FLEET NAT. BANK v. 175 Post Road, LLC

• Decision Date: 21 June 2004
• Docket Number: No. 2002-182-Appeal.,2002-182-Appeal.
• Citation: 851 A.2d 267
• Parties: FLEET NATIONAL BANK, Trustee v. 175 POST ROAD, LLC.
• Court: Rhode Island Supreme Court

851 A.2d 267

FLEET NATIONAL BANK, Trustee v. 175 POST ROAD, LLC.

No. 2002-182-Appeal.

Supreme Court of Rhode Island.

June 21, 2004.

Thomas S. Hemmendinger (Receiver), for Plaintiff.

Armando O. Monaco, II, East Greenwich, for Defendant.

Present: WILLIAMS, C.J., FLANDERS, GOLDBERG, FLAHERTY, and SUTTELL, JJ.

OPINION

SUTTELL, Justice.

Is it an instance of a mutual mistake between two sophisticated parties to a real estate contract when one of the parties realizes that it misunderstood the terms of the bargain despite having two opportunities to clarify any misunderstandings in the written contract? In this appeal from a Superior Court judgment in response to a petition for instructions by a receiver regarding the rights and obligations of parties to a purchase and sale agreement, we conclude that the misunderstanding was the result of neither mutual mistake nor misrepresentation. Accordingly, we affirm the judgment.

Facts and Travel

Fleet National Bank (Fleet) was the original mortgagee of commercial real estate at 175 Post Road in Warwick, Rhode Island (the property). In 1995, Fleet filed a petition for the appointment of a receiver of the property's owner, 175 Post Road, LLC (175 Post Road) to aid in the foreclosure of its mortgage. As a result of that proceeding, 175 Post Road became a debtor in a receivership, and Thomas S. Hemmendinger was appointed as the receiver (the receiver) with authority to "take possession and charge of the estate, assets, effects, property and business of the Defendant [175 Post Road] * * * and to preserve the same." The same order authorized the receiver to "sell, transfer and convey his right, title and interest * * * to any real property * * * for such sum or sums of money as to him appears reasonable * * *."¹

In 1996, Fleet assigned its mortgage on the property to Neles-Jamesbury, Inc. (Neles-Jamesbury). Subsequently, the receiver and counsel for Neles-Jamesbury initiated discussions with the Department of Environmental Management (DEM) concerning the assessment and remediation of environmental hazards on the property, a vacant manufacturing facility in the Pawtuxet Industrial Park. At the time, the receiver and Neles-Jamesbury expected that the discussions eventually would result in a settlement agreement concerning the environmental remediation and a mutual covenant not to sue over any claim arising from existing contamination on the property.

The receiver solicited offers for the property. On or about March 10, 1998, Brian Bowes (Bowes), who later would become the principal of AZA Realty Trust (AZA), made an offer to the receiver to purchase the property. Bowes's initial offer was subject to certain conditions, including the following:

"(C) The Receiver agrees to perform asbestos removal from floor tiles and building pipe heating system to the extent required by applicable regulations as determined by a qualified asbestos contractor."

Much of the initial offer reveals concerns about the property's environmental condition. For instance, paragraph 2 sets a 120-day window for the receiver and Neles-Jamesbury to deliver marketable title to the purchaser "provided that DEM and Neles-Jamesbury, Inc. reach final agreement on the remedy and remedial objectives to be employed in the remediation of the Property."

The initial offer also explicitly indicated that the purchaser would take the property "AS IS" and without warranties:

"Purchaser agrees to accept the Property in `AS IS' condition, including the condition of the windows, roof, boiler, structure and presence and condition of any underground storage tanks. Purchaser is not relying upon any warranty, statement or representation, express or implied, made by or on behalf of Receiver as to any matter whatsoever with respect to the Property * * *."

The offer sheet also included the receiver's signature as evidence of his acceptance of Bowes's offer and deposit of $55,000. AZA was incorporated shortly thereafter and was designated by Bowes as his nominee under the terms of the offer.

The Superior Court authorized the receiver to negotiate and enter into a purchase and sale agreement with Neles-Jamesbury and Bowes "with such terms and conditions as the Receiver may deem advisable and beneficial to the receivership estate, subject to court approval." The order specified that the receiver was authorized to sell the property "on the terms and conditions set forth in the Offer, as more fully set forth in the purchase and sale agreement * * *." Furthermore, the Superior Court authorized the receiver to enter into a settlement agreement with Neles-Jamesbury, Bowes, and DEM pursuant to Rhode Island's Industrial Property Remediation and Reuse Act, G.L. 1956 chapter 19.14 of title 23.

Shortly thereafter, on April 24, 1998, the receiver sent buyer's counsel a letter that included a draft of the purchase and sale agreement for comments. Within a week, buyer's counsel sent a response letter indicating that he had reviewed the agreement, and had comments on some of its provisions. Counsel's letter included comments and suggestions concerning paragraph 5.2(a) dealing with damage to the property, paragraph 10.8 dealing with entry onto the property, and paragraph 10.13 dealing with buyer's obligation to pay the "deed stamps." Counsel's letter also asked about the scheduling of meetings with DEM "so that we can conclude this transaction as soon as possible."

The purchase and sale agreement was executed on May 28, 1998. It specifies the parties to the transaction, sets the purchase price at $550,000, and notes that the deposit of $55,000 already had been delivered to the escrow agent. Under "Seller's Representations and Warranties," Neles-Jamesbury represented that it "has made available to Buyer all reports, assessments and studies within Seller's possession and control which relate to the environmental condition of the Property and Buyer hereby acknowledges receipt of them." Moreover, under the "Buyer's Representations and Warranties," the agreement further specified that AZA inspected the property for itself:

"4.1 Disclaimers. Buyer is not relying upon any written or oral warranty, statement or representation, express or implied, made by or on behalf of Seller or Neles-Jamesbury or 175 Post Road, LLC, or its members as to any matter whatsoever with respect to the Property, including value, zoning matters, the structural, environmental or other condition of the Property * * *. Buyer has made its own structural, termite and other inspections which Buyer deems appropriate prior to execution of this Offer. Buyer agrees that it has had full and adequate opportunity to inspect the Property, and agrees that conveyance thereof shall be accepted `AS IS,' `WHERE IS,' and `WITH ALL FAULTS."

As is evident, AZA disclaimed any reliance on warranties written or oral by Neles-Jamesbury and the seller concerning the environmental condition of the property.

The agreement also included a specific provision for asbestos abatement:

"10.2 Asbestos. Seller agrees to remove asbestos from certain floor tiles on the first floor of the former office areas and on the second floor mezzanine and from certain heating system pipes in the Boiler Room in the Building to the extent required by applicable regulations as determined by a qualified asbestos contractor to be engaged by Seller and paid by Neles-Jamesbury."

Furthermore, the agreement included a global integration clause that provided as follows:

"10.10 Entire Agreement. This Agreement and the documents referred to herein contain the entire agreement between the parties with respect to the transactions contemplated hereby, and no modification hereof shall be effective unless in writing and signed by the party against which it is sought to be enforced."

After the purchase and sale agreement was executed, the receiver petitioned the Superior Court to approve it. The receiver represented that the approval of the agreement was "in the best interests of the receivership estate and its creditors * * *." The Superior Court granted the petition authorizing the receiver to carry out the terms of the agreement. The parties later executed an extension agreement in which they extended the closing date for the sale to September 15, 1998, to obtain a settlement agreement from DEM. The extension agreement also provided that, "Except as specifically modified herein, the Agreement remains in full force and effect."

On September 15, 1998, the parties executed an "Amendment" to the purchase and sale agreement (amendment) that altered a few key provisions, including an increase in the purchase price from $550,000 to $635,000. The amendment also modified the asbestos abatement provision to read as follows:

"10.2 Asbestos. Seller agrees to remove and dispose asbestos containing material from certain floor tiles on the first floor of the former office areas and on the second floor mezzanine, comprising up to 22,965 square feet, and from certain heating system pipes in the Boiler Room, comprising up to 1,202 linear feet in the Building to the extent required by applicable regulations as determined by a qualified asbestos contractor to be engaged by Seller and paid by Neles-Jamesbury. Seller further agrees to remove and dispose 275 linear feet of ACM from pipe on the second floor mezzanine and 875 linear feet of ACM from pipe in the first floor office areas. Neles-Jamesbury agrees to provide the required verifications. This paragraph contains all of Neles-Jamesbury's and the Seller's asbestos abatement obligations."²

As is evident from comparing the two asbestos provisions, the amended provision differed from the original agreement in that it described the areas to be abated in square and linear feet, and provided that the seller was to remove and dispose of up to 22,965 square feet of asbestos-containing material from floor tiles and up to 2,352 linear feet from pipes. These figures were consistent with a project...