Opinion ID: 2210624
Heading Depth: 1
Heading Rank: 3

Heading: The Executor's Cases.

Text: We agree with the executor that the issue is one of first impression for us. The executor concedes there is authority for the proposition that 12 U.S.C. section 1823(e) makes the oral understanding invalid as against the FDIC. But the executor points to opposing authority and asks us to side with that authority. The executor cites four cases in support of its position. A. Nemecek. In the first case a bank sued to recover judgment against several makers on a note that was in default. FDIC v. Nemecek, 641 F.Supp. 740 (D.Kan. 1986) (declined to follow in FDIC v. Cover, 714 F.Supp. 455 (D.Kan.1988)). The note was secured by a mortgage on certain land. The bank and the defendants, through their lawyers, agreed that the bank would accept quitclaim deeds for the mortgaged property in lieu of foreclosure. The defendants then delivered the deeds to the bank's lawyers. Before the bank's lawyers could deliver the deeds to the bank and before the bank could sign a formal release, the bank failed and was closed. Id. at 741. The FDIC was appointed receiver and was substituted as plaintiff in the bank's lawsuit. The defendants moved to enforce the settlement agreement. The FDIC replied, arguing that the motion should be denied because of 12 U.S.C. section 1823(e). Id. The district court granted the defendants' motion. The court focused on the words any asset acquired by it in section 1823(e). Simply put, the court reasoned that before section 1823(e) could apply, the FDIC must first have acquired an asset. The court concluded that the section does not apply when no asset exists. Id. at 742. The court found that the parties had reached an accord and satisfaction before the FDIC acquired any asset of the bank. The court reasoned that in these circumstances the defendants' note was canceled and so was not an asset that the FDIC acquired. Id. In short, 12 U.S.C. section 1823(e) did not apply. B. Langley. A year after Nemecek was decided, the Supreme Court considered section 1823(e) in the second of the four cases upon which the executor relies. Langley v. FDIC, 484 U.S. 86, 108 S.Ct. 396, 98 L.Ed.2d 340 (1987). The defendants borrowed money from a bank to purchase land. In consideration for the loan, the defendants signed a note, mortgage, and personal guaranties. The defendants defaulted and the bank sued them. Id. at 88, 108 S.Ct. at 399, 98 L.Ed.2d at 345. The defendants alleged as a defense that the bank had procured the note by misrepresenting the amount of land purchased, the amount of mineral acres involved, and the outstanding mineral leases on the property. Nothing about these representations appeared in the documents the defendant signed, nor in the bank's records, nor in the minutes of the bank's board of directors or loan committee. Id. at 89, 108 S.Ct. at 400, 98 L.Ed.2d at 345. The bank subsequently failed and was closed. The FDIC was appointed receiver and undertook financing of a purchase and assumption transaction. See 12 U.S.C. § 1823(c)(2). All the liabilities and most of the assets were assumed by another bank. The FDIC paid the assuming bank the difference between the liabilities assumed and the value of the assets. In consideration for the payment the FDIC received, among other things, the defendants' note. Langley, 484 U.S. at 89, 108 S.Ct. at 400, 98 L.Ed.2d at 345-46. The FDIC, which was substituted as plaintiff in the lawsuit, moved for summary judgment. The district court granted it. The circuit court affirmed. It concluded that the word agreement in section 1823(e) encompassed the kinds of material terms or warranties asserted by the defendants in their misrepresentation defenses. Because the requirements of section 1823(e) were not met, the court further concluded these defenses were barred. Id. at 89-90, 108 S.Ct. at 400, 98 L.Ed.2d at 346. The Supreme Court agreed with the court of appeals' reasoning. The Court concluded that the bank had and could transfer to the FDIC voidable title, which is enough to constitute `title or interest' in the note. Id. at 94, 108 S.Ct. at 402, 98 L.Ed.2d at 348. The executor here relies on the Court's dictum that if the instrument is entirely void rather than voidable, the FDIC would have purchased nothing. See id. at 93-94, 108 S.Ct. at 402, 98 L.Ed.2d at 348. From this, the executor reasons that Taldine's guaranty, once it had been fully fulfilled, was void. C. Commerce Federal Savings Bank. Two years after Langley was decided, the sixth circuit decided the third case of importance to the executor. Commerce Fed. Sav. Bank v. FDIC, 872 F.2d 1240 (6th Cir.1989). An individual and a corporation owned real estate. The two borrowed $125,000 from a bank. As security for the loan, the borrowers executed a deed of trust covering the real estate. The deed of trust contained a dragnet clause covering future borrowings of the individual and the corporation. The deed of trust also had a provision that the trust would be extinguished if all outstanding debts encumbering the instrument were paid. Id. at 1241-42. The balance of the $125,000 was paid, and the bank orally agreed to release the deed of trust. Meanwhile the bank failed. The FDIC was appointed receiver. The FDIC acquired various assets of the failed bank, including the deed of trust and a second promissory note for $50,000 executed by the corporation. The FDIC refused to release the deed of trust, contending that the $50,000 obligation was secured by the dragnet clause in the deed of trust. Id. at 1242-43. In a suit seeking a release of the trust deed, the district court determined that the dragnet clause applied to the $50,000 note. The bank had orally agreed to cancel the deed of trust, which included the dragnet clause, in return for payment of the balance due on the $125,000. The court applied section 1823(e). It held that the oral agreement was not enforceable against the FDIC. Id. at 1243-44. The sixth circuit reversed, holding that the deed of trust was not an asset acquired by the FDIC. The court concluded that the original $125,000 indebtedness had been satisfied before the FDIC's purchase. Id. at 1245. The court found that the FDIC had not proven the $50,000 note had existed before the payment of the outstanding balance on the original note. The court held that the FDIC had failed to rebut the presumption that the deed of trust was extinguished. The court concluded, therefore, that the FDIC failed to prove the deed of trust was an asset at the time the FDIC purchased the assets of the failed bank. Id. at 1245-46. D. Prann. In the last case of importance to the executor, a subsequent developer of land assumed the original developer's debt to the bank that financed the development. FDIC v. Prann, 694 F.Supp. 1027 (D.P.R.1988). Later the bank loaned the subsequent developer additional money to complete the project. The bank permitted the subsequent developer to credit a portion of the loan to pay off the original developer's debt to the bank. Id. at 1033. The bank failed. The FDIC took over the bank's assets and sued the original developer. The FDIC took the position that section 1823(e) applied to the credit because no cash had exchanged hands. There had only been a paper or a book entry on the bank's books. Id. at 1029, 1033. The federal district court rejected the FDIC's argument as specious. Relying on Nemecek the district court held that section 1823(e) did not apply to the original developer's debt. The court reasoned that the debt which formed the basis of the FDIC claim had been satisfied before the FDIC acquired the bank's assets. Id. at 1037-38.