Fdic-insured Bank Failures: Let the Makers Beware
| Publication year | 1988 |
| Pages | 2357 |
1988, December, Pg. 2357. FDIC-Insured Bank Failures: Let the Makers Beware
Colorado has been wracked by a disturbing number of bank failures since 1985.(fn1) Observers associate the failures with a troubled economy, adventurous and risky investments, depressed energy and real estate industries, unsound management practices and other factors, including fraudulent and criminal loan schemes.(fn2) Despite these omens of economic crisis, bank depositors insured by the Federal Deposit Insurance Corporation ("FDIC") have not directly suffered any material losses. However, the maker or obligor on a promissory note faces formidable obstacles in defending against enforcement of the note when the FDIC has acquired the note in its corporate capacity ("FDIC-corporate") from the receiver of a failed bank.
When a state bank fails, the Colorado State Bank Commissioner assumes exclusive custody and control of its property and affairs and promptly appoints the FDIC as receiver ("FDIC-receiver"). Through an ex parte petition by the FDIC, a district court may be asked to approve a "purchase and assumption" transaction, whereby a sound bank purchases the failed bank's valuable assets and on-going concern and FDIC-corporate purchases the defaulted assets and liabilities from FDIC-receiver.(fn3) In situations where FDIC-corporate brings an action against the maker to collect on defaulted notes, it often obtains summary judgment because there rarely arises a genuine issue of material fact concerning the execution of and failure to pay such a note.(fn4) However, a maker occasionally will concede executing the note and failing to make payment but will raise a defense. Such defenses include lack of consideration, fraudulent inducements, misrepresentations and oral agreements, which might otherwise circumscribe enforcement of the note. This article discusses why these defenses are generally ineffective against FDIC-corporate.
The defenses available to a maker against the FDIC are governed by federal law irrespective of the forum in which the action is commenced.(fn5) All civil suits at common law or in equity to which the FDIC is a party are deemed to arise under the laws of the United States.(fn6) Generally, federal courts may look to applicable state law for guidance in the absence of controlling federal statutes and federal common law when this would permit a rational resolution and not interfere with federal policies and objectives governing bank liquidations.(fn7) However, there usually is no need to consider state law in resolving defenses asserted against the FDIC.
The Federal Deposit Insurance Act of 1950 provides, at 12 U.S.C. § 1823(e), that:
No agreement which tends to diminish or defeat the right, title or interest of the Corporation [FDIC] in any asset acquired by it under this Section, either as security for a loan or by purchase, shall be valid against the Corporation unless such agreement
(1) shall be in writing, (2) shall have been executed by the bank and the person or persons claiming an adverse interest thereunder, including the obligor contemporaneously with the acquisition of the asset by the bank, (3) shall have been approved by the Board of Directors of the bank or its loan committee which approval shall be reflected in the minutes of said board or committee, and (4) shall have been, continuously, from the date of its execution, an official record of the bank.(fn8)
Section 1823(e) and federal common law policies set forth in D'Oench, Duhme & Co. v. FDIC(fn9) generally suffice to resolve most defenses that are raised by makers against FDIC-corporate. It is ineffective, for example, to assert that a bank officer represented that the maker would not be responsible for repayment of monies advanced upon a promissory note. It is also irrelevant whether the maker was fraudulently induced by a bank officer or other party to obligate himself on a promissory note based on such representations: the representations are promissory and are barred by § 1823(e).(fn10)
Even if there were an oral agreement relieving the maker of obligations under the note, it could not defeat or diminish FDIC-corporate's interest in and ability to enforce the note. The agreement
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