Berezin v. Regency Savings Bank

Decision Date13 September 2000
Docket NumberNo. 00-1305,00-1305
Citation234 F.3d 68
Parties(1st Cir. 2000) HERBERT G. BEREZIN as general partner in the Riverplace Apartments Limited Partnership, Plaintiff, Appellant, v. REGENCY SAVINGS BANK, Defendant, Appellee. Heard
CourtU.S. Court of Appeals — First Circuit

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. Michael A. Ponsor, U.S. District Judge] Valeriano Diviacchi, with whom Diviacchi Law Office was on brief for plaintiff.

Kevin C. Maynard, with whom Mark D. Cress and Bulkley, Richardson and Gelinas, LLP were on brief for defendant.

Before Lynch, Circuit Judge, Coffin, Senior Circuit Judge, and Lipez, Circuit Judge.

LIPEZ, Circuit Judge.

Herbert Berezin appeals from the judgment of the district court dismissing his complaint against Regency Savings Bank ("Regency"). Claiming that an error in a promissory note's recitation of the interest rate resulted in overpayments, Berezin seeks to recover nearly $1 million in interest payments he made to Regency. The district court granted Regency's motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), ruling that the "clear and unambiguous" terms of the promissory note precluded consideration of any contrary terms in the commitment letter relied upon by Berezin. Because we conclude that Massachusetts law permits the consideration of extrinsic evidence when one party to a contract alleges a mutual mistake in its terms, we vacate the judgment of the district court.

I. Background

We may affirm a dismissal for failure to state a claim "only if it clearly appears, according to the facts alleged, that the plaintiff cannot recover on any viable theory." Correa-Martinez v. Arrillaga-Belendez, 903 F.2d 49, 52 (1st Cir. 1990). In making this determination, we accept the well-pled facts of Berezin's complaint as true and draw every reasonable inference in his favor. See Langadinos v. American Airlines, Inc., 199 F.3d 68, 69 (1st Cir. 2000). Accordingly, we recount the facts as Berezin has alleged them.

The original parties to this transaction, Herbert Berezin, as general partner of Riverplace Apartments Limited Partnership, and Bank of New England ("BNE"), signed a commitment letter on February 8, 1988 for a $4.5 million loan to finance the Partnership's acquisition and renovation of properties for low and moderate income housing. They executed a note for the loan on March 11. BNE sold the note to Fleet Bank in 1991, and Fleet sold the note to the defendant in this action, Regency Savings Bank ("Regency"), in February, 1998. The commitment letter of February 8 recites that, after three years, the rate of interest on the loan would be the interest rate of three-year United States Treasury notes, plus 2.5 percent. Significantly, the commitment letter does not provide for a minimum interest rate. The promissory note, however, specifies that the interest rate will not drop below ten percent.

On August 1, 1992, the interest rate for three-year Treasury notes fell below 7.5 percent for the first time since the execution of the note, dropping to 7.47 percent. Under the terms of the commitment letter, Berezin would have been entitled to an interest rate of 9.97 percent at that time. However, according to the terms of the promissory note -- setting the interest rate at a minimum of ten percent -- Berezin continued to pay ten percent interest on the loan. He alleges that this provision in the note is in error, and that he has paid excess interest "of at least $972,636.00" because of this mistake.

During the time that it owned the note, Fleet Bank brought two errors to Berezin's attention: one involved an alleged mistake in the maturity date, while the other involved the omission of a demand provision that had been in the commitment letter but was not contained in the note. In both instances, Berezin agreed to a written modification to the note to reflect the terms of the commitment letter and the understanding of both parties. Berezin proffers these written modifications as evidence that other mistakes existed in the executed note, comparable to the interest rate error.

In support of its motion to dismiss pursuant to Rule 12(b)(6), Regency argued that the interest rate provision of the note was unambiguous on its face and the parol evidence rule barred the consideration of extrinsic evidence, including the terms of the commitment letter, to establish the rate. Regency claimed, in the alternative, that Berezin's claim was time-barred.

Following a hearing, the district court granted Regency's motion to dismiss. Because the court found for Regency on the application of the parol evidence rule, it did not reach the issue of whether the statute of limitations bars Berezin's claim. We conclude that Berezin's claim of mutual mistake survives a motion to dismiss, and that his claim is not barred by the statute of limitations.

II. Mutual Mistake

We begin with Berezin's allegation in his complaint that the promissory note reflects a mutual mistake of the parties with respect to the interest rate. Paragraph six of his complaint states:

The note contained a significant error and discrepancy from the commitment letter in that it did not clearly make it known that the interest rate on the loan would go below ten percent per annum and in fact that the interest rate was required to be adjusted to below 10% to a rate 2.5 percent per annum above the three year Treasury Note rate with no ten percent minimum rate.

(Emphasis added). Berezin also described the two other mistakes in the note, brought to his attention by Fleet, and modified by written agreement to reflect the terms specified in the commitment letter. Paragraph 11 of his complaint quotes from a letter written to Berezin by Fleet about one of those discrepancies, in which Fleet noted that certain language "was unintentionally omitted from the promissory note." Additionally, the complaint avers that Berezin did not become aware of the alleged error in the interest rate until July, 1999. In his memorandum in opposition to Regency's motion to dismiss, Berezin reiterated these allegations, claiming that, "[u]nintentionally and without agreement of the parties, the terms of the note differed from the terms of the commitment letter." Berezin has continued to articulate this theory of mutual mistake on appeal, claiming in his brief that the note contained "a significant error and discrepancy."

In granting Regency's motion to dismiss the complaint, the district court invoked the familiar precept that the parol evidence rule bars consideration of extrinsic evidence to contradict the terms of an unambiguous, fully-integrated written instrument. See, e.g., ITT Corp. v. LTX Corp., 926 F.2d 1258, 1261 (1st Cir. 1991) ("Under Massachusetts law, parol evidence may not be admitted to contradict the clear terms of an agreement, or to create ambiguity where none otherwise exists."); see also Governor Apartments Inc. v. Carney, 173 N.E. 287, 289 (Mass. 1961). The district court explained its reasoning as follows:

In summary, to countenance plaintiff's complaint the court would have to ignore the parol evidence rule. The controlling document in this case is the note signed by the plaintiff and the defendant's predecessor in interest. Plaintiff simply cannot rely on an inconsistent prior written communication -- here, the commitment letter -- to alter the terms of the note. Since the terms of the note are clear and unambiguous, they control and require dismissal of plaintiff's lawsuit.

In part, perhaps, because Berezin's complaint does not identify by name his theory of "mutual mistake," the district court's ruling overlooks the possibility that the promissory note could be reformed if Berezin provided sufficient evidence that the parties had made a mistake in the note's description of the interest rate. Nonetheless, we must accept all of the facts in the complaint as true, and indulge all reasonable inferences in Berezin's favor. See Langadinos, 199 F.3d at 69. Viewed in light of these liberal requirements, we find that Berezin has articulated an adequate basis for review of his claim based on a theory of mutual mistake. See Connecticut Gen. Life Ins. Co. v. Universal Ins. Co., 838 F.2d 612, 622 (1st Cir. 1988) (noting that "a pleading must contain a short and plain statement of the claim showing that the pleader is entitled to relief," but that "[i]t is not necessary to set out the legal theory on which the claim is based") (quotations omitted); see also Schott Motorcycle Supply, Inc. v. American Honda Motor Co., 976 F.2d 58, 62 (1st Cir. 1992) (stating, "Rule 8 [of the Federal Rules of Civil Procedure] does not require a party to specify its legal theory of recovery" so long as the complaint implicates the relevant legal issues). Significantly, Regency has never argued that Berezin's complaint does not adequately identify a theory of mutual mistake.

Massachusetts law permits reformation of written contracts where one party has alleged a mutual mistake in the terms of the agreement. "If the language of a written instrument does not reflect the true intent of both parties, the mutual mistake is reformable." Polaroid Corp. v. Travelers Indemnity Co., 610 N.E.2d 912, 917 (Mass. 1993). See also Mickelson v. Barnet, 460 N.E.2d 566, 569 (Mass. 1984) (finding "a mutual mistake is reformable" where "the language adopted by the parties did not reflect their true intent"). Under these circumstances, the parol evidence rule does not bar consideration of extrinsic evidence of the parties' actual intent.1 See Polaroid Corp., 610 N.E.2d at 917; Mickelson, 460 N.E. at 570. This doctrine of reformation is driven by respect for the parties' intent and "gives effect to the terms mutually agreed upon...

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