Daily Development for Thursday, August 16, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

LENDER LIABILITY; DEFAMATION; LENDER'S STATEMENTS TO THIRD PARTY FINANCIAL INSTITUTIONS: No defamation where lender's statements are "substantially" correct or where mortgagee plaintiff has waived any right to dispute truth of statements by stipulating fact of default in connection with prior settlement. Ciuffetelli v. Apple Bank for Savings, No. 99 7741, 2000 WL 340388 (2nd Cir. 3/30/00).

Mortgagor disputed certain city water and sewer assessments, and did not pay them. Mortgagee paid the assessments and initiated a foreclosure action. Eventually the parties worked out this problem and executed a settlement agreement, and in this agreement the mortgagors acknowledged that they "owed" to mortgagee certain amounts relating to the assessments, default interest, late charges, and attorney's fees. Mortgagors apparently paid these amounts as part of the settlement.

Subsequently, mortgagor attempted to refinance the mortgage debt, and was unable to do so, and then, mortgagors alleged, mortgagee made defamatory statements to other potential refinancing mortgagees and thus thwarted later attempts by the mortgagor to refinance. Mortgagors sued mortgagee for negligence, defamation and certain RICO counts.

The trial court granted summary judgment to the mortgagees on a number of grounds, here upheld on appeal.

First, with regard to alleged defaults occurring prior the settlement agreement, the court concluded that the language of the settlement agreement constituted a waiver of any claim that no default had existed. The court dismissed out of hand mortgagor's argument that it had signed the waiver "under duress" and noted that, in any event, mortgagor had acquiesced in the agreement for some time and hence was estopped from refuting its terms.

With regard to allegations of defaults arising after the settlement agreement, the issue centered upon whether the "mailbox" rule applied to make payments timely that were mailed within the grace period but not received until afterwards. The court held that the language of the note, requiring that payments to "delivered" to mortgagee by a certain date, meant that the payments had to be received, and not just mailed, as of the date in question.

This case was decided under New York law, where truth is an absolute defense to a claim for defamation.

The court cited a case supporting the proposition that truth "need not be established to an extreme literal degree" and that truth would be established where the statements were "substantially true (minor inaccuracies are acceptable)" (citation omitted) in support of its holding.

The RICO claim, which of course depended upon a showing of a "grand scheme" of evil intent, and could have made otherwise innocent acts actionable, was dismissed by the court because the overall allegations pertained only to one issue a single mortgage loan which ultimately was paid. Consequently, there was no "continuous pattern" of evil acts.

Comment 1: Obviously it is useful to study the "approved" language for identifying when receipt, and not mailing, is the operative time for judging defaults. The language stated that borrower "shall deliver to [lender]" the payments before the expiration of the five day grace period.

Comment 2: An equally valuable semantic lesson lies in the waiver finding. There was no express waiver of claims in the settlement, only a statement that the borrower owed the lender a certain amount for charges, default interest, late fees and attorneys' fees. It is quite possible that the borrower focused only on the number itself. Since this was this was a settlement of all the lender's claims, the borrower perhaps paid little attention to the characterization of the claims. But it obviously made a difference later. The borrower may have felt that the settlement vindicated the borrower's position, but the lender was able to tell other lenders with impunity (or at least with freedom from defamation claims) that the borrower had defaulted, even if the borrower did not agree with this characterization of the events.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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