Southington v. Commercial Union Ins. Co.

71 Conn. App. 715

805 A.2d 76

TOWN OF SOUTHINGTON v. COMMERCIAL UNION INSURANCE COMPANY

(AC 18088)

Appellate Court of Connecticut.

Argued December 11, 2001.

Officially released August 27, 2002.

Landau, Schaller and Dupont, Js. Bradford R. Carver, for the appellant (defendant).

Marjorie S. Wilder, with whom, on the brief, was Talbot A. Welles, for the appellee (plaintiff).

Opinion

LANDAU, J.

This appeal concerns a subdivision performance bond provided pursuant to General Statutes § 8-25. The primary issue is whether the surety is liable to the municipality where the surety's bankrupt principal has failed to complete the subdivision and the municipality, which acquired the subject land at a foreclosure sale, has become the successor developer. We conclude that, pursuant to the terms of the bond¹ and § 8-25,² the surety is liable to the municipality for completion of the subdivision.

This appeal returns to this court for the third time to resolve the remaining claims of the defendant, Commercial Union Insurance Company.³ See Southington v. Commercial Union Ins. Co., 254 Conn. 348, 369, 757 A.2d 549 (2000). The defendant's remaining claims are that "the trial court improperly (1) failed to find that the [plaintiff town of Southington] violated its statutory and regulatory obligations thereby prejudicing the defendant and discharging its surety obligation because the trial court (a) did not conclude that the [plaintiff], as a successor in interest, was required to provide a substitute bond, (b) did not conclude that the defendant was prejudiced by the [plaintiffs] failure to give it timely notice of the breach of contract; (2) failed to apply the law of the case to the count [of the plaintiffs complaint] sounding in contract; (3) failed to conclude that the [plaintiff] had not met its burden of proof on the contract and negligence claims; and (4) awarded damages because it failed to conclude (a) that the [plaintiff] was required to complete the subdivision improvements before making a claim, (b) that the defendant was entitled to a refund for funds not expended by the [plaintiff], (c) that the [plaintiff's] proof was insufficient in that it did not establish the date of the breach and the costs of completing the improvements on that date, (d) that for equitable reasons, pursuant to General Statutes § 52-238 (a), no damages were due the [plaintiff] and (e) that the [plaintiffs] evidence of the cost of completing the improvements was speculative." (Internal quotation marks omitted.) Southington v. Commercial Union Ins. Co., supra, 356 n.6, quoting Southington v. Commercial Union Ins. Co., 54 Conn. App. 328, 330 n.2, 735 A.2d 835 (1999), rev'd, 254 Conn. 348, 757 A.2d 549 (2000). In addition, our Supreme Court advised this court to consider "whether the plaintiff, which acquired the property through foreclosure, was precluded from calling the bond because it had become, in effect, a successor developer of the subdivision." Southington v. Commercial Union Ins. Co., supra, 254 Conn. 356 n.6.

The following relevant facts and procedural history are not in dispute. "The [plaintiff] brought an action against the defendant for payment under a performance bond that the defendant had posted as surety. Michael J. Martinez was the president, sole director and sole shareholder of A.M.I. Industries, Inc. (AMI). In 1988, AMI applied to the [plaintiff's] planning and zoning commission (commission) for approval of an industrial subdivision in the town on Captain Lewis Drive. At the time, the real property was owned by Southington Land Associates, Inc. (SLA). On October 4, 1988, the commission approved the application subject to AMI's furnishing a $590,000 subdivision or public improvement bond.

"On November 1, 1988, Martinez, as principal, and the defendant, as surety, executed a subdivision bond for the real property, and on February 9, 1989, SLA sold the property to MJM Land Investments, Inc. (MJM). Martinez was the president and sole stockholder of MJM. By April, 1995, Martinez, AMI and MJM had failed to complete the improvements required under the subdivision approval. [By letter dated April 7, 1995] [t]he [plaintiff] informed the defendant that the subdivision had not been completed and that if it was not completed by October 3, 1995, the [plaintiff] would have to call the bond. Martinez declared personal bankruptcy and the [plaintiff] purchased the real property in a foreclosure auction on June 27, 1995." (Internal quotation marks omitted.) Id., 354-55, quoting Southington v. Commercial Union Ins. Co., supra, 54 Conn. App. 330-31.

The plaintiff commenced this action on June 23, 1995, alleging, in its amended complaint, breach of contract and negligence and, in the alternative, promissory estoppel and identity-unity of interest, and seeking damages of $175,000 to complete the subdivision improvements. The trial court, Hon. Frances Allen, judge trial referee, rendered judgment in favor of the plaintiff on the breach of contract and negligence counts of the complaint. The defendant appealed to this court, which reversed the trial court's judgment, concluding that because at the time the plaintiff called the bond, no lots in the subdivision had been conveyed "that would require the completion of public improvements covered by the bond, the defendant has incurred no liability to the [plaintiff]." Southington v. Commercial Union Ins. Co., supra, 54 Conn. App. 334. The plaintiff thereafter appealed to our Supreme Court, which reversed our judgment, holding that "a municipality has broad discretion in deciding whether to call a subdivision performance bond posted pursuant to § 8-25." Southington v. Commercial Union Ins. Co., supra, 254 Conn. 358. Our Supreme Court remanded the case to this court to consider the defendant's remaining claims.

To address the issue raised by our Supreme Court, i.e., "whether the plaintiff, which acquired the property through foreclosure, was precluded from calling the bond because it had become, in effect, a successor developer of the subdivision"; id., 356 n.6.; we remanded the case to the trial court; Southington v. Commercial Union Ins. Co., 61 Conn. App. 757, 768 A.2d 454 (2001); because it is well known that appellate courts do not find facts and draw conclusions related thereto. See Perkins v. Fasig, 57 Conn. App. 71, 79, 747 A.2d 54, cert. denied, 253 Conn. 925, 754 A.2d 797 (2000). On remand to the trial court, the parties stipulated to the following facts. The plaintiff purchased the property for economic and industrial development and thus became a successor developer. The plaintiff paid $325,450 for the property. At the time of the trial in October, 1997, the plaintiff had sold four of the eleven lots in the subdivision; the average price per acre was $40,000. The court, Hon. Richard M. Rittenband, judge trial referee, found on remand that the plaintiff had purchased the property, which is in an economic empowerment zone, not to make a profit, but to stimulate economic development. Judge Rittenband declined to decide whether the plaintiff was precluded from calling the bond because it was a successor developer. The parties returned to this court for additional oral argument, but without supplemental briefing.

We first review the law governing subdivision bonds and suretyship in general. The performance bond in question was posted pursuant to § 8-25. In such situations, our Supreme Court has observed that the rules of statutory construction as well as several fundamental principles governing suretyship law apply to the defendant's claims. Southington v. Commercial Union Ins. Co., supra, 254 Conn. 358. "First, the general purpose of a suretyship contract is to `guard against loss in the event of the principal debtor's default.' ... `Suretyship by operation of law results when a third party promises a debtor to assume and pay the debt he owes to a creditor.' ... Second, municipal bonds are construed in accordance with the general rules for written instruments.... It is axiomatic that a performance bond runs to the benefit of the obligee. `[T]he obligation of a surety is an additional assurance to the one entitled to the performance of an act that the act will be performed.'... Third, `[t]he liability of sureties is to be determined by the specified conditions of the bond....' In the present case, the bond signed by the defendant as surety provided that the defendant would be bound until the improvements were completed. Fourth, when a bond is required by statute, a court will read the statute into the contract between the principal, surety and obligee.... `A contractor's bond, given for the full and faithful performance of a contract for a public improvement, will be construed with reference to the statute pursuant to which it is given, and such statutory provisions will be read into the bond...." (Citations omitted; emphasis added.) Id., 358-59.

I

We first turn to our Supreme Court's question as to whether the plaintiff was precluded from calling the performance bond because it had become a successor developer; see id., 356, n.6.; as it could be dispositive of the appeal. We conclude, however, that although the plaintiff is a successor developer of the subdivision, having acquired the property at a foreclosure sale, it is not precluded from calling the bond.

As previously stated, the parties stipulated that the plaintiff had acquired the property at a foreclosure sale for the purpose of economic and industrial development and had become a successor developer. The court on remand found that the property is in an economic empowerment zone and that the plaintiffs purpose in developing the property is to stimulate economic development, not to make a profit. Neither of the parties has brought any law to our attention that the manner in which the plaintiff acquired the property is consequential to the issue, and we know of none.⁴ The defendant argues that because the plaintiff...