Boston Five Cents Sav. Bank v. Secretary of Dept. of Housing and Urban Development, 84-2050

• Decision Date: 17 June 1985
• Docket Number: No. 84-2050,84-2050
• Parties: The BOSTON FIVE CENTS SAVINGS BANK, Plaintiff, Appellant, v. SECRETARY OF the DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, et al., Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 5

768 F.2d 5

The BOSTON FIVE CENTS SAVINGS BANK, Plaintiff, Appellant, v. SECRETARY OF the DEPARTMENT OF HOUSING AND URBAN

DEVELOPMENT, et al., Defendants, Appellees.

No. 84-2050.

United States Court of Appeals, First Circuit.

Heard June 17, 1985.

Decided July 19, 1985.

Stewart T. Herrick with whom Harrison & Maguire, P.C., was on brief for plaintiff, appellant.

M. Frederick Pritzker with whom Elizabeth A. Ritvo and Brown, Rudnick, Freed & Gesmer, were on brief for defendant, appellee Kenmore Tower Corp.

James G. Bruen, Jr., with whom Efrain Rivera, Attys., Civil Div., Dept. of Justice, Richard K. Willard, Acting Asst. Atty. Gen., William F. Weld, U.S. Atty., Frederick Dashiell, Asst. U.S. Atty., and Melvin Belin, Office of Gen. Counsel, Dept. of Housing and Urban Development, were on brief for appellee Secretary of the U.S. Dept. of Housing and Urban Development.

Before CAMPBELL, Chief Judge, and RUBIN ^* and BREYER, Circuit Judges.

BREYER, Circuit Judge.

This suit by The Boston Five Cents Savings Bank against the Department of Housing and Urban Development (HUD) and Kenmore Tower Corporation arises out of HUD's approval of Kenmore's conversion of its ordinary rental apartments to 'cooperatively owned' apartments. The Bank wants a declaratory judgment stating that the conversion violates the mortgage agreement between Kenmore and the Bank--a mortgage that the Department of Housing and Urban Development (HUD) has guaranteed. See Sec. 207 of the National Housing Act, 12 U.S.C. Sec. 1713. The Bank claims that the conversion violates three clauses in the agreement:

a. Clause 2, forbidding the mortgagor

"to permit or suffer the use of any of the property for any purpose other than the use for which the same was intended at the time this Mortgage was executed";

b. Clause 12, forbidding the mortgagor

"to create or permit to be created against the property subject to this mortgage any lien or liens inferior or superior to the lien of this Mortgage"; and

c. Clause 4, assigning

"all rents, profits and income ... to the Mortgagee for the purpose of discharging the debt ... [but granting] permission ... [to the] Mortgagor as long as no default exists ... to collect such rents, profits and income for use...."

The Bank argues that the conversion violates Clause 2 because it would change the "use ... of the property." It claims the conversion violates Clause 12 because the purchasers of the cooperative apartments have borrowed the money needed to buy them and have pledged their interests in the apartments as security, thereby creating "against the property ... [a] lien ... inferior ... to the ... mortgage." It claims that conversion violates Clause 4 because, in the Bank's view, conversion means an end to payment of rents, thereby impairing the security that the Clause offers the Bank. The Bank also argued below that HUD could not, consistent with governing statutes, grant Kenmore permission to carry out the conversion. See 12 U.S.C. Secs. 1713, 1715.

A magistrate, hearing the case, recommended to the district court that it grant the motions of HUD and Kenmore for summary judgment. The court adopted the magistrate's recommendations, 601 F.Supp. 38 (D.Mass.1984). The Bank appeals. We agree with the Bank that the award of summary judgment was legally improper; and, we remand the case for further proceedings.

1. Our basic task on this appeal is to decide whether the argument between the Bank and the defendants about the interpretation of the contract raises any "genuine issue as to any material fact." Fed.R.Civ.P. 56(c). We note that cases discussing 'interpretation' of a contract sometimes refer to such an issue as one of "law" and sometimes as one of "fact." See, e.g., Edmonds v. United States, 642 F.2d 877, 881 (1st Cir.1981); Gillentine v. McKeand, 426 F.2d 717, 721 (1st Cir.1970); Rizzo v. Cunningham, 303 Mass. 16, 20 N.E.2d 471, 474 (1939). Thus we explain at the outset how we view the fact/law dichotomy in the context of this summary judgment appeal.

In our opinion, an argument between parties about the meaning of a contract is typically an argument about a "material fact," namely, the factual meaning of the contract. But, sometimes this type of argument raises "no genuine issue." The words of a contract may be so clear themselves that reasonable people could not differ over their meaning. Then, the judge must decide the issue himself, just as he decides any factual issue in respect to which reasonable people cannot differ. See 3 Corbin on Contracts Sec. 554 (1960). Courts, noting that the judge, not the jury, decides such a threshold matter, have sometimes referred to this initial question of language ambiguity as a question of "law," which we see as another way of saying that there is no "genuine" factual issue left for a jury to decide. See Edmonds v. United States, supra; Rizzo v. Cunningham, supra. Even if there is ambiguity in the language, however, the evidence presented about the parties' intended meaning may be so one-sided that no reasonable person could decide the contrary. See 3 Corbin on Contracts, supra. In such a circumstance, the judge also would take the matter from the jury, deciding the factual question of meaning himself as (in the same sense) one of "law." Thus, our job here is to decide whether the evidence, viewed favorably to the Bank, see Hahn v. Sargent, 523 F.2d 461, 464 (1st Cir.1975), cert. denied, 425 U.S. 904, 96 S.Ct. 1495, 47 L.Ed.2d 754 (1976), so clearly supports HUD and Kenmore that no 'reasonable person' could differ about what the contract means, either because the language is unambiguous or the supporting evidence is sufficiently one-sided. If neither of these conditions is met, the case raises a "genuine issue" of fact; and the judgment must be reversed.

2. The Bank's major argument on this appeal concerns Clause 2, the 'change of use' provision. The Bank notes that Kenmore's conversion means that those who now rent apartments will buy (or have bought) shares in the new cooperative. The shares carry with them the effective right to permanent possession. Instead of paying rent as a tenant, the 'purchaser' will pay a significantly lower monthly maintenance fee. The Bank says that this change amounts to a "use" of the property for a "purpose other than the use" for which the "property was intended ... at the time the Mortgage was executed." (Clause 2.)

The language of Clause 2 is itself ambiguous. The property still will be used for residential purposes. In that sense there is no change in use. The property, however, no longer will be used for "rental apartments"; instead, it will be used for "cooperative" or "purchased" apartments. In that sense, there is a change of use. Thus, one must look to evidence other than the contractual words themselves to determine whether this clause was intended to apply to circumstances of the sort presented. United Truck & Bus Service Co. v. Piggott, 543 F.2d 949, 950 n. 1 (1st Cir.1976). See 3 Corbin on Contracts Sec. 579 (1960).

The record contains considerable evidence supporting the Bank's interpretation. The Bank, for example, presents arguments with supporting affidavits, suggesting that the "change" is an important one, working to its disadvantage. It says that the 'resale' market for mortgages reacts negatively to this type of change in the character of an apartment house because those who own their apartments are less likely to retire the mortgage 'early' (before it is due) than is the owner of a building with rental apartments. The Bank adds that the change will make rent collection (in case of default) more difficult for there will no longer be rents to collect. The Bank also points to HUD manuals, studies, statements in depositions, and other related documents, all of which suggest that HUD, at various times and for various purposes, has referred to a change in the form of ownership like the one here at issue as a "change" in the "use" of a building. All this evidence is relevant to the meaning of Clause 2, for it suggests custom or usage or reasons or motives that would support the Bank's interpretation.

HUD and Kenmore, on the other hand, point to court cases that define "change of use" to mean change from, for example, a "commercial" use to a "residential" use of property. These cases, however, are not strong enough to resolve the factual question, for they deal with the use of these words in zoning laws or regulations or in contracts that are only roughly similar to the contract here at issue. See, e.g., Bronstein v. Prudential Ins. Co., 390 Mass. 701, 459 N.E.2d 772, 778 (1984); Maplewood Village Tenants Association v. Maplewood Village, 116 N.J.Super. 372, 282 A.2d 428 (1971). HUD and Kenmore also point to the fact that HUD has guaranteed the mortgage, as showing that the Bank did not need the security that its interpretation of Clause 2 offers. This fact, while evidentiary, does not conclusively prove that HUD is right, for the agreement contains other clauses that quite plainly offer the Bank security over and above HUD's guarantee. Given the considerable evidence supporting the Bank, the record does not permit the conclusion that the Bank's interpretation is clearly wrong.

The Bank apparently wishes us to go further and to hold, in light of the record, that its interpretation is clearly right, that no reasonable person could disagree. While the Bank's arguments are strong, we are not convinced, in light of the defendant's evidence and arguments, that it is entitled to summary judgment. Regardless, rather than our analyzing all the detailed evidence so far presented, the best course is for the district court to do so in light of the discussion contained in this opinion. Cf. Kelley v. Southern Pacific Co., 419 U.S. 318, 331-32, 95 S.Ct. 472, 479-80, 42 L.Ed.2d 498 (1974). Moreover, the parties may wish to proceed to trial, introducing other evidence; regardless, they may supplement the current record...