Opinion ID: 1955855
Heading Depth: 1
Heading Rank: 2

Heading: D'Oench Doctrine

Text: Frank Jahner contends that the trial court erred in refusing to admit evidence of the fact that he did not knowingly sign the disputed guaranty, even though Frank's primary defense at trial was that he did not sign the guaranty. The trial court precluded Frank from introducing evidence that, if he did sign the guaranty, he didn't knowingly sign it. Beginning with D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), a body of law has developed to protect the FDIC from many collection defenses that are not apparent in an insured bank's records. In D'Oench, the FDIC sued on an unpaid note that it acquired through the assumption of an insured bank's deposit liabilities by another bank. The maker of the note alleged that the note was given without any consideration and with the understanding that no suit would be brought thereon. The Supreme Court quoted related statutes and invalidated the asserted defense for several reasons: These provisions reveal a federal policy to protect respondent and the public funds which it administers against misrepresentations as to the securities or other assets in the portfolios of the banks which respondent insures or to which it makes loans. 315 U.S. at 457, 62 S.Ct. at 679, 86 L.Ed. at 962. Public policy requires that a person who, for the accommodation of the bank, executes an instrument which is in form a binding obligation, should be estopped from thereafter asserting that simultaneously the parties agreed that the instrument should not be enforced. 315 U.S. at 459, 62 S.Ct. at 680, 86 L.Ed. at 963, quoting Mount Vernon Trust Co. v. Bergoff, 272 N.Y. 192, 5 N.E.2d 196, 197 (1936). It needs no argument to demonstrate that the integrity of ostensible assets has a direct relation to solvency. ..... If the secret agreement were allowed as a defense in this case the maker of the note would be enabled to defeat the purpose of the statute by taking advantage of an undisclosed and fraudulent arrangement which the statute condemns and which the maker of the note made possible. 315 U.S. at 461, 62 S.Ct. at 681, 86 L.Ed. at 964. This view, excluding nearly all defenses not apparent from a bank's records, is well-known as the D'Oench doctrine. The D'Oench doctrine has been supplemented by legislation. 12 U.S.C.S. § 1823(e) says: Agreements against interests of Corporation. No agreement which tends to diminish or defeat the interest of the Corporation in any asset acquired by it under this section or section 11 [12 USCS § 1821], either as security for a loan or by purchase or as receiver of any insured depository institution, shall be valid against the Corporation unless such agreement (1) is in writing, (2) was executed by the depository institution and any person claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the depository institution, (3) was approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the minutes of said board or committee, and (4) has been, continuously, from the time of its execution, an official record of the depository institution. D'Oench and § 1823 have been expansively construed by the courts to protect the FDIC. As the court said in Langley v. FDIC, 484 U.S. 86, 91-92, 108 S.Ct. 396, 401, 98 L.Ed.2d 340, 347 (1987): One purpose of § 1823(e) is to allow federal and state bank examiners to rely on a bank's records in evaluating the worth of the bank's assets. Such evaluations are necessary when a bank is examined for fiscal soundness by state or federal authorities, see 12 U.S.C. §§ 1817(a)(2), 1820(b), and when the FDIC is deciding whether to liquidate a failed bank, see § 1821(d), or to provide financing for purchase of its assets (and assumption of its liabilities) by another bank, see §§ 1823(c)(2), (c)(4)(A). The last kind of evaluation, in particular, must be made with great speed, usually overnight, in order to preserve the going concern value of the failed bank and avoid an interruption in banking services. Gunter v. Hutcheson, 674 F.2d [862], at 865 [11th Cir.1982]. Neither the FDIC nor state banking authorities would be able to make reliable evaluations if bank records contained seemingly unqualified notes that are in fact subject to undisclosed conditions. [N]either fraud in the inducement nor knowledge by the FDIC is relevant to the section's application. Langley, 484 U.S. at 93, 108 S.Ct. at 402, 98 L.Ed.2d at 348. [T]he FDIC is also immune from the defense of failure of consideration on notes it acquires in the execution of a purchase and assumption transaction, for value, in good faith, and without actual knowledge of the failure of consideration claim at the time it enters into the purchase and assumption agreement. FDIC v. Leach, 772 F.2d 1262, 1267 (6th Cir.1985). As Bowen v. FDIC, 915 F.2d 1013, 1016 (5th Cir.1990), explains, the D'Oench doctrine seeks to ensure that FDIC examiners can accurately assess the condition of a bank from its records. While broadly protective of the FDIC, the D'Oench doctrine does not, however, completely bar all collection defenses not evident from a bank's records: Respondent conceded at oral argument that the real defense of fraud in the factumthat is, the sort of fraud that procures a party's signature to an instrument without knowledge of its true nature or contents, ...would take the instrument out of § 1823(e), because it would render the instrument entirely void, ..., thus leaving no right, title or interest that could be diminish[ed] or defeat[ed]. ... Petitioners have never contended, however, nor could they have successfully, that the alleged misrepresentations about acreage or mineral interests constituted fraud in the factum. It is clear that they would constitute only fraud in the inducement, which renders the note voidable but not void.... The bank therefore had and could transfer to the FDIC voidable title, which is enough to constitute title or interest in the note. Langley v. FDIC, 484 U.S. at 93-94, 108 S.Ct. at 402, 98 L.Ed.2d at 348. But, the D'Oench doctrine does bar the defense of fraud in the inducement. Frank Jahner contends that if he did sign the guaranty, the trial court erred in precluding him from introducing evidence that he did not knowingly sign the guaranty. This position is undercut somewhat by Frank's testimony that he would sign whatever Mr. Richter, the Bank officer with whom he dealt, asked him to sign. The evidence shows, and the jury found, that Frank did sign the guaranty. One's outward manifestation of contractual assent controls, not a secret intention. National Bank of Harvey v. International Harvester Co., 421 N.W.2d 799 (N.D.1988). Frank's signature on the loan guaranty was an outward manifestation of contractual assent that the FDIC was entitled to rely upon. If the signature had not been genuine, then the FDIC could not have prevailed, but the genuineness of the signature was established by the jury's verdict and the evidence supporting it. As Langley v. FDIC indicates, fraud in the factum might have defeated the FDIC's claim. However, Frank did not claim that the Bank procured his signature on the guaranty without knowledge of its true nature or contents through any type of fraud or trickery. We conclude that the trial court did not err in precluding evidence that Frank did not knowingly sign the guaranty. As stated in Langley v. FDIC, 484 U.S. at 92, 108 S.Ct. at 402, 98 L.Ed.2d at 347-48, quoting D'Oench, Duhme & Co. v. FDIC, 315 U.S. at 460, 62 S.Ct. at 681, 86 L.Ed. at 963-64, (emphasis in original), by signing the guaranty without fraud on the part of the Bank, Frank lent himself to a scheme or arrangement whereby the banking authority ... was likely to be misled.