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PACK 2000, INC. v. EUGENE C. CUSHMAN (AC 30540)
Lavine, Beach and Lavery, Js. Argued September 16, 2010--officially released February 1, 2011

(Appeal from Superior Court, judicial district of New London, Abrams, J.) Andrew J. O'Keefe, with whom, on the brief, was Joseph M. Busher, Jr., for the appellant (defendant). Andrew Brand, for the appellee (plaintiff).

Opinion

LAVERY, J. The plaintiff, Pack 2000, Inc., brought these actions against the defendant, Eugene C. Cushman, seeking specific performance of two options to purchase realty that the plaintiff had leased from the defendant. After a trial to the court, the court rendered judgments in favor of the plaintiff. The defendant then filed this appeal, claiming that the court was required to apply a strict compliance standard in determining whether the plaintiff had satisfied the conditions precedent to its exercise of the options and improperly determined that the plaintiff had retained its right to exercise the options.1 We agree with the defendant and, accordingly, reverse the judgments of the trial court. The following facts and procedural history are relevant to our resolution of the defendant's claim on appeal. In July, 2002, the plaintiff, the defendant and ARCO Corporation (ARCO),2 a corporation controlled by the defendant, entered into a business transaction in which two Midas muffler shops (shops)3 were to be transferred from ARCO to the plaintiff.4 As part of the transaction, the parties executed a number of agreements, including two lease agreements, under which the defendant leased the realty where the shops are located to the plaintiff; a management agreement, under which the plaintiff assumed responsibility for the management and operation of the shops from ARCO; a letter of intent; and two promissory notes. Each lease agreement contains a clause in paragraph 2 that provides the plaintiff with an option to purchase the leased realty subject to certain terms and conditions. The language of the two clauses is essentially identical. Each clause provides in relevant part: ``So long as [the plaintiff] has been in compliance with the terms and conditions of this Lease, the Letter of Intent, and Management Agreement . . . and is in compliance with such instruments when the option is exercised, [the plaintiff] shall have the option to purchase the real estate subject to this lease. . . . The option shall be exercised by [the plaintiff] giving [the defendant] three months advanced notice, in writing. The option may be exercised by giving the aforesaid notice between the date of this Lease [July 25, 2002] and the fifth anniversary of [the] same.'' The management agreement also refers to the plaintiff's options to purchase the defendant's realty and contains the following language in paragraph 10 as it relates to the options: ``The [plaintiff] shall be given an option to purchase the real estate upon which the shops are located. Said option shall be by separate agreement and signed by the titleholder and the party designated by [the plaintiff] to take title. Such option shall cite separate consideration and shall contain the terms as generally outlined herein. (a) Such option may be exer-

cised between [the] date of commencement herein and the fifth anniversary of [the] same. . . . (f) [The plaintiff] must be in full compliance with this agreement and any lease agreement at the time of exercise.'' In addition to the two lease agreements and the management agreement, the letter of intent also contains language that refers to the options. It provides in relevant part: ``[The plaintiff] has the option to purchase from [the defendant] the buildings and the land housing the Shops, if this agreement and the . . . Management Agreement are executed. The option is for five years from the date of the Management Agreement. The price will be as appraised.'' Under the terms of the two lease agreements, the management agreement and the promissory notes, the plaintiff was required to make a number of periodic payments both to the defendant and to certain third parties in order to exercise the options. Specifically, the plaintiff was required to pay rent to the defendant by the first day of each month during the term of the lease, to make payments on both promissory notes by the eighth day of each month until the notes were fully paid and to pay all accounts, including, but not limited to, utilities, telephone service, real estate taxes, and hazard and liability insurance as well as an equipment lease.5 At trial, the defendant testified that timely payment of the aforementioned accounts was vital and that he informed the plaintiff that untimely payments would jeopardize his franchise agreements with Midas and his mortgages on the two shops.6 Nevertheless, the record reveals that the plaintiff was often late in making the aforementioned payments. Specifically, the record reveals that the following payments were late: the rent payment due on May 1, 2004; three payments on the promissory notes due on February 8, 2003, and May 8 and June 8, 2006; one payment to Groton Utilities, which resulted in a shutoff notice that the defendant forwarded to the plaintiff on January 23, 2003; several payments to a telephone company, which resulted in several collection letters and telephone calls that the defendant received in late 2002 and early 2003 as well as a threat to terminate telephone service to the defendant's unrelated business in March, 2003; two real estate tax installments on the New London shop due January 1, 2005, and January 1, 2007; one real estate tax installment on the Groton shop due July 1, 2007; twelve hazard and liability insurance installments between November, 2002, and January, 2004, that resulted in cancellation notices issued on July 30, 2003, and November 29, 2004; twenty health insurance installments between October, 2002, and September, 2005; and several installments under the terms of an equipment lease that resulted in several collection calls to the defendant in 2002 and 2003. On August 22, 2003, the plaintiff's vice president, M.

Paulina Anderson, faxed a letter to the defendant in which she stated that she wanted ``to finalize the purchase of the shops and exercise the option[s] to purchase the real estate by the end of 2003.'' On August 29, 2003, Anderson sent a second letter to the defendant in which she sought information about a possible appraisal and indicated that Banterra Bank (bank) could not commit to financing the purchase until it had ascertained the value of the defendant's realty. On September 2, 2003, the defendant, on behalf of ARCO, sent a letter to Anderson in which he stated that the plaintiff was not in compliance with the terms and conditions of the management agreement. Specifically, the letter stated: ``The installment payment regarding the . . . Management Agreement which was due September 1, 2003 has not been received. Per the provisions of said agreement, the monthly installments are due on the first day of each month. Your monthly payments have been consistently late and have required telephone calls from [ARCO] nearly every month in order to prompt the payment. Timely payment of the note was and is a material condition of the agreement. As you have known from the inception, ARCO . . . is dependent upon timely payments from you in order to remain in compliance with its obligations concerning various mortgages. Your late payment for August put ARCO . . . in default with one of its mortgagees. This is an intolerable circumstance. You are hereby put on notice that this late payment, and all of the prior late payments, and any future late payments puts you out of compliance with the terms and conditions of the Management Agreement. Subsequent acceptance of the September, 2003 payment (or any future payment tendered after the date due) will not cure the non-compliance, nor does ARCO . . . waive any rights or consequences which flow from your non-compliance.'' There is no record of the plaintiff having specifically responded to this letter. On May 16 and 19, 2006, the plaintiff again sought to exercise the options to purchase the defendant's realty. At that time, however, the payment on one of the promissory notes that was due on May 8, 2006, had not been paid. On July 17, 2006, the plaintiff commenced these actions against the defendant claiming that it was entitled to specific performance of the options to purchase the defendant's realty. In its disclosure of defense, filed on August 4, 2006, the defendant argued that the plaintiff's claim was without merit because, among other things, the plaintiff had not complied with the terms of one of the promissory notes and the conditions of the lease at the time of its attempt to exercise the options, and, therefore, the options had been forfeited or terminated by the plaintiff's fault or noncompliance. As of the date of trial, the plaintiff had paid the defendant in

excess of $600,000 in rent under the terms of the lease agreements, $700,000 under the terms of the promissory notes and was not in arrears on its financial obligations under the terms of any of the aforementioned agreements. On August 11, 2008, the trial court rendered judgments in favor of the plaintiff. The court determined that the plaintiff had retained the right to exercise the options because it had substantially complied with the terms and conditions of the options. The court also determined that the plaintiff had effectively exercised the options on August 22, 2003, and was entitled to specific performance. The court, therefore, ordered the defendant to sell the realty at issue to the plaintiff under the terms of their agreements. On August 28, 2008, the defendant filed a motion to open the judgments and for reconsideration, which the court denied on November 5, 2008. This appeal followed. On appeal, the defendant claims that the court applied an improper standard in finding that the plaintiff had complied with the conditions precedent to its exercise of the options and improperly determined that the plaintiff had retained its right to exercise the options. Specifically, the defendant contends that the plaintiff could have maintained its right to exercise the options only by strict compliance with the conditions precedent to its exercise of the options and that the plaintiff had lost its right to exercise the options because it had failed to satisfy this strict compliance standard. We agree. We begin by setting forth the applicable standards of review. The defendant's appeal challenges the validity of the trial court's judgments with respect to its factfinding and legal conclusions. ``Our basic standard of review of such claims is well established. To the extent that the trial court has made findings of fact, our review is limited to deciding whether such findings were clearly erroneous. When, however, the trial court draws conclusions of law, our review is plenary and we must decide whether its conclusions are legally and logically correct and find support in the facts that appear in the record.'' (Internal quotation marks omitted.) Johnson Electric Co. v. Salce Contracting Associates, Inc., 72 Conn. App. 342, 344, 805 A.2d 735, cert. denied, 262 Conn. 922, 812 A.2d 864 (2002). Our standard of review when the court has granted or denied the remedy of specific performance of a contract to sell land is abuse of discretion because specific performance ``is a remedy which rests in the broad discretion of the trial court depending on all of the facts and circumstances when viewed in light of the settled principles of equity.'' (Internal quotation marks omitted.) Hill v. Raffone, 103 Conn. App. 737, 742, 930 A.2d 788 (2007). Our Supreme Court has determined, albeit implicitly, that when a lease provides the lessee with the option to purchase realty subject to certain terms and condi-

tions, the right of the lessee to exercise the option is contingent on the lessee's strict compliance with those terms and conditions. See Brauer v. Freccia, 159 Conn. 289, 268 A.2d 645 (1970). The facts in Brauer are similar to the facts in the present case. In Brauer, the plaintiffs and the defendants entered into a lease that provided the plaintiffs with an option to purchase the defendants' property on the condition that, among other things, the plaintiffs pay rent to the defendants by the first day of each month during the term of the lease. Id., 291 n.1. At the time that the plaintiffs attempted to exercise their option, they had failed to make a number of the required rent payments. Id., 292. It was on that basis that the defendants refused to convey their property to the plaintiffs. Id. Our Supreme Court ruled in favor of the defendants and found that the language of the lease ``clearly indicate[d] that the defendants' duty to comply with the terms of the option was conditioned upon the plaintiffs' punctual performance of their obligations under the lease.''7 Id., 293

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