quotation marks omitted.) Fidelity Bank v. Krenisky, supra, 72 Conn. App. 707. “The rules governing contract formation are well settled. . . . [A]n offer imposes no obligation upon either party, until it is accepted by the offeree, according to the terms in which the offer was made. . . . Our holdings adhere to the basic principle of contract law that an offeror is the master of his offer, and therefore, is not obligated to make an offer on any terms except his own. . . . Thus, [a]n offer can be accepted by the rendering of a performance only if the offer invites such an acceptance. . . . Further, [i]n order to accept the offer [by rendering performance], the offeree must give . . . that for which the offeror bargains. If it is in any material respect different, there is no contract.” (Citations omitted; internal quotation marks omitted.) Auto Glass Express, Inc. v. Hanover Ins. Co., 293 Conn. 218, 227, 975 A.2d 1266 (2009). Such a contract where “the offeror invites acceptance of his promise ... by performance” is a unilateral contract. (Internal quotation marks omitted.) Id., 224 n.8.

Furthermore, “[u]nder established principles of contract law, an agreement must be definite and certain as to its terms and requirements. . . . [W]here the memorandum appears [to be] no more than a statement of some of the essential features of a proposed contract and not a complete statement of all the essential terms, [a party] has failed to prove the existence of an agreement.” (Internal quotation marks omitted.) Friedman v. Donenfeld, 92 Conn. App. 33, 39, 882 A.2d 1286 (concluding that “agreement between the parties was not a binding contract because the agreement contemplated the execution of a contract in the future”), cert. denied, 276 Conn. 930, 889 A.2d 817 (2005). Likewise, “ [f] or a valid modification to exist, there must be mutual assent to the meaning and conditions of the modification and the parties must assent to the same thing in the same sense. . . . Modification of a contract may be inferred from the attendant circumstances and conduct of the parties. ... A modification of an agreement must be supported by valid consideration and requires a party to do, or promise to do, something further than, or different from, that which he is already bound to do.” (Citation omitted; internal quotation marks omitted.) Harley v. Indian Spring Land Co., 123 Conn. App. 800, 821-22, 3 A.3d 992 (2010).

In Forte v. Citicorp Mortgage, Inc., 66 Conn. App. 475, 479, 784 A.2d 1024 (2001), this court considered the appeal from a judgment rendered in an action separate from the foreclosure proceedings brought by the plaintiff mortgagors against the defendant mortgagee in which the plaintiffs alleged, inter alia, that the defendant breached the implied covenant of good faith and fair dealing by refusing to allow them to refinance. In Forte, the complaint alleged “that representatives of [the defendant] had informed them that they could ‘automatically’ refinance within the first year of the mortgage loan without incurring additional appraisal or inspection costs . . . [but] that when they made a request to refinance, after interest rates dropped, [the defendant] informed them that they would not qualify for refinancing unless they reduced the principal amount of their debt.” Id., 478. More specifically, the court stated that “paragraph thirteen of count one of the plaintiffs’ revised complaint states: ‘The plaintiffs were told that because their request was made within one year, no additional [appraisal] inspection or similar closing costs would be incurred, and that either a new Mortgage or Modification Agreement would be provided. ’ In construing the allegations of the pleading liberally, as we must, we conclude that the plaintiffs have alleged the existence of an agreement to refinance the property.” Id., 485.

In the present case, the defendants alleged that M.J. Holdings agreed to sell its property located at 125 Shaw Street in New London “based upon the promise of the [p]laintiff that if the sale were allowed to proceed, and the [p]laintiff was provided with all of the net proceeds, it would modify certain of the [defendants’ loans, including those made the basis of the current foreclosure. . . . Specifically, the [p]laintiff agreed to modify the loans to interest only which would have reduced the [defendants’ monthly debt and allowed it to remain current on all its loan obligations. . . . The sale was conducted . . . and the full amount of the sale proceeds . . . was forwarded to, and accepted by the [p]laintiff.”

The allegations in the present case concerning the existence of a loan modification agreement are very similar to the allegations set forth in Forte concerning the existence of a refinancing agreement. In construing the allegations of the pleading liberally, as we must, we conclude that the defendants have alleged the existence of a loan modification agreement that, furthermore, attacks the validity or enforcement of the note and mortgage between the plaintiff and M.J. Holdings. At the outset, we note that the allegations set forth in the defendants’ second special defense are not inconsistent with the allegations set forth in the plaintiffs revised complaint because allegations of a loan modification agreement merely provide additional facts that the notes and mortgages set forth in the plaintiffs revised complaint were subsequently modified. The defendants’ allegations set forth a promise on behalf of the plaintiff that induced performance on behalf of M.J. Holdings so as to constitute a unilateral contract. The defendants further alleged that the plaintiff agreed to modify the loans to interest only, which is sufficient to allege mutual assent to the meaning and conditions of the modification. We recognize that the allegations may appear to constitute a mere promise to modify the loans and come to terms with the conditions of the loan modification at some future point, but we also recognize that we “must accept as true the facts alleged in the special defenses and construe them in the manner most favorable to sustaining their legal sufficiency.” (Emphasis added; internal quotation marks omitted.) Barasso v. Rear Still Hill Road, LLC, supra, 64 Conn. App. 13. Furthermore, we conclude that, so construed, these allegations attack the validity or enforcement of the note and mortgage, which impacts the plaintiffs ability to foreclose thereon, because the defendants alleged that the loan modification agreement would have allowed them to remain current on all their loan obligations. Thus, we conclude that the court improperly struck the defendants’ second special defense.

B

The allegations set forth in the defendants’ second special defense, which allege the existence of a loan modification agreement, are substantially incorporated by reference into the defendants’ third special defense. In their third special defense, the defendants specifically alleged that “[t]he actions of the [p]laintiff . . . constitute a breach of the implied covenant of good faith and fair dealings made a part of all contracts in Connecticut.” The court concluded that the plaintiffs alleged breach of a promise to modify the terms of the mortgage did not rise to the level of breach of that duty. The defendants argue that breach of the implied covenant of good faith and fair dealing is a valid defense to a foreclosure action. The defendants further contend that the facts as alleged in their third special defense are inapposite to cases in which courts have determined that the refusal to negotiate a loan modification did not constitute a breach of the implied covenant of good faith and fair dealing because the defendants in the present case alleged that they actually came to an agreement with the plaintiff regarding a loan modification, but that the plaintiff failed to abide thereby. The plaintiff counters that breach of the implied covenant of good faith and fair dealing is not a valid defense to a foreclosure action or, in the alternative, that the facts as alleged do not set forth a breach of that duty. For reasons previously set forth; see footnote 4 of this opinion; we need not address the parties’ arguments and conclude that the court did not improperly strike the defendants’ third special defense.

The allegation of breach of the implied covenant of good faith and fair dealing with respect to a loan modification agreement is surplusage because the allegation of a loan modification agreement constitutes a valid special defense to a foreclosure action regardless of the plaintiffs subsequent actions with respect to that agreement. See footnote 4 of this opinion. The defendants have already alleged in their second special defense the existence of a loan modification agreement that attacks the validity or enforcement of the note and mortgage between the plaintiff and M.J. Holdings. See Part I A of this opinion. The establishment at trial of the existence of a valid loan modification agreement would end the inquiry with respect to the enforceability of the original loan documents such that consideration of breach of the implied covenant of good faith and fair dealing with respect to that agreement would be unnecessary. On the other hand, if there is no such agreement, there can be no implied duty of good faith and fair dealing with respect thereto. See Forte v. Citicorp Mortgage, Inc., supra, 66 Conn. App. 484 (“[t]he existence of a contract between the parties is ... a necessary predicate to a successful claim of breach of an implied covenant of good faith and fair dealing, and the failure to allege the existence of an agreement is fatal to such a claim”). Thus, to the extent that the allegations set forth in the defendants’ third special defense are surplusage to the allegations set forth in the defendants’ second special defense, the court did not improperly strike the defendants’ third special defense.

C

The allegations set forth in the defendants’ second special defense, which pleaded the existence of a loan modification agreement, are substantially incorporated by reference into the defendants’ fourth special defense. In their fourth special defense, the defendants specifically alleged that “the [p]laintiff should be [equitably] estopped from foreclosing on this [property.” The court concluded that allegations of a promise to modify a loan are an insufficient basis for an equitable estoppel defense. The defendants argue that their allegations satisfy the two essential elements of equitable estoppel in that they allege that the plaintiff agreed to modify the subject loan in exchange for the net proceeds from the sale and that, in reliance thereon, the defendants paid the plaintiff the net proceeds from the sale. The defendants then note that the province of equitable estoppel is to show what equity and good conscience require irrespective of the legal rights of the parties. The plaintiff counters that the court properly balanced the equities and determined that the actions of the parties to this commercial transaction constituted a promise to act at a future time, which is an insufficient basis for an equitable estoppel defense. We agree with the plaintiff.

“[Traditional mortgage foreclosure standards . . . permit the assertion of certain special defenses, including that of equitable estoppel.” Congress Street Condominium Assn., Inc. v. Anderson, 132 Conn. App. 536, 544, 33 A.3d 274 (2011). “The doctrine of equitable estoppel is well established. [W]here one, by his words or actions, intentionally causes another to believe in the existence of a certain state of things, and thereby induces him to act on that belief, so as injuriously to affect his previous position, he is [precluded] from averring a different state of things as existing at the time. . . . Our Supreme Court . . . stated, in the context of an equitable estoppel claim, that [t]here are two essential elements to an estoppel: the party must do or say something which is intended or calculated to induce another to believe in the existence of certain facts and to act upon that belief; and the other party, influenced thereby, must actually change his position or do something to his injury which he otherwise would not have done. Estoppel rests on the misleading conduct of one party to the prejudice of the other. . . . Broadly speaking, the essential elements of an equitable estoppel. . . as related to the party to be estopped, are: (1) conduct which amounts to a false representation or concealment of material facts, or, at least, which is calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) the intention, or at least the expectation, that such conduct shall be acted upon by, or influence, the other party or other persons; and (3) knowledge, actual or constructive, of the real facts.” (Citations omitted; internal quotation marks omitted.) Johnnycake Mountain Associates v. Ochs, 104 Conn. App. 194, 208-209, 932 A.2d 472 (2007), cert. denied, 286 Conn. 906, 944 A.2d 978 (2008).

Allegations of the existence of a loan modification agreement, which have been incorporated by reference from the defendants’ second special defense, do not support the special defense of equitable estoppel. On the one hand, the existence of a loan modification agreement is a valid defense in a foreclosure action regardless of the defendants’ classification thereof as equitable estoppel. On the other hand, we recognize that onr Supreme Court has underscored the fundamental difference between equitable estoppel and promissory estoppel by relying upon the second edition of American Jurisprudence. See Union Carbide Corp. v. Danbury, 257 Conn. 865, 874 n.2, 778 A.2d 204 (2001), citing 28 Am. Jur. 2d 465, Estoppel and Waiver § 35 (2d Ed. 2000). The second edition of American Jurisprudence provides in particular that “[promissory estoppel involves a clear and definite promise while equitable estoppel involves only representations and inducements. Promissory estoppel is applicable to promises while equitable estoppel is applicable to misstatements of fact. The representations at issue in promissory estoppel go to future intent while equitable estoppel involves statements of past or present fact. . . . Whereas promissory estoppel is used offensively, to create a cause of action, equitable estoppel functions defensively to bar a party from . . . instituting an action that it is entitled to institute.” (Emphasis added.) 28 Am. Jur. 2d, supra, § 34, pp. 499-501.

The promise to modify the loans to interest only that allegedly induced M.J. Holdings to sell its property located at 125 Shaw Street is not a proper basis for an equitable estoppel defense. To the extent that the defendants’ fourth special defense alleges the existence of a valid loan modification agreement, this defense is redundant to that set forth in the defendants’ second special defense. Thus, we conclude that the court did not improperly strike the defendants’ fourth special defense.

II

The defendants next claim that the court improperly granted the plaintiffs motion for summary judgment. The court’s decision to grant the plaintiffs motion for summary judgment as to liability must be reversed because the court did not consider the defendants’ second special defense, which previously had been improperly stricken. The granting of the motion for summary judgment was therefore improper. See Homecomings Financial Network, Inc. v. Starbala, 85 Conn. App. 284, 290, 857 A.2d 366 (2004). Accordingly, the court improperly rendered judgment of foreclosure by sale without considering that defense.

The judgment of foreclosure by sale is reversed and the case is remanded with direction to deny the plaintiffs motion to strike the defendants’ second special defense and the plaintiffs motion for summary judgment, and for further proceedings in accordance with this opinion.

In this opinion the other judges concurred.

       The defendant PJL Realty, LLC, has not appealed.

       The defendants also filed a two count counterclaim. The plaintiff filed a motion to strike the counterclaim, which the court granted. This court granted the plaintiffs motion to dismiss the portion of the appeal concerning the trial court’s granting of the motion to strike the defendants’ counterclaim for want of a final judgment.

       In Forte, this court further considered the trial court’s granting of the defendant’s motion for summary judgment and concluded “that the plaintiffs have offered evidence that raises a genuine issue of material fact as to whether there was a refinancing agreement between the parties, in which all of the terms of the refinanced mortgage would remain the same except for the then lower current interest rate and, therefore, that summary judgment as to that issue was improper.” Forte v. Citicorp Mortgage, Inc., supra, 66 Conn. App. 486.

         We note that the defendants also alleged that they were all beneficiaries of the promised loan modifications. To the extent that some of the defendants appear to allege a status as third party beneficiaries to the alleged loan modification agreement, we need not consider the sufficiency of these allegations to support a special defense at this time because we have already indicated that facts provable would support the defense of loan modification as it relates to at least one defendant, M.J. Holdings.

       We note that the defendants further alleged that the plaintiff breached the loan modification agreement. We recognize, however, that this allegation is surplusage because the allegation of a loan modification agreement constitutes a valid special defense to a foreclosure action regardless of the parties’ subsequent actions with respect to that agreement. The establishment at trial of the existence of a valid loan modification agreement would end the inquiry with respect to the enforceability of the original loan documents such that consideration of breach of the loan modification agreement would be unnecessary.

       In Congress Street Condominium Association, Inc., this court did not reach the question of whether the pleading proffered by the defendant adequately set forth a claim of equitable estoppel, “only that such a defense, if properly pleaded, may be raised in defense of an action by a condominium association to foreclose liens based on imposition of fines.” Congress Street Condominium Assn., Inc. v. Anderson, supra, 132 Conn. App. 544 n.10.


source: Caselaw Access Project

author: BEACH, J.

license: Public Domain

text:
    TD BANK, N.A. v. J AND M HOLDINGS, LLC, ET AL.
    (AC 33857)
    DiPentima, C. J., and Beach and Bear, Js.

      Argued January 14
    officially released June 18, 2013

      James R. Winkel, for the appellants (named defendant et al.).

      Patrick M. Fryer, for the appellee (plaintiff).
   Opinion

BEACH, J.

The defendants, J&M Holdings, LLC (J & M Holdings), Debra Schlachter Hall and Pierce Hall, appeal from the judgment of foreclosure by sale rendered by the trial court in favor of the plaintiff, TD Bank, N.A. The defendants claim that the court erred in (1) striking certain special defenses and (2) granting the plaintiffs motion for summary judgment. We reverse the judgment of the trial court.

The plaintiff commenced this action in March, 2010. In June, 2010, the plaintiff filed the operative complaint in which it sought to foreclose on certain commercial property of J & M Holdings and sought judgment against Hall and Schlachter Hall, as guarantors of the notes, for failing to pay the balance due. The operative complaint alleged the following relevant facts. By way of a “construction mortgage note,” dated August 31, 2005, J & M Holdings promised to pay to the plaintiff $2.7 million. To secure the note, J&M Holdings mortgaged to the plaintiff its property at 20 Excalibur Boulevard in Plainfield (Plainfield property) by executing an “open-end construction mortgage deed” and security agreement. J&M Holdings executed a second “construction mortgage note” dated August 31, 2005, by which it promised to pay the plaintiff the principal sum of $600,000. To secure this note, J&M Holdings executed a second “open-end construction mortgage deed” and security agreement in which J&M Holdings mortgaged the Plainfield property. The plaintiff alleged in its complaint that J&M Holdings defaulted under the terms of both notes and failed to pay the balance due on each.

In August, 2010, the defendants filed an answer and seven special defenses. The plaintiff filed a motion to strike all of the defendants’ special defenses, which the court granted. The plaintiff filed a motion for summary judgment as to liability only, which the court granted. The plaintiff filed a motion for judgment of strict foreclosure, and in August, 2011, the court entered a judgment of foreclosure by sale.

“The standard of review in an appeal challenging a trial court’s granting of a motion to strike is well established. A motion to strike challenges the legal sufficiency of a pleading, and, consequently, requires no factual findings by the trial court. As a result, our review of the court’s ruling is plenary. . . . We take the facts to be those alleged in the [pleading] that has been stricken and we construe the [pleading] in the manner most favorable to sustaining its legal sufficiency.” (Internal quotation marks omitted.) Ugrin v. Cheshire, 307 Conn. 364, 373, 54 A.3d 532 (2012).

“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.” (Internal quotation marks omitted.) Mortgage Electronic Registration Systems v. Goduto, 110 Conn. App. 367, 369 n.2, 955 A.2d 544, cert. denied, 289 Conn. 956, 961 A.2d 420 (2008). “[O]ur courts have permitted several equitable defenses to a foreclosure action. [I]f the mortgagor is prevented by accident, mistake or fraud, from fulfilling a condition of the mortgage, foreclosure cannot be had .... Other equitable defenses that our Supreme Court has recognized in foreclosure actions include unconsciona-bility . . . abandonment of security . . . and usury.” (Internal quotation marks omitted.) Fidelity Bank v. Krenisky, 72 Conn. App. 700, 705-706, 807 A.2d 968, cert. denied, 262 Conn. 915, 811 A.2d 1291 (2002).

I

The defendants claim that the court erred in granting the plaintiffs motion to strike their second, third, fourth, fifth, sixth and seventh special defenses. We agree as to the fifth special defense and disagree as to the remaining special defenses.

In their second special defense, the defendants alleged that the plaintiff refused to facilitate a favorable sale of the Plainfield property to a third party because it refused to waive a prepayment penalty. The defendants argue that Superior Court decisions have found the defense of refusal to agree to a favorable sale to a third party to be a valid special defense to a foreclosure action. They contend that the actions of the plaintiff clearly harmed the defendants and the special defense is valid because it relates to the ability of the plaintiff to enforce the Plainfield note and mortgage.

Even if we were to assume that a mortgagee’s refusal to agree to a favorable sale can in some instances be a valid defense in a foreclosure proceeding, the defendants have not set forth a legally sufficient defense in this instance. They allege that the plaintiff refused to waive a prepayment penalty and thus refused to facilitate the sale. The defendants made no allegation that the prepayment penalty was unenforceable or that the plaintiff was legally obligated to waive the prepayment penalty. We know of no binding authority, and the defendants have not directed us to any, requiring a mortgagee not to enforce an otherwise valid contractual provision. Accordingly, the second special defense was not legally sufficient and is not a valid defense to a foreclosure action; it was properly stricken by the trial court.

The defendants’ third and fourth special defenses, which alleged breach of the covenant of good faith and fair dealing and equitable estoppel, respectively, were premised on the same factual allegations that were made in the second special defense. Because the factual allegations set forth in the second special defense were not legally sufficient, the third and fourth special defenses likewise are insufficient.

In the fifth special defense, the defendants allege modification and set forth the following factual allegations. In July, 2009, an entity “related” to the defendant J & M Holdings called M & J Holdings, LLC (related entity), sold certain property in New London (New London property) to PJL Realty, LLC, for the sum of $800,000, even though the New London property was worth well in excess of $800,000. The defendants and the related entity agreed to the sale because of the plaintiffs promise to modify the loans at issue in the present foreclosure proceeding if the related entity sold the New London property and provided the plaintiff with all of the net proceeds. The plaintiff accepted the full amount of the net proceeds from the sale of the New London property, $687,637.17, but did not modify the loans secured by the mortgage on the Plainfield property at issue in this case. The special defense also alleged that the defendants were beneficiaries of the agreement between the plaintiff and the related entity.

The defendants argue that their defense of modification is a legally sufficient defense in a foreclosure proceeding and is a valid defense in this case because they alleged that they were third party beneficiaries to the modification agreement. The plaintiff argues that modification is not a valid defense in this case because the modification agreement was a separate transaction and does not have a sufficient link to the execution of the Plainfield note and mortgage under consideration here.

The alleged resulting modification of the loan agreement relates to the validity and enforcement of the mortgage and/or note and, thus, is a facially valid special defense. See Forte v. Citicorp Mortgage, Inc., 66 Conn. App. 475, 784 A.2d 1024 (2001); see also BAC Home Loans Servicing, L.P. v. Presutti, Superior Court, judicial district of Hartford, Docket No. CV-09-5029746 (April 8, 2010) (49 Conn. L. Rptr. 609) (allegations of modification directly attack validity or enforcement of original note or mortgage); ALI, Inc. v. Veronneau, Superior Court, judicial district of Waterbury, Docket No. CV 126431 (October 11, 1996) (17 Conn. L. Rptr. 677) (modification valid special defense in foreclosure action); Home Savings Bank of America v. Santilli, Superior Court, judicial district of Stamford-Norwalk, Docket No. CV-93-0130634 (March 2, 1995) (same). If a valid subsequent agreement purporting to modify the original loan agreement was, in fact, entered into, then the original loan agreement may no longer be enforceable to the extent that it was contractually modified. This scenario affects the validity and enforcement of the original loan agreement.

According to the defendants’ factual allegations in the fifth special defense, the plaintiff promised to modify the Plainfield note if a related entity performed a certain act, and that entity performed. Contrary to the plaintiffs claim, the alleged loan modification agreement was not made by parties with no connection to the Plainfield note; rather it was entered into by the plaintiff and an entity related to the defendant J & M Holdings. In this special defense, the defendants assert a connection with the subject matter of the present foreclosure action: the modification agreement, to which the plaintiff was a party and which was performed by the related entity, altered the original loan documents with respect to the Plainfield property, which in turn were sought to be enforced in this action. Thus, the alleged modification could affect the enforceability and current validity of the Plainfield loan documents. Because the fifth special defense alleges a legally sufficient defense, the court erred in granting the motion to strike this special defense.

The defendants’ sixth and seventh special defenses were premised on the factual allegations in the fifth special defense. In their sixth special defense, the defendants alleged a breach of the implied covenant of good faith and fair dealing. “[I]t is axiomatic that the . . . duty of good faith and fair dealing is a covenant implied into a contract or a contractual relationship. ... In other words, every contract carries an implied duty requiring that neither party do anything that will injure the right of the other to receive the benefits of the agreement. . . . The covenant of good faith and fair dealing presupposes that the terms and purpose of the contract are agreed upon by the parties and that what is in dispute is a party’s discretionary application or interpretation of a contract term. . . .

“To constitute a breach of [the implied covenant of good faith and fair dealing], the acts by which a defendant allegedly impedes the plaintiffs right to receive benefits that he or she reasonably expected to receive under the contract must have been taken in bad faith. . . . Bad faith in general implies both actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one’s rights or duties, but by some interested or sinister motive. . . . Bad faith means more than mere negligence; it involves a dishonest purpose.” (Citations omitted; emphasis added; internal quotation marks omitted.) De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., 269 Conn. 424, 432-33, 849 A.2d 382 (2004).

The defendants do not sufficiently allege a claim for breach of the covenant of good faith and fair dealing. The sixth special defense incorporates the facts alleged in the fifth special defense and adds a conclusory allegation that the actions of the plaintiff constituted a breach of the implied covenant of good faith and fair dealing. The fifth special defense states that the plaintiff agreed to modify the loan agreement if the related entity performed a certain act. The related entity performed and the bank did not perform. The sixth special defense simply realleges the breach of the modification agreement defense and does not allege facts regarding dishonesty in performance or enforcement of the contract. “[A] plaintiff cannot state a claim for breach of the implied covenant simply by alleging a breach of the contract, in and of itself. . . . Instead, to state a legally sufficient claim for breach of the implied covenant sounding in contract, the plaintiff must allege that the defendant acted in bad faith. ... If the plaintiff fails to set forth factual allegations that the defendant acted in bad faith, a claim for breach of the implied covenant will not lie.” (Citations omitted; internal quotation marks omitted.) Blumberg Associates Worldwide, Inc. v. Brown & Brown of Connecticut, Inc., 132 Conn. App. 85, 99, 30 A.3d 38 (2011), cert. granted on other grounds, 303 Conn. 923, 34 A.3d 395 (2012).

Moreover, under the factual allegations presented by the pleadings in this case, the trial court could not reach the issue of a breach of the covenant of good faith and fair dealing arising under the alleged contract to modify the Plainfield note and mortgage. The inquiry as to the enforceability of the Plainfield note alleged by the plaintiff would end upon determination of whether there in fact had been a contact to modify the terms of that initial loan agreement. If there had been no contract to modify, there of course would have been no implied covenant of good faith and fair dealing thereunder. But if there had been a contract to modify the terms, then its existence alone would defeat the foreclosing party’s right of action. In such circumstances, it would not matter whether the party who agreed to the modification fully honored the implied covenant of good faith and fair dealing in the modification agreement because the existence of a contract to modify the original note would defeat the right of the party to enforce the terms of the original note in any event. Accordingly, the sixth special defense properly was stricken.

In their seventh special defense, the defendants allege that due to the actions of the plaintiff regarding the modification agreement, it should be equitably estopped from foreclosing on the Plainfield property. The defendants argue that they have alleged facts sufficiently setting forth both elements of estoppel—that the plaintiff agreed to modify the loan agreement in exchange for net proceeds from the sale of the New London property and that in reliance on that agreement, the related entity sold the New London property for less than its full value and paid the net proceeds of $687,637.17 to the plaintiff.

Equitable estoppel is a recognized defense in a foreclosure action. See Congress Street Condominium Assoc. v. Anderson, 132 Conn. App. 536, 544, 33 A.3d 274 (2011). “The standards governing the application of equitable estoppel are well established. There are two essential elements to an estoppel—the party must do or say something that is intended or calculated to induce another to believe in the existence of certain facts and to act upon that belief; and the other party, influenced thereby, must actually change his position or do some act to his injury which he otherwise would not have done.” (Internal quotation marks omitted.) O'Connor v. Waterbury, 286 Conn. 732, 757, 945 A.2d 936 (2008). The defendants set forth facts alleging that they were harmed because the related entity acted in reliance on the plaintiffs promise. The defendants do not allege that they themselves did anything in reliance on the plaintiffs promise, or, for that matter, that representations were made to them. Therefore, the defendants do not set forth facts legally sufficient to support a defense of equitable estoppel.

II

The defendants next claim that the court erred in granting the plaintiffs motion for summary judgment. The court did not consider the fifth special defense in granting the plaintiffs motion for summary judgment, because that defense had been stricken. The granting of the motion for summary judgment as to liability was therefore improper. See Homecomings v. Starbala, 85 Conn. App. 284, 290, 857 A.2d 366 (2004). Accordingly, the court improperly rendered judgment of foreclosure by sale.

The judgment of foreclosure by sale is reversed and the case is remanded with direction to deny the plaintiffs motion to strike the defendants’ fifth special defense and the plaintiffs motion for summary judgment, and for further proceedings in accordance with this opinion.

In this opinion the other judges concurred.

       In the operative complaint, the plaintiff also referred to itself as TD Banknorth, N.A., and noted that in May, 2008, TD Banknorth, N.A., changed its name to TD Bank, N.A.

       For convenience, we refer in this opinion to these notes and mortgages as the Plainfield note and/or mortgage.

       The defendants also filed a two count counterclaim. The plaintiff filed a motion to strike the counterclaim counts, which the court granted. The defendants’ statement of issues in their brief included an issue relating to the striking of their counterclaims, but they did not address this issue in the argument section of their brief. The plaintiff filed a motion to dismiss the portion of this appeal concerning the court’s granting of the motion to strike the defendants counterclaims, which motion we granted.

       The defendants make no claim on appeal regarding the first special defense.

       The parties agreed at oral argument that if the second special defense fails, then the third and fourth special defenses also fail.

       The fifth special defense alleged that M & J Holdings, LLC, was “a related, entity to the [defendants.” Although it is not clear how the entities allegedly were related, we construe pleadings broadly in the context of a motion to strike. A relationship such as a common ownership interest could have been encompassed by the terms.

       In a separate but related case, M. J. Holdings, LLC, Debra Schlachter Hall and Pierce Hall, among other defendants, filed an appeal with this court following the trial court’s striking of their special defenses of equitable estoppel, breach of the implied covenant of good faith and fair dealing, and breach of a modification agreement in connection with a foreclosure proceeding initiated by TD Bank on the New London property. See T.D. Bank, N.A. v. M.J. Holdings, LLC, 143 Conn. App. 322, 71 A.3d 541 (2013). (discrepancy in name of related LLC is unexplained) In their special defenses, the defendants in that case alleged the existence of the same modification agreement alleged in the present case.

       We, of course, express no opinion as to whether the defendants will be able to prove this special defense.

       Following oral argument before this court, we asked the parties to file simultaneous supplemental briefs on the question of whether the allegations of the sixth special defense set forth a sufficient factual basis for the court to grant relief on that defense, citing Blumberg Associates Worldwide, Inc. v. Brown & Brown of Connecticut, Inc., 132 Conn. App. 85, 99, 30 A.3d 38 (2011), cert. granted on other grounds, 303 Conn. 923, 34 A.3d 395 (2012). The defendants argued that the sixth special defense includes a detailed factual basis for their claim that the plaintiff breached the implied covenant of good faith and fair dealing and sufficiently alleged that the plaintiff acted in bad faith. They argue that under no circumstances could the actions of the plaintiff be viewed as anything but misleading—they promised modifications and did not do so. The plaintiff argued that the sixth special defense is insufficient to state a cause of action because it does not allege that the plaintiff acted in bad faith; there are no allegations that the plaintiff acted in a manner to deceive the defendants or acted with a sinister motive.