ANNMARIE CASTLE, TRUSTEE v. KATHERINE DIMUGNO
(AC 41607)
Appellate Court of Connecticut
Argued December 3, 2019—officially released September 1, 2020
DiPentima, C. J., Bright and Devlin, Js.*
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Syllabus
The plaintiff trustee sought to collect on a promissory note executed by the defendant and to foreclose a mortgage on certain real property securing the defendant‘s obligations under the note. In accordance with a stipulation entered into by the defendant and her former husband, D, which was incorporated into the judgment dissolving their marriage, D transferred his interest in the property to the defendant and the defendant executed a promissory note in the amount of $160,000 in favor of D. The note provided that it was payable by the defendant until the sale of the property or her death and that, if the property were transferred, the unpaid principal with accrued interest would become due and payable at the option of the holder of the note. Thereafter, the plaintiff, as trustee, brought an action against D for, inter alia, breach of fiduciary duty for actions he had taken as the original trustee of the trust. The trial court rendered judgment in favor of the plaintiff and, following its granting of the plaintiff‘s motion for postjudgment modification of a prejudgment attachment that had been granted in her favor, ordered that the plaintiff could “garnish” the note from the defendant and that a copy of the original note was to be turned over to her. D never turned over the original note to the plaintiff. The defendant subsequently quitclaimed title to the property to her daughter for no consideration and retained a life use of the property. The plaintiff then filed a judgment lien on the property, claiming that the defendant‘s transfer of the property to her daughter triggered her obligation to pay the note in full. After the defendant did not respond to the plaintiff‘s demand that she make full payment on the note, the plaintiff commenced the present two count action. The trial court rendered summary judgment in favor of the defendant on both counts of the complaint, and the plaintiff appealed to this court. Held that the plaintiff lacked standing to enforce the note and to foreclose on the mortgage, and, therefore, the trial court should have dismissed both counts of her complaint for lack of subject matter jurisdiction: because the plaintiff never possessed the original note, she lacked standing to enforce it, and her contention that she was entitled to enforce the note as D‘s successor pursuant to the order of attachment and garnishment issued by the trial court in her action against D was unavailing, as it was contrary to the plain language of the statute (
Procedural History
Action to, inter alia, recover on a promissory note, and for other relief, brought to the Superior Court in the judicial district of Middlesex, where the defendant filed a counterclaim; thereafter, the court, Aurigemma, J., granted the defendant‘s motion for summary judgment on the complaint and renderеd judgment thereon, from which the plaintiff appealed to this court. Improper form of judgment; judgment directed.
Mario Cerame, with whom, on the brief, were Juri E. Taalman and Timothy Brignole, for the appellant (plaintiff).
Rowena A. Moffett, for the appellee (defendant).
Opinion
The following undisputed facts and procedural history are relevant to our analysis. On July 28, 2005, the court dissolved the defendant‘s marriage to Donald DiMugno (Donald). Incorporated into the judgment of dissolution rendered by the court was a stipulation entered into by the defendant and Donald. Relevant to this dispute, the defendant and Donald stipulated: “The husband shall transfer to the wife all of his right, title and interest in the real estate located at 11 Billow Road, Old Saybrook, Connecticut [(property)] . . . . In consideration for the transfer the wife shall execute a Promissory Note in the principal amount of $160,000 together with simple interest at the rate of 2 [percent] per annum, which Note shall be payable on the first of the following events: the sale of said premises by the wife and/or death of the wife.” On August 24, 2005, upon Donald‘s transfer of his interest in the property to her, the defendant executed the note in favor of Donald in the principal amount of $160,000. In conformity with the stipulation, the note provides for simple interest to accrue at the rate of 2 percent per year. The note further provides in its second paragraph: “The undersigned promises to pay the said principal and interest as follows: 1. The sale of the [property]; or 2. The death of the [m]aker hereof.” Under the note, the defendant also is responsible to pay all taxes and mortgage obligations associated with the property and is required to keep the property insured and free of mechanic‘s liens. The note further provides, in its penultimate paragraph, that “[i]f any payment due hereunder shall not have been paid within [fifteen] days after the same is due . . . or if title to said property is transferred, then the entire unpaid principal, with accrued interest, shall, at the option of the holder hereof, become due and payable forthwith.” The defendant‘s obligations under the note are secured by a mortgage on the property, which she executed contemporaneously with the note.1
In 2012, the plaintiff, bоth as trustee of the trust and conservator of Mary DiMugno, brought an action against Donald for breach of fiduciary duty, civil theft and fraud for actions that Donald had taken when he acted as the original trustee of the trust and as a fiduciary of Mary DiMugno, his mother. Following a trial, the court, on August 30, 2013, rendered judgment in favor of the plaintiff and against Donald. Following the entry of judgment, the plaintiff filed a motion for postjudgment modification of the prejudgment attachment that previously had been granted in favor of the plaintiff. At the hearing on the motion, the plaintiff‘s counsel expressed his concern that Donald had secreted certain assets that could be used to satisfy the plaintiff‘s judgment against him. Consequently, he asked the court to order that “someone in trust take them and hold them until the end [of] this case.” In granting the plaintiff‘s motion, on September 27, 2013, the court made clear that the plaintiff could “take [the assets], you
On January 23, 2014, the defendant quitclaimed title to the property to her daughter, Michele Rossignol, for the consideration of love and affection, and retained a life use of the property (life use deed). The defendant executed the life use deed so that the property would not have to go through probate if she died and to protect it from seizure by the state if she went into a convalescent home. The life use deed did not purport to release or extinguish Donald‘s mortgage on the property.
After learning of the defendant‘s transfer of title to the property to Rossignol, the plaintiff, relying on the language in the note that “if title to said property is transferred, then the entire unpaid principal, with accrued interest, shall, at the option of the holder hereof, become due and payable forthwith,” on May 4, 2015, filed a judgment lien on the property, claiming that the defendant‘s transfer of title to the property to Rossignol triggered her obligation to pay the note in full. The judgment lien noted that the plaintiff, in her action against Donald, had secured a one million dollar attachment оf all of Donald‘s assets, including the note. On May 5, 2015, the plaintiff‘s counsel sent the defendant and Rossignol a letter notifying them of the judgment lien attaching the debt the defendant owed to Donald, and stating his intention “to try and work with you for the payment of said note . . . before we attempt on foreclosing on the judgment lien.” On September 28, 2015, Rossignol, by way of a quitclaim deed, transferred title to the property back to the defendant for no consideration. The defendant did not otherwise respond to the plaintiff‘s demand that she make full payment on the note.
By complaint dated October 23, 2015, the plaintiff instituted the underlying action against the defendant. In count one of the complaint, the plaintiff sought payment on the note. In that count, she alleged that the court in her action against Donald “assigned the [note] to the [plaintiff] for payment.” The plaintiff further alleged that she “is now the HOLDER of the negotiable instrument of the [note],” and described herself as the “court-ordered holder of the [note] . . . .” She sought, as a remedy, “money damages for the repayment of principal and interest under the terms of the [n]ote, plus attorney‘s fees, in acсordance with the terms [of] the [note].”
The defendant moved to dismiss the action on the ground that the plaintiff lacks standing because she is not the holder of the note. In opposition to the motion, the plaintiff argued that she was entitled to enforce the note pursuant to the court‘s postjudgment order of attachment issued in her action against Donald. She further argued that she did not need to have possession of the original note because it had been lost and its whereabouts were unknown. The court denied the motion to dismiss because “[t]here is an issue of fact as to whether the note was lost.”
Thereafter, the defendant filed a motion to strike both counts of the complaint on the basis that the note required payment only if one of two events occurred—the defendant sold the property оr she died. The defendant argued that because the complaint did not allege either of the events, the plaintiff failed to state a claim on which relief could be granted and both counts of the complaint should be stricken. In response, the plaintiff argued that the defendant‘s transfer of title to Rossignol triggered the defendant‘s obligation to pay the note in full and her failure to do so constituted an event of default under the note that supported both her action for payment on the note in count one of the complaint and her action to foreclose on the corresponding mortgage in count two. The court denied the motion to strike because, “[w]hen the express terms of the note are construed in a light most favorable to the plaintiff, the defendant‘s ‘transfer’ to her daughter could be considered an event of default. The plaintiff‘s complaint is legally sufficient.”
The defendant then answered the complaint. Thereafter, she filed a revised answer, denying the essential allegations of the plaintiff‘s complaint and pleading several special defenses.2
After the parties engаged in discovery, including taking the depositions of the defendant, Donald, and the defendant‘s attorney in the dissolution action, who was involved in the drafting and execution of the note, the defendant moved for summary judgment on both counts of the plaintiff‘s complaint. In support of her motion, the defendant first argued that she had not defaulted on the note because payment was not due until she sold the property for value or died, neither of which had occurred. With respect to the “transferred” language relied on by the plaintiff, the defendant argued that “[t]he undisputed evidence makes clear that the term ‘transferred’ as used in [the note] means a transfer for value, and the life use deed [did] not constitute a transfer which renders the note due and payable.” The defendant submitted various extrinsic evidence in support of her argument. First, she argued that the note should be read in light of the stipulation that she and Donald signed that was incorporated into their dissolution judgment from which the note resulted.
Second, the defendant relied on her and Donald‘s deposition testimony. The defendant testified that her understanding of her repayment obligation under the note and judgment was that the note had to be paid when she sold the property or died, and that the transfer of title to Rossignol for no consideration as part of her estate planning, was not a sale. Similarly, Donald testified that the defendant was obligated to pay him under the note when she either sold the property or died. He further described the defendant‘s interest in the house under the dissolution judgment as a “life use” of the house.
Finally, the defendant relied on the deposition testimony of Attorney Timothy Sheehan, who represented the defendant in the dissolution proceeding, participated in the negotiation of the stipulation incorporated into the judgment of dissolution, and drafted the note. Sheehan testified that the reference in the note to the title of the property being transferred meant “[t]ransferred for value.”
The defendant argued that it was appropriate for the court to consider extrinsic evidence because the note “is not integrated” or, alternatively, because the word ” ‘transferred’ ” in the note is ambiguous. The defendant reasoned that because all of the participants to the negotiation and drafting of the note3 had the same understanding as to its meaning and that meaning was confirmed by the judgment of dissolution, there was no factual basis to conclude that the defendant‘s action in quitclaiming title to the property to Rossignol, for no consideration, while retaining life use of the property, triggered her payment obligation under the note.
Alternatively, the defendant argued that the plaintiff did not have standing to enforce the note or to foreclose on the mortgage. As to enforcement of the note, the defendant argued that the plaintiff admitted that the note is not payable to the plaintiff and that the plaintiff has never been in possession of the note. Consequently, according to the defendant, the plaintiff is neither a holder of the notе nor a nonholder in possession of the note, as defined in
In opposition to the defendant‘s motion for summary judgment, the plaintiff argued that the language in the note is clear and unambiguous in requiring full payment of the amounts due thereunder if ” ‘title to [the] property is transferred.’ ” She further argued that the life use deed
As to the defendant‘s standing arguments, the plaintiff argued that, although she did not possess the original note, she has a copy of it and has standing, as the successor to Donald‘s rights in the note, to enforce it. The plaintiff did not address the defendant‘s argument that the she lacks standing to foreclose on the mortgage because it had never been assigned to her.
In ruling on the defendant‘s motion for summary judgment, the trial court did not address the standing arguments made by the defendant.5 Instead, the court resolved the motion on the basis of its interpretation of the “transferred” language in the note. The court held that the plaintiff‘s reliance on a single provision in the note was misplaced because “[t]he entire note must be read in light of the judgment pursuant to which the note was executed.” The court also considered the defendant‘s and Donald‘s deposition testimony and concluded: “It is clear, based on the plain language of the judgment, that Donald and [the defendant] intended for payment to become due only in the event of either the sale of the property or the death of [the defendant]. . . . Moreover, both parties to the note have confirmed their intent and understanding that the note would become due during the defendant‘s lifetime only in the event of a transfer for value. . . . The extrinsic evidence makes it clear that neither the maker of the note nor the payee understood that the word ‘transfer’ used in the note meant anything other than a transfer for value, since without value, the defendant would have no money to pay the payee.” Consequently, the court rendered summary judgment in favor of the defendant on both counts of the plaintiff‘s complaint. Additional facts will be set forth as necessary.
In this appeal, the plaintiff claims that the court erred in its analysis of the note. In particular, she claims, as she did before the trial court, that the language of the note is clear and unambiguous in linking the defendant‘s payment obligation to any transfer by her of the title to the property and that the court erred in relying on extrinsic evidence to reach an interрretation of the language that varied or contradicted that clear and unambiguous meaning. Furthermore, even though the trial court did not mention Sheehan‘s testimony in its memo-randum of decision rendering summary judgment, the plaintiff claims that such testimony should have been stricken and not considered by the court. Finally, although the trial court did not address standing or the plaintiff‘s right to enforce the note or to foreclose on the
In response, the defendant argues that the trial court properly construed the note in light of the undisputed evidence of the intent of the defendant and Donald when they entered into the stipulation that resulted in the defendant executing the note and mortgage. Alternatively, the defendant argues that the plaintiff lacks standing to enforce the note and to foreclose on the mortgage. We agree with the defendant‘s alternative standing arguments and, therefore, do not reach the question of how the note should be construed.
Although the trial court did not address the defendant‘s arguments that the plaintiff lacks standing to pursue her claims, because the question of standing implicates the trial court‘s subject matter jurisdiction, we address those arguments first.6
“Standing is the legal right to set judicial machinery in motion. One cannot rightfully invoke the jurisdiction of the court unless he [or she] has, in an individual or representative capacity, some real interest in the cause of action, or a legal or equitable right, title or interest in the subject matter of the controversy. . . . Where a party is found to lack standing, the court is consequently without subject matter jurisdiction to determine the cause. . . . Our review of this question of law is plenary.” (Citations omitted; internal quotation marks omitted.) J.E. Robert Co. v. Signature Properties, LLC, 309 Conn. 307, 318, 71 A.3d 492 (2013).
In J.E. Robert Co., our Supreme Court analyzed the plaintiff‘s right to enforce a promissory note and to foreclose on a mortgage securing the note as a question of standing. Id., 319. In doing so, the court noted: “A plaintiff‘s right to enforce a promissory note may be established under the [Uniform Commercial Code (UCC) as adopted in
In addition, pursuant to
The plaintiff concedes that she has never had possession of the original note. For this reason, the defendant argues, the plaintiff has no right to enforce the note as a holder or nonholder in possession pursuant to
The UCC and the official commentary both clearly describe how someone not in physical possession of a note can enforce it.
In fact, this court recently rejected a nearly identical argument in Seven Oaks Enterprises, L.P. v. DeVito, supra, 185 Conn. App. 552–54. In that case, Seven Oaks Enterprises, L.P. (SOE) sold a limited liability company to the defendant, who, as part of the purchase, executed a note in favor of SOE for $1.325 million. Id., 538. After the sale, SOE transferred and assigned the note to a related company, Seven Oaks Management Company (SOM). Id., 539, 543. At the time of the transfer to SOM, SOE no longer had possession of the original note from the defendant, and SOM never was in possession of the note. Id., 554. SOE and SOM later brought an action against the defendant. Id., 539. In that action, SOM claimed that the defendant had breached the promissory note by failing to pay the amounts due thereunder. Id. The defendant argued that SOM had no right to enforce the note because it never possessed the note, as the note was lost while in SOE‘s possession and before any assignment to SOM. Id., 537. The case was tried to a jury, which returned a verdict in favor of SOM on its claim under the promissory note. Id., 539. “The jury indicated in its answers to interrogatories that it had found that SOE and the defendant originally had been the parties to the note, that SOE possessed the note when it was lost, that the note nonetheless had effectively been assigned to SOM, and that the defendant failed to make payments on the note.” Id., 541–42. The defendant filed motions to set aside the verdict and for judgment notwithstanding the verdict, both of which the trial court denied. Id., 539–40.
On appeal, this court held that the trial court erred in denying the motions to set aside the verdict and for judgment notwithstanding the verdict. Id., 554. After thoroughly reviewing the applicable sections of the UCC and case law both in Connecticut and in other states applying those sections to similar circumstances, we concluded: “[T]he application of
The plaintiff‘s argument in the present case, that she is entitled to enforce the note as Donald‘s successor pursuant to the order of attachment and garnishment issued by the court in her action against Donald, is not materially different from SOM‘s argument in Seven Oaks Enterprises, L.P. For the same reason that we rejected the argument in that case, we reject it here.7 Thus, the plaintiff has
The defendant argues that the plaintiff indisputably cannot meet the requirements of
The wording of
Having been unable to secure the original note, the plaintiff cites a number of cases that purportedly sup-port her new contention that she never needed possession of the original note to enforce it. Those cases provide her with little support. In Guaranty Bank & Trust Co. v. Dowling, 4 Conn. App. 376, 381–82, 494 A.2d 1216, cert. denied, 197 Conn. 808, 499 A.2d 58 (1985), this court affirmed the judgment in favor of the plaintiff on a promissory note that had been lost and was not in the plaintiff‘s possession when it was lost. However, the court did so under
The other cases relied on by the plaintiff involved foreclosures and not actions to enforce the note. As this court explained in Seven Oaks Enterprises, L.P., a foreclosure action is different from an actiоn to enforce a note. See Seven Oaks Enterprises, L.P. v. DeVito, supra, 185 Conn. App. 547–48. “[O]ur Supreme Court considered the language of
“In deciding the case, however, our Supreme Court observed that because the plaintiff had chosen to pursue the equitable action of foreclosure of the mortgage, rather than a legal action on the note, the fact that [the plaintiff] never possessed the lost promissory note [wаs] not fatal to its foreclosure of the mortgage. . . . [W]hatever restrictions
Consequently, the fact that a party, who is not in possession of the note evidencing the debt underlying a mortgage, may be able to foreclose on that mortgage, does not lead to the conclusion that the party has standing to enforce the note. In fact, we specifically have rejected such a conclusion. See id., 547–48, 554. In the present case, the plaintiff, never having possessed the original note, lacks standing to enforce it. For this reason, the trial court should have dismissed count one of the plaintiff‘s complaint because it lacked subject matter jurisdiction to consider the plaintiff‘s cause of action.
As noted, however, this conclusion as to count one does not necessarily mean that the plaintiff lacks standing to assert the foreclosure claim in count two of her complaint. Possession of the original note underlying the mortgage is not a necessary prerequisite for that claim because “[t]he mortgage secures the indebtedness itself, not the written evidence of it.” (Internal quotation marks omitted.) New England Savings Bank v. Bedford Realty Corp., supra, 238 Conn. 759. For this reason, “[t]he loss of the note . . . does not preclude proof of the debt by other evidence. A . . . 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. . . . The loss of a . . . note alters not the rights of the owner, but merely renders secondary evidence necessary and proper.” (Citation omitted; internal quotation marks omitted.) Id., 760. In New England Savings Bank, although the plaintiff did not possess the original promissory note, it was able to prove its ownership of the debt underlying the mortgage through secondary evidence, in particular, the assignments of the note and the mortgage that secured the debt. Id.
In the present case, as the defendant correctly notes, there was no assignment of the mortgage to the plaintiff. Nor does the plaintiff base her foreclosure claim on anything other than the note. Specifically, in her complaint, the plaintiff based her right to foreclose on the mortgage on her status as the assignee and holder of the note. Furthermore, the note, and its purported assignment to her, is the only evidence she offered the court in support of her claim that she owned the debt secured by the mortgage.
Furthermore, the plaintiff fails to explain what common-law powers of equity would permit a court, on the facts of this case, to grant an ownership interest in a debt without following the required statutory procedures. Connecticut has had statutes regulating the garnishment of property and the execution of such property postjudgment since 1726. See Hayes v. Weisman, 97 Conn. 387, 394–98, 116 A. 878 (1922). Consequently, our Supreme Court stated long ago that “[t]he proceeding in favor of a creditor to attach and appropriate the debt of a third person due the debtor, is given by statute.” Day v. Welles, 31 Conn. 344, 349 (1863). Although our Supreme Court has recognized that in certain limited circumstances a judgment creditor may bring a creditor‘s bill in equity “to enforce the payment of a debt out of property of a debtor under circumstances which impede or render impossible the collection of the debt by the ordinary process of execution . . . [t]he . . . requirement for the maintenance of such a bill is that the plaintiff must not have an adequate remedy at law.” (Citations omitted.) Burchett v. Roncari, 181 Conn. 125, 128, 434 A.2d 941 (1980). There is little question that the plaintiff has an adequate remedy at law through our garnishment and execution statutes. Finally, as noted previously in this opinion, the “garnishment rеmedy” issued by the court was no more than an attachment of the note. It
For these reasons, the trial court lacked subject matter jurisdiction to consider count two of the plaintiff‘s complaint, and that count, as well, must be dismissed.
The form of the judgment is improper; the judgment is reversed and the case is remanded with direction to render a judgment of dismissal for lack of subject matter jurisdiction.
In this opinion the other judges concurred.
* The listing of judges reflects their seniority status on this court as of the date of oral argument.
Notes
“Despite the early English characterization of a note as tangible property, most states enacted execution and enforcement of money judgment provisions that codified [common-law] conceptions of notes as intangible property not subject to seizure. Moreover, statutes that conflict with this [common-law] notion have been construed narrowly. The [common-law] approach to the levying on and seizure of negotiable promissory notes still prevails when the execution statutes are silent on the nature of these notes. A majority of jurisdictions follow the common law through express statutory enactments, judicial precedent, or an absence of any contrary law.” (Footnotes omitted.) B. Matson, supra, 24 Wm. & Mary L. Rev. 509–10, citing, inter alia, Grosvenor v. Farmers & Mechanics Bank, supra, 13 Conn. 104. In the present case, the issue of whether the plaintiff legally could have an attachment or garnishment on the note itself is left for another day.
“(2) The property execution shall require a proper levying officer to enforce the money judgment and shall state the names and last-known addresses of the judgment creditor and judgment debtor, the court in which and the date on which the money judgment was rendered, the original amount of the money judgment and the amount due thereon, and any information which the judgment creditor considers necessary or appropriate to identify the judgment debtor. The property execution shall notify any person served therewith that the judgment debtor‘s nonexempt personal property is subject to levy, seizure and sale by the levying officer pursuant to the execution and, if the judgment debtor is a natural person, shall be accompanied by a notice of judgment debtor rights as prescribed by section 52-361b and a notice to any third person of the manner, as prescribed by subdivision (4) of this subsection, for complying with the execution.
“(3) A property execution shall be returned to court within four months after issuance. The untimely return of a property execution more than four months after issuance shall not of itself invalidate any otherwise valid levy made during the four-month period.
“(4) The levying officer shall personally serve a copy of the execution on the judgment debtor and make demand for payment by the judgment debtor of all sums due under the money judgment. On failure of the judgment debtor to make immediate payment, the levying officer shall levy on nonexempt personal property of the judgment debtor, other than debts due from a banking institution or earnings, sufficient to satisfy the judgment, as follows . . .
“(C) With respect to a judgment debtor who is a natural person, if such personal property, including any debt owed, is in the possession of a third person, the levying officer shall serve that person with two copies of the execution, required notices and claim forms. On receipt of such papers, the third person shall forthwith mail a copy thereof postage prepaid to the judgment debtor at the last-known address of record with the third person and shall withhold delivery of the property or payment of the debt due to the levying officer or any other person for twenty days. On expiration of the twenty days, the third person shall forthwith deliver the property or pay the debt to the levying officer provided (i) if an exemption claim has been filed in accordance with subsection (d) of section 52-361b, the property shall continue to be withheld subject to determination of the claim, and (ii) if a debt is not yet payable, payment shall be made when the debt matures if within four months after issuance of the execution.
“(5) Levy under this section on property held by, or a debt due from, a third person shall bar an action for such property against the third person provided the third person acted in compliance with the execution.
“(6) If the levying officer cannot remove any property on which he seeks to levy without the danger of injury thereto, he may levy on and take possession of the property by posting on or adjacent to the property a conspicuous notice of the levy.
“(7) Subject to the provisions of section 52-328, if the property to be executed against is already subject to an attachment, garnishment or judgment lien of the judgment creditor as security for that judgment, the priority of the execution shall hold from the date of perfecting the attachment, garnishment or other lien. A sale pursuant to the execution forecloses any interest acquired as a result of the attachment, garnishment or judgment lien. . . .”