USCA1 Opinion

      [NOT FOR PUBLICATION--NOT TO BE CITED AS PRECEDENT]

                 United States Court of Appeals

                     For the First Circuit











No. 97-2241



              BEAL BANK S.S.B. F/K/A BEAL BANC S.A.,



                      Plaintiff, Appellant,



                                v.



                        RICHARD H. KROCK,



                       Defendant, Appellee.







           APPEAL FROM THE UNITED STATES DISTRICT COURT



                FOR THE DISTRICT OF MASSACHUSETTS



         [Hon. Edward F. Harrington, U.S. District Judge]







                              Before



                      Lynch, Circuit Judge,

                                

          Campbell and Bownes, Senior Circuit Judges.

                                

                                





     David D. Pavek, with whom James R. Everson, Messner, Pavek &

Reeves, LLC., William V. Sopp, John F. Tocci, and Finnegan, Hickey,

Dinsmoor & Johnson, P.C., were on brief for appellant.

     Alan M. Spiro, with whom Edwards & Angell were on brief for

appellee.









September 3, 1998









                                

                                



  BOWNES, Senior Circuit Judge.  In this debt collection

case, the plaintiff, Beal Bank S.S.B. ("Beal Bank"), seeks to

collect on a note that was part of a written settlement agreement

containing a clause that precluded oral modifications.  The debtor,

Richard H. Krock, interposes what he claims was a subsequent oral

modification of the contract.  The district court, after trial,

found that the oral modification was in fact agreed upon and was an

enforceable contract under Massachusetts law.  The court concluded

therefore that the debtor was not liable to the bank.  Holding that

the district court's findings of fact were not clearly erroneous,

and applying the law of Massachusetts in this diversity action, we

affirm the court's conclusion that the oral modification was

enforceable.  We remand nevertheless for recalculation of the

amount owed.

                              Facts

  In 1991, Pier 37 Associates Limited Partnership ("Pier

37") executed a promissory note in the amount of $3.6 million to

First Mutual Bank for Savings.  This note was secured in part by a

mortgage on a marina located in Falmouth, Massachusetts.  In

addition, defendant Richard H. Krock, who was a general partner of

Pier 37, gave a personal guarantee of the note, limited to

$1,600,000.

  When First Mutual Bank became insolvent, the Federal

Deposit Insurance Corporation ("FDIC") took over its assets.  The

FDIC sued Pier 37, Krock, and others, to collect on the note. 

While the case was pending, the FDIC assigned its interest in the

note to BSB Mortgage, Inc. ("BSB"), an affiliate of Beal Bank, for

approximately $1,000,000.  In turn, BSB assigned its interest to

Beal Bank. 

  In 1993, Beal Bank foreclosed on the property.  The

parties to the litigation, after substantial negotiations, entered

into a settlement agreement whereby Krock paid Beal Bank $150,000

in cash and executed a $350,000 promissory note, payable over ten

years in annual installments.  The agreement contained a clause

stating that it was complete and integrated, and that no subsequent

modifications could be made to the agreement except in writing.

  Krock testified that he negotiated an oral side agreement

in which Beal Bank would, if the property sold for over $900,000,

reduce Krock's debt by two-thirds of the amount by which the sale

price exceeded $900,000.  Krock first discussed this side agreement

with Will Balthrope, then a vice president of Beal Bank, prior to

the execution of the settlement agreement.  Krock testified that

Balthrope once again agreed to the offset plan after execution but

before Beal Bank sold the marina in 1995 for $1,505,000.  The

excess of the sale price over $900,000 was $605,000, so, under

Krock's interpretation of the side agreement, his obligation would

be reduced by two-thirds of that, or $403,333.  Because this

reduction exceeds the face amount of Krock's note to Beal Bank,

Krock asserts he owes Beal Bank nothing.

  The district court, after a bench trial, ruled that the

side agreement did exist, implicitly found it valid under

Massachusetts law, and applied the agreement to reduce Krock's debt

to zero.  The court's decision turned on its finding that Krock was

entirely credible in his testimony regarding the side agreement. 

The court also noted that Balthrope, who was the only other person

besides Krock with personal knowledge of whether or not there was

a subsequent oral modification, and who therefore could have

supported the Bank's position that Krock's oral agreement claim was

untrue, was inexplicably not called to the stand nor was his

testimony preserved, although he had been a bank employee up until

two months before trial.  Beal Bank appealed the district court's

decision.

                            Discussion

  Two issues control the outcome of this case.  One is

factual:  was there a side agreement made between Krock and

Balthrope, and was it made after the execution of the written

settlement agreement?  The unrebutted testimony of Krock, accepted

as credible by the district court, plays a major role in answering

this question.  The second issue is legal:  even if Krock's

testimony is taken as 100% true as to the existence and timing of

the side agreement, would such an oral side agreement be

enforceable under Massachusetts law to modify the terms of the

written and completely integrated settlement agreement?  We begin

our analysis with the pertinent Massachusetts law.

  We have previously summarized the relevant aspects of

Massachusetts contract law as follows:

  Evidence of prior or contemporaneous oral

  agreements cannot be admitted to vary or

  modify the terms of an unambiguous written

  contract.  New England Fin. Resources, Inc. v.

  Coulouras, 566 N.E.2d 1136, 1139 (Mass. App.

  Ct. 1991) (parol evidence rule precludes use

  of oral evidence to modify integrated

  agreement); Aerostatic Eng'g Corp. v.

  Szczawinski, 294 N.E.2d 521, 522 (Mass. App.

  Ct. 1973) (oral agreement cannot modify

  payment terms unambiguously expressed in

  written contract).  Instead, "parties are

  bound by the plain terms of their contract."

  Hiller v. Submarine Signal Co., 91 N.E.2d 667,

  669 (1950) (restrictive agreement between

  industrial park developer and park tenant

  interpreted according to meaning of

  unambiguous written agreement).



Fairfield 274-278 Clarendon Trust v. Dwek, 970 F.2d 990, 993-94

(1st Cir. 1992).

     Thus, if Krock's side agreement with Balthrope was made

before the execution of the written settlement agreement, then the

written agreement supersedes it and the side agreement is barred by

the parol evidence rule.  See id.   

     In the present case, Beal Bank devoted a great deal of

its opening brief to its assertion that the parol evidence rule

bars testimony about an oral modification made prior to the

execution of the settlement agreement.  Yet at trial the district

court sustained each and every objection that was properly made

under the parol evidence rule.  Krock's brief pointed this out, and

made clear that Krock was not relying on the pre-execution

negotiations to modify the written instrument.  Rather, he rested

his defense on the contention that he and Balthrope agreed to a

subsequent modification of the settlement agreement.

     Under Massachusetts law, if a subsequent agreement is

made, after the execution of a written contract, it may be

enforceable.  See New England Factors v. Genstil, 76 N.E.2d 151,

154 (Mass. 1947) (holding that the parol evidence rule does not

apply "where the terms of a written agreement have been modified by

subsequent oral agreement").  As a leading authority has put it:

     Because the parol evidence rule applies only

     to precontractual negotiations, it does not

     bar evidence of subsequent negotiations to

     show modification of the contract.  Even a

     completely integrated agreement can therefore

     be modified or rescinded orally.



E. Allan Farnsworth, Contracts  7.6 (2d ed. 1990).  Thus, "[t]he

parol evidence rule has no application to the situation . . . where

it could be found that a new oral contract was entered into between

the parties which superseded the original contract."  L.W.

Severance & Sons, Inc. v. Angley, 125 N.E.2d 415, 420 (Mass. 1955).

Even a fully integrated contract   i.e., a written contract

containing a clause stating that subsequent modifications must be

in writing   may, under appropriate circumstances and with

appropriate proof, be modified by a subsequent oral agreement.  SeeCambridgeport Sav. Bank v. Boersner, 597 N.E.2d 1017, 1022 (Mass.

1992) ("[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."); cf. Farnsworth, supra,  7.6 ("Can

the parties, by inserting a no-oral-modification clause,

effectively permit only written modifications?  The common-law

answer has been that they cannot."); Wagner v. Graziano Const. Co.,

136 A.2d 82, 83 (Pa. 1957) ("The most ironclad written contract can

always be cut into by the acetylene torch of parol modification

supported by adequate proof. . . .  The hand that pens a writing

may not gag the mouths of the assenting parties.").  

     Massachusetts does, however, impose a heavy burden on the

party seeking to modify an integrated written contract by a

subsequent oral agreement:  "The evidence of a subsequent oral

modification must be of sufficient force to overcome the

presumption that the integrated and complete agreement, which

requires written consent to modification, expresses the intent of

the parties," at least as of that time, that the written agreement

rather than any alleged subsequent oral modification should govern. 

Boersner, 597 N.E.2d at 1022 n.10.  Whether the intent of the

parties has changed is, of course, a question of fact to be

determined by the trier of fact.

     Krock testified that he had a conversation with Balthrope

after execution of the written agreement, and that Balthrope stated

a new commitment to reduce Krock's debt obligation by two-thirds of

any amount by which the sale price of the Pier 37 property exceeded

$900,000.

     The district court found Krock's testimony to be

credible:

     [T]he sole disputed factual issue pending

     before the Court is the credibility of the

     witness Defendant Krock regarding the

     existence of the Side Agreement.  I believe

     his testimony, as it was forthright and

     consistent and his demeanor while under

     intense cross-examination displayed the

     attitude of an individual who was telling the

     truth with conviction.



     Not only did the district court find Krock's testimony

wholly believable, but it was essentially unrebutted.  In contrast

with Krock's testimony as to the existence of the side agreement,

the court noted that 

     the only other witness to the Side Agreement

     was Mr. Balthrope who was not called to

     testify on behalf of [Beal Bank].  Although

     Mr. Balthrope was listed as a prospective

     witness by the [Bank] in its pretrial filings

     and left the employment of the bank only in

     July [approximately two months before the

     trial], for some inexplicable reason, he was

     not called to the stand nor was his testimony

     preserved by way of deposition.  Therefore,

     the credible testimony of the Defendant Krock

     stands unrebutted and I accept it.



     The court was entitled to draw an adverse inference

against Beal Bank because of the absence of any testimony from

Balthrope.  Balthrope was the only person, other than Krock, who

had personal knowledge as to whether there was indeed a subsequent

side agreement, and what such an agreement may have included. 

Moreover, for years prior to the trial, up until two months before

trial, Balthrope was an employee of the Bank and under its control. 

Even Balthrope's termination, pursuant to a layoff, was within the

Bank's control.  The bank had included Balthrope on its witness

list up until the Friday before trial began.  Yet the Bank failed

to present Balthrope's testimony to the court (through subpoena or

otherwise) and failed to preserve his testimony through deposition. 

In light of all these circumstances surrounding the Bank's "missing

witness," the court was entitled to draw an adverse inference

against the Bank that Balthrope was not produced because his

testimony would have been damaging, i.e., it would not have

contradicted Krock's on the question of the subsequent oral

modification.  See, e.g., Bath Iron Works Corp. v. United States,

34 Fed. Cl. 218, 340-41 (1995), aff'd, 98 F.3d 1357 (Fed. Cir.

1996).  Nor did the bank attempt to rebut this inference by

providing a legitimate explanation for its failure, such as might

be the case if the witness had suddenly and unexpectedly died.  

     The Bank did produce one witness in an effort to

contradict Krock's testimony regarding the subsequent side

agreement:  Steven D. Harper, a commercial loan officer at the bank

for one year, who had taken over the Krock file from Balthrope. 

The district court considered Harper's demeanor under direct- and

cross-examination, re-direct, re-cross, re-re-direct, and re-re-

cross, and declined to rely on Harper's evidence to undercut

Krock's testimony.  Harper's initial testimony was that he had had

conversations with Balthrope "regarding the documentation on the

Krock promissory note."  Harper had asked Balthrope whether there

were any documents in the bank's files that would bear upon Krock's

allegation that there was a subsequent side agreement.  Balthrope

had told Harper that there were no such documents and that he "did

not know of any agreement as such."  Harper's original testimony

did not mention any discussion with Balthrope other than about

written documentation.  There was nothing one way or the other

about a possible oral modification, in Harper's direct, cross, re-

direct, or re-cross examinations.  The only testimony by Harper on

oral modification was on re-re-direct.  The district court was

entitled to discount Harper's testimony on re-re-direct, based

upon lack of credibility, regarding anything Balthrope told him

other than about the existence or absence of documents in the

files.  We find no clear error in the district court's decision to

accept Krock's "unrebutted" testimony.

     In addition to the unrebutted credible testimony of

Krock, the court, in determining intent, was entitled to consider

the conduct of the parties.  "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

[particular] case."  Boersner, 597 N.E.2d at 1022 (internal

quotation marks omitted); see Schinkel v. Maxi-Holding, Inc., 565

N.E.2d 1219, 1223 (Mass. App. Ct.), rev. denied, 409 Mass. 1104

(1991).  Here, the parties acted in a way that was consistent with

Krock's testimony that there was a subsequent oral modification.  

     When Krock's first payment was due under the settlement

agreement, on November 1, 1994, he had no funds and did not pay it. 

The property had not yet been sold by the Bank; the sale did not

take place until June 1, 1995.  Yet the Bank took no action against

Krock in November 1994 nor in early 1995; indeed, it did not file

suit against Krock until December 1995, more than six months after

the sale of the Pier 37 property.  Krock testified as to a

conversation he had with Balthrope after his default but before the

sale.  According to Krock's unrebutted testimony, Balthrope told

him the Bank "wouldn't do anything, he [Balthrope] wouldn't do

anything until such time as the sale took place and . . . the

reduction, if any, in the note could be quantified, and then the

whole thing would be restructured based upon the reduced amount of

the note and the reduced payment."  Consistent with this

conversation, Krock waited until the sale took place; he did not

pay any part of his $40,000 payment that was due on November 1,

1994, nor in early 1995.  Likewise, the Bank took no action against

him prior to its June 1, 1995 sale of the property.

     After the sale but before suit was filed against him,

Krock had another conversation with Balthrope.  Krock told

Balthrope that, in light of the high price received for the

property, their oral agreement should wipe out his debt on the

note.  Krock testified that Balthrope did not dispute the validity

of the subsequent oral modification or Krock's interpretation of

it; instead, he responded by saying "they're not going to pursue it

anyway because the financials show that there is no ability to

pay."  Although the Bank eventually did pursue Krock by filing

suit in December 1995, the Bank's actions (or non-action) prior to

that time is consistent with Krock's version of events.  

     We conclude that the district court's acceptance of

Krock's version of events was not clearly erroneous, even applying

the requirement under Massachusetts law that Krock has to meet a

heavier burden of proof in order for an oral modification to be

effective against a written contract.  As part of that heavier

burden, Massachusetts courts typically require "'ample evidence,'"

demonstrating that "the party denying the existence of a

modification had . . . 'unequivocally' expressed [its] approval 'of

the many pertinent details' of the new agreement."  Boersner, 597

N.E.2d at 1022 (quoting First Pa. Mortgage Trust v. Dorchester Sav.

Bank, 481 N.E.2d 1132, 1139 (Mass. 1985)).  We think the above-

described evidence is "ample," and the only "pertinent detail[]" of

the new agreement was the offset by two-thirds of the sale price's

excess over $900,000.  According to Krock's credible testimony,

Balthrope agreed to this detail "unequivocally."

     We hold therefore that the district court did not clearly

err in concluding that Krock's version of events was credible, nor

did it err in its legal conclusion that the subsequent modification

that Krock described is enforceable.  We turn briefly to the Bank's

other arguments on appeal.

     The Bank contends that the alleged subsequent

modification agreement fails because no consideration was given by

Krock in exchange for the Bank's willingness to modify the amount

of Krock's debt based on the sale price of the Pier 37 property. 

The Bank acknowledges that, "under appropriate proof, an oral

modification may be found," but if so, "the new contract created by

the subsequent modification must be supported by consideration." 

Bank Br. at 15 (citing Siegel v. Knott, 55 N.E.2d 889, 890 (Mass.

1944) ("The mode of performance required by a written contract may

be varied by a subsequent oral agreement based upon a valid

consideration.")).  The Bank points out that Krock did not take any

"action in reliance on the alleged reaffirmation of the prior

agreement other than to continue to fail to make the payments he

agreed to make under the Note."  Id.  The Bank also relies heavily

on 3 Richard A. Lord, Williston on Contracts  1826 (4th ed. 1992),

as quoted in De Blois v. Boylston & Tremont Corp., 183 N.E. 823,

827 (Mass. 1933):

     [A] subsequent contract completely covering

     the same subject-matter and made by the same

     parties as an earlier agreement, but

     containing terms inconsistent with the former

     contract, so that the two cannot stand

     together, rescinds, substitutes and is

     substituted for the earlier contract and

     becomes the only agreement of the parties on

     the subject.  But the subsequent agreement

     must have sufficient consideration.  Therefore

     if the undertaking by one party is simply to

     perform the whole or part of what he promised

     in the original contract, it will not support

     a promise by the other party to perform what

     he previously agreed and something more.



The Bank asserts that this is still good law in Massachusetts.

     As Krock points out, however, the Bank never made this

consideration argument below.  Although Krock stated in his

opposition to the Bank's motion in limine that consideration is not

required for an oral modification to be effective against a written

contract under Massachusetts law, the Bank did not respond in its

pretrial motion papers, conferences, or at trial.  Moreover, after

the district court ruled against it, the Bank failed to file any

motion for a new trial or to alter or amend judgment within the

ten-day period set forth in Rule 59 of the Federal Rules of Civil

Procedure Rule.  And in the motion for reconsideration that the

Bank filed on the twentieth day, the Bank again failed to mention

lack of consideration as a defect in Krock's case.

     As we have said on numerous occasions, we will not

consider on appeal issues that could have been, but were not,

raised in the trial court.  See Sullivan v. National Football

League, 34 F.3d 1091, 1097 n.1 (1st Cir. 1994); Desjardins v. Van

Buren Community Hosp., 969 F.2d 1280, 1282 (1st Cir. 1992).  "An

appeal is not an opportunity to conjure new arguments not raised

before the district court."  Brown v. Hot, Sexy and Safer

Productions, Inc., 68 F.3d 525, 530 (1st Cir. 1995); see NASCO,

Inc. v. Public Storage, Inc., 29 F.3d 28, 31 n.4 (1st Cir. 1994)

(holding that theory not presented to district court and raised for

the first time on appeal is deemed waived).  In particular, having

failed to object below (or to raise the issue at all), it is too

late for the Bank to object that there was no evidence on which the

court could find consideration to support the contract

modification.  See Johnston v. Holiday Inns, Inc., 565 F.2d 790,

795 n.6 (1st Cir. 1977).  The argument has been waived.  See Howellv. FDIC, 986 F.2d 569, 572 (1st Cir. 1993).

     Even if we were to reach the merits of the Bank's

consideration argument, it would not change our result.  The

doctrine of consideration does not necessarily bar enforcement of

a subsequent oral contract modification.  "Modifications . . . have

long been recognized in law as valid, without additional

consideration, even when based on oral agreements modifying

executory written contracts."  Roddy & McNulty Ins. Agency, Inc. v.

A.A. Proctor & Co., 452 N.E.2d 308, 314 (Mass. App. Ct.), rev.

denied, 454 N.E.2d 1276 (1983).  "The contract, when modified by

the subsequent oral agreement, is substituted for the contract as

originally made, and the original consideration attaches to and

supports the modified contract."  Thomas v. Barnes, 31 N.E. 683,

684 (Mass. 1892).

     It remains, of course, a factual question whether a party

intends to relinquish her contractual rights by entering into a

subsequent agreement.  See Roddy & McNulty, 452 N.E.2d at 314.  In

the instant case, as discussed supra, the district court assessed

the evidence, in particular, Krock's credibility in recounting his

description of events, the lack of credibility and of personal

knowledge on the part of the Bank's witness, Harper, and the

unexplained absence of the Bank's former vice president, Balthrope,

who was the only person besides Krock who was privy to the actual

conversations in dispute.  On the basis of its assessment of the

evidence, the district court determined that a subsequent

modification was indeed agreed upon by the parties and was

enforceable.  The court's decision was not clearly erroneous.

     Beal Bank's final argument is that, even if the district

court was correct that the subsequent oral modification was

enforceable as testified to by Krock, the court erred in applying

that modified agreement.  The district court calculated the amount

by which the sale price of the Pier 37 property ($1,505,000)

exceeded $900,000, i.e., $605,000, and multiplied it by two-thirds,

for an offset of $403,333.  The court then applied this offset to

the principal amount of Krock's obligation to the bank, $350,000. 

The court therefore determined that the offset totally extinguished

Krock's debt.  Beal Bank argues that the $403,333 reduction should

instead be applied against the gross amount of the obligation   

including accrued interest, late charges, and legal fees   

calculated as of the time of trial.  So calculated, Krock would

still owe the bank over $100,000.  

     Krock points out that Beal Bank failed to raise this

offset argument at the district court level, including in its

motion for reconsideration, where it made an entirely different

argument.  Krock argues that the Bank has therefore waived its

offset argument; it cannot be raised for the first time on appeal. 

See Brown, 68 F.3d at 530.

     But prior to receiving Judge Harrington's ruling, Beal

Bank did not know what offset terms he would hold were contained in

the oral modification.  (The Bank did not even know whether Judge

Harrington would find that the parties had agreed to an oral

modification.)  Thus the Bank could not have raised its offset

argument below, except through a post-trial motion, and such a

motion is not a prerequisite for perfecting its appeal of the

district court's judgment.  We turn therefore to the merits of the

Bank's calculation argument.

     We agree with Krock that the Bank's argument does not

make sense as to how to apply the offset.  We have found that the

district court properly accepted Krock's testimony as to the nature

and terms of the side agreement.  Thus, the proper calculation

under the side agreement would apply two-thirds of the amount by

which the sale price exceeded $900,000 against Krock's debt at the

time the property was sold.  If this had been done at that time,

Krock's debt would have been substantially reduced; there would be

no basis for the Bank to have continued charging him interest and

collection charges against the extinguished portion of the debt. 

Much of the debt as calculated by the Bank would have been erased. 

Therefore, we reject the Bank's position that interest and late

charges should have continued to accrue on Krock's entire debt

through the time of trial, before applying the orally agreed-upon

offset.  

     But we also think Krock's contention that the offset

entirely canceled his obligation is exaggerated.  Krock argues on

appeal that the premium should be applied against the $350,000 face

amount of the note.  His testimony at trial was simply that it

would be applied against "my debt."  The words "my debt" would

seem, on their face, to include both the principal on the note and

any interest that had accrued up until the time the offset kicked

in.  When the Pier 37 property was sold, on or about June 1, 1995,

there was at least some interest that had accrued since the date of

the note in November 1993.  Krock points out that, as of

November 8, 1995, the Bank was claiming that his debt was

$449,010.86.  Thus, as of June 1, more than five months earlier,

Krock's debt would have been somewhat less than that amount,

including both principal and interest, but clearly more than the

$350,000 face amount of the note that the district court used.  It

appears that the total debt would have been more than the

$403,333.33 offset that should have been applied against it,

leaving some smaller amount still due.  And the Bank would now be

entitled to interest that has subsequently accrued on that smaller

amount, between the June 1, 1995 date of offset and the present.  

     We do not, however, think it fair for the Bank to charge

Krock for its attorneys' fees for this litigation, because it is

not at all clear that any litigation would have been necessary if

the Bank had simply sought to collect the smaller amount that we

now hold it was due as of June 1, 1995, as opposed to denying the

offset and seeking to collect the much larger amount that it

claimed in this action (including an additional three years' worth

of interest on $403,333). 

     We therefore remand for a calculation of the proper

amount owed, accepting Krock's testimony as to what exactly was

contained in the subsequently agreed-upon modification of the

original contract.  That is, the court should apply the offset as

of the date of sale of the Pier 37 property, and apply it to

Krock's accumulated total debt as of that date.  The district court

should then calculate the interest that would have accrued on that

reduced amount of debt, from that offset date through the present.

     Affirmed as to the existence of the oral modification and

as to its terms; remanded for calculation of the amount owed under

the modified contract.