Opinion
No. CV07 5002875-S
April 15, 2008
MEMORANDUM OF DECISION
FACTS
The plaintiff, Allen J. Gestay, filed this foreclosure action on December 5, 2007, against the defendants, Lita M. Ehalt, William C. Ehalt, Jr. and Christine Ehalt, alleging the following facts. The defendants signed a promissory note, dated May 7, 2007, for the principal sum of $66,000 with interest as provided by the note, payable to the order of Robert Fishman, Trustee for GF Associates #1 (Fishman). The note was secured by an open-ended mortgage deed on 6 Spruce Glen Terrace, a parcel of real property they owned in Wallingford, Connecticut. Fishman assigned this mortgage to Gestay, the plaintiff in this action, by an assignment dated October 8, 2007. In addition, the defendants signed a second note, dated May 7, 2007, agreeing to pay Gestay an additional $224,000, which secured by a mortgage of the same property. The defendants defaulted on these notes in July 2007, whereupon, the plaintiff filed this action seeking to foreclose the mortgages that secured the notes.
Footnote one of the plaintiff's memorandum of law in support of his motion to strike states that: "Another party-Christine Ehalt-is also a named defendant in this action. Ms. Ehalt did not execute any of the promissory notes and mortgage deeds at issue; however, she is believed to be occupying the Property with the co-defendants."
On January 22, 2008, the defendants filed an answer, counterclaim and a special defense asserting fraudulent nondisclosure by Gestay. On February 21, 2008, the plaintiff filed an answer to the defendants' counterclaim and a motion to strike the special defense, asserting that fraudulent nondisclosure is an improper defense to foreclosure. The defendants did not file a memorandum in opposition, but presented oral argument in opposition at the hearing on this motion, held on March 24, 2008.
DISCUSSION
"A motion to strike challenges the legal sufficiency of a pleading . . . and, consequently, requires no factual findings by the trial court." (Internal quotation marks omitted.) Batte-Holmgren v. Commissioner of Public Health, 281 Conn. 277, 294, 914 A.2d 996 (2007). "[A] plaintiff can [move to strike] a special defense . . ." Nowak v. Nowak, 175 Conn. 112, 116, 394 A.2d 716 (1978); see also Connecticut National Bank v. Voog, 233 Conn. 352, 354-55, 659 A.2d 172 (1995). "In . . . ruling on [a] . . . motion to strike, the trial court [recognizes] its obligation to take the facts to be those alleged in the special defenses and to construe the defenses in the manner most favorable to sustaining their legal sufficiency." Connecticut National Bank v. Douglas, 221 Conn. 530, 536, 606 A.2d 684 (1992). "Moreover, we note that [w]hat is necessarily implied [in an allegation] need not be expressly alleged . . . Indeed, pleadings must be construed broadly and realistically, rather than narrowly and technically." (Internal quotation marks omitted.) Violano v. Fernandez, 280 Conn. 310, 318, 907 A.2d 118 (2006).
Gestay claims that the defendants' special defense of fraudulent nondisclosure must be stricken as it "fails as a matter of law because [the plaintiff's] allegedly wrongful conduct does not impact the making, validity, or enforcement of the mortgage deeds or promissory notes." The plaintiff further argues that it "relates to the sale of the Property rather than to the making, enforcement, or validity of the mortgage deeds. In other words, the Defendants are claiming that sale of the Property to them was fraudulent because [the plaintiff] allegedly concealed information about water damage and mold infestation. Tellingly, they do not claim that [the plaintiff's] allegedly wrongful conduct somehow affected the making, validity, or enforcement of the mortgage deeds or promissory notes."
The defendants' special defense of fraudulent nondisclosure specifically alleges that "[t]he Plaintiff sold the property which is the subject of this action to the Defendants. The mortgages were purchase money mortgages provided by and/or arranged by the Plaintiff. The Plaintiff, as seller, had a duty to disclose to the Defendants the real condition of the subject property yet the Plaintiff not only failed to do so but also took steps to insure that past water damage, continuing damp conditions, and mold infestation were not discovered by the Defendants in their inspection of said property."
The plaintiff argues that this language essentially asserts a special defense sounding in fraudulent nondisclosure; the defendants have not disputed this claim. Therefore, the court shall construe and analyze this language as fraudulent nondisclosure.
"Historically, defenses to a foreclosure action have been limited to payment, discharge, release or satisfaction . . . or, if there had never been a valid lien . . . The purpose of a special defense is to plead facts that are consistent with the allegations of the complaint but demonstrate, nonetheless, that the plaintiff has no cause of action . . . A valid special defense at law to a foreclosure proceeding must be legally sufficient and address the making, validity or enforcement of the mortgage, the note or both . . . Where the plaintiff's conduct is inequitable, a court may withhold foreclosure on equitable considerations and principles . . . [O]ur courts have permitted several equitable defenses to a foreclosure action . . . Fraud is an equitable defense to a foreclosure action." Chase Manhattan Mortg. Corp. v. Machado, 83 Conn.App. 183, 188, 850 A.2d 260, 264 (2004).
"Fraud involves deception practiced in order to induce another to act to her detriment, and which causes that detrimental action . . . The four essential elements of fraud are (1) that a false representation of fact was made; (2) that the party making the representation knew it to be false; (3) that the representation was made to induce action by the other party; and (4) that the other party did so act to her detriment . . ." (Citation omitted; internal quotation marks omitted.) Chase Manhattan Mortgage Corp. v. Machado, 83 Conn.App. Supra, 187-88. "Usually, mere nondisclosure does not amount to fraud . . . Nondisclosure may . . . amount to fraud when there is a failure to disclose known facts under circumstances that impose a duty to speak . . . In addition, once a vendor undertakes to speak on a subject, the vendor must then make a full and fair disclosure as to that subject . . ." (Citation omitted; internal quotation marks omitted.) Docker v. Slowik, 91 Conn.App. 448, 458, 881 A.2d 479, cert. denied, 276 Conn. 919, 888 A.2d 87 (2005).
"A vendor of property may not do anything to conceal from the vendee a material fact affecting it, or say or do anything to divert or forestall an intended inquiry by him, or deliberately hide defects, for, in so doing, he is not merely remaining silent but is taking active steps to mislead. So the surrounding circumstances may be such that the effect of his silence is actually to produce a false impression in the mind of the vendee, and the making of an agreement or doing of some other act may in itself lead the vendee to believe that a certain fact exists and so amount to an affirmation of it. So the vendor may stand in such a relationship of trust and confidence to the vendee that it is his duty to make a full disclosure. But, these instances aside, the general rule is that the silence of a vendor with reference to facts affecting the value or desirability of property sold cannot give rise to an action by the vendee to set aside the transaction as fraudulent. Certainly this is true as to all facts which are open to discovery upon reasonable inquiry by the vendee." Gayne v. Smith, 104 Conn. 650, 652, 134 A. 62 (1926).
The Connecticut Appellate Court in Chase Manhattan Mortgage Corp. v. Machado, supra, 83 Conn.App. 183, addressed the special defense of fraud in a foreclosure action. In Machado, the defendants, Virginia Scott Devlin-Machado (Devlin-Machado) and her husband, Manuel Machado, Jr. (Machado), executed a note in favor of Northeast Mortgage, LLC, which was secured by a mortgage. This note was subsequently assigned to the plaintiff bank, which commenced a foreclosure action upon the defendants' default. Thereafter, the trial court granted the plaintiff bank's motion for summary judgment on liability and ordered a foreclosure by sale. Devlin-Machado appealed, claiming genuine issues of material fact existed regarding her special defenses of fraud and duress.
In her special defense of fraud, Devlin-Machado alleged in relevant part that "[t]he making and execution of the underlying Promissory Note and Mortgage Deed . . . [by her was] the product of fraud committed upon her by her former spouse, the co-defendant herein, [Machado] . . . of which said fraud, [Northeast Mortgage, LLC], the mortgagee, participated in or was aware. Devlin-Machado alleged that her husband falsely had represented that he received $2,638 per month from the United States Department of Veteran Affairs for a disability pension when the actual amount received was $2,036. She further alleged that Northeast [Mortgage, LLC] was aware of that discrepancy when [it] submitted the application containing the false income information to Ohio Savings Bank . . . for underwriting approval." (Internal quotation marks omitted.) Id., 186.
The Appellate Court affirmed the trial court and held that her allegations "[did] not amount to a claim of fraud against [the plaintiff bank] because she failed to allege that either the conduct of [the plaintiff bank] or [Northeast Mortgage, LLC] induced her to act to her detriment. If anything, the facts alleged by [her] could amount to a claim of fraud being committed against [Ohio Savings Bank] by her former husband but not against her. Further, a spouse's fraud in inducing a spouse to execute a mortgage does not invalidate it as against the mortgagee unless the mortgagee in some way participated in or knew of the fraud . . . Devlin-Machado did not allege any specific facts showing that the original mortgagee, [Northeast Mortgage, LLC], knowingly participated in any fraud against her. She claims only that [the plaintiff bank] had constructive notice of the fraudulent circumstances under which the original promissory note was secured." (Citation omitted; internal quotation marks omitted.) Id., 188-89.
In the present case, the defendants' special defense of fraudulent nondisclosure alleges that Gestay, the foreclosing party, purposefully concealed defective conditions of the real property and, as the vendor, possessed a duty to disclose known defects to the defendants. Gestay's alleged concealment of known defects from the defendants could constitute fraudulent nondisclosure in the purchase and sale agreement of real property. If the defendants had known of the water damage and mold infestation, they may well have chosen to not purchase the property or offer to purchase it for a lesser amount than they did. Furthermore, disclosure of such known water damage or mold infestation may be required on certain mortgage deed documents, such as the residential property condition disclosure report pursuant to Regs., Conn. State Agencies § 20-327b-1.
CONCLUSION
The purpose of a motion to strike is to test the legal sufficiency of a pleading. Practice Book § 10-39. All well pleaded facts in a contested pleading are considered admitted for the purposes of a motion to strike, and are to be construed in a light most favorable to the non-moving party. Rowe v. Godou, 209 Conn. 273, 278, 550 A.2d 1073 (1988). Therefore, the court must construe the defense "in the manner most favorable to sustaining its legal sufficiency." Bouchard v. Peoples Bank, 219 Conn. 465, 471, 594 A.2d 1 (1991). Where the mortgagor alleges fraudulent nondisclosure by the mortgagee, an equitable defense may arise to the foreclosure of the mortgage. Therefore, Gestay's motion to strike the defendants' special defense of fraudulent nondisclosure is denied.