ASSOCIATED CATALOG MERCHANDISERS, INC. v. CHAGNON, 210 Conn. 734 (1989)

557 A.2d 525

(13525)Supreme Court of Connecticut

PETERS, C.J., HEALEY, SHEA, GLASS and HULL, Js.

The plaintiff A Co., which was a supplier of merchandise for the defendants’ wholesale business, H Co., sought to recover money allegedly due on a promissory installment note in the amount of $35,000 that had been executed by the defendants in their individual capacities. The note had been executed after H Co. encountered financial difficulties, thus prompting A Co. to seek assurances that it would be paid for merchandise it supplied to H Co. on an open credit account. At trial, F, the president of A Co., testified that the note was given as security for past or future deliveries and was intended to be used as a guaranty of payments in the event that H Co. became unable to make payments. The trial court, rejecting the defendants’ claims that certain checks they had earmarked toward satisfaction of the installment note had extinguished their liability on the underlying corporate debt, rendered judgment for A Co. On the defendants’ appeal and A Co.’s cross appeal, held: 1. The trial court did not err either in relying on parol evidence to interpret the note as a continuing guaranty, or in determining that the defendants had not expressly revoked the guaranty, and, contrary to the claims of the defendants, that court was not engaged in reformation when it analyzed the surrounding facts to determine precisely the content of the parties’ agreement; the note contained no recital that it was intended to constitute the parties’ final agreement, the record did not disclose that the defendants expressly communicated a desire to revoke the guaranty until one of the defendants told F that they did not consider themselves personally liable, and, since the note was only the product of the parties’ underlying guaranty agreement, the trial court was not engaged in reformation when it analyzed the surrounding facts to determine precisely the content of the agreement. 2. The defendants could not prevail on their claim that because A Co.’s action was brought more than six years after the note had matured, the action was barred by the statute of limitations (52-576); the defendants’ guaranty existed, in the absence of an effective revocation, as long as the open account was in existence, and A Co.’s cause of action did not accrue until the defendants effectively revoked the guaranty. 3. The defendants’ claim that the trial court erred in finding them personally liable without making any finding on the debt of H Co. was unavailing, they having failed to provide this court with an adequate record to support the factual underpinnings of that claim.

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4. A Co. failed to supply this court with an adequate appellate record to support its claim that the trial court should have awarded statutory (37-3a) prejudgment interest. Because the trial court failed to address A Co.’s claim for reasonable attorney’s fees, the case was remanded for articulation.

Argued January 5, 1989

Decision released April 18, 1989

Action to recover money allegedly owed on a promissory installment note executed by the parties, and for other relief, brought to the Superior Court in the judicial district of Hartford-New Britain at Hartford, and referred to Hon. John D. Brennan, state trial referee, who, exercising the powers of the Superior Court, rendered judgment in part for the plaintiff, from which the defendants appealed and the plaintiff cross appealed. No error on appeal; further proceedings on cross appeal.

F. Woodward Lewis, Jr., with whom, on the brief, was Robert J. Mead, for the appellants-appellees (defendants).

Thomas H. Connell, for the appellee-appellant (plaintiff).

GLASS, J.

The paramount issue in this case is whether the trial court erred in determining that a writing purporting to be an “installment note” executed by the defendants, Pierre E. Chagnon and Marian G. Chagnon, actually represented a continuing guaranty rendering the defendants liable for debts arising from their business’s open credit account with the plaintiff. The defendants appealed to the Appellate Court from a judgment of $35,000 rendered in favor of the plaintiff, and the plaintiff cross appealed. We transferred the case to ourselves pursuant to Practice Book 4023. We find no error with respect to the defendants’ appeal, or with respect to the plaintiff’s claim for interest on the cross appeal. We remand the case for further articulation on the plaintiff’s claim for attorney’s fees.

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The facts may be summarized as follows.[1] The plaintiff, Associated Catalog Merchandisers, Inc., supplied merchandise to the defendants’ wholesale business, Hanover Gift House (Hanover), on a “running account.” In 1975, after the defendants’ business encountered financial difficulties, the plaintiff proposed that the defendants sign a promissory note making them personally liable for Hanover’s debt. This note was never executed. At the plaintiff’s behest, however, on September 1, 1977, an instrument entitled “Installment Note” was executed by Pierre Chagnon as vice president of Hanover and by both defendants in their individual capacities. The note provided in relevant part: “For Value Received [Hanover Gift House] and/or Pierre Chagnon and/or Marion [sic] Chagnon promise to pay to the order of Associated Catalog Merchandisers, Inc. the sum of $35,000.00 (Thirty-five thousand) with interest thereon at the rate of Twelve per cent (12%) per year, the principal and interest payable in installments as follows: October 1, 1977 $1,000.00 plus accrued interest and $1,000.00 plus accrued interest every month thereafter. . . . In the event of default hereunder the undersigned agree to pay all costs of collection including reasonable attorney’s fees.” There was no evidence that either party had legal assistance in the preparation or execution of the note.

The plaintiff continued to supply merchandise to Hanover for the next several years. During this period, the plaintiff applied all money received from the defendants to the open account balance. In September, 1978, the defendants sent the plaintiff a corporate check for $20,000 bearing a notation that the money should be applied to the installment note. Upon receipt of the

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check, however, the plaintiff’s president, Richard C. Fredette, Jr., telephoned Pierre Chagnon and told him “you know better than that” and that the payment would not be applied to the note. Subsequently, Fredette directed his office manager to “white out” the notation, and credited the check to the open account balance. In December, 1980, the defendants’ corporate check for $15,000 similarly was applied to reduce the open account balance without being altered. Further, in December, 1985, two other checks totaling $20,000 and bearing the notation “without prejudice” also were applied to the open account.

In late 1986, Fredette discussed Hanover’s large outstanding balance with Pierre Chagnon. Chagnon told Fredette that “I don’t owe you anything personally and my company may not be able to pay you.” Thereafter, on November 19, 1986, the plaintiff’s application for an ex parte attachment on the defendants’ real property located in Meriden was granted. The plaintiff’s complaint dated November 24, 1986, named Pierre and Marian Chagnon as defendants. In an amended complaint dated November 25, 1987, the plaintiff alleged that the installment note operated as the defendants’ personal guaranty on the debt arising from the open account. The plaintiff sought $54,943.86 in money damages representing the principal on the note plus interest accruing to September 30, 1987, and also sought reasonable attorney’s fees.

At trial, Fredette testified that the note was “security for past or future deliveries. . . . The consideration was the future deliveries which would be assured . . . . What I gave him [by his signing the instrument] was the ability to continue to receive merchandise . . . the note was intended to be used solely as a guaranty of payments if the company was unable to make payments.” Grita B. French, the plaintiff’s former office manager, testified that the “defendants’ company was

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very slow paying bills, and this was an attempt to guaranty personally the company’s bills. . . . I whited out the check [of September, 1978,] after Mr. Fredette told Pierre Chagnon he wouldn’t apply it to the note . . . . Mr. Fredette called Pierre Chagnon two minutes after he received the check and said to him `you know better than that . . . the note was a guaranty.” Edward Symanksy, the plaintiff’s former employee and director, testified that “[o]n defendants’ account we thought we should get a guaranty . . . while I had frequent personal contact with defendants, I never heard them say they wanted to pay off the note.” In a deposition admitted at the trial, Pierre Chagnon testified that “[w]hat we bought [with the agreement] was the ability to keep buying.”

The trial court issued a memorandum of decision on January 22, 1988. Relying on the foregoing evidence, it concluded that the installment note was intended to represent a guaranty rendering the defendants personally liable for $35,000. The court rejected the defendants’ argument that the checks they earmarked toward satisfaction of the installment note extinguished their liability on the underlying corporate debt. It found that when the note was executed, the plaintiff was unwilling to extend the defendants further credit without assurances of their personal liability, and that the defendants in executing the note intended to induce the plaintiff to continue to supply them with merchandise on credit. The trial court rendered a judgment against the defendants for $35,000, but denied the plaintiff interest. The memorandum made no reference to the plaintiff’s claim for attorney’s fees.

On appeal, the defendants claim that the trial court erred by (1) relying on parol evidence to interpret the installment note as a continuing guaranty, (2) rejecting the defendants’ statute of limitations defense, and (3) finding the defendants personally liable without

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making any finding on the debt of the defendants’ corporation. The plaintiff on cross appeal asserts that the trial court erred in refusing to award it interest on the $35,000 principal and reasonable attorney’s fees incurred in bringing suit to enforce the defendants’ liability.

The defendants claim that the trial court erred in adverting to parol evidence in its interpretation of the installment note, and, therefore, improperly reached the conclusion that the note was a continuing guaranty. They argue that the parol evidence was not admissible under any of the exceptions to the rule set forth in Jay Realty, Inc. v. Ahearn Development Corporation, 189 Conn. 52, 56, 453 A.2d 771 (1983).[2] They also argue that any continuing guaranty between the parties was “revoked” by the actions of Pierre Chagnon and, further, that the trial court erred in “reforming” the written agreement since the plaintiff did not seek reformation in its pleadings.

“`Whether the written contract was actually the final repository of the oral agreements and dealings between the parties depends on their intention, evidence as to which is sought in the conduct and language of the parties and the surrounding circumstances. If the evidence

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leads to the conclusion that the parties intended the written contracts to contain the whole agreement, evidence of oral agreements is “excluded,” that is, excluded from consideration in the determination of the rights and obligations of the litigants, even though it is admitted on the issue of their intention. Cohn v. Dunn, 111 Conn. 342, 346, 149 A. 851 [1930]. Shelton Yacht Cabana Club, Inc. v. Suto, 150 Conn. 251, 254-55, 188 A.2d 493 (1963) . . . .” (Citations omitted.) Damora v. Christ-Janer, 184 Conn. 109, 113-14, 441 A.2d 61 (1981). A written agreement is “integrated” and operates to exclude evidence of the “`alleged extrinsic negotiation'” if the subject matter of the latter” `is mentioned, covered or dealt with in the writing . . .; if it is not, then probably the writing was not intended to embody that element. . . .'” Cohn v. Dunn, supra, 347; Shelton Yacht Cabana Club, Inc. v. Suto, supra, 258; 2 Restatement (Second), Contracts 215; 30 Am.Jur.2d, Evidence 1045. If the evidence, however, does not indicate that the writing is intended as an integration, i.e., “a final expression of one or more terms of an agreement”; 2 Restatement (Second), Contracts 209 (1); then “the agreement is said to be `unintegrated,’ and the parol evidence rule does not apply.” E. Farnsworth, Contracts 7.3., p. 452. Whether the parties intended to integrate their negotiations in a writing is a question of fact for the court. Jarvis v. Cunliffe, 140 Conn. 297, 299, 99 A.2d 126 (1953); 2 Restatement (Second), Contracts 210(3).

In the present case, the trial court’s consideration of evidence extrinsic to the installment note to determine whether that writing was an “integration” was entirely proper. Shelton Yacht Cabana Club, Inc. v. Suto, supra; Cohn v. Dunn, supra. Moreover, the trial court’s conclusion that the parties had agreed to a contract of continuing guaranty necessarily was predicated on a determination that the installment note did not

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constitute an “integration” of the parties’ agreement. We are not persuaded that such a finding was clearly erroneous. Cf. Jarvis v. Cunliffe, supra.

The parties in this case conducted business pursuant to the open account arrangement for a number of years prior to the execution of the installment note. In the mid-1970s, the defendants’ business encountered financial difficulties, prompting the plaintiff to seek assurances that it would be paid for the merchandise it supplied on credit. In addition, the following factors are significant: the terms of the installment note did not purport to deal with the debt of the defendants’ business on the open account; Shelton Yacht Cabana Club, Inc. v. Suto, supra; Cohn v. Dunn, supra; the note was brief and skeletal in nature; Gould v. Boston Excelsior Co., 91 Me. 214, 220, 39 A. 554
(1898); and contained no recital that it was intended to constitute the parties’ final agreement; 30 Am.Jur.2d, Evidence 1019; the parties did not seek legal advice in executing the instrument; Pierre Chagnon admitted that the purpose of the note was to enable Hanover to continue to buy merchandise from the plaintiff pursuant to their long established course of dealing; and the parties’ conduct subsequent to execution of the note forcefully demonstrates that they intended the installment note to represent the defendants’ continuing personal guaranty on the debt arising from the open account. See Lar-Rob Bus Corporation v. Fairfield, 170 Conn. 397, 407-408, 365 A.2d 1086 (1976); Taft Realty Corporation v. Yorkhaven Enterprises, Inc., 146 Conn. 338, 343, 150 A.2d 597 (1959); Beach v. Beach, 141 Conn. 583, 591, 107 A.2d 629 (1954); Campbell v. Rockefeller, 134 Conn. 585, 590, 59 A.2d 524
(1948). Under these circumstances, evidence of the oral negotiations was admissible “in the determination of the rights and obligations of the litigants . . . .” Shelton Yacht
Cabana Club, Inc. v. Suto, supra, 255.

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The defendants’ argument that the parol evidence relied on by the trial court does not fit within any of the exceptions enumerated in Jay Realty, Inc. v. Ahearn Development Corporation, supra, is unavailing. In Jay Realty, Inc., we observed that “[p]arol evidence is admissible (1) to explain an ambiguity appearing in the instrument; (2) to prove a collateral oral agreement which does not vary the terms of the writing; (3) to add a missing term in a writing which indicates on its face that it does not set forth the complete agreement; or (4) to show mistake or fraud.” Id., 56. It is clear from our discussion above, however, that those “exceptions” only come into play once it is established that the writing in issue was intended as the “final repository” or “integration,” either partial or complete, of the parties’ negotiations.

We disagree with the defendants’ assertion that because a contract of continuing guaranty remains in force only until revoked by the guarantor, the defendants’ attempted payments on the note and Pierre Chagnon’s discussions with Fredette revoked the guaranty. A guaranty “contract is continuing if it contemplates a future course of dealing during an indefinite period or it is intended to cover a series of transactions or a succession of credits, or if its purpose is to give to the principal debtor a standing credit to be used by him from time to time. An offer for a continuing guaranty is ordinarily effective until revoked by the guarantor or extinguished by Some rule of law.” Iola State Bank v. Biggs, 233 Han. 450, 454, 662 P.2d 563 (1983); 38 Am.Jur.2d, Guaranty 63. To revoke a continuing guaranty, the guarantor usually must give notice of the revocation to the creditor. Gay v. Ward, 67 Conn. 147, 156, 34 A. 1025 (1895). However, “[e]ven a continuing guaranty that is, in terms, unlimited as to duration, imposes liability upon a guarantor only for such period of time as is reasonable in light of all the

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circumstances of the particular case.” Monroe Ready Mix Concrete, Inc. v. Westcor Development Corporation, 183 Conn. 348, 351, 439 A.2d 362
(1981). The interpretation of a continuing guaranty, as well as the question of its revocation, ordinarily is a question of fact. Id.

In the present case, Fredette told Pierre Chagnon upon receipt of the corporate check for $20,000 in September, 1978, that the money could not be applied to reduce the defendants’ personal liability on the underlying debt. There is nothing in the record to indicate that the defendants expressed disagreement with Fredette’s position. After the parties’ discussion, the defendants’ company continued to acquire merchandise from the plaintiff pursuant to the open credit arrangement. In December, 1980, the defendants sent another check for $15,000 bearing the notation that it applied to the installment note. On the basis of all the evidence, including that of the parties’ discussion in 1978, however, the trial court could reasonably have found that the notation on the December, 1980 check did not effectuate a revocation. Id. The same holds true for the checks sent in 1985 bearing the notation “without prejudice.” Further, aside from the notations on the checks, the record does not disclose that the defendants expressly communicated a desire to revoke their guaranty until Pierre Chagnon told Fredette in late 1986 that the defendants did not consider themselves personally liable.

Finally, the defendants’ argument that the trial court improperly “reformed” the installment note because the plaintiff sought only money damages is misleading. In analyzing the facts, the trial court did not purport to “reform” the contract on the basis of mutual mistake or fraud. Cf. Lopinto v. Haines, 185 Conn. 527, 531, 441 A.2d 151
(1981). Relying on the language of the written agreement, the circumstances surrounding its execution, and the parties’ subsequent conduct,

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the trial court determined that the “`installment note’ of September 1, 1977, was not a promissory note at all, but rather the product of an unprofessional yet honest effort on the part of the plaintiff to insure that it would be paid for materials furnished.” (Emphasis added.) As we observed above, this conclusion in essence indicated that the installment note was not an integration of the parties’ negotiations. Since the installment note was only the “product” of the underlying guaranty agreement, the trial court was not engaged in “reformation” when it analyzed the surrounding facts to determine precisely the content of the agreement. In light of this evidence, we are unpersuaded that the trial court committed error in determining that the defendants were guarantors on the underlying corporate debt.[3] Monroe Ready Mix Concrete, Inc. v. Westcor Development Corporation, supra.

II
The defendants next claim that the trial court erred in rejecting their statute of limitations defense. They argue that under General Statutes 42a-3-122 (1),[4] the plaintiff’s cause of action on the installment note accrued on August 2, 1980, the day after the note matured according to its terms. They claim, therefore, that the plaintiff’s action was barred under General

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Statutes 52-576[5] because it was brought in November, 1986, more than six years after its cause of action accrued.

The installment note, executed on September 1, 1977, provided that the interest and principal were payable in monthly installments of $1000 plus accrued interest beginning on October 1, 1977. According to the defendants, the full term of the note expired on August 1, 1980, the date the thirty-fifth and final payment was due. The defendants’ argument presupposes that the action was brought on the installment note and not on a continuing guaranty. The trial court’s findings, however, indicate that the payment terms of the note were not controlling. The trial court found that the plaintiff’s invoices did not adhere to the interest rate stated in the installment note, and further, that the parties’ conduct evinced an intent to ignore the payment schedule set forth in the note. That the defendants themselves did not adhere to those terms is clear from the acknowledgment in their brief that “[i]t is manifest from this payment scheme . . . that the agreement . . . contemplated termination of the guaranty and release of the Chagnons upon payment of the final $1,000.00 installment in May, 1981.” (Emphasis added.)

“In the case of a continuing guaranty, the statute [of limitations] does not commence to run in favor of

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a guarantor until there is a default in payment by the principal, and a cause of action has accrued against the former.” 38 Am.Jur.2d, Guaranty 121. In the present case, the defendants’ guaranty existed, absent an effective revocation, for “as long as the open account was in existence.” Boxed Beef Distributors, Inc. v. Rexton, Inc., 7 Conn. App. 555, 560, 509 A.2d 1060 (1986). Hanover’s account with the plaintiff was not in default until late 1986, when Pierre Chagnon informed Fredette that “I don’t owe you anything personally and my company may not be able to pay you.” Consequently, the plaintiff’s action, brought in November 1986, was not barred by the statute of limitations set forth in 52-576.[6]

III
The defendants next claim that the trial court erred in finding them liable for $35,000 on the underlying debt of their corporation without any finding on the corporation’s debt to the plaintiff. In its memorandum of decision, the trial court found that “[t]he agreement and the evidence lead conclusively to this court’s holding that defendants are liable to plaintiff for the sum of $35,000.” While the trial court’s memorandum does not make express findings with respect to Hanover’s debt, Hanover’s aggregate liability for at least $35,000

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arguably is implied by the court’s conclusion as to the defendants’ liability. There was evidence before the trial court of Hanover’s liability in excess of $35,000. In any event, the defendants bore the burden of providing this court with an adequate record for appellate review. Practice Book 4061.[7] They have not sought an articulation of the trial court’s findings with respect to Hanover’s debt, or the basis for its failure to make any such finding. Practice Book 4051.[8]
Because the defendants have failed to present us with an adequate record to support the factual underpinnings of their claim, we decline to review it. McLaughlin v. Bronson, 206 Conn. 267, 277-78, 537 A.2d 1004 (1988).

IV
The plaintiff on cross appeal argues that the trial court erred in (A) failing to establish a date on which the $35,000 guaranteed amount was due and then to

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award the plaintiff interest at the statutory rate until the principal was paid, and (B) failing to award reasonable attorney’s fees.

A
The plaintiff claims that the trial court should have determined that the defendants’ $35,000 debt to the plaintiff became “fixed” on November 18, 1986, when the plaintiff initiated its action by filing an attachment on the defendants’ realty. The plaintiff concedes that the amount collectible on a guaranty is limited to the amount of the guaranty, but argues that once the amount falls due, failure to pay it results in the guarantor’s liability for interest on that amount from the date the amount falls due. It asserts, therefore, that beginning on November 18, 1986, it became entitled to interest at the rate of 10 percent under General Statutes (Rev. to 1985) 37-3a,[9]
yielding a total amount of damages of $39,113.12 as of the date the trial court filed its memorandum of decision, January 22, 1988.

Under 37-3a, an allowance of prejudgment interest turns on “`whether the detention of the money is or is not wrongful under the circumstances.’ Cecio Bros., Inc. v. Feldmann, 161 Conn. 265, 275,

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287 A.2d 374 (1971).” Newington v. General Sanitation Service Co., 196 Conn. 81, 90, 491 A.2d 363
(1985). Such a fact-bound determination lies within the trial court’s discretion. Nor’easter Group, Inc. v. Colossale Concrete, Inc., 207 Conn. 468, 482, 542 A.2d 692 (1988); King v. Board of Education, 203 Conn. 324, 341, 524 A.2d 1131
(1987); Newington v. General Sanitation Service Co., supra; Bertozzi v. McCarthy, 164 Conn. 463, 467, 323 A.2d 553 (1973).

It is obvious from the memorandum of decision that the trial court did not address whether the plaintiff was entitled to interest under 37-3a
from the date the defendants’ liability became “fixed.” The court’s analysis was solely concerned with whether the plaintiff was entitled to interest accruing throughout the term of the guaranty agreement commencing in September, 1977. The court noted that “[i]t was the practice of plaintiff to charge the defendants interest on any outstanding balance not promptly paid,” but that the “rate of interest charged varied from less than 1 per cent per month to as high as 1/2 per cent per month.” It concluded that it was “impossible for this court to find that there was a meeting of the minds that defendants’ guaranty extended beyond $35,000.00 to the extent of interest on that amount at 12 per cent per year because that was the rate expressed in the `installment note.'” Thus, the memorandum of decision demonstrates that at trial the plaintiff sought interest at the rate of 12 percent, as set forth in the installment note, and not ten percent, based on the statutory rate of 37-3a. Moreover, a simple comparison of the $54,943.86 sought in the complaint with the $39,113.12 asserted on the cross appeal demonstrates that the issue of interest pressed on appeal is not the same as that litigated at trial.

Nothing in the record indicates that the plaintiff distinctly raised at trial the issue now argued on appeal.

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Neither the defendants on appeal nor the plaintiff on cross appeal ordered transcripts of the proceedings below. Cf. Nair v. Thaw, 156 Conn. 445, 455, 242 A.2d 757 (1968). Further, the record does not indicate that the plaintiff sought an articulation of the trial court’s decision concerning interest on the judgment of $35,000. “We have repeatedly held that this court will not consider claimed errors on the part of the trial court unless it appears on the record that the question was distinctly raised at trial and was ruled upon and decided by the court adversely to the appellant’s claim. See Practice Book 3063 [now 4185] . . . . Moreover, it is an appellant’s burden, utilizing the rules of practice, to ensure that this court is provided with an adequate appellate record. Practice Book 3082 [now 4051] . . . . “(Citations omitted.) Keating v. Glass Container Corporation, 197 Conn. 428, 431, 497 A.2d 763 (1985); Practice Book 4061. Because an award of prejudgment interest under 37-3a
raises a question of fact which is not evident in the record before us, we decline to review the plaintiff’s claim for interest. Practice Book 4185.

B
The plaintiff next claims on cross appeal that the trial court erred in failing to allow it reasonable attorney’s fees. The plaintiff argues that its right to attorney’s fees is expressly provided in the language of the installment note stating that “[i]n the event of default hereunder the undersigned agree to pay all costs of collection including reasonable attorney’s fees.” It further asserts that our review is not limited to the question whether the trial court’s failure to award attorney’s fees was clearly erroneous since the memorandum of decision does not at all purport to address the question of attorney’s fees.

The record demonstrates that the plaintiff’s claim for reasonable attorney’s fees was included in its prayer

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for relief set forth in the complaint. Thus, the claim for attorney’s fees was properly before the trial court. Because the trial court failed to address this claim, we remand the case to the trial court for an articulation of this issue. Practice Book 4061.

The judgment is affirmed in all respects except on the issue of attorney’s fees, on which the case is remanded to the trial court for an articulation in accordance with this opinion.

In this opinion the other justices concurred.