Opinion
No. 15–P–1280.
10-13-2016
SALEM FIVE MORTGAGE COMPANY, LLC v. Courtney T. LESTER & another.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
Salem Five Mortgage Company, LLC (Salem Five), seeks to reform a residential mortgage after failing to obtain the signature of its borrower's spouse, who took title to the financed property as a tenant by the entirety but is not a party to the promissory note. The Superior Court judge entered summary judgment for Salem Five, reforming the mortgage to encumber the nonborrowing spouse's interest in the property. After careful consideration, we vacate the judgment and remand for further proceedings consistent with this memorandum and order because we believe the defendants have established an evidentiary “toehold” with respect to factual issues about the parties' respective intentions, expectations, and understandings in entering the transaction.
Background. The defendants, Walter A. Lester and Courtney T. Lester, a married couple (collectively, the Lesters), are the grantees named in a quitclaim deed dated June 11, 2008, with respect to registered land known and numbered as 48 Arkansas Avenue in Nantucket (property). The Lesters took title to the property “as tenants by the entirety” for a purchase price of $375,000. In connection with their purchase of the property, Walter obtained a loan from Salem Five in the amount of $300,000. Although the Lesters took title jointly, Walter is the sole obligee on Salem Five's note, having borrowed the money in his name alone. Walter is also the sole borrower listed on the mortgage granted to Salem Five as collateral, and only Walter (and not Courtney) signed the mortgage document encumbering the property. Prior to consummation of the transaction, Walter signed a uniform residential loan application listing himself as the sole borrower (and leaving blank the space for a co-borrower). The Superior Court judge found it was undisputed that Salem Five had no dealings with Courtney, and she did not participate in the transaction in any way.
On November 19, 2012, Salem Five filed a four-count verified complaint in Superior Court, seeking relief on the following equitable theories: reformation of the mortgage on the ground of mutual mistake (count 1); reformation of the deed on the ground of mutual mistake (count 2); equitable subrogation of Salem Five's interest to Courtney's interest to prevent unjust enrichment (count 3); imposition of an equitable mortgage in favor of Salem Five (count 4).
On or about December 30, 2014, Salem Five moved for summary judgment. In a thoughtful decision dictated directly into the record, the judge assumed the following disputed facts to be true for purposes of Salem Five's motion: (i) that a draft deed showing that the Lesters would take title jointly was circulated prior to the closing to a group of people including Salem Five's attorney, and (ii) that at some point Walter told someone at Salem Five that he and Courtney intended to take title jointly.
The judge found, despite the assumed facts favorable to the Lesters, that “the only fair reading is that everyone made a mistake,” and that if the mortgage were not reformed Courtney would be unjustly enriched.
The judge stated, “[e]ven if for some reason I am wrong about the mutuality of the mistake, I ground my decision entirely in principles of equity and specifically, of unjust enrichment, and repeat that in my judgment, equity and good conscience will not permit any other outcome than the reformation of this mortgage.”
The judgment, dated May 14, 2015, states that the mortgage from Walter to Salem Five is reformed nunc pro tunc to name Courtney as a co-mortgagor, but without any personal recourse to Courtney in connection with the note.
The Lesters filed their notice of appeal timely, on June 11, 2015. They claim that the judge erred in determining no genuine issue of material fact existed with respect to Salem Five's claims. Although the question is a close one, we agree and vacate the judgment and remand for further proceedings on Salem Five's alternative theories of mutual mistake and unjust enrichment.
Because we vacate the summary judgment decision and remand for trial, we need not consider whether the Lesters demonstrated that a genuine issue of material fact exists on their statute of limitations or ratification defenses. We note, however, that we agree with the judge's legal determination that the three-year tort statute of limitations does not apply to Salem Five's claims. See State Natl. Bank of Lynn v. Beacon Trust Co., 267 Mass. 355, 359 (1929) ; Stoneham Five Cents Sav. Bank v. Johnson, 295 Mass. 390, 395 (1936) ; Lipsitt v. Plaud, 466 Mass. 240, 251 (2013).
Salem Five did not demand a jury trial on its claims. The Lesters included a jury demand in their responsive pleading. To the extent Salem Five seeks only equitable relief, however, the Lesters are not entitled to a jury trial. See Horizon House–Microwave, Inc. v. Bazzy, 21 Mass.App.Ct. 190, 200 (1985) ; Keville v. McKeever, 42 Mass.App.Ct. 140, 147–148 (1997). See also Bank of Am., N.A. v. Diamond Financial, LLC, 88 Mass.App.Ct. 564, 568, 570–571 (2015) (explaining that exclusive equity jurisdiction may exist with respect to mortgages and liens, but even if not, only equitable relief can provide an adequate remedy in an equitable subrogation case—especially where plaintiff has no legal remedy against defendant).
Discussion. a. Summary judgment requirements. “In reviewing a grant of summary judgment, we view the evidence in its light most favorable to the nonmoving party, and determine whether the moving party is entitled to a judgment as a matter of law.” Foster v. Group Health Inc., 444 Mass. 668, 672 (2005). Once the moving party comes forward with admissible evidence on a purportedly undisputed fact, the nonmoving party is required to establish a dispute by citing admissible evidence in the record, with mere conclusory statements and general denials being insufficient. See Mass.R.Civ.P. 56(e), 365 Mass. 824 (1974); Cullen Enterprises, Inc. v. Massachusetts Property Ins. Underwriting Commn., 399 Mass. 886, 890 (1987) ; O'Rourke v. Hunter, 446 Mass. 814, 821 (2006). Nonetheless, the nonmoving party's evidence need not be dispositive or even compelling at the summary judgment stage. A mere “toehold” is enough. Marr Equip. Co. v. I.T.O. Corp. of New England, 14 Mass.App.Ct. 231, 235 (1982).
b. Mutual mistake. Substantial authority suggests that the courts have broad equitable powers to reform mortgages. See Bank of Am., N.A. v. Diamond Financial, LLC, 88 Mass.App.Ct. 564, 568–569 (2015). “The exercise of equity jurisdiction in these cases appears to have been unlimited except for application of the limiting principles inherent in our equity jurisprudence.” Id. at 569–570. See Beaton v. Land Ct., 367 Mass. 385, 392 (1975) (“[A] court acting under general principles of equity jurisprudence has broad power to reform, rescind, or cancel written instruments, including mortgages, on grounds such as fraud, mistake, accident, or illegality”).
“In case of mutual mistake, relief is afforded against those who claim under the grantor except against those who by reason of being bona fide holders for value without notice have an equity superior to the grantee.” Stoneham Five Cents Sav. Bank v. Johnson, 295 Mass. 390, 394 (1936), quoting from Burke v. McLaughlin, 246 Mass. 533, 538 (1923). Reformation of an instrument may also be available on the ground of a unilateral mistake, where “the other party knew or had reason to know of it.” Nissan Autos. of Marlborough, Inc. v. Glick, 62 Mass.App.Ct. 302, 306 (2004). “A party seeking recovery for a unilateral mistake must present full, clear, and decisive proof that a mistake occurred, ... and that the other party knew or had reason to know of the mistake.” Ibid.
The record contains ample evidence that Salem Five's failure to insist that Courtney be included as a mortgagor was an error and not an intentional decision by the bank to accept less than a full title interest as collateral. First and foremost, it is undisputed that Walter's loan application stated that the property would be held in his name individually and did not list a co-borrower. Accordingly, Salem Five claims that it understood prior to the closing that Walter intended to take title in his own name, without any joint tenant. Ryan Kelly, the bank's closing attorney, swore an affidavit stating: “I do not recall any discussions with Salem Five permitting Mrs. Lester to be named on the [d]eed. I have reviewed my file and do not see any writing to suggest that Salem Five Mortgage granted permission for Mrs. Lester's name to appear on the [d]eed.” Kelly's affidavit also states: “I did not consciously decide to accept less than one hundred percent of the mortgage title in the property.” Salem Five also supplied the affidavit of Senior Vice President Kim Downey, which states: “[i]t was Salem Five's understanding that Mr. Lester applied for a purchase money mortgage loan for the purpose of acquiring title in his name, individually. The loan application was approved and authorized to close on that basis.”
At the same time, however, the judge expressly credited the Lesters' evidence that: (i) Attorney Kelly reviewed and approved a draft of the deed, which listed the Lesters as joint tenants in advance of the closing, and (ii) Walter had told someone at Salem Five that he intended to take title jointly with Courtney. There is also evidence in the record that Walter was told by a Salem Five representative that it would be “quicker and easier” for him to borrow only in his own name because Courtney was not creditworthy.
The Lesters argue that Salem Five was not mistaken in accepting a mortgage of Walter's interest only, that Salem Five did so intentionally, for its own business reasons, and that equity will not allow the lender to now escape the consequence of its own deliberate decision. The evidence the Lesters have marshaled on this subject constitutes a “toehold.” Marr Equip., 14 Mass.App.Ct. at 235. In particular, if the Lesters can show at trial that Salem Five knew in advance of the closing that the Lesters planned to take title jointly, they may argue that this fact provides circumstantial evidence that Salem Five acted deliberately, instead of mistakenly, in closing the deal and advancing the funds. Accordingly, Salem Five was not entitled to summary judgment on its mutual mistake theory. See Wells Fargo Bank, N.A. v. National Lumber Co., 76 Mass.App.Ct. 1, 6–8 (2009) (remanding equitable subrogation claim for trial where further factual development was required as to equitable considerations as between mortgagees).
The summary judgment record, viewed in the light most favorable to the nonmoving party, further reflects a genuine dispute regarding the Lesters' intent.
c. Unjust enrichment. The judge expressly ruled that even if he was mistaken as to whether the parties' mutual mistake justified a reformation of the mortgage, unjust enrichment provided an alternative basis for granting the relief. See East Boston Sav. Bank v. Ogan, 428 Mass. 327, 330, 332 (1998), quoting from Mort v. United States, 86 F.3d 890, 894 (9th Cir.1996) (adopting doctrine of equitable subrogation, which is a “broad equitable remedy” that “can be appropriate in the absence of a mistake”).
The judge's findings focused on the perceived unfairness of a bank getting less than its intended collateral for a loan, but did not sufficiently address the fairness of imposing a lien on the interest held by a person who purportedly had no intention of granting a lien on her interest in the property. In either case, as we conclude in the text, there is a genuine issue of material fact with respect to the parties' intent and their reasonable expectations.
The terms unjust enrichment and quantum meruit are generally construed as synonymous. See Glynn & Co. v. Hy–Brasil Restaurants, Inc., 75 Mass.App.Ct. 322, 326 (2009). A plaintiff seeking to recover under a quantum meruit theory must prove: “(1) that it conferred a measurable benefit upon the defendants; (2) that the claimant reasonably expected compensation from the defendants; and (3) that the defendants accepted the benefit with the knowledge, actual or chargeable, of the claimant's reasonable expectation.” Finard & Co., LLC v. SITT Asset Mgmt., 79 Mass.App.Ct. 226, 229 (2011).
Accordingly, an equitable determination as to unjust enrichment requires a factual inquiry into the parties' respective knowledge regarding Salem Five's reasonable expectations in advancing the funds for purchase of the property. Although this question is also close, we think a genuine issue of material fact exists with respect to: (i) whether Salem Five reasonably expected to obtain a security interest in the entirety of the property as collateral for its loan to Walter, and (ii) whether either Courtney or Walter or both knew that Salem Five reasonably expected that Courtney's interest in the property would be encumbered before she took title to the same.
We leave it to be determined on remand the extent to which Walter's expectations, knowledge, and understanding with respect to the transaction can be imputed to Courtney on general agency principles—whether for purposes of Salem Five's mutual mistake theory, or its unjust enrichment theory. We note that where spouses jointly own real estate, the conduct and statements of one spouse in the context of a transaction may be imputed to the other in certain circumstances. See Emmons v. White, 58 Mass.App.Ct. 54, 62–63 & n. 8 (2003) (explaining agency principles as applying to spouses in real estate transactions); Moran v. Gala, 66 Mass.App.Ct. 135, 142 (2006) (statements of husband in real estate deal were binding on wife where, although couple held property jointly, husband “had full control of the property and made all decisions and signed all papers concerning it”).
This case is confined to the unique facts before us. Viewing those facts in the light most favorable to the Lesters, we conclude that the evidence with respect to the parties' intent in entering the transaction (and the Lesters' understanding of that intent) is sufficient to survive summary judgment. See Marr Equip. Co., 14 Mass.App.Ct. at 235. The judgment is vacated, and the case is remanded for further proceedings in accordance with this memorandum and order.
While we hold that on this record summary judgment should not have been granted, we neither address nor opine as to the strength or weakness of the Lesters' underlying claims.