source: Caselaw Access Project

author: NORCOTT, J.

license: Public Domain

text:
    NEW ENGLAND SAVINGS BANK v. BEDFORD REALTY CORPORATION ET AL.
    (15235)
    Callahan, Borden, Berdon, Norcott and Palmer, Js.
    Argued April 26
    officially released August 13, 1996

      J. Michael Sulzbach, for the appellant (named defendant).

      Charles D. Houlihan, Jr., for the appellee (plaintiff GHR D.C., Inc.).
   NORCOTT, J.

The named defendant, Bedford Realty Corporation (Bedford), appeals from a judgment of strict foreclosure rendered by the trial court in favor of the plaintiff, GHR D.C., Inc. (GHR). Bedford claims that the trial court improperly: (1) admitted certain evidence at trial; (2) determined that the named plaintiff mortgagee was entitled to accelerate the mortgage debt; and (3) determined that GHR was not required to satisfy the requirements of General Statutes §§ 42a-3-301 and 42a-3-309, governing the enforcement of a lost instrument. We reverse and remand the case to the trial court for a new trial.

The relevant facts are as follows. In August, 1986, Stelle M. Mahler obtained a mortgage loan in the amount of $372,000 from the named plaintiff, New England Savings Bank (New England). At that time, Mahler executed a note evidencing her promise to repay the loan and executed a mortgage deed to New England on her residence in Madison. In 1991, Mahler transferred the mortgaged property to Bedford, as a result of which, New England accelerated the loan, claiming that the transfer violated a nontransfer clause in the mortgage deed.

In September, 1992, New England brought this action for foreclosure, alleging that Mahler had transferred the property in violation of the mortgage and had failed to make payments on the debt secured by the mortgage. In October, 1992, the trial court, Dorsey J., defaulted Bedford for failing to disclose its defenses to New England’s allegations, at which point New England moved for strict foreclosure. Subsequently, Bedford filed a motion to set aside the default judgment. The trial court denied the motion to set aside the judgment. Thereafter, the trial court granted New England’s motion for a judgment of strict foreclosure, and set a hearing date to determine the exact amount of the outstanding debt and to set law days.

At a hearing in damages before Judge Dorsey in May, 1993, Bedford requested that the trial court reconsider its ruling denying Bedford’s motion to set aside the default. The trial court did not immediately act upon the request. New England then called Sandra Reid, an assistant vice president and loan collections manager of the bank, to establish the amount due on the debt. New England introduced Reid’s affidavit of debt, in which she attested to the current debt owed and its components. Reid testified that she had prepared the affidavit from bank records and that the amounts stated in the affidavit were accurate. Specifically, she testified that she had determined the amount of principal from certain computer records maintained by the “pay off’ department at New England, and that she had manually calculated the interest to “prove” the records on which she had relied. The mortgage deed, which was also introduced into evidence, also referred to the interest rate. Reid did not manually calculate the escrow or late charges. Bedford objected both to the admission of the affidavit and to Reid’s testimony as to the amount of the debt, arguing that both were hearsay because they were based on documents not in evidence. The trial court overruled Bedford’s objections.

One week after the adjournment of the hearing in damages, New England became insolvent and the Federal Deposit Insurance Corporation (FDIC), was appointed as receiver of New England’s assets. The FDIC assigned New England’s interest in the mortgage loan executed by Mahler to Citizens Savings Bank (Citizens), which was substituted for New England as the party plaintiff. Thereafter, Citizens assigned its interest in the mortgage and the note to GHR. GHR was then substituted for Citizens as the party plaintiff. Eventually, the mortgage and note were assigned to Alaska Seaboard Partners Limited Partnership. See footnote 1. Subsequently, on January 25, 1994, Judge Dorsey reconsidered Bedford’s motion to open the default judgment, and vacated the default judgment and the judgment of strict foreclosure. Thereafter, the case proceeded to trial as a contested foreclosure matter before Judge Silbert.

At trial, GHR requested that the court take judicial notice of the evidence presented at the hearing in damages before Judge Dorsey, including a transcript of Reid’s testimony and the exhibits admitted at the hearing. Bedford objected, arguing that the transcript was hearsay and that, because GHR had not shown that Reid was unavailable to testify, the transcript could not properly be admitted. The trial court overruled the objection and took judicial notice of the transcript.

GHR next called Linda Currie, an asset manager at Greenthal/Harlan Realty (Greenthal), to establish the current amount of the debt. Currie stated that GHR was a wholly owned subsidiary of Greenthal, that GHR owned the debt and mortgage at issue, and that Greenthal managed the asset on behalf of GHR. Currie testified that Citizens, pursuant to its sale of the asset, had transferred to Greenthal a file that contained certain records relating to the loan and mortgage. Additionally, she testified that Greenthal did not service the loans it managed, but used a subservicer, from whom she had obtained computer records in order to determine the current payment status of the loan.

On the basis of her review of the file and the computer records, Currie testified that Bedford had defaulted on the mortgage loan. She further testified to the outstanding principal on the loan, the interest accrued on the debt up to the date of trial from the date of default, insurance, property tax and late charges, and the total amount of the debt. Bedford objected, arguing that Currie’s testimony in this regard was hearsay because it was based on documents that had not been authenticated as business records and had not been admitted into evidence. The trial court overruled the objection, stating that it would permit Currie to “summarize what her records reflect[ed].” On cross-examination, Currie testified that GHR had never been in possession of the original promissory note and that she had no personal knowledge of the repayment history of the loan prior to July 15, 1994. The parties stipulated that the fair market value of the property was $410,000. They further stipulated to the amount of an appraisal fee and to the amount of reasonable attorney’s fees.

Bedford presented no evidence at trial. It argued that the court should deny a judgment of strict foreclosure because GHR had never been in possession of the promissory note. In this regard, Bedford contended that a party seeking to foreclose on a mortgage must also be able to enforce the promissory note, even if it is lost, in accordance with §§ 42a-3-301 and 42a-3-309. See footnote 2. Bedford argued that, because GHR had not shown that it had ever possessed the lost note, a condition of enforcement of a lost instrument under § 42a-3-309, GHR was precluded from recovery in an action for strict foreclosure.

The trial court rendered a judgment of strict foreclosure in favor of GHR. In a written memorandum of decision, the trial court rejected Bedford’s argument that GHR’s failure to demonstrate that it had possessed the note was fatal to its action for strict foreclosure. The trial court reasoned that an action on a mortgage is separate and distinct from an action on a promissory note and, accordingly, that GHR was not required to satisfy the requirements of §§ 42a-3-301 and 42a-3-309, for the enforcement of a lost instrument. The trial court determined that GHR had “established its chain of title to the mortgage . . . [and had] proved default under the mortgage in that there had been no payments on the debt since September of 1991 . . . [and that] the original borrower, Stelle Mahler, transferred the property to Bedford without the consent of [New England] . . . [and that GHR] had proved a total debt in the amount of $466,812.98, based on the principal balance, interest, late charges, and expenses for insurance and property taxes, plus the appraisal fee of $450 and attorney’s fees in the stipulated amount of $13,750, for a grand total of $481,012.98.” On the basis of these findings and the parties’ stipulation that the fair market value of the mortgaged property was $410,000, the trial court rendered a judgment of strict foreclosure and set law days. Bedford appealed to the Appellate Court and we transferred the appeal to this court pursuant to Practice Book § 4023 and General Statutes § 51-199 (c).

On appeal, Bedford claims that the trial court improperly: (1) admitted the transcript from the hearing in damages; (2) admitted Currie’s testimony concerning the amount of the debt at the time of trial; (3) alternatively, concluded that New England was entitled to accelerate the mortgage debt; and (4) determined that GHR was not required to satisfy the requirements of §§ 42a-3-301 and 42a-3-309 in order to foreclose the mortgage. We agree with Bedford that the trial court improperly admitted the transcript and Currie’s testimony and, on these grounds, we reverse the trial court’s judgment and remand the case to the trial court for a new trial. Additionally, because it is an issue likely to resurface at the new trial, we also reach Bedford’s claim that GHR was required to satisfy the Uniform Commercial Code requirements for the enforcement of a lost instrument in order to obtain strict foreclosure of the mortgage. We conclude that it was not.

I

We turn first to Bedford’s claims regarding the admissibility of the evidence from Reid and Currie of the amount of the debt. It is well established that “the trial court has broad discretion in ruling on the admissibility [and relevancy] of evidence.” State v. Miller, 202 Conn. 463, 482, 522 A.2d 249 (1987). “The trial court’s ruling on evidentiary matters will be overturned only upon a showing of a clear abuse of the court’s discretion.” State v. Avis, 209 Conn. 290, 298, 551 A.2d 26 (1988), cert. denied, 498 U.S. 1097, 109 S. Ct. 1570, 103 L. Ed. 2d 937 (1989). Moreover, it is well settled that “before a party is entitled to a new trial because of an erroneous evidentiary ruling, he or she has the burden of demonstrating that the error was harmful.” Swenson v. Sawoska, 215 Conn. 148, 153, 575 A.2d 206 (1990). “When determining that issue in a civil case, the standard to be used is whether the erroneous ruling would likely affect the result.” (Internal quotation marks omitted.) Id.

Bedford first claims that the trial court improperly admitted into evidence the transcript of Reid’s testimony at the initial hearing in damages. Specifically, Bedford argues that the transcript constituted hearsay and, because GHR failed to demonstrate that Reid was unavailable to testify at trial, admission of the transcript was improper. GHR appears to concede that the transcript was hearsay and that the trial court, in taking judicial notice of the transcript, admitted it into evidence. GHR contends, however, that the trial court’s ruling in this regard was proper because the transcript was admissible under the “catch-all,” or residual exception to the hearsay rule. We agree with Bedford.

“Hearsay is an out-of-court statement offered into evidence to establish the truth of the matters contained therein.” (Internal quotation marks omitted.) State v. Duntz, 223 Conn. 207, 232, 613 A.2d 224 (1992). “As a general rule, hearsay evidence is not admissible unless it falls under one of several well established exceptions.” State v. Oquendo, 223 Conn. 635, 664, 613 A.2d 1300 (1992). If such evidence is offered to establish the truth of statements contained therein, the burden is on the proponent of the evidence, upon timely objection, to establish that the evidence is admissible.

“The purpose behind the hearsay rule is to effectuate ‘the policy of requiring that testimony be given in open court, under oath, and subject to cross-examination.’ 2 C. McCormick, Evidence (4th Ed.) § 253. The ‘residual,’ or ‘catch-all,’ exception to the hearsay rule allows a trial court to admit hearsay evidence not admissible under any of the established exceptions if: (1) there is ‘a reasonable necessity for the admission of the statement,’ and (2) the statement is ‘supported by the equivalent guarantees of reliability and trustworthiness essential to other evidence admitted under the traditional hearsay exceptions.’” State v. Oquendo, supra, 223 Conn. 664; see also State v. Stepney, 191 Conn. 233, 249-50, 464 A.2d 758 (1983), cert. denied, 465 U.S. 1084, 104 S. Ct. 1455, 79 L. Ed. 2d 772 (1984). “We have stated that ‘the necessity requirement is met when, unless the hearsay statement is admitted, the facts it contains may be lost, either because the declarant is dead or otherwise unavailable, or because the assertion is of such a nature that evidence of the same value cannot be obtained from the same or other sources.’” State v. Oquendo, supra, 665; see also State v. Frye, 182 Conn. 476, 480, 438 A.2d 735 (1980) (“necessity factor . . . is reflected in the prerequisite that the declarant be unavailable”). “The moving party has the burden of proving the declarant’s unavailability.” State v. Frye, supra, 480.

In support of its contention that the transcript was properly admitted under the residual exception to the hearsay rule, GHR argues that: (1) admission of the transcript was necessary because New England became insolvent and, therefore, had no authorized representatives; and (2) the transcript of Reid’s testimony was reliable because Reid had been under oath and subject to cross-examination by Bedford when her testimony was given. Additionally, GHR suggests that admission of the transcript was a proper exercise of the trial court’s discretion because of certain “representations made at the chambers conference when the parties agreed to proceed in the absence of the judge who observed the earlier testimony.” GHR argues that “[c]ombined, these factors place this evidentiary ruling within the trial court’s broad discretion.” We are unpersuaded.

“Even if we assume that, in this case, [Reid’s] prior cross-examination establishes the reliability of [her] testimony; see State v. Sharpe, [195 Conn. 651, 665, 491 A.2d 345 (1985)]; State v. Parker, [161 Conn. 500, 504-505, 289 A.2d 894 (1971)]; C. McCormick, supra, § 255; it was still [GHR’s] burden to demonstrate its necessity by proving [her] unavailability. State v. Frye, [supra, 182 Conn. 480]; C. McCormick, supra, § 253.” State v. Aillon, 202 Conn. 385, 391, 521 A.2d 555 (1987). “The most common forms of unavailability are those set out in rule 804 (a) of the Federal Rules of Evidence . . . [including situations in which]: (1) when the court has determined that the witness has a testimonial privilege; (2) the witness persists in refusing to testify despite a court order to do so; (3) the witness has a lack of memory; (4) the witness is unable to be present or testify because of death or existing physical or mental illness or infirmity; and (5) the witness is absent from the hearing and the proponent of his statement has been unable to procure his attendance ... [or testimony] by process or other reasonable means. . . . State v. Frye, [supra, 481]; State v. Rivera, 221 Conn. 58, 61, 602 A.2d 571 (1992) . . . .” (Citations omitted; internal quotation marks omitted.) State v. Munoz, 233 Conn. 106, 140, 659 A.2d 683 (1995).

GHR provides no support for the proposition that an employee of a business entity is necessarily unavailable to give testimony concerning the business’ transactions and records whenever the business has become insolvent. Further, “[s]o far as the record shows, [GIIR] made no attempt whatsoever to secure [Reid’s] physical presence so that [s]he might personally advise the court as to [her] present inability, or unwillingness, to testify [as to the amount of the debt as of the date of the hearing in damages], ‘Due diligence to procure the attendance of the absent witness [is] ... an essential . . . predicate of unavailability.’” State v. Aillon, supra, 202 Conn. 391. Absent evidence of “a good faith effort to procure [Reid’s] attendance”; id., 392; or a factual demonstration on the record to prove that she actually could or would not testify as to the amount of the debt as of the date on the hearing in damages, we cannot say that GHR satisfied its burden of proving her unavailability. See id., 391-92.

We are also unable to find support in the record for GHR’s suggestion that Bedford agreed to, or waived its right to object to, the admission at trial of evidence presented at the previously terminated hearing in damages. In support of this suggestion, GHR emphasizes a reference by the trial court to the agreement of the parties, apparently voiced in chambers, that the case could be heard by Judge Silbert and that it was not necessary to return the case to Judge Dorsey. We have noted that “[wjaiver does not have to be express, but may consist of acts or conduct from which waiver may be implied. ... In other words, waiver may be inferred from the circumstances if it is reasonable to do so.” (Citations omitted; internal quotation marks omitted.) Stewart v. Tunxis Service Center, 237 Conn. 71, 80-81, 676 A.2d 819 (1996). There is, however, neither a stipulation as to the admissibility of evidence from the prior hearing nor an agreement on the record regarding the same. Furthermore, the record indicates that Bedford vigorously contested both the admissibility of such evidence at trial and any suggestion that its agreement to have the case tried by Judge Silbert constituted agreement to the admissibility of evidence presented at the prior hearing. In the absence of some reflection in the record of a waiver of Bedford’s objection to such evidence, we cannot presume that Bedford agreed to the admission of the evidence. Accordingly, we conclude that the trial court improperly admitted the transcript of Reid’s testimony.

Bedford next claims that the trial court improperly admitted the testimony of Currie concerning the amount of the outstanding debt. Specifically, Bedford argues that Currie did not have personal knowledge of the documents on which she relied to determine the amount of the debt and, because GHR did not introduce into evidence the documents on which Currie relied, her testimony in this regard was hearsay. GHR argues that Currie’s testimony was properly admitted pursuant to American Oil Co. v. Valenti, 179 Conn. 349, 426 A.2d 305 (1979). We agree with Bedford.

As we stated previously, “[h]earsay is an out-of-court statement offered into evidence to establish the truth of the matters contained therein.” (Internal quotation marks omitted.) State v. Duntz, supra, 223 Conn. 232. In the absence of personal knowledge about the contents of a document, a witness’ statements about the document are hearsay. See Central Bank v. Colonial Romanelli Associates, 38 Conn. App. 575, 579-80, 662 A.2d 157 (1995); 2 C. McCormick, supra, § 247, p. 245.

At trial, Currie admitted on cross-examination that her knowledge of the debt was based exclusively on what she had gleaned from the file that Citizens had transferred to GHR and from the computer records. Currie testified, on the basis of her review of those documents, that Mahler had defaulted on the loan by failing to make payments since 1991, and that New England had not given its consent to Mahler’s transfer of the mortgaged property to Bedford. She also testified as to the amount of the debt as of the date of trial. Currie had no personal knowledge concerning the terms or status of the debt, since she had not closed or serviced the note and mortgage, and since GHR had employed a subservicer to make collections. Furthermore, at trial, GHR did not tender any explanation for why it did not produce the actual file or other documents on which Currie had relied. Because Currie did not have personal knowledge of the contents of the file, her testimony was inadmissible hearsay.

GHR relies on American Oil Co. v. Valenti, supra, 179 Conn. 349, to support its contention that Currie’s testimony was properly admitted. Valenti, however, is inapposite. In Valenti, a surety on a promissory note challenged the foundation necessary for a trial court to admit computer records into evidence. Id., 357. Thus, GHR’s reliance on Valenti is unwarranted in the context of this case, because GHR did not offer into evidence as business records the documents on which Currie relied. Moreover, GHR did not offer Currie’s testimony for the limited purpose of laying a foundation for the entry of the documents into evidence but, rather, as evidence of the debt. Currie’s testimony concerning the amount of the debt was, therefore, improperly admitted.

GHR does not dispute that, in the absence of either the transcript of Reid’s testimony or Currie’s testimony, there was not sufficient competent evidence from which the trial court could properly determine the amount of the debt. We need not decide, therefore, whether either of the challenged evidentiary rulings individually was harmful because, in conjunction, the rulings necessarily were harmful to Bedford. Accordingly, we reverse the trial court’s judgment of strict foreclosure.

II

We turn next to Bedford’s contention that the trial court improperly determined that GHR was not precluded from obtaining a judgment of strict foreclosure by §§ 42a-3-301 and 42a-3-309. See footnote 2. In this regard, Bedford argues that, if the promissory note is lost, a mortgagee can foreclose only if it satisfies the conditions set forth in § 42a-3-309, which require the party seeking to enforce a lost note to show that he or she was in possession of the note at the time it was lost. Bedford maintains that, since GHR never proved it possessed the original note and thus cannot satisfy § 42a-3-309, GHR cannot obtain a judgment of strict foreclosure. We disagree.

Bedford’s argument is founded upon the premise that an action to foreclose a mortgage and an action to enforce a note are inextricably linked. “It is well established [however] that the [mortgagee] is entitled to pursue its remedy at law on the notes, or to pursue its remedy in equity upon the mortgage, or to pursue both. A note and a mortgage given to secure it are separate instruments, executed for different purposes and in this State action for foreclosure of the mortgage and upon the note are regarded and treated, in practice, as separate and distinct causes of action, although both may be pursued in a foreclosure suit.” (Internal quotation marks omitted.) Hartford National Bank & Trust Co. v. Kotkin, 185 Conn. 579, 581, 441 A.2d 593 (1981); see also First Bank v. Simpson, 199 Conn. 368, 372, 507 A.2d 997 (1986). Bedford does not dispute that a note and a mortgage were executed and that the underlying debt exists. GHR is seeking to enforce a debt, evidenced by a promissory note, through the equitable remedy of foreclosure. “The mortgage secures the indebtedness itself, not the written evidence of it.” G. Osborne, Mortgages (2d Ed. 1970) § 105. Because GHR has chosen to pursue the equitable action of foreclosure of the mortgage, rather than a legal action on the note, the fact that GHR never possessed the lost promissory note is not fatal to its foreclosure of the mortgage. Moreover, GHR has not sought a deficiency judgment. Thus, whatever restrictions §§ 42a-3-301 and 42a-3-309 might put upon the enforcement of personal liability based solely upon a lost note, they do not prohibit GHR from pursuing an action of foreclosure to enforce the terms of the mortgage.

In pursuing the remedy of strict foreclosure, GHR or its assignee nevertheless will have to establish the amount of the debt that Bedford owes. The loss of the note, however, does not preclude proof of the debt by other evidence. “ ‘A bill or note is not a debt; it is only primary evidence of a debt; and where this is lost, impaired or destroyed bona fide, it may be supplied by secondary evidence.’ Bank of United States v. Sill, 5 Conn. 106, 111 [1823]. ‘The loss of a bill or note alters not the rights of the owner, but merely renders secondary evidence necessary and proper.’ Hinsdale v. Miles, 5 Conn. 331, 334 [1824]; Almy v. Reed, 64 Mass. (10 Cush.) 421, 425 [1852].” Goslee v. Rowe, 114 Conn. 1, 6, 157 A. 267 (1931). GHR or its assignee is free to present rehable evidence other than the original promissory note to establish the amount of the debt.

The judgment is reversed and the case is remanded to the trial court for a new trial.

In this opinion the other justices concurred.

       The plaintiff at the time this appeal was filed was GHR D.C., Inc. Although this court subsequently granted a motion to substitute Alaska Seaboard Partners Limited Partnership as party plaintiff, references in this opinion are to GHR as the plaintiff.

       General Statutes § 42a-3-301 provides: “Person entitled to enforce instrument. ‘Person entitled to enforce’ an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to section 42a-3-309 or 42a-3-418(d). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.”
      General Statutes § 42a-3-309 provides in relevant part: “Enforcement of lost, destroyed or stolen instrument, (a) A person not in possession of an instrument is entitled to enforce the instrument if (i) the person was in possession of the instrument and entitled to enforce it when loss of possession occurred, (ii) the loss of possession was not the result of a transfer by the person or a lawful seizure, and (iii) the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process. ...”

       According to Reid’s affidavit, the total debt secured by the mortgage as of the date of the hearing was $414,194.10, which consisted of: $359,008.69 in principal; $50,182.14 in interest from September 1, 1991 through May 14, 1993; $2303.79 in escrow payments; and $2699.48 in late charges.

       Reid also testified that the original promissory note executed by Mahler was missing and that she had been unable to locate it. She stated, however, that New England regularly maintained a copy of the original note in the loan collection file, which she oversaw. Through Reid, New England introduced photocopies of the first and third pages of the three page promissory note executed by Mahler. New England also introduced an uncompleted page referring to interest terms, which, Reid testified, represented the second page of the standard form used by the bank for promissory notes. The page was introduced as an example of what the missing second page to Mahler’s promissory note would have looked like.

       Bedford further objected to the admission of photocopies of the first and third pages of the original note, the uncompleted second page, and to Reid’s affidavit of debt. The trial court overruled Bedford’s objections and took judicial notice of those exhibits and of a copy of the original mortgage deed.

       Currie testified that the total debt at the time of trial was $466,812.98, which consisted of: $359,008.69 in outstanding principal; $81,748.34 in interest since October, 1991; $21,594.02 in insurance and taxes; and $4461.93 in late charges.

       GHR did attempt to introduce into evidence one of the records on which Currie testified that she had relied, a document titled “Master Records Status Report.” Currie testified that this report, which contained a loan history on which she had relied in determining the amount of the debt, had been received by Greenthal from Citizens. Bedford objected to the admission of the report on the ground that it was hearsay and that it had not been authenticated as a business record. The trial court agreed that the report had not been authenticated as a business record and admitted the report into evidence solely for the purpose of demonstrating the basis of Currie’s testimony, but not for the truth of the matters asserted therein.

       Alternatively, Bedford also claims that the transcript was improperly admitted at trial because Reid’s testimony at the hearing in damages itself was hearsay and, therefore, her testimony was improperly admitted at the hearing. Because we conclude that the transcript was inadmissible hearsay, we do not reach this claim.

       As Bedford notes, the transcript of Reid’s testimony at the prior hearing constitutes former testimony, which is a specific category of exception to the hearsay rule. See State v. Torres, 210 Conn. 631, 645-46, 556 A.2d 1013 (1989); State v. Parker, supra, 161 Conn. 503-504; C. Tait & J. LaPlante, Connecticut Evidence (2d Ed. 1988) § 11.4.1, p. 325. Under this exception, however, the admissibility of such evidence is predicated on the unavailability of the declarant. Crochiere v. Board of Education, 227 Conn. 333, 356, 630 A.2d 1027 (1993); State v. Aillon, supra, 202 Conn. 391. Because we conclude that GHR failed to demonstrate that Reid was unavailable, we agree with Bedford that the requirements of this hearsay exception were not satisfied.

       Alternatively, Bedford also claims that Currie’s testimony was admitted contrary to the best evidence rale. Because we conclude that Currie’s testimony was inadmissible hearsay, we do not reach that claim.


author: CALLAHAN, J.

text:
    UNITED TECHNOLOGIES CORPORATION v. JOHN G. GROPPO, COMMISSIONER OF REVENUE SERVICES NORDEN SYSTEMS, INC. v. JOHN G. GROPPO, COMMISSIONER OF REVENUE SERVICES
    (15354)
    Callahan, Berdon, Norcott, Katz and Palmer, Js.

      Argued May 2
    officially released August 13, 1996

      Charles H. Lenore, with whom were Thomas E. Bar-tell and, on the brief, J. Danford Anthony, Jr., for the appellants (plaintiffs).

      Paul M. Scimonelli, assistant attorney general, with whom, on the brief, was Richard Blumenthal, attorney general, for the appellee (defendant).
   CALLAHAN, J.

The issue in this appeal is whether the plaintiffs, United Technologies Corporation and Norden Systems, Inc., are hable for sales and use taxes assessed by the defendant, the commissioner of revenue services (commissioner), for the period from July 1, 1981, through June 30, 1985. The plaintiffs claim that the purchase and use of the property and services in question are not subject to the Connecticut sales and use taxes pursuant to either General Statutes (Rev. to 1981) § 12-412 as a sale to the United States or pursuant to General Statutes (Rev. to 1981) § 12-407 (3) as a sale for resale. The commissioner determined that the plaintiffs were not relieved from sales and use tax liability under either section. Pursuant to General Statutes (Rev. to 1981) § § 12-408 and 12-411, he therefore levied substantial assessments against the plaintiffs for their purchase and subsequent use of tangible personal property and services in fulfillment of certain United States government contracts.

The plaintiffs filed a petition for reassessment with the commissioner, pursuant to General Statutes (Rev. to 1981) § 12-418. In response to the plaintiffs’ petition, the commissioner determined that there was no basis for a revision of the assessment. The plaintiffs appealed the commissioner’s decision to the Tax Session of the Superior Court pursuant to General Statutes (Rev. to 1981) § 12-422. In a memorandum of decision dated May 19, 1995, the Superior Court agreed with the commissioner and concluded that the plaintiffs were the purchasers and consumers of the tangible personal property and services involved and therefore found them liable for the sales and use taxes assessed. The case was remanded, however, for a determination of which portions of the assessment involved design or engineering services not enumerated as taxable under § 12-407 (2) (i). Thereafter, the parties stipulated as to this determination, the remand was withdrawn and the court rendered judgments for the defendant, from which the plaintiffs filed a joint appeal to the Appellate Court. We transferred their appeal to this court pursuant to Practice Book § 4023 and General Statutes § 51-199 (c). We sustain the judgment of the trial court in part and reverse in part.

The question of the plaintiffs’ sales and use tax liability arises out of circumstances described in a stipulation of facts entered into by the parties and the uncontroverted testimony of Curtis M. Zimmer, the sole witness at trial. The undisputed facts reveal that the plaintiffs entered into cost-plus contracts with various constituent parts of the United States government. In performance of these government contracts, the plaintiffs purchased tangible personal property and services from a number of vendors. Due to the government’s involvement in the contracts, the plaintiffs were required to comply with various government regulations pertaining to government owned property, as were the vendors.

Under the terms of the contracts, and in accordance with the applicable government regulations, title to any property purchased to fulfill the government contracts vested immediately in the United States. Provisions in the government contracts pertaining to use and control of the property purchased to perform the contracts included the following: (1) the use of the property by the plaintiffs was limited to performance of the government contracts; (2) the plaintiffs were accountable and responsible to the United States for all property purchased; (3) the United States had access to the property at all reasonable times; (4) the plaintiffs were not generally liable for loss or destruction of or damage to the property and were not required to insure it against loss; and (5) upon completion of the government contracts, the plaintiffs were required to dispose of the property acquired as directed by the United States. In addition, the United States was responsible for delivery charges and shipping costs of all tangible personal property purchased from vendors. Throughout the performance of the government contracts, the plaintiffs were required to comply with the government regulations concerning government owned property. Additionally, the plaintiffs used the property only for government purposes and never made a claim to ownership of such property.

Also pursuant to the government contracts, the plaintiffs purchased testing, personnel, computer and data processing, stenographic, design, and engineering services. Performance of these services varied as to their location. Some vendors came on the plaintiffs’ sites to perform their work, while others performed services off-site.

Prior to April 2, 1986, the commissioner conducted a sales and use tax audit of the plaintiffs for the period from July 1, 1981, through June 30, 1985, and subsequently issued an assessment against the plaintiffs totaling $2,200,237.25: approximately $840,833 was based on purchases of tangible personal property, and the remaining $1,359,404 was based on the purchase of services, 65 percent for on-site services and 35 percent for off-site services. In a subsequent stipulation by the parties, the parties agreed upon an adjusted assessment that excluded those amounts attributable to design and engineering services, as those services were not services enumerated in § 12-407 (2) (i) as subject to the sales and use tax, and therefore were not taxable. It is this amended assessment from which the plaintiffs appeal.

We first note that we are reviewing the legal conclusion of the trial court that the plaintiffs were the purchasers and consumers of the tangible personal property and services for purposes of the sales and use tax. Our standard of review for the legal conclusion of a trial court is well established. “ ‘The scope of our appellate review depends upon the proper characterization of the rulings made by the trial court. To the extent that the trial court has made findings of fact, our review is limited to deciding whether such findings were clearly erroneous. When, however, the trial court draws conclusions of law, our review is plenary and we must decide whether its conclusions are legally and logically correct and find support in the facts that appear in the record. Practice Book § 4061; United Illuminating Co. v. Groppo, 220 Conn. 749, 752, 601 A.2d 1005 (1992); Zachs v. Groppo, 207 Conn. 683, 689, 542 A.2d 1145 (1988); Pandolphe's Auto Parts, Inc. v. Manchester, 181 Conn. 217, 221-22, 435 A.2d 24 (1980).’” SLI International Corp. v. Crystal, 236 Conn. 156, 163, 671 A.2d 813 (1996).

To address the trial court’s legal conclusion, we must consider three specific issues: (1) whether United States v. New Mexico, 455 U.S. 720, 102 S. Ct. 1373, 71 L. Ed. 2d 580 (1982), effectively overruled this court’s decision in Avco Mfg. Corp. v. Connelly, 145 Conn. 161, 140 A.2d 479 (1958) (Avco); and, if not, (2) what is the proper application of Avco in determining whether the plaintiffs were the purchasers and consumers of the tangible personal property in question; and, further, (3) what is the proper application of Avco in determining whether the plaintiffs were the purchasers and consumers of provided services.

I

The first issue to be considered is whether the 1982 United States Supreme Court decision in New Mexico effectively overruled our 1958 decision in Avco. In New Mexico, the United States Supreme Court rendered a decision which expressed the federal immunity standard as follows: “[T]ax immunity is appropriate in only one circumstance: when the levy falls on the United States itself, or on an agency or instrumentality so closely connected to the Government that the two cannot realistically be viewed as separate entities, at least insofar as the activity being taxed is concerned.” United States v. New Mexico, supra, 455 U.S. 735. The facts in New Mexico involved three contractors in contractual relationships with the United States government and New Mexico’s levy of a gross receipts tax on the contractors. On appeal, the contractors claimed immunity from the gross receipts tax. The contractors claimed that due to their close contractual relationship with the United States government, they should benefit from the federal government’s immunity from state taxation under the supremacy clause of article six of the United States constitution. After analyzing the contractual relationship between the contractors and the government and finding that the contractors were separate entities for the purposes of the activity under contract, the court refused to extend them federal immunity.

The department of revenue services for the state of Connecticut, in a letter to the plaintiff dated June 21, 1982, stated that due to the United States Supreme Court decision in New Mexico, all sales of tangible personal property and services to government contractors made pursuant to government contracts, except for specifically exempted property, would be subject to the sales and use tax as of July 1, 1982. The commissioner adopted the position that the decision in New Mexico overruled this court’s decision in Avco, and that government contractors would now be subject to Connecticut sales and use taxes regardless of whether title to the property passed directly from the vendor to the United States.

Our analysis in Avco focused on the issue of who was the purchaser and consumer of the tangible personal property in question. In Avco, the United States government contracted with Avco Manufacturing Corporation (Avco) for, among other things, the purchase and installation of new facilities and equipment, such as machinery, in a government owned plant. The facilities were used by Avco for the production of airplane engines and engine parts. The United States, however, supervised the purchase, use and maintenance of these facilities. Avco, supra, 145 Conn. 164. In addition, title to all property purchased pursuant to the contracts vested immediately with the United States even though Avco paid each vendor for the facilities and equipment purchased and was subsequently reimbursed for the purchase by the United States. Id., 165.

The commissioner levied a sales and use tax assessment against Avco for the purchase of the machinery and other personal property to be utilized in the government owned plant. Avco claimed an exemption from the sales and use tax under General Statutes (1949 Rev.) § 2096 (a) because it claimed the sales were to the United States. This court looked to the definition of a “sale” in General Statutes (1949 Rev.) § 2091 (3) and determined that “the party to whom title is transferred is the party to whom the sale is made, regardless of the fact that another party participates in the transaction by sending a purchase order to the vendor and by paying the vendor’s invoices under a contractual relationship providing for the reimbursement of that party by the purchaser.” Avco, supra, 145 Conn. 169. Applying this reasoning to the facts in Avco, we concluded that the United States was the purchaser of the facilities and equipment, and, therefore, that the transactions were sales to the United States and exempt from state taxation.

With respect to the use tax, we determined in Avco that ownership was also integral to use tax liability. Taxable use was defined in § 2091 (6) as “the exercise of any right or power over tangible personal property incident to the ownership of that property . . . .” We stated in Avco that “[i]t seems clear that storage and consumption, as well as use, must be incident to ownership for the use tax to apply.” Avco, supra, 145 Conn. 173. Due to the emphasis on ownership in our sales and use tax statutes, we concluded that the party who receives title to tangible personal property is the purchaser for purposes of the sales tax, and that the party with title is liable for the use tax when the article is utilized or consumed. The identical reasoning was used in United Aircraft Corp. v. Connelly, 145 Conn. 176, 140 A.2d 486 (1958), the companion case to Avco.

In Avco, this court’s task was to determine the actual purchaser of tangible personal property in order to fix tax liability on the proper party. On the other hand, in New Mexico, the United States Supreme Court determined and clarified the proper application and scope of federal immunity from state taxation on an entity that was conceded to be the purchaser and consumer. The test set out in New Mexico, therefore, is not a test that is used to ascertain where the tax liability falls; rather, it is used to ascertain whether the entities that are responsible for the tax are entitled to federal immunity from the tax. By definition, the analysis employed in New Mexico must take place subsequent to a determination of who is responsible. It is only after the tax liability attaches that the New Mexico test is used to determine whether federal immunity applies, either directly, if the United States is the taxable entity, or by affiliation, if the government and the government contractor cannot realistically be viewed as separate entities. The court in New Mexico acknowledged the progression of this analysis: “The Government concedes that the legal incidence of the gross receipts and use taxes falls on the contractors . . . and we do not disagree. See United States v. New Mexico, 581 F.2d 803, 806 ([10th Cir.] 1978). The issue, then, is whether the contractors can realistically be considered entities independent of the United States.” (Emphasis added.) United States v. New Mexico, supra, 455 U.S. 738. Specifically not in issue before the United States Supreme Court in New Mexico was a determination of who was legally responsible for the tax. It was only because the contractors had been identified as being legally responsible for the tax that the New Mexico court considered the relationship between the contractors and the government. Had it been determined that the New Mexico gross receipts tax legally fell upon the United States government, immunity from state taxation would have been triggered automatically and the contractors’ relationship to the government would have been irrelevant.

Conversely, it is clear that the Avco decision concerns itself only with the initial inquiry in assessing tax liability, that is, upon whom does the levy fall? It is only after that legal question is answered that the question of whether the responsible entity has federal immunity can be answered. The latter, not the former, is the question answered by New Mexico. In other words, New Mexico only defined the parameters in which federal immunity operates, it did not decide who was responsible for the tax, as did Avco. We conclude, therefore, that the United States Supreme Court decision in New Mexico did not overrule or otherwise affect our decision in Avco.

II

The second question we must address, then, is the proper application of Avco to the purchase of the tangible personal property in question. It is undisputed that the legal incidence of the Connecticut sales tax falls upon the purchaser. In light of Avco, we must therefore decide, in order to determine the purchaser for sales tax purposes, who took title to the tangible personal property purchased from vendors pursuant to the plaintiffs’ contracts with the United States. The intent of the parties is ascertained from the language used, interpreted in light of the situation of the parties and the circumstances surrounding them. Lar-Rob Bus Corp. v. Fairfield, 170 Conn. 397, 407, 365 A.2d 1086 (1976); Ginsberg v. Mascia, 149 Conn. 502, 506, 182 A.2d 4 (1962); Buckley v. Buckley, 144 Conn. 403, 409, 133 A.2d 604 (1957); United Aircraft Corp. v. O’Connor, 141 Conn. 530, 538, 107 A.2d 398 (1954).

The following undisputed facts lead us to conclude that it was the United States government that took title to the tangible personal property upon its purchase from the vendors: the government contracts provided that title vest in the United States; the government paid the transportation costs of the tangible personal property to the plaintiffs’ facilities; the government generally bore the risk of loss, destruction and damage to the tangible personal property; and the government had the right to final disposition of any remaining property. In addition, the plaintiffs contractually were required to comply with government regulations concerning the handling of government property. In light of the language of the contracts and their various provisions, it was clearly the parties’ intent that the government take immediate title to all tangible personal property purchased from vendors to fulfill the plaintiffs’ contracts with the United States. Therefore, we conclude that the plaintiffs’ are exempt from sales and use taxes levied on the purchase and consumption of the tangible personal property.

Ill

The final issue is the proper application of Avco to the plaintiffs’ purchase of various services used to fulfill its contracts with the United States. It is undisputed that the services secured are services enumerated in § 12-407 (2) (i), and therefore, at first blush, subject to the sales and use taxes. The plaintiffs, however, claim an exemption, arguing that the commissioner has acquiesced in the nontaxability of services obtained to enable the plaintiffs’ to complete their contracts with the United States. More specifically, the plaintiffs’ contend that because the commissioner has treated tangible personal property and services identically since our decision in Avco in 1958, services should continue to be exempt from taxation if New Mexico did not affect our holding in Avco. We disagree.

Our holding in Avco concerned only the purchase and use of tangible personal property in fulfilling government contracts; it did not address the purchase and consumption of services. In fact, Avco could not have addressed that question because services were not subject to Connecticut’s sales and use taxes until 1975. In Avco, we focused on title to tangible personal property because of the emphasis on ownership in the sales tax statutes, but ownership of tangible personal property has no application to an analysis of taxability of the purchase of services. In sum, the decision in Avco was narrowly directed toward the purchase and ownership of tangible personal property and is therefore inapplicable to the purchase of services.

Regardless of Avco’s inapplicability to services, we must nevertheless address the § 12-412 (a) exemption for sales to the United States in the context of services. In other words, we must consider whether, Avco aside, the United States was the purchaser of the services used by the plaintiffs to fulfill their contracts. We think not. Whereas the statutes concerning tangible personal property focus on ownership as the touchstone of tax-ability, the statutes concerning services focus on acceptance and receipt, and there is little doubt that the plaintiffs accepted and received the services in question. Even though the United States exercised some control with respect to the services purchased to fulfill the plaintiffs’ government contracts, the plaintiffs clearly were the purchasers and consumers of the services. See American Totalisator Systems, Inc. v. Dubno, 210 Conn. 413, 555 A.2d 421 (1989).

The plaintiffs contend, however, that even if they are deemed to be the purchasers of the services, their purchases were actually purchases for resale, and therefore no tax is due the state on the transactions pursuant to § 12-407 (3). Our case law concerning sales for resale is clear. The court must look to the intention of the parties to the contract to determine whether the items in a contract are held for resale or were purchased for a different purpose. White Oak Corp. v. Dept. of Revenue Services, 198 Conn. 413, 422, 503 A.2d 582 (1986). That intention is to be ascertained from the language used, interpreted in the light of the situation of the parties and the circumstances surrounding them. United Aircraft Corp. v. O'Connor, supra, 141 Conn. 538. Where the transaction is only incidental to a service performed for the purchaser, it is not considered a resale for tax purposes. Id., 539.

In American Totalisator Systems, Inc. v. Dubno, supra, 210 Conn. 413, American Totalisator Company (AmTote) contracted with the state to establish and operate the state’s teletrack and off-track betting systems. AmTote, however, used employees of its sister corporation, American Totalisator Systems, Inc. (Systems), the plaintiff and taxpayer, to fulfill its contracts with the state because AmTote itself did not employ sufficient personnel to do so. The commissioner assessed a sales tax on Systems for the sale of their employees’ services to AmTote. Systems contested the imposition of the tax. We determined that Systems was hable for the sales tax, concluding that “the sales of Systems’ employees’ services to AmTote were not sales for resale but rather retail sales subject to the imposition of a sales tax.” Id., 417. We also concluded that “the intention of both the state and AmTote, as manifested by their contracts, was that AmTote provide the state with equipment and personnel to establish and operate the state’s embryonic wagering systems. The agreements clearly indicate that the state did not contract with AmTote to purchase personnel services per se.” Id., 417-18.

In White Oak Corp. v. Dept. of Revenue Services, supra, 198 Conn. 415, the plaintiff taxpayer entered into a contract with the state to construct various highways and bridges throughout the state. Under the terms of the contracts, the taxpayer was obligated to provide watchmen, trafficmen and flagmen at each location, as well as to rent highway flashers to be placed along the roadside. We determined that the taxpayer was hable for a sales and use tax on those items, concluding that “the services and rentals in question were incidental to the [taxpayer’s] performance of the construction contracts . . . [and, therefore,] the [taxpayer] ‘used’ them to fulfill its contracts.” Id., 423.

In Fusco-Amatruda Co. v. Tax Commissioner, 168 Conn. 597, 600-601, 362 A.2d 847 (1975), we determined that purchases of construction materials by the plaintiff general contractor who was obligated to build an apartment complex for a charitable organization were subject to a use tax, despite the exemption from use tax liability provided the charitable organization pursuant to then § 12-412 (h), now § 12-412 (8). We concluded that the general contractor had procured the materials not as the agent of the charity, but to satisfy its own obligation to build the apartment complex and, therefore, the contractor, rather than the charitable organization, was the consumer of the materials used and was subject to use tax liability. Id. Although Fusco-Amatruda Co. pertained to tangible personal property, the same reasoning applies to the services enumerated in § 12-407 (2) (i) in this instance.

In the present case, it is evident from the record that the United States contracted with the plaintiffs to procure the development of a fuel cell, not to purchase the personnel services required for the production of a fuel cell. As written in § B.l of Contract DAAK70-80C-0041, “[t]he Contractor shall furnish all personnel, engineering, labor . . . and services necessary to design, fabricate, test and deliver methanol fuel cell power units . . . .” This language clearly differentiates between those items that were the responsibility of the contractor and the desired result that was the ultimate goal of the contract — the development of a methanol fuel cell power unit.

In summary, we conclude that the nature of the contracts and the language of the agreements between the plaintiffs and the government compel a determination that the services the plaintiffs purchased, although not inconsequential in utility or cost, were incidental to the primary purpose of the government contracts, i.e., the development of a fuel cell, and were utilized by the plaintiffs to fulfill the primary purpose of the contracts; therefore, the plaintiffs, rather than the government, were the consumers of the services used. Consequently, the purchase and subsequent sale of services by the plaintiffs was a “retail sale” as defined by § 12-407 (3) and not a sale for resale. We concur, therefore, in the trial court’s conclusion that the plaintiffs were liable for the sales and use tax assessment on their purchase and utilization of enumerated services to fulfill their contracts with the United States. We conclude, however, that the trial court incorrectly concluded that the plaintiffs were liable for sales and use taxes for the purchase and use of tangible personal property, title to which was taken in the name of the United States.

The judgment is reversed in part and the case is remanded for further proceedings in accordance with this opinion.

In this opinion the other justices concurred.

       General Statutes (Rev. to 1981) § 12-412 provides in relevant part: “Exemptions. Taxes imposed by this chapter shall not apply to the gross receipts from the sale of and the storage, use or other consumption in this state with respect to the following items:
      “(a) The United States, the state or subdivisions. Sales of tangible personal property or services to the United States, the state of Connecticut or any of the political subdivisions thereof, or its or their respective agencies. ...”

        Because the audit period began in 1981, in this opinion we quote the General Statutes as revised to 1981 even though the relevant statutes have been amended since that time primarily with respect to the tax rates.

       General Statutes (Rev. to 1981) § 12-407 (3) provides in relevant part: “ ‘Retail sale’ or ‘sale at retail’ means and includes a sale for any purpose other than resale in the regular course of business of tangible personal property or a transfer for a consideration of the occupancy of any room or rooms in a hotel or lodging house for a period of thirty consecutive calendar days or less, or the rendering of any service described in any of the subdivisions of subsection (2) of this section. . . .”

       General Statutes (Rev. to 1981) § 12-408 provides in relevant part: “The sales tax. (1) Imposition and rate of sales tax. For the privilege of making any sales as defined in subsection (2) of section 12-407, at retail, in this state for a consideration, a tax is hereby imposed on all retailers at the rate of seven and one-half per cent of the gross receipts of any retailer from the sale of all tangible personal property, except as hereinafter provided, sold at retail or ... in lieu of said rate of seven and one-half per cent, at the rate of three and one-half per cent of the gross receipts of any retailer from the rendering of any service described in subdivision (i) of said subsection (2) of section 12-407. . . .’’
      General Statutes (Rev. to 1981) § 12-411 provides in relevant part: “The use tax. (1) Imposition and rate. An excise tax is hereby imposed on the storage, acceptance, consumption or any other use in this state of tangible personal property purchased from any retailer for storage, acceptance, consumption or any other use in this state at the rate of seven and one-half per cent of the sales price of the property, and in lieu of said rate of seven and one-half per cent at the rate of three and one-half per cent with respect to the rendering of any service described in subdivision (i) of subsection (2) of section 12-407. . . .”

       General Statutes (Rev. to 1981) § 12-418 provides in relevant part: “Reassessments. (1) Petition for reassessment. Any person against whom an assessment is made under section 12-415 or 12-416 or any person directly interested may petition for a reassessment within thirty days after service upon such person of notice thereof. If a petition for reassessment is not filed within the thirty-day period, the assessment becomes final at the expiration of the period. . . .”

       General Statutes (Rev. to 1981) § 12-422 provides in relevant part: “Appeal. Any taxpayer aggrieved because of any order, decision, determination or disallowance of the commissioner of revenue services under section 12-418, 12-421 or 12-425 may, within one month after service upon the taxpayer of notice of such order, decision, determination or disallowance, take an appeal therefrom to the superior court for the judicial district of Hartford-New Britain, which shall be accompanied by a citation to the commissioner of revenue services to appear before said court. . . .”

       Cost-plus contracts, in general, involve a payment scheme whereby payment, in part, is a reimbursement for allowable costs.

       Defense Acquisition Regs. ¶ 7-203.21, 32 C.F.R. c. 1 (1984); National Aeronautics and Space Administration Regs. ¶ 13.703, 41 C.F.R. c. 18 (1984); Federal Acquisition Regs. § 52.245-5, 48 C.F.R. c. 1 (1995).

       At trial, Zimmer testified that many provisions within the government regulations also required compliance by the subcontractors, and that the burdens of compliance could be so great that at times, subcontractors would choose to avoid government jobs because of the regulations.

       The specific provisions in the various regulations relevant to title axe similar. Section 52.245-5 of the Federal Acquisition Regulations provides in relevant part: “Title. (1) The Government shall retain title to all Government-furnished property. (2) Title to all property purchased by the Contractor for which the Contractor is entitled to be reimbursed as a direct item of cost under this contract shall pass to and vest in the Government upon the vendor’s delivery of such property. (3) Title to all other property, the cost of which is reimbursable to the Contractor, shall pass to and vest in the Government upon — (i) Issuance of the property for use in contract performance; (ii) Commencement of processing of the property or use in contract performance; or (iii) Reimbursement of the cost of the property by the Government, whichever occurs first. . . .” In the present case, the commissioner conceded that title to all tangible personal property in question vested immediately in the United States and was never held by the plaintiffs.

       The stipulation was entered into after the rendering of judgment and remand by the trial court.

       The adjusted total assessment, against the plaintiffs is roughly $1,419,341.

       This letter was reprinted in the Connecticut Tax Reporter published by Commerce Clearing House. State Tax Rep. (Conn.) (CCH) fl 200-214 (June 21, 1982).

       Since Avco, supra, 145 Conn. 161, the commissioner had not attempted to levy the sales and use taxes on purchases of property and taxable services made in the name of the United States to fulfill government contracts.

       General Statutes (1949 Rev.) § 2096 (a), the predecessor to General Statutes § 12-412 (1), provides in relevant part that the tax shall not apply to “[s]ales of tangible personal properly to the United States ... or its . . . respective agencies.”

       General Statutes (1949 Rev.) § 2091 (3), the predecessor to General Statutes § 12-407 (2), defined “sale” as meaning and including “[a]ny transfer of title, exchange, barter, conditional or otherwise, in any manner or any means whatsoever, of tangible personal property for a consideration . . . .”

       General Statutes (1949 Rev.) § 2091 (6) was the predecessor to General Statutes § 12407 (5).

        Avco Mfg. Corp. v. Connelly, supra, 145 Conn. 171 (“[i]tis clear, however, under the decisions of the United States Supreme Court in Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110, 74 S. Ct. 403, 98 L. Ed. 546 [1954], and Alabama v. King & Boozer, 314 U.S. 1, 62 S. Ct. 43, 86 L. Ed. 3 [1941], that a sales tax imposed upon a vendor who, in turn, is required to collect the tax from the purchaser is a tax upon the purchaser”); see United States v. Tax Commissioner of Mississippi, 421 U.S. 599, 608, 95 S. Ct. 1872, 44 L. Ed. 2d 404 (1975); First Agricultural National Bank v. Tax Commissioner of Massachusetts, 392 U.S. 339, 347, 88 S. Ct. 2173, 20 L. Ed. 2d 1138 (1968).

       Public Acts 1975, No. 75-213, first imposed the sales and use taxes on certain enumerated services.

       See General Statutes (Rev. to 1981) §§ 12-407 (7) (e) and 12-411 (1).

       See footnote 2.

       When the sales and use taxes against the plaintiffs were assessed, tangible personal property and services were treated identically under our case law with respect to sales for resale. But see General Statutes § 12-411 (14).


author: PALMER, J.

text:
    CENTRAL BANK v. BERNARD J. HICKEY ET AL.
    (15384)
    Callahan, Berdon, Norcott, Katz and Palmer, Js.
    Argued May 2
    officially released August 13, 1996

      Thomas E. Katon, for the appellant (substitute plaintiff Federal Deposit Insurance Corporation).

      Anthony J. Gryk, Jr., for the appellee (named defendant).
   PALMER, J.

This appeal requires us to decide whether No. 92-215 of the 1992 Public Acts (P.A. 92-215), which extends to individual retirement accounts (IRAs) the exemption from attachment and execution established by § 3 of No. 91-239 of the 1991 Public Acts (P.A. 91-239), exempts certain IRAs owned by the named defendant, Bernard J. Hickey (defendant), from the claims of the substitute plaintiff, Federal Deposit Insurance Corporation (plaintiff). The plaintiffs predecessor in interest, Central Bank, commenced this action seeking damages for the defendant’s default on a promissory note and, thereafter, obtained a prejudgment garnishment of the defendant’s IRAs. After the plaintiff had obtained a judgment against the defendant, the trial court, on motion of the defendant, dissolved the plaintiffs attachment for failure to comply with General Statutes § 52-328 (a). The trial court further concluded that the defendant’s IRAs were exempt from execution by the plaintiff under the express terms of P.A. 92-215. The plaintiff appealed from the judgment of the trial court to the Appellate Court, and we transferred the appeal to this court pursuant to Practice Book § 4023 and General Statutes § 51-199 (c). We affirm the judgment of the trial court.

The pertinent facts and procedural history are not in dispute. On May 3, 1988, the defendant was one of several signatories to a promissory note executed by Central Bank for a loan. In July, 1991, Central Bank filed this action seeking damages for default on the promissory note and, on August 6, 1991, it secured a prejudgment garnishment of the defendant’s IRAs pursuant to General Statutes (Rev. to 1991) § 52-278f, as amended by Public Acts 1991, No. 91-315, §§ 2, 5. On May 5,1992, the Federal Deposit Insurance Corporation was substituted as party plaintiff for Central Bank. Thereafter, on October 1, 1992, P.A. 92-215 took effect, extending to certain IRA funds the exemption from attachment and execution that the legislature had previously granted to other types of retirement accounts under P.A. 91-239.

On July 25,1994, the trial court defaulted the defendant for failure to disclose a defense. After a hearing on damages, the trial court, on September 27, 1994, rendered judgment against the defendant in the amount of $104,821.27. The plaintiff, however, failed to seek execution of its judgment against the defendant until February 1, 1995. The defendant moved to dissolve the prejudgment attachment on the ground that the plaintiff had failed to comply with § 52-328 (a), which requires that a “judgment creditor, in order to perfect an attachment or garnishment made prior to judgment on [its] claim, must take out an execution and have it levied on the real or personal estate attached or have demand made on the garnishee within sixty days after final judgment.” Bradbury v. Wodjenski, 159 Conn. 366, 370, 269 A.2d 271 (1970). The defendant also claimed that his IRAs were exempt from execution under P.A. 92-215. The trial court, Hon. Anthony V. DeMayo, state trial referee, granted the defendant’s motion to dissolve the attachment and, furthermore, concluded that the plaintiff, having failed properly to perfect its attachment before P.A. 92-215 went into effect, was barred by P.A. 92-215 from executing its judgment against the defendant’s IRAs. This appeal followed.

The plaintiff makes two arguments in support of its claim that the trial court improperly determined that the defendant’s IRAs are exempt from execution. First, the plaintiff asserts that P.A. 92-215 should not be construed to protect the defendant’s IRAs from execution because to do so would give P.A. 92-215 retroactive effect in violation of the plaintiffs right to execute against the defendant’s assets to the same extent that it could have when its claim against the defendant arose. Second, the plaintiff contends that the retroactive application of P.A. 92-215 violates his rights under the contract clause of article one, § 10, of the United States constitution. We disagree.

Our reasons for rejecting the plaintiffs claims may be briefly stated. Because the plaintiff does not challenge the trial court’s ruling granting the defendant’s motion to dissolve the plaintiffs prejudgment garnishment for failure to comply with § 52-328 (a), we presume that the garnishment was properly dissolved. The plaintiff, therefore, having failed to perfect its attachment within the time period prescribed by § 52-328 (a), forfeited whatever rights that it may have had arising out of that attachment, including its security interest in the defendant’s IRAs relating back to the date of the garnishment in August, 1991. Accordingly, the plaintiffs right to execute against the defendant’s IRAs must be determined as of February 1,1995, the date on which he sought to execute against the IRAs, and not, as the plaintiff claims, as of the date it obtained the prejudgment garnishment. Because the exemption against execution granted to IRAs under P.A. 92-215 took effect on October 1, 1992, and the plaintiff did not seek to execute against the defendant’s IRAs until February 1, 1995, P.A. 92-215, applied prospectively, bars the plaintiffs execution against those accounts. Thus, the plaintiffs claims regarding the retrospective application of P.A. 92-215 are inapposite.

The plaintiff, in light of its failure to comply with § 52-328 (a), does not seriously contend that its right to execute against the defendant’s IRAs relates back to the date of attachment. It claims, rather, that it obtained a vested right to satisfy its judgment against the defendant’s assets, including his IRAs, at the time the loan to the defendant was made and, therefore, that the trial court’s application of P.A. 92-215 improperly extinguished those rights. The plaintiff has provided no support whatsoever for its bald assertion that an unsecured creditor has a vested interest in the pool of assets owned by the debtor at the time the debt is created. On the contrary, the very nature of an unsecured debt is that the creditor has no current legal interest in the assets of its debtor. The plaintiffs argument, therefore, is wholly without merit.

The judgment is affirmed.

In this opinion the other justices concurred.

       Public Act 92-215, which amended General Statutes § 52-321a (a), provides in relevant part: “(a) Except as provided in subsection (b) of this section, any interest in or amounts payable to a participant or beneficiary from (1) any trust, custodial account, annuity or insurance contract established as part of a Keogh plan or a retirement plan established by a corporation which is qualified under Section 401, 403, 404 or 409 of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as from time to time amended, (2) any individual retirement account which is qualified under Section 408 of said Internal Revenue Code to the extent funded, including income and appreciation, (A) as a rollover from a qualified retirement plan, as provided in subdivision (1) of this section, pursuant to Section 402(a)(5), 403(a) or 408(d)(3) of said Internal Revenue Code or (B) by annual contributions which do not exceed 1he maximum annual limits set forth in Section 219(b) of said Internal Revenue Code, determined without regard to any reduction or limitation for active participants required by Section 219(g) of said Internal Revenue Code or (3) any pension plan, annuity or insurance contract or similar arrangement not described in subdivision (1) or (2) of this subsection, established by federal or state statute for federal, state or municipal employees for the primary purpose of providing benefits upon retirement by reason of age, health or length of service, shall be exempt from the claims of all creditors of such participant or beneficiary. Any such trust, account, contract, plan or other arrangement shall be (A) conclusively presumed to be a restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under the laws of this state and (B) considered a trust which has been created by or which has proceeded from a person other than such participant or beneficiary, even if such participant or beneficiary is a self-employed individual, a partner of the entity sponsoring the Keogh plan or a shareholder of the corporation sponsoring the retirement plan. . . .”

       Public Act 91-239, which amended General Statutes § 52-352b, provides in relevant part: “The following property of any natural person shall be exempt [from attachment and execution] . . . (m) Any assets or interests of an exemptioner in, or payments received by the exemptioner from, a plan or arrangement described in Section [52-321a] . . . .”

       General Statutes § 52-328 (a) provides: “Except as provided in subsection (c), no personal estate which has been attached may be held to respond to the judgment obtained in the suit, either against the debtor or any other creditor, unless the judgment creditor takes out an execution and has it levied on the personal estate attached, or has demand made on the garnishee in cases of foreign attachment, within sixty days after final judgment, or, if such personal estate is encumbered by any prior attachment, unless the execution is so levied within sixty days after such encumbrance has been removed.”

       The other signatories were The Steakout, Inc., The Steak Club, Inc., and George Catsavas.

       This action was originally brought against Bernard Hickey and four other defendants, George Catsavas, The Steak Club, Inc., The Steakout, Inc., and Catherine B. Hickey, Bernard Hickey’s wife. The trial court rendered judgment against Catsavas and the two corporations on May 5,1992. The plaintiff withdrew its complaint against Catherine Hickey on July 14, 1994. The corporate defendants and Catsavas have not taken pari, in this appeal.

       General Statutes (Rev. to 1991) § 52-278f, as amended by Public Acts 1991, No. 91-315, §§ 2, 5, provides: “Issuance of prejudgment remedy when defendant in commercial transaction has waived notice and hearing. In an action upon a commercial transaction, as defined in section 52-278a, wherein the defendant has waived his right to a notice and hearing under sections 52-278a to 52-278g, inclusive, the attorney for the plaintiff shall issue the writ for a prejudgment remedy without securing a court order provided that (1) the complaint shall set forth a copy of the waiver; (2) the plaintiff shall file an affidavit sworn to by the plaintiff or any competent affiant setting forth a statement of facts sufficient to show that there is probable cause to sustain the validity of the plaintiffs claim; and (3) the plaintiff shall include in the process served on the defendant a notice satisfying the requirements of subsection (b) of section 52-278e.”

       The plaintiff has not appealed from the trial court’s ruling granting the defendant’s motion to dissolve the attachment.

       The plaintiff suggests the dates of several events which, he contends, reasonably could be used to determine when his right to execute against the defendant’s IRAs vested, including the date on which the debt was incurred and the date on which the defendant defaulted on the note.

       The constitution of the United States, article one, § 10, provides in relevant part that. “[n]o State shall . . . pass any . . . Law impairing the Obligation of Contracts . . .

       As the trial court succinctly stated, “the plaintiff allowed the attachment to lose the status it enjoyed.” Federal Deposit Ins. Corp. v. Hickey, Superior Court, judicial district, of New Haven, Docket No. CV910319039 (June 26, 1995).

       Of course, had the plaintiff properly perfected its attachment by executing against the defendant’s IRAs in accordance with § 52-328 (a), we would have been required to determine whether P.A. 92-215 retrospectively abrogated the plaintiffs right to execute against (he IRA accounts, for in those circumstances the plaintiffs right to execute against the defendant’s funds would have related back to the prejudgment garnishment it had obtained on August 6, 1991, a date which preceded October 1, 1992, the effective date of P.A. 92-215. We need not, however, consider that question in this case.

       We note, moreover, that the plaintiff has failed to establish that Central Bank made its unsecured loan to the defendant in reliance on any of the defendant’s assets or that the subject IRAs were even in existence at the time the promissory note was executed.