Gaines v. Continental Mortg. and Inv. Corp.

• Decision Date: 13 January 1989
• Docket Number: No. 87-7220,87-7220
• Citation: 865 F.2d 375
• Parties: Henry W. GAINES, et al., Appellants, v. CONTINENTAL MORTGAGE AND INVESTMENT CORPORATION, et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 375

865 F.2d 375

275 U.S.App.D.C. 156

Henry W. GAINES, et al., Appellants, v. CONTINENTAL MORTGAGE AND INVESTMENT CORPORATION, et al.

No. 87-7220.

United States Court of Appeals District of Columbia Circuit.

Argued Sept. 23, 1988.

Decided Jan. 13, 1989.

Appeal from the United States District Court for the District of Columbia (Civil Action No. 86-02172).

Paul J. Riley, Washington, D.C., for appellants.

Robert E. Deso, with whom Carlos M. Recio, Washington, D.C., was on the brief, for appellee Continental Mortg. and Inv. Corp. Bradshaw Rost, Washington, D.C., also entered an appearance for respondent Continental Mortg. and Inv. Corp.

Jerome P. Friedlander, II, for appellees Tamco Retirement Fund and Arthur L. Walters, Trustee.

James E. Mitchell entered an appearance Pro Se.

Before WALD, Chief Judge, MIKVA and D.H. GINSBURG, Circuit Judges.

Opinion for the Court filed by Circuit Judge D.H. GINSBURG.

Opinion concurring in part and dissenting in part filed by Circuit Judge MIKVA.

D.H. GINSBURG, Circuit Judge:

Plaintiff-appellants Henry W. Gaines and Joann Gaines sued, and then settled their case against, Continental Mortgage and Investment Corporation, Tamco Retirement Fund, and various individuals. Plaintiffs now challenge a ruling by the district court denying their motion to enforce or, alternatively, to rescind the Settlement Agreement. We affirm.

I. BACKGROUND

As of September 1985, the plaintiffs owned a home in northwest Washington, D.C. They were then in arrears on their purchase money mortgage, the balance of which was slightly less than $15,000, and on their taxes on the property. Defendant George E. Granse arranged for defendant Continental to make a loan to the plaintiffs which would allow them to satisfy these obligations and to receive about $10,000 in cash to pay off other debts. Plaintiffs therefore executed a promissory note (the "1985 Note") in the amount of $35,000, secured by a trust deed on their home. Defendants James E. Mitchell III and Arthur L. Walters were named as trustees under the security instrument. Subsequently, Continental assigned the note to defendant Tamco.

In August 1986, plaintiffs filed a civil action against the above-named defendants and others, seeking to rescind the 1985 Note and the corresponding trust deed as illegal and unconscionable contracts, to enjoin exercise of the power of sale contained in the trust deed, and to receive penalties under the Federal Truth in Lending Act, 15 U.S.C. Sec. 1601 et seq. The complaint also alleged damages (1) against all defendants for violation of the District of Columbia Consumer Protection Procedures Act, D.C.Code 28-3905(k)(1) (1981); (2) against Mitchell for "breach of duty as a settlement agent"; and (3) against Granse for fraudulent misrepresentation in arranging the loan. Continental cross claimed against Mitchell and Granse, and Mitchell cross claimed against Granse, for indemnification.

After some negotiation, the parties advised the district court that settlement appeared probable. On May 12, 1987, the court, therefore, dismissed the action without prejudice for thirty days. Dismissal without prejudice was renewed twice thereafter. The final order of the district court, entered on June 30, provided that the action would stand dismissed without prejudice until July 20, after which, if settlement were not consummated, the parties could move to reopen the action. Timely settlement not having been effected, the plaintiffs moved to reopen the case, and the district court ordered the parties to appear at a "status/settlement conference" on July 29.

On that date, the parties entered into a "Settlement Agreement" constituting "a complete and final settlement of their claims and cross claims." Continental agreed to make a new loan of $35,000 to plaintiffs, who would, in turn, use that sum and an additional $4,371 to pay Tamco the principal and interest, respectively, due on the 1985 Note. Granse and Mitchell were to share equal responsibility for any "fees, points, lender's title insurance, or charges of any kind normally associated with a real estate settlement transaction and release" of the 1985 Note. The agreement expressly provided, however, that "Granse and Mitchell shall not be responsible for any encumbrance of record or unpaid taxes." Mitchell was to conduct the settlement without charge. Tamco waived certain late fees, penalties, and attorneys fees due to it under the 1985 Note. Finally, plaintiffs were to assign to Continental the lease they had apparently made of their property.

In addition to all of the foregoing, the Settlement Agreement specified that Mitchell would pay plaintiffs $2,000 and Granse would pay them $1,000 "on or before the date of settlement," which was to be "as soon as possible, by August 15, 1987." Granse would pay an additional $5,000 later pursuant to a "Final Judgment (Consent)" which he obligated himself to sign. The $1,000 and $2,000 payments from Granse and Mitchell, respectively, were designed to reduce (to $1,371) the amount that plaintiffs would have to bring to the closing in order to pay off the 1985 Note. On July 30 the district court entered a "Final Judgment (Consent)" ordering Granse to pay plaintiffs $5,000 in satisfaction of their claims directly against him, without Granse admitting liability or fault.

Before the August 15 deadline for closing, a title search revealed a water and sewer lien on plaintiffs' property. Because plaintiffs did not remove the lien by August 15, the scheduled closing never took place. When the time for closing had passed, Tamco began foreclosure proceedings on the 1985 Note; and plaintiffs, by motion in the district court, sought specific enforcement or, in the alternative, rescission of the Settlement Agreement. The district court denied their motion, finding it implicit in the title insurance provisions of the agreement that plaintiffs would tender clear title as a condition precedent of the new loan closing. Since plaintiffs failed to meet this condition, the court released all of the defendants from their obligations under the Settlement Agreement, noting, however, that the Final Judgment (Consent) against Granse survived. The court then entered an order dismissing the case with prejudice.

Joann Gaines thereafter filed for bankruptcy. Plaintiffs' property was sold at foreclosure, subject to their right of redemption, which they exercised by selling the property at its market value of $73,000. The 1985 Note was paid from the proceeds of this sale.

On this appeal, plaintiffs argue that all parties to the Settlement Agreement labored under the misapprehension that the "plaintiffs would present an unencumbered title." Under established principles of contract law, they contend, such a "mutual mistake of fact" concerning the existence of a lien on their property invalidated the Settlement Agreement, and entitled them to rescission or reformation of that contract in order to conform it to the parties' intentions. Alternatively, they argue that their unilateral breach should excuse only Continental and Tamco, and that the district court abused its discretion by releasing Granse and Mitchell from their obligations under the Settlement Agreement.

II. MOOTNESS

This court will "dismiss appeals as moot when events during the pendency of the appeal obviate the possibility of meaningful relief." Public Media Center v. FCC, 587 F.2d 1322, 1326 (D.C.Cir.1978). Defendants Continental and Tamco--the only appellees that filed briefs in this court--argue that the sale of plaintiffs' property at market value, and the resulting satisfaction of the 1985 Note, preclude plaintiffs from getting "meaningful relief" in court. We disagree.

If we were to accept plaintiffs' argument that the Settlement Agreement should be set aside as a contract based upon a mutual mistake of fact, they could reopen their civil case before the district court. While the several counts of their original complaint that sought injunctive relief from the now satisfied 1985 Note may now be moot, the counts that stated claims for damages under federal and District of Columbia law are not moot. That is, the events that occurred during the pendency of this appeal would not prevent plaintiffs from now getting "meaningful relief" in the form of damages. We therefore conclude that this appeal is not moot.

III. MUTUAL MISTAKE

The strong policies favoring enforcement of settlements require that "[o]ne who attacks a settlement must bear the burden of showing that the contract he has made is tainted with invalidity...." It is enough, however, if there was "a mutual mistake under which both parties acted." Callen v. Pennsylvania Railroad Co., 332 U.S. 625, 630, 68 S.Ct. 296, 298, 92 L.Ed. 242 (1948). Here, plaintiffs allege that all of the parties labored under a mutual mistake of fact, viz., that there was no lien against the property that was to serve as security for the refinancing arrangement contemplated by the Settlement Agreement.

The district court interpreted the Settlement Agreement, "enforceability of [which] is governed by familiar principles of contract law," Village of Kaktovik v. Watt, 689 F.2d 222, 230 (D.C.Cir.1982), as implicitly obligating plaintiffs to deliver clear title at the time of closing. This was clearly the correct interpretation, and plaintiffs' mutual mistake argument is as clearly a unilateral afterthought.

The Agreement expressly provided that Granse and Mitchell would pay for "lender's title insurance," but specified that they would bear no responsibility for "any encumbrance of record or unpaid taxes." These terms make it clear that the parties did not enter into the contract on the mistaken assumption that plaintiffs' title was unencumbered. Rather, they took care to allocate the risk that an impediment to title would later come to light.

The plain import of the language calling for Granse and Mitchell to pay for title insurance but relieving...