MORGERA v. CHIAPPARDI, 74 Conn. App. 442 (2003)

813 A.2d 89

(AC 21418).Appellate Court of Connecticut

Flynn, Bishop and Healey, Js.

Syllabus
The plaintiff sought to foreclose a purchase money mortgage on certain real property he had sold to the defendant C, his niece. C raised special defenses of fraud and misrepresentation, unclean hands and equitable estoppel, and alleged that the plaintiff had misrepresented the condition of two other properties that the plaintiff had insisted she buy from him with the subject property. She also filed a pleading captioned setoff and counterclaim. The trial court rejected C’s claim that the three purchases were part of the same transaction, and refused to consider and take evidence on her claim of setoff and on her counterclaim. That court rendered judgment of strict foreclosure, from which C appealed to this court. Held that C was not afforded a reasonable opportunity to present her case of a “package type” transaction, despite her repeated attempts to do so, and the denial of that opportunity occurred not only in the context of a foreclosure, which is an equitable action, but where the defendant had interposed a defense of fraud in the foreclosure action itself; accordingly, the judgment of the trial court was reversed.

Argued September 18, 2002.

Officially released January 7, 2003.

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Procedural History
Action to foreclose a mortgage on certain real property, and for other relief, brought to the Superior Court in the judicial district of Stamford-Norwalk, where the named defendant filed a counterclaim; thereafter, the action was withdrawn as against the defendant Vincent Sullivan; subsequently, the court, Hickey, J., granted the named defendant’s motion for a judgment of strict foreclosure; thereafter, the court granted the named defendant’s motion for articulation and denied the named defendant’s motion to submit evidence on the counterclaim, and the named defendant appealed to this court. Reversed; new trial.

Roger L. Crossland, with whom, on the brief, was Ridgely W. Brown, for the appellant (named defendant).

Michael Jon Barbarula, for the appellee (plaintiff).

Opinion
HEALEY, J.

This appeal is taken from the judgment of strict foreclosure[1] of a purchase money mortgage on real estate located at 21 Plymouth Avenue in Norwalk

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and the denial of the counterclaim[2] filed by the defendant Beatrice Chiappardi[3] after the plaintiff, Tomasso Morgera, instituted a foreclosure action against her. On appeal, the defendant makes two interrelated claims. She maintains that the trial court acted inappropriately when it refused (1) to consider and to take evidence on her claim of setoff and on her counterclaim, and (2) to hear her claim of setoff and her counterclaim even though they never had been the objects of a request to revise, a motion to strike, a motion for summary judgment or a request to bifurcate. We agree with the defendant and reverse the judgment of the trial court.

It is helpful to begin our analysis of the defendant’s claims by outlining the pleadings in this complex case. The complaint alleges the execution of a mortgage, deed and note on 21 Plymouth Avenue in Norwalk in the principal sum of $250,000 with interest. It further alleges that the mortgage was in default and seeks, inter alia, a judgment of foreclosure (strict or by sale), a deficiency judgment and damages. The answer effectively denies all the allegations of the complaint, leaving the plaintiff to his proof.[4] The defendant also raised three special

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defenses. The first alleged that “[t]he plaintiff is guilty of fraud and misrepresentation regarding the sale of this property as well as the other two properties as part of the same package deal to the defendant.”[5] The second special defense alleged that the doctrine of unclean hands applies. The third special defense contended that the plaintiff should be equitably estopped from enforcing the note and mortgage due to his fraud and misrepresentation. In addition, the defendant alleged a claim for setoff and a counterclaim.[6] The plaintiff’s reply to the defendant’s claim for setoff, and her special defenses and counterclaim effectively denied all their allegations.

The issues on appeal cannot reasonably be understood without an additional recital of certain underlying circumstances that were disclosed by testimonial and documentary evidence, including a long offer of proof by the defendant urging the consideration of the setoff

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and counterclaim adduced at the trial of this foreclosure case.[7]

The plaintiff and the defendant are related; he is her uncle. He owned three pieces of real estate in Norwalk located at 21 Plymouth Avenue, 23 Center Avenue and 29 Center Avenue. He resided at 21 Plymouth Avenue. The Center Avenue properties were rental properties, and each had three rental units when the plaintiff owned them. Prior to his negotiations with the defendant concerning the sale of the three properties, the plaintiff had made efforts to sell the two Center Avenue properties and had them listed with the multiple listing service in Norwalk. He had received notices of noncompliance and cease and desist orders from the city of Norwalk as to both Center Avenue properties for zoning and housing code violations. Among other notices and threats of zoning enforcement action, there was a letter from the zoning inspectors on behalf of the zoning commission of the city of Norwalk to the listing broker who had listed the plaintiff’s Center Avenue properties. The letter pointed out that those properties were in violation of Norwalk zoning regulations and set out how the violations were to be corrected.[8] In addition, the letter

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directed that “[a]ll prospective purchasers should be made aware that until plans are received and permit issues we consider these properties in violation and anyone who purchase[s] the properties will be subject to legal action and fines.” The letter also stated that the Norwalk “Corporation Counsel is pursuing legal action against the [plaintiff] regarding the Zoning Violations.” As a result of those violations, the listing of the Center Avenue properties was canceled, and the properties were removed from the multiple listing service.

As previously stated, the plaintiff and the defendant are uncle and niece. She was a single mother with three children and worked two jobs. She trusted the plaintiff. She had assisted him when he was hurt. She wrote his checks because he could read, but not write, English. She maintained that he had indicated to her that it would be to her economic advantage if she purchased the properties. She said that he wanted to sell her all three properties and that he would not sell her the Plymouth Avenue property unless she also bought the properties at 23 Center Avenue and 29 Center Avenue. The plaintiff never told the defendant of the zoning and housing problems with the Center Avenue properties, which he already had encountered and were ongoing before, during and after his transfer to her of the Center Avenue properties.

The three properties ultimately were sold to the defendant in separate conveyances. The property at 23 Center Avenue was transferred by deed on August 20, 1997, the property at 29 Center Avenue was transferred on August 29, 1997, and the property at 21 Plymouth Avenue was transferred on September 29, 1997. Documents memorializing mortgage loans from third party

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lenders[9] were recorded by the defendant on the land records for each of the Center Avenue properties. A purchase money mortgage in the amount of $250,000[10] made by the defendant to the plaintiff was placed on the property at 21 Plymouth Avenue. Separate agreements to purchase were drawn for the three properties. The two agreements pertaining to the Center Avenue properties were signed by the parties; however, the third agreement to purchase the 21 Plymouth Avenue property never was signed by the parties. The closings on the three properties were held on three separate dates, all three being held within a time period of approximately thirty days in August and September, 1997. The plaintiff left the United States to reside in Italy shortly after the third closing.[11]

After the closings on all the properties, a fire occurred in one of the Center Avenue properties. It was only then that the defendant learned from the fire marshal and the city of the numerous housing violations. She also learned of the zoning violations, which she was unable to cure. Ultimately, she was forced to give up both of the Center Avenue properties when she transferred them to a third party, who took them by assuming the mortgages on them. She received no compensation on those transfers.

Both parties contend that our “transaction” rule supports their respective positions. See, e.g., Practice Book

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§ 10-10;[12] Wallingford v. Glen Valley Associates, Inc., 190 Conn. 158, 161, 459 A.2d 525 (1983); Isaac v. Truck Service, Inc., 52 Conn. App. 545, 556, 727 A.2d 755 (1999), aff’d, 253 Conn. 416, 752 A.2d 509 (2000). “The `transaction test’ is one of practicality, and the trial court’s determination as to whether that test has been met ought not be disturbed except for an abuse of discretion. . . . Where the underlying purposes of Practice Book § [10-10], to wit, judicial economy, avoidance of multiplicity of litigation, and avoidance of piecemeal disposition of what is essentially one action, are thwarted rather than served by the filing of a cross claim, the cross claim may properly be expunged.” (Citations omitted.)Jackson v. Conland, 171 Conn. 161, 166-67, 368 A.2d 3 (1976) Mechanics Savings Bank v. Townley Corp., 38 Conn. App. 571, 574-75, 662 A.2d 815 (1995).

“The term [counterclaim] itself is a general and comprehensive one, naturally including within its meaning all manner of permissible counter-demands. . . . [T]he word `counterclaim’ was intended to be a generic term for all cross demands other than setoffs, whether in law or equity.” (Citation omitted; internal quotation marks omitted.) Gattoni v. Zaccaro, 52 Conn. App. 274, 280, 727 A.2d 706 (1999).

The plaintiff claims that the court’s legal conclusions and evidentiary rulings were correct for two reasons. First, the plaintiff argues in his brief that “the [fraud] allegations were unrelated to the underlying transaction,”

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and, second, that “the allegations as pleaded did not relate to the making, validity or enforcement of the note and mortgage that were the subject of [the] plaintiff’s foreclosure action.” The defendant claims that the test for the application of the transaction rule in this case should be whether the related acts arose prior to or during the development of the note and mortgage, and that her counterclaim arose from the plaintiff’s fraudulent representations which caused her to “make” the note and mortgage on the Plymouth Avenue property, which was part of a “package” of conveyances or property represented to be legal, income producing multifamily properties. She claims, therefore, that the misrepresentation, conveyances and mortgage are appropriately related for the purpose of applying the transaction rule. We agree with the defendant.

Circumstances, additional to those already set out, bear on the “transaction” issues. There can be little, if any, question of the trust and reliance of the defendant on the plaintiff. Her unfortunate lack of sophistication contributed to her vulnerability to the claimed misrepresentations of the plaintiff. In urging her to buy all three properties, the plaintiff told her, “I’ll give you a good deal because you’ve been working all your life, and I want to give you a break. These houses will make you good money.” He also stated that “we’ll make it a deal. If you buy those two [Center Avenue properties] from me, you’ll have to buy 21 [Plymouth Avenue] because I want to leave here and I want to go to Italy.” The defendant told him, “I don’t think I am [able]. I am a single parent and I don’t have any money. I don’t think I can.” She further testified that the plaintiff “continuously asked me to buy them . . . telling [me] what a great deal it was.” The plaintiff assured her, “They’re all legal. They’re good.” (Emphasis added.) She testified that “everyday he’d call” and tell her he had “an offer.”

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Finally, the defendant hired a man to see if he could find a way for her to buy the three properties. It took him one year to get the loans to enable her to purchase the Center Avenue properties. It is interesting to note her claim that the plaintiff required that she purchase the two properties with the various violations prior to selling her the 21 Plymouth Avenue property.

On the basis of the defendant’s claims, it would be reasonable for a fact finder to conclude that the plaintiff’s representation to his niece that “all” the properties were “legal” and that all were “good” was material in her ultimate decision to buy. Moreover, it also would be reasonable for a fact finder to conclude that the plaintiff clearly knew otherwise as to the Center Avenue properties when he pressured her to buy the three properties. Our Supreme Court has “pointed out that when false representations are made for the purpose of inducing an act to another’s injury, necessarily there is the plain implication that the representations were made with the intent to deceive.”Miller v. Appleby, 183 Conn. 51, 57 n. 1, 438 A.2d 811
(1981). “The intentional withholding of information for the purpose of inducing action has been regarded . . . as equivalent to a fraudulent misrepresentation. 1 Restatement (Second), Contracts § 161. . . .” (Citations omitted.) Pacelli Bros. Transportation, Inc. v. Pacelli, 189 Conn. 401, 407, 456 A.2d 325 (1983).

The “transaction” test is one of practicality, and its purposes, which have been recognized by case law, should not be thwarted in its application. The circumstances of this case disclose that the allegations of the defendant’s counterclaim arose out of the transaction that “is the subject of the plaintiff’s complaint. . . .” Practice Book § 10-10. There can be no confusion about that, as the allegations of the counterclaim include the following: “2. The plaintiff, pleading in the alternative, either fraudulently misrepresented, negligently misrepresented,

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or with reckless disregard for the truth, sold and conveyed by way of contract and then by way of deed along with affirmative misrepresentations in title affidavits, the subject property
and properties at 23 Center Avenue, Norwalk, and 29 Center Avenue, Norwalk, Connecticut.” (Emphasis added.) Not only does the defendant plead in the alternative, which pleading includes an allegation of fraudulent misrepresentation, but she specifically refers to “the subject property,” i.e., 21 Plymouth Avenue, which is the property being foreclosed. Moreover, whether the term “package” or “bundle” is used to refer to the grouping or combining of the three properties, the evidence demonstrates that they were not in substance separate and distinct occurrences.

In addition, insofar as the court’s posture permitted the defendant to do so, the concatenation of circumstances engendered by the plaintiff’s fraudulent misrepresentations made for a reasonable nexus between the counterclaim and his conduct in inducing the defendant’s making of the note and mortgage on the property at 21 Plymouth Avenue, hence raising serious questions about their validity and enforcement.

The defendant also claims that the court inappropriately refused to allow her to present the evidence to support her counterclaim. Implicit in her claim is the argument that she was not given a fair opportunity to be heard. In that regard, the defendant argues that the court’s rulings precluded her from doing so, and she suggests that an examination of the trial transcript bears that out. We have in fact examined that transcript and agree with the defendant.

The trial occurred over three days. The court, on the first day, stated that it “[didn’t] want to hear any more about the [Center Avenue properties]” and only “want[ed] to hear about this house [at 21 Plymouth

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Avenue].” A fair reading of the transcript discloses that despite that position, the court thereafter heard testimonial evidence and admitted documentary evidence concerning the Center Avenue properties. That, nevertheless, did not advantage the defendant in advancing her counterclaim, as the court still allowed her only to introduce some evidence concerning the Center Avenue properties. That is especially true concerning the defendant’s effort to lay out her case as to fraud. Moreover, the court’s first “precluding” of evidence on the counterclaim took place before the plaintiff had even rested his case. It is apparent from the transcript that the defendant’s counsel was not fully aware[13] that although the court had ruled against his presenting evidence on the counterclaim, the court did from time to time allow the presentation of some evidence. The ambiguous posture of the court in doing so is further blurred by the statement that it was granting the defendant “a little leeway.” Thus, the defendant’s “presentation” was rendered murkier by the court’s comments, more than once, about “dicta.” The defendant’s counsel protested that he had not been able to “tell the story” and that he was trying “to elicit information on the counterclaim” when the court stated, in overruling the plaintiff’s objection to a question, that “[i]n the realm of dicta, this will be dicta on this. I’ll let you ask that.” Still later, when the plaintiff objected to the defendant’s counsel going into the counterclaim, the court overruled the objection “[i]n the hope that there might be some dicta I could enter. . . .” On the final day of trial, near the conclusion, the court stated:

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“I’ve heard the whole story, and the foreclosure part remains unanswered, really, but [as to the] remaining story about lots 23 and 29 [on Center Avenue], I’m listening to [it] as dicta. Just . . . do you understand, as dicta, that? I’m listening for it. Okay.”

We believe that under the circumstances, the defendant was not permitted to place “the whole story” before the court, even though her counsel more than once had stated his theory for allowing the counterclaim. Early on at the trial, the court definitely knew that the defendant’s claim was that the three transfers were a “package deal.” The court, however, told the defendant’s counsel: “[D]on’t . . . don’t use that package deal. That’s not . . . that’s a bad word.” At another point, the court told the defendant’s counsel: “I wish you’d stop referring to it . . . to it as a package. It wasn’t a package. It was a sale of three different . . . properties. There was no package to it.” At that juncture, the defendant’s counsel appropriately argued that under pleading procedure, he was entitled to present evidence
on the counterclaim. He argued that this was procedurally correct not only because of the equitable aspect, but also because the plaintiff had never filed any motion to strike or to revise the counterclaim, and never had sought bifurcation.[14] In addition, certain evidence that arguably was relevant on the defendant’s

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theory of the case, i.e., her “package” argument encompassing not only the “fraud” thrust of the counterclaim, but also her special defense of fraud to the foreclosure complaint itself, summarily was rejected, and her counsel was cautioned not to offer it again.

A party has the right to present evidence within the acceptable rules supporting its theory of the case. We cannot say that that opportunity was adequately given to the defendant. She claims that the court, in effect, granted a “nonexistent” motion to strike her counterclaim by its summary denial of that pleading. We agree. The hearing of evidence concerning it as “dicta” is puzzling or ambivalent at best. We cannot say that the defendant had the opportunity to present her case even “piecemeal” because to say that fairly implies that all the “pieces” were permitted to be presented. That was not the case, especially as to the issue of the fraud alleged in the counterclaim and specifically pleaded as a special defense to the foreclosure complaint.

One is left with the abiding conviction that in the circumstances previously discussed, the defendant was not given a fair opportunity to be heard on the issues involved. “A fundamental premise of due process is that a court cannot adjudicate any matter unless the parties have been given a reasonable opportunity to be heard on the issues involved . . . and to present evidence and cross-examine adverse witnesses.” (Citations omitted.) Bloom v. Zoning Board of Appeals, 233 Conn. 198, 205, 658 A.2d 559 (1995); Szot v. Szot, 41 Conn. App. 238, 241, 674 A.2d 1384 (1996). “It is fundamental tenet of due process of law as guaranteed by the fourteenth amendment to the United States constitution and article first, § 10, of the Connecticut constitution that persons whose property rights will be affected by a court’s decision are entitled to be heard at a meaningful time and in a meaningful manner. . . . Where a party is not afforded an opportunity to subject the factual determinations

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underlying the trial court’s decision to the crucible of meaningful adversarial testing, an order cannot be sustained.” (Internal quotation marks omitted.) Szot v. Szot, supra, 241-42. The defendant was not given such a reasonable opportunity in this case.

The denial of that opportunity, it is again noted, not only took place in the context of a foreclosure, which is an equitable action, but where the defendant had interposed a special defense of fraud in the foreclosure action itself. The plaintiff glosses over that circumstance and overlooks the fact that the court failed even to refer to that special defense. We conclude, therefore, that the necessary nexus existed such that the complaint and counterclaim were so related that they satisfied the practical test of our transaction rule stated in Practice Book § 10-10. Having satisfied the transaction test, the defendant also is entitled legitimately to invoke equitable relief.

The defendant, parenthetically, not only had tried to get to that issue, but also had prayed for equitable relief in her counterclaim. We will, therefore, turn to well settled principles of equity to aid us in the resolution of this case. The scenario disclosed by this case is amenable to the process that equity may afford. “Courts of equity may grant relief from the operation of a judgment when to enforce it is against conscience, and where the appellant had no opportunity to make defense, or was prevented from so doing by . . . the fraud . . . of the opposite party, and [the appellant was] without fault on his [or her] own part.” (Internal quotation marks omitted.) Cavallo v. Derby Savings Bank, 188 Conn. 281, 284, 449 A.2d 986 (1982). “Foreclosure is peculiarly an equitable action, and the court may entertain such questions as are necessary to be determined in order that complete justice may be done.” (Emphasis added.)Hartford Federal Savings Loan

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Assn. v. Lenczyk, 153 Conn. 457, 463, 217 A.2d 694 (1966) Beach v. Isacs, 105 Conn. 169, 176, 134 A. 787 (1926). We have stated that “[b]ecause a mortgage foreclosure action is an equitable proceeding, the trial court may consider all relevant circumstances to ensure that complete justice is done.” (Emphasis added.) Reynolds v. Ramos, 188 Conn. 316, 320, 449 A.2d 182 (1982); Southbridge Associates, LLC v. Garofalo, 53 Conn. App. 11, 15, 728 A.2d 1114, cert. denied, 249 Conn. 919, 733 A.2d 229 (1999). “Where the plaintiff’s conduct is inequitable, a court may withhold foreclosure on equitable considerations and principles.” Southbridge Associates, LLC v Garofalo, supra, 15; see also Hamm v. Taylor, 180 Conn. 491, 497, 429 A.2d 946 (1980).

“[E]quitable remedies are not bound by formula but are molded to the needs of justice.” Montanaro Bros. Builders, Inc. v Snow, 4 Conn. App. 46, 54, 492 A.2d 223 (1985). Our Supreme Court has endorsed the principle that “[a] court of equity does full and equal justice to all having an interest in the subject-matter” by tersely expressing that “[e]quity never does anything by halves.” (Internal quotation marks omitted.)Stolman v. Boston Furniture Co., 120 Conn. 235, 240, 180 A. 507 (1935); see also McGaffin v. Roberts, 193 Conn. 393, 404, 479 A.2d 176 (1984), cert. denied, 470 U.S. 1050, 105 S.Ct. 1747, 84 L.Ed.2d 813 (1985); 27A Am.Jur.2d 599, Equity § 118 (1996); F. James G. Hazard, Civil Procedure (3d Ed. 1985) § 10.11, pp. 531-32. It has been appropriately noted that the significance of equity “not doing by halves” means that “it is the aim of equity to have all interested parties in court and to render a complete decree adjusting all rights and protecting the parties against future litigation. . . . The principle of [this] maxim embraces the well-established doctrine . . . that when equity once acquires jurisdiction it will retain it so as to afford complete relief.” 30A C.J.S. 337,

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Equity § 119 (1992). All the interested parties in court are jurisdictionally available such as to enable equity to render complete relief.

Moreover, it is necessary to keep in mind, particularly in this case, that equity looks to substance and not mere form. Bender
v. Bender, 258 Conn. 733, 751, 785 A.2d 197 (2001) Connecticut National Bank v. Chapman, 153 Conn. 393, 397, 216 A.2d 814 (1966). In speaking about the meaning and effect of the equitable concept of substance rather than form, Pomeroy, that venerable yet viable authority on equity, opines that it “is one of great practical importance, [which] pervades and affects to a greater or less degree the entire system of equity jurisprudence. . . . Equity always attempts to get at the substance of things, and to ascertain, uphold, and enforce rights and duties which spring from the real relations of parties. It will never suffer the mere appearance and external form to conceal the true purposes, objects, and consequences of a transaction.” (Emphasis in original.) 2 J. Pomeroy, Equity Jurisprudence (5th Ed.1941) § 378, pp. 40-41. “In equity, as in law, misrepresentation, to constitute fraud, must be material. . . . That is to say, the representation must prejudice the party relying upon it.” (Citations omitted.) Harper v. Adametz, 142 Conn. 218, 223-24, 113 A.2d 136 (1955).

In summary, we conclude that the defendant was not afforded a reasonable opportunity to present her case of a “package type” transaction despite her reasonable attempt to do so. It is apparent to us that it is required by equity that the complaint and the counterclaim be tried together, as they satisfied not only our transaction test under Practice Book § 10-10, but also the ambit of equity jurisdiction.[15] Complete justice requires that

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equity grant relief; relief not done by halves, not done in form only, but relief grounded on substance and complete justice. Our Supreme Court has noted aptly that “once any equitable claim has been raised, the court retains its equitable jurisdiction to consider all of the equities before it in order to render complete justice . . . even where the equitable jurisdiction [is] conferred by a defendant’s counterclaim.” (Citations omitted.)Fellows v. Martin, 217 Conn. 57, 64-65, 584 A.2d 458 (1991). That illustrates just how far complete equitable jurisdiction can fairly go.

In this case, the defendant appealed from the judgment of strict foreclosure and the denial of her counterclaim. The defendant proposes in her brief, by want of remand, that “the case should be remanded for a whole new trial on all issues because of the exclusion of clearly relevant evidence or, at least, the case should be remanded with direction to permit [her] to amend the counterclaim because, effectively, a motion to strike was granted in the middle of a trial and for the trial court then to determine whether the issues involve the same transaction and should be tried together or separately.” Equity requires a new trial on all the issues; the principles previously set forth, applied to the circumstances of this case, mandate equitable relief.

The judgment of strict foreclosure and the denial of the defendant’s counterclaim are reversed and the case is remanded for a new trial in which the plaintiff’s complaint and the defendant’s claim of setoff and her special defenses and counterclaim are to be tried together in the same trial.

In this opinion the other judges concurred.

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