Opinion ID: 546380
Heading Depth: 1
Heading Rank: 6

Heading: application of d'oench doctrine bars mccullough's

Text: DEFENSE TO THE MORTGAGE 44 The McCulloughs' last defense concerns a legal insufficiency in the mortgage that was executed to secure the now defaulted note. Although facially appearing to be a valid, legal mortgage, the parties agree that the mortgage was not witnessed or acknowledged in proper fashion. At the time that the mortgage was signed, the notary whose signature appears on the mortgage was, in fact, not present. Under Alabama law, the McCulloughs argue, this flaw renders the mortgage insufficient to pass legal title to the real estate described in the mortgage. See Central Bank of the South v. Dinsmore, 475 So.2d 842 (Ala.1985). 45 Although the error in acknowledgement might render the mortgage voidable were this suit involving two private parties litigating under state law, we conclude that the FSLIC's federal common law defenses bar the McCulloughs' claim of improper notarization. On its face, the mortgage appears valid. As such, it would have been impossible for the bank examiners to have had any suspicions concerning the legal sufficiency of the mortgage during an examination of Old Twin City's records. Additionally, the flaw in the mortgage is one that the McCulloughs could have easily guarded against by merely waiting to sign the mortgage until a notary's presence was secured. Because the McCulloughs were aware that the document they signed was a mortgage, we are constrained to conclude that the McCulloughs lent themselves to a scheme or arrangement (i.e., that the mortgage would be signed without the presence of a notary and that a notary would later affix her signature) that was likely to mislead the banking authorities (by leading them to believe that the mortgage was legally valid). 7 Accordingly, the McCulloughs' claim is barred by the D'Oench doctrine. 46 In concluding that application of the D'Oench doctrine in this case is appropriate, we observe that application of federal common law cannot be viewed as being inconsistent with the settled expectations of individuals engaging in transactions under state law. See Gunter, 674 F.2d at 872. Under Alabama law, the failure to acknowledge a mortgage properly does not render the mortgage void or even voidable in all cases. 8 See, e.g., Central Bank of the South, 475 So.2d at 846-47. For example, under Alabama law, when a bona fide purchaser for value takes a mortgage without notice of errors in the mortgage's acknowledgement not readily appearing upon the face of the mortgage, those errors are legally insufficient to defeat claims of that purchaser. Colburn v. Mid-State Homes, Inc., 289 Ala. 255, 266 So.2d 865, 869-70 (1972). Alabama law also provides that the protection given a holder in due course is awarded to the holder of a mortgage as well as the note which the mortgage secures. Hardy v. Gissendaner, 369 F.Supp. 481, 483 (M.D.Ala.1974), aff'd, 508 F.2d 1207 (5th Cir.1975). 47 We have noted on prior occasions that, in application, the federal common law defenses available to the FDIC are analogous to the defenses that could be raised by a holder in due course under state law. See FDIC v. Gulf Life Ins. Co., 737 F.2d 1513, 1517-18 (11th Cir.1984); Gunter, 674 F.2d at 872. In both Gulf Life and Gunter, borrowers contended that the FDIC's invocation of federal common law to defeat such borrower state law defenses as estoppel, waiver, unjust enrichment, fraud in the inducement, and failure of consideration would upset settled expectations under state law. In rejecting these arguments, we observed that according the FDIC protection from these claims granted the FDIC no greater protections than those offered to a holder in due course under state law. Recognizing that a transfer of an obligation to a holder in due course was a much more likely occurrence than the assumption of the obligation by the FDIC, we concluded that little dashing of commercial expectations would result from a uniform federal rule protecting the FDIC from such defenses. 9 Gulf Life Ins. Corp., 737 F.2d at 1518. 48 Drawing upon this analogy, several circuits have concluded that the FDIC and the FSLIC, regardless of whether operating in a corporate or receiver capacity, are clothed under federal common law with the same defenses that would be accorded a holder in due course under state law. See, e.g., Campbell Leasing, Inc. v. FDIC, 901 F.2d 1244 (5th Cir.1990); Firstsouth, F.A. v. Aqua Constr., Inc., 858 F.2d 441, 443 (8th Cir.1988); FSLIC v. Murray, 853 F.2d 1251, 1256-57 (5th Cir.1988); FDIC v. Wood, 758 F.2d 156, 159 (6th Cir.), cert. denied, 474 U.S. 944, 106 S.Ct. 308, 88 L.Ed.2d 286 (1985). As the Fifth Circuit explained in Murray: 49 [P]roviding FSLIC with at least the status of a holder in due course promotes the necessary uniformity of law in this area while it counters individual state laws that would frustrate a basic FSLIC objective: promoting confidence and stability in financial institutions. See United States v. Kimbell Foods, Inc., 440 U.S. 715, 728-29, 99 S.Ct. 1448, 1458-59 [59 L.Ed.2d 711] (1979); Gunter, 674 F.2d at 868-69. Moreover, clothing FSLIC with at least holder in due course status does not trample commercial expectations of note makers such as appellants. See Kimbell Foods, 400 U.S. at 729, 99 S.Ct. at 1459. A maker must anticipate that his note may be transferred to a holder in due course; the maker therefore suffers no prejudice if the FSLIC is granted those rights. See Wood, 758 F.2d at 161; Gunter, 674 F.2d at 872. 50