984 F.

2d 1571

CASTLEGLEN, INC., a California corporation; and Larry B.

Harvey, an individual,
Plaintiffs-Counterdefendants-Appellants,
v.
RESOLUTION TRUST CORPORATION, as conservator for
Commonwealth Federal Savings Association, and as receiver of
Commonwealth Savings Association; Klein Financial
Corporation, a California corporation; and Robert N. Klein,
II, an individual, Defendants-Counterclaimants-Appellees,
Santa Fe Apartments, Ltd., a Utah limited partnership;
Busch Management Co., a Utah corporation; and
Western States Title Company,
Defendants-Counterclaimants.
EMERSON REALTY & MANAGEMENT, Plaintiff-Appellee,
v.
CASTLEGLEN, INC., a California corporation, DefendantAppellant,
Resolution Trust Corporation, as conservator for
Commonwealth Federal Savings Association, and as receiver of
Commonwealth Savings Association, a Texas savings and loan
association; Klein Financial Corporation, a California
corporation; Robert N. Klein, II, an individual; Santa Fe
Apartments, Ltd., a Utah limited partnership; and Busch
Management Company, a Utah corporation, Defendants.
No. 90-4002.

United States Court of Appeals,

Tenth Circuit.
Feb. 9, 1993.

Earl M. Benjamin of Paul, Hastings, Janofsky & Walker, Los Angeles, CA

(John A. O'Malley and Douglas J. Rovens of Paul, Hastings, Janofsky &

Walker, Los Angeles, CA, and David B. Erickson of Kirton, McConkie &
Poelman, Salt Lake City, UT, with him on the brief), for appellants.
Clark Waddoups (Patricia W. Christensen, Ronald G. Russell and Heidi
E.C. Leithead, with him on the brief), of Kimball, Parr, Crockett &
Waddoups, Salt Lake City, UT, for appellee.
Before BRORBY, HOLLOWAY and EBEL, Circuit Judges.
HOLLOWAY, Circuit Judge.

This appeal arises from the district court's entry of summary judgment in favor
of the Resolution Trust Corporation (RTC) against the plaintiffs Castleglen,
Inc. and Larry B. Harvey (together hereafter Castleglen).1 The plaintiffs
brought an action for damages flowing from alleged misrepresentations made
to them in connection with the purchase of a parcel of real estate and, in the
alternative, for rescission of the entire transaction. The district court found that
the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
(FIRREA) and the estoppel doctrine of D'Oench, Duhme & Co. v. FDIC, 315
U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), barred the damage claims which
the plaintiffs sought to assert against the RTC and the thrift institutions. The
judge also denied relief on the rescission claim asserted by the plaintiffs. We
affirm, although in part on different grounds than the trial judge stated in his
thorough and persuasive opinion.

* The controversy in this case revolves around the sale of the Santa Fe
Apartments Project located in Salt Lake City on December 31, 1986, to
plaintiff Castleglen. The construction of the project was financed through the
sale of tax exempt bonds issued by the Salt Lake Housing Authority.
Commonwealth Savings Association (Commonwealth Savings or
Commonwealth) facilitated the financing arrangements by issuing a letter of
credit to Zions Bank, the trustee for the bondholders, guaranteeing repayment
of the principal and interest on the bond transaction. In return for
Commonwealth's financing, the developer, Santa Fe Ltd. (Santa Fe) executed a
Reimbursement Agreement with Commonwealth under which Santa Fe agreed
to make monthly debt service payments to Commonwealth in anticipation of
semiannual draws against the letter of credit by Zions.

Santa Fe also agreed to compensate Commonwealth for providing its letter of

credit and for servicing the bond loan. This compensation included an
origination fee, a "lender's spread" by which Commonwealth charged a higher

interest rate to Santa Fe than it paid to Zions, and a variety of other fees. Santa
Fe's monthly debt service obligations to Commonwealth were secured by a
second lien deed of trust and security agreement, and a second assignment of
rents, issue, and profits from the project. These security interests were used as
collateral to secure a surety bond from Industrial Indemnity Company to back
up Commonwealth's letter of credit.
4

On November 10, 1986, Commonwealth entered into a contract with

Commonwealth Mortgage of America, L.P. (the Master Limited Partnership).
The contract provided for the transfer of all of Commonwealth's "loan
administration contracts ... and all escrow, impound and custodial accounts
relating to the Loan Administration contracts." Then, in December 1986, Santa
Fe sold the project itself to OMA Cypress properties, a predecessor to plaintiffappellant Castleglen, which in turn conveyed the project to Cypress View Ltd.,
another Castleglen predecessor. Pursuant to an assumption agreement between
Santa Fe and Cypress View, Cypress View expressly assumed the obligations
of the bond loan documents, including the reimbursement agreement and the
second lien security instruments. In exchange for its approval of the transaction,
Commonwealth received an interest in the net operating income of the property
through a separate agreement (the NOI Agreement).

It was during this period of negotiations that Commonwealth allegedly

misrepresented the financial condition of the project and guaranteed that no
more than $600,000 of income would be necessary before the project broke
even. The oral misrepresentations allegedly made on December 24, 1986, are
outlined in the opinion of the district judge, 728 F.Supp. 656, 660 n. 2. The
written documents primarily relied on by Castleglen are described infra, n. 4.
After the sale of the property, the project proved to be less profitable than
hoped, and in July 1987 Commonwealth served Castleglen, which had
succeeded to the property, with written notice of default of its obligations under
the bond loan.

Castleglen brought this action in September 1987 seeking injunctive relief to

prevent foreclosure. Castleglen alleged, inter alia, that Commonwealth made
misrepresentations to plaintiffs concerning the profitability of the Santa Fe
project, and failed to disclose that projections on the project's profitability
prepared by plaintiffs' financial consultant were inaccurate or misleading.
Castleglen claims to have established "a prima facie case that Commonwealth
had defrauded Castleglen into buying the project through oral and written
misrepresentations concerning the authorship and content of certain financial
data involving the Project." Appellants' Corrected Opening Brief at 2. In its
complaint Castleglen charged Commonwealth with violations of federal and

state securities laws and also averred state claims of fraud, misrepresentation,
negligent misrepresentation, negligent breach of fiduciary duty, and breach of
an implied covenant of good faith and fair dealing. Castleglen sought
rescission, damages, and preliminary and permanent injunctive relief to prevent
foreclosure.
7

Castleglen then served a demand letter on Emerson Realty and Management

Company (Emerson), which managed the Santa Fe property. The demand letter
instructed Emerson to pay the net operating income, NOI, to Castleglen rather
than Commonwealth. In response, Emerson filed an interpleader action seeking
a determination from the district court directing disposition of the NOI. In the
interim, Emerson tendered payment into the registry of the court. The
interpleader action was then consolidated with Castleglen's original action.

Commonwealth moved for summary judgment in November 1988. In

December 1988 the district court held that the plaintiffs had waived their right
to rescind the Santa Fe transaction and had elected to pursue a damages
remedy. In May 1989 the court dismissed Castleglen's state and federal
securities claims but left pending the state law claims of fraud and
misrepresentation. Meanwhile, in March 1989 the Federal Home Loan Bank
Board had determined that Commonwealth was insolvent and appointed the
Federal Savings and Loan Insurance Corporation (FSLIC) as conservator. In
May 1989 the FSLIC chartered Commonwealth Federal Savings Association
(Commonwealth Federal) to facilitate the liquidation of Commonwealth
Savings and to make insured depository accounts available to the insured
account holders. Commonwealth Federal was then placed in the
conservatorship of the FSLIC. Commonwealth Savings was simultaneously
placed in FSLIC receivership. The FSLIC, as receiver of Commonwealth
Savings, then entered into an acquisition agreement with Commonwealth
Federal whereby Commonwealth Federal acquired Commonwealth Savings'
assets.

The FSLIC then filed a motion for summary judgment on the state law claims
based on D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86
L.Ed. 956 (1942). On August 9, 1989, while the case was pending, the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub.L.
No. 101-73, 103 Stat. 183 (1989) (FIRREA), became law. FIRREA abolished
the FSLIC and created the Resolution Trust Corporation (RTC), which
succeeded the FSLIC both as receiver of Commonwealth Savings and as
conservator of Commonwealth Federal.

10

At the district court's request the parties briefed the effects of FIRREA on the

case. In December 1989 the district court granted the RTC's motion for
summary judgment. Castleglen, Inc. v. Commonwealth Savings Association,
728 F.Supp. 656 (D.Utah 1989). The court found that the D'Oench doctrine and
FIRREA 217(4) (codified at 12 U.S.C. 1823(e)) barred Castleglen's claims
and also that recovery was limited by the maximum liability provisions of
FIRREA. The court then denied Castleglen's motion for Rule 11 sanctions and
its motion to amend its complaint to include a request for declaratory relief and
to join additional parties. It certified its rulings as a final judgment under
Fed.R.Civ.P. 54(b).
11

Castleglen timely appealed to this court. It contends that if the summary

judgment is left to stand, Castleglen will have been defrauded out of over $1.8
million and left without remedy. Appellants' Corrected Opening Brief at 2. The
appeal challenges the district court's refusal to consider rescission on the basis
of election of a damages remedy, the judge's rejection of the state law claims of
fraud and misrepresentation, and the denials of Castleglen's motion to amend to
add parties, inter alia. The state and federal securities claims are no longer at
issue.

II
12

With respect to its state law claims, Castleglen argues that FIRREA 1823(e)
preempts common law D'Oench protection. Furthermore Castleglen says that
1823(e) does not protect the RTC in this case since FIRREA does not protect
the RTC acting as a conservator, the agreements involved here are not of the
sort addressed by 1823(e), and 1823(e) does not apply to affirmative tort
claims. Castleglen says that the underlying claim against it is not valid because
the agreements themselves were illegal and thus void ab initio, because
Commonwealth transferred its entire interest in the project before it was placed
in conservatorship, and because Castleglen had rescinded its purchase of the
project prior to Commonwealth's insolvency. Finally, Castleglen argues that its
claims are not barred by the maximum liability provisions of FIRREA and that
the district court abused its discretion in denying Castleglen's motion to amend
its complaint and to add parties.

Preemption
13

The heart of the RTC's defense to Castleglen's claims is that both D'Oench and
FIRREA shield it from liability arising from the oral representations allegedly
made concerning the project's financial condition. Corrected Brief of Appellee
at 25-31. Castleglen argues, however, that FIRREA has preempted the common
law D'Oench doctrine and is therefore the only defense available to

Commonwealth. See City of Milwaukee v. Illinois, 451 U.S. 304, 316, 101
S.Ct. 1784, 1792, 68 L.Ed.2d 114 (1981) (extensive Congressional regulation
of an area presumptively abrogates federal common law).
14

Both sides on this appeal appear to assume that even though FIRREA was not
enacted until after these proceedings began, it is nevertheless the governing law
in this case. The district court treated the statute as applying retroactively but
did not discuss why. Because the issue was not argued before us and because
we feel the result is the same whether D'Oench or 1823(e) applies, we will
assume without deciding that FIRREA applies retroactively to cases pending at
the time the statute took effect. See Dababneh v. FDIC, 971 F.2d 428, 434
(10th Cir.1992) (declining to reach question of FIRREA's retroactivity because
result would be same under existing federal common law).

15

In D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956
(1942), the Supreme Court was faced with a group of debtors obligated to a
failed bank who sought to assert side agreements with the bank as a defense
against the FDIC's efforts to collect the amounts owed on the face of the
debtors' notes. The side agreements were contained in receipts for the notes
which stated: "This note is given with the understanding it will not be called for
payment. All interest payments to be repaid." Id. at 454, 62 S.Ct. at 678. The
Court held that federal policy evinced by provisions of the Federal Reserve Act
barred the assertion of the secret agreement by one responsible for creation of
the false status of the note in the hands of the bank. Id. at 459-461, 62 S.Ct. at
680-81.

16

In 1950 Congress enacted a statutory version of D'Oench to protect the FDIC as

part of the Federal Deposit Insurance Act of 1950 (codified at 12 U.S.C.
1823(e)). Similar statutory protection was not given to the FSLIC. However,
courts have since extended the D'Oench doctrine to protect the FSLIC as well.
See Mainland Savings Association v. Riverfront Associates, Ltd., 872 F.2d 955,
956 (10th Cir.1989) (per curiam), cert. denied, 493 U.S. 890, 110 S.Ct. 235,
107 L.Ed.2d 186 (1989). Since codification the doctrine has continued to grow,
with D'Oench and 1823(e) usually being construed in tandem. Beighley v.
FDIC, 868 F.2d 776, 784 (5th Cir.1989). As the doctrine has evolved, its focus
has shifted from the fraudulent, illegal, or secret character of the debtor's acts to
the effect the acts have on the regulatory agency's ability to evaluate quickly
and accurately a savings institution's assets. See Langley v. FDIC, 484 U.S. 86,
91-92, 108 S.Ct. 396, 401, 98 L.Ed.2d 340 (1987). FIRREA modified
1823(e) without materially altering the D'Oench doctrine in its codified form.
However, it did explicitly extend protection to the RTC.2

The RTC as Conservator

17

Castleglen argues that 1823(e) by its terms only protects the RTC as receiver,
not as conservator. To provide protection to the RTC in roles not detailed in the
statute would, in Castleglen's view, be an improper expansion into an area
necessarily considered and rejected by the Congress. The district court rejected
this argument, reasoning that the courts had not interpreted 1823(e) so
narrowly. 728 F.Supp. at 673.

18

Castleglen's argument is directly contradicted by FIRREA's explicit language.

Section 1823(e) states that it applies to any asset acquired "either as security for
a loan, or by purchase, or as receiver" (emphasis added). Since in this instance
the interest in the Santa Fe Project was purchased by the FSLIC as conservator
for Commonwealth Federal from the FSLIC as receiver of Commonwealth
Savings, 1823(e)'s provisions apply. Thus when Commonwealth Savings was
placed in receivership, Castleglen's claims were barred and were not revived
when Commonwealth Savings' assets were later acquired by Commonwealth
Federal with the FSLIC/RTC acting as conservator.

19

An analysis under the common law D'Oench doctrine yields the same result. In
the first place, the rationale of D'Oench applies so as to afford protection to the
RTC as conservator. Vernon v. RTC, 907 F.2d 1101, 1107 (11th Cir.1990).
Moreover, D'Oench protects the FSLIC acting as a receiver. Mainland Savings,
872 F.2d at 956. Here, the FSLIC as receiver transferred the Santa Fe property
to the FSLIC as conservator, and the protection given to the RTC as receiver
would be vitiated if a successor in interest could not enjoy the same protection.
See Bell & Murphy v. Interfirst, 894 F.2d 750, 754 (5th Cir.1990), cert. denied,
498 U.S. 895, 111 S.Ct. 244, 112 L.Ed.2d 203 (1990); FDIC v. Newhart, 892
F.2d 47, 49-50 (8th Cir.1989) (FDIC's D'Oench protection extends to
transferee). The purpose of the D'Oench doctrine is to permit regulators to
accurately appraise the assets of savings institutions by allowing the regulators
to rely on the assets' face value. 315 U.S. at 459-460, 62 S.Ct. at 680. This face
value could not be fully realized if the RTC could not sell the assets to a third
party for the amount at which they were valued. A transferee from the
FSLIC/RTC must accordingly enjoy the same protection as the Corporation
itself does as receiver.3 Thus, whether under D'Oench or 1823(e), the RTC
acting as conservator has the same protection as the RTC as receiver.

The State Law Tort Claims

20

Castleglen has pressed a number of affirmative tort claims against the RTC
which stem from alleged fraud and misrepresentations allegedly made during

negotiations between representatives of Commonwealth and Castleglen's

predecessors in interest. Castleglen argues that affirmative tort claims against
the RTC are not precluded by the D'Oench doctrine or by 1823(e), citing
Grubb v. FDIC, 868 F.2d 1151 (10th Cir.1989). Castleglen maintains that
D'Oench only bars defenses to contract claims based on agreements that tend to
mislead the RTC regarding the value of assets it acquires. In its view,
affirmative tort claims by an obligor based on conduct relating to such assets do
not impair the RTC's rights in the asset. Furthermore, Castleglen says the
liability for the torts is severable from the asset itself and is not taken into
account in valuing the asset, just as a claim for damages based on personal
injury would not be taken into account in valuing an asset involved in causing
the injury.
21

Although Castleglen's arguments have some abstract appeal, we agree with the
district court that in practical terms tort claims such as Castleglen asserts should
be treated like contract defenses barred by D'Oench. If the D'Oench doctrine is
to have any force, courts cannot permit debtors to evade its prohibitions simply
by recasting their contract defenses as affirmative tort claims. Kilpatrick v.
Riddle, 907 F.2d 1523, 1528 (5th Cir.1990).

22

The Supreme Court's decision in Langley v. FDIC, 484 U.S. 86, 108 S.Ct. 396,
98 L.Ed.2d 340 (1987), is instructive as to Castleglen's points as well. There the
maker of a promissory note to a failed bank argued that oral misrepresentations
of the bank president constituted an affirmative defense to an action for
payment on the note. The Court observed:

23
Certainly
one who signs a facially unqualified note subject to an unwritten and
unrecorded condition upon its repayment has lent himself to a scheme or
arrangement that is likely to mislead the banking authorities, whether the condition
consists of performance of a counterpromise (as in D'Oench, Duhme) or of the
truthfulness of a warranted fact.
24

Id. at 93, 108 S.Ct. at 402 (emphasis added). The Court then resolved the case
by expounding on 1823(e)'s reference to an "agreement" which defeats the
corporation's interest in an "asset." The Court distinguished between those
claims which would void the contract, such as fraud in the factum, and those
which would merely render it voidable, such as fraud in the inducement. The
Court reasoned that void contracts are not "assets" at all and so do not fall under
the scope of 1823(e)'s prohibition against side agreements "which tend to
diminish or defeat the interest of the Corporation in any asset," while voidable
contracts are true agreements and as such invoke the full force of the statute.
This approach to the effect of a claim of fraud as a contract defense is equally

applicable to charge of fraud as an affirmative tort claim. See Kraus v. FDIC,

769 F.Supp. 519, 523-24 (S.D.N.Y.1991).
25

Castleglen does not claim that the alleged guarantee of short-term break-even
somehow prevented it from knowing the actual terms of the agreement by
which it acquired its interest in the Santa Fe project. The alleged
misrepresentation was thus not fraud in the factum. Restatement (Second) of
the Law of Contracts 163 (1981); E. Farnsworth, Contracts, 4.10 (1990).
Rather, the gravamen of Castleglen's fraud claims is that Commonwealth
deceived it as to the likely profitability of the project. This is fraud in the
inducement. Restatement 164; Farnsworth 4.10. The claimed
misrepresentations were thus side "agreements" which impaired a right in an
"asset" within the meaning of 1823(e). See FDIC v. Bell, 892 F.2d 64, 65
(10th Cir.1989) (failure to disclose a material fact is an "agreement" under
1823(e)); FDIC v. Galloway, 856 F.2d 112, 116 (10th Cir.1988) (fraudulent
misrepresentation is an "agreement" under 1823(e)). Under the standard
announced in Langley, then, the misrepresentation allegedly made in
connection with the bond loan documents may not be asserted against the RTC.

26

Castleglen's brief relies on excerpted portions of Grubb v. FDIC, 868 F.2d 1151
(10th Cir.1989), stating that the D'Oench "protection is unavailable against ...
affirmative claims of fraud.... By its very terms ... the D'Oench rule only
prevents parties from raising defenses against the FDIC." Appellants' Corrected
Opening Brief at 16. Contrary to Castleglen's assertions, we feel that this
court's opinion in Grubb did not hold that the RTC is subject to such
misrepresentation claims. Rather Grubb held that when a judgment for
damages grounded on misrepresentation had been entered earlier against a bank
with the effect of invalidating notes held by the bank, the subsequent takeover
of the institution by the FDIC did not reverse the earlier judgment or resuscitate
the assets which had already been voided. 868 F.2d at 1159. No such situation
is present here.

Agreements and Representations Alleged by Castleglen

27
28

Castleglen argues that it does not matter whether the D'Oench doctrine and
1823(e) might bar affirmative tort claims such as it asserts because the
particular agreements it alleges were approved by the appropriate committees
at Commonwealth and were entered in the records of the institution. Castleglen
maintains that it provided evidence of this to the district judge but that he
improperly drew inferences against Castleglen and granted summary judgment
to the RTC. Castleglen contends that the evidence was sufficient to allow a
court to draw an inference that the agreements and representations were in

writing and made part of the official records of the institution.

29

In its complaint Castleglen charges that agents of Commonwealth made a

number of misrepresentations to it regarding the financial condition of the
project. Castleglen alleges that Commonwealth informed it that earlier financial
projections for the project were in error and that the complex's occupancy rate
would actually be higher than predicted and the operating expenses would be
lower. Complaint at 12. Specifically, Castleglen claims that it was assured that
"the Project [would] break even within six months" and that Commonwealth
"had calculated the break even point at 'conservatively' $600,000." To support
its position that these representations were written records of Commonwealth
Savings, Castleglen points to a number of documents which are said to support
the existence of an agreement as to profitability.

30

We do not agree. The district court considered the documents Castleglen points
to and found that they do not constitute an express guarantee or representation
that $600,000 would be sufficient to fund all of the project's operating deficits.4
They do contemplate Cypress setting up a $600,000 account to cover deficits
over six months. Castleglen may be correct that the evidence suggests that
Commonwealth expressed the view that $600,000 would cover all future
operating deficits. However, such suggestive evidence does not amount to a
valid written agreement itself. Beighley v. FDIC, 868 F.2d 776, 783 (5th
Cir.1989) (documents from which an "inference" of an agreement can be drawn
do not satisfy 1823(e)); FDIC v. O'Neil, 809 F.2d 350, 353 (7th Cir.1987) (an
agreement "implicit" in record documents but apparent only to one steeped in
negotiations does not satisfy the statute). Cf. S. Williston, Contracts 567A
(1961) (written evidence of an agreement does not satisfy statute of frauds). It
is the actual, written agreement which the law requires to be an official record
of the depository institution. 12 U.S.C. 1823(e)(1). We agree with the district
judge that Castleglen failed to show such an agreement or to raise a genuine
question of fact on the issue.

31

The federal policy applied in D'Oench protects the FDIC in its various
functions against secret agreements, D'Oench, 315 U.S. at 460-61, and we are
satisfied that the policy likewise applies to the RTC here. The Supreme Court
has noted that through the statutory codification, the requirements for a side
agreement's validity, specified in 1823(e), are "categorical." Langley v. FDIC,
484 U.S. at 95, 108 S.Ct. at 403. Section 1823(e)(4) requires that the agreement
itself be "continuously, from the time of execution, an official record of the
depository institution." Scattered evidence in corporate records from which one
could infer the existence of an agreement does not meet the requirements of the
statute. The purpose of the doctrine is certainty and an "inference" of an alleged

agreement "does not meet the requirements of 1823(e)." Beighley v. FDIC,

868 F.2d at 782-83. The documents Castleglen refers to do not, on their face,
carry a guarantee that $600,000 would be sufficient to cover all operating
losses. Accordingly, the alleged agreement or representation is not shown in
compliance with the requirements of D'Oench or of 1823(e).
Effect of the November 1986 Conveyance to the Limited Partnership
32
33

In Castleglen's view, Commonwealth Savings and its subsidiaries conveyed all

their mortgage banking assets and liabilities to Commonwealth Mortgage
Company of America, L.P. (the Master Limited Partnership) by the Restated
Conveyance Agreement in November 1986 before the Santa Fe Project was
conveyed to Castleglen. Castleglen argues that the district judge erred in his
interpretation of this conveyance of November 1986 in holding that "the Santa
Fe Project remained an asset of Commonwealth Savings." Castleglen says that
Commonwealth never owned the Santa Fe Project, and it argues that due to the
Restated Conveyance Agreement, Commonwealth Savings did not retain its
interest in the Santa Fe Project and that there are triable issues of material fact
as to the beneficial ownership of RTC in the second lien security instruments
on the Santa Fe Project and the Reimbursement Agreement. Appellants'
Corrected Opening Brief at 43-44. We assume that the argument is, in part, a
premise for saying that D'Oench and 1823(e) cannot apply here.

34

After reviewing the Restated Conveyance Agreement and the depositions of

several officers and employees of the FDIC and other concerned entities, the
trial judge concluded that the plaintiffs have presented "no evidence, short of
their interpretation of the [Restated Conveyance Agreement], that
Commonwealth transferred its entire interest in the Santa Fe Project to the
limited partnership." 728 F.Supp. at 667. We agree with this reasoning and the
conclusion of the judge, with only one modification we feel necessary
concerning the terms he used. Castleglen objects on the basis that
Commonwealth Savings had not owned the Santa Fe Project. Id. at 43. It is true
that the assets relating to the Santa Fe Project owned by Commonwealth
Savings were its rights under the second lien security instruments on the
project, the Reimbursement Agreement and the Net Operating Income
Agreement, instead of the property comprising the Santa Fe Project itself. This
change in terminology does not, however, affect the substance of the merits of
the trial judge's conclusions, with which we agree.

35

As the judge pointed out, Castleglen relies on provisions of the Restated

Conveyance Agreement, set out in part in the margin.5 The conveyed interests
in "all loan administration contracts or other contracts that provide for the

servicing of mortgage loans ... including, without limitation, contracts relating

to the servicing of (a) ... mortgage loans" logically cover here only the
servicing function itself. The Restated Conveyance Agreement cannot be read
to convey Commonwealth Savings' substantive interest in the Reimbursement
Agreement or the security instruments. The latter assets relating to the Santa Fe
Project are the substance of the critical rights and security interests relating to
the project with which this case is concerned. The conveyance out of only the
servicing functions to Commonwealth Mortgage of America, L.P., before the
project was conveyed to Castleglen, does not alter our view of the legal
relations we have outlined earlier. The interests of Commonwealth Savings
Association which ended up in the conservatorship of the RTC are thus subject
to the protection of the D'Oench doctrine and 1823(e).
36

Moreover, it was in December 1986, a month after the execution of the

Restated Conveyance Agreement, that Cypress View and Santa Fe Properties
entered into the Agreement Regarding Payments of NOI (net operating income)
which granted Commonwealth Savings a continuing interest in the income of
the Santa Fe Apartments, in exchange for Commonwealth Savings' approval of
the sale. Thus the rights created by the NOI were not referred to in the Restated
Conveyance Agreement of November 1986.

37

We do not agree with Castleglen's argument that its interpretation of the

Restated Conveyance Agreement presents a genuine issue of fact, precluding
summary judgment. An ambiguity in a contract cannot be created by the mere
assertions of a party to it, and a contract is not rendered ambiguous by the mere
fact that the parties may not agree on the proper construction of it. Vreeland v.
Federal Power Commission, 528 F.2d 1343, 1351 (5th Cir.1978). See also 10A
C. Wright, A. Miller, and M. Kane, Federal Practice and Procedure 2738.1
(1983). Moreover, the deposition materials presented did not raise such a
question. The judge considered the deposition transcripts submitted and found
that the deponents uniformly testified that the servicing function, and only the
servicing function, was transferred to the limited partnership. 728 F.Supp. at
666.

38

We are satisfied that the district judge correctly construed the Agreement and
the evidence and properly concluded that there was no genuine issue of fact
precluding summary judgment for the defendants.

D'Oench and Transactions Other Than Loans

39

Castleglen next tries to take this case out of the sweep of the D'Oench doctrine
by arguing that the transaction here is a "credit enhancement transaction" and

not a loan. The district court rejected this argument and refused to define loan
so narrowly.
40

Neither the language of D'Oench nor the reasoning of 1823(e) limit their
protections to traditional loan transactions. The D'Oench estoppel doctrine
precludes enforcement of any oral agreement that contradicts representations
made to the FDIC. First State Bank v. Bank of Knox County, 872 F.2d 707,
717 (6th Cir.1989). D'Oench has been applied to bar unwritten agreements to
fund, Beighley v. FDIC, 868 F.2d 776 (5th Cir.1989); pledge agreements,
Andrew D. Taylor Trust v. Security Federal Saving and Loan Ass'n., 844 F.2d
337 (6th Cir.1989); accommodation guarantees of promissory notes, FirstSouth,
F.A. v. Aqua Construction Inc., 858 F.2d 441 (8th Cir.1988); and assumption
agreements, FDIC v. Van Laanen, 769 F.2d 666 (10th Cir.1985). The focal
point is not the type of transaction, but whether it contradicts what the bank has
stated to the FDIC or is part of any effort to mislead the FDIC as to the
financial status of any banking institution. First State Bank, 872 F.2d at 717.

41

In this case Commonwealth Savings entered into an agreement, which it has

kept, to issue a seventeen million dollar letter of credit to guarantee Castleglen's
performance of its obligations, as successor to Santa Fe, under the bond loan.
Castleglen may not defeat its consequent obligations to Commonwealth
Savings and the RTC by relying on a contradictory, unrecorded representation
or agreement. We find nothing in the wording or purpose of 1823(e) which
would restrict its application to loan agreements. The statute provides that it
applies to any asset acquired "either as security for a loan or by purchase or as
receiver of any depository institution." The RTC first acquired the asset in
question in its capacity as receiver. The precise characterization of the
transaction by which the asset was acquired is irrelevant. Section 1823(e)
applies and the alleged representation or agreement accordingly cannot be
enforced against the RTC.

42

Castleglen makes the further argument that in seeking damages for the alleged
representations it is not actually impairing the value of an asset. In Castleglen's
view, the only asset which could have been evaluated by the RTC upon
Commonwealth's insolvency was the Santa Fe Project itself since the
obligations under the assumption agreement were with recourse against the
project itself. Castleglen argues that its claims do not affect the fair market
value of the project and so could not have misled banking officials as to the true
value of the asset.

43

We disagree. The relevant asset acquired by the RTC in this case is

Commonwealth's rights under the Reimbursement Agreement, the second lien

security interests, and the NOI Agreement. Castleglen commenced this action to
halt foreclosure proceedings and obtain damages of $1.8 million or, in the
alternative, to rescind its purchase of the project and assumption of Santa Fe's
liabilities. If, as Castleglen stresses, the RTC's only recourse under the
assumption agreement is against the project then setting up an unrecorded side
agreement to frustrate that right would clearly "diminish or defeat the interest of
the Corporation" in the asset. This reasoning applies equally to Castleglen's
claim for rescission which has as its very object the unmaking of the NOI and
Assumption Agreements.
44

Even if Castleglen were seeking only money damages, its claim would still
affect an asset of the RTC. The relevant asset is, as described above, those
agreements by which Castleglen obligated itself to reimburse Commonwealth
for payments under the letter of credit and gave it an interest in the Net
Operating Income of the Project. These agreements did not, on their face, carry
a guarantee to Castleglen that the project would run up no more than $600,000
in total future deficits. To set up an unrecorded side agreement to that effect
would specifically contradict the agreements' explicit assertions that they
constitute the entire contract. Reimbursement Agreement 9.09; NOI
Agreement 6; Consent Agreement 4.2. The value of these agreements is
based on a comparison of Commonwealth's rights under them with its
consequent obligations. By asserting a new term, the guarantee of profitability
after $600,000, Castleglen is directly affecting the value of the asset. The result
of such a damage award would be that the federal authorities would have been
misled as to the financial status of Commonwealth Savings. First State Bank,
872 F.2d at 717.

45

This conclusion is not altered by the fact that the Reimbursement Agreement
obligations are nonrecourse pursuant to the Assumption Agreement, p 5. The
amount which the RTC is entitled to obtain from the property as recourse is
determined by the net amount actually owed by Castleglen. The alleged
representation or guarantee as to profitability will affect that amount and hence
the value of the loan transaction asset.

Illegality
46

Castleglen argues that the agreements by which it invested in the Santa Fe

project were illegal and void ab initio; thus they were beyond the protection of
D'Oench since a legal nullity cannot logically be an "asset" which a side
agreement would impair. Castleglen charges that the agreements violated
federal regulations concerning tie-in provisions, brokerage commissions and
appraisal requirements under 12 C.F.R. 563.35, 563.40, and 563.9(b), as

well as a number of Texas banking regulations. Tex.Admin.Code 64.1 and

64.5. The district court rejected this argument, finding an arbitrary refusal to
grant relief under a contract merely in violation of the statutes would create
incongruous results. 728 F.Supp. at 671.
47

The Utah courts recognize the general rule that "every contract in violation of
law is void." Baker v. Latses, 60 Utah 38, 206 P. 553, 555 (1922). However,
this rule is not to be blindly applied. Ross v. Producers Mutual Insurance Co., 4
Utah 2d 396, 295 P.2d 339, 342 (1956). Rather the practice of the Utah courts
has consistently been to look to the purpose of the statute involved to determine
whether it requires that contracts which violate the statute be void, or that a
particular type of relief be granted.6

48

The purpose of the prohibitions and regulations at issue here is to ensure the
solvency of savings and loan institutions by requiring that they follow specific
procedures. This case thus presents the issue explored in an illustration in the
Restatement of Contracts. There the example is given of a bank which enters
into a type of contract which is forbidden by statute. In the Restatement's view
an "[a]ction can be maintained on the [contract], since otherwise the creditors
and shareholders of the bank, for whose protection the statute is enacted, would
be injured." Restatement of Contracts 601, Illustration 1. See also,
McCormick v. Life Insurance Company of America, 6 Utah 2d 170, 308 P.2d
949, 952 (1957) (arbitrary refusal to grant relief under contracts merely because
of violation of statute often brings incongruous results); Restatement (Second)
of Contracts 179, comment C(6). The statutory purpose of protecting the
insurance fund and depositors would not be furthered in this case by declaring
the contract void since this would only deplete the resources of the institution.
Rather the appropriate remedy should be the statutorily prescribed one which
focuses on ending continuing violations and disciplining the bank officers who
approve such transactions.7

49

We agree with the district court's ruling against Castleglen on this issue.

Maximum Liability
50

Commonwealth Savings has made an argument based on FIRREA that

Castleglen's claims are barred by the maximum liability provisions of the
statute. These provisions limit the claim of any unsecured creditor of a failed
institution against the RTC to its pro rata share of the assets which would have
been available on the day the institution was placed in receivership. 12 U.S.C.
1821(i)(2) (1989). It has been determined that there were no assets available on
that day to satisfy unsecured creditors; thus Commonwealth argues that

Castleglen cannot recover. Memorandum Decision and Order at 49. The district
court agreed. Castleglen counters that the maximum liability provisions apply
only to the RTC itself and not to those to whom it transfers the failed bank's
assets.
51

Whether FIRREA's maximum liability provision extends to transferees of the

RTC is an important question, but not one we need decide. Because we hold
that D'Oench, Duhme and 1823(e) bar Castleglen's claims, it is not necessary
to determine whether the maximum liability provision of FIRREA would
provide an additional layer of protection.

Rescission and Election of Remedies

52

Castleglen contends that in any event it is entitled to rescission as alternative

relief. The RTC argued below that Castleglen elected to seek damages and
could not pursue a rescission remedy. The district court agreed. It held that by
applying for a preliminary injunction based on Castleglen's claimed ownership
of the property, Castleglen affirmed the existence of the contract. In the district
court's view this constituted an election of remedies which excluded the
possibility of rescission.

53

Plaintiffs challenge this election ruling on several grounds. We need not reach
these questions, however, because we hold that D'Oench and 1823(e) bar the
remedy of rescission just as they bar the remedy of damages in these
circumstances. Equitable rescission is proper when one party has been induced
to agree to a contract based on the other party's misrepresentation. D. Dobbs,
Handbook on the Law of Remedies 9.4 at 618. Rescission effectively cancels
the transaction and returns to the parties whatever of value they have
exchanged. Id. 4.3 at 254-55. It could be argued that D'Oench and 1823(e)
seem to provide the RTC with no defense to a rescission claim. The statute
provides that "[n]o agreement which tends to diminish or defeat the interest in
the Corporation in any asset ... shall be valid" unless the statutory requirements
are met.

54

The Supreme Court made it clear in Langley that when one party to an
agreement warrants a fact as true, that warranty becomes a term of the
agreement for purposes of the statute. 484 U.S. at 91, 108 S.Ct. at 401.
Accordingly when deciding whether or not to allow rescission based on the
misrepresentations alleged here, this court is indeed deciding whether to give
force to an "agreement." Thus in seeking to have the Conveyance Agreement
rescinded because of the collateral misrepresentations, Castleglen is in fact
asking the court to recognize and give legal effect to the unrecorded side

agreement. Such rescission would clearly impair the RTC's interest in an asset.
Section 1823(e) thus prohibits the remedy of rescission just as it does the
remedy of damages. See Kilpatrick v. Riddle, 907 F.2d at 1530; FDIC v. State
Bank of Virden, 893 F.2d 139, 144 (7th Cir.1990); Washington Properties Ltd.
v. RTC, 796 F.Supp. 542, 547 (D.D.C.1992); McCaugherty v. Siffermann, 772
F.Supp. 1128, 1133 (N.D.Cal.1991); FDIC v. James T. Barry Co., Inc., 453
F.Supp. 81, 82-83 (E.D.Wis.1978).
55

Similar reasoning applies in the context of the D'Oench doctrine. By relying on

the oral representations, Castleglen has lent itself to a scheme or arrangement
likely to mislead the banking authorities. D'Oench itself forbids such an
arrangement to be raised as an affirmative defense, and, as we have discussed,
this prohibition applies with equal force to defenses cast as causes of action.
Since the cause of action of fraudulent misrepresentation is itself prohibited, it
is irrelevant which particular remedy is sought to rectify the claimed wrong. To
give Castleglen relief by rescinding the contract based on these alleged
misrepresentations would also allow unrecorded side agreements to impair the
RTC's interest in an asset, contrary to the D'Oench principles. Therefore both
1823(e) and D'Oench bar Castleglen's rescission claim.

56

Finally, Castleglen argues that regardless of the resolution of the question of

equitable rescission, it should be recognized as having already accomplished a
legal rescission. The parties agree that a legal rescission is effected when,
having grounds justifying rescission, one party notifies the other that he or she
is terminating the contract and tenders what was received under the contract.
Acton v. Deliran, 737 P.2d 996, 999 n. 5 (Utah 1987). Thus while an equitable
rescission does not take place until a court orders it, a legal rescission is
actually accomplished when the party seeking rescission tenders return of the
property, although a court decree might be necessary to give the rescission
practical effect. Id. See also Remedies 4.8 at 293. Arguably, then, a legal
rescission took place prior to the time Commonwealth Savings was placed in
receivership and the RTC thus never acquired an interest in the Santa Fe
Project.

57

This theory of a legal rescission is asserted for the first time on appeal and thus
should not be considered by us. International Union of Operating Engineers,
Local 953 v. Central Life Insurance Co., 501 F.2d 902, 907 (10th Cir.1974),
cert. denied 420 U.S. 926, 95 S.Ct. 1123, 43 L.Ed.2d 397 (1975). Accordingly
the question whether D'Oench and 1823(e) bar the claim of a legal rescission
which is accomplished, but not recognized by a court, prior to the insolvency of
the institution will not be considered here.

Motion to Amend
58

Castleglen argues further that the district court abused its discretion in denying
Castleglen's motion to amend and to add parties. The grant of leave to amend
the pleadings pursuant to Fed.R.Civ.P. 15(a) is within the discretion of the trial
court. Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 330, 91
S.Ct. 795, 802, 28 L.Ed.2d 77 (1971); Ketchum v. Cruz, 961 F.2d 916, 920
(10th Cir.1992). However, the rule provides that "leave shall be freely given
when justice so requires." Refusing leave to amend is generally only justified
upon a showing of undue delay, bad faith or dilatory motive, failure to cure
deficiencies by amendments previously allowed, or undue prejudice to the
opposing party, or futility of amendment, etc. Foman v. Davis, 371 U.S. 178,
182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962); see also Childers v. Independent
School District Number 1 of Bryan County, 676 F.2d 1338, 1343 (10th
Cir.1982).

59

The district court denied Castleglen's motion to amend its complaint to include
a variety of limited partnership entities and the corporate general partner of
Commonwealth as defendants because the causes of action sought to be
asserted against them were the same as those dismissed against the original
named defendants under the D'Oench doctrine. Castleglen's motion to add three
new individuals as defendants was declared untimely because Castleglen had
been aware of the individuals and their connections to Commonwealth for over
a year and a half prior to judgment. In light of the delay and the surrounding
circumstances we cannot say that the district judge abused his discretion.

III
60

For the reasons given we find that no reversible error has been shown.
Accordingly, the judgment of the district court is AFFIRMED.

At all times relevant to this appeal Larry Harvey was president and principal
shareholder of Castleglen, Inc. Harvey and Castleglen have submitted a single
brief on appeal and make identical arguments

12 U.S.C. 1823(e), as amended by FIRREA, provides in part:

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--

(1) is in writing,
(2) 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,
(3) 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
(4) has been, continuously, from the time of its execution, an official record of
the depository institution.
3

Castleglen has argued that FIRREA only protects "bridge banks" and that
Commonwealth Federal as a "bridge savings and loan" enjoys no protection.
However, as stated above, it is clear that a transferee from the RTC enjoys the
same protection as the RTC itself. Therefore Commonwealth Federal has full
D'Oench protection

Castleglen relies on several documents in Commonwealth's files. It cites an

approval memorandum of Commonwealth's Senior Loan Committee
concerning the sale of the Santa Fe Apartments to Cypress View, Ltd.,
Castleglen's predecessor. The memorandum states in part:
In addition to the above cash from buyer at closing, the buyer's pro forma
shows an additional $230,000 of negatives that buyer will fund before the
project reaches break-even. (Purchaser to provide satisfactory evidence of its
capacity to fund the additional $230,000 until project break-even.[) ]
Doc. 528 at 24.
The Net Operating Agreement of December 31, 1986, is also relied on. It
provided in part:
Simultaneously with the execution of this Agreement, and as a condition to
Commonwealth's consenting to [plaintiffs'] acquisition of the project, Cypress
is depositing into a non-interest-bearing escrow account at Commonwealth cash
in the amount of $600,000 (the 'deposit') for the purpose of securing payment of
debt service for the months of January 1987 through April 1987, inclusive (the
draw period).
Doc. 528 at 45.
Castleglen cites also a memorandum from Messrs. Fisher and Sampley to the

Senior Loan Committee of Commonwealth dated January 5, 1987, which stated

in part:
The transfer of ownership was conditioned on the ... establishment of a
satisfactory "escrow" account for future operating deficits. On December 1986
the transfer of ownership [to plaintiffs] was completed without the funding of
the bonds with the purchaser paying $715,718.87 to Commonwealth Savings to
bring the loan current along with an additional $23,000 to pay 1986 ad valorem
taxes above the tax escrow and establishing an interest-bearing $600,000
escrow account for future operating deficits.
Doc. 528 at 26, 46 (emphasis added).
As noted in text, we do not feel that the evidence relied on shows a guarantee or
representation by Commonwealth that $600,000 will be sufficient to cover all
future operating deficits. FDIC v. O'Neil, 809 F.2d 350, 353-54 (7th Cir.1987)
(that an agreement may be "implicit" when negotiations leading to drafting of
agreement are considered is not sufficient to comply with 1823(e)).
5

In particular, Castleglen cites the following provisions of the Agreement:

Section 1.1 Contribution and Transfer of Mortgage Banking Assets. Effective
as of the Closing Time, CSA [Commonwealth Savings Association] and
CMCA [Commonwealth Mortgage Corporation of America] do HEREBY
GRANT, CONVEY, ASSIGN, TRANSFER and DELIVER unto
Commonwealth Mortgage, its successors and assigns, all right, title and interest
of CSA and CMCA in and to the following assets ...:
....
(iv) all loan administration contracts or other contracts that provide for the
servicing of mortgage loans ... including, without limitation, contracts relating
to the servicing of (a) ... mortgage loans that are issued under the authority of or
in connection with programs of any state, local or other governmental authority
(collectively, the 'Agency Administration Contracts') and (b) mortgage loans
owned or held directly by or for the account of private investors, or mortgage
loans that are otherwise not Agency Administration Contracts (the 'Independent
Servicing Agreements');
(v) all escrow, impound and custodial accounts relating to the Loan
Administration Contracts.
X R.Doc. 531, Ex. 2053 at 3-4 (emphasis added).

See, e.g., McCormick v. Life Insurance Company of America, 6 Utah 2d 170,

308 P.2d 949, 952 (1957) (purpose of statute limiting brokerage commissions
requires overriding contrary agreement and enforcement of limitation); Olsen v.
Reese, 114 Utah 411, 200 P.2d 733, 736 (1948) (statute requiring license as
means of protecting the public from irresponsible contractors would require
holding contract void; licensing statute enacted solely for revenue purposes
does not render contracts made by offending parties void)

The enforcement powers available to the Home Loan Bank Board at the time
the alleged violations occurred included the authority to issue cease and desist
orders, 12 U.S.C.A. 1464(d)(2)(A) (1989); to terminate unsound practices,
1464(d)(4); to remove officers and directors, 1464(d)(4)(A); and to impose
monetary penalties, 1464(d)(8)(B). These powers were preserved and
expanded by FIRREA and codified at 12 U.S.C. 1818