Fishman v. LaSalle National Bank

United States Court of Appeals
For the First Circuit

No. 00-2032

KENNETH FISHMAN,
TRUSTEE OF ONE NEEDHAM PLACE REALTY TRUST,

Appellant,

v.

LaSALLE NATIONAL BANK,

Appellee. .

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Mark L. Wolf, U.S. District Judge]

Before

Boudin, Lynch and Lipez,

Circuit Judges.

Marshall F. Newman and Newman & Newman, P.C. on brief for
appellant.
Larry W. Joye, Lori R. Schultz, Morrison & Hecker L.L.P.,
Kevin F. Moloney and Barron & Stadfeld, P.C. on brief for
appellee.

April 26, 2001
 BOUDIN, Circuit Judge. This case was brought in the

district court to interpret a note whose prepayment terms were

poorly drafted. The note, in the amount of $5.4 million for a

period of years, was issued in 1991 by One Needham Place Realty

Trust (the "borrower") to Confederation Life Insurance Company.

It is now owned by LaSalle National Bank (the "holder"). A loan

agreement reflected in a loan commitment letter preceded the

note. The note was later modified but only to extend the term

of the loan.

The note permitted prepayment but required the borrower

to pay a "prepayment premium" for the privilege of early

payment. In 1998, the borrower sought to refinance the note to

take advantage of lower prevailing interest rates, but the

parties disagreed as to how to calculate the prepayment premium.

The note set the premium as the greater of one percent of the

outstanding principal balance or a "yield maintenance prepayment

premium" computed in accordance with a formula. The pertinent

language follows:

3. Prepayment Privilege. Provided no
default exists hereunder or under the
Mortgage or any other document securing this
Note, the Maker may prepay the full balance
any time during term of the loan subject to
giving not less than eighty-five (85) days
prior written notice and to the payment of

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 "Prepayment Premium" which shall be the
greater of (a) one percent (1%) of the
outstanding principal balance of the Note,
or (b) a Yield Maintenance Prepayment
Premium computed as follows: The Yield
Maintenance Prepayment Premium shall be an
amount equal to the product of (i) the
outstanding principal balance due hereunder
(including accrued interest) at the time of
prepayment multiplied by (ii) the "Monthly
Interest Differential" (as hereinafter
defined), and (iii) discounted by the
"Treasury Yield" (as hereinafter defined)
rate over the number of months then
remaining to the end of the fifth Loan
Year. The "Monthly Interest Payment
Differential" equals one-twelfth (1/12) of
the amount (if any) by which the annual
interest rate payable hereunder at such time
exceeds the Treasury Yield for the period of
time commencing on the next following day
and ending on the Maturity Date ("Remaining
Term").

Taken literally, this formula could be read to fix the

yield maintenance prepayment premium as the product of a single

calculation applied to the then outstanding balance (here,

$4,140,927). Alternatively, the language could be read to

suggest a series of calculations determining the present value

of what the lender would lose, given current interest rates, as

a result of the prepayment. In this case, the figure produced

by the first calculation was so modest ($11,514) that the result

would not be greater than one percent of the balance; by

contrast, the figure produced by the second was very substantial

($393,852).

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 Because the borrower urged the first interpretation and

the holder advanced the second, the borrower brought this action

in the district court to construe the note. The district judge

ruled on summary judgment that the second calculation was the

proper reading of the note, even without considering the

original commitment letter; that the borrower's reading would

render certain of the terms superfluous; and that the commitment

letter preceding the loan made clear with an example that the

series of monthly calculations was intended. The borrower now

appeals.

We affirm essentially for the reasons given by the

district judge in his able bench ruling but address briefly the

claims made on this appeal. Since the matter was resolved on

summary judgment, our review is de novo. Although the language

of the note is confusing, the meaning of the prepayment terms

taken as a whole is not ambiguous once the calculations

themselves are fully understood. In our view, the commitment

letter merely underscores the correctness of the outcome.

The borrower argues at length that its reading is the

literal one and it was therefore improper for the district court

to adopt any other reading or resort to extrinsic evidence

(which is, debatably, what the borrower calls the commitment

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letter).1 But readings of documents do not automatically fall

into two neat categories--literal and non-literal; often, as

here, it is a matter of degree. See Farnsworth, supra, § 7.8,

at 498. In this case, the borrower's reading is also awkward as

to language (e.g., the references to the monthly figure), and

the note owner's reading is not far from literal if one

understands "monthly" to entail month-by-month calculations.

It is centrally important that the owner's reading

makes sense--that is, it carries out what one might imagine to

be a plausible objective of parties so situated and is

consistent with the usage of trade. See Baybank Middlesex v.

1200 Beacon Props., Inc., 760 F. Supp. 957, 966 n.8 (D. Mass.

1991). By contrast, the borrower has written a brief strong on

canons and doctrine but without explaining why contracting

parties would ever select the calculation urged by the borrower.

The presumption in commercial contracts is that the parties were

trying to accomplish something rational. See Shea v. Bay State

1
If the note were deemed a complete integration of the
bargain, then formally the commitment letter would be extrinsic
and could be considered only to resolve an ambiguity, Tilo
Roofing Co. v. Pellerin, 122 N.E.2d 460, 462 (Mass. 1954),
although in practice the matter is a shade more complicated,
Farnsworth, Contracts § 7.3, at 470-78 (2d ed. 1990). The label
is debatable here--a point we need not resolve--because the note
itself says it is issued "pursuant to the terms" of the
commitment letter, which the holder claims is a cross reference
sufficient to incorporate the letter.

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Gas Co., 418 N.E.2d 597, 601-02 (Mass. 1981). Common sense is

as much a part of contract interpretation as is the dictionary

or the arsenal of canons. Fleet Nat'l Bank v. H & D Entm't,

Inc., 96 F.3d 532, 538 (1st Cir. 1996), cert. denied, 520 U.S.

1155 (1997).

The reason why the holder's reading makes sense is that

its reading is a simple allocation to the borrower--

straightforward once the calculations are understood--of the

risk that interest rates will fall. Prepayment might still

benefit the borrower: it might get a below market rate on

refinancing or simply have the cash to spare; but the lender

(for whom the holder is the surrogate), having taken the risk

that rates would rise, gets the benefit when instead they fall.

If the borrower's alternative reading made practical sense, the

case would be more difficult; but it does not.

Lastly, the borrower argues that, if the contract was

sufficiently ambiguous to permit extrinsic evidence (e.g., the

commitment letter), then surely the matter should have gone to

a jury. There are here buried questions of some interest.

Putting aside interesting choice of law questions as between

state and federal law,2 the usual doctrine is that the judge

2
The parties here ignore the problem, which is impressively
treated in Copley Cement Co. v. Willis & Paul Group, 983 F.2d
1435 (7 th Cir. 1993) (Posner, J.). On the Seventh Amendment

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construes contracts, even in close cases, if only the words need

be considered, Restatement (Second) of Contracts § 212 cmt. d

(1981), and the jury does the job under instructions if

evidentiary issues have to be resolved (e.g., what the parties

said orally in making the contract), so long as the outcome is

reasonably debatable. See Bourque v. FDIC, 42 F.3d 704, 708

(1st Cir. 1994).

Ours may be the intermediate case where extrinsic facts

permissibly bear on interpretation but are not themselves

disputed. Here, the borrower has failed to point to any

specific issue of raw fact (e.g., what the parties said to each

other in negotiations) that is disputed. Although some case law

equates any use of extrinsic evidence with a jury trial,

arguably the "better" view, which is also followed in

Massachusetts, is that the judge should do the construing where

extrinsic facts are not in dispute even if the outcome is

reasonably debatable. See, e.g., Baker v. America's Mortgage

Servicing, Inc., 58 F.3d 321, 326 (7th Cir. 1995); Atwood v.

City of Boston, 37 N.E.2d 131, 134 (Mass. 1941). In any event,

the outcome here is not reasonably debatable.

Affirmed.

aspect, see Byrd v. Blue Ridge Rural Electric Cooperative, Inc.,
356 U.S. 525 (1958).

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