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AJJ ENTERPRISES, LLP v. HERNS
JEAN-CHARLES ET AL.
(AC 36838)
Sheldon, Keller and Mullins, Js.
Argued April 16—officially released October 13, 2015
(Appeal from Superior Court, judicial district of
Stamford-Norwalk, Genuario, J.)
Ryan P. Driscoll, with whom, on the brief, was Rich-
ard J. Buturla, for the appellant-appellee (plaintiff).
Peter A. Ventre, for the appellee-appellant (substi-
tute defendant).
Opinion
MULLINS, J. This case concerns the trial court’s appli-
cation of the doctrine of equitable subrogation to reor-
der the priorities of interest of existing liens on a
residential property. The plaintiff, AJJ Enterprises, LLP,
appeals from the judgment of the trial court, rendered
in favor of the substitute defendant, the Bank of New
York Mellon, as trustee for the Amortizing Residential
Collateral Trust, mortgage pass-through certificates,
series 2002-BC7 (defendant bank),1 reordering the prior-
ities of interest of the mortgages on a piece of residential
property located at 10 Carlin Street, Norwalk, and order-
ing a strict foreclosure with respect to that property.
On appeal, the plaintiff claims that the court erred
in: (1) reordering the priority of interest, by applying the
doctrine of equitable subrogation, despite the defendant
bank having had constructive notice of the plaintiff’s
properly recorded mortgage on 10 Carlin Street, (2)
reducing the amount of the lien held by the plaintiff on
the basis of its conclusion that there was a value to
a quitclaim deed, previously held by the plaintiff, for
commercial property located at 18 Monroe Street, Nor-
walk, and (3) assigning a value to 18 Monroe Street for
2005 despite the fact that there was no evidence to
support such a valuation.
The defendant bank has filed a cross appeal in which
it claims that the court erred in rendering a judgment
of strict foreclosure in favor of the plaintiff because
the plaintiff failed to prove its debt as part of its case-
in-chief. The defendant bank requests that we consider
its cross appeal only in the alternative, and, specifically,
only if we agree with the plaintiff and reverse the court’s
judgment applying the doctrine of equitable subroga-
tion. We affirm the judgment of the court. Accordingly,
we do not address the defendant bank’s cross appeal.
The following complicated and detailed facts, as set
forth by the trial court in its memorandum of decision,
and as supplemented by the record, inform our review.
‘‘The plaintiff was created in 1997 for the primary pur-
pose of acquiring and holding real estate for investment.
The plaintiff consists of two equal partners, Alfonse
Pascarelli, Jr. (Pascarelli), and Edward Bartolo (Bar-
tolo).2 . . . One of the properties that the plaintiff
owned was known generally as 18 Monroe Street, Nor-
walk . . . . [The] 18 Monroe Street [property] is a
mixed use property located in South Norwalk . . . . It
consists of several retail units on the first floor and
multiple residential units above the first floor. . . .
‘‘In 1999 or 2000 the defendant Jean-Charles, who
owned a taxi company, approached Pascarelli concern-
ing rental of portions of the retail space at 18 Monroe
Street for his business. The plaintiff and the defendant
Jean-Charles reached a rental agreement and the defen-
dant Jean-Charles became a retail tenant of the plaintiff
at 18 Monroe Street. . . . For a variety of reasons, the
plaintiff became interested in selling the 18 Monroe
Street property3 and eventually came to an agreement
with the defendant Jean-Charles for the sale and pur-
chase of 18 Monroe Street for a price of $675,000,
despite the fact that the defendant Jean-Charles had no
available cash for a down payment on the property or
even for closing costs involved in the sale and purchase
transaction. . . .
‘‘The plaintiff and the defendant Jean-Charles exe-
cuted a contract for the sale and purchase of 18 Monroe
Street in April, 2002. The contract called for a sale
price of $675,000. The obligations of the defendant Jean-
Charles under the contract were contingent [on] his
ability to obtain a mortgage commitment in the amount
of $500,000. Because the defendant Jean-Charles had no
cash available to engage in the transaction, the contract
called for the balance of the purchase price, $175,000,
to be paid by a promissory note from the buyer to the
seller with a ‘blanket mortgage on properties that he
owns.’ At the time, the defendant Jean-Charles owned
10 Carlin Street. This promissory note was also to
include ‘actual closing costs to seller.’ The seller/plain-
tiff paid for all of the costs of the closing including
those [that] would typically be borne by the buyer. . . .
‘‘The defendant Jean-Charles was able to secure a
mortgage commitment from First County Bank in the
amount of $500,000, but only if the [defendant Jean-
Charles’] debt to First County Bank was guaranteed
by Pascarelli and Bartolo. Nothing in the [plaintiff’s]
contract [with the defendant Jean-Charles] obligated
Pascarelli and Bartolo to guarantee the repayment of
the mortgage note. . . . Because they wanted to sell
the property, Pascarelli and Bartolo agreed to and did
guarantee the . . . $500,000 note to First County Bank,
even though they were not obligated to do so by the
original contract. . . .
‘‘The closing of the transaction for the sale and pur-
chase of 18 Monroe Street occurred on May 24, 2002.
The defendant Jean-Charles formed a limited liability
company, Jean-Charles Enterprises, LLC (JCE), for the
purpose of taking title to 18 Monroe Street [and the
defendant Jean-Charles signed the note and mortgage
on behalf of JCE)].4 At the closing, a promissory note
in the face amount of $195,000 was executed by the
defendant Jean-Charles, JCE and Regina F. Jean-
Charles (Regina), the defendant Jean-Charles’ wife: The
plaintiff/seller paid all of the closing costs at the closing,
and the amount of the promissory note ($195,000) was
consistent with the intent of the contract and the consid-
eration rendered in exchange for the promissory note.
At the time of the execution of the note, the defendant
Jean-Charles and the other makers became indebted to
the plaintiff in the amount of $195,000. . . .
‘‘The following documents were also executed at the
closing on May 24, 2002:
‘‘a. A warranty deed from Pascarelli and Bartolo to
JCE;5
‘‘b. A promissory note from JCE to First County Bank
in the face amount of $500,000;
‘‘c. A mortgage from JCE to First County Bank encum-
bering 18 Monroe Street;
‘‘d. A promissory note payable to the plaintiff in the
principal amount of $195,000 signed by JCE, the defen-
dant Jean-Charles, and Regina;6
‘‘e. A mortgage to the plaintiff securing the $195,000
promissory note encumbering 18 Monroe Street signed
by JCE;
‘‘f. A mortgage to the plaintiff securing the $195,000
note encumbering 10 Carlin Street signed by the defen-
dant Jean-Charles;
‘‘g. A quitclaim deed from JCE to the plaintiff con-
veying 18 Monroe Street to the plaintiff;
‘‘h. An escrow agreement [between the plaintiff and
JCE,] which called for the quitclaim deed to be held by
Attorney Nathaniel Shipp but which was to be delivered
to either Pascarelli or Bartolo in the event of default
on the $195,000 promissory note.7 The quitclaim deed
was delivered to Attorney Shipp at the closing and
remained in his possession until October 4, 2005.8 . . .
‘‘All parties were represented at the closing. First
County Bank, JCE, the defendant Jean-Charles and
Regina were all represented by Attorney Nathaniel
Shipp. The plaintiff, Pascarelli, and Bartolo were all
represented by the law firm of Modugno, Modugno and
Modugno. . . . Just as the [purchase and sale
agreement] did not require Pascarelli and Bartolo to
guarantee the $500,000 note to First County Bank, noth-
ing in the original contract required the execution of a
quitclaim deed and escrow agreement. . . . [T]he quit-
claim deed and escrow agreement were additional con-
sideration and security that the [plaintiff] required as
a result of [Pascarelli’s and Barolo’s] willingness to
guarantee the $500,000 promissory note . . . .
‘‘The mortgage from the defendant Jean-Charles to
the plaintiff encumbering 10 Carlin Street was duly
recorded in the Norwalk land records on May 24, 2002,
at 3:54 p.m. The warranty deed from Pascarelli and
Bartolo to JCE conveying 18 Monroe Street was duly
recorded in the Norwalk land records on May 28, 2002,
at 3:49 p.m.; the mortgage from JCE to First County
Bank encumbering 18 Monroe Street was duly recorded
in the Norwalk land records on May 28, 2002, at 3:50
p.m., and the mortgage from JCE to [the] plaintiff
encumbering 18 Monroe Street was duly recorded in
the Norwalk land records on May 28, 2002, at 3:51 p.m.
. . . The mortgage from JCE to the plaintiff encumber-
ing 18 Monroe Street was recorded subsequent to the
First County Bank mortgage and was expressly made
subordinate to the mortgage to First County Bank.
‘‘While the plaintiff did not have a title search done
on 10 Carlin Street, Pascarelli believed that the mort-
gage on 10 Carlin Street was a second mortgage. The
promissory note that it encumbers states that it is
‘secured by a second mortgage on real property known
as 18 Monroe Street, Norwalk, CT 06854 and 10 Carlin
Street, Norwalk, CT 06851.’ . . . In fact, at the time
the mortgage from the defendant Jean-Charles to the
plaintiff was recorded, it was subsequent to two mort-
gages that encumbered 10 Carlin Street, a first mortgage
in the face amount of $288,000 and a second mortgage
in the face amount of $30,300. . . .
‘‘Accordingly, at the conclusion of the 18 Monroe
Street closing, record title to 18 Monroe Street was held
by JCE encumbered by a first mortgage to First County
Bank in the face amount of $500,000 and a second
mortgage to the plaintiff in the face amount of $195,000;
record title to 10 Carlin Street was held by the defendant
Jean-Charles encumbered by a first mortgage to GMC
Mortgage, Inc., in the face amount of $288,000, a second
mortgage to First Union National Bank in the face
amount of $30,300 and, subsequent to these two mort-
gages, the mortgage from the defendant Jean-Charles
to the plaintiff in the amount of $195,000. . . .
‘‘Around the time that the defendant Jean-Charles
was engaged in this transaction with the plaintiff, he
was also seeking to refinance the first and second mort-
gage on the 10 Carlin Street property. On May 16, 2002,
counsel for the proposed new lender ordered a title
search on 10 Carlin Street, which search was done [on]
May 20, 2002, at 10:30 a.m. Of course, the search
revealed only the first and second mortgages on 10
Carlin Street previously described and did not and could
not have revealed the third mortgage to the plaintiff
because, as of May 20, 2002, it had not been executed
or recorded.
‘‘On or about June 8, 2002, the defendant Jean-Charles
closed his refinance [transaction] with the defendant
bank’s predecessor in interest, Aeges Mortgage Corp[o-
ration] (Aeges). Aeges lent the defendant Jean-Charles
$348,000. Those funds were utilized to satisfy the first
mortgage on 10 Carlin Street in the amount of
$287,922.40 and to satisfy the second mortgage on 10
Carlin Street in the amount of $26,234.09. The balance
of the loan proceeds were utilized to pay transactional
costs in the amount of $19,837.40 as well as other credi-
tors of the defendant Jean-Charles, which creditors did
not encumber the 10 Carlin Street property. The balance
of the proceeds in the amount of $3614 was paid to the
defendant Jean-Charles.
‘‘The mortgage from the defendant Jean-Charles to
Aeges was recorded on June 11, 2002, which, of course,
was subsequent to the recording of the mortgage from
the defendant Jean-Charles to the plaintiff. Though the
individual who recorded the mortgage was instructed
to search the title of the 10 Carlin Street property from
the date of the previous search (May 20, 2002) to the
time of the recording of the Aeges mortgage, he did not
discover the mortgage from the defendant Jean-Charles
to the plaintiff encumbering 10 Carlin Street that had
been recorded on May 24, 2002.
‘‘Since the first and second mortgage, which had pre-
viously encumbered 10 Carlin Street were satisfied and
released, the plaintiff’s mortgage became the first mort-
gage in time, and the Aeges mortgage became the sec-
ond mortgage in time. Through a series of duly executed
transactions, the defendant bank became the owner of
the Aeges mortgage and the holder of the Aeges note
[that] it secured. The [true] state of record title on 10
Carlin Street was not discovered by either [the] plaintiff
or the defendant bank’s predecessors until the defen-
dant Jean-Charles fell into default and an action to
foreclose the Aeges mortgage was begun. . . .
‘‘[After] [t]he defendant Jean-Charles defaulted on
the Aeges note, the First County note and the plaintiff’s
note . . . First County commenced a foreclosure of its
first mortgage on 18 Monroe Street.9 The plaintiff, as a
subsequent encumbrancer, was made a defendant in
that action. Pascarelli and Bartolo, as guarantors of the
First County note, were also made defendants in that
action and had exposure to First County Bank as a
result [of] the guarantees that they had executed when
the loan was closed. . . .
‘‘Aeges Mortgage Company, through its nominees,
[also] began a foreclosure action on 10 Carlin Street
by complaint dated March 10, 2004, which complaint
named the plaintiff’s mortgage as a mortgage [that] was
prior in right to that of the defendant bank’s predeces-
sors. That foreclosure action was withdrawn [as were]
two subsequent foreclosure actions . . . [begun] by
the defendant bank’s predecessors, each of which
named the plaintiff herein as the defendant [and]
alleg[ed] that equitable remedies should be invoked to
rearrange the priority of the mortgages between the
defendant bank and the plaintiff on 10 Carlin Street.
None of those foreclosure actions were prosecuted to
completion.’’ (Footnotes altered.)
As the trial court further set forth in its memorandum
of decision, the plaintiff commenced the present action,
by service of process in April, 2005, ‘‘to foreclose a
mortgage granted to it by the defendant Jean-Charles
on his residential property known generally as 10 Carlin
Street. . . . The plaintiff alleges, in one count, that the
defendant Jean-Charles granted to it a mortgage on 10
Carlin Street to secure a note in the principal amount of
$195,000, and that the note is in default. The complaint
further alleges that the various defendants claim an
interest in the property, which interests, including that
of the defendant bank, are subsequent in right to the
plaintiff’s mortgage. The defendant bank has filed an
answer and seven special defenses, to wit: marshaling
of assets, equitable subrogation, unclean hands, failure
to mitigate damages, equitable alteration of priorities,
equitable estoppel, and unjust enrichment. Through its
special defenses, the defendant bank seeks to invoke
the court’s equitable powers to cause its mortgage to
obtain priority over the plaintiff’s mortgage despite the
fact that the plaintiff’s mortgage was recorded prior
to the mortgage of the defendant bank. Moreover, the
defendant bank challenges whether the plaintiff has
proven that it is owed money from the defendant Jean-
Charles pursuant to the promissory note secured by
the mortgage it seeks to foreclose.’’
While the present action was pending, ‘‘[o]n October
4, 2005, Pascarelli and his attorney went to Attorney
Shipp’s office to retrieve the quitclaim deed from JCE
to the plaintiff pursuant to the escrow agreement, which
entitled the plaintiff to retrieve the quitclaim deed upon
the default of JCE. They successfully retrieved the quit-
claim deed and recorded it in the Norwalk land records
on the same day. On October 4, 2005, immediately
before they recorded the quitclaim deed, they also
recorded an assignment of the mortgage (from JCE to
the plaintiff encumbering 18 Monroe Street, [as security
for the $195,000 loan]) from the plaintiff to Pascarelli
and Bartolo. . . . Notwithstanding the recording of the
quitclaim deed, the plaintiff did not initially collect rents
from the 18 Monroe Street tenants and did not initially
interfere with JCE’s possession and control of the 18
Monroe Street property. . . .
‘‘First County Bank obtained a judgment of foreclo-
sure by sale on the 18 Monroe Street property. As a
part of that judgment, the court found the debt from
JCE to First County Bank to be $465,896.58. A sale date
was set for August 16, 2008. . . . On August 15, 2008,
JCE filed a voluntary petition for [bankruptcy, which
stayed] the sale. . . .
‘‘On October 17, 2008, the plaintiff filed a motion for
relief from the automatic stay in the bankruptcy court,
which motion included a copy of the recorded quitclaim
deed and asserted that JCE wrongly included 18 Monroe
Street as an asset of the bankruptcy estate since JCE
was not the owner of 18 Monroe Street. The plaintiff,
in that motion, asserted that it was the owner of the
18 Monroe Street property by virtue of the quitclaim
deed recorded on October 4, 2005. The motion included
an assertion that the plaintiff ‘accepted delivery of said
deed’ and recorded the same on October 4, 2005. The
motion also included the assertion that the plaintiff ‘is
the owner of the premises located at 18 Monroe Street
. . . and [that JCE] does not have any ownership inter-
ests in the premises.’ The motion for relief from stay
was granted. . . .
‘‘On December 29, 2009, Pascarelli and Bartolo
formed a new limited liability company, J.P. Asset Man-
agement, LLC (J.P. Asset).10 They were each 50 percent
owners of J.P. Asset, and J.P. Asset was created for the
sole purpose of engaging in a transaction with First
County Bank. On December 29, 2009, J.P. Asset paid
First County Bank $400,000 in exchange for an assign-
ment of the First County mortgage and an allonge for
the First County note. . . . J.P. Asset was substituted
as plaintiff in the previously initiated First County fore-
closure action. J.P. Asset obtained a judgment of strict
foreclosure on the 18 Monroe Street property on August
2, 2010, and title to the 18 Monroe Street property vested
in J.P. Asset, and title remained in J.P. Asset at least
through the trial of the case. At the time J.P. Asset
acquired title through the strict foreclosure process,
there was approximately $60,000 in property taxes due
on the 18 Monroe Street property, which amount was
prior in right to J.P. Asset’s newly acquired interest.’’
The court set forth the following additional findings
in its memorandum of decision: ‘‘[A]s of January 1, 2010,
the balance due on the $195,000 note was $398,360.22.
. . . The promissory note contains provisions for an
increased interest rate upon default and late charges
upon default . . . . [T]he debt due at the time of the
trial from the defendant Jean-Charles to the plaintiff
was $415,031.04. The finding of this debt, however, is
subject to the significance of the quitclaim deed
received and recorded by the plaintiff . . . .
‘‘The court makes the subordinate finding that on
October 4, 2005, just before the quitclaim deed was
retrieved and recorded, the debt from the defendant
Jean-Charles to the plaintiff was $241,246.96. The court
finds that on the date of the closing in 2002, the value
of the 18 Monroe Street property was $675,000. [The]
court finds that on October 24, 2008, the value of the
property was $668,000.
‘‘After a review of the appraisals along with consider-
ation of the evidence of the condition of the property
the court finds that on October 4, 2005, the date that
the quitclaim deed was recorded, the value of the prop-
erty was $670,000. The court finds as of June 2010,
the value of the property was $480,000. The dramatic
difference in the value between 2008 and 2010 can be
accounted for by both a deterioration of the condition
of the property as well as the impact on real estate
values resulting from the global financial crisis of 2008.
In fact, one of the appraisers testified that the financial
crisis of 2008 had a significant adverse impact on the
applicable real estate property.’’ (Emphasis omitted.)
On the basis of its findings and its review of our
case law, the court determined, in its memorandum
of decision, that the doctrine of equitable subrogation
should be applied in this case to reorder the priority
of the liens encumbering 10 Carlin Street. Specifically,
the court stated that ‘‘the plaintiff did not bargain for
. . . the additional security of a first mortgage on the
plaintiff’s personal residence, [located at 10 Carlin
Street]. The plaintiff bargained for and received a mort-
gage that was subsequent to two duly recorded mort-
gages. The fact that the plaintiff never had a title search
done on 10 Carlin Street, nor had a full appraisal done
on 10 Carlin Street is indicative of the fact that this
particular component of the security was less important
to it as a part of the overall transaction. The plaintiff
is only in its position of being first in time on the 10
Carlin Street property as a result of the mistake of
the defendant bank’s predecessors who, in fact, did
negotiate and bargain for a first mortgage position on
the 10 Carlin Street property and who, in fact, gave
valuable consideration to obtain it. It would not be
equitable to allow the plaintiff to obtain a benefit [for]
which it did not bargain . . . at the expense of the
defendant bank under all of these circumstances as a
result of a mistake of the defendant bank’s predeces-
sors, even a negligent mistake, particularly when the
plaintiff had already obtained title to the 18 Monroe
Street property and had a duly recorded second mort-
gage on the 18 Monroe Street property.
‘‘Moreover, the value of the 18 Monroe Street prop-
erty was $670,000 at the time that the plaintiff recorded
the quitclaim deed and assigned its second mortgage
to its principals. While the plaintiff argues the value of
the 18 Monroe Street property was considerably less
in 2005, [it] introduced no direct appraisal testimony
to this effect, and the court believes that the lessening
of the value of the 18 Monroe Street property occurred
substantially after 2005, as a result of its continued
deterioration and significant market forces that
occurred in late 2008. The best evidence before the
court is that the property had a value of $670,000 in
2005, and that the debt to the first mortgagee was con-
siderably less at the same time. While neither party has
introduced direct evidence of the debt due First County
on October 4, 2005, the court takes judicial notice that
in foreclosing the First County mortgage in 2008, the
debt owed on the First County note was $465,896.58.
In the absence of evidence from which the court can
conclude that the debt was either reduced or increased
between October 4, 2005, and the judgment in 2008, the
court finds that to be the amount of the debt secured
by the First County mortgage, which the plaintiff took
subject to when it recorded the quitclaim deed.
‘‘When all is said and done, the plaintiff received
$500,000 cash (less closing costs) when it sold the prop-
erty to the defendant Jean-Charles in [May] 2002,11 [and]
it received the property back in 2005 subject to a mort-
gage in the face amount of $500,000 at such time when
the property was worth approximately $670,000. The
plaintiff could have foreclosed its second mortgage if
it was concerned about the legitimacy of the quitclaim
deed but chose not to do so. The principals of the
plaintiff ultimately paid $400,00012 to obtain an assign-
ment of the First County mortgage to their newly orga-
nized company, J.P. Asset. J.P. Asset then foreclosed
on the property and obtained title by the way of strict
foreclosure. It may well be that the property is now
worth substantially less than what it was worth in 2002
or 2005. The deterioration of the property and the
impact of adverse market conditions while the plaintiff
pursued collection activity pursuant to the instruments
it had negotiated for and received does not justify
allowing it to obtain [priority in its] security against 10
Carlin Street, which it did not bargain for, at the expense
of the defendant bank whose predecessors did negoti-
ate and bargain for a first position. Under these circum-
stances, it would be unconscionable to allow the
plaintiff to enhance its position at the expense of the
defendant bank.
‘‘Accordingly the court will exercise its equitable
powers to reorder the priority of the mortgages on 10
Carlin Street to the effect that the mortgage owned by
the defendant bank shall be prior in right, with limita-
tions as set forth [subsequently in this opinion] . . . .
‘‘At the time of the closing of the defendant bank’s
mortgage, 10 Carlin Street was encumbered by two
mortgages. The first mortgage had a face amount of
$288,000, but the debt it secured had been reduced to
$287,922.40, and the second mortgage had a face
amount of $30,000, which secured a debt that had been
reduced to $26,234.09. The defendant bank’s predeces-
sors paid $314,156.49 to obtain releases of these mort-
gages. At the time of the closing, the property tax
obligations of the defendant Jean-Charles on the 10
Carlin Street property were current. Though the defen-
dant bank’s predecessors loaned $348,000, the plaintiff’s
[existing] mortgage[s] at the time of the closing . . .
total[ed only] $314,156.49. The balance of the proceeds
[was] used to pay transactional costs, other debts of the
defendant Jean-Charles, which were not encumbrances
on the property, plus a disbursement check to the defen-
dant Jean-Charles. These additional amounts cannot be
included in the amount of the defendant bank’s debt
insofar as the defendant bank obtains a priority position
ahead of the plaintiff . . . . Accordingly, its subroga-
tion rights are limited to $314,156.49 and amounts that
may have accrued consistent with the terms of the
original two mortgages. . . .
‘‘On October 4, 2005, the debt due the plaintiff from
the defendant Jean-Charles was $241,246.96. On that
date the plaintiff effectively executed the self-help secu-
rity provisions of the escrow agreement and the debt
was reduced by the amount of value it received pursuant
to that execution. Given the [2005] value of the [18
Monroe Street] property, $670,000, and the amount of
the debt secured by the [First County note], approxi-
mately $465,000, the court finds that the debt [due the
plaintiff] had been reduced by $205,000 when the plain-
tiff retrieved and recorded the quitclaim deed. Accord-
ingly, the debt from the defendant Jean-Charles had
been reduced to $36,246.96 on October 4, 2005.13 Of
course, interest and other costs may accrue to the plain-
tiff in accordance with the terms of the note. The plain-
tiff may provide the court with updated evidence of the
debt consistent with this opinion in the next phase of
this trial.’’ (Footnotes altered.)
Following the second phase of the bifurcated trial,
the court issued an order on April 28, 2014, in which
it found that the plaintiff was entitled to a judgment of
strict foreclosure of 10 Carlin Street, and that the debt
owed to the plaintiff by Jean-Charles was $69,544.49,
which included accrued interest and costs. Attorney’s
fees in the amount of $81,826.26, along with an appraisal
fee of $900 were added to the debt, for a total debt of
$151,370.75. The court also found the fair market value
of the property located at 10 Carlin Street to be $480,000.
Law days then were set. This appeal followed.
I
The plaintiff first claims that the court abused its
discretion when it applied the doctrine of equitable
subrogation and reordered the priority of interest of
the liens on 10 Carlin Street. Specifically, the plaintiff
claims: ‘‘The defendant bank is not entitled to equitable
subrogation because it had constructive notice of [the
plaintiff’s] mortgage.’’ It explains: ‘‘[A]lthough there is
a divergence between [our] Supreme Court and the
Appellate Court as to whether equitable subrogation
can be had despite constructive notice of a previously
recorded interest, the more logical and persuasive rea-
soning is that constructive notice of preexisting interest
outweighs any alleged windfall or undue advantage,
and, this prevents the party with constructive notice
from availing itself of equitable subrogation.’’
The defendant bank responds: ‘‘Constructive notice
has never been a bar to the application of the doctrine
of equitable subrogation by the Supreme Court. Hence,
[the] plaintiff’s reliance on [Appellate Court case law]
is misplaced. Though [the] plaintiff indicates in [its]
argument that constructive notice should be a determi-
native factor, if not the primary factor, in considering
the application of equitable subrogation, the trial court
pointed out [that] if such prevented the application of
the doctrine, it would be inconsistent with the Supreme
Court’s language in [Connecticut National Bank v.
Chapman, 153 Conn. 393, 216 A.2d 814 (1966)].’’
(Emphasis in original.)
We conclude that constructive notice of an interven-
ing interest in the property is not a per se bar to the
application of the doctrine of equitable subrogation;
rather, whether to apply this doctrine is left to the sound
discretion of the trial court following a careful balancing
of the equities in each particular case.
‘‘A foreclosure action is an equitable proceeding. . . .
The determination of what equity requires is a matter
for the discretion of the trial court. . . . In determining
whether the trial court has abused its discretion, we
must make every reasonable presumption in favor of
the correctness of its action. . . . Our review of a trial
court’s exercise of the legal discretion vested in it is
limited to the questions of whether the trial court cor-
rectly applied the law and could reasonably have
reached the conclusion that it did.’’ (Internal quotation
marks omitted.) Rosenbilt v. Williams, 57 Conn. App.
788, 792, 750 A.2d 1131, cert. denied, 254 Conn. 906,
755 A.2d 882 (2000). ‘‘When the trial court draws conclu-
sions of law from its balancing of the equities, however,
our review is plenary.’’ (Internal quotation marks omit-
ted.) Wasko v. Manella, 269 Conn. 527, 543, 849 A.2d
777 (2004).
Before we address the plaintiff’s claims, it is
important to review the principles undergirding the doc-
trine of equitable subrogation. In mortgage law, ‘‘[a]
fundamental principle is that a mortgage that is
recorded first is entitled to priority over subsequently
recorded mortgages provided that every grantee has a
reasonable time to get his deed recorded.’’ (Internal
quotation marks omitted.) Equicredit Corp. of Connect-
icut v. Kasper, 122 Conn. App. 94, 97, 996 A.2d 1243,
cert. denied, 298 Conn. 916, 4 A.3d 831 (2010). This
principle is referred to as the first in time, first in right
rule. See id. ‘‘The doctrine of equitable subrogation
provides an exception to the first in time, first in right
rule . . . .’’ Id.
‘‘Subrogation is a doctrine which equity borrowed
from the civil law and administers so as to secure justice
without regard to form or mere technicality. . . . It is
broad enough to include every instance in which one
party pays a debt for which another is primarily answer-
able, and which, in equity and good conscience, should
have been discharged by the latter. It is a legal fiction
through which one who, not as a volunteer or in his
own wrong and where there are no outstanding and
superior equities, pays the debt of another, is substi-
tuted to all the rights and remedies of the other, and
the debt is treated in equity as still existing for his
benefit.’’ (Citation omitted; internal quotation marks
omitted.) Home Owners’ Loan Corp. v. Sears, Roe-
buck & Co., 123 Conn. 232, 238, 193 A. 769 (1937).
‘‘In numerous cases it has been held that one who
advances money to discharge a prior lien on real or
personal property and takes a new mortgage as security
is entitled to be subrogated to the rights under the prior
lien against the holder of an intervening lien of which
he was ignorant. . . . The intention of the parties to the
transaction is the controlling consideration.’’ (Citation
omitted; internal quotation marks omitted.) Rosenbilt
v. Williams, supra, 57 Conn. App. 793. Ultimately, as
our Supreme Court has noted, ‘‘[t]he object of [legal or
equitable] subrogation is the prevention of injustice.’’
(Internal quotation marks omitted.) Wasko v. Manella,
supra, 269 Conn. 532.14
The Restatement (Third), Property, Mortgages § 7.6
(1997), on the topic of subrogation, provides a thorough
explanation of this complicated doctrine. The
Restatement rule provides: ‘‘(a) One who fully performs
an obligation of another, secured by a mortgage,
becomes by subrogation the owner of the obligation
and the mortgage to the extent necessary to prevent
unjust enrichment. Even though the performance would
otherwise discharge the obligation and the mortgage,
they are preserved and the mortgage retains its priority
in the hands of the subrogee.
‘‘(b) By way of illustration, subrogation is appropriate
to prevent unjust enrichment if the person seeking sub-
rogation performs the obligation:
‘‘(1) in order to protect his or her interest;
‘‘(2) under a legal duty to do so;
‘‘(3) on account of misrepresentation, mistake,
duress, undue influence, deceit, or other similar imposi-
tion; or
‘‘(4) upon a request from the obligor or the obligor’s
successor to do so, if the person performing was prom-
ised repayment and reasonably expected to receive a
security interest in the real estate with the priority of
the mortgage being discharged, and if subrogation will
not materially prejudice the holders of intervening inter-
est in the real estate.’’ Id., 508.
‘‘Subrogation to a mortgage is usually of importance
only when a subordinate lien or other junior interest
exists on the real estate. If no such interest existed, the
subrogee could simply sue on the obligation, obtain a
judgment lien against the real estate, and execute on
it. However, if an interest exists that is subordinate to
the mortgage in favor of some other person, such a
judgment lien would be inferior to it in priority and
might have little or no value. In this setting, the subrogee
wants more than a lien; he or she wants a lien with the
priority of the original mortgage, and this is precisely
what subrogation gives. The holders of intervening
interests can hardly complain about this result, for they
are no worse off than before the senior obligation was
discharged. If there were no subrogation, such junior
interests would be promoted in priority, giving them an
unwarranted and unjust windfall.’’ Restatement (Third),
supra, § 7.6, comment (a), pp. 509–10.
The Restatement also explains the application of sub-
rogation in the context of the refinancing of a mortgage
loan: ‘‘A mortgage debtor may ask another person to
discharge the debt. In some circumstances, the payor
who does so is warranted in receiving, by subrogation,
the benefit and priority of the mortgage paid. The most
common context for this sort of subrogation is the
‘refinancing’ of a mortgage loan; that is, the payment
of a loan with proceeds of another loan.
‘‘Obviously, subrogation cannot be involved unless
the second loan is made by a different lender than the
holder of the first mortgage; one cannot be subrogated
to one’s own previous mortgage. Where a mortgage
loan is refinanced by the same lender, a mortgage secur-
ing the new loan may be given the priority of the original
mortgage under the principles of replacement and modi-
fication of mortgages . . . .15
‘‘When a mortgage loan is paid by one who makes a
new loan for that purpose, the payor will have the bene-
fit of subrogation to the mortgage that was discharged
only if the payor was promised repayment of the funds
advanced and reasonably expected to receive a mort-
gage, with the priority of the discharged mortgage, on
the real estate to secure that repayment. . . . Thus, a
payor who makes a mere gift, or who makes a loan
that is, by its terms, unsecured or secured with a lien
of inferior priority, cannot claim subrogation, since that
would provide the payor with an unwarranted windfall.
. . . On the other hand, if the debtor promises to pro-
vide security in the real estate to the payor, but fails
to do so, the payor is entitled to subrogation.
‘‘Perhaps the case occurring most frequently is that
in which the payor is actually given a mortgage on the
real estate, but in the absence of subrogation it would
be subordinate to some intervening interest, such as a
junior lien. Here, subrogation is entirely appropriate,
and, by virtue of it, the payor has the priority of the
original mortgage that was discharged. This priority is
often of critical importance, since it will place the pay-
or’s security in a position superior to intervening liens
and other interests in the real estate. The holders of
such intervening interests can hardly complain of the
result, for it does not harm them; their position is not
materially prejudiced, but is simply unchanged. . . .
‘‘Under [the] Restatement . . . subrogation can be
granted even if the payor had actual knowledge of the
intervening interest; the payor’s notice, actual or con-
structive, is not necessarily relevant. The question in
such cases is whether the payor reasonably expected
to get security with a priority equal to the mortgage
being paid. Ordinarily lenders who provide refinancing
desire and expect precisely that, even if they are aware
of an intervening lien. . . . A refinancing mortgagee
should be found to lack such an expectation only where
there is affirmative proof that the mortgagee intended
to subordinate its mortgage to the intervening interest.’’
(Citations omitted.) Restatement (Third), supra, § 7.6,
comment (e), pp. 519–20.
By way of illustration to comment (e), the
Restatement sets forth an example, which is on point
with the present case: ‘‘Mortgagor owns Blackacre sub-
ject to two mortgages held by Mortgagee-1 and Mort-
gagee-2 in order of priority. Both mortgages are
recorded. Mortgagor approaches Mortgagee-3, a bank
engaged in mortgage lending, and obtains a loan for
the purpose of discharging Mortgage-1’s mortgage.
Mortgage-3 is not aware of the existence of Mortgage-
2’s interest, does not perform a title examination, and
expects that its mortgage will have first priority. Mort-
gage-3 makes the loan and disburses the proceeds to
pay and discharge in full Mortgagee-1’s mortgage. Mort-
gagee-3 is entitled to be subrogated to Mortgagee-1’s
mortgage.’’ Id., § 7.6, comment (e), illustration (23),
p. 521.
The Restatement is careful to emphasize that the
court considering equitable subrogation must be con-
vinced that no injustice will result to the intervening
lien holder before applying the doctrine: ‘‘Since the
purpose of subrogation is to prevent unjust enrichment,
it will not be granted where it would produce injustice.
In virtually all cases in which injustice is found, it flows
from a delay by the payor in recording his or her new
mortgage, in demanding and recording a written assign-
ment, or in otherwise publicly asserting subrogation to
the mortgage paid. The delay may lead the holder of
an intervening interest to take detrimental action in the
belief that that interest now has priority.’’ Id., § 7.6,
comment (f), p. 522. In other words, the Restatement
does not predicate application of this doctrine on the
payor’s knowledge of the intervening lien, but, rather,
on the payor’s expectations, the intention of the parties
and the specter of prejudice that might inure to the
intervening lienholder.
With these principles in mind, we turn to the claims
in the present case. In this case, the parties assert that
there is a divergence of law between our Appellate
Court and our Supreme Court regarding the application
of the doctrine of equitable or legal subrogation when
the party seeking subrogation has constructive notice
of the intervening lien. See also H. Winiarski, Jr., ‘‘Equi-
table Subrogation in the Context of Interests in Real
Property: The Basics and the Areas Needing Authorita-
tive Clarification,’’ 85 Conn. Bar J. 231, 231 (2011)
(examining ‘‘the significant, and often irreconcilable,
divergence between existing Connecticut Supreme
Court precedent on the doctrine and the manner in
which it has been articulated and applied by the lower
courts since the Supreme Court last addressed it nearly
fifty years ago’’). The defendant bank asserts that the
trial court properly applied the long-standing precedent
of our Supreme Court, while the plaintiff asserts that
the trial court improperly failed to follow more recent
cases from the Appellate Court and, instead, relied on
‘‘outdated’’ cases from our Supreme Court.
We conclude, as did the trial court, that the cases from
the Appellate Court, upon which the plaintiff relies,
are distinguishable from the present case, and that the
Supreme Court precedent is highly instructive and con-
trols this case. We further conclude that the court did
not abuse its discretion in applying the doctrine of equi-
table subrogation, despite the defendant bank’s con-
structive knowledge of the plaintiff’s lien.
The plaintiff relies on three Appellate Court cases to
support its claim that the trial court abused its discre-
tion when it applied the doctrine of equitable subroga-
tion because the defendant bank had constructive
notice of the intervening lien. The plaintiff contends
that the Appellate Court has established a rule that
constructive notice of the prior lien necessarily defeats
the application of equitable subrogation. We disagree
that this court has established such a per se rule and
conclude that the application of the doctrine remains
a matter of equity for the trial court’s consideration even
when the party seeking subrogation has constructive
notice of the prior lien.
The three cases upon which the plaintiff relies,
namely, Deutsche Bank National Trust Co. v. DelMas-
tro, 133 Conn. App. 669, 679–81, 38 A.3d 166, cert.
denied, 304 Conn. 917, 40 A.3d 783 (2012), Equicredit
Corp. of Connecticut v. Kasper, supra, 122 Conn. App.
96–97, and Independence One Mortgage Corp. v. Kats-
aros, 43 Conn. App. 71, 73–74, 681 A.2d 1005 (1996), all
have a critical feature that readily distinguishes them
from the present case. Specifically, in each of those
cases, the trial court had determined that equity did
not support the application of the doctrine of equitable
subrogation, and the Appellate Court, on appeal, deter-
mined that the trial court had not abused its discretion
in so concluding.
Although these cases have some factual similarities
to the present case, and, at least one author has con-
cluded that one or more of these cases has eviscerated
the precedent of our Supreme Court; see H. Winiarski,
Jr., supra, 85 Conn. Bar J. 243–262; we are mindful, as
this court stated in DelMastro, that ‘‘[r]elatively minor
factual differences may, in the court’s discretion, make
a difference in the weighing of equities.’’ Deutsche Bank
National Trust Co. v. DelMastro, supra, 133 Conn. App.
678 n.4. In each of the cases relied on by the plaintiff,
the trial court, after weighing the equities, determined
that the doctrine should not be applied; we affirmed
the court’s exercise of its discretion. See also Rosenbilt
v. Williams, supra, 57 Conn. App. 789–90 (affirming
judgment of trial court, applying the doctrine of equita-
ble subrogation to reorder priorities of mortgages on
subject property).
We next look to the precedent of our Supreme Court.
In Lomas & Nettleton Co. v. Isacs, 101 Conn. 614, 615,
623, 127 A. 6 (1924), a case concerning equitable rein-
statement,16 the plaintiff refinanced its own mortgage,
changing the interest rate and the terms of the mortgage.
A second mortgage, held by another, also was released
at that time. Id., 616. When releasing its first mortgage,
however, the plaintiff failed to recognize that there also
existed a third mortgage on the property, held by the
defendant Herman Isacs. Id., 617. As a result, the plain-
tiff lost its first priority position. Id., 622.
On appeal, the Supreme Court explained that the
plaintiff essentially had been renewing its previous
mortgage and that it did not mean to extinguish that
mortgage. Id., 619. The court stated: ‘‘The intention of
the parties is the controlling consideration, and it is
apparent . . . that the parties intended that the plain-
tiff should continue to have a first lien upon the prem-
ises . . . . It was only in a purely technical sense that
the first mortgage was discharged of record and there
can be no question as to the power and duty of a court
of equity under such circumstances to lend its aid in
effectuating the real intention of the parties, when that
can be done without affecting in any way the rights
of third parties.’’ Id., 622. The court also stated: ‘‘The
defendant Isacs is not in a position to take advantage of
this mistake of the plaintiff’s, whether it be considered a
mistake of law or of fact. Unless the mistake is rectified,
Isacs will obtain an unconscionable advantage. The cor-
rection of the mistake will leave [Isacs] in his original
position and deprive him of no right to which he is
justly entitled.’’17 Id., 621.
In Home Owners’ Loan Corp. v. Sears, Roebuck &
Co., supra, 123 Conn. 234–35, Michael DeDonato owned
a piece of property on Huntington Road in Bridgeport
on which he had obtained three mortgages, and he
sought to refinance the property with a loan from the
plaintiff Home Owners’ Loan Corporation (Home Own-
ers). DeDonato also owned a piece of property on Res-
ervoir Avenue, on which the defendant Sears,
Roebuck & Co. (Sears) had a mortgage. Id. While DeDo-
nato was working with Home Owners on refinancing
the Huntington Road property, Sears foreclosed on the
Reservoir Avenue property and also obtained a defi-
ciency judgment against DeDonato. Id. To secure that
judgment, Sears placed an attachment lien on the Hun-
tington Road property. Id., 235. Home Owners then
had a title search performed on the Huntington Road
property, but the search failed to show the properly
recorded Sears’ attachment lien. Id. Home Owners and
DeDonato then completed the refinancing of the Hun-
tington Road property, with Home Owners expecting
to have a first mortgage on the property, but having
failed to discover the properly filed Sears lien. Id. Sears
later filed a judgment lien to replace its attachment lien
on the Huntington Road property, and it, then, realized
that its lien had assumed first position. Id., 235–36.
Sometime later, Home Owners brought a declaratory
judgment action, seeking an equitable subrogation. Id.,
236. The trial court granted the equitable relief and
reordered the priorities of the liens on the Huntington
Road property. Id. Sears then appealed. Id.
On appeal, our Supreme Court upheld the trial court’s
judgment insofar as it granted the equitable relief and
reordered the priorities of the liens. Id., 247–48. In con-
sidering each of Sears’ claims of error, the court first
determined that Home Owners was not a volunteer in
refinancing the property because it had an agreement
with DeDonato to loan money in exchange for a mort-
gage. Id., 237–38. The court then determined that Home
Owners had bargained for first position. Id., 238–40.
The court next considered Sears’ claim that Home
Owners should not be granted equitable relief because
it had constructive notice of Sears’ lien. Id., 240. The
court stated: ‘‘[R]ecognition of the application of the
principle of subrogation in this case would not violate
the policy of this State that all persons dealing with
real estate are entitled to rely upon the land records
as disclosing the true state of the title to land; for it is
a corollary to that principle that one who has actual
notice of equitable rights not of record is nevertheless
bound to recognize them.’’ Id. The court explained that
because Sears knew that Home Owners had made a
mistake by failing to discover its lien, it could not avoid
the equitable rights of Home Owners. Id.
The court continued: ‘‘A more serious question, grow-
ing out of the fact that the certificate of attachment
was on record, concerns the effect upon the plaintiffs’
rights of the constructive notice they thereby had of it
when they took the mortgages involved in this action. If
they were seeking relief of such a nature that a unilateral
mistake was an essential element in their cause of
action it might well be that the constructive notice they
had of [Sears’] lien would stand in the way. . . . Subro-
gation is, however, a remedy which equity gives to aid
in the enforcement of a right either legal or equitable,
and, if there is a right, the application of the remedy
does not require the existence of any other ground of
equitable relief.’’ (Citation omitted.) Id., 240–41. Our
Supreme Court stated that the parties had intended that
Home Owners have a first mortgage and that Sears
knew, when it filed its lien, that it was taking an inferior
position to the mortgages before it. Id., 241.
Furthermore, the court stated: ‘‘Whether . . . a
[party] will be barred of remedy in equity against the
effect of a mistake because of his negligence depends to
a large extend upon the circumstances of the particular
case. . . . The presumption that one taking a mortgage
upon land knows of all prior [e]ncumbrances of record
affecting it certainly is no stronger than the presumption
that one knows the law which determines his rights,
yet, relief may be given in equity against mistakes of
law. . . . The misconception under which the plaintiffs
acted was one common to DeDonato and the holders
of the released mortgages and the relief sought can in
no way prejudice their rights. The situation is not one
where the intention of all the parties should be defeated
because the plaintiffs acted in disregard of [Sears’] lien,
of which they had constructive notice.’’ (Citations omit-
ted.) Id., 242–43. Lastly, the court examined whether
the equitable remedy would work an inequity to Sears
and concluded that it would not. Id., 243–44.
Finally, we examine the most recent case in which
our Supreme Court discussed equitable subrogation or
reinstatement in a mortgage situation, which was
released by the court in 1966. In Connecticut National
Bank v. Chapman, supra, 153 Conn. 396, the defendants
Robert and Theresa Nielsen owned premises that were
mortgaged to the plaintiff, Connecticut National Bank
(bank). The Nielsens then sold the premises to the
defendants Loring and Toy Chapman, who assumed
the bank’s mortgage. Id. The Nielsens also loaned the
Chapmans money and took a second mortgage on the
premises, specifically subject to the bank’s mortgage.
Id. The bank received an insurance endorsement
reflecting the Chapmans’ second mortgage. Id.
When the Chapmans became delinquent on their
property taxes, they sought another mortgage from the
bank. Id., 396. The bank had an attorney perform a title
search, but he did not discover the Nielsens’ properly
recorded second mortgage. Id. The bank then closed
on the new mortgage, and its attorney gave the bank
a certificate of title, which showed title to the premises
in the Chapmans subject only to the new first mortgage
and a public utility easement. Id. When the Chapmans
defaulted on their mortgage to the bank, the bank began
a foreclosure action. Id. The bank, then, ‘‘became aware
of the existence of the Nielsens’ mortgage, of which it
had known but had negligently overlooked.’’ Id. The
Nielsens filed a counterclaim, and their mortgage was
foreclosed, subject to the trial court’s determination of
the priorities of the mortgages. Id., 397.
Our Supreme Court in Chapman explained that
equity required the court to examine the substance of
the entire transaction and not simply its form. Id. On
the basis of the facts in the case, the court stated: ‘‘There
being no intention to release a first mortgage lien, its
actual release for a momentary purpose should in equity
permit a subsequent lienor, who has not been preju-
diced thereby, to intervene and acquire priority. That
equity will act to prevent such a result is clearly estab-
lished by the great weight of authority. . . .
‘‘One of the most common mistakes connected with
releases of mortgages occurs when the mortgage is
renewed and the prior lien is released in ignorance of
intervening rights. Ignorance in such a case is regarded
in equity as equivalent to a mistake, and relief will be
granted when there is no element of estoppel involved.
. . . We have upheld the power of a court of equity
to grant relief from the consequences of an innocent
mistake, although the mistake was not unmixed with
negligence, when the failure to do so would allow one
to enrich himself unjustly at the expense of another.
. . . Whether . . . a [party] will be barred of remedy
in equity as against the effect of mistake because of his
negligence depends to a large extent upon the circum-
stances of the particular case.’’ (Citations omitted.)
Id., 397–98.
The court then instructed: ‘‘If the circumstances show
that there was no intent that the lien should be lost by
the release of the original mortgage, and, if the interven-
ing lienholder has not been prejudiced by any change
in his status because of reliance on the release . . .
relief should be granted.’’ Id., 399. On the particular
facts of the Chapman case, wherein the plaintiff bank
had actual notice of the intervening Nielsens’ lien,
which it negligently overlooked, the court explained:
‘‘The plaintiff would not be entitled to the remedy it
seeks if that would work an inequity to the Nielsens.
Here, the only action the Nielsens took was, after being
cited in as parties, to file a counterclaim seeking the
foreclosure of their mortgage against the Chapmans,
who failed to redeem. To deny relief to the plaintiff
would result in the unjust enrichment of the Nielsens
through an unexpected and undeserved windfall. A right
of recovery under the doctrine of unjust enrichment
is essentially equitable, its basis being that in a given
situation it is contrary to equity and good conscience
for one to retain a benefit which has come to him at
the expense of another.’’ Id.
A review of these Appellate and Supreme Court cases
leads us to conclude that there certainly may be times
when, on the particular facts of the case, constructive
notice of an intervening lien would tilt the scales in
favor of denying an equitable remedy such as subroga-
tion. See Deutsche Bank National Trust Co. v. DelMas-
tro, supra, 133 Conn. App. 678–79; Equicredit Corp. of
Connecticut v. Kasper, supra, 122 Conn. App. 98–99;
Independence One Mortgage Corp. v. Katsaros, supra,
43 Conn. App. 71. Nevertheless, constructive notice of
such a lien, or actual notice for that matter, certainly
does not bar the court, after properly weighing the
equities of the particular case, from the application of
an equitable remedy. See Connecticut National Bank
v. Chapman, supra, 153 Conn. 393; Home Owners’ Loan
Corp. v. Sears, Roebuck & Co., supra, 123 Conn. 232;
Lomas & Nettleton Co. v. Isacs, supra, 101 Conn. 614;
Rosenbilt v. Williams, supra, 57 Conn. App. 795; see
also Restatement (Third), supra, § 7.6.
In the present case, the trial court examined the rele-
vant cases from both the Appellate and Supreme Courts,
and it then applied the principles expressed therein.
The court found: ‘‘The plaintiff is only in its position
of being first in time on the 10 Carlin Street property
as a result of the mistake of the defendant bank’s prede-
cessors who, in fact, did negotiate and bargain for a
first mortgage position on the 10 Carlin Street property,
and, who, in fact, gave valuable consideration to obtain
it. It would not be equitable to allow the plaintiff to
obtain a benefit [for] which it did not bargain . . . at
the expense of the defendant bank under all of these
circumstances . . . .’’
On appeal, the plaintiff claims that ‘‘[t]he defendant
bank is not entitled to equitable subrogation because
it had constructive notice of [the plaintiff’s] mortgage,’’
and ‘‘that constructive notice of preexisting interest
outweighs any alleged windfall or undue advantage,
and, this prevents the party with constructive notice
from availing itself of equitable subrogation.’’ After our
thorough review of our prior case law, the Restatement
(Third), supra, § 7.6, other pertinent articles, and cases
from other states,18 we are persuaded that the defendant
bank’s constructive notice of the plaintiff’s prior
intervening lien was not a per se bar to the court’s
application of the doctrine of equitable subrogation.19
Accordingly, after fully considering the argument of the
plaintiff, we are not persuaded that the court abused
its discretion in applying this equitable doctrine.
II
The plaintiff also claims that the court abused its
discretion when it reduced the amount of the mortgage
the plaintiff held on 10 Carlin Street on the basis of the
court’s conclusion that there was a value to a quitclaim
deed, previously held by the plaintiff, for the commer-
cial property located at 18 Monroe Street. Specifically,
the plaintiff argues: ‘‘As part of its ruling on the issue
of equitable subrogation, the trial court found that the
quitclaim deed delivered to [the plaintiff] in 2005 had
a value of $205,000. . . . In so doing, the court rejected
[the plaintiff’s] argument that the quitclaim deed had
no value because it was void as against public policy.
. . . Furthermore, it relied upon this finding to reduce
the debt owed by [the defendant] Jean-Charles to [the
plaintiff]. . . . There was no basis in law or fact for
the trial court’s rejection of [the plaintiff’s] position.’’
The plaintiff also argues: ‘‘[H]ad [the plaintiff]
attempted to enforce its supposed rights under the quit-
claim deed, it would not have prevailed. As a matter of
law, a court would conclude that the quitclaim deed
operated to deprive JCE of its opportunity to redeem
as to 18 Monroe St[reet] and [that the deed, therefore,
was] void. Quite simply, the quitclaim deed . . . held
no legal value.’’ We are not persuaded that the court
abused its discretion.
As set forth in part I of this opinion: ‘‘A foreclosure
action is an equitable proceeding. . . . The determina-
tion of what equity requires is a matter for the discretion
of the trial court. . . . In determining whether the trial
court has abused its discretion, we must make every
reasonable presumption in favor of the correctness of
its action.’’ (Internal quotation marks omitted.) Rosen-
bilt v. Williams, supra, 57 Conn. App. 792. ‘‘When the
trial court draws conclusions of law from its balancing
of the equities, however, our review is plenary.’’ (Inter-
nal quotation marks omitted.) Wasko v. Manella, supra,
269 Conn. 543.
The court in the present case reasoned: ‘‘[T]he plain-
tiff chose to sell the 18 Monroe Street property in a
highly leveraged transaction. Knowing the risks
involved in such a transaction it negotiated, demanded
and received security for the debt due them from the
purchaser. . . . [I]t took back a second mortgage to
secure the debt on the property being sold (18 Monroe
Street); in addition it demanded a quitclaim deed be
executed and placed in escrow and it obtained a third
mortgage on the buyer’s personal residence. It received
back and recorded the quitclaim deed approximately
three and one-half years after the original transaction
on October 4, 2005, when the property had a value of
$670,000. It voluntarily assigned its second mortgage
to its principals rather than [enforce] it.20 Between the
quitclaim deed and the assignment of the mortgage the
plaintiff received substantial value toward the payment
of the debt just as [it] had contemplated in obtaining
those two items of security.
‘‘The plaintiff argues that the court should not con-
sider the transactions surrounding the quitclaim deed to
be of any value because of Connecticut’s public policy
against the use of such quitclaim deeds executed at the
time of a mortgage transaction to cut off an owner’s
equitable right of redemption. . . . While the court
does not disagree with the plaintiff’s general statement
of the public policy against ‘clogging’ the equity of
redemption, whether . . . that policy would have been
invoked to bar the plaintiff’s rights under the quitclaim
deed in the case at bar, given all of the components of
the original transaction, is an issue that is not before
this court. . . . [T]he plaintiff cannot take the position
that the court should ignore the quitclaim deed as
against public policy when the plaintiff insisted that it
be executed, retrieved it pursuant to the escrow
agreement, recorded it, and successfully asserted its
validity to the federal Bankruptcy Court [when it sought
and received] relief from the automatic stay of proceed-
ings. In fact the plaintiff received the benefit of all the
security for the debt owed to it by the defendant Jean-
Charles and JCE [for] which it had negotiated . . .
when it engaged in the initial transaction for the sale
and purchase of 18 Monroe Street. . . . Moreover, the
value of the 18 Monroe Street property was $670,000
at the time that the plaintiff recorded the quitclaim deed
and assigned its second mortgage to its principals.’’
We conclude that the reasoning of the trial court in
this case is persuasive and that the court did not abuse
its discretion. The plaintiff demanded as partial security
for the personal guarantees of Pascarelli and Bartolo
on the First County loan and its $195,000 loan to the
defendant Jean-Charles, JCE and Regina that a quit-
claim deed for the 18 Monroe Street property be exe-
cuted and delivered to the escrow agent and that such
deed be held unless and until JCE defaulted on its
promissory note to either the plaintiff or First County.
The present foreclosure case was commenced in
April, 2005, after JCE defaulted as anticipated in the
escrow agreement, and the quitclaim deed, thereafter,
was duly recorded on the land records in October, 2005.
The plaintiff also used its ‘‘ownership’’ of the 18 Monroe
Street property in JCE’s bankruptcy case. During this
time, the plaintiff certainly was not expressing a policy
concern that the quitclaim deed it was requiring,
recording, and using to establish its ‘‘ownership’’ before
the bankruptcy court was improper or unenforceable.
On the basis of these facts, we are unable to conclude
that the court, in this equitable proceeding, abused its
discretion when it concluded that there was a monetary
value to the quitclaim deed when the plaintiff filed it
on the land records in October, 2005.
III
The plaintiff also claims that the court erred when
it assigned a value to 18 Monroe Street for 2005, without
any evidence as to its value at that time. Specifically,
it argues that the court ‘‘had before it no appraisal
establishing the value of 18 Monroe [Street] in 2005
[and its] reliance upon appraisals from different dates
was improper.’’ The defendant bank argues that the
court ‘‘had before it the best evidence that the parties
provided as to [the] value of the . . . property . . . .
At trial, three appraisals of the . . . property were
made full exhibits: [A] 2002 appraisal which valued the
property at $675,000 . . . [a] 2008 appraisal which val-
ued the property at $668,000 . . . and the 2010
appraisal which [valued] the subject property at
$480,000.’’ It further argues that the court had ‘‘two
appraisals of the commercial property from 2002 and
2008, which had a constant value of $670,000 . . . [and
that the court properly] determin[ed] such was the value
of the property on October 4, 2005, when [the] plaintiff
recorded its quitclaim deed.’’ We agree with the defen-
dant bank.
‘‘A foreclosure action is an equitable proceeding. . . .
The determination of what equity requires is a matter
for the discretion of the trial court. . . . In determining
whether the trial court has abused its discretion, we
must make every reasonable presumption in favor of
the correctness of its action.’’ (Internal quotation marks
omitted.) Rosenbilt v. Williams, supra, 57 Conn. App.
792. Nevertheless, ‘‘[u]ltimately, the determination of
the value of the property [is] a matter of opinion and
depend[s] on the considered judgment of the [trial
court], taking into account the divergent opinions
expressed by the witnesses and the claims advanced
by the parties. . . .
‘‘Accordingly, we review the court’s findings under
the highly deferential, clearly erroneous standard of
review. [W]e do not examine the record to determine
whether the trier of fact could have reached a conclu-
sion other than the one reached. Rather, we focus on
the conclusion of the trial court, as well as the method
by which it arrived at that conclusion, to determine
whether it is legally correct and factually supported.
. . . A finding of fact is clearly erroneous when there
is no evidence to support it . . . or when although
there is evidence in the record to support it, the
reviewing court on the entire evidence is left with the
definite and firm conviction that a mistake has been
committed.’’ (Citation omitted; internal quotation
marks omitted.) Dept. of Transportation v. Cheriha,
LLC, 155 Conn. App. 181, 191–92, 112 A.3d 825 (2015).
Here, the plaintiff contends in its brief that there was
no evidence before the court that would permit the
court to assign a value to the 18 Monroe Street property
for the year 2005. It argues, without citation to authority,
that the court could not rely on appraisals from different
years to determine the value of the property in 2005.
During oral argument before this court, however, the
plaintiff conceded that ‘‘there are appraisals around
that time frame, give or take a few years, that may
support [the court’s finding of a value]. However, we
believe the most reliable evidence as to the property—
and its value—was when it was sold by First County
Bank to an entity known as J.P. Asset, Inc., which was
in 2008.’’
When making its determination as to the value of 18
Monroe Street at the time that the plaintiff recorded the
quitclaim deed for that property, the court had before it
a 2002 appraisal that had been prepared for First County
Bank by William Kaszics and Fred A. LaGreca of
Appraisal Services, LLC, which valued the 18 Monroe
Street property at $675,000, as of March 25, 2002. The
court also had before it an appraisal that had been
prepared for the plaintiff by Richard P. Piazza and Jean
T. Piazza of Premier Appraisal Group in 2008, which
valued the 18 Monroe Street property at $668,000, as
of October 22, 2008. Additionally, the court had a 2010
appraisal report prepared for J.P. Asset by Dominick
Pastorello of D.P. Appraisal Services, valuing the prop-
erty at $480,000 as of June 25, 2010.
The court also heard the testimony of various apprais-
ers, including Chris LaGreca, a general certified real
estate appraiser. LaGreca testified that he had reviewed
the Pastorello appraisal from 2010, and that there were
inconsistencies in the report and several other issues
of concern, which he put on the record for the court.
LeGreca also testified that there was a dramatic down-
turn in the economy in 2008, and that there generally
was an approximate 20 percent reduction in values in
Norwalk as a result of the 2008 recession, but he could
not speculate as to the reduction in value of 18 Mon-
roe Street.
On the basis of the evidence before it, the court spe-
cifically found that ‘‘the value of the 18 Monroe Street
property was $670,000 at the time that the plaintiff
recorded the quitclaim deed and assigned its second
mortgage to its principals. While the plaintiff argues
the value of the 18 Monroe Street property was consid-
erably less in 2005, [it] introduced no direct appraisal
testimony to this effect and the court believes that the
lessening of the value of the 18 Monroe Street property
occurred substantially after 2005 as a result of its contin-
ued deterioration and significant market forces that
occurred in late 2008.’’
On appeal, the plaintiff points to nothing in the record
that persuades us that this finding was clearly errone-
ous, nor are we persuaded that the court assigned a
value that purely was conjectural and devoid of any
evidentiary support. Cf. Thompson v. Orcutt, 257 Conn.
301, 307 n.8, 777 A.2d 670 (2001) (outlining procedure
used by trial court to determine equity in property sev-
eral years before foreclosure commenced where plain-
tiff had unclean hands due to his false representations
in bankruptcy case that had implications on foreclosure
case: ‘‘Based on testimony at trial that the market value
of the property subject to the [plaintiff’s] mortgage in
1990 had been $147,200, the trial court used an annual
depreciation rate of 4 percent, which was derived from
the testimony of the plaintiff’s expert appraiser, and
found that the fair market value of the property during
the first year of the plaintiff’s bankruptcy case would
have been approximately $135,000. The trial court noted
that that figure was consistent with the testimony of
the plaintiff’s appraiser who estimated the value of the
property in 1999 to be $103,000. Deducting $95,000,
which represented the face amount of the two priority
encumbrances, and disregarding the [a third] lien,
which had been paid in full but not released, the trial
court found that there had been $40,000 in equity in
the property in 1992, [which was] more than enough
to satisfy the full amount of the [plaintiff’s] $25,000
. . . mortgage.’’)
Here, the court had before it evidence of the value
of the Monroe Street property on various dates before
and after the relevant 2005 date. It also had testimony
explaining the 2008 economic downturn, which caused
property values to decline. On the basis of the evidence
presented, the court assigned a value to the property.
We are not persuaded that the court erred in doing so.
The judgment is affirmed.
In this opinion the other judges concurred.
1
Also named as defendants in the trial court were Herns Jean-Charles,
Regine F. Jean-Charles, Mortgage Electronic Registration System, Inc., Bank
of America, Mutual Security Credit Unions, Inc., Gilbert Lebowitz, and Ber-
nard Jacobson, all of whom were defaulted by the trial court. Martin J. Darby,
Jr., was a nonappearing defendant before the trial court, and Columbia Taxi
Company was removed as a defendant by the trial court; they are not parties
to this appeal. The trial court granted a motion to substitute the Bank of
New York Mellon, Trustee, as the defendant.
2
For purposes of clarity, we also note that neither Pascarelli nor Bartolo,
in their individual capacities, are parties to this case.
3
‘‘Pascarelli testified that he was quite interested in selling the property,
in part, because his elderly father was involved in the maintenance and
management of the property and he was concerned about adverse impacts
to his father from a continuation of his father’s involvement in the property.
This may have given Pascarelli added incentive to sell the property beyond
that of a typical seller.’’
4
The trial court also stated that ‘‘[t]he testimony by the principals of the
plaintiff was to the effect that the plaintiff owned 18 Monroe Street. The
court notes that the grantors on the deed conveying 18 Monroe Street to
JCE are Pascarelli and Bartolo. Whether there was a conveyance from the
plaintiff to Pascarelli and Bartolo shortly before the closing or the witnesses
were simply mistaken as to who the title holder of 18 Monroe Street was
prior to the conveyance to JCE [was] not clear to the court.’’
5
‘‘See footnote [4]’’ of this opinion.
6
The note apparently contains a scrivener’s error. It specifically states
that it ‘‘is secured by real property known as: 18 Meadow Street, Norwalk,
Connecticut 06854 and 10 Carlin Street, Norwalk, Connecticut 06851.’’
(Emphasis added.) The error has not been mentioned by any party on appeal,
and the trial court did not mention it in its decision.
7
JCE, the defendant Jean-Charles, and Regina also executed a hold harm-
less and indemnification agreement, in which they agreed that they would
hold harmless Pascarelli and Bartolo until the $500,000 loan was paid in
full and the mortgage released, and that they would indemnify Pascarelli
and Bartolo for any loss, liability, damage and expense, including attorney’s
fees, suffered as a result of their guaranteeing the loan. The escrow
agreement was a requirement contained in the hold harmless and indemnifi-
cation agreement.
8
The record also reveals that Pascarelli and Bartolo executed their per-
sonal guarantee of First County Bank’s $500,000 loan to JCE at that time.
9
For the sake of clarity, we note that the defendant Jean-Charles was not
a party to the First County note and mortgage in his individual capacity.
Rather, he acted only in his representative capacity, on behalf of his limited
liability company, JCE, when he executed the note and mortgage with First
County. We also mention that JCE has not been named a party in the present
case, although its principal, the defendant Jean-Charles, has been named in
his individual capacity.
10
J.P. Asset is not a party to the present action.
11
We note that the purchase and sale agreement was between the plaintiff
and the defendant Jean-Charles. The defendant Jean-Charles, however, did
not execute the note and mortgage, nor take title to 18 Monroe Street in
his individual capacity. Rather, First County Bank executed a note and
mortgage with JCE, to whom the plaintiff ultimately sold the property. See
also footnotes 4 and 9 of this opinion.
12
‘‘No defendant is entitled to any credit or advantage based on the fact
that J.P. Asset purchased a debt worth more than $400,000 for $400,000.
First, J.P. Asset is a separate entity and there has been no evidence from
which the court can conclude that a corporate veil should be pierced.
Second, the acquisition of the First County debt was based on an arm’s
length transaction, and J.P. Asset was entitled to the full value of the asset
[that] it purchased regardless of what it paid for that asset.’’
13
‘‘The plaintiff cannot escape this finding by asserting that the quitclaim
deed was also subject to a second mortgage that had been assigned to
Pascarelli and Bartolo. Because the mortgage and quitclaim deed were both
security for the same debt, the assignment of the mortgage to its principals
was a voluntary relinquishing of that security and an election to proceed
with the quitclaim deed. To discount the value of the quitclaim deed by the
value of the mortgage that its principals still controlled would be to allow
a double recovery for the same debt.’’
14
‘‘The law has recognized two types of subrogation: conventional; and
legal or equitable. 73 Am. Jur. 2d 599, Subrogation § 2 (1974 and 1995 Sup.).
. . . Conventional subrogation can take effect only by agreement and has
been said to be synonymous with assignment. It occurs where one having
no interest or any relation to the matter pays the debt of another, and by
agreement is entitled to the rights and securities of the creditor so paid.
. . . By contrast, [t]he right of [legal or equitable] subrogation is not a matter
of contract; it does not arise from any contractual relationship between the
parties, but takes place as a matter of equity, with or without an agreement
to that effect.’’ (Internal quotation marks omitted.) Wasko v. Manella, supra,
269 Conn. 532. In the present case, only equitable subrogation is at issue.
15
For the Restatement rule and discussion of equitable reinstatement
of replacement mortgages, which generally applies the rules of equitable
subrogation, see Restatement (Third), supra, § 7.3; see also H. Winiarski,
Jr., ‘‘Equitable Subrogation in the Context of Interests in Real Property: The
Basics and the Areas Needing Authoritative Clarification,’’ 85 Conn. Bar J.
231, 237 n.15 (2011).
16
See footnote 12 of this opinion.
17
In carefully reviewing the Isacs case, we have taken note that the court
also stated that plaintiff had neither factual notice nor constructive notice
of the Isacs’ lien. Lomas & Nettleton Co. v. Isacs, supra, 101 Conn. 619. The
court did not explain, in light of the facts, why the plaintiff was not charged
with constructive notice except to say that the plaintiff merely meant to
extend and continue, rather than replace, the previous mortgage. Id.
18
See, e.g., East Boston Savings Bank v. Ogan, 428 Mass. 327, 331–33,
701 N.E.2d 331 (1998) (declining to adopt bright line rule that would nullify
availability of equitable subrogation when subrogee had degree of knowledge
concerning existence of intervening mortgage, and affirming judgment grant-
ing subrogation despite plaintiff bank’s constructive knowledge of interven-
ing lien); JP Morgan Chase Bank, N.A. v. Banc of America Practice
Solutions, Inc., 209 Cal. App. 4th 855, 861–62, 147 Cal. Rptr. 3d 287 (2012)
(affirming judgment granting equitable subrogation to plaintiff bank, who
refinanced first and second mortgage, despite bank’s constructive notice of
prior lien, because bank bargained for first position, prior lienholder bar-
gained for junior position, and junior lienholder could not demonstrate
prejudice as all parties received exactly what they bargained for by applica-
tion of equitable subrogation).
19
We pause to state that we recognize that institutional lenders routinely
are involved in these types of transactions and that they generally have
significant experience and resources at their disposal. Bankers Trust Co.
v. United States, 29 Kan. App. 2d 215, 221–22, 25 P.3d 877 (2001) (acknowledg-
ing Restatement approach but declining to follow it). Indeed, we also are
mindful that professional lenders often hire their own title examiners, and,
if the professional lender chooses, even by mistake or negligence, to lend
in spite of a cloudy title, the balance of the equities in that circumstance
may well dictate that the professional lender bear the risk that flows from
such a decision. See Deutsche Bank National Trust Co. v. DelMastro, supra,
133 Conn. App. 675–78. Nevertheless, whether the lender should be barred
from invoking the doctrine of equitable subrogation when it has constructive
notice of an intervening lien is a decision left to the sound discretion of the
trial court after a proper balancing of the equities in each individual case.
See Connecticut National Bank v. Chapman, supra, 153 Conn. 397–98;
Deutsche Bank National Trust Co. v. DelMastro, supra, 676. Because our
Supreme Court has recognized this doctrine and applied its principles in
prior case law despite the mistake or negligence of the lender or its title
examiner, we adhere to that law and leave the adoption of a per se rule to
that court.
20
The effect of assigning the mortgage to Pascarelli and Bartolo, without
assigning the debt, is not before us.