Molton, Allen and Williams, Inc. v. Harris
| Decision Date | 07 January 1980 |
| Citation | 613 F.2d 1176,198 U.S.App.D.C. 443 |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
John F. Dienelt, Washington, D. C., with whom Philip N. Brownstein, Barry P. Rosenthal and David J. Butler, Washington, D. C., were on the brief, for appellant.
Michael J. Ryan, Asst. U. S. Atty., Washington, D. C., with whom Earl J. Silbert, * U. S. Atty., John A. Terry, Peter E. George and R. Craig Lawrence, Asst. U. S. Attys., Washington, D. C., were on the brief, for appellee.
Before MacKINNON and WILKEY, Circuit Judges, and GORDON, ** Senior United States District Judge for the Western District of Kentucky.
Opinion for the Court filed by Circuit Judge WILKEY.
Molton, Allen & Williams, Inc. appeals from a district court order granting summary judgment to the Secretary of Housing and Urban Development. Appellant filed this action claiming that the Secretary breached a contract to sell mortgage options. On cross motions for summary judgment, the district court held that government regulations precluded a binding contract under the circumstances, and granted summary judgment to the government. We conclude that summary judgment should have been granted instead to appellant on the issue of liability and we remand accordingly.
On 16 October 1975 the Government National Mortgage Association (GNMA), an agency within the Department of Housing and Urban Development, announced a program to sell federally insured mortgages and options. Under the program, terms of sale were specified by chapter 10 of the GNMA Sellers' Guide. Sales were to be made on a first come, first served basis through a nongovernmental agent of GNMA, the Federal National Mortgage Association MA.
On 21 October 1975 appellant submitted to FNMA's Atlanta office thirty-eight properly executed applications for mortgage options. Appellant was the first to apply and tender the required fee for these options. The next day the Assistant Regional Vice President for FNMA's Atlanta office, Thomas J. Swanson, Jr., executed the acceptance portion of thirty-two of the applications; he did not execute the other six applications because those mortgages were delinquent and thus not eligible for sale. Effective noon of this same day, GNMA issued a notice raising the price of mortgages under the program. This price increase was not applied to the options that appellant had offered to purchase.
On the morning of 23 October, appellant's Assistant Vice President Michael P. Leddy phoned Robert G. Pike, a loan representative in FNMA's Atlanta office. Pike informed him that the thirty-two option applications were in good order and that the acceptance portions had been signed. Pike offered to mail the forms to Leddy. Later that day, before the option contracts were mailed to appellant, GNMA suspended the sale program, and FNMA's Washington office instructed the Atlanta office not to issue the options to appellant. After pursuing administrative remedies, appellant filed suit in United States District Court for the total difference between market price and contract price for the thirty-eight options.
The district court granted summary judgment for the Secretary and GNMA, finding no contractual obligation on the government's part as to any of the options. 1 Molton, Allen & Williams now appeals, claiming a binding contract for the thirty-two executed option applications. Appellant does not challenge that part of the district court decision which found no contract as to the six unaccepted option applications. 2
On grounds that the executed application forms had not been returned to appellant when the sale was suspended, the government pleads lack of an enforceable contract. The governing provision of the GNMA Sellers' Guide, binding on parties that transact with GNMA, states that GNMA's acceptance of an option application shall be indicated by its completing and executing the acceptance portion of the application, and by its "returning one executed copy to the applicant." 3 This rule of agency procedure establishes a condition precedent to contract formation, as the district court found; and the parties did not satisfy the condition.
But there is a further issue, whether the government agent dealing with appellant had authority to and in fact did waive this provision. The same Sellers' Guide which states the conditions for a valid contract also permits GNMA to waive those conditions. "GNMA reserves the right, consistent with law, to alter or waive any of the requirements contained herein . . . ." 4 Robert Pike of FNMA shared in this authority to waive requirements of the Sellers' Guide. He was an attorney in fact of GNMA, 5 and GNMA had granted by regulation to its attorneys in fact the full authority to do all things necessary and proper to their duties, "to all intents and purposes, as the Association might or could do." 6 By virtue of these provisions, the government agent who dealt with appellant had authority to waive any conditions precedent set by the Sellers' Guide.
The district court held there could be no waiver of a regulatory provision except by express statement by a government agent; and there was no such statement here. Since it found no waiver of the condition precedent, the court further concluded that this condition prevented it from applying equitable principles to hold the government to standards of fair dealing that apply to private parties. Based largely on the Supreme Court's decision in Federal Crop Insurance Corp. v. Merrill, 7 the district court reasoned that parties who contract with the government must strictly comply with conditions of contract formation, must "turn square corners," and must accept the risk that contract dealings may become snagged before formal acceptance. 8
The Merrill opinion does indeed place strict requirements on parties who deal with the government, even where the requirements produce harsh results; but we must examine Merrill so as not to extend this rule further than its rationale warrants. Merrill follows a traditional rule that the government is not estopped by the action of its agent when that agent acts without authority or contrary to law. 9 When the agent enters a contract that does not satisfy statutory or regulatory conditions, Merrill holds, the contract does not bind the government. The rationale is that a single official cannot override a statute or regulation, and that citizens dealing with the government are charged with knowledge of the law. 10
But the Merrill holding applies only where a government agent acts beyond legal authority; Its rationale does not extend to a failure to meet a regulatory condition by a government agent who has authority to waive that condition. 11 It is well established by precedent that when a government agent acts within his authority, the government can be estopped by his actions. 12 Unless as in Merrill there is a statute or regulation to the contrary, the government is subject, when it enters the domain of commerce, to the same principles of justice that govern private parties. 13
The government argues that it would be absurd to conclude that FNMA had authority to dispense with conditions precedent without the assent of GNMA; 14 but in light of the market conditions for mortgage transactions, it was not only reasonable but also highly convenient for GNMA to grant this authority in order to operate effectively in the market. Mortgage prices fluctuate rapidly, and purchasers and sellers often need the certainty of an immediate commitment to a binding contract, so they in turn can enter into related commitments necessary to a successful transaction. 15 The government agent can provide the needed commitment very simply by waiving the delivery requirement and reporting orally that the application has been accepted and signed; without this expedient the government would find it more difficult to find willing takers at a given price. Hence we find it perfectly reasonable to interpret GNMA regulations exactly as they read, as a delegation to FNMA of authority to waive conditions in the Sellers' Guide.
Since the government agents in this case had authority to waive, Merrill does not apply, and we look instead to the standards of waiver that would govern between private parties. The common law concept of waiver, as we discuss below, includes inferences from the words and actions of the parties. The district court therefore erred when it limited waiver to express statements. 16 This error will require reversal of summary judgment if the facts when viewed favorably to appellant can support an inference that FNMA waived the delivery requirement. Further, if the undisputed facts show that there clearly was a waiver, we must order summary judgment for appellant.
Waiver can occur by mutual agreement when the parties manifest an intent to be bound by the contract, even though a stated condition precedent has not been satisfied. 17 It is not contested that Pike informed Leddy by telephone on 23 October that the application forms were in good order and had been executed. 18 In his deposition, Thomas J. Swanson of FNMA's Atlanta office stated that exactly these facts are customarily understood as a confirmation of a binding contract, definitely by him and also, he thought, by contract applicants. 19 Moreover, Swanson indicated that in this particular case he thought as of 23 October that Molton, Allen & Williams "had the contract." 20 Swanson was well versed in industry custom, as an employee of FNMA since 1957 and the officer in charge of project mortgage transactions. 21 The industry custom of relying of FNMA's and GNMA's oral commitments in mortgage transactions, described in affidavits in the record, 22 further indicates that it was reasonable for appellant...
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