MECHANICS & FARMERS SAVINGS BANK v. DELCO DEVEL. CO.

15119) (15120

232 Conn. 594 (1995) | Cited 6 times | Supreme Court of Connecticut | April 11, 1995

The dispositive issues in this appeal arewhether the trial court properly: (1) rejected the specialdefense of partial payment and satisfaction of apromissory note of the defendants Delco DevelopmentCompany, Inc. (Delco), Gary R. Ginsberg and RobertA. Ginsburg (defendants)1; and (2) calculated the intereston the debt owed by the defendants. The defendantsappealed to the Appellate Court from the trialcourt's judgment of strict foreclosure, and we transferredthe appeal to this court pursuant to PracticeBook § 4023 and General Statutes § 51-199(c). Weaffirm the judgment of the trial court.

On May 17, 1988, Delco borrowed $3,500,000 fromthe Mechanics and Farmers Savings Bank, FSB (bank).On that same date, Delco executed a variable ratepromissory note to the bank for that amount. The notewas secured by a mortgage on real estate owned byDelco at 249 Putnam Avenue, Hamden. Dennis Nicotra,Gary Ginsberg and Robert Ginsburg, shareholders inDelco, signed written guarantees unconditionallyguaranteeing to the bank the prompt payment of allobligations due under the note. Thereafter, the loan toDelco was restructured and the terms of the note weremodified by a modification agreement among the partiesdated February 21, 1990. The guarantors of thenote consented to the modification and their guaranteeswere not affected. Subsequently, Delco defaultedon its loan and the bank instituted an action for strict

[232 Conn. 596]

     foreclosure against Delco and for deficiency judgmentsagainst Delco and the guarantors of the note. OnAugust 9, 1991, the Director of the Office of ThriftSupervision determined that the bank was insolventand appointed the Federal Deposit Insurance Corporation(FDIC) as receiver. The FDIC was thereaftersubstituted for the bank as the party plaintiff in theforeclosure action.

Each of the defendants pleaded five identical specialdefenses to the plaintiff's action. In their first four specialdefenses, the defendants claimed, in essence, thatthe bank had failed to comply with certain federal regulationsconcerning appraisal and loan to value ratios.The trial court ruled against the defendants on theirfirst four special defenses. Those rulings of the trialcourt have not been challenged by the defendants onappeal.

In their fifth special defense, the defendants claimedthat the note secured by the mortgage had been partiallypaid and satisfied. The trial court rejected thisdefense and found that the amount due the plaintiffwas the full amount of the note plus interest, attorney'sfees and costs. The defendants contend that the trialcourt was incorrect in so finding.

The defendants argue that the note secured by themortgage was partially paid and satisfied when thebank entered into a satisfaction agreement and anintercreditor agreement with Nicotra and Nicotra'sother creditors in July, 1991. The defendants claim that,although they were not parties to those agreements,they, nevertheless, should be the beneficiaries of thereduction of $2,024,000 in the amount of the debt duethe bank. The defendants assert that this was the valueplaced on the agreements by the bank and that theagreements were accepted as partial payment by thebank for the obligation secured by the mortgage.

[232 Conn. 597]

The trial court concluded that "there is simply nolegal or equitable basis upon which the defendants canargue that an agreement negotiated by Dennis Nicotrato satisfy his debts, which apparently failed in the end,is applicable to them." The court also concluded thatthe defendants' fifth special defense was not valid asto the FDIC because the agreements on which that specialdefense was based failed to meet all the requirementsof 12 U.S.C. § 1823(e).2 See also D'Oench,Duhme & Co. v. Federal Deposit Ins. Corp., 315 U.S. 447,62 S.Ct. 676, 86 L.Ed. 956 (1942). Accordingly,the court found that the FDIC was entitled to judgmenton the outstanding principal amount of the note, plusinterest.

The defendants also claim on appeal that the trialcourt improperly used the prime rate of Chase ManhattanBank of Connecticut, the successor bank toMechanics and Farmers Savings Bank to determine theinterest rate to be applied to the note in question. Thetrial court concluded that substitution of the prime rateof Chase Manhattan Bank of Connecticut for that ofMechanics and Farmers Savings Bank, the prime rate

[232 Conn. 598]

     for which the formula in the note originally provided,was reasonable under the circumstances becauseMechanics and Farmers Savings Bank had ceased toexist. It therefore calculated the interest due on thebasis of the prime rate of the Chase Manhattan Bankof Connecticut.

We agree with the trial court's conclusions on bothissues as set forth in its thoughtful and comprehensivememorandum of decision. Mechanics & Farmers SavingsBank, FSB v. Delco Development Co., 43 Conn. Sup. 408,656 A.2d 1075 (1995). Because the court'smemorandum of decision fully addresses the issuesproperly raised by the defendants in the present appeal,we adopt its decision as a statement of the facts andapplicable law on these issues.3 It would serve no usefulpurpose to repeat the discussion contained therein.Greater Bridgeport Transit District v. State Board ofLabor Relations, 232 Conn. 57, 64, 653 A.2d 151 (1995);Advanced Business Systems, Inc. v. Crystal, 231 Conn. 378,381, 650 A.2d 540 (1994).

The judgment is affirmed and the case is remandedto the trial court to set new law days and to orderproper notice.

1. The defendants Dennis Nicotra and Great Country Bank hadfailed to disclose a defense in the trial court and weredefaulted. They have not appealed the judgment of the trialcourt.

2. Title 12 of the United States Code, § 1823(e) (1989)provides: "No agreement which tends to diminish or defeat theinterest of the [FDIC] in any asset acquired by it under thissection or section 1821 of this title, either as security for aloan or by purchase or as receiver of any insured depositoryinstitution, shall be valid against the [FDIC] unless suchagreement — "(1) is in writing "(2) was executed by the depository institution and any personclaiming an adverse interest thereunder, including the obligor,contemporaneously with the acquisition of the asset by thedepository institution "(3) was approved by the board of directors of the depositoryinstitution or its loan committee, which approval shall bereflected in the minutes of said board or committee and "(4) has been, continuously, from the time of its execution, anofficial record of the depository institution." The trial court found that the agreements failed to satisfysubdivisions (3) and (4) of 12 U.S.C. § 1823(e).

3. The defendants also claim on appeal that the trial courtimproperly applied 12 U.S.C. § 1823(e) retroactively in thiscase. They contend that because § 1823(e) did not apply tothe FDIC as a receiver until 1989, when that section was amendedby the Financial Institutions Reform, Recovery and EnforcementAct of 1989, it should not apply in this instance. Thedefendants, however, failed to raise this claim at trial. Wetherefore will not consider it on appeal. Practice Book § 4185;Skrzypiec v. Noonan, 228 Conn. 1, 13, 633 A.2d 716(1993) (we will not address claims not raised before trial

The dispositive issues in this appeal arewhether the trial court properly: (1) rejected the specialdefense of partial payment and satisfaction of apromissory note of the defendants Delco DevelopmentCompany, Inc. (Delco), Gary R. Ginsberg and RobertA. Ginsburg (defendants)1; and (2) calculated the intereston the debt owed by the defendants. The defendantsappealed to the Appellate Court from the trialcourt's judgment of strict foreclosure, and we transferredthe appeal to this court pursuant to PracticeBook § 4023 and General Statutes § 51-199(c). Weaffirm the judgment of the trial court.

On May 17, 1988, Delco borrowed $3,500,000 fromthe Mechanics and Farmers Savings Bank, FSB (bank).On that same date, Delco executed a variable ratepromissory note to the bank for that amount. The notewas secured by a mortgage on real estate owned byDelco at 249 Putnam Avenue, Hamden. Dennis Nicotra,Gary Ginsberg and Robert Ginsburg, shareholders inDelco, signed written guarantees unconditionallyguaranteeing to the bank the prompt payment of allobligations due under the note. Thereafter, the loan toDelco was restructured and the terms of the note weremodified by a modification agreement among the partiesdated February 21, 1990. The guarantors of thenote consented to the modification and their guaranteeswere not affected. Subsequently, Delco defaultedon its loan and the bank instituted an action for strict

[232 Conn. 596]

     foreclosure against Delco and for deficiency judgmentsagainst Delco and the guarantors of the note. OnAugust 9, 1991, the Director of the Office of ThriftSupervision determined that the bank was insolventand appointed the Federal Deposit Insurance Corporation(FDIC) as receiver. The FDIC was thereaftersubstituted for the bank as the party plaintiff in theforeclosure action.

Each of the defendants pleaded five identical specialdefenses to the plaintiff's action. In their first four specialdefenses, the defendants claimed, in essence, thatthe bank had failed to comply with certain federal regulationsconcerning appraisal and loan to value ratios.The trial court ruled against the defendants on theirfirst four special defenses. Those rulings of the trialcourt have not been challenged by the defendants onappeal.

In their fifth special defense, the defendants claimedthat the note secured by the mortgage had been partiallypaid and satisfied. The trial court rejected thisdefense and found that the amount due the plaintiffwas the full amount of the note plus interest, attorney'sfees and costs. The defendants contend that the trialcourt was incorrect in so finding.

The defendants argue that the note secured by themortgage was partially paid and satisfied when thebank entered into a satisfaction agreement and anintercreditor agreement with Nicotra and Nicotra'sother creditors in July, 1991. The defendants claim that,although they were not parties to those agreements,they, nevertheless, should be the beneficiaries of thereduction of $2,024,000 in the amount of the debt duethe bank. The defendants assert that this was the valueplaced on the agreements by the bank and that theagreements were accepted as partial payment by thebank for the obligation secured by the mortgage.

[232 Conn. 597]

The trial court concluded that "there is simply nolegal or equitable basis upon which the defendants canargue that an agreement negotiated by Dennis Nicotrato satisfy his debts, which apparently failed in the end,is applicable to them." The court also concluded thatthe defendants' fifth special defense was not valid asto the FDIC because the agreements on which that specialdefense was based failed to meet all the requirementsof 12 U.S.C. § 1823(e).2 See also D'Oench,Duhme & Co. v. Federal Deposit Ins. Corp., 315 U.S. 447,62 S.Ct. 676, 86 L.Ed. 956 (1942). Accordingly,the court found that the FDIC was entitled to judgmenton the outstanding principal amount of the note, plusinterest.

The defendants also claim on appeal that the trialcourt improperly used the prime rate of Chase ManhattanBank of Connecticut, the successor bank toMechanics and Farmers Savings Bank to determine theinterest rate to be applied to the note in question. Thetrial court concluded that substitution of the prime rateof Chase Manhattan Bank of Connecticut for that ofMechanics and Farmers Savings Bank, the prime rate

[232 Conn. 598]

     for which the formula in the note originally provided,was reasonable under the circumstances becauseMechanics and Farmers Savings Bank had ceased toexist. It therefore calculated the interest due on thebasis of the prime rate of the Chase Manhattan Bankof Connecticut.

We agree with the trial court's conclusions on bothissues as set forth in its thoughtful and comprehensivememorandum of decision. Mechanics & Farmers SavingsBank, FSB v. Delco Development Co., 43 Conn. Sup. 408,656 A.2d 1075 (1995). Because the court'smemorandum of decision fully addresses the issuesproperly raised by the defendants in the present appeal,we adopt its decision as a statement of the facts andapplicable law on these issues.3 It would serve no usefulpurpose to repeat the discussion contained therein.Greater Bridgeport Transit District v. State Board ofLabor Relations, 232 Conn. 57, 64, 653 A.2d 151 (1995);Advanced Business Systems, Inc. v. Crystal, 231 Conn. 378,381, 650 A.2d 540 (1994).

The judgment is affirmed and the case is remandedto the trial court to set new law days and to orderproper notice.

1. The defendants Dennis Nicotra and Great Country Bank hadfailed to disclose a defense in the trial court and weredefaulted. They have not appealed the judgment of the trialcourt.

2. Title 12 of the United States Code, § 1823(e) (1989)provides: "No agreement which tends to diminish or defeat theinterest of the [FDIC] in any asset acquired by it under thissection or section 1821 of this title, either as security for aloan or by purchase or as receiver of any insured depositoryinstitution, shall be valid against the [FDIC] unless suchagreement — "(1) is in writing "(2) was executed by the depository institution and any personclaiming an adverse interest thereunder, including the obligor,contemporaneously with the acquisition of the asset by thedepository institution "(3) was approved by the board of directors of the depositoryinstitution or its loan committee, which approval shall bereflected in the minutes of said board or committee and "(4) has been, continuously, from the time of its execution, anofficial record of the depository institution." The trial court found that the agreements failed to satisfysubdivisions (3) and (4) of 12 U.S.C. § 1823(e).

3. The defendants also claim on appeal that the trial courtimproperly applied 12 U.S.C. § 1823(e) retroactively in thiscase. They contend that because § 1823(e) did not apply tothe FDIC as a receiver until 1989, when that section was amendedby the Financial Institutions Reform, Recovery and EnforcementAct of 1989, it should not apply in this instance. Thedefendants, however, failed to raise this claim at trial. Wetherefore will not consider it on appeal. Practice Book § 4185;Skrzypiec v. Noonan, 228 Conn. 1, 13, 633 A.2d 716(1993) (we will not address claims not raised before trial

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