Opinion ID: 302892
Heading Depth: 1
Heading Rank: 7

Heading: Eastern's Reliance on Appellant's Representations

Text: 50 The appellants contend that the Government has failed to adequately show the presence of all elements necessary for a conviction of obtaining something of value by false pretenses. See Ciullo v. United States, 117 U.S.App.D.C. 31, 325 F.2d 227 (1963). The appellants would concede, as indeed they must, that the Government introduced sufficient evidence related to the proving of some of the necessary elements. It was certainly proven that known false representations were made and that something of value was received. The appellants, however, strongly argue that the Government failed to show one of the other necessary elements to this crime, i. e., reliance by Eastern upon the truthfulness of the documents submitted to them. It is appellants' contention that Eastern actually suggested the scheme involved, since it was willing to make loans to Reynolds Construction Company, but only after Mr. Reynolds got some 15 or 20 houses out of the name of Reynolds Construction Corporation. (Trial tr. 682.) It is appellants' claim then that with the knowledge and with the concurrence of Eastern Savings and Loan, [they] were to straw these houses out. (Trial tr. 684.) If this were true, then the necessary fraudulent intent would indeed be lacking. 51 As its first witness on the reliance issue the Government called to the stand Robert L. Stoy, who at the time of the trial was assistant secretary at Eastern, and at the time of the loans was assistant treasurer. Mr. Stoy on direct examination testified as to the general practice of Eastern concerning the procedure followed in 1962 and 1963 after an application for a loan was filed and after favorable consideration (Trial tr. 120). On cross-examination he testified that Eastern's policy with respect to loans to the Reynolds Construction Company was no different than that with any other borrower. (Trial tr. 144.) Though Stoy protested he was not on the loan committee and that he could not testify as to the exact basis for the granting of loans, he did venture to say that loans were based solely on the appraised value of the property. (Trial tr. 133-134.) He did say, however, that credit information was required to be given in the application for a loan and that he did approve the credit of the straw purchasers involved although he did not check the information. (Trial tr. 131, 132.) On re-direct examination Stoy explicitly stated that no loan application would be considered initially if it was found to be predicated on a false sale or information contained therein. (Trial tr. 146.) He also testified immediately thereafter that Eastern at this time, in making permanent loans after construction loans, had no personal contact with the borrowers and acted solely on the papers submitted to it. Id. On re-cross-examination Stoy stated that he never knew of Eastern's permitting property, on which it had a loan to stand in the name of someone other than the real party in interest. (Trial tr. 147.) The Government also called Thomas R. Harrison, who at the time of the trial was president of Eastern and at the time of the loan was executive vice-president, and as such was responsible for the loan department. (Trial tr. 541.) Mr. Harrison also testified that Eastern would not consider making any loans based on a false sale of property or on false information. Harrison further testified on cross-examination that in making a loan, though Eastern primarily looked to the appraised value of the real estate involved, it did require a credit report which was kept on file as a matter of information even though it was never verified. (Trial tr. 558, 559.) Harrison did, however, testify earlier on cross-examination that Eastern would possibly make more of an effort to assure that a loan application was not based on false information (presumably information other than that contained in the credit report), when the application was submitted by an agent it did not know. 9 (Trial tr. 554.) 52 An analysis of the above-mentioned testimony indicates there was sufficient evidence for the jury to infer that Eastern relied on the veracity of the documents presented to it in this case. Stoy stated that Eastern never made loans based on false sales or information and that it never treated loans to Reynolds Construction Company any differently. Stoy never knew of Eastern's permitting a loan on property which stood in the name of someone other that the real party in interest. The fact that Stoy did not specifically check the truthfulness of the credit reports or other documents relating to the loans does not indicate that Stoy did not rely on the veracity of the documents and the representation that a real sale was involved. Perhaps Eastern should make a more thorough check of credit reports and scrutinize minutely the purchase of a home to convince itself that the purchase indeed is real, but this more suspicious approach would certainly do nothing to enhance a bank's good will, nor would it help accelerate the already long and tedious process of purchasing a home. We cannot see then how a lack of inquisitiveness or an abundance of gullibility can negate a showing of reliance. If anything, the testimony showing that Eastern did not conduct an independent investigation of credit information, transactional information, and the documents relating thereto, seems to us to demonstrate Eastern's complete reliance upon the representations made to them by Reynolds, Stamp and their colleagues. In this day of business suspicion and perhaps over-cautious financial dealings it is rare to find a financial institution which follows the methods employed by Eastern; however, this is not indicative of lack of reliance by the Association. It points, rather, to the trust and good faith Eastern exercised in dealings with those with whom they had previous financial transactions. Perhaps the approach which Eastern chose to follow would lead them down a path of thorns subjecting them to the wiles and deceits of those with high business acumen and make them unsuspecting prey for those with less regard for moral business dealings and decent business ethics. All of this leads us to believe that Eastern was indeed naive in its procedures and unsuspecting of the potential dangers lurking behind every loan transaction. It is a well-known maxim, however, that the law protects the unsuspecting as well as the wary. 53 The fact that Stoy at one point stated that these loans were made solely on the appraised value of the property, can hardly be taken as an admission that a loan would be approved if the documents were found to be totally based on lies. Harrison's testimony reiterated Stoy's assertion that no loans would be considered if they were known to be based on false information. The fact that Eastern relied primarily on the value of the property does not detract from a finding of reliance as long as the defrauded party's belief in the validity of the documents was a contributing influence in accomplishing the desired results. Ciullo v. United States, supra, 117 U.S.App.D.C. at 33, 325 F.2d at 229; Gilmore v. United States, 106 U.S.App.D.C. 344, 347, 273 F.2d 79, 82 (1959). 54 Appellants complain, though, that Harrison and Stoy spoke mostly in general terms and did not refer much to the 17 transactions. Why the Government chose this approach is not known to this court; however, based on the evidence we have set out, we can see no reason why the jury could not have reasonably made the inference necessary to find guilt beyond a reasonable doubt. Appellants in cross-examining Stoy and Harrison could certainly have, and in fact did, elicit testimony relating to the 17 loan transactions. 10 This type of cross-examination would surely have tested the validity of their theory of the Association's general practice as well as satisfied any doubts they may have had with respect to the knowledge of Stoy and Harrison concerning the specific facts involved in our case.