Bank of New York as Trustee v. Bates et al

Filing 50

MEMORANDUM (Order to follow as separate docket entry).Signed by Honorable Malachy E Mannion on 3/30/15. (bs)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF PENNSYLVANIA
BANK OF NEW YORK AS
:
TRUSTEE FOR
CERTIFICATEHOLDERS
:
CWABS, INC. ASSET-BACKED
CERTIFICATES, SERIES 2006-24, :
Plaintiff

(JUDGE MANNION)

:

v.

CIVIL ACTION NO. 3:13-0690

:

AMY J. BATES f/k/a
AMY J. JONES and
RICHARD BATES,

:
:

Defendants

:
MEMORANDUM

Pending before the court are the cross-motions for partial summary
judgment of defendants and plaintiff, (Doc. 38, Doc. 41). Based upon the
court’s review of the motions and related materials, the plaintiff’s motion for
partial summary judgment will be GRANTED with respect to Counts I and II
of the amended complaint, (Doc. 11); the defendants’ motion will be DENIED
with respect to Count II and will be GRANTED with respect to Count III.

I.

Procedural Background
Plaintiff, Bank of New York as Trustee for the Certificateholders

CWABS, Inc. Asset-Backed Certificates, Series 2006-24 (the “plaintiff”),
initiated this action by filing a complaint on March 14, 2013, against
defendants Amy J. Bates, formerly known as Amy J. Jones, (“Mrs. Bates”),

and Richard Bates (“Mr. Bates”), residents of 1712 Forest Acres Drive, Clarks
Summit, PA. (Doc. 1). Defendants filed a motion to dismiss the complaint and
plaintiff then filed an amended complaint on April 29, 2013.1 (Doc. 11). In its
amended complaint, the plaintiff asserts three counts: Count I Default/Breach of Contract against defendant Mrs. Bates; Count II Reformation by Mutual Mistake against both defendants; and Count III Reformation by Unilateral Mistake against both defendants.2 With respect to
the breach of contract claim, damages in the amount of $164,004.78 are
requested, based upon Mrs. Bates’ alleged failure to make required monthly
payments due on the Franklin Note, as well as related interest, costs and
expenses. As to the reformation claims, plaintiff is seeking reformation of the
Franklin Mortgage since it erroneously referenced the legal description of a
vacant property owned by Mr. Bates and Mrs. Bates instead of their adjacent
residential property upon which their house is situated. Mr. Bates and Mrs.
Bates are the owners of the vacant property which is currently encumbered
by the Franklin Mortgage. Plaintiff seeks to reform the Franklin Mortgage,
based on mistake, to encumber the residential property instead of the vacant
1

The complete factual background of this case as alleged in plaintiff’s
amended complaint was previously stated by the court in its March 28, 2014
Memorandum denying defendants’ motion to dismiss. (Doc. 26).
2

As stated by the court in its March 28, 2014 Memorandum, the plaintiff
has not brought a claim against Mr. Bates related to the Franklin Note since
he is not a party to the Note. Rather, the plaintiff’s claim against Mr. Bates is
for reformation of the Franklin Mortgage to which Mr. Bates is a party.
2

property.
On May 14, 2013, defendants filed a motion to dismiss the amended
complaint. (Doc. 14). On March 28, 2014, the court issued a memorandum
and order, denying defendants’ motion to dismiss plaintiff’s claims. (Doc. 26
& 27).
After the close of discovery, defendants filed a motion for partial
summary judgment with respect to the second and third counts of plaintiff’s
amended complaint on May 19, 2014. (Doc. 38). Also, on May 19, 2014,
plaintiff filed a motion for partial summary judgment regarding its breach of
contract claim against defendant Mrs. Bates (Count I) and its claim for
reformation by mutual mistake against Mrs. Bates and Mr. Bates (Count II).
Both motions have been briefed and statements of material facts have been
filed along with exhibits in support thereof. (Docs. 39, 44, 47, 48, 49, and
Docs. 42, 43, 45, and 46). Thus, the cross-motions for partial summary
judgment are ripe for disposition.

II.

Material Facts3
Based on the statement of material facts and exhibits, the court finds

the following material facts. The defendant Amy J. Bates, formerly known as

3

Unless otherwise noted, the facts are taken from the parties’
statements of material facts, responses thereto, and the exhibits submitted.
(Docs. 39, 42, 44, 45 and 48). Most facts are not disputed by the parties.
Disputed facts are noted.
3

Amy J. Jones, is the owner of a parcel of real property located at 1712 Forest
Acres Drive, Clarks Summit, PA, (“Residential Property”). Specifically, in
1989, defendant Amy J. Bates and her former husband, Donald W. Jones,
began living in a house on a parcel of property that was owned by her parents
in Clarks Summit, Pennsylvania, with a street address of 1712 Forest Acres
Avenue, i.e., the Residential Property. On April 5, 1995, Amy J. Bates and
Jones purchased the Residential Property from Bates’ parents for $1.00. In
March 2000, Amy J. Bates and Jones decided to divorce. As part of the
divorce, Jones granted all of his interest in the Residential Property to Amy
J. Bates on March 24, 2000. In November of 2000, Amy J. Bates married
defendant Richard Bates, however, she did not grant Richard any interest in
the Residential Property. As such, Amy J. Bates is the sole owner of the
Residential Property at all relevant times in this case.
Also, on March 24, 2000, Mrs. Bates received a loan for $105,000 from
Saxon Mortgage, Ltd., secured by a mortgage on the Residential Property.
On March 19, 2003, Mrs. Bates acquired a 1.91 acre parcel of vacant
property adjacent to the Residential Property from her mother for $1.00
(“Vacant Property”). Mrs. Bates later granted an equal interest in the Vacant
Property to Mr. Bates. At no time did Mrs. Bates grant any interest in the
Residential Property to Mr. Bates. The Vacant Property and the Residential
Property have distinct legal descriptions, but the same mailing address. No
house has ever been built on the Vacant Property.
4

After a fire in 2005, the house on the Residential Property was
destroyed and Mrs. Bates used fire insurance proceeds to rebuilt it and it has
been the defendants’ primary residence since then.
In October 2006, Mrs. Bates, on her own, applied for a loan from
Franklin First Financial, Ltd., (“Franklin”), which was to be used to pay off the
amount owed under the Saxon Loan as well as to finish work on her home
situated on the Residential Property. The loan was to be secured against Mrs.
Bates’ sole interest in the Residential Property.
Specifically, on October 19, 2006, Mrs. Bates, in her own name and
without the participation of Mr. Bates, submitted a 30-year Residential Loan
Application to Franklin through which she sought a loan in the amount of
$164,500 to refinance the Residential Property, i.e., her primary residence,
located at 1712 Forest Acres Drive, Clarks Summit, PA. (Doc. 42-6). The loan
application, in which Mrs. Bates signed every page, indicated that:
a.

Property located at 1712 Forest Acres Drive, Clarks
Summit, PA, would be used to secure the loan;

b.

The property located at 1712 Forest Acres Drive, Clarks
Summit, PA, which would be used to secure the loan was
her “primary residence” and was a single family residence;

c.

The property located at 1712 Forest Acres Drive,
Clarks Summit, PA, had a value of $235,000.

Although Mr. Bates did not sign the Franklin loan application because
5

he was not an owner of the intended collateral, he knew that Mrs. Bates
intended to use the loan, in part, to pay off the Saxon Loan as well as credit
card bills and to finish the construction on the house and, that Mrs. Bates was
to secure the loan against the Residential Property. In addition, Mr. Bates was
a co-signer to the mortgage (not the note) representing therein that he would
occupy the property securing the loan as his principal residence. Mr. Bates
also testified that he intended to mortgage the Residential Property and not
the Vacant Property. (Doc. 42-11).
In connection with the Franklin loan application, Mrs. Bates consented
to an appraisal on October 19, 2006, and the Appraisal Report indicated that
the property located at 1712 Forest Acres Drive, Clarks Summit, PA, which
would be used to secure the loan:
a.

Is a single family residence (“SFR”) with 2004 square feet
of improved space, consisting of a total of (5) rooms,
including two (2) bedrooms and two (2) bathrooms;

b.

Is a ranch style home erected in 2005 with some finish work
needed such as trim and several closet doors. There is a
full basement under the living area and a crawl space under
the porch; and

c.

Is worth $235,000.

The appraisal included a “Subject Photo Page” with photographs
depicting a property with a house located on it, not a vacant lot. Mrs. Bates
6

signed the first page of the Appraisal Report and, she acknowledged that the
Appraisal Report contained the value of the Residential Property and not the
Vacant Property.
In connection with the loan application, Mrs. Bates submitted an
insurance policy proof of coverage to Franklin. The Proof of Insurance
indicated that defendants had secured insurance to cover a “dwelling” or
“residence premises” that is located at 1712 Forest Acres Drive, Clarks
Summit, PA, and that the property was “used solely for private residential
purposes.” Mrs. Bates testified that the Proof of Insurance reflected insurance
coverage on the Residential Property.
Based on Mrs. Bates’ representations in the loan application and the
Proof of Insurance as well as the information in the Appraisal Report, Franklin
granted a loan to Mrs. Bates in the amount of $164,500. The terms of this
loan, including Franklin’s and Mrs. Bates’ respective rights, duties,
entitlements, and liabilities, were memorialized in a written contract, (the
“Franklin Note”), which Mrs. Bates admittedly signed. The Franklin Note
provided that in exchange for the sums provided by Franklin, Mrs. Bates was
required to pay Franklin the principal balance of $164,500 plus interest and
other charges. Mrs. Bates was required to make monthly payments on the
first day of each month beginning on December 1, 2006, until all sums due
under the Franklin Note were satisfied. The Franklin Note provided that Mrs.
Bates would be in default if she failed to pay the full amount of each monthly
7

payment on the date it was due and that in the event of such default, Franklin
(or the holder of the Note) would have the right to require her to pay the full
amount of the unpaid principal and all outstanding interest. The Franklin Note
also provided that if Mrs. Bates failed to make payments as required under
the terms of the Franklin Note, “The Note Holder will have the right to be paid
back by [Mrs. Bates] for all of its costs and expenses in enforcing this Note
to the extent not prohibited by applicable law. Those expenses include, for
example, reasonable attorneys’ fees.” It is undisputed that Mr. Bates is not a
party to the Franklin Note.
As security for the Franklin Note, Mrs. Bates and Mr. Bates executed a
mortgage in favor of Mortgage Electronic Registration Systems, Ltd.,
(“MERS”), as nominee for Franklin, (“Franklin Mortgage”). The defendants did
not prepare any of the provisions of the Franklin Mortgage. The Franklin
Mortgage is recorded in the Office of the Recorder of Lackawanna County in
instrument #200631882. Both Mrs. Bates and Mr. Bates testified that they
intended for the Franklin Mortgage to encumber the Residential Property and
not the Vacant Property, and they admitted that Franklin intended the
Mortgage to encumber the Residential Property. The Franklin Mortgage also
contained language that Mrs. Bates and Mr. Bates would occupy the property
encumbered by the mortgage as their “principal residence.” The legal
description of the property encumbered by the Franklin Mortgage erroneously
and mistakenly referenced the legal description of the Vacant Property and
8

not the Residential Property. The defendants were not aware of this error
when they executed the Mortgage and did not become aware of it until it was
brought to their attention at a later date. The parties did not misunderstand
the other’s intent and there is no dispute that all parties intended for the
Mortgage to encumber the Residential Property and not the Vacant Property.
Mrs. Bates received the amount of $164,500 from Franklin and she
used the money, in part, to satisfy the debt owed under the Saxon Loan. Mrs.
Bates began to make all of the monthly payments of principal and interest due
under the Franklin Note, but she defaulted on the terms of the Franklin Note
on June 1, 2007, by failing to make the monthly payment that was due and by
failing to make the required payment each month thereafter. To date, Mrs.
Bates has not cured the default.
On January 28, 2008, the Franklin Mortgage was assigned by MERS,
as nominee for Franklin, to the plaintiff by Assignment of Mortgage which was
recorded in the Office of Recorder of Lackawanna County as Instrument
#200804237.
Subsequently, the plaintiff commenced a mortgage foreclosure action
against the defendants in the Lackawanna County Court of Common Pleas
due to Mrs. Bates’ default on the terms of the Note and the case was
docketed to Number 08-cv-1026. During this action, plaintiff and defendants
realized for the first time that the Franklin Mortgage, which was assigned to
plaintiff, erroneously encumbered the Vacant Property and not the Residential
9

Property. Based on the erroneous legal description in the Mortgage, plaintiff
could not foreclose on the Residential Property.
Based on the error, plaintiff filed the instant action against defendants
on March 14, 2013. Count I of plaintiff’s amended complaint is for breach of
the Franklin Note against Mrs. Bates. Counts II and III are against both Mrs.
Bates and Mr. Bates for reformation of the Franklin Mortgage based on
mutual mistake and unilateral mistake, respectively. Defendants have moved
for summary judgment with respect to the reformation claims of plaintiff’s
amended complaint (Counts II and III), and plaintiff moved for partial summary
judgment regarding its breach of contract claim against defendant Mrs. Bates
(Count I) and its claim for reformation by mutual mistake against Mrs. Bates
and Mr. Bates (Count II). Plaintiff asserts that the Franklin Mortgage should
be reformed to reference the Residential Property and not the Vacant
Property and, that once the reformation is granted, it can foreclose on the
Residential Property.

III.

SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate if the "pleadings, depositions,

answers to interrogatories, and admissions on file, together with the affidavits,
if any, show that there is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c);
see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Turner v.
10

Schering-Plough Corp., 901 F.2d 335, 340 (3d Cir. 1990). A factual dispute
is genuine if a reasonable jury could find for the non-moving party, and is
material if it will affect the outcome of the trial under governing substantive
law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Aetna
Casualty & Sur. Co. v. Ericksen, 903 F. Supp. 836, 838 (M.D. Pa. 1995). At
the summary judgment stage, "the judge's function is not himself to weigh the
evidence and determine the truth of the matter but to determine whether there
is a genuine issue for trial." Anderson, 477 U.S. at 249 ; see also Marino v.
Indus. Crating Co., 358 F.3d 241, 247 (3d Cir. 2004) (a court may not weigh
the evidence or make credibility determinations). Rather, the court must
consider all evidence and inferences drawn therefrom in the light most
favorable to the non-moving party. Andreoli v. Gates, 482 F.3d 641, 647 (3d
Cir. 2007).
Moreover, the Third Circuit indicated that “although the party opposing
summary judgment is entitled to ‘the benefit of all factual inferences in the
court’s consideration of a motion for summary judgment, the nonmoving party
must point to some evidence in the record that creates a genuine issue of
material fact,’ and ‘cannot rest solely on assertions made in the pleadings,
legal memorandum or oral argument.’” Goode v. Nash, 2007 WL 2068365 (3d
Cir. 2007) (citation omitted). A material factual dispute is one that may affect
the outcome of the case under applicable law. Anderson v. Liberty Lobby,
Inc., 477 U.S. at 248.
11

To prevail on summary judgment, the moving party must affirmatively
identify those portions of the record which demonstrate the absence of a
genuine issue of material fact. Celotex, 477 U.S. at 323-24. The moving party
can discharge the burden by showing that "on all the essential elements of its
case on which it bears the burden of proof at trial, no reasonable jury could
find for the non-moving party." In re Bressman, 327 F.3d 229, 238 (3d Cir.
2003); see also Celotex, 477 U.S. at 325. If the moving party meets this initial
burden, the non-moving party "must do more than simply show that there is
some metaphysical doubt as to material facts," but must show sufficient
evidence to support a jury verdict in its favor. Boyle v. County of Allegheny,
139 F.3d 386, 393 (3d Cir. 1998) (quoting Matsushita Elec. Indus. Co. v.
Zenith Radio, 475 U.S. 574, 586 (1986)). However, if the non-moving party
"fails to make a showing sufficient to establish the existence of an element
essential to [the non-movant's] case, and on which [the non-movant] will bear
the burden of proof at trial," Rule 56 mandates the entry of summary judgment
because such a failure "necessarily renders all other facts immaterial."
Celotex Corp., 477 U.S. at 322-23; Jakimas v. Hoffman La Roche, Inc., 485
F.3d 770, 777 (3d Cir. 2007); Watson v. Eastman Kodak Co., 235 F.3d 851,
858 (3d Cir. 2000) (the non-movant must establish the existence of each
element on which it bears the burden of proof).

12

IV.

DISCUSSION
It is undisputed that the Franklin Mortgage erroneously encumbered the

Vacant Property instead of the Residential Property and that it was the intent
of all parties that the Residential Property would serve as security for the loan.
The defendants did not cause the error and they were not aware of the error
until plaintiff filed the mortgage foreclosure action against them. There is also
no dispute that Mrs. Bates defaulted on her obligations under the Franklin
Note. (Doc. 45, at 3). As such, plaintiff contends that it is entitled to summary
judgment against Mrs. Bates on its breach of contract claim regarding the
Franklin Note in Count I and to summary judgment against both defendants
on its reformation by mutual mistake claim, Count II, regarding the Franklin
Mortgage. The defendants argue that they are entitled to summary judgment
with respect to the second and third counts of plaintiff’s amended complaint,
reformation by mutual mistake and by unilateral mistake.

A. Count I, Breach of Contract
The plaintiff alleges that Mrs. Bates defaulted on the terms of the
Franklin Note since she admits that she did not make the payment due on
June 1, 2007, or on any subsequent month.
Because this is a case based upon diversity jurisdiction, 28 U.S.C.
§1332, (Doc. 11, ¶ 1), the court applies Pennsylvania law. See Moore v.
Kulicke & Soffa Industries, Inc., 318 F.3d 561, 563 (3d Cir. 2003). In order to
13

establish a breach of contract claim under Pennsylvania law, plaintiff must
demonstrate: “(1) the existence of a contract, including its essential terms, (2)
a breach of a duty imposed by the contract and (3) resultant damages.”
CoreStates Bank, N.A. v. Cutillo, 723 A.2d 1053, 1058 (Pa.Super. 1999)
(citation omitted); Gorski v. Smith, 812 A.2d 683, 692 (Pa.Super. 2002).
The defendants concede that plaintiff has established the first two
elements of its breach of contract claim against Mrs. Bates. (Doc. 45, at 5).
Further, the undisputed evidence detailed above shows that Mrs. Bates
beached the Franklin Note. However, defendants maintain that genuine
issues of material fact exist as to whether plaintiff has demonstrated damages
resulting from the breach of the Franklin Note. The defendants state that they
are disputing the amount and extent of damages Mrs. Bates owes. These
include whether plaintiff has recovered monies on the Note and/or pursued
other parties to mitigate damages, such as any monies plaintiff may have
recovered from pursuing a foreclosure action against the Vacant Property and
whether plaintiff has a claim against the title insurance agent who negligently
prepared the title search documents necessary for the execution of the
Franklin Mortgage which resulted in the wrong legal description of the
encumbered property. The defendants state that these monies would reduce
any amount Mrs. Bates is liable to plaintiff for, and that plaintiff failed to

14

present any evidence as to these monies.4
The court finds that plaintiff has sufficiently established that damages
have resulted due to Mrs. Bates breach of the Franklin Note, that Mrs. Bates
has not made any payments since her default, i.e., prior to June 1, 2007. Mrs.
Bates is obliged to pay the full amount of the unpaid principal of the
$164,500.00 loan and all outstanding interest as damages under the terms of
the Note, as well as related costs and expenses. However, plaintiff has not
produced sufficient evidence from which all damages may be calculated to a
reasonable certainty as required under Pennsylvania law.
Further, under Federal Rule of Civil Procedure 39(a), where one or
more of the parties has made an appropriate demand, the case is to be tried
before a jury. However, similar to all constitutional rights, the right to a jury
may be waived. See Partners Coffee Co., LLC v. Oceana Services and
Products Co., 2009 WL 4572911, *12 (W.D.Pa. December 4, 2009). “[I]n
federal actions based on diversity jurisdiction such as this, the right to a jury
trial is determined as a matter of federal law ... .” Id. Rule 38(a) states, “[t]he
right of trial by jury as declared by the Seventh Amendment to the

4

Oddly, even though defendants were represented by their present
counsel in Lackawanna County Court, counsel implies that plaintiff may have
recovered monies in that foreclosure action when counsel must be aware that
plaintiff did not recover any monies since the case was discontinued without
judgment on November 5, 2012. Lackawanna County Court docket no. 2008cv-1026. (The court takes judicial notice of this state court docket. See
Fed.R.Evid. 201.)
15

Constitution—or as provided by a federal statute—is preserved to the parties
inviolate.” Fed.R.Civ.P. 38(a). Federal Rule of Civil Procedure 38(b) provides:
“On any issue triable of right by a jury, a party may demand a jury trial by ...
serving the other parties with a written demand—which may be included in a
pleading—no later than 14 days after the last pleading directed to the issue
is served.” Fed.R.Civ.P. 38(b). The parties in the present case did not
demand a jury trial in any of their pleadings. (Doc.1, 11, and 28). In fact, the
Civil Cover Sheet filed by plaintiff with its original complaint indicates that no
jury demand was made in the complaint. (Doc. 1-1). Thus, the parties waived
the right to a jury trial regarding all issues in this case.
Therefore, the court will schedule a hearing to determine the amount of
damages plaintiff is owed by Mrs. Bates for her breach of the Franklin Note.
See Fed.R.Civ.P. 39(b) (“Issues on which a jury trial is not properly demanded
are to be tried by the court.”).

B. Count II, Reformation by Mutual Mistake
The plaintiff raises a claim against Mrs. Bates and Mr. Bates for
reformation of the Franklin Mortgage by mutual mistake. The court has
previously found that Mr. Bates, as an owner of the Vacant Property which is
currently encumbered by the Franklin Mortgage, is a proper party with respect
to the plaintiff’s claim to reform the Franklin Mortgage to encumber the
Residential Property even though he is not an owner of the Residential
16

Property.
There is no dispute that a mistake was made in the legal description of
the property which was to be encumbered by the Franklin Mortgage and that
all parties intended the Residential Property to secure the Franklin Loan and
not the Vacant Property. The mistake is demonstrated by the Franklin
Mortgage attached to the plaintiff’s amended complaint, (Doc. 11-7, at 19-20),
which incorrectly reflects that the legal description of the property is the
Vacant Property which had the same mailing address as the Residential
Property.
The court must look to Pennsylvania law to determine if the Franklin
Mortgage should be reformed. As the court in Wells Fargo Home Mortgage
v. Leach, 2010 WL 3038794, *3 (W.D.Pa. July 30, 2010), stated:
“Reformation ... [is an] equitable remed[y] that [is] sparingly
granted.” H. Prang Trucking Co. v. Local Union No. 469, 613 F.2d
1235, 1239 (3d Cir. 1980). Reformation of a contract
“presupposes that a valid contract between the parties was
created but, for some reason, was not properly reflected in the
instrument that memorialize[d] the agreement.” H. Prang, 613
F.2d at 1239. The Pennsylvania Supreme Court stated in Regions
Mortgage, Inc. v. Muthler, 585 Pa. 464, 889 A.2d 39, 41 (Pa.
2005), that “[i]t has long been the law that courts of equity have
the power to reform a written instrument where there has been a
showing of fraud, accident or mistake.” FN1 Regions Mortgage,
889 A.2d at 41 (citing Kutsenkow v. Kutsenkow, 414 Pa. 610, 202
A.2d 68, 68–69 (Pa. 1964)). A court has the authority “to reform
the written evidence of a contract and make it correspond to the
understanding of the parties.” Bugen v. N.Y. Life Ins. Co., 408 Pa.
472, 184 A.2d 499, 500 (Pa. 1962).
FN1. Black's Law Dictionary defines mistake as “[a]n error,
17

misconception, or misunderstanding; an erroneous belief.” Black's
Law Dictionary 1022 (8th ed. 2004). See Restatement (Second)
of Contracts §151 cmt. a (1979) (“The word ‘mistake’ is used to
refer to an erroneous belief. A party's erroneous belief is therefore
said to be a ‘mistake’ of that party. The belief need not be an
articulated one, and a party may have a belief as to a fact when
he merely makes an assumption with respect to it, without being
aware of alternatives.”).
To warrant reformation based upon mutual mistake, the movant
must demonstrate that “both parties to [the] contract [were]
mistaken as to existing facts at the time of execution. Moreover,
to obtain reformation of [the] contract because of mutual mistake,
the moving party is required to show the existence of the mutual
mistake that is clear, precise and convincing.” Zurich Am. Ins. Co.
v. O'Hanlon, 968 A.2d 765, 770 (Pa.Super.Ct. 2009) (citing
Holmes v. Lankenau Hosp., 426 Pa.Super. 452, 627 A.2d 763,
767–68 (Pa.Super.Ct. 1993)). Additionally, the movant must
clearly show the actual intent of the parties at the time the
instrument was executed. Giant Eagle, Inc. v. Federal Ins. Co.,
884 F.Supp. 979, 988 (W.D.Pa. 1995); Hassler v. Mummert, 242
Pa.Super. 536, 364 A.2d 402, 403 (Pa.Super.Ct. 1976). To
determine whether mutual mistake exists, the court may consider
the subject matter, the apparent object or purpose of the parties
and the conditions existing when the instrument was executed.
Daddona v. Thorpe, 749 A.2d 475, 487 (Pa.Super.Ct. 2000); see
Yuscavage v. Hamlin, 391 Pa. 13, 137 A.2d 242, 244 (Pa. 1958).
Thus,“[m]utual mistake exists where both parties to a contract are
mistaken as to the existing facts at the time of execution of the contract.” Holt
v. Dep't of Public Welfare, 678 A.2d 421, 423 (Pa.Commw.Ct. 1996); Zurich
Am. Ins. Co. v. O'Hanlon, 968 A.2d 765, 770 (Pa.Super.Ct. 2009).
Further, “[t]he negligence of one party to the contract in failing to
recognize the error in executing the agreement does not prevent that party
from later asserting mutual mistake.” Leach, 2010 WL 3038794, *3 (citing
18

General Electric Credit Corp. v. Aetna Cas. & Sur. Co., 437 Pa. 463, 263 A.2d
448, 457 (Pa. 1970) (“if all of the elements necessary for the reformation of
a written contract are present, mere negligent conduct on the part of one of
the parties thereto in failing to discover the mistake will not bar reformation in
the absence of prejudice or a violation of a positive legal duty”)).
Under Pennsylvania law, the evidence standard in reformation cases is
high and the party asserting it is required to show the existence of the mutual
mistake by “clear [and precise] and convincing” evidence. Holmes v.
Lankenau Hosp., 426 Pa.Super. 452, 627 A.2d 763, 767–68 (1993). Also, “the
sufficiency of the evidence to meet ... the ‘clear and convincing’ standard is
a question of law ... .” Blair v. Manhattan Life Ins. Co., 692 F.2d 296, 299 (3d
Cir. 1982) (citing Commonwealth v. Sanford, 580 Pa. 604, 863 A.2d 428, 431
(Pa. 2004) (“whether the Commonwealth met its burden of proof by producing
clear and convincing evidence was a question of law”)). “As a general rule,
parol evidence may also be introduced to demonstrate the existence of
mutual mistake.” Leach, 2010 WL 3038794, at *4; Butcher v. General Motors
Co., 2015 WL 867797, *3 (W.D.Pa. February 27, 2015).
In Pennsylvania, the “two-witness” rule is used “where one party seeks
to reform or alter a written instrument......because of fraud, accident, or
mistake the written instrument does not represent the original intention of the
parties.” Blair v. Manhattan Life Ins. Co., 692 F.2d at 303. In the present case,
plaintiff is seeking to reform the Franklin Mortgage because of mistake and
19

it asserts that the Mortgage does not reflect the true intention of the parties
since they all intended the Residential Property to be encumbered and not the
Vacant Property. Indeed, this intention of the parties is not disputed.
Thus, “[t]o satisfy the clear and convincing standard in reformation
cases, the movant must provide evidence by ‘two witnesses, or one witness
and corroborating circumstances.’” Leach , 2010 WL 3038794, *4 (citing Blair
v. Manhattan Life Ins. Co., 692 F.2d at 303) (citing Easton v. Washington
County Ins. Co., 391 Pa. 28, 137 A.2d 332, 337 (Pa.1957)). Additionally, “[t]he
witnesses presented[:]
must be found to be credible, that the facts to which they testify
are distinctly remembered and the details thereof narrated exactly
and in due order, and that their testimony is so clear, direct,
weighty, and convincing as to enable the [finder of fact] to come
to a clear conviction, without hesitancy, of the truth of the precise
facts in issue.
Id. (citations omitted). The surrounding circumstances are “the most
trustworthy form of corroboration.” Id. (citations omitted). Additionally, the
court must consider all the evidence in deciding if the Franklin Mortgage
should be reformed based upon mutual mistake, “including the actions of the
parties, witness statements, and the circumstances surrounding the contract's
formation.” Id., at *5 (citations omitted).
The plaintiff has met its high burden and it is entitled to reformation of
the Franklin Mortgage by mutual mistake. The plaintiff correctly indicates,
(Doc. 43, at 19), that the Leach case is almost directly on point with the
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instant case since the parties in Leach intended the mortgage to encumber
Leach’s residential parcel with his house located on it and not his adjacent
parcel which had a tennis court and landscaping but no building. In fact, both
of Leach’s parcels had the same mailing address similar to the properties in
the present case. Additionally, as in the present case, the appraisal in Leach
referenced the house located on the residential parcel and there was no
house on the adjacent parcel. Also, in Leach, as in the present case, the
mortgage mistakenly encumbered the adjacent parcel and the property that
secured the loan only had the legal description of the adjacent property. The
district court in Leach reversed the decision of the bankruptcy court and found
that “[t]he evidence is clear and convincing that at a minimum, a mutual
mistake was made and the mortgage must be reformed to include the
residential property” and that the evidence, taken as a whole, clearly and
convincingly established that Leach and the mortgage company mistakenly
believed that the mortgage encumbered the residential property. Id., at *7 -*8.
In the present case, as in Leach, all of the relevant documents detailed
above regarding the Franklin Mortgage, including the loan application, the
appraisal report and the mortgage, contained a “residential theme.” Mrs.
Bates also submitted proof of insurance on her house to secure the Franklin
Loan. These documents show the Bates’ intent to convey an interest in the
Residential Property and Franklin’s intent to receive an interest in the
Residential Property which contained the single family residence. Further, it
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is significant that Mrs. Bates used some of the monies she received from the
Franklin Loan to pay off the Saxon Loan which encumbered the Residential
Property. Also, Mr. Bates and Mrs. Bates acknowledge the existence of the
mistake and there is no dispute that Bates and Franklin intended for the
Mortgage to encumber the Residential Property and not the Vacant Property.
As in the Leach case, all of this is clear and convincing evidence that the
parties intended to encumber the Residential Property with respect to the
Franklin Loan and Mortgage.
The defendants maintain that there is no allegation that either party
misunderstood the other’s intent and that the mistake in the property
description that led to the mortgage being secured by their Vacant Property
was not a mutual mistake. Rather, defendants state that only the plaintiff bore
the risk of the mistake and that plaintiff’s predecessor in interest prepared the
documents containing the mistake. The defendants state that they did not
prepare the mortgage documents and the description attached to the
mortgage, and that they did not conduct the title search of the property and
record the incorrect property description. Also, it is undisputed that
defendants were not aware of the mistake when the mortgage was executed.
The defendants contend that “plaintiff should be found to bear the risk of a
mutual mistake and therefore should be unable to obtain reformation based
on it.” (Doc. 44, at 6-7, Doc. 45, at 6-7). The defendants also state that the
Leach case is distinguishable since the court in that case did not address
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whether the bank bore the risk of mutual mistake and the debtor (Leach) did
not raise the defense of risk of loss. Thus, defendants maintain that plaintiff
should bear the risk of loss since the mistake in the legal description of the
property encumbered by the Franklin Mortgage was solely caused by the
plaintiff’s predecessor in interest or its agents.
In support of their argument, defendants cite to Hart v. Arnold, 884 A.2d
316 (Pa.Super. 2005), and Volpe & Koenig, P.C. v. National Sales & Supply,
Inc., 2012 Phila Ct. Com. Pl. LEXIS 413 (Phila. Ct. Com. Pl. Nov. 26, 2012).
The defendants state that in Hart, the court held that “[a] party bears the risk
of a mistake when the risk is allocated to him by the Court on the ground that
it is reasonable in the circumstances to do so.” (Doc. 44, at 5) (citing Hart v.
Arnold, 884 A.2d at 334). The plaintiff maintains that the defendants’ reliance
upon Hart and Volpe is misplaced since both cases involved attempts to use
mutual mistake to invalidate a contract as opposed to reform it. (Doc. 46, at
4). The defendants reply that the Superior Court in Hart, 884 A.2d at 334, held
that under proper circumstances “A contract entered into under a mutual
misconception as to an essential element of fact may be rescinded or
reformed upon the discovery of the mistake.” (Doc. 49, at 2). Thus,
defendants state that “[t]he standards governing mutual mistake apply
regardless of whether the party claiming it seeks to invalidate a contract or
reform it.” The defendants state that the mutual mistake alleged by plaintiff
was a shared mistake upon which both parties relied. The defendants then
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contend that since plaintiff should be found to bear the risk of the mistake as
the plaintiff’s predecessor in interest and its agents prepared the documents
containing the mistake, the plaintiff cannot obtain reformation due to the
mistake. (Id.).
The court in Travelers Indem. Co. v. Ballantine, 436 F.Supp.2d 707, 711
(M.D.Pa. 2006), stated:
Pennsylvania follows the Restatement (Second) of
Contracts when determining mutual mistake. Where
a mistake of both parties at the time a contract was
made as to a basic assumption on which the contract
was made has a material effect on the agreed
exchange of performances, the contract is voidable
by the adversely affected party unless he bears the
risk of the mistake under the rule stated in §154. Hart
v. Arnold, 884 A.2d 316, 333 (Pa.Super. 2005)
(quoting Restatement (Second) of Contracts §152
(1981)). A party bears the risk of a mistake if the
parties have agreed that one party bears the risk, a
party makes a contractual agreement and at the time
the agreement is made “... treats his limited
knowledge [of the facts relating to the mistake] as
sufficient,” or the court allocates the risk to a party
because it is reasonable to do so. Id. at 334 (citing
Restatement (Second) of Contracts §154). A contract
entered into under a mutual misconception as to an
essential element of fact may be rescinded or
reformed upon the discovery of the mistake if (1) the
misconception entered into the contemplation of both
parties as a condition of assent, and (2) the parties
can be placed in their former position regarding the
subject matter of the contract. Id. (citing Gocek v.
Gocek, 417 Pa.Super. 406, 612 A.2d 1004, 1006
(1992)).
(Emphasis added).
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If the plaintiff bears the risk of the mistake, then the Franklin Mortgage
is not voidable. In the present case, plaintiff is requesting the court to reform
the Franklin Mortgage based on mutual mistake and not invalidate it. Based
on all of the facts detailed above, there is ample evidence to support the
plaintiff’s claim of mutual mistake regarding the Franklin Mortgage. Both
Franklin and the defendants intended to have the Mortgage encumber the
Residential Property and not the Vacant Property. All of the documents
pertaining to the Franklin Mortgage as well as the testimony of the defendants
reflect this intent. In short, Franklin intended to loan Mrs. Bates $164,500 only
if she allowed the loan to be secured by the Residential Property and Mrs.
Bates intended to encumber the Residential Property to get her loan so that
she could pay off the Saxon Loan on this property and to complete repairs on
her house located on this property. There is no evidence in the record as to
exactly how the mistake occurred or who caused it and the court will not
speculate on these matters. It also appears that neither party read the
Franklin Mortgage in full with the attached legal description of the Vacant
Property before they executed it. See Behavioral Health Industry News, Inc.
v. Lutz, 24 F.Supp.2d 401, 402 (M.D.Pa. 1998) (the court noted that parties
have the obligation to read a contract before signing it). Suffice to say that
under all of the circumstances of this case, the court does not find it
reasonable to allocate the risk of the mistake entirely to the plaintiff. (Compare
Travelers Indem. Co. v. Ballantine, 436 F.Supp.2d at 712) (the court found
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that in the circumstances presented in that case, it was reasonable to allocate
the risk of the mistake to the defendants as it was clear that they did not read
the contract before signing it and, it would not be possible to place the plaintiff
in the position that it was in before the execution of the contract). The mistake
in the instant case can be rectified and the parties can be placed in their
intended positions at the time they were executing the contract by reforming
the Franklin Mortgage to encumber the Residential Property.
The defendants also state that generally, “a party will not gain relief from
a mistake if it is the result of the party’s own negligence.” (Doc. 44, at 5)
(citing Volpe & Koenig, P.C. v. National Sales & Supply, Inc., supra). Insofar
as defendants are claiming that plaintiff is not entitled to reformation since the
plaintiff’s predecessor in interest or its agents (such as the title company)
caused the mistake through negligence, the law is clear in Pennsylvania that
“negligence on the part of one party to a contract does not preclude that party
from later requesting reformation based upon mutual mistake.” Leach, 2010
WL 3038794, *7 (citing General Electric, 263 A.2d at 457). Thus, even if the
plaintiff’s predecessor in interest and its agents were negligent by attaching
the legal description of the Vacant Property to the Franklin Mortgage, this will
not prevent the reformation of the Franklin Mortgage to encumber the
Residential Property, which was the true intent of the parties.
The plaintiff has produced evidence that clearly and convincingly
demonstrates a mutual mistake existed in the Franklin Mortgage and that it
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should be reformed to include an accurate legal description of the Residential
Property in place of the Vacant Property. As such, the court will grant plaintiff
summary judgment on Count II, reformation by mutual mistake.
Since the court will grant plaintiff summary judgment on its reformation
by mutual mistake claim, it will deny defendants’ summary judgment on this
claim as genuine issues of material fact do not exist as to whether the plaintiff
is entitled to reform the Franklin Mortgage by mutual mistake.

C. Count III, Reformation by Unilateral Mistake
The defendants move for summary judgment on plaintiff’s reformation
by unilateral mistake claim, Count III. “Pennsylvania law permits contract
reformation upon a showing of either mutual mistake or unilateral mistake.”
United Nat. Ins. Co. v. Indian Harbor Ins. Co., 2015 WL 437630, *10 (E.D.Pa.
February 02, 2015) (citing Regions Mortg., Inc. v. Muthler, 844 A.2d 580, 582
(Pa.Super.Ct. 2004). “A unilateral mistake[] ... is not due to the fault of the
party not mistaken, but to the negligence of the one who acted under the
mistake ... .” Roth v. Old Guard Ins. Co., 850 A.2d 651, 653 (Pa.Super. 2004)
(citations omitted). “If a party is seeking reformation on the basis of unilateral
mistake, however, it must plead ‘that the party against whom reformation is
sought had such knowledge of the mistake as to justify an inference of fraud
or bad faith.’” United Nat. Ins. Co. v. Indian Harbor Ins. Co., 2015 WL 437630,
*10 (citing Regions Mortg., Inc., 844 A.2d at 582; Dudash v. Dudash, 313
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Pa.Super. 547, 460 A.2d 323, 327 (1983)). Also, “[p]arties raising allegations
of fraud or mistake in a pleading must do so with particularity.” Id. (citing
Fed.R.Civ.P. 9(b)).
The defendants argue that they have denied any knowledge of the
mistake when the Franklin Note and Mortgage were executed and that plaintiff
has not presented any evidence that they had such knowledge. Thus,
defendants state that plaintiff cannot show they knew of the mistake or that
they committed fraud or bad faith. The plaintiff concurs with defendants that
there is no evidence that they had any knowledge of the mistake in the
Franklin Mortgage at the time of its execution and that there is no evidence
that defendants acted fraudulently or in bad faith by signing the Mortgage
without bringing the mistake to the attention of Franklin Bank. (Doc. 47, at 2122). The defendants are entitled to summary judgment with respect to
plaintiff’s reformation by unilateral mistake claim, Count III. While it is
undisputed that there is no evidence to support its reformation by unilateral
mistake, the plaintiff however requests that the court prohibit defendants “from
later asserting in this or any other proceeding [such as a mortgage
foreclosure action in state court] that they intended for the Mortgage to
encumber the Vacant Property, not the Residential Property.” (Id., at 22). The
court finds such a prohibition in its order as unnecessary since both Mrs.
Bates and Mr. Bates testified in their depositions that they intended for the
Franklin Mortgage to encumber the Residential Property and not the Vacant
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Property, and they admitted that Franklin intended the Mortgage to encumber
the Residential Property.

V.

CONCLUSION
The plaintiff’s motion for partial summary judgment, (Doc. 41), will be

GRANTED with respect to liability on the breach of contract claim, Count I of
the amended complaint, and the reformation by mutual mistake claim, Count
II. The defendants’ motion for partial summary judgment, (Doc. 38), will be
DENIED with respect to the reformation by mutual mistake claim, Count II,
and will be GRANTED with respect to the unilateral mistake claim, Count III.
An appropriate order will be issued.

s/ Malachy E. Mannion
MALACHY E. MANNION
United States District Judge
Date: March 30, 2015
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