39 Mass. App. Ct. 57 | Mass. App. Ct. | 1995
Under the doctrine developed in D’Oench Duhme & Co. v. Federal Deposit Ins. Corp., 315 U.S. 447, 459-462 (1942), later codified in 12 U.S.C. § 1823(e)(1) (1994), an agreement between a bank and a borrower does not bind the Federal Deposit Insurance Corporation (FDIC) or its assignees unless: (1) the agreement is in writing; (2) was executed by the bank and the borrower contemporaneously with the note that is evidence of the borrower’s debt; (3) the agree
We turn to the facts stated in the verified complaint, to which various documentary exhibits were attached. On October 5, 1989, Randolph Credit Union issued to Robert and Patricia Federico a commitment letter to lend them $90,000 at a variable interest rate, to be adjusted annually, at a “rate which will be 3.0 basis points over the One-Year Treasury Note at the time of review.”
The superseding note proffered to the Federicos, which they signed — the record does not set out the precise date
Apparently the Federicos noticed the discrepancy between the commitment rate and the superseding note rate in May, 1992, and called the difference to the attention of James Donovan, a vice president of the Randolph Credit Union. Donovan acknowledged the mistake and told the Federicos the note would be corrected on its next anniversary, November, 1992. All those communications were by word-of-mouth.
The commitment letter is in writing and thereby meets the first of the criteria of 12 U.S.C. § 1787 (p) (2) or § 1823(e). As complaints are, of course, read indulgently in favor of the pleader when considering a motion to dismiss under rule 12(b)(6), Nader v. Citron, 372 Mass. 96, 98 (1977), we may regard as susceptible of proof, even though not specifically pleaded, the third and fourth conditions of the statute, namely that the commitment letter was approved by the loan committee — with that approval noted in the minutes of the committee — of the Randolph Credit Union and that the commitment letter remained as part of the official records of the credit union. Squarely raised by the complaint, however, is whether the commitment letter, which was executed by both parties on October 5, 1989, satisfied the second statutory requirement, that the writing which purports to vary the note has been executed contemporaneously with the note. The superseding note was executed thirteen months after the commitment letter.
The word “contemporaneously,” in the context of 12 U.S.C. § 1823(e)(1), has been strictly construed, see Resolution Trust Corp. v. Midwest Fed. Sav., 36 F.3d 785, 797 (9th Cir. 1993), with one court having gone so far as to write that a commitment letter dated three and eight months before the notes executed on the basis of it necessarily was not a contemporaneous agreement because the parties signed the commitment letter before the later notes. Resolution
Of course commitment letters, since they set forth the business terms of a loan yet to be made, almost invariably precede the documents, such as the note, that are evidence of the loan. If sequence were all that were to it, a commitment letter would never be a contemporaneous document, except for the unlikely, though conceivable circumstance when the commitment letter and loan documents are executed simultaneously. Commitment letters have been determined to be contemporaneous, however, when copies of them are referred in the notes later executed. Erbafina v. Federal Deposit Ins. Corp., 855 F. Supp. 9, 12 (D. Mass. 1994).
Incorporation of the earlier document in the note (or other simultaneously executed loan document such as the mortgage which secures the note) places the buyer of a failed bank’s asset on alert that there are collateral documents which may have a bearing on the economic value of the borrower’s account. In Steeves, 785 F. Supp. at 215, and Prawer, 789 F. Supp. at 455, the writer (the same judge in both cases) emphasizes that the earlier documents through which the borrower desired to vary the loan documents were neither incorporated in nor referred to by the loan documents. Nothing appears in the loan documents attached to the complaint that would place a bank examiner or a purchaser of bank assets
Langley v. Federal Deposit Ins. Corp., 484 U.S. at 93, and Savoy v. White, 788 F. Supp. 69, 73 (D. Mass. 1992), posit that the D’Oench, Duhme doctrine would be defeated in the rare case when there has been fraud as to the essential nature of the instrument or an essential element of it, a genus of fraud described by the phrase “fraud in the essence” or the more alliterative “fraud in the factum.” 2 U.L.A., U.C.C., comment 7 to § 3-305(2)(c) (Master ed. 1991). That comment offers as an illustration of fraud in the factum the case of someone tricked into signing a note in the belief that the paper is a receipt.
The significance of a fraud in the factum compared to a fraud in the inducement is that it renders the instrument void and thus the instrument may be defended against even in the hands of a holder in due course. G. L. 106, § 3-305(2)(c). Langley v. Federal Deposit Ins. Corp., 484 U.S. at 93-94. Restatement (Second) of Contracts § 163 comments a and c (1981). The misrepresentation must go to the essence of the transaction. Fraud in the factum does not occur: when the essential nature of the document — here that it was a promissory note — has been accurately represented or is understood by the signer; when the signer is capable of reading and understanding the content of the document; and when the element misrepresented does not involve the true nature or contents of the instrument, but concerns a term or factor in the transaction, even an important one, but not going to
Judgment affirmed.
The text of 12 U.S.C. § 1823(e)(1) is: “No agreement which tends to diminish or defeat the interest of the Corporation in any asset acquired by it under this section or section 1821 of this title, either as security for a loan or by purchase or as receiver of any insured depository institution, shall be valid against the Corporation unless such agreement (A) is in writing, (B) was executed by the depository institution and any person claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the depository institution, (C) was approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the minutes of said board or committee, and (D) has been, continuously, from the time of its execution, an official record of the depository institution.” For all practical purposes, the language of 12 U.S.C. § 1787 (p) (2) (1994) is identical. See Savoy v. White, 788 F. Supp. 69, 71-72 (D. Mass. 1992).
Curiously, the complaint does not ask for what one would have thought was the most obvious relief, reformation. Rather it asks for: a declaratory judgment (count I); rescission on the basis of absence of mutuality of agreement, mutual mistake or fraud (count II); and damages under G. L. c. 93A (count III).
The complaint was verified and affidavits were attached to it. The parties and the Superior Court judge have treated the case as a dismissal under rule 12(b)(6) and we so regard it, even though the defendant offered some affidavits in support of its motion to dismiss, i.e., the motion began to take on the accoutrements of one for summary judgment under Mass.R.Civ.P. 56, 365 Mass. 824 (1974).
The specifications regarding the rate of interest provided further that “in no event for an initial period of one year will any increase or decrease for a particular year be greater than two percent (2%) of the rate you are then paying. Furthermore, the interest rate during the life of the mortgage shall not vary more than five percent (5%) from the initial contract rate. Any change in the interest rate will be reflected by a change in your monthly payment. Adjustments will not occur unless the One-Year Treasury Note plus 3.0 bases [szc] points exceeds the mortgage rate you are then paying by % of 1 (.75%) percent.”
Indeed, the credit union’s lawyer used a form described in the bottom margin as “MULTISTATE FIXED RATE NOTE—Single Family—FNMA/FHLMC UNIFORM INSTRUMENT.”
The superseding note was dated November 8, 1989, the date of the first note executed by the Federicos.