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Nature of Suit Code: 290
Nature of Suit: Other Real Property Actions
Cause of Action: 

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.. ; . 

PUBLISH 

FILED 

United Stater, Cv'tr~: ol Appeals T1 ..... t~ d1'"!1!i". 

UNITED STATES COURT OF APPEALS MAR 0 7 1991 

FOR THE TENTH CIRCUIT . · ROBERT L. HOECKER 

Clerk 

GRADY PROPERTIES COMPANY, 

v. 

FEDERAL 

RATION, 

Plaintiff-Appellant, 

DEPOSIT INSURANCE CORPODefendant/Third-Party 

Plaintiff/Appellee, 

v. 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

FH & L INVESTMENTS, an Oklahoma ) 

general partnership; DONALD P. ) 

FERGUSON; DONALD H. HORN; and ) 

RONALD H. LAWSON; individually ) 

and as general partners of FH & L ) 

Investments; RONALD H, LAWSON and ) 

KAREN A. LAWSON, husband and wife,) 

Third-Party 

Appellants. 

Defendants/ ) 

) 

) 

No. 89-6392 

Appeal from the United states District Court 

For the western District of Oklahoma 

(D,C, No. CIV-88-1354-W) 

Donald P. Ferguson (Donald H. Horn on 

Horn and Lawson, Chickasha, Oklahoma, 

the briefs) of 

for Appellants. 

Ferguson, 

James M. McCoy (Kenneth I. Jones, Jr., with him on the brief), of 

Jones, Blaney & Williams, Oklahoma City, Oklahoma, for Appellee. 

Appellate Case: 89-6392 Document: 01019301406 Date Filed: 03/07/1991 Page: 1 
Before MOORE and BALDOCK, Circuit Judges, and ANDERSON,** District 

Judge. 

MOORE, Circuit Judge. 

*The Honorable Aldon J. Anderson, Senior United States District 

Judge for the District of Utah, sitting by designation. 

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Appellate Case: 89-6392 Document: 01019301406 Date Filed: 03/07/1991 Page: 2 
In this appeal, Grady Properties Company challenges the 

district court's granting summary judgment in favor of the Federal 

Deposit Insurance Corporation (FDIC), foreclosing its attempt to 

offset promissory notes against unrelated accounts receivable. 

Finding no error in.the court's analysis, .. we affirm. 

The parties stipulated to the facts. From 1984 through 1987, 

the law firm of Ferguson, Horn, Lawson & Heck (the Law Firm), 

provided legal services to Universal Savings Association 

(Universal I), generating accounts receivable in the amount of 

$73,018.29 for attorney fees. In 1986, Donald Ferguson, Donald 

Horn, and Ronald Lawson, individually and as general partners of 

FH & L Investments (FH & L, collectively), an Oklahoma general 

partnership, obtained three separate loans totaling $73,677.04 

from Universal I. 1 The loans were evidenced by promissory notes 

and secured by separate mortgages on three parcels of real 

property located in Grady County, Oklahoma. 

In February 1987, the Federal Home Loan Bank Board declared 

Universal I insolvent. 

Insurance Corporation 

Consequently, the 

(FSLIC), 2 

was 

Federal Savings & Loan 

appointed receiver and 

organized Universal Savings Association (Universal II), a federal 

1Ronald H. and Karen A. Lawson, husband and wife, obtained one of 

these loans for $37,700. 

2The Financial Institutions Reform and Recovery and Enforcement 

Act of 1989 (FIRREA), Pub. L. No. 101-73, § 40l(a), substituted 

FDIC for FSLIC. Although this federal action was initially 

undertaken by FSLIC, FDIC has been denominated to replace FSLIC. 

However, for all practical purposes, the substitution does not 

alter our analysis of this case. ~ FDIC v. McCullough, 911 F.2d 

593, 598, n.4 (11th Cir. 1990). Because FSLIC became the receiver 

of the failed financial institution and instituted this action, we 

shall refer to the interest represented by the receiver in FSLIC's 

name. 

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Appellate Case: 89-6392 Document: 01019301406 Date Filed: 03/07/1991 Page: 3 
savings and loan association, as successor-in-interest to 

Universal I. In the transfer of assets, Universal II recognized 

its obligation to pay the legal fees. 3 

In November 1987, Grady Properties, an Oklahoma corporation, 

acquired. ti.tle. to -FH---& L' S- three tracts .. of .. land encumbered by 

Universal I's mortgage liens. In addition, Grady Properties and 

FH & L executed an Assignment of Accounts Receivable in which the 

Law Firm assigned the $73,018.29 owed in attorney fees from 

Universal I to Grady Properties. Subsequently, Grady Properties 

notified Universal II that it had offset the debts secured by the 

mortgages against the accounts receivable and tendered a cashier's 

check for $658.75, the excess of the debts over the receivables. 

Unwilling to recognize the· offset and release the mortgages, 

Universal II returned the check to Grady Properties. Instead of 

paying the November installments due on the notes, Grady 

Properties filed an action in state court to quiet title and 

cancel the real estate mortgages based on its attempted offset. 

In July 1988, Universal II failed, and FSLIC, again appointed 

receiver, became the holder and owner of these promissory notes 

and mortgages. FSLIC removed the quiet title action to federal 

court. Upon the parties' agreement that judgment would be 

rendered on the stipulated facts, the district court rejected 

Grady Properties' contention that Oklahoma law recognized the 

3The district court noted that this stipulation was limited to the 

issues of the case but did not "release any rights, if any there 

be, belonging to Defendant [FSLIC] and against the firm of 

Ferguson, Horn, Lawson & Heck for malpractice." However, the 

parties do not dispute the amount of Universal I's accounts 

receivable to the Law Firm. 

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Appellate Case: 89-6392 Document: 01019301406 Date Filed: 03/07/1991 Page: 4 
validity of its offset which was concluded in November 1987, long 

before FSLIC was appointed receiver of Universal II. Recognizing 

that Scott v. ArmStrong, 146 U.S. 499 (1892), and its progeny 

circumscribe an area of permissible equitable setoffs, the 

district ... court, ... however, concluded .... the setoff in this case 

represented an impermissible preference under the National Bank 

Act, 12 u.s.c. § 1729. 4 Unlike the offset in Scott, in which 

there was an agreement presumed from the arrangement between the 

two banks, the district court observed, this setoff was based on 

two separate and unrelated commercial transactions and completed 

without any agreement with the savings and loan. Indeed, when the 

setoff was tendered, Universal II rejected it. Thus, the district 

court ordered Grady Properties to line up with other general 

creditors of a failed financial instltution to seek its pro rata 

distribution for the accounts receivable, In turn, FSLIC was 

permitted to accelerate the promissory notes and take other steps 

necessary to protect and augment the receiver's estate. 

Grady Properties now urges the district court erred in 

finding the offset lacked the requisite mutuality to align this 

case with Scott and remove it from the scheme mandated by the 

4section 1729(b), since repealed, provided in part: 

(1) In the event that a Federal association is in 

default, the Corporation shall be appointed as 

conservator or receiver and as such --

(A) is authorized 

. . . . 

(v) to 

liquidate its 

orderly manner 

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proceed to 

assets in an . . . 

Appellate Case: 89-6392 Document: 01019301406 Date Filed: 03/07/1991 Page: 5 
National Bank Act. 5 To support this position, Grady Properties 

characterizes putting the mortgages 11 in place 11 with the accounts 

receivable as the functional equivalent of mutuality. This 

unilateral act of matching the mortgages to the accounts 

receivable ..... occurred, in November 1987 1 well .before the creation of 

the receivership, Grady Properties emphasizes. Thus, Grady 

Properties contends, the National Bank Act does not even apply. 

However, if it did, Grady Properties adds, the timing of the 

offset would not defeat its validity under Scott's equitable 

analysis. Grady Properties relies on FDIC v. Mademoiselle of 

~' 379 F.2d 660 (9th Cir. 1967). 

Our review of the district court's judgment on stipulated 

facts is plenary. McMahon ·V. McDowell, 794 F.2d 100 (3d Cir.), 

cert. denied, 479 u.s. 971 (1986). We conclude the court 

correctly characterized the facts and properly interpreted th~ 

National Bank Act. 

A general rule is provided in Scott Vt Armstrong, 146 u.s. at 

499, which permits an offset within the context of the insolvency 

of a national bank. ~ 7 Michie on Banks and Banking, ch. 15, 

§ 240 (1989). In that case, Fidelity Bank loaned the Farmers' 

Bank a sum of money with the arrangement that the money borrowed 

would be placed to the credit of Farmers' Bank on the books of 

Fidelity. When Fidelity Bank was declared insolvent, the undrawn 

balance was setoff against the note. The Court held the setoff 

5The parties raise and brief the applicability to these facts of 

the D'Oench Doctrine, P'Oench, Puhffie & Co, v. FDIC, 315 u.s. 447 

(1942), and federal holder-in-due-course rules. We do not address 

either argument, finding them unnecessary to the proper resolution 

of this case. 

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Appellate Case: 89-6392 Document: 01019301406 Date Filed: 03/07/1991 Page: 6 
was not a preference forbidden by national banking law because of 

the clear evidence the underlying agreement contemplated a mutual 

transaction. "By mutual credit, in the sense in which the terms 

are here used, we are to understand, a knowledge on both sides of 

an existing -debt. due .. to one party, -.and a .. credit by the other 

party, founded on, and trusting to such debt, as a means of 

discharging it." Id. at 507, Because the credits were reciprocal 

and "part of the same transaction," id. at 508, the setoff was not 

a preference. In Scott, the agreement for a setoff could be 

implied from the nature of the transaction itself. 

At this juncture, the facts of this case veer considerably 

from those in Scott, While Grady Properties owed a debt to 

Universal II, Universal II -neither held a credit nor agreed to an 

arrangement to maintain the outstanding accounts receivable from 

an independent source as a credit against Grady Properties' debt •. 

Only one side of the mutuality equation is present, Hence, as the 

district court correctly noted, Scott does not sanction using a 

separate and unrelated commercial transaction with a third party 

to offset debts owed to the failed financial institution. 

Indeed, FDIC v. Mademoiselle of Cal,, 379 F.2d at 660, is not 

to the contrary. In that case, Mademoiselle borrowed $60,000 from 

the san Francisco National Bank (SFNB). Without notifying 

Mademoiselle, SFNB sold and assigned an 80% interest in the note 

to Union Bank. When SFNB was declared insolvent, Mademoiselle 

attempted to setoff the note with the balance of a commercial 

account held at SFNB. union sought a preferred claim against the 

assets of SFNB for 80% of the deposit. The Ninth Circuit held 

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Appellate Case: 89-6392 Document: 01019301406 Date Filed: 03/07/1991 Page: 7 
that although a portion of 

Mademoiselle's setoff fell 

this note had been 

within the logic 

assigned, 

of Scott. 

Mademoiselle's deposit account increased SFNB's assets, which "'in 

the hands of the receiver to that amount ought in equity and good 

conscience, .under. the law, to be allowed the amount of his deposit 

at the time the bank closed.'" rd. at 663 (quoting People ex rel. 

Nelson v. Bank of Harve~, 273 Ill. App. 56, 59-60 (Ill. App. 

1933))• As in Scott, only the balance of the debt after setoff is 

considered an asset of the bank. However, because of the lack of 

mutuality and reciprocity between Mademoiselle's credit and 

Union's attempted offset based on its participation in the loan, 

the Ninth Circuit reversed the district court's granting Union a 

preferred claim against the assets of SFNB for 80% of the 

Mademoiselle deposit. 

Grady Properties cannot enjoy this equitable protection from 

the National Bank Act because the transactions cannot be 

manipulated to permit a finding of mutuality of obligation. Grady 

Properties owed a debt to Universal II. The Law Firm held 

accounts receivable from Universal II. That the Law Firm assigned 

its credit to Grady Properties does not alone transform the nature 

of the relationship between Grady Properties and Universal II, now 

represented by FDIC. To deem an arrangement or agreement by 

Universal II contemplating an offset on these facts, as Grady 

Properties suggests, is implausible. In the face of Universal 

II's rejection of the offset tender, it is sheer fancy, As the 

Fifth Circuit noted in Interfirst Bank-Abilene, N,A. y, FDIC, 777 

F.2d 1092, 1095 (5th Cir. 1985), "'[m]utuality' requires that the 

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Appellate Case: 89-6392 Document: 01019301406 Date Filed: 03/07/1991 Page: 8 
deposit of [one bank] and its debt to the [second bank] be owed in 

the same capacity so as to prevent such unjust results • • • 

.,6 

Given the lack of mutuality underpinning the attempted 

offset, the district court correctly looked to the provisions of 

the National -·Bank .. Act which fix r-ights and liabilities when a 

national bank is declared insolvent. FDIC v. McKnight, 769 F.2d 

658, 661 (lOth Cir. 1985), cert, denied, 475 u.s. 1010 (1986). 

Specifically, 12 u.s.c. § 91 prohibits payments by the bank that 

prefer some creditors over others, and § 194 requires a ratable 

distribution of assets among all general creditors of the 

receiver's estate. "As of the moment that a national bank is 

declared insolvent and goes into the hands of a receiver, federal 

law governs the distribu·tion of the bank's assets." Downriver 

Commun~ty Fed. Credit Union v. Penn Square Bank, 879 F.2d 754, 759 

(lOth Cir. 1989), cert. denied, 110 s. Ct. 1112 (1990). The. 

assignment to Grady Properties of the accounts receivable must be 

analyzed under federal law like any other claim made against the 

receiver of Universal II. Thus, Grady Properties must present its 

claim like other general creditors of the insolvent bank and await 

a ratable distribution of the bank's assets. 

AFFIRMED. 

6rn Interfirst Bank-Abilene, 777 F.2d at 1092, the court permitted 

Interfirst Bank to offset deposits made by Ranchlander National 

Bank in its correspondent account at Interfirst with outstanding loans (participations) Interfirst owed Ranchlander before 

Ranchlander was declared insolvent. The Fifth Circuit rejected 

the FDIC characterization of the transaction as a preference 

finding the claim was provable and the debt was owed in the same 

capacity as the deposits against which it was offset. A similar 

(Continued to next page.) 

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Appellate Case: 89-6392 Document: 01019301406 Date Filed: 03/07/1991 Page: 9 
,,. 

(Continued from prior page.) 

analysis was applied in Hibernia Nat'l Bank v. FPIC, 733 F.2d 1403 

(lOth Cir. 1984), and Bromfield v. Trinidad Nat'l Inv, Co., 36 

F.2d 646 (lOth Cir. 1929), cited by the district court. 

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Appellate Case: 89-6392 Document: 01019301406 Date Filed: 03/07/1991 Page: 10