New England Update - American First Federal, Inc. v. Gordon

American First Federal, Inc. v. Gordon, 173 Conn. App. 573 (June 6, 2017)

Around September 2006, Sheldon M. Gordon (the “Borrower”) and Sovereign Bank (the “Bank”) executed a business loan agreement pursuant to which the Borrower issued a promissory note in favor of the Bank in the original aggregate principal amount of $3,000,000 (the “Promissory Note”).  The Borrower’s obligations under the Promissory Note were guaranteed by Gordon Group Investments, LLC, and the Promissory Note was subsequently amended and restated and then further amended.  In September 2010, the Bank and American First Federal, Inc. (the “Buyer”) entered into an asset sale agreement, pursuant to which the Bank would assign its rights to the loan evidenced by the Promissory Note at a subsequent closing date.  Thereafter, copies of the available loan documents were sent to the Buyer, notice of the transfer was sent to the Borrower by the Bank and an agent for the Buyer and the Borrower made several loan payments to the Buyer.  The Borrower eventually stopped payments and the Buyer commenced this action.

On appeal, the court considered whether (i) the assignment between the Bank and the Buyer was valid and (ii) the Buyer was entitled to postjudgment interest only on the outstanding principal balance of the loan (rather than on the entire judgment amount, encompassing unpaid principal and interest).  The court answered both questions in the affirmative. 

The court began by outlining the framework for analyzing validity of assignment claims, noting that “to constitute an assignment there must be a purpose to assign or transfer the . . . debt . . . and the subject matter of the assignment must be described with such particularity as to render it capable of identification.”  The court held that although the asset sale agreement was insufficient by itself to establish validity of the assignment, the totality of the facts fit within the framework of a valid assignment.  The court found that the execution of the asset sale agreement, the delivery of the operative documents to the Buyer and the notice of transfer from both the Bank and the Buyer combined to reveal a manifested intent to assign the debt from Bank to the Buyer.  Additionally, the Borrower made payments to the Buyer and forwarded financial statements indicating his concurrence that the debt had been transferred.  Furthermore, there was no question that the loan and assignee were identified with sufficient particularity.  The fact that a final bill of sale was never delivered was not dispositive, since the court saw “no reason why [it] should be required to ignore the other facts founds by the court clearly indicating that Sovereign intended to, and in fact did, assign the loan to the plaintiff.”

As for postjudgment interest, the court recounted the trial court’s observation that “[Connecticut General Statutes §37-1] . . . requires the parties to be held to the express terms of their bargain as set forth in the application documents representing their agreement . . .”  Because the loan documents expressly provided that interest is applicable only to the outstanding principal of the loan, the postjudgment interest would accrue only on the outstanding principal balance rather than on the full judgment amount taking into account principal and interest.