EH Investment Co., LLC v. Chappo LLC
166 A.3d 800
| Conn. App. Ct. | 2017Background
- EH Investment (Gordon) owned a foreclosed Michigan office building leased to Huntsman; Gordon sought financing to redeem the property but had not secured a Huntsman lease extension.
- Chappo LLC (Chappo) agreed via a written, fully integrated engagement letter to procure a lender willing to make a $9.5M loan on specified terms; plaintiff paid a $47,500 engagement deposit (half of 1% placement fee).
- The engagement letter stated the deposit would be returned if Chappo LLC failed to provide a lender commitment, but Chappo would retain it if plaintiff failed to complete financing after Chappo had provided a commitment; the letter contained a merger clause.
- Chappo procured a willing lender (American National) and circulated an application/commitment that incorporated a lease requirement (lease producing at least $1,183,000 annually); Gordon refused to sign the application because Huntsman’s lease extension was not yet executed.
- Plaintiff withdrew the application and demanded return of the deposit; trial court found the Huntsman lease extension was a condition precedent, awarded plaintiff $47,500 for breach of contract and conversion.
- On appeal, the appellate court reversed the breach of contract and conversion findings, holding the engagement letter unambiguous, Chappo substantially performed by obtaining a lender commitment, and the contract allocated lease-risk to the plaintiff.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a Huntsman lease extension was a condition precedent excusing plaintiff's performance and requiring return of the deposit | Gordon: lease extension was an express/implied condition precedent; without it plaintiff had no duty to complete financing so deposit must be returned | Chappo: contract required only procuring a lender commitment; deposit is retained if plaintiff fails to complete financing after a commitment; plaintiff bore lease risk | Held: No condition precedent — the integrated, unambiguous engagement letter required only a lender commitment; Chappo was entitled to retain the deposit after substantial performance |
| Whether extrinsic evidence (lease negotiations, prior discussions) could alter written, integrated engagement letter | Gordon: surrounding circumstances show parties intended lease as condition | Chappo: merger clause bars parol evidence; parties were sophisticated and could have drafted such a condition | Held: Merger clause establishes full integration; court should not rewrite contract based on extrinsic circumstances |
| Whether Chappo’s failure to obtain a signed commitment letter defeated its performance | Gordon: no formal commitment was executed, so no commitment existed | Chappo: lender was willing and all that remained was plaintiff’s signature; doctrine of substantial performance or a lender commitment sufficed | Held: Chappo substantially performed and obtained the required lender commitment; plaintiff’s refusal to sign foreclosed closing |
| Whether retention of deposit constituted conversion/statutory theft | Gordon: wrongful retention amounted to conversion and statutory theft | Chappo: retention was contractually permitted after commitment | Held: Conversion reversed (no unauthorized exercise of ownership if retention permitted); statutory theft not proven at trial and not appealed further |
Key Cases Cited
- Ramirez v. Health Net of the Northeast, Inc., 285 Conn. 1 (discussing contract ambiguity and plenary review)
- Tallmadge Bros., Inc. v. Iroquois Gas Transmission Sys., L.P., 252 Conn. 479 (merger clause indicates full integration; bars parol evidence)
- Lach v. Cahill, 138 Conn. 418 (definition and interpretation of condition precedent)
- Benvenuti Oil Co. v. Foss Consultants, Inc., 64 Conn. App. 723 (integration and parol evidence principles)
- Mastroianni v. Fairfield County Paving, LLC, 106 Conn. App. 330 (doctrine of substantial performance)