Opinion
No. CV 03-0081914
January 5, 2006
MEMORANDUM OF DECISION
BACKGROUND
Russell Phillips had worked with and for his father in his father's automobile repair and towing business on and off throughout a period of about seventeen years, however from 1995 to 1999, Russell was employed in factory work, earning a good salary and benefits. In June 1999, Russell Phillips took over the management and operation of the garage, Phillips Repair, owned by his father, David Phillips. David Phillips had suffered health problems, had seriously neglected the business, resulting in unpaid taxes, unpaid creditors, and alleged fraudulent tax filings. The affairs of the garage were in a state of significant disarray, with imminent foreclosure due to long overdue unpaid taxes, closing down of the business, and state officials' seizure of business records and computers. David asked Russell to take over the business, and, after he agreed to do so, Russell took immediate steps to negotiate payment arrangements with the numerous creditors. He was able to avoid the impending foreclosure. He used his own money to commence payments on delinquent taxes and overdue debts. He commenced efforts to manage the garage so as to get it running efficiently. Russell quit his full-time job in order to take over these responsibilities.
In November 1999, Russell approached his father and his father's wife, plaintiff Lorraine M. Phillips, indicating to them that he could not continue his efforts unless he had some security that the property would not be sold out from under him. In response thereto, David and Lorraine Phillips agreed to convey the real estate on which the garage was situated to Russell Phillips and that was accomplished by means of a warranty deed executed on December 21, 1999. The real estate conveyed includes the lot on which the garage is situated at 212 Hartford Turnpike, Tolland, Connecticut, and an adjoining address — 9 Kingsbury Avenue, which shares the septic system and well. In addition to the garage on the 212 Hartford Turnpike address, there is also a 6-room house on the property (the 9 Kingsbury Avenue address). This parcel of land had been purchased by Lorraine and David Phillips in 1989 for $350,000.
On December 21, 1999, Lorraine, David, and Russell Phillips met at the office of Attorney Paradiso, who had been retained by Russell Phillips. Attorney Paradiso had prepared the warranty deed referred to above and Lorraine and David signed the deed. At this time, there still remained a balance of approximately $200,000 on the mortgage on the garage property and, the parties agreed that, as part of his assumption of the garage responsibilities, Russell was taking over the payments of that mortgage obligation. Just as they were concluding their discussion at the lawyer's office, Lorraine asked Russell if, as part of the deal, he was also planning to continue to pay the second mortgage on her house at 39 Reed Street (apparently, this, as well as many other personal bills, had previously been paid directly through the garage). Russell responded in the affirmative. Either at Lorraine's request or Attorney Paradiso's suggestion that this agreement should be commemorated in writing, Attorney Paradiso drafted another document, handwritten on lined yellow paper, signed by the parties, stating:
As part consideration for the purchase of 212 Hartford Turnpike Tolland, I, Russell Phillips do agree to pay the mortgage at 39 Reed Street, Rockville, CT from the income at Phillips Repair which has a balance of approximately $115,000.
Russell continued to run the garage. At the time Russell took over the property, there were tenants in the residence at the 9 Kingsbury Avenue property, but they had not paid rent for some time and an eviction had been commenced by David Phillips. because of problems with the eviction filings and the tenants' continued occupancy despite David's repeated reporting to Russell that the tenants were leaving "this month," the property was not vacated for some time and no rent was coming in. After these tenants finally left, Russell did the significant cleaning of the "trashed" premises that was necessary, gutted the house and completed needed reservations. Thereafter, the property was rented through Section 8 Housing, and Russell permitted his father to receive those rentals.
In the fall of 2000, Russell Phillips reorganized the business, and changed the status of the garage from "Phillips, Repair, Inc." to "Phillips Auto Repair, L.L.C." David Phillips died on May 21, 2001. Thereafter, Russell Phillips made arrangements for the Kingsbury property Section 8 rental payments to be made to him. Lorraine Phillips (now Lorraine Giglio) contends that, as part of the transfer of the garage property, Russell had agreed to turn over the Kingsbury rental payments to her and David until Russell completed paying the mortgage on her 39 Reed Street home. No such specification is made in the signed document relating to the transfer and the obligation of Russell to pay the 39 Reed Street mortgage, nor is this claimed obligation mentioned in other documents later provided by or on behalf of Lorraine Phillips to Russell after David's death. Russell contends that he gave the rental income solely to his father and only because his father had no other source of income and that is why those payments ceased at the time his father died.
In approximately September of 2001, Russell stopped paying the mortgage on Lorraine Phillips' 39 Reed Street property. At that time Lorraine and Russell were having a dispute as to the use and ownership of a truck and they apparently were not able to agree on many other issues. Russell also claims that he had come to learn that the loan that he was paying off on the Reed Street property was not just for garage debts but also for personal debts. Russell claims that he was misled to believe that the entire debt was necessitated solely because of garage expenses, and that was the basis of his agreement to take over that debt. Again, no such rationale, or limitation, is included in the written, signed document. Finally, as to this debt, it is Russell's contention that the 39 Reed Street mortgage is to paid from the "net" income of Phillips Garage, with no payments being due unless there is sufficient "net" income to cover the Reed Street mortgage obligation.
In April of 1999, DB Motor Fuels, Inc. had commenced a lawsuit against David Phillips and Phillip's Repair for breach of contract and in December 2000, a judgment entered in DB's behalf in an amount exceeding $57,000. In January 2001, having not been paid, DB Fuels initiated another lawsuit, this time naming David, Lorraine and Russell Phillips as individual defendants, and also Phillips' Repair, Inc., claiming a fraudulent transfer of the Philip's Garage property, violating creditors' rights. In August 2002 this controversy was resolved by payment of a total of $20,000, $10,000 of which was paid by Lorraine Phillips and $10,000 of which was paid by Russell Phillips.
Lorraine Phillips picked up on payment of the mortgage payments on the 39 Reed Street property after Russell Phillips stopped making payments. She made the payments, refinanced, and then paid off that mortgage. In this action, she is seeking reimbursement for the mortgage payments she has made on 39 Reed Street from October 2001, as well as the payoff of the mortgage on that property, plus interest; payment to her of rentals for 9 Kingsbury since July 2001, plus interest; and reimbursement for the $10,000 she paid to settle the DB Motor Fuels case, plus interest.
Defendant contends that there was a significant misrepresentation that induced him to take over the 39 Reed Street mortgage; that there is insufficient income from Phillips Garage to pay the Reed Street mortgage and thus no obligation; and, that there was no obligation to pay rental receipts from 9 Kingsbury Avenue to anyone and that any such agreement would have to have been in writing to be enforceable.
DECISION
Based on all of the credible evidence presented to the trial court in this matter, and based on governing law, the court makes the following findings and awards.
The agreement as to payment of the 39 Reed Street property is binding on Russell Phillips, the court having made no finding of misrepresentation inducing this obligation. The agreement clearly specifies that payment is to be made from "the income at Phillips repair." The terms of a contract are to be construed in accord with ". . . their popular ordinary meaning unless their context, or the circumstances, show that a special meaning was intended." Cohen v. City of Hartford, 244 Conn. 206, 215 (1998), "Income" means a gain or recurring benefit measured in money that derives from capital or labor. Merriam-Webster On-line Dictionary. There is no mention in the agreement of whether the obligation is to be paid from "gross" or "net" income and consequently there is no guidance from the document itself as to what was intended. However, common experience is that debts are to be paid out of the gross income, as clearly Russell Phillips intended to pay the other debts of the business. Furthermore, Attorney Paradiso, the lawyer who drew up the contract was counsel hired by and paid for by Russell Phillips. The law provides that, to the extent that there is an ambiguity, a contract is to be construed in favor of the non-drafter. Cantonbury Heights Condominium Association, Inc. v. Local Land Development, LLC, 273 Conn. 724, 735 (2005). Consequently, the more favorable interpretation for Lorraine Phillips is that the 39 Street mortgage is to have been paid from the gross income of the garage.
The tax returns provided in evidence reveal the following:
for 1999: gross receipts — $148,616; gross income — $111,075; net income — $648;
for 2000: (Phillips, Inc. for a part of the year and Phillips Auto Repair, LLC for the remainder of the year): gross receipts — $312,071; gross income — $233,298; net or taxable income — $7,310;
for 2001: gross receipts — $277,738; gross income — $200,968; net income — $12,232;
for 2002: gross receipts — $234,283; gross income — $118,511; net income — $12,739;
for 2003: gross receipts — $145,115; gross income — $99,042; net loss — $27,018;
for 2004: gross receipts — $173,742; gross income — $115,432; net income — $196.
The monthly mortgage payment on the 39 Reed Street property was approximately $9,850 per year. It is clear that this annual amount clearly fell within the gross income for each of the years listed above. Furthermore, the annual amount clearly exceeded the net income for the years 1999 and 2000, years in which Russell agreed to and/or did indeed pay the 99 Reed Street mortgage. Consequently, his present interpretation of the contract wording is disingenuous in that Russell paid the Reed Street mortgage, without protest, in the years when there was insufficient net income to cover the mortgage. Moreover, Russell paid even more than the basic mortgage amount initially. Some time in mid-2000 it was discovered that the bank payments included an escrow amount for taxes on the property and the parties adjusted that to a reduced figure, reflecting only the mortgage, to be paid from that time forward.
As to the rentals from the Kingsbury Avenue property, the court finds that the credible evidence supports the position of Russell Phillips that there was no obligation that he pay those rental amounts to Lorraine and/or David Phillips, and, to the extent that he did share that income with his father while his father was alive, that was a gratuitous gesture on Russell's part. Consequently, there is no need to consider the legal arguments raised by the parties as to whether the alleged obligation is actionable — the court finds that the evidence supports Russell's contention that there was no such agreement.
As to the DB Fuel settlement, plaintiff has not presented any documentation reflecting an agreement that Russell Phillips had agreed to repay her for the $10,000 contribution she made to settle this lawsuit in which she was a named defendant. Furthermore, C.G.S. Sec. 52-550(a)(2) bars such a claim outside of a signed, written agreement. While it is clear that the initial debt was one of Phillips Garage, and an amount of $52,000 was listed as a debt in the work page presented at the December 21, 1999 meeting in Attorney Paradiso's office, the second lawsuit was filed against Lorraine as well as other parties; her contribution to the settlement relieved her of liability under that lawsuit; and she had procured no written agreement from Russell Phillips reflecting that he would repay her that amount. See also Huckabee v. Stevens, 32 Conn.Sup. 511 (1975).
In sum, the court finds in favor of the plaintiff on the first count to the extent that defendant is obligated to pay the mortgage on the 39 Reed Street property. The total amount claimed due as a result of the deficiency of defendant on that obligation is $135,995.89. In light of the overpayment made by Russell when he first paid the mortgage, totaling $3,132.00, the court finds that plaintiff is due $132,863.89 and prejudgment interest is not awarded.
The court finds in favor of defendant on the claimed rental obligations for the property at Kingsbury Avenue in light of the lack of credible evidence supporting the plaintiff's claims.
As to the second count, plaintiff alleges that David Phillips maintained a snow-plowing business, separate from that of the garage, that passed to her upon David's death and that she is entitled to payment for equipment from that business and revenue from that business. The court finds in favor of the defendant on this count in light of the lack of credible evidence supporting the plaintiff's claims.
As to the third count, the plaintiff asserts that defendant removed property from her garage that belonged to her and that she is entitled to payment of "fair value" for that property. The court finds in favor of the defendant on this count in light of the lack of credible evidence supporting the plaintiff's claims.