Cronkite v. FDIC

Opinion

USCA1 Opinion

September 23, 1993    [NOT FOR PUBLICATION]
                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                 ____________________

        No. 92-2467

                            RAYMOND E. CRONKITE and MAINE
                                   AQUARIUM, INC.,

                               Plaintiffs, Appellants,

                                          v.

                    FEDERAL DEPOSIT INSURANCE CORPORATION, ET AL.,

                                Defendants, Appellees.

____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                              FOR THE DISTRICT OF MAINE

                       [Hon. Gene Carter, U.S. District Judge]
                                          ___________________

                                 ____________________

                                        Before

                                Selya, Cyr, and Boudin,

                                   Circuit Judges.
                                   ______________

                                 ____________________

            Valeriano Diviacchi with  whom Diviacchi Law  Office was  on brief
            ___________________            _____________________
        for appellants.
            Claire   L.   McGuire,   Counsel,    Federal   Deposit   Insurance
            _____________________
        Corporation,  with  whom Ann  S.  DuRoss,  Assistant General  Counsel,
                                 _______________
        Federal  Deposit Insurance Corporation,  Colleen B. Bombardier, Senior
                                                 _____________________
        Counsel,   Federal   Deposit   Insurance   Corporation,   and   Robert
                                                                        ______
        McGillicuddy,  Deputy   Senior  Counsel,  Federal   Deposit  Insurance
        ____________
        Corporation,  were on  brief for  appellee, Federal  Deposit Insurance
        Corporation.
            John  J. Wall,  III with  whom  Thomas  F. Monaghan  and Monaghan,
            ___________________             ___________________      _________
        Leahy, Hochadel & Libby were on brief for appellee, Archie Maxwell.
        _____ _________________

                                 ____________________

____________________

BOUDIN, Circuit Judge.   Raymond  Cronkite purchased  46
                         _____________

            acres of  land in  1982, giving  the seller a  note on  which

            Cronkite  later defaulted.  In April 1985, the then holder of

            the  note, Maine  National  Bank, entered  into a  settlement

            agreement  with Cronkite,  who  agreed to  a revised  payment

            schedule  for the  1982  note and  gave  the bank  a  blanket

            mortgage  on all  his property  in York  County, Maine.   The

            agreement also  included a  paragraph obligating the  bank at

            Cronkite's request  to  "release parcels"  from  the  blanket

            mortgage, provided that Cronkite met four conditions:

                 --that he  not be  in default under  the agreement;

                 --that he not be  in default as to his  existing payment
                 obligations to the bank;

                 --that he show  the bank  a net worth  of over  150
                 percent  of  the  remaining  principal  and accrued
                 interest on the note; and

                 --that  he seek the release in order "to complete a
                 fair market value sale" and provide the bank with a
                 copy of the contract showing  the sales price and a
                 with a  good faith estimate of  the distribution of
                 the sales proceeds.

                 In December 1985, Cronkite arranged  to sell a parcel of

            property that he  owned ("lot  8") which was  not subject  to

            Maine National Bank's  blanket mortgage.  Lot 8, however, was

            subject  to a mortgage held by the Saco and Biddeford Savings

            Bank  ("the Saco Bank").  To obtain release of that mortgage,

            Cronkite proposed  that Maine  National Bank  subordinate its

            interest in  lot  136,  which  was  subject  to  the  blanket

            mortgage,  to the interest  of the Saco Bank.   The Saco Bank

-2-
                                         -2-

was  willing  to  release its  mortgage  on  lot  8 if  Maine

            National  Bank  would allow  lot  136  to  be substituted  as

            collateral for Cronkite's debt to the Saco Bank.

                 Although  what  happened next  is  the  subject of  some

            dispute,  ultimately   Maine   National  Bank   declined   to

            subordinate its interest in lot 136, taking the position that

            it had agreed to release parcels under certain conditions but

            not  to subordinate  its  interest.   Thereafter the  Federal

            Deposit Insurance Corporation ("FDIC") became the receiver of

            Maine  National   Bank.    After   exhausting  the   required

            administrative remedies, Cronkite brought the present suit in

            the  district  court  against  the FDIC  for  breach  of  the

            settlement agreement  based on Maine National  Bank's failure

            to subordinate its interest in lot 136.1

                 The magistrate judge  granted summary  judgment for  the

            FDIC,  ruling  that  the  settlement agreement  on  its  face

            required the bank to release property but  not to subordinate

            it.    The  district  court adopted  the  magistrate  judge's

            recommended decision.  This appeal followed.  Cronkite's main

            argument is that since  "subordination" is a lesser sacrifice

            of  interest   than  a   full  "release,"  the   latter  term

____________________

                 1Cronkite  joined  as plaintiff  a  corporation that  he
            hoped  to  assist through  the sale  of  lot 8  and  named as
            defendants two  former officers of  Maine National Bank.   He
            also made other  claims in  addition to  breach of  contract.
            Since the presence of other parties does not affect the legal
            issue,  and the other claims have not been briefed on appeal,
            we need not discuss the other parties or other claims.

                                         -3-
                                         -3-

encompasses the former and the settlement agreement should be

            read  as if  it said "release  or subordinate."   At the very

            least,  Cronkite says  that he  should have  been allowed  to

            offer extrinsic evidence.

                 Considering the  issue of interpretation de  novo, In re
                                                          ________  _____

            SPM Mfg. Corp, 984 F.2d 1305, 1311  (1st Cir. 1993), we agree
            _____________

            with the magistrate judge's  reading.  It is sound  policy to

            read  commercial   documents   according  to   their   terms.

            Subordination may often have less severe consequences for the

            holder  of an interest than  does release, but  it is still a

            different  legal  arrangement.   And  agreements relating  to

            loans  and  mortgages  are  instruments in  which  words  are

            normally  used  with  some  precision.    If  one  begins  by

            departing from the plain  meaning of a familiar term  one may

            end by  enlarging the contract to  embrace transactions never

            contemplated.   This case well illustrates  these precepts of

            construction.

                 The transaction that Cronkite  seeks to bring within the

            "release"  paragraph of  the  settlement agreement  is by  no

            means  the same  as  the  type  to  which  the  paragraph  is

            directed.  In the  former case, the bank would  know not only

            that  Cronkite was current in his obligations to the bank and

            had  a net worth of 150 percent of his remaining obligations,

            but also that he was selling the released property in "a fair

            market  value  sale."   In  other  words,  his  secured  real

-4-
                                         -4-

property  would  be  diminished  but he  would  increase  his

            immediate net worth by the fair market value of the property,

            giving the bank some additional protection.

                 In  the  subordination  transaction  proposed  to  Maine

            National Bank,  Cronkite was  asking the bank  to subordinate

            its  interest not so that the  subordinated property could be

            sold but so that some other piece of property could be  sold.

            There  is nothing in this arrangement to assure that the sale

            price of the  property sold would be as high  as the value of

            the property with respect to which Maine National Bank was to

            subordinate its interest.   That bank could easily  find that

            it had given another  creditor a superior position on  a very

            valuable piece of property so that Cronkite could make a sale

            of a much less valuable one.  It does not matter whether this

            was or was not the case here.  The point is, rather, that the

            transaction  is in  no sense  the one  to which the  bank had

            committed itself.

                  Under certain circumstances, extrinsic  evidence may be

            admissible  to cast light on the intention of the parties and

            the  meaning   of  their   agreement.    For   the  sake   of

            completeness,  we  note that  Cronkite  did  not in  opposing

            summary  disposition  point to  any  extrinsic  evidence that

            would  alter  the  result  even if  extrinsic  evidence  were

            admissible.   Accordingly,  we have  no occasion  to consider

-5-
                                         -5-

when  under Maine  law  extrinsic evidence  is admissible  in

            interpreting written contracts.

                 Affirmed.
                 ________

-6-
                                         -6-