One Country, LLC v. Johnson
137 Conn. App. 810
Conn. App. Ct.2012Background
- Porter, sole guarantor, signed backstop guarantees for One Country, LLC's acquisition and construction loans; Johnson and Pratley also signed backstop guarantees.
- Bank financed two notes for 1 Country Road, Westport; One Country, LLC exhausted capital by 2007 and renovations halted.
- Porter paid $300,000 to bank to settle deficiency; the settlement treated as capital contribution to Iboport, LLC for tax purposes.
- Porter sought to enforce backstop guarantees against Johnson and Pratley; trial court found no loss due to tax treatment and dismissed claims.
- Trial court held that Porter did not suffer a loss under the guarantees because the $300,000 payment was treated as equity via Iboport, LLC.
- On appeal, majority held tax treatment irrelevant and that backstop guarantees are absolute and enforceable; dissent argues lack of standing due to assignment to Iboport.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of backstop guarantees | Porter argues guarantees are absolute and enforceable. | Johnson and Pratley contend Porter did not suffer a loss due to tax treatment and assignment issues. | Guaranties enforceable; plaintiff entitled to judgment. |
| Effect of tax treatment on loss | Tax treatment does not erase loss under guarantees. | Tax treatment of $300,000 should defeat recovery. | Tax treatment irrelevant; recovery controlled by contract. |
| Standing and assignment of guarantees | Assignment to Iboport does not defeat standing to enforce. | Capital contribution and assignment transferred rights away from Porter; lacks standing. | Assignment valid; Porter lacked standing only if case dismissed on jurisdictional basis (majority reverses on merits). |
Key Cases Cited
- 73-75 Main Avenue, LLC v. PP Door Enterprise, Inc., 120 Conn. App. 150 (2010) (standard of review for trial court findings and conclusions of law)
- Connecticut National Bank v. Douglas, 221 Conn. 530 (1992) (waiver of defenses and interpretation of guarantees)
- Hudson United Bank v. Endeavor Group, 96 Conn. App. 447 (2006) (guarantee inure to successor in merger)
- D'Amato Investments, LLC v. Sutton, 117 Conn. App. 420 (2009) (assignment of lease/guarantee to assignee)
- Shenkman-Tyler v. Central Mutual Ins. Co., 126 Conn. App. 733 (2011) (standing and assignment principles in contract cases)