United States Court of Appeals
For the First Circuit
No. 00-1305
HERBERT G. BEREZIN
as general partner in the
Riverplace Apartments Limited Partnership,
Plaintiff, Appellant,
v.
REGENCY SAVINGS BANK,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Michael A. Ponsor, U.S. District Judge]
Before
Lynch, Circuit Judge,
Coffin, Senior Circuit Judge,
and Lipez, Circuit 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.
December 7, 2000
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
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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
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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.
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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
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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
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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
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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
1The district court was concerned that Berezin was asking
for a ruling that the commitment letter itself, and not the
promissory note, was the binding legal document between the
parties. The court stated at the hearing on the motion to
dismiss: "I don't understand how you can go back to the
commitment letter and attempt to enforce the commitment letter
as an independent contract." In fact, however, the commitment
letter would simply be part of the extrinsic evidence proffered
by Berezin to substantiate his allegation of mutual mistake.
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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 by the parties." Southeastern Ins. Agency, Inc. v.
Lumbermens Mut. Ins. Co., 650 N.E.2d 1285, 1288 (Mass. App. Ct.
1995). See also Restatement (Second) of Contracts, § 155 cmt.
a (1981) (noting that reformation on grounds of mutual mistake
"make[s] a writing express the agreement that the parties
intended it should.").
Nonetheless, mindful of the parol evidence rule, which
"bars the introduction of prior or contemporaneous written or
oral agreements that contradict, vary, or broaden an integrated
writing," Kobayashi v. Orion Ventures, Inc., 678 N.E.2d 180, 184
(Mass. App. Ct. 1997), the Massachusetts courts have required a
party to present clear and convincing evidence before reforming
a contract on the grounds of mutual mistake. See Polaroid, 610
N.E.2d at 917 (requiring "full, clear, and decisive proof of
mistake"); Covich v. Chambers, 397 N.E.2d 1115, 1120 (Mass. App.
Ct. 1979) (upholding "the stricter test of clear and convincing
proof"); see also Restatement (Second) of Contracts, § 153 cmt.
a (noting, "because mistakes are the exception rather than the
rule, the trier of the facts should examine the evidence with
particular care" when a party attempts to prove mistake). This
standard of proof strikes an appropriate balance between the
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parol evidence rule and the importance of ensuring that a
written agreement reflects the true intent of the parties.
In summary, given the allegations in the complaint, and
the applicable Massachusetts law, we cannot conclude that "it
clearly appears, according to the facts alleged, that the
plaintiff cannot recover on any viable theory." Correa-
Martinez, 903 F.2d at 52.2
III. The Statute of Limitations
The district court declined to rule on Regency's
statute of limitations argument because it found the parol
evidence rule dispositive in dismissing Berezin's complaint.
Having determined that Berezin's complaint is not barred by the
parol evidence rule, we must decide whether Berezin's claim is
barred by the statute of limitations. We conclude that
Berezin's suit is not time-barred.
The statute of limitations in an action for breach of
contract in Massachusetts is six years. See Mass. Gen. Laws,
2 Because Regency did not make the argument in its motion to
dismiss or on appeal, we do not consider the effect on
plaintiff's mutual mistake claim of any special status that
Regency may have as the second purchaser of the note. See,
e.g., Restatement (Second) of Contracts, § 155 cmt. f ("The
claim of a mistaken party to reformation, being equitable in its
origin, is subject to the rights of good faith purchasers for
value and other third parties who have similarly relied on the
finality of a consensual transaction in which they have acquired
an interest in property.").
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ch. 260 § 2; see also City of New Bedford v. Lloyd Investment
Assoc., Inc., 292 N.E.2d 688, 688 (Mass. 1973). "When the
statute of limitations for a breach of contract begins to run
depends on whether the contract is entire or divisible."
Flannery v. Flannery, 705 N.E.2d 1140, 1143 (Mass. 1999). If an
obligation is payable in installments, the statute of
limitations begins to run against the recovery of each
installment from the time it becomes due. See id.; Clark v.
Trumble, 692 N.E.2d 74, 79-80 (Mass. App. Ct. 1998). This rule
applies even where one contract provides all the terms of the
agreement between the parties, so long as the contract requires
that the payments be made in installments. See Flannery, 705
N.E.2d at 1143. A contract need not specifically reference
installments to be deemed an installment contract. See, e.g.,
Allan R. Hackel Org., Inc. v. American Radio Sys. Corp., No.
980335, 2000 WL 281689, at * 2 (Mass. Super. Ct. Jan. 12, 2000)
("The parties' actual performance, which has been over time, is
a reliable indication that this [is] an installment contract.").
The promissory note provides that the interest and
principal shall be payable on a monthly basis. Massachusetts
courts have characterized such agreements as installment
contracts. See, e.g., Clark, 692 N.E.2d at 79 (finding, "[t]he
note here is an installment note for a one-year period" where
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interest was due in monthly payments and the principal balance
was due in full one year after execution of the note); Chambers
v. Lemuel Shattuck Hosp., 669 N.E.2d 1079, 1081 (Mass. App. Ct.
1996) (treating injured employee's weekly cash benefits as an
installment contract and considering "each alleged violation of
the continuing weekly payment obligation a new claim for statute
of limitations purposes."). Pursuant to these precedents, we
conclude that the promissory note is an installment contract.
Accordingly, the statute of limitations for the recovery of each
installment under the note runs from the time it becomes due.
See Flannery, 705 N.E.2d at 1143. Because Berezin filed his
complaint on September 14, 1999, his claim is timely for those
interest payments he made within the six-year statute of
limitations period.3
3 As an alternative to his theory that the promissory note
is an installment contract, and as a basis for even avoiding the
six-year statute of limitations period, Berezin argues that his
claim is timely pursuant to Mass. Gen. Laws ch. 260, § 36. That
provision allows a defendant to file a compulsory counterclaim
for recoupment without regard to the statute of limitations.
However, § 36 is plainly not applicable to the instant situation
because Berezin is not filing a compulsory counterclaim in
response to an action initiated by Regency. Berezin has
provided no authority for the proposition that § 36 is a proper
basis for disregarding or extending the statute of limitations
in these circumstances, where Berezin is the plaintiff and there
was no initial claim filed by Regency. Indeed, as we have
noted, recoupment, which is the essence of a counterclaim
pursuant to § 36, is "in the nature of a defense." United
Structures of America, Inc. v. G.R.G. Eng'g, S.E., 9 F.3d 996,
999 (1st Cir. 1993). Therefore, § 36 is not properly asserted
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Judgment vacated. Remanded for further proceedings.
by a plaintiff as authority for avoiding the statute of
limitations.
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Berezin v. Regency Savings Bank
Court: Court of Appeals for the First Circuit
Date filed: 2000-12-07
Citations: 234 F.3d 68
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