Document: 476 U.S. 426 106 S.Ct. 1931 90 L.Ed.2d 428 FEDERAL DEPOSIT INSURANCE CORPORATION, Petitionerv.PHILADELPHIA GEAR CORPORATION. No. 84-1972. Argued March 4, 1986. Decided May 27, Syllabus On the application of a customer respondent, bank issued standby letter credit for respondent's benefit in amount $145,200. The provided that draft drawn upon it would be honored by only if accompanied signed statement had failed to make payment invoiced goods. same day was issued, executed an unsecured promissory note bank's favor. and understood liability on contingent presenting drafts after customer's nonpayment. Subsequently, declared insolvent, petitioner Federal Deposit Insurance Corporation (FDIC) appointed its receiver. Respondent then presented FDIC over $700,000 worth goods delivered before became insolvent. When were returned unpaid, respondent sued District Court, alleging backed insured deposit under definition "deposit" 12 U.S.C. § 1813(l )(1) as unpaid balance "money or equivalent" received held that, inter alia, is evidenced credit, therefore entitled $100,000 insurance, this being maximum FDIC. Court agreed, Appeals affirmed. Held: A does not give rise deposit. This has been FDIC's longstanding interpretation, such interpretation consistent with Congress' purpose creating federal insurance protect assets "hard earnings" businesses individuals have entrusted banks. furthered extending cover note, which involves no surrender hard earnings custody. In case, possession any when went into receivership. Pp. 430-440. 751 F.2d 1131 (CA10 1984), reversed remanded. O'CONNOR, J., opinion BURGER, C.J., BRENNAN, WHITE, POWELL, STEVENS, JJ., joined. MARSHALL, filed dissenting opinion, BLACKMUN REHNQUIST, joined, post, p. 440. Charles A. Rothfeld, Washington, D.C., petitioner. Gerald F. Slattery, Jr., New Orleans, La., respondent. Justice O'CONNOR Court. 1 We granted certiorari consider whether program. hold light create and, fact entrust noncontingent bank, 2 * Orion Manufacturing (Orion) was, at time relevant transactions, Philadelphia Gear (Philadelphia Gear). Orion's application, Penn Square Bank, N.A. (Penn Square) Gear's "signed [it had] said invoices remained least fifteen (15) days." App. 25. Because intended provide seller buyer payment, what commonly referred "standby" "guaranty" credit. See, e.g., CFR 337.2(a), n. (1985) (defining letters mentioning they may " 'guaranty' money obligation"). conventional "commercial" contrast, one obtains from issuing without looking even first instance. See ibid. (distinguishing commercial credit). also Verkuil, Bank Solvency Guaranty Letters Credit, 25 Stan.L.Rev. 716, 717-724 (1973); Arnold & Bransilver, Standby Letter Credit—The Controversy Continues, 10 U.C.C.L.J. 272, 277-279 (Spring 1978). 3 $145,200 favor Square. 27. listed "Back up Credit." Ibid. Although face did so indicate, both nothing considered due interest charged Square, unless nonpayment Orion. 1131, 1134 1984). Tr. Oral Arg. 32. 4 July 5, 1982, Petitioner Shortly thereafter, Square's insolvency. unpaid. F.2d, 1133-1134. 5 Western Oklahoma. alleged set forth )(1), 1821(a)(1) (setting generally single depositor given bank). apparent hopes obtaining additional funds latter's capacity receiver rather than insurer, terms allowing repeated reinstatements made letter's total value more 6 $145,200, B Pet. Cert. 20a, 28a-30a; liable id., 37a-43a; prejudgment $100,000, 43a. appealed Court's ruling constituted purposes award interest. cross-appealed 7 Tenth Circuit interest, 1138-1139, but otherwise affirmed decision. As "deposit," fell within )(1)'s insured. Id., 1134-1138. petition aspect Appeals' ruling. 474 918, 245, 88 253 (1985). now reverse. II Title provides: 8 "The term 'deposit' means— 9 "(1) equivalent usual course business obligated either conditionally unconditionally, . account, traveler's check primarily liable: Provided, That, limiting generality 'money equivalent,' account instrument must regarded evidencing receipt credited exchange checks person secondarily liable. ." successfully argued because liable, form here dispute Brief 7, 7. Nor contest backup is, some sense, "promissory note." (remarks Mr. representing FDIC) ("It labeled note. It can termed note"). argues consistently interpreted include represents thus constitute equivalent." consists liability, asserts FDIC, Congress insure. Under theory, while state law, law )(1). D'Oench, Duhme Co. v. 315 447, 456, 62 676, 678, 86 L.Ed. 956 (1942) (holding acquired question); First National Dickinson, 396 122, 133-134, 337, 343-344, 24 312 (1969) governs branch banking McFadden Act). 11 quite properly looked language statute. Florida Power Light Lorion, 470 729, 735, 105 1598, 1602, 84 643 (1985); United States Yermian, 468 63, 68, 104 2936, 2939, 82 53 (1984). Finding proviso sufficiently plain, further. But points out, "letter credit" note" used statute definition, developed those definitions many years framework complex statutory scheme administers. constitutes desire providing insurance. Since creation expressed dissatisfaction "deposit"; indeed, 1960 adopted regulatory language. we weigh all these factors together, are constrained conclude Holmes stated discerning constitutionality estate tax, "a page history volume logic." York Trust Eisner, 256 345, 349, 41 506, 507, 65 963 (1921). genesis Act powerful substitute legal analysis, worthy recounting sheds passing Act. Cf. Watt Alaska, 451 259, 266, 101 1673, 1677, 68 80 (1981) ("The circumstances enactment particular legislation persuade court intend words common meaning their literal effect"). 13 created Nation throes extraordinary financial crisis. Allen, Yesterday: Nineteen-Thirties America 98-121 (1940); Schlesinger, Crisis Old Order 474-482 (1957). More one-third banks open 1929 shut doors just four later. Bureau Census, Historical Statistics States: Colonial Times 1970, pt. 2, pp. 1019, 1038 (1976). response crisis, President Roosevelt national holiday effective he took office. 48 Stat. 1689. turn responded extensive banking, including laws gave existence. 14 clear. Faced virtual panic, attempted safeguard against possibility failures deprive them savings. passed 1933 provisions "[i]n order repetition present painful experience vast sum purchasing power 'tied up.' S.Rep. 77, 73d Cong., 1st Sess., (1933) (emphasis added). focus ensuring lead tangible loss event failure. chairman Committee House Representatives explained floor: 15 "[The people right deposits will safe. They expect establishment maintenance system where citizens place reasonable expectation able get out again demand. 16 17 "[T]he bill ensure that] community saved shock failure, every citizen opportunity withdraw his deposits. 18 19 public demand you me great fruits toil know slip return safe Government bond." 77 Cong.Rec. 3837, 3838, 3840 Rep. Steagall). 20 3913 Keller) ("[We make] absolutely certain man, woman, child who puts dollar lose penny it"); 3924 Green) pass secure man sure comes back there"). To prevent failure resulted effort 21 Despite revisited 1935, 1950, 1960, comments remain best indication underlying Reports 1935 amendments specific comment. H.R.Rep. 742, 74th (1935); 1007, 2-4 H.R.Conf.Rep. 1822, 44 (1935). floor debates centered around changes Reserve System bill, 79 6568-6577, 6651-6660 Indeed, instruments denominated notes" seem exclusively uncontingent, see, Fed.Res.Bull. 520 (1930) (Regulation A) "unconditional promise pay [a dollars] fixed determinable future time") added); Gilman Commissioner, 47, 50 (CA8 1931) [contingent] 'promissory notes' very unusual"), unlikely occasion refer expressly notes us turned attention enacted provision treating 22 legislative 1950 similarly unhelpful, reenacted unchanged. 1269, 81st 2d 2-3 (1950); 2564, 5-6 (1950), U.S.Code Cong. Admin.News 3765. likewise amendments' phrasing meant effect fundamental deposit; bring harmony reports condition, rules regulations incorporated new definition. 1827, 86th 3, (1960); 1821, (1960), 3234. 14794 (1960) (discussing pre-1960 scheme). 23 insurance—a continued modification basic equivalent"—was clearly safeguarding wanted someone put could always back. behind general, especially section defining equivalent," therefore, protection bank. custody Gear, seeks collect surrendered benefit, relied meet obligations demands Gear. Nor, importantly, unconditionally treat own increased acceptance collected absence presentation invoices, wholly promise, receivership, neither nor lost anything except ability use reduce risk go delivery actions respect chosen general believe insurable "deposit." 1933, amended authorize "to insure benefits [FDIC] insurance." 8, Banking ch. 89, 168. define however, until stated: 26 means commercial, checking, savings, thrift certificate deposit, trust retained deposited department another together other board directors [of FDIC] shall find prescribe liabilities usage. 101, 614, 49 684, 685-686. 27 Less two months enacted, promulgated part "letters procuring [such] liable." 301.1(d) (1939) (codifying Regulation I, rule 1, Oct. 1935), revoked incorporation 234 (Supp.1962). 28 specifically governing remove separate Sept. 21, 967, 64 874. modify expanded several categories, employed since remains force today. supra, 430 (quoting current version statute). 29 At point disown initial, clear depositors. 432-435. criticize see infra, 438, fact, changing all. Compare 685-686 874-875. giving pertinent change, "congressional revise repeal agency's persuasive evidence Congress." NLRB Bell Aerospace, 416 267, 275, 94 1757, 1762, 40 134 (1974). Zenith Radio Corp. States, 437 443, 457, 98 2441, 2448, 57 337 (1978). added designed incorporate "deposits." Committees Houses amendments: deposits, Corporation, [along] [in sections ]." (same), 3243. Congress, devised assist determining scheme. circumstances, obviously deal deference do C 30 argue express regulation excluding exclusion nonetheless consistent. meeting officials shortly creation, official asked charge replied: 31 'If your depositor's cash reflected books liability. If, hand, merely extend line customer, show books. created.' Transcript quoted Irving Co., 137 F.Supp. 145, 161 (SDNY 1955). 32 apparently never interwoven issue viewed most accurately extension Orion, transcript lends support contention policy exclude 33 contemporaneous understanding generate fortified behavior following decades. asserted repeatedly premiums notes, assertion. 42. requires assess contributions fund percentage "deposits" §§ 1817(a)(4), (b)(1), (b)(4)(A). By suit—the challenge treatment brought, almost $100 billion outstanding. Board Governors System, Annual Statistical Digest 71 (1983); 1983 (Table 110F). levy demonstrates reflect 34 reduced regulation, nevertheless practice belief case "considerable weight [that] should accorded executive department's construction administer." Chevron U.S.A. Inc. Natural Resources Defense Council, Inc., 467 837, 844, 2778, 2782, 81 694 above, wholesale congressional purpose, certainly stand. III 35 essentially guarantee extended behalf. With standard typically written something unable honor obligations. concedes, extends uncontingent (statement ("If fully negotiable limited side agreements, backing statute"). - 18. here, Nothing ventured, lost. whatever State's note," using phrases arrangement 36 Accordingly, judgment below reversed, remanded further proceedings opinion. 37 Reversed 38 whom REHNQUIST join, dissenting. 39 There considerable sense differs considerably savings checking accounts come readily mind speaks Nevertheless, reach common-sense result, read qualifications appear there. recently recognized ingenuity businessmen creates transactions corporate forms perhaps contemplated courts enforce statutes enacted. Governors, FRS Dimension Financial Corp., 361, 373-375, 681, 688-689, 691 (1986). unmistakably program, attempt draw distinctions between different types forces ignore settled principles law. Here, Dimension, inflexibility applied modern matter remedy. cannot doubted meets contained [Orion] holds Uniform Commercial Code (UCC) Oklahoma assume, absent convincing contrary, derive ordinary sources I there case. justifies restrictive reading large arguing obligation money. keystone arguments, decision, money, intent largely irrelevant. 42 must, determined equivalent. Moreover, comports economic reality. Promissory convertible cash. argues, holds, "contingent" However, strenuously word, plausibly word. unconditional holder plus accrued August 1982. sets conditions affect negotiability UCC, U.C.C. 3-104(1) (1977); Okla.Stat., Tit. 12A, (1981). 43 misses states original Acts, obligation. Ante, 434. pay, satisfies requisites UCC existed 1930's. contingencies attached arise contract. contingencies, well long 1930: "[I]n invalid contingency avoid apparent, memorandum paper; for, contemporaneous, verbal each defence parties, deemed instrument, affect, much less invalidate, character." J. Thorndike, Story Notes (7th ed. 1878) (footnotes omitted).1 45 far semantics oral concerning itself correctly observes breached contract sue note; nevertheless, separately plead prove breach parol parties differed inadmissible action debt. American Perforating State 463 P.2d 958, 962-963 (Okla.1970). Similarly, found way hands third party, choice it, left entrustment not, completely free. 46 taken differ substantially assumed repayment paid undertakes collateral special enters 5-117, comment (1977). Should cease operations, enjoy preference bankruptcy, entitling receive creditors paid. 5-117; 5-117 Like then, hypothetical little fear misconduct party. If program probably standby, funded, unfunded.2 determine. 47 While purports examine rest attributes Rather, individual entrusts promises negotiate met. That might advised Act, not. dissent. Allen 599 (ED Tenn.1984), appeal pending, 85-5003 (CA6), raising one. negotiable, plausible seems odd status depend agreement Ordinarily, indifferent aware agreement. necessarily bringing greater rationality area coverage.

Category: 7