Welcome to our Supreme and Appellate Court summaries webpage. On this page, I provide abbreviated summaries of decisions from the Connecticut appellate courts which highlight important issues and developments in Connecticut law, and provide practical practice pointers to litigants. I have been summarizing these court decisions internally for our firm for more than 10 years, and providing relevant highlights to my municipal and insurance practice clients for almost as long. It was suggested that a wider audience might appreciate brief summaries of recent rulings that condense often long and confusing decisions down to their basic elements. These summaries are limited to the civil litigation decisions based on my own particular field of practice, so you will not find distillations of the many criminal and matrimonial law decisions on this page. I may from time to time add commentary, and may even criticize a decision’s reasoning. Such commentary is solely my opinion . . . and when mistakes of trial counsel are highlighted because they triggered a particular outcome, I will try to be mindful of the adage . . . “There but for the grace of God . . ..” I hope the reader finds these summaries helpful. – Edward P. McCreery
Posted May 12, 2014
Plaintiff agreed to buy two Midas Muffler shops from the defendant, and entered into leases, promissory notes, a management agreement and a letter of intent. The leases contained options to purchase, which in turn required that the plaintiff be in compliance with the terms of all the other documents. Similar language was found in the management agreement. Plaintiff, however, was often late paying rent, loan, utility, and tax payments. The plaintiff would always catch up on the late payments and the defendant never called any default. At a point where there were no missing payments, the plaintiff sent notice of its intent to exercise the options to purchase. The defendant refused noting that the plaintiff had been habitually late with its payments and had once triggered a mortgage default by the defendant. The plaintiff sued for specific performance of the option and the Trial Court held that the plaintiff had substantially complied with the lease terms and was entitled to close on the properties. The Appellate Court reversed holding that an option holder must be in strict compliance with the conditions precedent in order to exercise the option. The Appellate Court said this is so even though Connecticut follows the doctrine of substantial compliance, which is similar to the doctrine of substantial performance. These doctrines shield parties from the hardship of being held to the strict “letter of their agreements.” This Court reasoned that the doctrine of substantial compliance does not apply to options which are unilateral contracts.
The Supreme Court reversed, holding that the Trial Court correctly applied a standard of substantial (rather than strict) compliance, and that the plaintiff was entitled to specific performance. The Trial Court found that, with respect to all of the late payments, they were eventually made whole within a commercially reasonable time, and were the result of administrative inefficiency as opposed to financial insolvency. Further, prior to the plaintiff’s attempt to exercise the option, the defendant did not take any action against the plaintiff to declare a default. Thus these were considered non-material defaults.
Clarifying existing law, this decision holds that in the absence of express contractual language to the contrary, an option to purchase is enforceable against the lessor if the lessee has substantially complied with the terms of the lease, and is not in default at the time it seeks to exercised the option. After discussing how an option to purchase works, the decision concludes the Appellate Court misinterpreted its prior precedent in Brauer. In Brauer, there was unambiguous language that the option was only effective if rent payments were made timely and spelled out that timely payments were material. In Brauer, they were seven months in arrears at the time they sought to exercise the option, and this clearly was a material breach. Brauer did not state that a non-material breach of a lease would defeat an option to purchase. Merely saying that an option to purchase is conditioned upon lessee’s compliance with the lease (as in this case) leaves open the door to whether any non-compliance was material. The doctrine of options being exercise in strict accordance with their terms applies solely to the mechanical manner of the lessee’s exercise of the option. It does not apply to the right to exercise the option. Thus, the option must still be exercised (strictly) by the deadline in the agreement and in conformity with any other formalities called out in the agreement.
Then the Appellate Court turned its attention to the defendant, and noted that he was an experienced attorney, who had often drafted agreements, and if he had wanted the option conditioned upon specific punctual fulfillment of payment terms, he could have readily incorporated such a provision in the agreement. There was no provision, for example, that time (for the payment of the financial obligations was of the essence. Without such a clause, payments made within a reasonable time will be considered substantial compliance, even if they are a little late. Those late payments could only be turned into a material breach by use of appropriate contract language.
Next the decision reviewed whether or not the option holder was ready, willing and able to close. The Supreme Court agreed with the Trial Court that while normally, proof of a mortgage commitment may be required before an option holder can compel compliance, that requirement may be dispensed with when the lessor has refused to convey the property after a valid exercise of the option. Under that scenario, the option holder need only to establish that it could have obtained a mortgage commitment. Here, the plaintiff met that burden. A buyer under an option is not required to seek a mortgage commitment before a sales contract is even prepared in order to prove it could have bought the property.
One footnote adds that you must watch out for lease terms requiring notice of defaults. The Court said even if the breach is material, they will require the lessor comply with a lease term requiring notice and opportunity to cure before the option can be deemed terminated…..even for a material breach.
Another footnote disagrees with the Dissent’s argument that option contracts are unilateral and should be construed strictly against the optionee. That Dissent was by Justice Zarella, who felt that an optionee must comply with all conditions fully and completely before they are entitled to exercise an option to purchase. The Dissent found this no different than the mechanical way in which an option must be exercised. These are merely additional conditions precedent to the exercise of the option.
The Appellate Court disagreed and said that the trial court had the discretion to conclude the $4,000 incorporated into the prior payoff was reasonable compensation for all of the legal work done on all nine files. The suggestion by plaintiff’s counsel that he was awarded “zero, nada, zilch” misinterpreted the actions of the Trial Court. Further, awarding only $4,000 was not an abuse of discretion. The plaintiff complained that the sum awarded amounted to only $400 per foreclosure, or $28.00 per hour for the time he put into the files. The Appellate Court responded that the Trial Court had the right to disallow time charges and suggested as an example that putting down 2.8 hours …..nine times….. to draft the identical complaint….. nine times was excessive. The decision all but states that the nine actions should have all been filed as nine counts in one complaint.
The City and BEDCO then struggled to find alternate uses for the acquired land, and were approached by a recycling business which entered into an LDA with Bedco. The plaintiff sued to prevent the construction of the recycling plant, claiming the noise and vibration and truck traffic would substantially harm its business. The Trial Court concluded the plaintiff’s claims were based totally on speculation. Except for the plaintiff, not one witness testified in opposition to the project or claimed it would have any adverse impact on the neighborhood. Further, the plaintiff had no standing (statutory aggrievement) to challenge the modification of the redevelopment plans because it never finalized its acquisition of property under its LDA within the redevelopment area. The language of C.G.S. § 8-200 provides modifications to a plan and only requires consent of a property owner after sale or lease of real property within the redevelopment zone to them. There was no question here that the plaintiff never purchased any of the properties within the redevelopment area.
On appeal, the Appellate Court agreed that the plaintiff, never having completed its purchase, was not a ”purchaser” under C.G.S. § 8-200(a), and thus, had no standing to challenge a modification to the development area or the proposed LDA with the recycling facility. Similarly, the Appellate Court rejected arguments that the defendant would be irreparably harmed, and was entitled to injunctive relief. Boiled to its essence, the plaintiff was arguing that the revised plans and sale of property to the recycler would result in blight and irreparable harm from noise and truck traffic. The Appellate Court agreed that all the plaintiff’s evidence was pure conjecture without factual support or expert opinion backup.
The facts and holdings of any case may be redacted, paraphrased or condensed for ease of reading. No summary can be an exact rendering of any decision, however, so interested readers are referred to the full decisions. The docket number of each case is a hyperlink to the Connecticut Judicial Department online slip opinion. ©2014 Pullman & Comley, LLC. All Rights Reserved.Back to Top