Federal Deposit Insurance Corporation v. Hadid
947 F.2d 1153 (4th Cir. 1991)
Niemeyer, J.
On a complaint filed by the National Bank of Washington (NBW) to collect on two
promissory notes that Mohamed Anwar M. Hadid guaranteed, a jury found in favor
of Hadid, crediting his testimony of an oral agreement by which his guarantees
would become null and void if he were not given control of stock which secured
the notes. On NBW's motion for judgment notwithstanding the verdict, the
district court found that the oral agreement violated the parol evidence rule
and entered judgment against Hadid in the amount of $1,854,875.03 on the notes
plus $272,035.26 in attorneys' fees. The Federal Deposit Insurance Corporation (FDIC) succeeded to the judgment when it declared NBW insolvent in August 1990. Hadid
contends on appeal that the facts surrounding application of the parol evidence
rule were properly submitted to the jury and should have been left for the jury
to determine. . . .
For the reasons that follow, we affirm the judgment of the district court on the
notes but reverse with respect to the amount of the award for attorneys' fees.
I
As evidence of the debt arising from two loans made by NBW to Keystone Financial
Corporation (Keystone) and P.S. Investment Co., Inc. (P.S. Investment) in 1986,
NBW accepted two promissory notes. The one signed by Keystone was in the amount
of $1,314,209.75 and its repayment was secured by a pledge of the common stock
in McDowell Enterprises, Inc.
Repayment of that note was also guaranteed by Dr. P.S. Prasad and Bert Lance.
The second, signed by P.S. Investment, was in the amount of $200,000.00, and
its repayment was guaranteed by Dr. Prasad and his wife. Dr. Prasad owned both
Keystone and P.S. Investment.
The loans, which were short-term, were extended by NBW on several occasions in
1986 and early 1987, but in August 1987 NBW demanded full repayment. At that
time, Dr. Prasad proposed several arrangements for restructuring the loans, one
of which provided that Hadid would become a new guarantor. Hadid was a
well-known customer of NBW, whose creditworthiness was known to the bank. The
bank therefore accepted the proposal. The agreed terms for the restructuring of
the loans were set forth in two written Renewal and Extension Agreements dated
November 30, 1987.
The Renewal and Extension Agreement for each loan is prefaced by introductory
provisions which describe the history of the loan, the security, the guarantors
and the request for restructuring. In addition to setting forth the terms of
restructuring, each agreement refers to a new promissory note and guarantee to
be executed simultaneously. Both agreements provide that District of Columbia law shall govern. The Renewal and Extension Agreement
applicable to the Keystone loan contains an additional section that provides
that the pledge agreement granting NBW a security interest
in the McDowell stock "shall remain in full force and effect." J.A. 221.
Despite the extensions granted by the Renewal and Extension Agreements, the
loans were not paid by either the principals or guarantors and NBW filed suit to
enforce the notes and guarantees. Hadid defended the claims against him by
alleging that he should be released from his guarantees because NBW failed to
release to him the McDowell stock that had been pledged to NBW. He alleged that
an oral agreement was reached when the Renewal and Extension Agreements were
negotiated, that he would be given control over the stock and, if not, his
guarantee would be null and void. NBW disputed this claim. In addition to
denying that any such agreement was ever made, NBW presented evidence that Hadid
never asserted the existence of any oral agreement at any time after the Renewal
and Extension Agreements were executed, including each occasion when demand on
the notes was made and when thereafter he made payments of interest and gave assurances of repayment. Crediting Hadid's oral agreement, the
jury returned a verdict in his favor.
Before the commencement of trial, NBW filed a motion in limine seeking a
ruling that the parol evidence rule barred Hadid from introducing evidence at
trial that NBW had orally agreed to release the stock to him. The district court
took the matter under advisement so that it could receive evidence on the issue.
When NBW renewed this defense in a motion for a directed verdict, the district
court again deferred ruling, stating that it would let the case be presented to
the jury and would take up the question "on a post-trial motion if the verdict
is adverse to [NBW]." J.A. 164. When the jury returned a verdict in favor of
Hadid, the district court granted NBW's motion for a judgment notwithstanding
the verdict, finding: 1) that the Renewal and Extension Agreements were fully
integrated agreements and 2) that the proffered oral agreement conflicted with
the express terms of the written ones. Applying the parol evidence rule
applicable in the District of Columbia, the district court rejected Hadid's
defense based on the oral agreement as a matter of law and entered judgment in favor of NBW on the notes.
. . .
After judgment was entered in this case, the Controller of the Currency declared
NBW insolvent, closed the bank and appointed the FDIC as receiver. On August 23,
1990, the district court substituted FDIC for NBW in this action.
II
The parties agree that the law of the District of Columbia governs, as provided
in the governing loan documents, and that the District of Columbia Court of
Appeals decision in
Ozerol v. Howard University, 545 A.2d 638 (D.C. App. 1988), states
the governing principles of the District of Columbia's substantive law on parol
evidence. As stated in Ozerol, "[the
parol evidence] rule provides that when parties to a contract have executed a
completely integrated written agreement, it supersedes all other understandings
between the parties. Thus, the writing itself is viewed as the expression of the
parties' intent."
545 A.2d at 641 (citing Restatement (Second) of Contracts § 213 (1979)). Those principles, moreover,
are not atypical. Professor Williston has more generally summarized the
principle: "'Where parties, without fraud or mistake, have reduced to writing a
contract, it is presumed alone to express the final conclusion reached, and all
previous and contemporaneous oral discussion, or written memoranda, are assumed
to be either rejected or merged in it.'" 4 S. Williston, A Treatise on the Law
of Contracts § 632A, at 984 (3d ed. 1961) (quoting
Goldenberg v. Taglino, 218 Mass. 357, 105 N.E. 883 (1914)). Williston
goes on to point out that when the writing is complete on its face and is
certain and definite as to the objects of the agreement, the writing is
"conclusively presumed" to
be the entire contract between the parties, which cannot be contradicted or
modified by parol or extrinsic evidence. Id. at 985.
Whether
an agreement is integrated is a factual question that "depends on the intent of
the parties [as revealed by the writing itself], the conduct and language of the
parties, and the surrounding circumstances."
Ozerol, 545 A.2d at 641. The application of the parol evidence rule, however, is a question for resolution by the court,
not the jury, and, as is the case with any question for the court, it is the
court and not the jury which resolves disputed facts on the point. See id.
at 643 ("question of integration . . . is for the trial court to
determine as 'a question of fact. . . .'") (quoting
Restatement (Second) of Contracts § 209 cmt. c (1979)). If, after resolving
disputed facts, the court finds that the transaction is intended to be covered
by the writing, only the writing is considered by the jury in resolving
liability. The court does not, and need not, decide that the oral agreement was
not made. Rather, it decides only that the oral agreement is irrelevant to
liability on the writing. Similarly, if the court concludes that the writing is
not integrated, it does not decide that the oral agreement was made. It commits
that issue to the jury.
Id. at 642.
While the preferred practice under District of Columbia law
is to make and resolve any objection on parol evidence preliminarily, it
nevertheless permits the issue to be raised for the first time on a motion for
directed verdict,
since the rule is a matter of substantive law and not merely a rule of evidence.
Ozerol, 545 A.2d at 642. In any event, when
the trial court resolves the factual question of whether the written agreement
is integrated, our standard of review, as a matter of federal law, is whether
the findings are clearly erroneous. Cf. Ozerol, 545 A.2d at 643.
In this case we cannot, and do not, conclude that the trial court's findings are
clearly erroneous. The court found first, on the basis of all the evidence
presented at trial, that the Renewal and Extension Agreements dated November 30,
1987, were fully integrated agreements. All prior understandings between the
parties, including the promissory notes, the pledge agreements, and the
guarantees, were reduced to formal written agreements, and no evidence suggests
that any understanding prior to the Renewal and Extension Agreements was
governed by oral agreements. As sophisticated businessmen, the parties not only
documented their understandings on virtually all points, they retained attorneys
to draft documents and have them executed formally, with witnessing and, in the
case of corporations, attestation. Particularly in light of the fact that one of the formal agreements between the
parties specifically addressed the continuation of the McDowell stock-pledge
agreement, one would expect that other agreements reached at the time of
negotiations regarding the role of the McDowell stock would also have been
reduced to writing if the parties intended them to be legally binding. A
different analysis would make written instruments of little value and increase
the temptation to commit perjury or simply to restate agreements to the liking
of the parties.
The district court also determined that even if the agreements were not fully
integrated, the oral agreement proffered by Hadid conflicted with the terms of
the written Renewal and Extension Agreement for the Keystone loan. Hadid
testified that an oral agreement, reached at the time he signed the Renewal and
Extension Agreements, provided that he would receive "control over the McDowell
stock" so that he could "sell it" if necessary, and if he did not receive
control over the McDowell stock, the guarantees were null and void. The
purported oral agreement to give Hadid "control over the McDowell stock" is
directly inconsistent with the express language of the Renewal and Extension Agreement for the Keystone loan providing
that the pledge agreement involving the McDowell stock in favor of NBW "shall
remain in full force and effect." To continue the perfection of the pledge
agreement and NBW's security interest in the stock, NBW would have to retain
possession of the stock. Any control by Hadid,
therefore, would have conflicted with NBW's security interest as preserved by
the written instruments.
[Balance of opinion omitted.]