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.
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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 timebarred. 
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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
1 The 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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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
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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
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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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." CorreaMartinez, 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,
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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
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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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
by a plaintiff as authority for avoiding the statute of

limitations.

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Judgment vacated. Remanded for further proceedings.