Davis v. G.N. Mortgage Corp.

United States Court of Appeals, Seventh Circuit
396 F.3d 869 (2005)

ELI5:

Rule of Law:

Under Illinois law, a party who signs a clear and unambiguous integrated contract is bound by its terms. That party's failure to read the contract before signing it negates the element of justified reliance required for a common law fraud claim based on contradictory oral representations.

Facts:

On September 9, 1999, Thomas and Cathy Davis obtained a $288,000 adjustable-rate mortgage from G.N. Mortgage Corporation (GN) to refinance personal debt.
At the closing, a closing agent, Patricia Bogdanovich, presented the Davises with two stacks of documents.
The Davises alleged that Bogdanovich told them the stacks were identical and accurately reflected their agreement, which included a two-year prepayment penalty period.
Without reading them thoroughly, the Davises signed one stack of documents, which contained a clear addendum specifying a sixty-month (five-year) prepayment penalty, and retained the other, unsigned stack for their records.
The unsigned stack of documents the Davises kept contained both a two-year and a five-year version of the prepayment penalty addendum.
In early 2000, GN sold the mortgage to Countrywide Home Loans, Inc.
In the summer of 2001, the Davises inquired about paying off the loan and were informed by Countrywide that a penalty would apply based on the five-year term.
On February 20, 2002, the Davises paid off the loan and were assessed a prepayment penalty of over $12,000 pursuant to the signed five-year addendum.

Procedural Posture:

Thomas and Cathy Davis filed a diversity action against G.N. Mortgage Corp. and Countrywide Home Loans, Inc. in the U.S. District Court for the Northern District of Illinois.
The Davises filed a second amended complaint alleging breach of contract, common law fraud, and violations of the Illinois Interest Act and Illinois Consumer Fraud Act.
GN and Countrywide filed motions for summary judgment.
The district court granted the defendants' motions for summary judgment on all counts.
The Davises, as appellants, appealed the district court's judgment to the U.S. Court of Appeals for the Seventh Circuit, with GN and Countrywide as appellees.

Premium Content

Subscribe to Lexplug to view the complete brief

You're viewing a preview with Rule of Law, Facts, and Procedural Posture

Issue:

Does a party's failure to read a clear, fully integrated written contract before signing it defeat subsequent claims for breach of contract and common law fraud when the party alleges reliance on oral misrepresentations that contradict the contract's explicit terms?

Opinions:

Majority - Judge Coffey

Yes, a party's failure to read a clear, fully integrated written contract defeats subsequent claims for breach of contract and common law fraud. The court reasoned that under Illinois' 'four corners rule' and the parol evidence rule, a clear and fully integrated written contract cannot be contradicted by extrinsic evidence, such as prior or contemporaneous oral statements. For the breach of contract claim, the signed five-year addendum was unambiguous and controlling. For the common law fraud claim, the court held that any reliance by the Davises on the closing agent's alleged misrepresentations was not justified because they had an ample opportunity to read the documents and ascertain the truth for themselves. This failure to exercise due diligence is fatal to a fraud claim, as a party cannot close their eyes to the contents of a contract and then claim to have been deceived.

Analysis:

This decision reinforces the fundamental contract law principle of the duty to read, underscoring that courts are highly reluctant to relieve a party of the consequences of their own negligence in failing to review a contract. It illustrates the strength of the parol evidence rule in preventing parties from using alleged oral agreements to undermine clear written terms. The case serves as a strong precedent against fraud claims where the alleged deception could have been easily discovered by reading the contract, thereby limiting the scope of 'justified reliance' in commercial and consumer transactions.

Gunnerbot

AI-powered case assistant

Loaded: Davis v. G.N. Mortgage Corp. (2005)

Try: "What was the holding?" or "Explain the dissent"

Premium Feature