Federal Savings and Loan Insurance Corporation v. Cook

• Decision Date: 27 January 1970
• Docket Number: No. 17403.,17403.
• Parties: FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, Plaintiff-Appellant, v. Walter L. COOK and Paul E. Pickle, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

419 F.2d 1296 (1969)

FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, Plaintiff-Appellant, v. Walter L. COOK and Paul E. Pickle, Defendants-Appellees.

No. 17403.

United States Court of Appeals Seventh Circuit.

November 26, 1969.

Rehearing Denied January 27, 1970.

John M. Duffy, David A. Stall, Chicago, Ill., Frank J. Delany, Washington, D. C., Frank K. Neidhart, Chicago, Ill., for appellant.

Bernard H. Sokol, Martin S. Bieber, Sokol, Schwab & Agran, Chicago, Ill., for appellee Walter L. Cook.

Before CASTLE, Chief Judge, KNOCH, Senior Circuit Judge, and KERNER, Circuit Judge.

Rehearing En Banc Denied January 27, 1970.

CASTLE, Chief Judge.

Plaintiff, an instrumentality of the United States, as purchaser, assignee, and insurer of the assets of Beverly Savings and Loan Association,¹ brought this action against the defendants for fraudulent misrepresentation in securing a real estate mortgage. In August, 1961, Beverly approved a mortgage loan of $150,000 to C.M.O. Builders, Inc., a corporation which was owned in part by defendant Pickle and was the beneficial owner of the real property in question. Pickle had applied for the loan, signed the note individually, and assigned the beneficial interest in the property to Beverly as collateral. Plaintiff's suit is based on a real estate appraisal which Pickle had included with the loan application and which had been prepared by defendant Cook, a land appraiser and member of the Society of Residential Appraisers. Plaintiff alleged that the appraisal grossly over-valued the property in question and was prepared "with the knowledge and intent that said appraisal would be relied upon and that the person or corporation so relying thereon would thereby be deceived and defrauded." The district court, sitting without a jury, found for the defendants and plaintiff appeals.

The judgment of the court below was based on the findings that plaintiff failed to prove, by a preponderance of the evidence, the various elements of the charge of fraud. These elements were succinctly stated by the United States Supreme Court as "(1) a false representation (2) in reference to a material fact (3) made with knowledge of its falsity (4) and with the intent to deceive (5) with action taken in reliance upon the representation." Pence v. United States, 316 U.S. 322, 338, 62 S.Ct. 1080, 1083, 86 L.Ed. 1510 (1942). Cf. Citizens Savings & Loan Association v. Fischer, 67 Ill.App.2d 315, 325, 214 N. E.2d 612 (1966); Public Motor Service, Inc. v. Standard Oil Co., 69 App.D.C. 89, 99 F.2d 124 (1938).

Plaintiff, at trial, sought to establish the essential fact of reliance on the appraisal by the testimony of the four directors of Beverly who were members of the loan committee which approved the loan in question. The conduct of these directors in reviewing the loan application was admittedly cursory. Pickle's loan was approved at the same time as twenty others, no member of the loan committee ever inspected the property, and no one else was delegated the task of doing so or otherwise verifying the representations contained in the application.

The testimony of the loan committee members was generally weak and equivocal. The transcript reveals that the directors were "relatively new to this activity" at the time the loan was approved, and subsequently, "tightened up their procedure considerably." The witnesses agreed that it was customary to examine appraisals before approving loans. However, there is substantial evidence to support the conclusion that the loan committee members did not remember seeing the appraisal in question, but merely assumed that since the inclusion of an appraisal was customary, they must have seen Cook's appraisal when they passed on Pickle's loan application.

In reviewing the district court's finding that plaintiff failed to approve by a preponderance of the evidence that Beverly relied upon the representations made in the appraisal, we are governed by Rule 52(a), Federal Rules of Civil Procedure, which provides:

"In all actions tried upon the facts without a jury * * *, the court shall find the facts specially and state separately its conclusions of law thereon, and judgment shall be entered pursuant to Rule 58; * * *. Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge of the credibility of the witnesses. * * *"

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