Doyle v. Resolution Trust Corporation

Michael Doyle (plaintiff) borrowed $54,000 from Trinity Savings and Loan Association (Trinity) (defendant) to purchase a home in Oklahoma. Doyle signed an adjustable-rate note with an annual interest rate of 11.375 percent. Trinity later altered the note to reflect an interest rate of 15.875 percent and forged Doyle’s initials next to the alteration. Later that year, Trinity sold Doyle’s note and mortgage to Federal National Mortgage Association (FNMA) (defendant). FNMA purchased the note as part of a package of loans that Trinity guaranteed as valid and enforceable. Like many of the notes FNMA purchased in the package, Doyle’s note had clearly been altered: the interest rate was whited out and rewritten, and Doyle’s initials appeared alongside the amended term. Nevertheless, because the practice was common, FNMA did not suspect that the note had been altered without Doyle’s consent. Doyle sued FNMA, and the district court ordered FNMA to cancel Doyle’s note. FNMA appealed, arguing that as a holder in due course without notice of the forgery, FNMA was entitled to enforce the note against Doyle. The Tenth Circuit affirmed, ruling that because the note was non-negotiable under Oklahoma law (there was no sum certain under the adjustable-rate provisions), FNMA was not a holder in due course. However, the Tenth Circuit stayed the case, because the question of whether an adjustable-rate note was in fact negotiable was pending before the Oklahoma Supreme Court. Two years later, the Oklahoma Supreme Court held in Goss v Trinity Savings & Loan Association, 813 P.2d 492 (1991), that a note containing a variable interest rate qualified as a negotiable instrument. Based on Goss, the Tenth Circuit granted FNMA a rehearing and ruled that the note was negotiable—but only if FNMA took the note without notice of the forgery. The Tenth Circuit remanded for the district court to determine whether FNMA had notice of the defect. After an evidentiary hearing, the district court concluded that FNMA was a holder in due course who purchased Doyle’s note without notice of the forgery. Thus, FNMA could enforce the note against Doyle as originally executed. Doyle appealed.