MISC 1978-3984

November 9, 1978

Middlesex, ss.

Sullivan, J.


The plaintiff, John T. Spinelli, of Miami Beach, Florida, is the registered owner named in and present holder of Certificate of Title No. 18944, issued by the Middlesex North Registry District of the Land Court, and covering land in Wilmington in the County of Middlesex shown as Lot 25 on Land Court Subdivision Plan No. 3984T, together with other properties. Lot 25 is subject to a lease (the "lease") dated October 18, 1972 (Exhibit No. 2) from the plaintiff to the defendant, SDM Corporation ("SDM"), notice of which is registered with said Registry District as Document No. 62272 and noted on said Certificate of Title No. 18944. The lease was assigned by SDM to the defendant, Union National Bank (the "Bank") by an instrument dated February 20, 1975 (Exhibit No. 3) to secure a $300,000 note made by SDM to the Bank and payment of all other sums with interest thereon due and payable to the Bank pursuant to said assignment or the note. The plaintiff, as lessor, assented to the assignment by instrument dated August 12, 1976 (Exhibit No. 4). The course of the loan did not run smoothly, and the Bank foreclosed on this security by taking possession of the leased premises. The Bank, with the plaintiff's consent, sublet the premises to the United States of America by instrument dated January 24, 1977, as supplemented (Exhibit No. 7). Notice of the sublease was registered on May 27, 1977 as Document No. 71975.

At this juncture involuntary bankruptcy on the petition of third parties threatened SDM which by then was indebted to the Bank for sums in excess of One Million Dollars ($1,000,000). An agreement was negotiated in a North Shore motel on March 15, 1977 between SDM, its principal stockholder, the defendant Microwave Research Corporation ("Microwave"), and the Bank, and a draft was prepared in the handwriting of counsel for the Bank (Exhibit No. 6). The agreement was then typed in the office of Harold Morley, Jr., Esquire, the attorney for Microwave and its principal stockholder, the defendant, Ibrahim El Hefni, and in this draft a new paragraph 8 appeared for the first time which had not been included in the handwritten version. It read as follows:

(8) Union agrees that in the event that it does not exercise its option to purchase the Wilmington premises it will reasonably allow MRC to do so in its place. In the event that Union exercises its option and resells the property at a profit after recovery of costs or takes some other profitable action, then the profits shall be split fifty percent for Union and fifty percent for MRC.

The version of the Agreement which is Exhibit No. 5 employs the word "reasonably", a change made in ink by the defendant, El Hefni, from the typewritten "seasonably" (Exhibit No. 5A). Whichever version the parties intended makes no difference in the ultimate result of this litigation. When the copies executed by the Bank were returned to Mr. Morley, the letter of transmittal recited that "Signed originals of both of the enclosed letters are attached to MRC's counterpart of the 3/16/77 Agreement among MRC, Union and SDM." [Note 1] One of such letter was dated March 16, 1977, was addressed to Dr. El Hefni, was signed by Dean W. Harrison, Senior Vice President and General Counsel of State Street Boston Financial Corporation, [Note 2] and read as follows:

Thank you very much for cooperating so fully last evening. As I discussed with Mr. Morley today, we are freezing our loan at $1,183,395.47 principal amount. In order to keep the company operating for the time being it is likely that Union National Bank will continue to make certain advances for working capital purposes. In collecting these receivables Union will apply amounts received to bring its loan back down to the above principal figure before Union receives the $250,000. pursuant to the 5/7ths formula and before Microwave receives any working capital funds pursuant to its 2/7ths formula.

The other dated March 17, 1977, addressed to Mr. Morley and signed by Mr. Harrison, read as follows:

I certainly hope that we can work through the business problems posed in the SDN situation and it looks as though we have a good start on them.

As we discussed over the telephone we certainly agree that Microwave is entitled to any profits we receive over and above our loan on any subsequent sale of the premises. We also plan to recommend the remaining 50% as an obligation to be paid to SDM. UNB does not intend to make any profit on this transaction over and above what it is owed on its loan.

As I also discussed over the telephone it may well be that we wish to sell our lease on the premises at some future time at a figure less than our loan.

Banks do not wish to stay long in real estate transactions.

You indicated that the document signed by us does not encumber or hinder a transaction wherein any sale or assessment [Note 3] will produce a loss as measured against our loan. Hopefully we can sell our secured position quickly and move on to more routine banking matters. (Emphasis added).

The plaintiff did not consent to the execution of the March 16 letter agreement, and the case law would not require that he do so as will appear hereafter. In this agreement the Bank agreed to guarantee by letter of credit the lease to be signed on SDM's new premises up to $25,000 for a period of one year; to pay for the move up to a maximum of $5,000; to pay sheet metal workers up to a maximum of $30,000 payable over a three year period and to pay SDM creditors up to a maximum of $35,000 in an informal plan of reorganization. SDM agreed to vacate the Wilmington premises as soon as possible and Microwave agreed to pay the Bank $250,000 for which the Bank was to assign its interest in the collateral for its loan except the lease. The $250,000 was not, however, an infusion of fresh moneys but was to be paid from SDH accounts receivable pursuant to a formula set forth in the agreement. There were provisions for mutual releases and the agreement concluded with the pious hope that the parties would work together toward the stated objectives and with a mutual assistance pact.

The lease contains an option to purchase the demised premises which is phrased as follows:

6. Lessee may at its option during the eleventh (11th) year of the term of this lease purchase the premises from the Lessor provided that the Lessee shall give written notice sixty (60) days prior to the time of its intention to exercise this option. The price at which Lessee shall purchase the premises shall be ONE MILLION FOUR HUNDRED THOUSAND ($1,400,000) DOLLARS.

The plaintiff at some time thereafter offered to pay the Bank $400,000 for a surrender of its interest in the lease including the purchase option. It is alleged in the Complaint that the United States of America, the sublessee, will assent to such surrender in return for a lease directly from the plaintiff. The Bank then offered to sell its interest in the lease and sublease to Microwave (and to finance such sale) at the same price offered by the plaintiff. Microwave did not accept this offer, but rather it and Dr. El Hefni served notice on the plaintiff and the Bank of their claim that their rights under the March 16, 1977 agreement would survive any sale by the Bank to the plaintiff of its rights under the lease and sublease. The filing of the complaint in this action followed. The plaintiff seeks a determination that the surrender may be accepted for registration and that such acceptance will extinguish the rights of SDM, Microwave and the Bank. The answer of the defendants other than the Bank sought a judgment that the interest of Microwave in the lease is an interest in the land described in the plaintiff's certificate of title, that the applicable portion of the agreement may be registered and that Microwave's rights cannot be extinguished by a surrender of the lease.

A trial was had at the Land Court on September 19, 1978 at which a stenographer was appointed to record the testimony. All exhibits introduced into evidence are incorporated herein for the purpose of any appeal.

At the outset we are met by a challenge to the jurisdiction of this Court raised for the first time in the brief filed on behalf of the defendant, Microwave. It would appear that this action falls within the area where the Land Court and Superior Court Departments have concurrent jurisdiction, see Cesarone v. Femino, 340 Mass. 638 , 639-40 (1960), Deacy v. Berberian, 344 Mass. 321 , 328 (1962), and that therefore the Massachusetts Rules of Civil Procedure apply. Mass. R. Civ. P. 1. Rule 12 (h)(3) and the Reporters' Notes make it clear that the defense of lack of subject matter jurisdiction may be raised at any time prior to a final determination on appeal. Microwave's argument is based on the language of G. L. c. 185, §1(k) which provides for such concurrent jurisdiction of

All cases and matters cognizable under the general principles of equity jurisprudence where any right, title or interest in land is involved, except actions for specific performance of contracts.

It is contended that a decision adopting Microwave's position would be tantamount to an action for specific performance of a contract and thus without the jurisdiction of the Land Court Department. This position seems convoluted, but in any event is not supported by authority. It has previously been held that the exclusionary clause does not bar the adjudication of an adverse claim for specific performance in a registration proceeding, Johnson v. Rosengard, 299 Mass. 375 , 376-77 (1938), nor the registration of an adverse claim alleging registered land is subject to the renewal of a lease since the litigant "is seeking the establishment, and not the enforcement, of his claim to a right of renewal of the lease ••• [which] can be adjudicated under the jurisdiction conferred by the statute." Lamson v. Coulson, 234 Mass. 288 , 291-92 (1920). In this action the plaintiff is seeking a determination that he holds his land free from any right of Microwave therein; the determination of the validity of Microwave's claim is clearly within the jurisdiction of the Land Court Department.

The basic questions to be decided are whether paragraph 8 of the March 16 agreement was personal only between the parties thereto or was intended to run with the land, and, if the former, whether there was an implied condition that it was to be operative only if the Bank still held the lessee's interest in the lease at the time provided therein for the exercise of the purchase option. Before we reach these questions, however, there is the preliminary determination to be made as to the instrument(s) which comprise the contract, if any, between SDM, Microwave and the Bank. The plaintiff contends a) that a construction of the agreement in accordance with usual Massachusetts rules permits the present sale of the Bank's interest in the lease free of any claim by Microwave or Dr. El Hefni or, b) that the March 16, 1977 version of the agreement containing paragraph 8 for the first time constituted a counter offer to the Bank whose acceptance embodied the modification set forth in Mr. Harrison's letters to Dr. El Hefni and Mr. Morley. Alternatively, the plaintiff argues that the March 16, 1977 agreement, if a binding contract, is ambiguous, and accordingly the letters between the parties are admissible to help ascertain their intent. In fairness to all it should be noted that SDM was at the critical time hopelessly insolvent with bankruptcy threatened, that to date bankruptcy has been averted, that the circumstances and the pressures generated thereby accounted for the inartistry of the agreement, and that then as now SDM was heavily indebted to the Bank.

Rather than interpreting the March 16, 1977 agreement together with the related correspondence as a counter proposal by the Bank to the other parties' counter offer which was accepted by Microwave, Dr. El Hefni and SDM as evidenced by performance, I interpret the March 16, 1977 agreement as the contract. The cardinal rule of construction of a contract is to ascertain the intent of the parties thereto and if possible to construe the contract "as a business transaction entered into by practical men to accomplish an honest purpose in accord with common sense." Kennedy Bros. Inc. v. Bird, 287 Mass. 477 , 482-83 (1934); accord, Waldo Bros. Co. v. Platt Contracting Co., 305 Mass. 349 , 355-56 (1940). As was succinctly stated by Justice Whittemore in Stop & Shop, Inc. v. Ganem, 347 Mass. 697 , 701 (1964), "Justice, common sense and the probable intention of the parties are guides to construction of a written instrument." And the contentions urged on this Court by the defendants lack common sense. It is for this reason that the course of conduct between the parties is relevant, for it is only in reviewing it that the true intention of the parties can be ascertained. This is admissible not to vary or enlarge the agreement but to illuminate its meaning. Rizzo v. Cunningham, 303 Mass. 16 , 20-21 (1939). As mentioned heretofore the agreement was drafted at a very troubled time for the parties thereto. The Bank to whom SDM was heavily indebted nonetheless made numerous concessions to it. It is apparent from the tenor of the agreement that the primary security so far as the Bank was concerned was SDM's interest as lessee named in the lease on which the Bank had foreclosed. However, a lending institution normally would be reluctant to remain itself as lessee pursuant to a long term lease of property not used for banking purposes inasmuch as it would be primarily liable for payment of the rent and performance of the other covenants therein. Accordingly, common sense dictates that the parties must have intended paragraph 8 to apply only if the Bank remained a party to the lease at a time when the purchase option was exercisable. Cf. Boston Plate & Window Glass Company v. John Bowen Co., 335 Mass. 697 (1957). There was no consideration to the Bank for any supposed undertaking on its part not to hypothecate its interest or to do so only subject to paragraph 8. The $250,000 which the defendants point to as their contribution was payable from accounts receivable already assigned to the Bank. It is very hard to believe that the Bank would tie its hands and freeze its position for six years on the basis of such an undertaking by Microwave. Moreover, no third party to whom the Bank might sell its position would wish to buy if it were to be bound by the fifty per cent split of profits. The only realistic conclusion, buttressed by the plain meaning of the language used by the parties, is that paragraph 8, added by the attorney for the defendants other than the Bank, was to be operative only if the Bank had not been successful in selling its position prior to the eleventh year of the term of the lease. And there would appear to be no reason why the sale of the Bank's interest should not be to the lessor in view of the substantial consideration offered by the plaintiff-lessor. Such a sale would be a good faith transaction and not one entered into merely to eliminate any interest of the defendants.

On all the evidence I find and rule that paragraph 8 of the March 16, 1977 agreement is unclear; that other evidence is admissible in order to construe it properly; that it is to be construed in accordance with justice, common sense and the intention of the parties; that it was contemplated by the parties that the interest of the Bank in the lease might be transferred; that the plaintiff has made a good faith offer to purchase such interest; that the offer was not made for the purpose of eliminating the interest of Microwave and Dr. El Hefni; that the provisions of said paragraph 8 were personal to Microwave and the Bank and were to apply only if the Bank remained the holder of the lessee's interest under the lease at the time the option was exercisable; that the Bank was free to sell its position as lessee at any time free from the provisions of paragraph 8 which were to apply only in the event that the contingencies therein mentioned occurred; that it was never contemplated that the Bank would have to remain as lessee until the purchase option was exercisable by its terms unless in the event of a sale of its position the buyer took subject to paragraph 8; that the sale to the plaintiff and payment of $400,000 will not compensate the Bank in full for the losses incurred by it; that the surrender of the lessee's interest in the lease together with the assent thereto by the United States of America, when properly executed by the parties thereto, may be noted on the plaintiff's outstanding Certificate of Title No. 18944; and that thereupon the lease will terminate.

The plaintiff has made the following requests for rulings of law:

1. The Agreement dated March 16, 1977 between the Union National Bank and Microwave Associates is not ambiguous and since it does not provide that Union National Bank shall remain as sublessor of the property which is the subject of the lease between the Petitioner and SDM Corporation until 1983, judgment should be entered for the Petitioner;

2. Since there is no evidence that the Petitioner assented to the purported assignment of the option to purchase contained in the lease between the Petitioner and SDM Corporation dated October 18, 1972, such purported assignment is a nullity and judgment should be entered for the Petitioner;

3. Since there is no credible evidence that the Union National Bank, acting through its authorized agents, ever agreed to remain as sublessor of the property which is the subject of the lease between the Petitioner and SDM Corporation until 1983, a judgment should be entered for the Petitioner.

Request No. 1 is denied as being inconsistent with my decision. Request No. 2 also is denied. The plaintiff having assented unconditionally to the assignment of the lease to the Bank without reserving his right to assent to future assignments has waived his right to do so according to the rule in Dumpor's Case. See Aste v. Putnam's Hotel Co., 247 Mass. 147 , 151-52 (1923). Request No. 3 is denied in part since it is the Bank's position as lessee, not sublessor, which is in question. As so modified, the request is granted.

Judgment accordingly.


[Note 1] This letter was signed by Hammond G. Reed, a retired officer of a Boston bank, who was acting as a consultant to SDM.

[Note 2] The relationship of this corporation to the Bank was not made clear at the trial, but it is not disputed that it was authorized to act on behalf of the Bank.

[Note 3] Apparently the word "assignment" was intended.