USCA1 Opinion

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

No. 96-2009

IN RE HELEN D. GENS, d/b/a

HELEN GENS AND ASSOCIATES,

Appellant,

v.

RESOLUTION TRUST CORPORATION

(FEDERAL DEPOSIT INSURANCE CORPORATION),

Appellee.

____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Reginald C. Lindsay, U.S. District Judge]

___________________

____________________

Before

Selya, Circuit Judge,

_____________

Cyr, Senior Circuit Judge,

____________________

and Stahl, Circuit Judge.

_____________

____________________

Richard H. Gens for appellant.

_______________

Barbara R. Sarshik, Counsel,

____________________
Assistant

General Counsel,

FDIC, Joseph G. Butler, and

__________________

FDIC,

with whom

Ann S. DuRo
____________

FDIC, Thomas L. Hindes,

_________________

Senior Couns

Barron & Stadfeld

__________________

appellee.

____________________

May 5, 1997
____________________

were

on brief

CYR,
CYR,

Senior Circuit Judge.

Senior Circuit Judge.
______________________

possession Helen

order

which

D. Gens ("Gens") challenges

allowed the

("FDIC") to amend its

filing claims.

Chapter

Federal Deposit

11

debtor-in-

a bankruptcy court

Insurance Corporation

proof of claim following the

bar date for

We affirm.

I
I

BACKGROUND
BACKGROUND
__________

Gens

In

July 1988,

Gens executed

a promissory

Note")

payable to

U.S.

Inc. of

Funding")

in her

Funding

note ("the

America

("U.S.

in the principal amount of $70,000, by signing it both

"individual" capacity and in

as trustee for

her representative capacity

the Old Jail Trust ("Trust").

The Gens Note was

secured

by

a third

Massachusetts, owned

Although

the

mortgage

by the

Barnstable

on real

property

Trust ("the Barnstable

Property

was

subject

mortgages, U.S.

Funding and Gens allegedly

of

in

the $70,000

in Barnstable,

loan proceeds

preexisting second mortgage.

to

be

Property").

to

two

prior

arranged for $36,000

used to

satisfy

the

U.S. Funding promptly assigned the

Gens Note to Key Financial Services ("Key"), which assigned it to

Home Owners Savings Bank ("Home Owners").

In October 1989, Home Owners commenced suit against Key

in

federal

district

court,

alleging

that

the

purchase-sale

agreement, whereby Home Owners acquired

the Gens Note from

had been induced

had breached its

by fraud

insurance provisions.

Home

or that Key
__

Key,

title-

Owners demanded either rescission or

damages for breach of contract.

The

Trust

defaulted on

the

Gens Note

in

or about

January 1990 and the first mortgagee foreclosed on the Barnstable

Property.

The

application

securing

the

foreclosure

to any

junior

Gens Note.

declared insolvent and

sale

resulted in

lien, including

In

September

no

the third

1990, Home

the Resolution Trust

surplus

for

mortgage

Owners was

Corporation ("RTC")

was

appointed

Corporation

receiver.

RTC

designated

Knutson

Mortgage

("Knutson") as its servicing agent on the Gens Note,

and gave Knutson a limited power of attorney.

Meanwhile,

Home

Owners

summary

in

the ongoing

against Key,

the

judgment for RTC and

breached the

court order

federal action

district

court entered

Home Owners, finding

purchase-sale agreement.

directing

Key to

brought by

that Key had

The attendant

repurchase

partial

the Gens

district

Note

never

became final, however, apparently because RTC and Key were unable

to agree upon a repurchase price.

Gens

September

liability.

commenced

1993,

but

a voluntary

failed to

Knutson, as

chapter 11

schedule

RTC's agent,

the

filed

proceeding in

Gens

a proof

Note as

of claim

("POC")

in relation to the Gens Note in December 1993 ("original

POC"), well before the May 16,

The

original

POC

1994 bar date for filing

incorrectly

listed

Knutson

creditor, failed to disclose that Knutson was

servicing

agent,

mischaracterized

mistakenly identified

the

itself

as

the

the authorized RTC

claim as

February 24, 1989 (rather

secured,

and

than July 1988)

as the date Gens incurred the Gens Note obligation.

claims.

Almost seven

an

months after the bar

amended POC in relation

RTC

as

the creditor,

Knutson was RTC's agent,

claim

as "secured."

to the Gens

but still

(i)

date, Knutson filed

Note, correctly listing

failing to

disclose that

and (ii) incorrectly characterizing the

Knutson eventually

submitted

additional

amended POCs correcting these deficiencies.

Gens

objected

to

the

original

and

amended

POCs,

asserting inter alia judicial estoppel and discharge of the note,

_____ ____

see
___

Mass.

Gen.

Laws

Ann.

objections were pending, FDIC,

as the creditor

objections

ch.

106,

3-606.

While

these

successor to RTC, was substituted

on all POCs filed

by Knutson.

Ultimately,

the

to the original and amended POCs were rejected by the

bankruptcy court and the district court affirmed.

II
II

DISCUSSION
DISCUSSION
__________

A.
A.

Judicial Estoppel
Judicial Estoppel
_________________

The

companion

doctrines

of

judicial

estoppel

and

election of remedies1 essentially preclude a party from asserting

a legal or factual position "inconsistent" with its position in a

prior proceeding.

See Patriot Cinemas, Inc. v.

___ ______________________

Corp., 834 F.2d 208, 212 (1st

_____

advanced

by

Gens

is

Cir. 1987).

predicated

General Cinema
______________

The estoppel

entirely

on

the

defense

contract-

rescission claim Home Owners asserted in the federal court action

____________________

1The "election
the

equitable

of remedies"

doctrine

defense likewise derives

of estoppel.

Aircraft Co., 850 F.2d 247,

_____________

See
___

248 (5th Cir.

Butcher v.
_______

from

Cessna
______

1988), cert. denied,

_____ ______

489 U.S. 1067 (1989); In re Leonardi's Int'l, Inc., 123 B.R. 668,
____________________________
669 (Bankr. S.D. Fla. 1991).

against

Key,

alleging inter
_____

misrepresentations

Implicit

in

alia
____

that Key

negotiating the

in Home Owners' demand for

had

made material

purchase-sale agreement.

rescission of the purchase-

sale agreement

was its

purchase-sale agreement

averment that

Key's fraud rendered

voidable ab initio,
__ ______

and therefore

Home Owners never became a "holder" of the Gens

In re Southern Indus. Banking Corp., 46 B.R.

_____________________________________

E.D. Tenn. 1985) ("A party to

elect

between two

the

that

Note. See, e.g.,

___ ____

306, 313

(Bankr.

a transaction induced by fraud may

remedies

he

may

treat the

contract

as

voidable and sue for the equitable remedy of rescission or he may

sue for damages at law under the tort theory of 'deceit.'").

In

judgment

January 1992,

to RTC

on

the

its contract

district court

claim.

Gens

awarded summary

now

contends,

therefore, that FDIC is estopped from asserting a claim under the

Gens

Note in her bankruptcy proceeding, since its POC is legally

and factually

by

inconsistent with the litigation

Home Owners in the

Owners

never

district court action,

became

a holder

of

the

position adopted

namely, that Home

Gens

Note because

the

purchase-saleagreementwasrescindablefromitsinception.Wedisagree.2
____________________

2Although
must

be reviewed

standard for
estoppel.
21,

Gens

23

argues that

de novo,
__ ____

we have

Cir.

1994) (expressly

(9th

(same); Yanez
_____

to be ones of

between, e.g., the

question);

"In reality, judicial

cf.
___

1996)

denied, 117 S.
______

78 F.3d 1556,

v. United States,
_____________

extrinsically a matter of fact or law;

37 F.3d

610, 613 (3d Cir.

of discretion" standard), cert.

_____

Cir. 1993) (same).

turn out

doctrine of judicial

reserving

Ct. 958 (1997); Data Gen. Corp. v. Johnson,

________________
_______
(Fed. Cir. 1996)

the exact

v. Van Buren Community Hosp.,

_________________________

McNemar v. Disney Store, Inc., 91 F.3d

_______
___________________
(adopting "abuse

court decision

yet to determine

reviewing applications of the

See Desjardins
___ __________
(1st

the bankruptcy

989 F.2d

1565

323

estoppel is not

the issues that arise may

raw fact, abstract law,

or something in

application of a general standard to a known

Judicial estoppel

forum

accepted the legal or

________

is not

implicated unless

factual assertion alleged

odds with the position advanced in the current forum:

[W]here a party assumes a certain position in

a

legal

proceeding,

maintaining

that

and

succeeds
________

position,

he

may

in
not

thereafter, simply because his interests have

changed,

assume

especially if

contrary

it be to the

position,

prejudice of the

the first

to be at

party

who has

acquiesced
by

him.

in

formerly

taken

estoppel

should be employed

the

position

Judicial

when a litigant

is "playing fast and loose with the

and

when "intentional

being used

as a

advantage

in

self-contradiction is

means

a forum

courts,"

of obtaining
_________
provided

unfair

for suitors

seeking justice."

Patriot Cinemas, 834

________________

omitted).3

F.2d

Similarly,

at 212

the

(emphasis added)

primary

purpose

(citations

served

by

the

____________________

set

of facts."

to

determine the

Desjardins, 37 F.3d
__________

at 23.

precise standard of

It is not necessary

review at

this juncture,

however, since the bankruptcy court ruling would be affirmed even

on plenary review.

3See
___
Cir.)

See id.
___ ___

United States
_____________

(estoppel

applies

v.

Levasseur, 846
_________

where

party

F.2d 786,

previously

793 (1st

"obtained

litigation benefit"), cert. denied, 488 U.S. 894 (1988); see also
_____ ______
___ ____
Continental Ill. Corp. v.
______________________

Commissioner, 998 F.2d 513,

____________

518 (7th

Cir. 1993), cert.

_____
"sold"

denied, 510 U.S. 1041 (1994) (party must have

______

its position

to

prior

tribunal);

Applied Computer Sciences, Inc., 958

_________________________________

Wang Lab., Inc.

________________

F.2d 355, 358

v.

(Fed. Cir.

1992); In re A. Barletta & Sons, Inc., 185 B.R. 976, 980 (Bankr.
_______________________________
M.D.

Pa. 1995); In re Pierce Packing Co.,

_________________________

169 B.R. 421, 429-30

(Bankr. D. Mont. 1994); In re UNR Indus., Inc., 143 B.R. 506, 526
______________________
(Bankr. N.D. Ill. 1992),
(N.D. Ill. 1994);

vacated on other grounds, 173

_______ __ _____ _______

Phillips v.
________

B.R. 149

FDIC (In re Phillips), 124

____ _______________

B.R.

712, 719 (Bankr. W.D. Tex. 1991); In re Merritt Logan, Inc., 109
__________________________

B.R. 140, 147-48 (Bankr. E.D. Pa. 1990); cf. also Crown Life Ins.
___ ____ _______________

Co. v. American Nat'l Bank and Trust Co. of Chicago, 35 F.3d 296,
___
____________________________________________
299 (7th Cir. 1994)
party

accepts the

("An election of remedy

benefit

Leonardi's Int'l, Inc.,

_______________________
between legally

123 B.R.

at 669

inconsistent remedies can

prior to the entry

re Wyatt),
_________

of pursuing

6 B.R.

occurs only when

the initial

remedy.");

("An election
be made

at any

of [final] judgment."); Collumb v.

_______
947,

951-52 (Bankr.

E.D.N.Y.

. .

time

Wyatt (In
_____ __

1980) ("'The

"election

of remedies"

sequential] recoveries

doctrine

is "to

for the same

prevent double

wrong."

Inc. (In re Alchar Hardware Co.), 764 F.2d

____ _________________________

Tavormina
_________

[viz.,
____

v. Fir,
____

1530, 1534 (11th Cir.

1985).

Contrary to Gens' contention, RTC permissibly displaced

its contract-rescission

judgment

on

claim

its alternative

by

claim

moving

for

that Key

partial

had

summary

breached the

purchase-sale agreement.

may also state

See
___

Fed. R. Civ. P. 8(e)(2)

as many separate claims [in its

complaint] . . .

as the party has[,] regardless of consistency . . .

an

express

exclusive

Note

by

provision

in

the

remedy for its breach

Key

upon demand

rescindment, which

by

purchase-sale

.").4

Owners.

necessarily presumes

Under

agreement,

was the repurchase

Home

("A party

Thus,

the

of the Gens

unlike

a disaffirmance of

the

purchase-sale agreement by Home Owners ab ovo, the RTC breach-of__ ___

contract claim

Home

implicitly acknowledged a valid

Owners became

repurchased the

the

Note.

holder

of

the

Accordingly, the

Gens

contract whereby

Note

until

Key

current FDIC litigation

____________________

purpose of [the]
prevent

doctrine [of

recourse to any remedy,

election of remedies]
but to

is not

to

prevent double redress

for a single wrong.'") (citation omitted).

4See, e.g.,
___ ____

Desjardins,
__________

37 F.3d

at

23 ("There

are

many

situations, especially at the outset of litigation, where a party

is free to assert a position from which it later withdraws

or

even to assert, in the alternative, two inconsistent positions of

its potential claims and
v.

United States, 860 F.2d 409, 415

_____________

enactment
traditional
806

defenses."); Fort Vancouver Plywood Co.

__________________________

of

the

Federal

Rules

election doctrine was

(Fed. Cir. 1988) ("With the

of

Civil

Procedure,

the

relaxed."); Grogan v. Garner,

______
______

F.2d 829, 838 (8th Cir. 1986) ("[T]he doctrine [of election]

is remedial, and

neither it

nor the federal

require an election of substantive theories.").

rules of

pleading

position

is

not

predecessor, RTC,

inconsistent

with

since Home Owners

that

advanced

and RTC failed

by

its

to persuade

the district court that the purchase-sale agreement was voidable,

hence invalid from its inception.5

B.
B.

Validity of Knutson Authorization

Validity of Knutson Authorization
_________________________________

Next, Gens contends that

submitted by RTC are

invalid because Knutson was

to act as agent for RTC.

of

claim shall

authorized

9010(a)(2).

agent

not authorized

See Fed. R. Bankr. P. 3001(b) ("A proof

___

be executed

the original and amended POCs

by the

.");

see
___

creditor or

also
____

Fed.

the creditor's

R.

Bankr.

P.

Gens asserts that it would have demonstrated, at an

evidentiary

1606.4;

hearing,

see
___

also
____

disqualified

that

12

RTC

regulations, see
___

U.S.C.

1441a(n)(6),

12

C.F.R.

presumptively

Knutson from serving as an RTC agent because, as an

affiliate of Home Owners, presumably it was complicit in whatever

financial

misfeasance

insolvency.

As

or malfeasance

led

to

the Home

the bankruptcy court aptly noted,

Owners

however, Gens

lacked standing to challenge Knutson's agency status.

The

RTC

regulation

pursuant

to

which

RTC had

legal obligation

Knutson

was

file a

POC

____________________

5Furthermore,

to

against the Gens estate in order to preserve the position of Home

Owners,

which

then

held

an

unsecured

Finally, should Key repurchase the

no

double recovery, since Key

record.

claim

against

Gens.

Gens Note, FDIC would realize

would become the

claim holder of

See Fed. R. Bankr. P. 3001(e)(2).

___

The "election

of remedies"

argument fails for

yet another

reason.
Note

Since the

until

Trust and Gens

January 1990,

against Gens in

1989 when

The 1990 default by

did not default

Home Owners

had no

it filed its

on the Gens

available remedy

complaint against

the Trust and Gens thus

Key.

constituted a legal

wrong distinct and severable from the breach of contract by Key.

designated is designed (i) to "ensure that contractors [hired

RTC] meet

minimum standards

and experience and are

conduct in

of competence,

integrity, fitness,

held to the highest standards

performing services

for RTC,"

by

of ethical

(ii) to prevent

"the

direct or indirect use

of a

contract . .

contract,"

and

of information gained through performance

. for personal

(iii)

relationships or

to

gain not contemplated

preclude

improper influence

advantage

in obtaining

1606.1.

The RTC

contracts

regulation

"the

use

to gain

with the

RTC."

identifies two

conceivable

(1) competing
_________

contractors
___________

beneficiaries:

which

unfairly

denied

RTC

contract

bids;

which may

be

harmed by

RTC

public,
______

12 C.F.R.

thus

intended

taxpaying
_________

personal

unfair competitive

classes of

are

of

by the

and

(2)

the
___

revenue losses

resulting from "insider" conflicts of interest.

Gens

plainly

cannot

qualify

under

classification, as she is not a competing contractor.

the

first

See, e.g.,
___ ____

New Hampshire Right to Life Political Action Comm. v. Gardner, 99

__________________________________________________
_______

F.3d 8, 15 (1st Cir. 1996) ("[U]nder the principle of jus tertii,

___ ______

the plaintiff

ordinarily 'must assert [her] own legal rights and

interests, and cannot

rest [her]

rights

of third

or

Moreover, no

interests

standing is

parties.'")

Cir.

See
___

1995) (noting

"abstract questions

legal

individually, by

theme which actuates the second

Libertad v.
________

that

on the

(citation omitted).

conferred upon Gens,

the generalized taxpayer benefit

classification.

claim to relief

Welch, 53 F.3d
_____

claimant normally

may not

of wide public significance

428, 436

(1st

adjudicate

which amount to

generalized

grievances

legislature").

more

appropriately

addressed

by

the

Nothing in the statute, the RTC regulation or the

attendant case law remotely suggests that Congress or

the agency

itself

debtors to

intended

enforce

to confer

standing

the RTC regulation.6

Dep't of Agric.,
________________

102

F.3d

her

claim does

11

See, e.g., Dubois v. United States

___ ____ ______
_____________

1273,

demonstrate "standing," complainant

that

on chapter

not fall

1281

(1st

Cir.

1996)

must establish, inter

_____

"outside

the zone

(to

alia,
____

of interests

protected by the specific law invoked") (quoting Allen v. Wright,

_____
______

468 U.S. 737, 751 (1984)); Benjamin v. Aroostook Med. Ctr., Inc.,
________
_________________________

57 F.3d 101, 104 (1st Cir. 1995).7

C.
C.

Amendments to Original POC

Amendments to Original POC
__________________________

Gens next

contends that the bankruptcy

permitting RTC to amend its

which

incorrectly

without

disclosing

represents

that she

original POC (i.e., December

____

stated that

that it

court erred in

Knutson

was acting

reasonably believed

1993),

was

the claim

as

RTC's agent.

Knutson held

holder,

Gens

no valid

____________________

6Furthermore,
alleged no
Home Owners'
RTC.

even

assuming

facts suggesting

she

had

standing,

that Knutson contributed

insolvency or to any

Gens has

either to

"substantial loss" occasioned

7Gens argues

that the

because they were

Bankr. P.

POCs filed by

not signed

9010(a); 9011(a).

by RTC's

Knutson were

attorney.

But see Fed. R.

___ ___

invalid

See Fed.
___

R.

Bankr. P. 3001(b)

(POC may be signed by creditor or its authorized agent); compare,

_______
e.g., Official
____
signature) with
____

Bankruptcy Form

Official Bankruptcy Form 10

no attorney-signature

line).

claim, however, since Gens

bankruptcy

1 (providing space

court.

See
___

We need

for attorney

(POC form providing

not resolve

the present

concededly failed to raise it

Juniper Dev. Group
___________________

Hemingway Transp., Inc.), 993

________________________

F.2d 915, 935

denied, 510 U.S. 914 (1993).

______

10

v.

Kahn
____

(1st Cir.),

in the

(In re
______

cert.
_____

claim in its own right.

file a POC

Further, she argues, since RTC failed to

in its own name

prior to the bar date,

there was no

timely POC to be amended.

A bankruptcy

court ruling

allowing an amendment

to a

POC is reviewed for abuse of discretion, under three criteria:

First, the proposed

_____
veiled attempt
right

to

to payment

amendment must not

assert a
as

to

be a

distinctly

which

the

new

debtor

estate was not fairly alerted by the original

proof of
not

claim.

result

in

Second, the
______
unfair

unsecured

amendment must

prejudice

against

other

holders

of

estate.

Third, the need to amend must not be

_____

the product of bad faith

claims

to

the

or dilatory tactics

on the part of the claimant.

Juniper Dev. Group v.

Kahn (In re Hemingway Transp.,

Inc.), 954

__________________

F.2d

____

______________________________

1, 10 (1st Cir. 1992) (citations omitted) (emphasis added).

Leave to

requires."

amend a

POC should

be "freely

See
___

Fed. R. Bankr.

given when

P. 7015.8

The

justice so

bankruptcy court

did not abuse its discretion.

First, in order to "fairly alert" the debtor

POC

need

only

"provide[]

nature, and amount of

adequate notice

of

the

Unioil, Inc. v. H.E. Elledge (In re

____________
____________ _____

Unioil, Inc.), 962 F.2d 988, 992 (10th Cir. 1992).

_____________

POC, accompanied by a copy

____________________

existence,

the claim as well as the creditor's intent

to hold the estate liable."

P. 3001(c), met the

estate, a

The original

of the Gens Note, see Fed.

___

general notice requirement.

As

R. Bankr.

Knutson was

8Bankruptcy Rule
amendments
Although

to complaints)

R. Civ. P.

applicable in

this case arose as

adversary proceeding,
Rule

7015 makes Fed.

adversary proceedings.

a contested matter,

Fed. R. Bankr. P.

15 (governing

rather than an

9014 permits Bankruptcy

7015 to be applied in contested matters.

In re Stavriotis,
________________

977 F.2d 1202, 1204 (7th Cir. 1992).

11

duly

authorized

Section

II.B,

to file

the mere

the original

failure

to

POC

for RTC,

see supra
___ _____

disclose Knutson's

agency

status in no sense affected the validity of the claim itself.

As

the

Tenth

Circuit

substitution

related

correctly

of the

party

recognized in

real party

mistakenly

Unioil,
______

in interest

listed

in the

simple

(viz., RTC)
____

original

POC

for a

(viz.,
____

Knutson qua agent) represents a proper ground for amendment.

___

Unioil, 962
______

F.2d at

992 (permitting amendment

where a

See
___

trustee

(rather than the trust) was incorrectly listed as creditor).9

Second,

deficiency

at 10;

Gens points

in the original POC.

see
___

also Unioil,
____ ______

opposing

amendment must

suggests

simply

that

962

to no

from any

See Hemingway Transp., 954 F.2d

___ _________________

F.2d at

show actual

allowing

unfair prejudice

the

993

(noting that

prejudice).

RTC

amendment

party

Instead, she

prejudices

unsecured

creditors,

who

may

reorganization plan than would

claim not allowed.

the debtor

something more

less

under

have been received were

any

the FDIC

But the standard Gens proposes would preclude

virtually any amendment, since

that

receive

or

trustee

it dispenses with the requirement

show

"unfair" prejudice.

than mere creditor disappointment

preclude amendment.

Thus,

is required to

See In re Stoecker, 5 F.3d 1022, 1028

___ _______________

(7th

____________________

9Nor would the two remaining defects in the original POC bar
amendment.

First, as trustee for

every reason
POC,

as

to know that

"secured,"

was

the Old Jail

Trust, Gens had

the original characterization

mistaken, since

the

first

the Barnstable Property

of the

mortgagee

already had

foreclosed on

Gens

Note.

Second, the mistaken date assigned to the underlying

debt

instrument was

a minor

defect, given

itself was attached to the POC.

12

securing the

that the

Gens Note

Cir.

1993); In re Outdoor Sports Headquarters, Inc.,

_________________________________________

414, 422

n.5

161 B.R.

(Bankr. S.D. Ohio 1993); In re Brown, 159 B.R. 710, 716

___________

(Bankr.

D.N.J. 1993);

In re Dietz,
____________

136 B.R.

459, 468-69

(Bankr. E.D. Mich. 1992).

Gens neither alleged nor demonstrated that any creditor

acted in

in

detrimental reliance on any

the original

POC.

See,

e.g.,

representation or omission

Brown,

159

B.R.

at

716

___

(permitting POC

"no

evidence

detriment

allege

_____

amendment from unsecured to

has

been

offered that

upon the claims as

secured, given that

anyone

relied

originally filed").

either bad faith or dilatory motive.

amendments

plan.

____

to

their

Nor did Gens

Moreover, these RTC

occurred long before the formulation

of a chapter 11

See Holstein v. Brill, 987 F.2d 1268, 1270 (7th Cir. 1993)
___ ________
_____

(characterizing

milestone"

confirmation

that makes

it

of

more

debtor

likely

plan

POC

as

amendment

"passing

may

be

prejudicial).

To be sure, Knutson demonstrated considerable laxity in

executing its agency responsibilities, especially its seven-month

delay in submitting

showing

in

these

amended proofs

circumstances

of claim.

that RTC

Were there

gained

some

strategic

advantage

or

prejudiced,

that

other

parties

in

the case for disallowance

have been much stronger.

interest

were

unfairly

of the amended POCs would

Absent any such showing,

however, the

court did not abuse its discretion in permitting RTC to amend its

original POC.

"It is well accepted that

guided by the principles

the bankruptcy court is

of equity, and that the

13

court will act

to assure that ' . . . substance will not give way to form, [and]

that

technical

considerations

justice from being done.'"

will

not

prevent

substantial

Pepper v. Litton, 308 U.S. 295,

______
______

305

(1939) (citation omitted).

D.
D.

Impairment of Collateral
Impairment of Collateral
________________________

Lastly,

Gens challenges

dismissing her "impairment of

affording her an evidentiary

holder

$36,000

of the

hearing.

Note

the Barnstable

bankruptcy court

collateral" defense without

of the loan proceeds

mortgage on

record

Gens

the

She claimed that

first

a prior

presumably

U.S. Funding

to pay off

the preexisting second

Property, but

the mortgage discharge.

ruling

Thus,

failed to

used

obtain and

the mortgage securing the

Gens Note

remained third

in priority,

rather than climbing

to

second priority.

Pursuant

to Mass.

Gen.

Laws.

Ann.

ch.

106,

3-

606(1)(b), "[t]he holder discharges any party to the [negotiable]

instrument

holder

to the extent

instrument

unjustifiably impairs

given by

against whom

collateral

he has

may

that without such

or on

result

behalf of

right of

if

the

any

party's consent the

collateral

the party

recourse."

conduct

of

for

or any

the

person

An impairment

the

holder

of

of

collateralized negotiable instrument unjustifiably diminishes the

physical value of the collateral, releases the

principal

obligor before the loan is repaid, or fails to perfect

its security interest in the collateral.

N.E.2d

collateral to the

603, 605-06 (Mass. 1964);

See Rose v. Homsey, 197

___ ____
______

see also Hawaii

Broad. Co. v.

___ ____ __________________

14

Hawaii Radio, Inc.,

__________________

919 P.2d

1018, 1029 (Haw.

Ct. App.

1996);

White v. Household Fin. Corp., 302 N.E.2d 828, 835 (Ind. Ct. App.
_____
____________________

1973).

Nevertheless, in most jurisdictions a party

"impairment

negotiable

of collateral"

instrument

defense

(viz.,
____

must prove

promissory

note)

asserting an

she signed

merely

as

the

an

accommodation party

borrower.

See
___

James

Commercial Code
_______________

An

[negotiable]

for the principal

A. White

&

debtor, rather than

Robert S.

Summers,

as a

Uniform
_______

13-16 (3d ed. 1988).10

accommodation

instrument

lending [her] name

Ann. ch. 106,

in

maker

any

is

"who

capacity for

to another party

3-415(1).

one

to it,"

the

signs

the

purpose

Mass. Gen.

of

Laws.

Frequently, accommodation parties sign

debt instruments to enable the principal obligor to obtain a loan

which

would

not have

been

granted

absent the

accommodation.

Although an accommodation party is liable to the lender under the

debt instrument,

cmt. 1.

her liability is

that of

a surety only.

Id.
___

Thus, the accommodation maker reasonably expects that if

called

upon

for

payment

default, she will

the principal

following

be subrogated to

obligor, including

the

principal

the lender's rights

the right of

obligor's

against

recourse against

____________________

10The latent confusion

language in U.C.C.

in this regard stems from

3-606, which

[negotiable] instrument."

refers to

the broad

"any party to
___ _____

the

See FDIC v. Blue Rock Shopping Ctr.,

___ ____
_________________________

Inc., 766 F.2d 744, 749 (3d Cir. 1985) (outlining caselaw split).
____
We have found

no Massachusetts case

which determines whether

nonaccommodation obligor on a promissory note may also invoke the

U.C.C.

3-606

defense.

Since Gens

and the

bankruptcy court

implicitly accepted the majority rule

that Gens must establish

accommodation

affirm on an alternative

ground,

status

we need

not

and because we
address the

question.

15

unresolved

Massachusetts-law

any collateral securing the underlying debt instrument.

cmt. 5;

id.
___

see also FDIC v. Blue Rock Shopping Ctr., Inc., 766 F.2d
___ ____ ____
_____________________________

744, 749 (3d Cir.

141

See
___

(1941).

1985); accord Restatement of Security

______

Therefore, to

the extent the

holder of

104,

the debt

instrument unjustifiably devalues or releases the collateral,

fails

to perfect

parties,

entitling

the

its

right

rights in

of

recourse

the accommodation

the

collateral against

may

maker to

be

diminished,

a commensurate

from liability under the debt instrument.

or

third

thereby

discharge

See Blue Rock Shopping

___ __________________

Ctr., 766 F.2d at 751.

____

The bankruptcy court considered Gens'

conclusive

evidence that

she had

"individual" capacity, that is,

than

of

an accommodation maker.

Gens'

second signature

signed the

second signature

Gens Note

in her

as a principal coborrower rather

It also concluded that the purport

on the

Gens

Note was

not rendered

ambiguous, either by the anterior designation of the Trust as the

sole "Borrower" or the failure to designate a "Co-borrower."

Citing considerable case authority, Gens maintains that

all accommodation makers necessarily sign promissory notes either

in

their

"individual"

Consequently, she argues,

resolve

a signatory's

or

"representative"

capacities.

these designations cannot conclusively

accommodation status.11

Since

the Gens

Note must therefore be considered facially ambiguous, Gens argues

____________________

11See, e.g., FDIC v. Trans Pacific Indus., Inc., 14 F.3d 10,

___ ____ ____
__________________________
12 (5th Cir.
import"
note,

1994) (rejecting

of the

"borrower"

FDIC's "attempts

identification

which reflected corporation

to nullify

block in

as sole borrower

the

promissory

and did not

designate corporate officer as coborrower).

16

that

hearing should

evidence that the parties

have

been conducted

to

to the Gens Note (viz.,

consider parol

U.S. Funding,

____

the

Trust, and Gens) all understood

was intended only

Mass.

as an accommodation

Gen. Laws. Ann.

parol evidence

that Gen's second signature

ch. 106,

endorsement.

3-415(3)

See,
___

e.g.,
____

(expressly allowing

of accommodation status except

as to holders-in-

due-course); United Beef Co. v. Childs, 27 N.E.2d 962, 964 (Mass.

_______________
______

1940)

(same); see also Butler v. Nationsbank, 58 F.3d 1022, 1027

___ ____ ______
___________

(4th Cir. 1995) (outlining multi-factored, intent-based "purpose"

and "proceeds" tests for determining accommodation status); First

_____

Dakota Nat'l Bank

__________________

v. Maxon,
_____

534 N.W.2d

37, 41-42

(S.D. 1995)

(same).12
____________________

12FDIC counters

that 12

U.S.C.

1823(e)

(codification of

D'Oench
Duhme
_______________

doctrine)

barred

parol

evidence

of

Gens'

accommodation status, or that FDIC's status as a federal or state

holder in due course barred Gens from invoking the U.C.C.
defense.

See
___

Mass. Gen.

against

a holder

in

accommodation oral
to

give

the

course

ch. 106,

and

party

character as

the

such.").

Since

of

the

is not admissible
of

discharges

FDIC's right

to

either doctrine in this case is open to serious question,

v.

adoption
FDIC);

notice

benefit

we express no opinion on its contentions.

Myers
_____

3-415(3) ("As

without

proof of the accommodation

accommodation

dependent on his
invoke

due

Laws. Ann.

3-606

FDIC,
____

512

of federal

U.S.

79

(1994)

common-law rules

See, e.g., O'Melveny &

___ ____ ___________
(generally

discouraging

especially protective

Varel v. Banc One Capital Partners, Inc.,

_____
________________________________

of

55 F.3d 1016,

1021 (5th Cir. 1995) (D'Oench inapplicable where issue is not the
_______

enforceability of a secret, unwritten side agreement, but whether

to allow parol evidence concerning the intendment of an ambiguous

written contract provision);

Capitol Bank and Trust Co. v.

___________________________

604
___

Columbus Ave. Realty Trust

____________________________

(In re 604 Columbus Ave. Realty

__________________________________

Trust), 968 F.2d 1332, 1350-51 (1st Cir. 1992) (holding that FDIC
_____
is not

entitled

acting

in its

to

federal

capacity as

holder-in-due-course

status

when

receiver); Calaska Partners Ltd. v.

______________________

Corson, 672 A.2d 1099, 1104 (Me.

______

1996) (FDIC as receiver of bulk

purchaser not a holder in due course under state law); Mass. Gen.
Laws.
status

Ann. ch.
to

106,

party

who

3-302(3) (denying
acquired

note

"as

holder-in-due-course
part

of

bulk

transaction").

17

Even were we to assume arguendo that Gens was

________

to an

Gens

evidentiary hearing

Note as

to determine

an accommodation

whether she

maker, she

failed to

entitled

signed the

set forth

allegations which would establish the second essential element in

her

affirmative

collateral.

defense

See RTC
___ ___

cognizable

v. Feldman,
_______

(appellate court may affirm

3 F.3d 5,

9 (1st

on any ground supported

cert. denied, 510 U.S. 1163 (1994).

_____ ______

is founded exclusively

"impairment" of

Cir. 1993)

by record),

As her section 3-606 defense

on the claim that

were frustrated, supra, Gens

_____

the

her subrogation rights

was required to do more

than prove

that U.S. Funding or another holder failed to obtain and record a

mortgage discharge.13

Section

holder's

3-606

dereliction

accommodation

party.

plainly

actually

requires

resulted

evidence

in

that

the

to

the

loss

See Mass. Gen. Laws. Ann. ch. 106,

___

3-606

("The holder discharges any party to the instrument to the extent

__ ___ ______

. . . the holder . . . unjustifiably impairs [the] collateral . .

____________________

13Citing Providence, Fall River & Newport Steamboat Co. v.

________________________________________________
Massachusetts Bay S.S. Corp.,
____________________________
contends

that the

38 F.2d 674 (D. Mass.

holder's mere

discharge warrants

failure to

her total release from

Barnstable Property obviously was

the Gens Note
its security

1930), Gens

record a

liability because the

of sufficient value to satisfy

in July 1988, and the holder's

failure to perfect

interest unquestionably increased her

risk of loss
____

without her consent, even if no actual loss occurred.

______
cited

case predates

Commercial

Code

inapposite.
not with

the adoption
1958,

it

of the

is

both

See id. at 675 (noting

___ ___

the question how

performance of
in it by

in

far a

Massachusetts Uniform
legally

surety who has

and factually

of facts on which an

of guaranty rests"); cf. infra note 14.

___ _____

guaranteed the

by subsequent alterations

the contracting parties, but with a

18

Since the

that the court was "dealing

a contract is released

creditor in the state

mortgage

change made by the

independent contract

.").14

Gens

alleged no

facts

which would

demonstrate any

actual diminution of her subrogation rights. See FDIC v. Blanton,

___ ____
_______

918 F.2d

524, 530 (5th Cir.

1990) (burden of proof

is on party

alleging discharge).

First, she did not allege that any

creditor obtained a

____________________

14Although we have found

no Massachusetts case precisely in

point, the clear majority trend among U.C.C. jurisdictions

is to

require the

accommodation maker

impairment.

See,
___

1456, 1462 (9th

limit

the

e.g., Alcock
____ ______

Cir. 1995)

place the burden on

to prove actual

v. Small Bus. Admin.,

__________________

("A clear majority

to

the

extent

demonstrated.") (emphasis added);

S.W.2d 459, 461

of

the

50 F.3d

of state

the guarantor to prove actual

______

discharge

Sherwood, 732
________

loss from

courts

prejudice and
_________

the

impairment

Myers v. First State Bank of

_____
____________________

(Ark.) ("[T]he surety

two elements in order to be entitled to a discharge

must prove

'that the

holder of the note was responsible for the loss or impairment

of

the collateral, and the extent to which the impairment results in

_______ __
loss.'") (emphasis added)
____

(quoting Van Balen

_________

v. Peoples Bank &

_______________

Trust Co., 626 S.W.2d 205, 209-10 (Ark. Ct. App. 1981)), modified
_________
________
on
__

other
_____

Jones, 364
_____

grounds, 741
_______

S.W.2d 624

S.E.2d 281, 285 (Ga. Ct.

perfect a lien

on pledged

discharge where it was shown

time the action [to

(Ark.

App. 1987) ("[A] failure to

corporate stock [does

collect on the debt] was

(noting that appellant has

not] effect

that the stock had no value

v. Citizens Trust Co., 196 S.E.2d 349,

___________________

the leases and

1987); Bank South v.

___________

LaPorte Prod. Credit Ass'n, 444

___________________________

at the

commenced."); Hurt
____

351 (Ga. Ct. App.

"not shown how the failure

assignments resulted in

1973)

to record

any damage")); Rempa

_____

N.E.2d 308, 313

v.

(Ind. Ct. App.

1983) (see
___
S.W.2d

infra); T.O. Stanley Boot Co. v. Bank of El Paso, 847

_____
_____________________
_______________

218, 223 (Tex. 1992) ("If the creditor breaches his duty,

the surety

is

discharged on

the

note

to the

extent

of

his

loss."); Century 21 Prods., Inc. v. Glacier Sales, 875 P.2d 1238,

_______________________
_____________
1242

(Wash.

Ct.

App.

1994)

collateral, the surety

will be

("Should a

creditor

discharged to the

impair

the

extent he

is

harmed by the impairment."), rev'd on other grounds, 918 P.2d 168

_____ __ _____ _______
(Wash.

1996);

see
___

generally
_________

Carolyn

Edwards,

Impairment of
______________

Collateral Under Section 3-606 of the Uniform Commercial Code, 12

_____________________________________________________________
U. Dayton

L. Rev. 509, 522 n.81 (1987) ("A number of courts have

concluded that an unjustifiable impairment of collateral includes

a

failure to perfect a security interest if such failure results

in a loss
3-605(f)

to the surety as subrogee."); cf.

___
(discharge for

impairment of

also Revised U.C.C.

____

collateral only

"to the

extent the impairment causes the party asserting discharge to pay

more than

that party

would have been

impairment had not occurred.").

19

obliged to pay

. .

. if

superior right of recourse against the Barnstable Property due to

the

fact

that

the

preexisting

discharged

of

record.

Barnstable

Property conducted

second

In addition,

mortgage

the

pursuant

auction sale

to

the

foreclosure resulted in no surplus for application

lien, including the second mortgage.

support

no

finding

Consequently, Gens'

if she had

that

any

junior

lien

liability would not have

maker.

never

of the

first-mortgage

to any junior

Accordingly, the record can

been able to establish that she

as an accommodation

was

was

impaired.

been affected even

signed the Gens Note

See, e.g., Rempa

v. LaPorte

Prod.

___

Credit Ass'n, 444 N.E.2d 308,

_____________

where

the party

creditor

extent

to which

failed

to

perfect its

that failure

establish

its

_____

313 (Ind. Ct.

asserting the

did not

____

______________

App. 1983) ("Thus,

impairment establishes

lien but

fails to

resulted in

affirmative

establish the

loss, the

defense

that the

of

party has

pro
___

tanto
_____

release.").15

III
III

CONCLUSION
CONCLUSION
__________

____________________

15Moreover, Gens merely

was recorded.
2,

was

never

alleged that no

mortgage discharge

She did not allege that the $36,000,

___
applied

Therefore, assuming the

to

the

preexisting

see supra p.
___ _____

second

underlying debt was in fact

mortgage.

fully paid,

it would seem extremely unlikely that the mortgagee or any of its

assignees could have asserted a

viable right to recourse against

the

e.g., Beaton v.
____ ______

Barnstable Property.

N.E.2d

302, 307

general

principles of

reform,

rescind,

mortgages,"
brought
"issue

(Mass.)

suit
a

cancel
the

to compel

discharge

(noting

that

of

written

instruments,

the mortgagee
in

acting

has broad

discharging party

mortgage

Land Court, 326

__________

"a court

equity jurisprudence

or

and that

See,
___

to
a

power to

including

could simply
cancel the

form

under

have

note and

appropriate

for

recording"), appeal dismissed, 423 U.S. 806 (1975).

______ _________

20

Accordingly,

the district

court judgment

is affirmed

and costs are awarded to the appellee.

SO ORDERED.
SO ORDERED.
__ _______

21