United States District Court, Northern District of Illinois, E.D
December 14, 1983
FEDERAL DEPOSIT INSURANCE CORPORATION, PLAINTIFF,
WILLIAM F. POWERS, CLARENCE ROBINSON AND SHIRLEY ROBINSON, DEFENDANTS.
The opinion of the court was delivered by: Getzendanner, District Judge:
MEMORANDUM OPINION AND ORDER
This action is before the court on plaintiff's motion for
summary judgment against defendants, and on defendant Powers'
cross-motion for summary judgment on plaintiff's claim.
Jurisdiction is based on 12 U.S.C. § 1819. For the reasons stated
below, the court grants plaintiff's motion as against all three
defendants and denies Powers' motion.
In January 1978 Drovers National Bank of Chicago was declared
insolvent. Plaintiff FDIC was appointed receiver, and as receiver
it then sold Drovers' assets to the FDIC under 12 U.S.C. § 1823.
At the time of the sale, Drovers' files included a document
evidencing the indebtedness to Drovers of Drovers' Trust No.
74179; a document executed the same day evidencing the guarantee
of that indebtedness by defendants Clarence Robinson and Shirley
Robinson; documents evidencing the indebtedness to Drovers of
Drovers' Trusts Nos. 805 through 844 and the Robinsons' guarantee
of that indebtedness; and a document evidencing the guarantee of
the Robinsons' obligations by defendant William F. Powers.
(Metzger aff. ¶ 5.)
Based on these instruments the FDIC sues the Robinsons and
Powers as guarantors. The amounts due and owing are established
by the affidavit of Daniel D. Wilson, dated October 27, 1982. The
defendants have not challenged these calculations. Instead, they
deny that they entered into valid agreements with Drovers. The
Robinsons rely on a defense of lack of consideration. Powers
argues that he never agreed to guarantee the Robinsons'
obligations, and that he signed the guarantee form only in blank,
and for another purpose, never intending that the Robinsons would
be named on the form as principals. The defenses of all three
defendants are based on evidence extrinsic to the written
instruments. The main issue presented by these motions is
whether, as the FDIC contends, governing law bars consideration
of the extrinsic evidence offered by the defendants.
The Supreme Court held long ago that reliance on state law may
be inadequate to protect the federal interests implicated when
the FDIC purchases a bank's assets. In the absence of a governing
federal statute, the Supreme Court recognized a body of federal
common law governing the FDIC's rights in purchased assets, and
in particular the Supreme Court applied a rule barring defenses
based on unwritten agreements. D'Oench, Duhme & Co. v. FDIC,
315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). Thereafter, Congress
legislated on the subject, enacting what is codified at 12 U.S.C. § 1823(e):
No agreement which tends to diminish or defeat the
right, title or interest of the [Federal Deposit
Insurance] Corporation 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 time of its execution, an official record of
It is clear that both the rule stated in D'Oench and § 1823(e)
are likely to produce harsh results in some cases. Agreements
that would be valid and binding as between the parties or as
against third parties may be invalid as against the FDIC. To
resist summary judgment, therefore, the defendants need do more
than simply raise a genuine fact issue with respect to their
defenses; they also must show, by summary judgment standards,
that their defenses may fall outside the scope of D'Oench and §
The Robinsons have not articulated their defense very clearly.
On this motion they do state that they "have raised the defense
of lack of consideration, which would invalidate the promissory
notes and guarantees signed by them. Their defense is based on
oral conversations between themselves and officials at Drovers."
(Defendants' memo p. 3.) The written instruments do, however,
contain representations that value has been received, and the
loans underlying the indebtedness apparently related to a real
estate project in which the Robinsons and Powers were interested.
(Clarence Robinson dep. pp. 15-21; Powers dep. p. 15.) It does
not appear that the Robinsons are asserting a failure to deliver
some consideration bargained for and required by the terms of the
written instruments, as might be provable under Howell v.
Continental Credit Corp., 655 F.2d 743 (7th Cir. 1981), and
Riverside Park Realty v. FDIC, 465 F. Supp. 305 (N.D.Tenn. 1978).
Instead, the Robinsons apparently argue that the written
instruments do not reflect any binding agreement, because no
consideration flowed from Drovers or to them. On this motion the
Robinsons do not attempt to demonstrate that they received no
benefit; they only suggest that their defense is based on
conversations with bank officials. The court holds that the
Robinsons have not raised a genuine issue of fact with respect to
this asserted defense.
Even if the Robinsons did raise a genuine issue of fact with
respect to their defense, that defense would be barred by §
1823(e). Since the Robinsons have not described their defense in
detail, it is hard for the court to make a determination on this
point. The Robinsons have, however, presented an argument against
the applicability of § 1823(e) which the court rejects as
frivolous. The Robinsons' sole argument against the applicability
of § 1823(e) is that none of their obligations is an "asset"
within the meaning of the statute. For this argument the
Robinsons cite an old Wisconsin case which holds that
uncollectible loans are not assets for purposes of determining
whether a bank's assets exceed its liabilities. Observing that
they have refused to make payments under the guarantees, the
Robinsons conclude that their facially sufficient written
guarantees should not be considered assets under § 1823(e).
Because of the lack of merit of this argument, and because of the
Robinsons' failure to articulate more precisely the nature of
their defense, the court holds that they have not raised any
genuine issue of fact suggesting that they might have a valid
defense not barred by § 1823(e).
Powers' defense is different from that asserted by the
Robinsons, and he raises different arguments. Powers' position is
that he never agreed to guarantee the Robinsons' obligations.
Exhibit 5 to the Complaint is a form document, signed by Powers,
guaranteeing the Robinsons' obligations to Drovers up to
$2,016,000.00. At his deposition Powers acknowledged that the
signature appeared to be his. (Powers dep. p. 11.) Powers
maintains, however, that he occasionally gave Drovers guarantee
forms signed in blank, to be used in connection with various
transactions. Powers' deposition and the affidavits of Kenneth
Olsen and Donald Norris tend to establish
that such a blank guarantee was left in Olsen's desk when he left
Drovers. Powers suggests that:
One can only surmise how this purported guaranty was
prepared, but it is not difficult to imagine the
situation where an employee of a failing bank would
alter or forge instruments to increase the bank's
apparent net worth, in the hope of deceiving [sic]
the bank examiners and covering the bank's own
(Defendants' memo p. 7.) Powers argues that Drovers would not or
could not have asked him to guarantee the Robinsons' obligations,
because such a guarantee would increase Powers' obligations to
Drovers beyond the legal limit. (Powers dep. pp. 23-24, 25;
Norris aff. ¶ 3.) The affidavits of Kenneth Olsen, Donald Norris,
and Clarence Robinson disclaim any knowledge of how the guarantee
was prepared, and tend to establish that the guarantee was not
executed in connection with a loan to the Robinsons. Powers
points out that the guarantee form is not dated, and he also
argues that "[t]he FDIC has been unable to produce a listing of
this purported guaranty in the Collateral Register." (Defendants'
memo p. 6.)
The FDIC notes that Powers had been president of a savings and
loan association, and should have been well aware of the possible
consequences of giving Drovers guarantee forms signed in blank.
The FDIC also points to Powers' deposition testimony, indicating
that he had a business and employment relationship with Clarence
Robinson, and that he had a beneficial interest in the proceeds
of the loans. (Plaintiff's memo pp. 10 n., 11 n.) Regarding
Powers' argument based on the Collateral Register, the FDIC
states that defendants never requested production of a collateral
register during discovery, and the FDIC also states it is unaware
of such a register for real estate loans, although Norris states
for the defendants that there was a register for "all guarantees
for loans." (Norris aff. ¶ 4.)
The FDIC's primary argument is that the defense asserted by
Powers is barred by § 1823(e) and by D'Oench. It should be noted
at the outset that the language of § 1823(e) only denies validity
to certain unwritten agreements, and does not bar extrinsic proof
that a written document in fact does not reflect any valid
agreement. See Gunter v. Hutcheson, 674 F.2d 862, 867 (11th Cir.
1982), cert. denied, ___ U.S. ___, 103 S.Ct. 60, 74 L.Ed.2d 63
(1982). The important question, then, is whether Powers' argument
should be treated as an attempt to deny the existence of an
agreement or as an attempt to assert a valid unwritten agreement.
In FDIC v. Webb, 464 F. Supp. 520 (E.D.Tenn. 1978), cited by the
FDIC, the defendant argued that he had signed certain notes in
blank, and that bank officials had filled in the blanks in a
manner contrary to his oral agreement with them. Although one
might characterize this defense as a challenge to the validity of
the written notes, the court viewed the defense as an attempt to
assert an unwritten agreement concerning the bank officials'
authority to fill in the blanks. Applying § 1823(e), the court
concluded: "Since the FDIC is not bound by prior oral agreements,
breach of those agreements will not affect the corporation's
right to recover the amount appearing on the face of the note."
Id. at 525.
The FDIC also has produced another case using similar reasoning
on similar facts. FDIC v. Barkan, No. 49931-GBH (N.D.Cal. May 5,
1972). In that case a defendant argued that he had signed a note
in blank, and that a bank official had filled in the blanks
contrary to their oral understanding. The court held that by
certain acts the defendant had ratified the official's completion
of the document. The court also discussed D'Oench, and held that
the defense was barred because the FDIC could not be bound by a
secret agreement. Two points should be noted concerning Barkan.
First, the court was considering the federal common law
recognized in D'Oench, and not the language of § 1823(e). Second,
the court may have relied on a section of the Negotiable
Instruments Law, which governed the execution of the note. That
section provided that a person in possession of an incomplete
instrument had prima facie authority to complete it by filling in
blanks. Since this authority arose by implication of law, the
court could disregard the asserted oral agreement limiting the
official's authority, without destroying the basis for the
official's authority to fill in the blanks at all. The court
discussed this provision before reaching the D'Oench issue, and
it is not clear whether it was material to the court's analysis
The court accepts the reasoning of these cases, and holds
Powers' asserted defense to be barred by § 1823(e). The FDIC sues
Powers on a facially sufficient written guarantee, and he wishes
to defend on the basis of informal, unwritten arrangements and
understandings between him and Drovers officials. These
arrangements and understandings may have been convenient for the
parties thereto, but they were not reflected on Drovers' records.
Powers wishes ultimately to prove that no guarantee contract ever
existed, but that does not change the fact that he is asserting
the type of private agreement that is invalidated by § 1823(e).*fn1
The court believes that Powers' arguments against the
applicability of § 1823(e) are without merit. Powers makes
certain arguments based on the scope of the parol evidence rule,
but § 1823(e) is not merely a federal parol evidence rule. The
federal statute in many ways is much broader than the parol
evidence rule, and it was enacted to serve somewhat different
purposes. Powers also relies on Howell, 655 F.2d 743, and
Riverside Park, 465 F. Supp. 305, cited above. Those cases hold
that § 1823(e) does not bar defenses based on breaches of terms
appearing in the written instruments; this holding is of no help
to Powers. Powers attributes to those cases the holding that §
1823(e) bars only oral agreements made after the execution of a
written agreement. The court disagrees. That is not the holding
of those cases, and the proposition is incorrect in any event.
Additionally, Powers argues that granting "[s]ummary judgment to
the plaintiff in this case, on these facts, would preclude any
party from ever challenging the validity of a written instrument
held by the FDIC under § 1823(e)." (Defendants' memo p. 7.) It is
true that § 1823(e) may bar some serious defenses, but it does
not preclude all challenges to written instruments. Although
these questions are not before the court, the court doubts that
§ 1823(e) would bar Powers from proving, for instance, that his
signature was forged, or that his properly completed guarantee
was altered without authorization. In this case, however, Powers
has acknowledged that he signed the guarantee, and that he left
it blank on the basis of some arrangement with Drovers officials.
The court does not believe that the present ruling will preclude
all future parties from challenging the validity of written
The FDIC relies not only on § 1823(e), but also on the federal
common law doctrine recognized in D'Oench. That doctrine seems
more flexible than § 1823(e), and it has been applied to a wide
range of defenses. The goal of the D'Oench doctrine, like that of
§ 1823(e), is to allow the FDIC to rely on bank records in
appraising the worth and collectibility of the bank's assets.
D'Oench has been applied to bar defenses apparently not
attributable to the conduct of the defendants. See Gunter, 674
F.2d at 868-73 (fraud in the inducement). It is all the more
appropriate to apply D'Oench to bar defenses arising from
irregularities to which the defendant intentionally has
contributed. Executing guarantees in blank is not good practice.
In D'Oench the Supreme Court made clear the invalidity of
defenses arising from defendants'
complicity in a secret, irregular arrangement, even if the
defendants' actions did not amount to fraud or illegality. 315
U.S. at 457-59, 62 S.Ct. at 679-80. Powers refers to the
statement in Howell that D'Oench should not bar a defense merely
because a party "`lent herself' to an incondite business
transaction." 655 F.2d at 748. That "incondite business
transaction" was not, however, a secret agreement or private
arrangement; the party merely had entered into a business
arrangement which, though adequately documented and recorded, was
poorly organized from a business standpoint. The court believes
that Powers' asserted defense falls well within the rule stated
in D'Oench. See Barkan, supra.*fn2
Accordingly, the court grants the FDIC's motion for summary
judgment against all three defendants. The court derives the
amounts of the judgments entered herein from the uncontested
affidavit of Daniel D. Wilson. As against the Robinsons the FDIC
is awarded $3,505,549.75, which amount includes interest accrued
through December 14, 1983. As against Powers the FDIC is awarded
$2,387,159.04, which amount includes interest accrued through
December 14, 1983. The court denies Powers' motion for summary
It is so ordered.