SHAWMUT COUNTY BANK, N.A. and INMAN TOWNE HOUSE REALTY CORP. vs. RICHARD A. NAJARIAN and LILLIAN V. NAJARIAN.

Shawmut County Bank, N.A. (the "Bank") [Note 1] seeks by this complaint to reform a partial release dated June 10, 1976 and recorded with Middlesex South District Deeds, [Note 2] Book 13008, Page 711 (Exhibit No. 2). The release as written constitutes only a release of a certain parcel of land, 16 St. Paul Street in Cambridge in the County of Middlesex, from a mortgage given by David I. Begelfer to the defendants and others dated September 26, 1973 and recorded in Book 12528, Page 422. The plaintiffs seek to reform the release to include two additional parcels of land, 14 St. Paul Street and a lot at the rear of 14 St. Paul Street, from a mortgage given by Inman Towne House Realty Corp. to the same mortgagees dated September 26, 1973 and recorded in Book 12528, Page 383. [Note 3] (Exhibit No. 10). The defendants, Richard A. Najarian and Lillian V. Najarian, residents of Belmont, are the payees named in one of the nine notes secured by said mortgages, and the only two of the mortgagees to deny that the partial release should be so reformed. The Bank claims to be the present owner of a parcel of land commonly known as 14 St. Paul Street in Cambridge in the County of Middlesex by virtue of a foreclosure of a mortgage to it from Frederick A. Destefano, Jr., dated June 30, 1976 and recorded in Book 13008, Page 724. [Note 4] The Bank complains that the record title to said premises is clouded by the mortgage from Inman Towne House Realty Corp. to the defendants and others and seeks to have the partial release reformed. [Note 5] The Court, after consideration of all the evidence and arguments of the parties, both oral and written, finds this to be an appropriate case for reformation.

A trial was held at the Land Court on November 6 and 9, 1980 at which a stenographer was appointed to record the testimony. Any exhibits introduced into evidence are incorporated herein for the purpose of any appeal.

I find the following facts:

1. In the fall of 1973 Inman Towne House Realty Corp. and said corporation's principals found themselves in need of additional financing for the development of condominiums on Inman Street in the City of Cambridge. Karnig S. Dinjian and Nubar J. Dinjian, cousins and business partners, raised monies from friends and relatives to share in an investment, a secured loan to the realty corporation and to David I. Begelfer. There were thirteen participants as mortgagees in these transactions of which the defendants, husband and wife, were two. Richard A. Najarian, one of the defendants, is a nephew of Karnig S. Dinjian who is the brother of his mother, Arax L. Najarian, also a mortgagee. Mrs. Arax L. Najarian originally was a defendant in this proceeding, but she has now agreed with the position of the other mortgagees, and the case has been dismissed as to her. The total principal amount secured by the two mortgages was $300,000 represented by nine notes each running to certain of the mortgagees. While the note to the defendants, Richard A. and Lillian V. Najarian, is not before the Court, it is not disputed that the principal amount thereof was $30,000; as noted above, the note already has been involved in litigation before the Supreme Judicial Court. The mortgage reflects the principal amount of the note by providing that Mr. and Mrs. Najarian, as tenants by the entirety, were granted an undivided one-tenth interest in the mortgaged premises.

2. After the original closing of the mortgage loan Exhibit No. 11 was modified by substituting the liability of MacDavis C. Begelfer and Victor Iocco for that of David I. Begelfer as provided in an instrument dated April 9, 1975 (Exhibit No. 8), MacDavis C. Begelfer and Victor Iocco having taken title to at least three of the four parcels described therein (Exhibit No. 7). The other mortgage, Exhibit No. 10, was earlier amended by an instrument dated December 10, 1974 and recorded in Book 12739, Page 651 to add the statutory condition and the statutory power of sale. (Exhibit No. 10A).

3. The path of this real estate development was beset with difficulties including zoning problems and the general economic conditions of the middle 70's, and in the spring of 1976 the investors in the mortgage loan were approached to release some of their equity in order that it not be completely lost by a foreclosure of prior liens. At this time all the mortgagees executed a partial release of the premises at 30 Inman Street from the Begelfer mortgage by instrument dated June 7, 1976 and recorded in Book 12994, Page 347. (Exhibit No. 14). Apparently there also was a partial release of 10 St. Paul Street from the Inman Towne House Realty Corp. mortgage as appears from the marginal reference on Exhibit No. 10.

4. The Dinjians also recommended to the mortgagees that 14 and 16 St. Paul Street be released from the mortgages in order that the properties might be sold and something salvaged from the financial catastrophe. His uncle Karnig approached the defendant Richard who demurred at diluting the security and was sent to discuss the situation with MacDavis Begelfer. Richard also for the first time physically inspected the properties and was horrified at their condition. He ultimately signed the partial release which covers 16 St. Paul Street (Exhibit No. 2). It sets forth the legal description of two parcels of land but contains no street addresses to colloquially describe them.

5. The partial releases are believed to have been prepared by Elliott Mishara, counsel for the mortgagors, and circulated to the mortgagees. It is not disputed that all thirteen mortgagees executed this instrument.

6. The partial release was delivered to counsel for the Bank who admittedly was negligent in not checking it carefully to be certain that it covered two mortgages and the two parcels comprising 14 St. Paul Street with which we are here concerned. It was not until some years after the DeStefano transaction was hastily closed that the Bank, durng its foreclosure proceeding, reached its attorney and inquired about the partial release of the Inman Towne House Realty Corp. mortgage, and none was found of record.

7. At the time the partial release was executed, it was understood by the mortgagees that two properties were to be released so that the sale to a third party might proceed and that approximately $10,000 would be available for payment to them in proportion to their interest. None of them appears to have had any expertise in deciphering legal descriptions, and they relied instead on the advice of the Dinjians.

8. When the proceeds of the sale of the released premises were remitted to the defendants and other mortgagees, the covering letter from Mr. Mishara (Exhibit No. 3) referred in two places to the "sale of 14 and 16 St. Paul Street."

9. It seems clear that the defendants knew that two parcels were to be sold, that these encompassed both 14 and 16 St. Paul Street and that they had elected to go forward with the partial release. They perhaps did not realize that each street address consisted of two parcels or even that the security for the note consisted of two mortgages, one from a corporation and the other from individual(s), albeit related and consistently referred to by the parties and their attorneys as a blanket mortgage. Nine of the mortgagees have signed affidavits that they intended to release the 14 St. Paul Street premises, and all of them but the defendants have signed a partial release (Exhibit No. 5) rectifying the error. The defendants, of course, have refused. However, they have taken no steps to foreclose the mortgage, a supposed partial release of which the plaintiffs seek to reform.

The law relating to reformation of instruments in this Commonwealth is well settled. There can be no reformation of a written instrument without fraud, accident or mutual mistake. Eno v. Prime Manufacturing Co., 317 Mass. 646 (1946); Century Plastic Corp. v. Tupper Corp., 333 Mass. 531 , 534 (1956); Green v. Cappy Homes Co., Inc., 354 Mass. 35 (1968). As the Appeals Court has recently said in Beach Associates, Inc. v. Fauser, Mass. App. Ct. (1980): [Note 6]

Reformation is available to parties where there has been a mutual mistake which is material to the instrument and where no rights of third persons are affected. It is of no critical importance whether the mutual mistake is one of fact or law; it is sufficient that it is material and that it is of a type which can be remedied in equity. Reggio v. Warren, 207 Mass. 525 , 534-536 (1911). White v. White, 346 Mass. at 80; Dover Pool & Racquet Club v. Brooking, 366 Mass. 629 , 632-633 (1975).

In cases like the present there must be clear evidence of mistake with the real intention of the parties clearly established. Winston v. Pittsfield, 221 Mass. 356 (1915); Sancta Maria Hospital v. Cambridge, 369 Mass. 586 , 595 (1976).

This case is not without some difficulty, but having weighed the evidence in the light of the law, on all of it I find and rule:

1. The mortgagees were not skilled [Note 7] in real estate transactions and relied for advice on the Dinjians as to the business side of the partial releases and on counsel to draft the language.

2. There was confusion as to the existence of two mortgages, the number of parcels involved and the proper legal descriptions.

3. It was understood that the properties at 14 and 16 St. Paul Street were to be released in order to obtain for the mortgagees any available funds from the sale of these properties after payment of prior liens; this was the ultimate objective of all the investors. The fact that there were two parcels in the executed partial release and that the disbursement of proceeds referred to both street addresses buttresses this conclusion. The parties knew when they received the Mishara covering letter transmitting funds that both addresses were involved, and no question was raised.

4. No innocent third party will be hurt if the partial release is reformed as prayed for. Indeed if relief is denied, the Bank which advanced funds of which the defendants and their joint venturers were the beneficiaries will suffer, and the defendants also will benefit at the expense of the other mortgagees.

5. The partial release (Exhibit No. 2) is to be reformed to include a release from the mortgage given by Inman Towne House Realty Corp. (Exhibit No. 10) of the two parcels comprising 14 St. Paul Street, but title to the rear parcel is to be held in escrow until notice and an opportunity to be heard is given to DeStefano and any third parties holding liens on said parcel. If any party wishes to be heard, this case will be set down for further hearing; if not, the deed to Destefano and his mortgage to the Bank will be reformed to include said lot.

Judgment accordingly.