S.J.C. CAMBRIDGEPORT SAVINGS BANK vs. DAVID BOERSNER & another. [Note 1]

GREANEY, J. The plaintiff, Cambridgeport Savings Bank, brought this action in the Superior Court to collect on a mortgage note in the amount of $2,615,095.49, plus interest, late charges and costs of collection. [Note 2] The defendants, David Boersner and Edgard Puente, each had executed a written guaranty to secure payment in the event of a default on the loan, which had been made by the bank to Boersner and Puente as trustees of Boston Dartmouth Realty Trust. [Note 3] The defendants denied the bank's allegation that the loan was in default, and they separately filed counterclaims alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and a violation of G. L. c. 93A. [Note 4] A jury returned general verdicts against the bank on its complaint

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and in favor of the defendants on their counterclaims alleging breach of contract and breach of the implied covenant of good faith and fair dealing, and they awarded each defendant damages in the amount of $3 million. The judge granted the bank's motion for judgment notwithstanding the verdicts, Mass. R. Civ. P. 50 (b), 365 Mass. 814 (1974), and he entered judgment in favor of the bank on the defendants' counterclaim under c. 93A, which he had reserved for himself. The defendants appealed, and we granted their petition for direct appellate review. We affirm the judgment notwithstanding the verdict.

The loan at issue was made on December 8, 1987, as an acquisition and construction loan in the maximum amount of $4,000,000. Boersner and Puente, as trustees, had sought the loan in order to acquire the building located at 312-314 Dartmouth Street in Boston, to renovate it, and to sell it as six residential and three commercial condominiums. They purchased the Dartmouth Street building with approximately $2.5 million of the loan proceeds. The remaining $1.5 million, to be used for renovating the building, was to be disbursed by the bank in accordance with conditions set forth in a loan agreement.

The loan is evidenced by a five-page promissory note, a thirteen-page loan agreement incorporating by reference a commitment letter from the bank and containing other exhibits, and separate eleven-page guaranties, executed by Boersner and Puente individually, of all the trustees' obligations under the note. In these documents, the trustees promise "to pay to [the bank] the Original Principal Amount, or so much thereof as shall have been disbursed from time to time under the Loan Agreement, with interest," with "[p]ayments of interest only on the outstanding balance . . . payable on each Payment Date prior to the Maturity Date." The note provided that a "default in the payment of any money due . . . shall render the whole sum then remaining unpaid hereunder then due and payable at the option of the holder hereof notwithstanding the waiver of any prior breach or default." The documents also specified that the "Loan

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Agreement may not be modified or amended orally but only by a written instrument signed by Borrower and Lender."

Under their guaranties, Boersner and Puente unconditionally agreed that "[n]o setoff, counterclaim, reduction or diminution of any of the Obligations, or any defense of any kind or nature, which the Borrower has or may have against the Bank, shall be available hereunder to the Guarantor against the Bank." Each guaranty also provided as follows: "The Guarantor hereby waives any and all suretyship defenses and all other defenses in the nature thereof, and agrees that enforcement of this Guaranty shall not be affected, reduced, modified or impaired by any dealing by the Bank with the Borrower or anyone else who may now or hereafter become liable in any manner for the Obligations in such manner as the Bank, in its sole discretion, may deem fit, or if, by operation of law or for any other reason, any or all of the Obligations, or any security therefor or any other guaranty thereof is invalid, defective or unenforceable, this Guaranty shall be binding upon the Guarantor to the same extent as if the Guarantor were primarily obligated for the Obligations." There then follows in each guaranty, without any limitation of the foregoing, a number of specific waivers including assent to the two provisions noted below. [Note 5]

In October, 1988, the bank brought suit against Boersner and Puente in their individual capacities as guarantors, alleging that the note was in default because, beginning in May of that year, the trust had failed to make monthly interest

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payments (of approximately $24,000 per month as required by the note) on the amount of $2.5 million that had been disbursed for the acquisition of the building. Earlier, on July 5, 1988, the bank sent a letter to the defendants, notifying them that interest payments for May and June were overdue and requesting payment. No payment was made. On August 25, 1988, the bank sent a certified letter notifying the defendants as guarantors that the trustees were in default and that the bank was opting to accelerate the principal balance, and made demand upon the defendants as guarantors to pay the amount due. Boersner and Puente answered that they were not individually liable on the note as guarantors because the loan had not gone into default; they contended that the loan transaction included an agreement, not expressed anywhere in the loan documents, that the bank would disburse construction loan proceeds to the borrowers each month in an amount sufficient to allow them to meet their interest payment obligation. [Note 6] The bank's breach of this alleged agreement also formed the basis of the defendants' counterclaim asserting breach of contract.

On the fifth day of trial, the judge ruled that the loan documents, which provided that it was the borrowers' obligation to pay interest monthly on the outstanding principal balance, constituted integrated and complete agreements. As a result, parol evidence of the agreement to the contrary alleged by the defendants could not be considered by the jury. The judge so instructed the jury in his charge: "any evidence of any oral agreements or understandings of the parties, or negotiations between the parties, prior to or at the same time as the execution of the loan documents cannot modify the written terms of those documents." [Note 7]

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Although the judge found that the loan documents constituted integrated and complete agreements, he apparently concluded that the evidence could warrant a jury verdict in favor of the defendants on a theory that the parties had entered into a subsequent oral agreement, enforceable by its terms, to modify the contract to provide for interest funding by the bank, or on a theory that the bank had made a subsequent promise to fund interest, on which the defendants had justifiably relied. Over the bank's objections, the judge instructed the jury on the law relating to oral modification of a written contract and the law relating to the enforceability of a promise by virtue of reliance. [Note 8] As noted above, the jury

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returned verdicts in the defendants' favor on both the plaintiff's claim and the defendants' counterclaims, and the judge granted the bank's motion for judgment notwithstanding the verdict. [Note 9]

In considering a motion for judgment notwithstanding the verdict, "the judge's task, `taking into account all the evidence in its aspect most favorable to the plaintiff, [is] to determine whether, without weighing the credibility of the witnesses or otherwise considering the weight of the evidence, the jury reasonably could return a verdict for the plaintiff.'" Tosti v. Ayik, 394 Mass. 482, 494 (1985), quoting Rubel v. Hayden, Harding & Buchanan, Inc., 15 Mass. App. Ct. 252, 254 (1983). The court will consider whether "anywhere in the evidence, from whatever source derived, any combination of circumstances could be found from which a reasonable inference could be drawn" in favor of the non-moving party. Poirier v. Plymouth, 374 Mass. 206, 212 (1978), quoting Raunela v. Hertz Corp., 361 Mass. 341, 343 (1972). "The inferences to be drawn from the evidence must be based on probabilities rather than possibilities and cannot be the result of mere speculation and conjecture." McEvoy Travel Bureau, Inc. v. Norton Co., 408 Mass. 704, 706-707 n.3 (1990), quoting McNamara v. Honeyman, 406 Mass. 43, 45-46 (1989).

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1. Theory of subsequent oral modification. It is a settled principle of law that "[t]he mode of performance required by a written contract may be varied by a subsequent oral agreement based upon a valid consideration." Siegel v. Knott, 316 Mass. 526, 528 (1944). First Pa. Mortgage Trust v. Dorchester Sav. Bank, 395 Mass. 614, 625 (1985). Wesley v. Marsman, 393 Mass. 1003, 1004 (1984). Schinkel v. Maxi-Holding, Inc., 30 Mass. App. Ct. 41, 47 (1991). Additionally, a provision that an agreement may not be amended orally but only by a written instrument does not necessarily bar oral modification of the contract. "Mutual agreement on modification of the requirement of a writing may . . . `be inferred from the conduct of the parties and from the attendant circumstances' of the instant case." First Pa. Mortgage Trust v. Dorchester Sav. Bank, supra at 625, quoting Flynn v. Wallace, 359 Mass. 711, 715 (1971).

In First Pa. Mortgage Trust, supra, joint venturers had entered into a written participation agreement to share in financing the construction of a rental apartment project. The agreement required written consent to modification. Approximately eighteen months after entering the written agreement, the judge found, the parties entered into an oral agreement to lend additional money to the project. We concluded that "ample evidence" supported the judge's finding that such an agreement had been reached. That evidence, which included numerous discussions between the parties and written communications setting forth the details of the new agreement and directing that the appropriate legal documentation be prepared, was sufficient for the judge to have found that the party denying the existence of a modification had instead "unequivocally" expressed his approval "of the many pertinent details" of the new agreement. Id. at 622-623. [Note 10]

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By contrast, the evidence here does not permit an inference that the parties had reached an oral agreement to modify the written contract. Significantly, the defendants did not assert that a subsequent agreement had been negotiated; instead, they testified that the bank's obligation to fund the monthly interest payments was a term of the original agreement. David Boersner testified that when he received the first bill for monthly interest, he called bank employee Christine Anderson to inquire what to do with the bill because he "assumed that the interest was taken care of," suggesting that he believed that the loan agreement had always provided for interest disbursements from the remaining loan principal. Similarly, Edgard Puente testified that the terms of the original loan negotiations included $800,000 for "soft costs," fifty-five per cent of which was for interest. The defendants' contention would appear to be that the issue of interest funding, not formally resolved at the time of the loan closing, was the subject of the oral agreement later made between the parties. [Note 11] Their argument appears to reflect a continuing erroneous belief that the same evidence of a contemporaneous agreement that was excluded under the parol evidence rule could prove their theory of subsequent oral modification. [Note 12]

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The remaining evidence offered by the defendants is insufficient to support their theory. The defendants rely primarily on the fact that for the first four months after the loan closing, the bank had paid the monthly interest payments from the remaining loan principal. Christine Anderson, a bank employee, testified that at the direction of Mr. McHugh, the bank's commercial loan officer who had negotiated the loan, she established the procedure for these interest payments to be made by the bank and informed the borrowers that after receiving the monthly interest bill, they should send it back to the bank, after which the monthly interest payment would be disbursed from the loan proceeds. However, she also testified that she had no lending authority and that she obtained the approval of Mr. McHugh before any disbursement was made to cover an interest payment. A document concerning the status of the loan that was prepared in May, 1988, by Lynne Coyle, a bank loan officer, includes an item in its calculations for the bank's payment of monthly interest; Coyle testified that she drafted the document as an attempt to gauge the amount of money the bank might receive from a proposed sale of two condominium units in the building and to outline a proposal made by the borrowers to satisfy a possible shortfall in those proceeds. Interim budgets submitted by the borrowers included amounts for interest, as required by the bank's commitment letter.

What we have here are carefully drawn and comprehensive loan documents which squarely committed Boersner and Puente as full guarantors of the obligations owed by their trust to the plaintiff. The provisions in the guaranties, which integrate closely with the terms of the note and the provisions of the loan agreement, allowed the bank to make accommodations and grant indulgences to the borrowers. Overall, the instruments create a strong barrier against a claim of

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subsequent modification. That barrier cannot be penetrated by a weak claim such as the one presented by Boersner and Puente. We conclude that their evidence, taken in sum, is insufficient to warrant an inference "based on probabilities rather than possibilities," McEvoy Travel Bureau, Inc. v. Norton Co., 408 Mass. 704, 706-707 (1990), that the interest disbursements made by the bank were the result of a postclosing agreement to modify the loan documents.

2. Theory of enforceability based on reliance. The defendants argue in the alternative that because they relied upon the bank's promise to fund interest, that promise is an enforceable contract. See Loranger Construction Corp. v. E.F. Hauserman Co., 376 Mass. 757, 761 (1978); Restatement (Second) of Contracts Section 90 (1981). [Note 13] We disagree. Because the borrowers had assumed the obligation to pay interest monthly as a term of the loan agreement, the bank need not have had reason to expect that they would reasonably rely on any subsequent promise by the bank to fund those payments from the loan principal. Furthermore, the actions undertaken by the defendants in supposed reliance on the bank's promise to fund interest payments -- incurring expenses for salaries and advertising to market the condominium project -- were not induced by the bank's promise to fund interest payments; the defendants were already obligated by the terms of the written agreement to sell the condominium units. The bank's promise that the bank would fund the interest payments, therefore, was merely a hope or expectation on the defendants' part, which "is not equivalent to either legal detriment

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or reliance." Congregation Kadimah Toras-Moshe v. DeLeo, 405 Mass. 365, 366-367 (1989).

We conclude that the jury verdict in favor of the defendants must have been "the result of mere speculation and conjecture," see McNamara v. Honeyman, 406 Mass. 43, 45-46 (1989), and we affirm the allowance of the bank's motion for judgment notwithstanding the verdict. [Note 14] Our decision on the merits of the bank's complaint also disposes of the defendants' counterclaim asserting breach of contract.

As to the defendants' two remaining counterclaims alleging breach of the implied covenant of good faith and fair dealing and a violation of G. L. c. 93A, we agree with the judge's determination that under the terms of their guaranties, the defendants waived their rights to assert these counterclaims. [Note 15] See Federal Deposit Ins. Corp. v. Hill, 13 Mass. App. Ct. 514, 518 (1982). The judge did not abuse his discretion

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in denying the defendants' motion to add themselves, as trustees, as plaintiffs-in-counterclaim.

In view of our disposition of the case, we need not rule on the propriety of the judge's allowance of the plaintiff's motion for a new trial, Mass. R. Civ. P. 59 (a), 365 Mass. 827 (1974).

Judgment affirmed.