Opinion ID: 546380
Heading Depth: 1
Heading Rank: 5

Heading: application of the d'oench doctrine bars the mcculloughs'

Text: DEFENSES TO THE NOTE 34 Having determined that the FSLIC was the real party in interest at the time of the district court's final judgment and that the FSLIC even in its receivership capacity is entitled to raise federal common law defenses derived from D'Oench, we now turn to the precise scope of those defenses. 35 Although the precise claim that was defeated in D'Oench addressed a private party's claim premised upon a secret agreement that a note need not be repaid, the policy considerations leading to the development of federal common law in D'Oench have resulted in extension of the D'Oench estoppel doctrine well beyond that precise factual setting. Borrower defenses premised upon other purported, unwritten statements leading to claims of fraudulent inducement or failure of consideration are now also generally precluded by D'Oench and its progeny. See, e.g., FSLIC v. Murray, 853 F.2d 1251, 1255 (5th Cir.1988) (failure of consideration); FDIC v. McClanahan, 795 F.2d 512, 516 (5th Cir.1986) (same); Gunter, 674 F.2d at 874 (fraud). Such defenses if allowed against the FSLIC or the FDIC would, like the defense at issue in D'Oench, contravene the primary federal policy that the FSLIC and the FDIC must be able to rely upon financial institutions' records in order to best protect the public funds they administer. See Two Rivers Associates, 880 F.2d at 1274-75. The evil to be prevented in any of these situations is precisely the same: the private party seeks to rely upon unrecorded promises or schemes that purport to impose obligations other than those appearing in the bank's records upon the financial institution. 36 Whether a borrower's defense is barred by the D'Oench doctrine depends upon whether the purported agreement relied upon by the private party was ever memorialized in writing or otherwise made explicit such that the FSLIC or the FDIC would have knowledge of the bank's obligations during an evaluation of the bank's records. 5 See Two Rivers Associates, 880 F.2d at 1275. If the bank's records reveal that the bank has agreed to certain additional obligations, then the D'Oench estoppel doctrine would not preclude a borrower's claim that the bank had not satisfied those additional obligations. Id. (citing Howell v. Continental Credit Corp., 655 F.2d 743, 746 (7th Cir.1981)). In such an instance, the bank's responsibilities are clearly delineated by documents in that bank's files manifesting the bank's reciprocal obligations. 37 On the other hand, if side agreements or other inducements cannot be determined by a review of the bank's files, then it cannot be said, without additional proof, that the FSLIC or the FDIC was aware of the additional commitments allegedly made by the bank. Given federal policy favoring reasonable reliance upon existing bank records evidencing all of the bank's existing commitments, see Two River Associates, 880 F.2d at 1275, such unrecorded commitments will not be honored. 38 While on its face, such a policy may appear inequitable to those parties relying upon a bank's unrecorded promises or arrangements, it must be recalled that a party who accedes to a bank's oral inducements without memorializing the same is, to at least some extent, responsible. Because such a party lent himself to a scheme or arrangement whereby the banking authority ... was likely to be misled, that party cannot rely upon that same scheme or arrangement to defend against the banking authority's subsequent actions. See Langley v. FDIC, 484 U.S. at 92, 108 S.Ct. at 402. The D'Oench doctrine favors the interests of depositors and creditors of a failed bank, who cannot protect themselves from secret agreements, over the interests of borrowers, who can. Bell & Murphy & Assoc. v. Interfirst Bank Gateway, 894 F.2d 750, 754 (5th Cir.1990), pet'n for cert. filed, (No. 89-1893). Thus, neither a claim of lack of intent to deceive banking authorities nor a claim that the purported secret arrangement was not by its nature fraudulent is sufficient to defeat application of the D'Oench doctrine. 6 Campbell Leasing, Inc. v. FDIC, 901 F.2d 1244, 1248 (5th Cir.1990); Beighley v. FDIC, 868 F.2d 776, 784 (5th Cir.1989); see also Chatham Ventures, Inc. v. FDIC, 651 F.2d 355, 361-62 (5th Cir. Unit B 1981). 39 Looking to the facts of this case, it is readily apparent that the FSLIC was entitled to avail itself of the D'Oench doctrine. To put the FSLIC on notice that a bank had promised to convey additional property in consideration for the execution of the note, mortgage and rent assignments, the borrower must be able to point to documents that clearly manifest[ed] the bilateral nature of the [parties'] rights and obligations. Two Rivers Associates, 880 F.2d at 1275, quoting Howell v. Continental Credit Corp., 655 F.2d at 747. Within Old Twin City's files, however, was nothing that would indicate the bank's firm obligation to transfer the Covington County property and the oil leases to the McCulloughs. 40 The McCulloughs argue that two documents in the bank files manifest the obligation to transfer the additional property. The first document, a memorandum given to McCullough in August 1985, was written prior to the execution of the relevant note, mortgage and rent assignment, and merely alludes to new appraisals and a transfer of oil runs. Subsequently, when the note, mortgage and rent assignments at issue in this case were executed, it is undisputed that these documents contained no reference to either the Covington County property or to the oil leases. Thus, even if we were to assume that the vague allusions in the August memorandum could be construed as evidence that at one point in time there was discussion of possibly transferring some undefined oil runs, we nonetheless conclude that there is no explicit documentation evidencing Old Twin City's obligation to transfer specific properties to the McCulloughs. See Two Rivers Associates, 880 F.2d at 1275. Similarly, the second document, a letter written in September 1986, mentions only an amendment to the mortgage. It too is insufficient as a matter of law to give notice to the FSLIC that Old Twin City had made a fixed commitment to act in a manner other than that set forth in the executed documents. Id. 41 Finally, it must be noted that McCullough is at least partially responsible for the predicament in which he finds himself. McCullough was active throughout the actual negotiations leading up to the consummation of the deal at issue and could easily have insisted that inclusion of the Covington County property and the oil leases be made explicit in the papers. See Two Rivers Associates, 880 F.2d at 1274. Moreover, McCullough freely concedes that he executed the mortgage and note without insisting upon the formalities of a loan closing as an accommodation to Twin City Savings Bank and Mr. Little and that he knew that speed was essential to the bank due to an impending visit from bank examiners. Additionally, McCullough admits that he had the opportunity to examine the documents at closing and did not avail himself of this opportunity. All told, it is apparent that McCullough voluntarily associated himself with an arrangement that had the potential to mislead the FSLIC as to Old Twin City's obligations. See Langley v. FDIC, 484 U.S. at 93, 108 S.Ct. at 402 (one who signs a facially unqualified note subject to an unwritten and unrecorded condition upon its repayment has lent himself to a scheme or arrangement that is likely to mislead the banking authorities, whether the condition consists of a counterpromise (as in D'Oench, Duhme ) or of the truthfulness of a warranted fact); FDIC v. McClanahan, 795 F.2d at 516 (borrower who acts recklessly cannot rely upon defenses of failure of consideration or fraud in the inducement in an attempt to overcome application of the D'Oench doctrine). 42 Accordingly, we conclude that the McCulloughs' defenses of failure to perform a condition precedent, failure of consideration, and fraudulent inducement all are barred by the FSLIC's invocation of the D'Oench doctrine. 43