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May 19, 1994




 Federal National Mortgage Association ("Fannie Mae" or "FNMA"), moves for summary judgment as to all of Peoples Mortgage Company's ("Peoples") claims. Peoples moves for summary judgment as to Count IV of Fannie Mae's Amended Counterclaim. For the reasons stated below, both motions are granted.


 Peoples brought this action in the Court of Common Pleas of Montgomery County on November 24, 1992. On December 18, 1992, Fannie Mae removed the case to this court pursuant to 28 U.S.C. § 1441. 28 U.S.C. § 1441(a) provides in relevant part:

Any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.

 Fannie Mae is a federally chartered corporation, 12 U.S.C. § 1717(a)(2)(B), and the National Housing Act, 12 U.S.C. § 1723a(a), confers subject matter jurisdiction upon this court.


 Summary judgment is appropriate where the record demonstrates that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). When considering a motion for summary judgment, the court is not permitted to weigh the evidence. Id., 477 U.S. at 255. Instead, the court's sole function is to determine if there are any disputed facts, and, if there are, to determine whether the dispute is both genuine and material. Id., 477 U.S. at 248. All reasonable inferences from the facts must be drawn in favor of the non-moving party. Tigg Corp. v. Dow Corning Corp., 822 F.2d 358, 361 (3d Cir. 1987). Summary judgment is inappropriate if "reasonable minds could differ as to the import of the evidence." Anderson, 477 U.S. at 250.


 Fannie Mae is a federal government-sponsored private corporation created by Congress to establish secondary market facilities for home mortgages and, among other things, to provide stability in the secondary market for home mortgages. 12 U.S.C. §§ 1716, 1716b. According to Fannie Mae's Mission Statement, Fannie Mae's "unique corporate mission is to be the nation's housing partner in providing financial products and services that increase the availability and affordability of housing for low-, moderate-, and middle-income Americans." FNMA Ex. A.

 Fannie Mae purchases mortgages from approved lenders who may also service the loans for Fannie Mae. Reich Verification, FNMA Ex. B. Under this arrangement, the lender, having granted a loan and taken back a home mortgage as a security, will sell the mortgage to Fannie Mae and either sell the mortgage servicing rights to a third party for a fee or do the servicing itself and receive income therefrom. Complaint P 9.

 "Servicing" for a mortgage loan owned by Fannie Mae typically includes the receipt by the servicer of monthly mortgage payments, the crediting of those payments to the borrower's account, the remitting to Fannie Mae of principal and interest sufficient to produce the "pass-through" rate or "required net yield" contracted for by Fannie Mae, the maintenance of escrow accounts for taxes and insurance, and, if necessary, the commencement of any action required to restore a delinquent account. Complaint P 10. In return for performing such servicing functions, mortgage lenders contracting with Fannie Mae retain an annual fee. Complaint P 11.

 Lenders doing business with Fannie Mae must meet certain criteria to be approved sellers and servicers of mortgages that Fannie Mae purchases. Reich Verification, FNMA Ex. B. Fannie Mae relies upon the integrity of its approved lenders to originate, underwrite and service mortgages properly. In addition, Fannie Mae conducts periodic reviews of the lender's selling and servicing to determine if the seller/servicer is complying with criteria established by Fannie Mae. Id.

 Plaintiff Peoples is a mortgage banking company incorporated under the laws of Pennsylvania, with its principal place of business in Montgomery County Pennsylvania. In July 1987, Peoples entered into a Mortgage Selling and Servicing Contract (the "Contract") with Fannie Mae, see Peoples Ex. 2, under which Peoples was approved to sell and service mortgages for Fannie Mae. Complaint P 17. Pursuant to the Contract, Peoples was an approved seller of mortgages to Fannie Mae, and an approved servicer of mortgages that Fannie Mae purchased from Peoples from time to time. The Contract and the Guides to Lenders ("Guides") set forth the terms and conditions of sales of mortgages by Peoples to Fannie Mae and further delineated the requirements of servicing those mortgages. Reich Verification, FNMA Ex. B. The group of Fannie Mae owned mortgages serviced by Peoples is referred to as the "Servicing Portfolio."

 The Contract could be terminated by Fannie Mae with or without cause. If Fannie Mae terminated Peoples' mortgage servicing with cause, Peoples was not entitled to receive any compensation. If Fannie Mae terminated the servicing without cause, Peoples was entitled to a fee to be computed under the Contract and the Guides. Termination of Peoples' right to sell mortgages to Fannie Mae could occur with or without cause without any payment of compensation to the Peoples. Reich Verification, FNMA Ex. B; Contract, Peoples Ex. 2 at PP IX.C.1, IX.C.2. *fn1"

 On May 17, 1991, Fannie Mae decided to terminate Peoples' mortgage selling and servicing rights under the Contract. A letter of termination was hand delivered to Peoples that day, notifying Peoples that its mortgage selling and servicing rights under the Contract were being terminated for cause. See Letter of Termination, FNMA Ex. F; Lis Dep., Peoples Ex. 11 at 115. Fannie Mae also asked Peoples to return to Fannie Mae all files and records that Peoples held on the Fannie Mae-owned mortgages being serviced by Peoples. Berger Dep., FNMA Ex. D at 119. Peoples disputed Fannie Mae's contention that the termination was for cause, and refused to release the mortgage files and records to Fannie Mae. Berger Dep., FNMA Ex. D at 119, 158.

 During the two weeks following the May 17 termination, Peoples, Fannie Mae, and their respective counsel engaged in extensive negotiations, culminating in the execution by both parties of a letter agreement, dated May 30, 1991 (the "Letter Agreement"). See Complaint PP 36-39; FNMA Ex. E (Letter Agreement); FNMA Ex. H (May 20 draft letter agreement); FNMA Ex. I (May 21 draft letter agreement); FNMA Ex. J (May 24 draft letter agreement).

 The Letter Agreement, which states that it "represents the full agreement reached by Fannie Mae and Peoples," provides, inter alia :

Peoples was servicing a portfolio of mortgages owned by Fannie Mae ("Servicing Portfolio"). By written notice dated May 17, 1991, Fannie Mae terminated [the Contract with Peoples] for cause. However, in consideration for the resolution of all disputed issues, as set forth in this letter, Fannie Mae agreed to withdraw such termination and issue a suspension subject to compliance with the terms set forth below.

 FNMA Ex. E.

 The Letter Agreement continues, providing, inter alia : (a) "Fannie Mae has all rights to the Servicing Portfolio," except as specifically provided in the Letter Agreement. Id. at P 1; (b) Effective as of May 17, 1991, the Servicing Portfolio "will be subserviced on Fannie Mae's behalf by Meridian Mortgage." Id. at P 1; (c) Peoples may retain until May 29, 1991, a portion of the Servicing Portfolio that it was attempting to transfer to two other lenders. Id. at P 2; (d) Peoples will be permitted to sell mortgages to Fannie Mae under the terms of commitments which had not expired as of May 17, 1991. Id. at P 3; (e) Peoples will be permitted until December 1, 1991, to "complete a sale of the servicing of the mortgages in the Servicing Portfolio to an acceptable Fannie Mae Seller/Servicer." Id. at P 4; (f) Until the expiration of the period during which Peoples may sell the servicing of the mortgages in the Servicing Portfolio, Peoples will receive servicing income to the extent that the servicing income exceeds Peoples obligations to Fannie Mae. Id. at P 5; and, (g) Peoples will honor its commitments to Fannie Mae, including obligations to repurchase certain mortgages originally sold by Peoples to Fannie Mae. Id. at P 6.

 In the months following the execution of the Letter Agreement, Peoples was not able to consummate the sale of the servicing rights, despite being given two extensions beyond the December 1, 1991 deadline set in the Letter Agreement for that sale. Peoples' status as a "suspended" servicer remained in place, and Peoples was never reinstated as a fully approved servicer of Fannie Mae mortgages. In addition, Fannie Mae made what Peoples characterizes as "excessive" demands that Peoples repurchase loans originally sold by Peoples to Fannie Mae. In November, 1992, Peoples brought this lawsuit.

 Fannie Mae now moves for summary judgment as to all counts of Peoples' complaint, while Peoples moves for summary judgment as to Count IV of Fannie Mae's Amended Counterclaim. The dispute is governed by Pennsylvania law.


 The resolution the parties' motions turns substantially upon the question of whether the Letter Agreement is enforceable. Therefore, we will resolve that issue first, and then go on to consider each of Peoples claims against Fannie Mae, and Fannie Mae's counterclaim against Peoples.

 A. Enforceability of the Letter Agreement

 Peoples maintains that the May 30 Letter Agreement is unenforceable because it was executed under duress, it lacks consideration, and it is unconscionable. The court disagrees.

 1. Duress

 Peoples argues that the Letter Agreement is unenforceable because it was executed under duress. However, the court finds that, under the undisputed facts, Peoples' claim of duress fails as a matter of law because Peoples was free to consult with counsel and could have pursued immediate legal remedies if it thought the Letter Agreement was unfair. In addition, even if the Letter Agreement had been executed under duress, Peoples' behavior after the Agreement was signed served to ratify it.

 a. Peoples consulted with counsel

 The Pennsylvania Supreme Court has held that "in the absence of threats of actual bodily harm there can be no duress where the contracting party is free to consult with counsel." Carrier v. William Penn Broadcasting Co., 426 Pa. 427, 431, 233 A.2d 519 (1967) (citing Smith v. Lenchner, 204 Pa. Super. 500, 504, 205 A.2d 626 (1964)); accord, Harsco Corp. v. Zlotnicki, 779 F.2d 906, 911 (3d Cir. 1985), cert. denied, 476 U.S. 1171, 90 L. Ed. 2d 982, 106 S. Ct. 2895 (1986); Three Rivers Motors Co. v. Ford Motor Co., 522 F.2d 885, 891-92 (3d Cir. 1975). It is undisputed that Peoples consulted with counsel throughout the negotiations leading to the Letter Agreement. Indeed, the undisputed evidence shows that the Letter Agreement was the end result of numerous discussions and drafts, and that Peoples' counsel, Samuel Becker ("Becker"), was actively involved at each stage of the process.

 On May 17, 1991, when Jay Berger, President and sole shareholder of Peoples, was notified of Fannie Mae's termination of the Contract, he telephoned Becker, who then called Fannie Mae representatives. Becker Dep., FNMA Ex. G at 32-33; Berger Dep., FNMA Ex. D at 123. During the ensuing telephone conversation, in which Berger participated, Reich Dep., FNMA Ex. C at 7, Peoples' counsel and counsel for Fannie Mae discussed several points that were to be included in a written agreement.

I want to thank you for spending time with us Friday afternoon [May 17] so we could reach an agreement acceptable to both our clients.
The suspension letter delivered to Peoples Mortgage Company, Inc. on Monday [May 20] did not contain all of the provisions which we had agreed to on Friday afternoon. I have prepared a letter for you to send to Peoples Mortgage Company, Inc. which I believe covers all our agreements. If the letter is acceptable, please have it executed and delivered to Jay Berger. If you have any questions or comments, please call me so we can quickly resolve any open points.

 FNMA Ex. I.

 The above-quoted cover letter is undisputed evidence that the May 17 phone call was aimed at "reaching an agreement acceptable to both" parties, and that the May 21 draft sent to Fannie Mae by Becker was intended by Becker to cover all of the mutually arrived at agreements. In response to the May 21 draft, Fannie Mae delivered a revised draft to Peoples on May 24. See FNMA Ex. J.

 Peoples contends that the May 24 draft provided by Fannie Mae "completely ignored Becker's initial May 21 draft," Peoples Mem. at 66, and was "a wholly different version of a written agreement," id. at 40. Comparison of the documents, however, reveals that the May 24 draft, while probably more favorable to Fannie Mae's interest, incorporated many aspects of the earlier drafts provided by Becker. Becker testified that Fannie Mae's May 24 draft "changed the deal," Peoples Ex. 30, Becker Dep. at 85. However, it is hard to imagine a process of negotiation and reduction of an agreement to writing in which each side does not attempt to refashion the writing to better suit its own interest.

 After the May 24 draft was presented to Peoples, Becker made a few handwritten requested changes to the document. See FNMA Ex. J. There is no evidence that any other changes were requested by Peoples or its counsel. All of Becker's suggested changes were incorporated into the final, May 30, version of the Letter Agreement. Six days later, Jay Berger signed the Letter Agreement after reading it and discussing it with Peoples' counsel. Berger Dep. at 215-17.

 The above-described undisputed facts show that, at all times leading up to the signing of the Letter Agreement, Peoples was "free to consult with counsel," Carrier, supra, and that in fact Peoples' counsel was involved in the negotiation and formulation of the letter agreement. Under these circumstances, Carrier commands that there was no duress, as a matter of law.

 Peoples mistakenly relies upon Litten v. Jonathan Logan, Inc., 220 Pa. Super. 274, 286 A.2d 913 (1971) to support its claim that the Letter Agreement was executed under duress. In Litten, a divided Superior Court held that the plaintiffs could raise duress as defense to enforcement of an agreement in spite of the fact that they were represented by counsel at the time the agreement was made.

 Peoples' reliance upon Litten is misplaced for several reasons. First, Litten was decided under New York law. The court "noted in passing that Pennsylvania law does not differ and, therefore, if it were to be applied, the result here reached would be the same," Litten, 220 Pa. Super. at 282 n.2, but gave no analysis to support the claim that Pennsylvania and New York law are in accord. Most of the legal authority discussed by the Litten majority is from New York courts or applying New York law, and the majority never discussed or even cited Carrier, the leading Pennsylvania Supreme Court decision on duress. The Litten dissent, which would have held that the duress claim was not available, cited Carrier as authority that when an agreement is signed upon advice of counsel, any contention of duress is nullified. 220 Pa. Super. at 290 (Montgomery, J., dissenting). Given the Litten majority's cursory treatment of the relationship between New York and Pennsylvania law, and its failure to distinguish or even discuss Carrier, we do not find Litten to be persuasive authority. *fn2"

 b. Peoples could have pursued an immediate legal remedy

 Also militating against Peoples' claim that the Letter Agreement was executed under duress is the fact that Peoples could have pursued immediate legal remedies against Fannie Mae, rather than sign the agreement, if it thought the terms of the agreement were unfair and oppressive. See, e.g., National Auto Brokers Corp. v. Aleeda Dev. Corp., 243 Pa. Super. 101, 364 A.2d 470, 474 (1976); Kennington Ltd. v. Wolgin, 1989 U.S. Dist. LEXIS 5728 *10, Civil Action No. 89-80, 1989 WL 55395 at * 4 (E.D. Pa. May 23, 1989); Levin v. Garfinkle, 492 F. Supp. 781, 807 (E.D. Pa. 1980), aff'd, 667 F.2d 381 (3d Cir. 1981); compare, Litten, 220 Pa. Super. at 280 (finding duress under New York law where, among other things, there was no possibility of immediate legal relief).

 Peoples asserts that the May 17 termination for cause was unjustified. In particular, Berger has declared that at that time he "was certain that Fannie Mae had made an error" regarding a claimed shortage in Peoples' tax and insurance escrow account. Berger Decl. P 16. Yet, rather than engage counsel to seek injunctive relief against Fannie Mae at that time or otherwise commence legal action to protect its interests, Peoples engaged Becker to negotiate a settlement of the dispute. Peoples apparently "concluded that it was more prudent to settle . . . than to litigate." Levin, 492 F. Supp. at 808. This failure of Peoples to pursue immediate legal remedies reinforces the court's decision that it will not now find that Peoples executed the Letter Agreement under duress. See id.; Kennington, 1989 WL at * 4 ("Most obvious to the Court is the option of defendant to bring an action for preliminary injunction to protect these asserted rights. The availability of this and other legal remedies negates the claim for economic duress.").

 c. Peoples ratified the Letter Agreement

 An agreement executed under economic duress is not void ab initio. Instead, under Pennsylvania law, a contract executed under economic duress is voidable. Wahsner v. American Motors Sales Corp., 597 F. Supp. 991, 998 (E.D. Pa. 1984). Such a contract can be ratified if the party who executed it under duress "accepts the benefits flowing from it, or remains silent, or acquiesces in the contract for any considerable length of time after the party has the opportunity to annul or avoid the contract." Id.; accord National Auto Brokers, 364 A.2d at 476; Seal v. Riverside Federal Savings Bank, 825 F. Supp. 686, 695-96 (E.D. Pa. 1993).

 Despite Peoples' assertion that it did not ratify the Letter Agreement, the evidence is undisputed that neither Peoples nor its counsel ever attacked its enforceability until this litigation was filed, some eighteen months after the Letter Agreement was signed. Indeed, Peoples did not raise a duress claim until sometime after the Complaint was filed. Peoples did not mention duress in its response, dated May 24, 1993, to interrogatories from Fannie Mae. Instead, Peoples claimed the Letter Agreement was without consideration. Peoples did not raise duress as a defense until it filed amended affirmative defenses to Fannie Mae's counterclaim in January 1994.

 Before bringing this action, Peoples at least twice sought and received modifications of the Letter Agreement without questioning its enforceability. On September 25, 1991, Peoples' counsel wrote to Fannie Mae and proposed "an alternative repurchase plan for Fannie Mae's consideration." FNMA Ex. P. Peoples' counsel stated that the proposed alternative "repayment schedule [was] not a novation of the [Letter Agreement], but rather [was] a means of accomplishing the repayment terms set forth in the subject Agreement." Id.

 On November 25, 1991, Peoples wrote Fannie Mae and asked for an extension of time until December 31, 1991 to complete a sale of the Servicing Portfolio pursuant to the terms of the Letter Agreement. Complaint P 124; FNMA Ex. 3. In that letter, Peoples referred to the Letter Agreement as "our agreement," and proposed that "additional time for all parties involved to complete their obligations would be beneficial to all concerned." Fannie Mae agreed to this extension, and to another one. FNMA Exhibits L, N. On February 3, 1992, Jay Berger responded to the later extension by stating his belief that it "served the best interest of all parties concerned.

 Thus, rather than seek to avoid the Letter Agreement that Peoples now claims was entered into under duress, Peoples sought, successfully, to modify it. Under these circumstances, the court finds that even if the original agreement had been entered into under duress, Peoples subsequent conduct would have ratified it. Seal, 825 F. Supp. at 696 (attempt to modify an agreement allegedly entered into under duress is a ratification); compare Litten, 220 Pa. Super. at 279-82 (no ratification, under New York law, when there were continuous requests made by plaintiffs of defendant that the earlier oral agreement be honored, and repeated unsuccessful attempts by plaintiffs to convince their own counsel to have defendant agree to the original terms or to institute legal action against defendant).

 2. Consideration for the Letter Agreement

 Peoples asserts that the Letter Agreement is unenforceable for lack of consideration. The court disagrees.

 Under Pennsylvania law, an agreement is enforceable only if it is supported by consideration on both sides. Channel Home Centers, Div. of Grace Retail Corp. v. Grossman, 795 F.2d 291, 299 (3d Cir. 1986) (citing Stelmack v. Glen Alden Coal Co., 339 Pa. 410, 14 A.2d 127 (1940); Cardamone v. University of Pittsburgh, 253 Pa. Super. 65, 384 A.2d 1228 (1978)). "Consideration 'confers a benefit on the promisor or causes a detriment to the promisee and must be an act, forbearance or return promise bargained for and given in exchange for the original promise.'" Id. (quoting Curry v. Estate of Thompson, 332 Pa. Super. 364, 371, 481 A.2d 658, 661 (1984)). Failure of consideration goes to the heart of any claim based upon an agreement and is always available as a defense to that claim. M.N.C. Corp. v. Mt. Lebanon Medical Center, Inc., 510 Pa. 490, 509 A.2d 1256, 1259 (1986) (citing In re Levine's Estate, 383 Pa. 354, 118 A.2d 741 (1955)).

 Examination of the Letter Agreement reveals that it contains promises by Fannie Mae to: (1) withdraw the termination and issue a suspension; (2) permit Peoples to retain that portion of the portfolio the servicing of which Peoples was attempting to transfer to Landmark Savings Bank or Fidelity Bond and Mortgage Corporation; (3) allow Peoples to fill open commitments to sell mortgages to Fannie Mae; (4) allow Peoples to complete a sale of the servicing of the mortgages in the portfolio by December 1, 1991, to an acceptable Fannie Mae seller/servicer; (5) remit to Peoples any remaining portion of the proceeds from this sale of the servicing after Fannie Mae was reimbursed for those monies due Fannie Mae; and (6) comply in good faith with any legally enforceable subpoena concerning mortgages in the mortgage servicing Portfolio.

 Peoples asserts that none of the above-described promises by Fannie Mae conferred a benefit on Peoples or caused a detriment to Fannie Mae, and that, therefore, there was no consideration from Fannie Mae for the Letter Agreement. Peoples asserts that none of the promises made by Fannie Mae is consideration for the agreement because they either represent performances that Fannie Mae was already legally bound to render, see, e.g., Cohen v. Sabin, 452 Pa. 447, 307 A.2d 845 (1973) (no consideration where party is already legally bound to render the promised performance); 17A Am.Jur.2d § 163 (where a contract does not contemplate the making of a subsequent agreement, the original consideration will not support the subsequent agreement), or the consideration bargained for as part of the agreed upon exchange did not pass, see, e.g., McGuire v. Schneider, Inc., 368 Pa. Super. 344, 534 A.2d 115, 118 (1987) (citing Necho Coal Co. v. Denise Coal Co., 387 Pa. 567, 569, 128 A.2d 771, 772 (1957)), aff'd, 519 Pa. 439, 548 A.2d 1223 (1988).

 The court finds, however, that the Letter Agreement was supported by consideration. The benefits conferred on Peoples included withdrawal of its termination and substitution of a suspension in its place, and the right to retain certain files that belonged to Fannie Mae.

 a. Withdrawal of the termination

 Fannie Mae promised in the Letter Agreement to withdraw the termination of Peoples and issue a suspension in its place. The possibility of a change of the termination to a suspension was discussed in the May 17 telephone conversation, see Becker Dep., FNMA Ex. 1 at 52, and was part of both Becker's May 21 and Reich's May 24 drafts of the Letter Agreement. The May 24 draft stated that Fannie Mae "agreed to convert such termination to a suspension subject to compliance with" the other terms of the letter. FNMA Ex. J. At Becker's request the terms of the agreement were modified to state that Fannie Mae "agreed to withdraw such termination and issue a suspension subject to compliance with" the other terms of the letter. FNMA Ex. J (showing Becker's handwritten requested changes); FNMA Ex. E (Letter Agreement, incorporating Becker's requested changes).

 This withdrawal of the termination in favor of a suspension provided a benefit to Peoples, and thus serves as consideration for the Letter Agreement. Peoples' counsel testified that "Mr. Berger felt that a suspension was better for the company than a termination." Becker Dep., FNMA Ex. G at 56; see also id. at 57. Jay Berger has admitted that Peoples' status as a suspended, rather than terminated, lender was of benefit to Peoples, particularly with respect to maintaining Peoples' "warehouse" line of credit with CoreStates Bank, which Berger declared to be "an essential component of any mortgage banking company." Berger Decl., Peoples Ex. 1 at P 22. *fn3" Because of the Letter Agreement provision that the "termination" was withdrawn, and that instead, Peoples was merely "suspended," Peoples never had to, and never did, advise CoreStates that it had been terminated. As a result, "everything was business as usual as far as the warehouse line was concerned," Berger Dep., FNMA Ex. 2 at 153-54, and Peoples was able to maintain its warehouse line for over one year after the suspension, id. at 44.

 Peoples raises several arguments as to why the withdrawal of the termination and the substitution of a suspension was not consideration for the agreement, in spite of the fact that it apparently conferred a benefit to Peoples.

 Peoples' principal argument is that Fannie Mae never had cause to terminate the Contract, and that, therefore, Fannie Mae's withdrawal of the termination gave Peoples no more than that to which it was already entitled under the Contract. Relying upon the long-established "pre-existing duty" rule that "performance of that which one is already legally obligated to do is not consideration sufficient to support a valid agreement," Cohen v. Sabin, 452 Pa. at 453, 307 A.2d at 849; accord, In re Commonwealth Trust Co., 357 Pa. 349, 354, 54 A.2d 649 (1947); Warren Tank Car Co. v. Dodson, 330 Pa. 281, 285, 199 A. 139, 141 (1938); Blaisdell Filtration Co. v. M.L. Bayard & Co., 311 Pa. 6, 9, 166 A. 234, 235 (1933); Crown v. Cole, 211 Pa. Super. 388, 392, 236 A.2d 532, 534 (1967); 3 Williston on Contracts § 7:36 (4th ed. 1992); Restatement (Second) of Contracts § 73 (1981); 17 C.J.S. Contracts §§ 110 et seq., Peoples concludes that Fannie Mae's withdrawal of the termination is not consideration for the Letter Agreement. *fn4"

 Peoples' argument, however, ignores an equally well-established exception to the "pre-existing duty" rule: "If there is an honest dispute over the interpretation of the original agreement," 3 Williston on Contracts § 7:36 at 584-85 (4th ed. 1992), or if a claim or defense arising out of the original agreement is "doubtful because of uncertainty as to the facts or the law," Restatement (Second) of Contracts § 74, the settlement of the dispute furnishes sufficient consideration for the new agreement. Accord, Cohen, 452 Pa. at 453, 307 A.2d at 849; Lombardo v. Gasparini Excavating Co., 385 Pa. 388, 391, 123 A.2d 663, 665 (1956); Warren Tank Car Co., 330 Pa. at 285, 199 A. at 141; Kefover v. Potter Title & Trust Co., 320 Pa. 51, 58, 181 A. 771, 774 (1935); Blaisdell, 311 Pa. at 9, 166 A. at 235; Crown, 211 Pa. Super. at 392, 236 A.2d at 534; 17 C.J.S. Contracts § 112 (1963). This exception to the pre-existing duty rule is rooted in "the traditional policy of favoring compromises of disputed claims in order to reduce the volume of litigation." Restatement (Second) of Contracts § 74, Comment a.

 Under the undisputed evidence, a reasonable jury would have to find that such an "honest dispute over the interpretation" of the Contract existed in the instant case. Fannie Mae thought that it had cause to terminate Peoples, and Peoples thought that cause did not exist. Even in the sometimes heated words of its brief, Peoples never suggests that Fannie Mae's termination was a deliberate plan to terminate Peoples without any belief on Fannie Mae's part that Peoples' performance was inadequate. Peoples characterizes Fannie Mae's action as resulting from a "dangerous combination of ignorance and incompetence," and based upon an "erroneous conclusion," stemming from a "frighteningly incompetent audit" performed by Fannie Mae, Peoples' Mem. at 2-3. However, there is no evidence that Fannie Mae did not have an honest belief that it was terminating Peoples for cause.

 Peoples argues that even if the withdrawal of the termination in favor of a suspension constituted "new" consideration not already due to Peoples under the Contract, a failure of consideration ensued when Fannie Mae failed to perform on its promise. In essence, Peoples argues that Fannie Mae's suspension was "a suspension in name only," and that Fannie Mae "has continued to treat Peoples as a terminated lender since May 1991." Peoples Mem. at 70.

 Peoples' argument is without merit for two reasons. First, as discussed above, Peoples has acknowledged that, because of the effect on its warehouse line of credit with CoreStates Bank, it did derive some benefit from its status as a suspended, rather than terminated, lender. Additionally, the Letter Agreement does not promise that Peoples would eventually be fully reinstated. Reinstatement is not even mentioned in the Letter Agreement. See FNMA Ex. E. Even the May 20 first draft of the agreement, made by Peoples' counsel, is open ended about the length of the suspension and does not contemplate a date of reinstatement. See FNMA Ex. H. Thus, Fannie Mae never promised to reinstate Peoples at some time in the future. According to the testimony of Fannie Mae's counsel and representatives, Fannie Mae discussed the possibility of reinstating Peoples many times after execution of the Letter Agreement, but each time decided not to reestablish a selling relationship with Peoples. Reich Dep., FNMA Ex. 8 at 53-54, 84-87; Logan Dep., FNMA Ex. 9 at 121-22.

 Although the Letter Agreement does not contemplate a reinstatement, Peoples argues that eventual reinstatement of a suspended lender is required by Fannie Mae's Servicing Guide. According to Peoples, the Guides "clearly contemplated a suspension as a rehabilitative measure to be used in connection with improving, not ending, a lender's performance." Peoples Mem. at ...

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