PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

WRH MORTGAGE, INCORPORATED,
Plaintiff-Appellant,

and

FEDERAL DEPOSIT INSURANCE
CORPORATION, as statutory successor
in interest to the Resolution Trust
Corporation as Receiver for
Investors Federal Savings Bank,
Plaintiff,

v.

S.A.S. ASSOCIATES, a Virginia
                                                    No. 99-1716
General Partnership; S.A.S.
INVESTORS ASSOCIATES, a Virginia
General Partnership; STEVEN B.
SANDLER, individually and as
General Partner for S.A.S.
Associates, and as General Partner
for S.A.S. Investors Associates;
ARTHUR B. SANDLER, individually
and as General Partner for S.A.S.
Associates, and as General Partner
for S.A.S. Investors Associates,
Defendants-Appellees.

Appeal from the United States District Court
for the Eastern District of Virginia, at Norfolk.
William T. Prince, Magistrate Judge.
(CA-97-1173-2)

Argued: April 6, 2000

Decided: June 2, 2000
Before NIEMEYER, Circuit Judge, Roger J. MINER,
Senior Circuit Judge of the United States Court of Appeals
for the Second Circuit, sitting by designation, and
Joseph R. GOODWIN, United States District Judge for the
Southern District of West Virginia, sitting by designation.

_________________________________________________________________

Affirmed by published opinion. Senior Judge Miner wrote the opin-
ion, in which Judge Niemeyer and Judge Goodwin joined.

_________________________________________________________________

COUNSEL

ARGUED: Thomas Dale Bridenbaugh, LEFTWICH & DOUGLAS,
P.L.L.C., Washington, D.C., for Appellant. John Britton Russell, Jr.,
BECKER, RUSSELL & BECKER, P.L.C., Richmond, Virginia, for
Appellees. ON BRIEF: Frederick A. Douglas, David B. Mintz,
LEFTWICH & DOUGLAS, P.L.L.C., Washington, D.C., for Appel-
lant.

_________________________________________________________________

OPINION

MINER, Senior Circuit Judge:

Plaintiff-appellant WRH Mortgage, Inc. ("WRH") appeals from a
judgment entered in the United States District Court for the Eastern
District of Virginia (William T. Prince, M.J.) in favor of defendants-
appellees S.A.S. Associates and S.A.S. Investors Associates, Virginia
general partnerships, and Steven B. Sandler and Arthur B. Sandler,
individually and as general partners in both partnerships (collectively
"SAS"). The action was brought on a contractual claim to recover the
balance due on a loan made by Investors Federal Savings Bank
("Investors Bank"), WRH's predecessor in interest, to SAS. Alterna-
tively, recovery was sought on claims sounding in restitution or quasi-
contract. The case was tried in the district court on stipulated facts
and exhibits.

                    2
I.

On October 3, 1985, Investors Bank entered into a contract with
SAS entitled "Construction, Loan and Lease Agreement" (the "Agree-
ment") whereby SAS agreed to construct and lease to Investors Bank
a branch bank building on a parcel of land in Virginia Beach, Vir-
ginia. The lease term provided was twenty-five years, and Investors
Bank agreed to finance and supervise the construction of the building.
The financing included $250,0000 for the land and $30,000 in costs
incurred by SAS prior to the date of the Agreement. SAS received an
additional $310,423.19 for actual construction costs in accordance
with the terms of the Agreement, which also provided SAS with the
option to take a permanent loan from Investors payable over twenty-
five years.

On February 5, 1987, SAS opted to take a permanent loan in the
amount of $622,000 at an annual interest rate of 10 percent. This
amount was advanced under the following terms of the Agreement:

          The Loan amount shall be evidenced by a deed of trust
         note secured by a first deed of trust on the aforesaid real
         property which note shall be non-negotiable and shall
         expressly provide therein that payment thereunder shall be
         subject to and conditioned upon full and faithful perfor-
         mance by Lessee of the terms and conditions of the herein-
         below set forth Lease Agreement. . . .

Accordingly, a Deed of Trust Note ("Note") evidencing the perma-
nent loan debt was executed by SAS, with the Note specifically refer-
ring to the Agreement as follows:

          This is an non-negotiable promissory note payable subject
         to the Maker's right of offset, pursuant to the terms of that
         certain Construction, Loan and Lease Agreement dated
         October 3, 1985, by and between the parties hereto. Pursu-
         ant thereto, Maker may offset any amount due and owing,
         but unpaid, by Investors [Bank] under such Construction,
         Loan and Lease Agreement against any payment or other
         amount owing hereunder, whether principal, interest, or oth-
         erwise, and same shall not constitute a default hereunder.

                    3
As required, SAS executed a separate Deed of Trust and Security
Agreement to secure the loan. The loan debt was scheduled for repay-
ment in monthly installments of $5,652.18 over a period of twenty-
five years. Since the lease portion of the underlying Agreement also
provided for a term of twenty-five years, Investors Bank paid SAS
monthly only the difference between its monthly lease payments and
the slightly smaller loan payments due it from SAS. Investors Bank
made the required payments until February 1, 1992. However, on
December 13, 1991, the Office of Thrift Supervision had placed
Investors Bank in receivership and appointed the Resolution Trust
Corporation ("RTC") as receiver and conservator. RTC thereby
acquired all rights and obligations of Investors Bank, including those
arising from the Agreement and the instruments executed pursuant to
the Agreement.

On March 1, 1992, the RTC exercised its statutory authority to
repudiate the lease between Investors Bank and SAS, finding the
lease "burdensome." 12 U.S.C. § 1821(e). Within a short time thereaf-
ter, SAS ceased making the loan payments, contending that its obliga-
tions to pay the loan were discharged by RTC's repudiation of the
lease. It is that contention that lies at the heart of the dispute between
the parties to the action giving rise to this appeal.

The action was commenced on December 18, 1997 by the Federal
Deposit Insurance Corporation ("FDIC"), which replaced the RTC as
receiver of Investors Bank by operation of law on December 31,
1995. See 12 U.S.C. § 1441a(m)(1). On July 2, 1998, FDIC sold the
Note to WRH, which was added as a plaintiff in lieu of granting the
FDIC's motion for substitution of parties. It appears that the appeal
is prosecuted by WRH alone.

The prayer for relief in the amended complaint in the action
includes the following: a declaratory judgment that the repudiation of
the lease by RTC did not release SAS from its obligations under the
Note and the Deed of Trust and Security Agreement; judgment
against SAS for all amounts due on the Note or foreclosure; in the
event of the release of the loan obligations of SAS, recovery of
$280,000 plus the value of improvements to the land under an unjust
enrichment theory; and costs and attorney's fees.

                     4
Following the denial of motions for summary judgment made by
each side, the case came on for a non-jury trial before the Magistrate
Judge on March 22, 1999. No witnesses were called, and the trial was
had on stipulated facts and exhibits. The Magistrate Judge issued his
Opinion and Order directing judgment in favor of the defendants on
April 23, 1999. See FDIC & WRH Mortgage, Inc. v. S.A.S. Assocs.,
44 F. Supp. 2d 781 (E.D. Va. 1999). The district court concluded that
the repudiation of the lease by the predecessors of WRH discharged
the obligation of SAS to repay the loan arising from the original
Agreement between Investors Bank and SAS.

The court found that the discharge of the obligation did not consti-
tute a penalty and that there was no breach of contract on the part of
SAS. Since there was in existence a contract defining the relationship
of WRH and SAS, the court determined that there could be no recov-
ery for claims sounding in restitution or quasi-contract. Moreover, the
court determined that WRH failed to establish either a reasonable
expectation of payment on the Note or unjust enrichment of SAS by
its retention of the loan proceeds. The court reasoned as follows: "As
the Agreement and the Note clearly indicated, [WRH] could only
receive payment on the Note evidencing the loan so long as they con-
tinued to make payments on the lease." Id. at 788. We affirm the
judgment of the district court.

II.

The Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA"), Pub. L. 101-73, 103 Stat. 183, 187, permits the
receiver of a failed financial institution to repudiate any lease or con-
tract that the receiver finds to be burdensome. See 12 U.S.C.
§ 1821(e)(1). In pertinent part, FIRREA provides as follows:

          In addition to any other rights a conservator or receiver may
          have, the conservator or receiver for any insured depository
          institution may disaffirm or repudiate any contract or
          lease --

          (A) to which such institution is a party;

                     5
          (B) the performance of which the conservator or
          receiver, in the conservator's or receiver's discre-
          tion, determines to be burdensome; and

          (C) the disaffirmance or repudiation of which the
          conservator or receiver determines, in the conser-
          vator's or receiver's discretion, will promote the
          orderly administration of the institution's affairs.

Id. Repudiation pursuant to the statute is treated as a breach of con-
tract giving rise to an ordinary contract claim for damages. See How-
ell v. FDIC, 986 F.2d 569, 571 (1st Cir. 1993). However, the
following provisions of FIRREA expressly limit the damages that
may be assessed by courts for the FDIC's repudiation of a contract:

          Except as otherwise provided in subparagraph (C) and para-
          graphs (4), (5), and (6), the liability of the conservator or
          receiver for the disaffirmance or repudiation of any contract
          pursuant to paragraph (1) shall be --

          (i) limited to actual direct compensatory damages;
          and

          (ii) determined as of --

           (I) the date of the appointment of the conserva-
          tor or receiver; or

           (II) in the case of any contract or agreement
          referred to in paragraph (8), the date of the dis-
          affirmance or repudiation of such contract or
          agreement.

12 U.S.C. § 1821(e)(3)(A). Section 1821(e)(4) of FIRREA specifi-
cally deals with the situation where the receiver repudiates a lease. It
provides

          (A) In general

                     6
           If the conservator or receiver disaffirms or repudiates a
          lease under which the insured depository institution was the
          lessee, the conservator or receiver shall not be liable for any
          damages (other than damages determined pursuant to sub-
          paragraph (B)) for the disaffirmance or repudiation of such
          lease.

          (B) Payments of rent

           Notwithstanding subparagraph (A), the lessor under a
          lease to which such subparagraph applies shall --

          (i) be entitled to the contractual rent accruing
          before the later of the date --

          (I) the notice of disaffirmance or repudiation is
          mailed; or

           (II) the disaffirmance or repudiation becomes
          effective, unless the lessor is in default or
          breach of the terms of the lease;

          (ii) have no claim for damages under any acceler-
          ation clause or other penalty provision in the lease;
          and

          (iii) have a claim for any unpaid rent, subject to
          all appropriate offsets and defenses, due as of the
          date of the appointment which shall be paid in
          accordance with this subsection and subsection (i)
          of this section.

Id.

WRH argues that the obligation of SAS to repay the permanent
loan cannot be discharged because the discharge would impose dam-
ages for RTC's repudiation of the lease, in contravention of the provi-
sions of FIRREA. Beyond that, WRH invokes FIRREA in support of
its contention that its loss of the balance due on the loan would consti-

                    7
tute an unlawful forfeiture or penalty for the abrogation of the lease.
Alternatively, WRH argues for the recovery of $416,000, the value of
the land and improvements, "in restitution under a theory of quasi-
contract to prevent the unjust enrichment of SAS" if "this Court
find[s] that there is no longer a contract between the parties by opera-
tion of law." We reject all the arguments of WRH for the reasons that
follow.

III.

It is the generally accepted rule that

          [i]n the case of a bilateral contract for an agreed exchange
          of performances, a repudiation of his duty by one of the par-
          ties terminates the duty of the other. It gives to the latter the
          legal privilege of refusing to render the return performance;
          if sued for such refusal, the plaintiff's repudiation is a good
          defense.

4 Arthur Linton Corbin, Corbin on Contracts § 975 (1951 & 1999
Supp. by Lawrence A. Cunningham & Arthur J. Jacobson). Accord-
ing to this common law rule, the termination of the lease by the RTC
as successor to Investors Bank would discharge any duty owed by
SAS under the Construction, Loan and Lease Agreement. The parties
have stipulated that the Agreement is an integrated, single contract.
This being so, a unilateral breach of any part of the contract consti-
tutes a breach of the indivisible whole.

The common law authorizes an action for money damages (or, in
an appropriate case, for specific performance) on a contract that is
breached by repudiation. 4 id. § 948. However, FIRREA strictly lim-
its the remedies available to those aggrieved when conservators and
receivers choose to repudiate contracts entered into by financial insti-
tutions. In the case of repudiation of a lease, the lessor is not entitled
to contractual rent accruing after the notice of repudiation is mailed
and is barred from recovering damages under any acceleration clause
or other penalty provisions of the lease. See 12 U.S.C.
§ 1821(e)(4)(B)(i), (ii). Nowhere does the statute modify the common
law rule to require the lessor to perform under the lease or under any
repudiated contract of which the lease is an integral part. We can

                     8
identify no basis for relieving the RTC and its assignees from the con-
sequences of the repudiation breach here. In arriving at our conclu-
sion that SAS is privileged to refuse to render the return performance
under the integrated Agreement, we find support in the reasoning not
only of the district court in this case but of other district courts that
have considered similar or analogous cases.

A very similar case is Hackel v. FDIC, 858 F. Supp. 289 (D. Mass.
1994). There, a bank entered into an agreement with the plaintiff for
a sale and lease-back of property, with the bank financing a portion
of the sale price and taking back a note guaranteed by the plaintiff.
The rent to be paid by the bank was intended to cover the note pay-
ments, real estate taxes, operating expenses and a return on the plain-
tiff's cash investment. At closing, the parties simultaneously executed
a purchase and sale agreement, note, guaranty and lease. Ultimately,
the bank was declared insolvent and the FDIC, appointed as receiver,
disaffirmed the lease. The plaintiff prevailed on his claim that he was
not obligated to perform under the note and guaranty. Key to the
court's determination was the finding that the agreement between the
parties constituted a single, integrated contract. Flowing from that
determination was the conclusion that the repudiation allowed by stat-
ute, while valid and not giving rise to any claim for damages, relieved
plaintiff of his obligations under the disaffirmed agreement. In the
words of the court, "[a]s a result [of the repudiation], the Note and
Limited Guaranty, other integral parts of the same agreement, became
null and void and, thus, unenforceable." Id . at 292 (citing Texas Com-
merce Bank Nat'l Assoc. v. Capital Bancshares, Inc. , 907 F.2d 1571,
1577 (5th Cir. 1990) (FDIC's repudiation of agreement voided other
party's obligations on a note)).

In Capital Guidance Assocs. v. NCNB Tex. Nat'l Bank, No. 90-331,
1991 WL 210740 (S.D. Tex. Oct. 7, 1991), the plaintiff's predecessor
in interest leased from a bank that was NCNB's predecessor in inter-
est a certain parcel of land ("Project Lease") and leased to the same
bank a portion of the office building it constructed on the land
("Office Lease"). The leases were simultaneously executed and were
exchanged on the same day. NCNB disaffirmed its obligations under
the Office Lease as authorized by the FDIC but sought to enforce the

                     9
rent obligations under the Project Lease. The court formulated the
issue in the following manner:

          Under the plain language of the . . . statute, FDIC-Receiver
          is unfettered in its authority to repudiate "any contract or
          lease." However, Capital Guidance's allegation is that
          FDIC-Receiver is not "legally entitled to reject the burdens
          of a bilateral agreement and to collect the benefits provided
          under that agreement." Thus the question arises whether the
          leases constitute an integrated single contract or whether
          they are separate agreements.

Id. at *9. The court, applying state contract law, answered its question
as follows: "Both of these mutual and reciprocal leases were simulta-
neously executed and exchanged on a single day. Both leases contain
numerous references to each other, and expressly demonstrate that all
contracts are critical components of a single transaction. Therefore the
leases are an integrated single contract." Id . at *10 (footnote omitted).
The court next confronted the question "whether the FDIC-Receiver
has the authority to repudiate only a lease or contract in its entirety
or just a portion of a lease or contract." Id . Addressing the motions
to dismiss and for summary judgment filed by the defendants in the
action brought by plaintiff to challenge the partial disaffirmance
among other things, the district court wrote:

          Congress intended that only contracts or leases which were
          "separately set forth," determined "to be burdensome" and
          where "avoidance would assist the orderly administration"
          of the failed bank's estate be disaffirmed or repudiated. The
          leases subject to this suit were negotiated and reduced to
          writing as an integrated single contract, thus a question
          exists if FDIC-Receiver accepted the Project Lease whether
          it was required to accept the Office Lease as well.

Id.

Our conclusion that RTC is not relieved from the consequences of
its breach in the case at bar would be much different if we had deter-
mined that the Agreement in this case did not constitute a single inte-
grated contract. Cf. Cardente v. Fleet Bank of Maine, Inc., 796 F.
Supp. 603, 610-11 (D. Me. 1992); R.T.C. Mortgage Trust 1994-S3 v.
Guadalupe Plaza, 918 F. Supp. 1441, 1445-47 (D.N.M. 1996);

                     10
Jenkins-Petre Partnership One v. R.T.C., No. Civ. 91-A-637, 1991
U.S. Dist. LEXIS 20240, at *19 (D. Colo. 1991). In the absence of
such a determination, and in the absence of a specific statutory provi-
sion dictating otherwise, we see no reason to depart from the common
law contractual rule excusing performance by a party whose contract
has been repudiated by the other party to the same integrated contract.

We reject the contention of WRH that the discharge of the obliga-
tions of SAS under the Agreement by reason of the RTC's repudia-
tion of the lease somehow constituted a penalty or forfeiture. While
it is true that contract provisions calling for breach of contract dam-
ages grossly in excess of actual damages generally are unenforceable
as penalties or forfeitures, see Brooks v. Bankson, 445 S.E.2d 473,
479 (Va. 1994), such a rule is inapplicable here. The Agreement does
not contain a penalty provision, and there certainly is no separate pen-
alty provision in the repudiated lease. If there were, it would of course
be subject to the FIRREA proscription against the enforcement of
"any acceleration clause or other penalty provisions in the lease." 12
U.S.C. § 1821(e)(4)(B)(ii). That WRH must suffer the consequences
of the RTC's breach of contract surely does not give rise to a penalty
or forfeiture.

Finally, WRH's arguments that it is entitled to recover on theories
of restitution or quasi-contract if there is no longer a contract between
the parties also must fail. Where a contract governs the relationship
of the parties, the equitable remedy of restitution grounded in quasi-
contract or unjust enrichment does not lie. See Acorn Structures, Inc.
v. Swantz, 846 F.2d 923, 926 (4th Cir. 1988). The Agreement clearly
governs the relationship of the parties to it despite the breach occa-
sioned by RTC's repudiation of the lease portion of the Agreement.
Therefore it cannot be said that there is "no longer" a contract
between the parties. A valid contract does exist. We deal here with
the consequences of its breach. In any event, recovery in quasi-
contract is barred in this case because there is no evidentiary showing
that any benefit accruing to SAS as the result of the breach by RTC
unjustly enriched SAS. See 66 Am. Jur. 2d Restitution and Implied
Contracts §§ 3,4.

AFFIRMED

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