The opinion of the court was delivered by: Grady, District Judge.
In the instant case, the FDIC seeks to recover on a note and
guaranty signed by the defendants which the FDIC acquired as a
part of this plan of assistance. The defendants have raised six
affirmative defenses and a five-count counterclaim, generally
premised on the argument that Continental agreed to alter the
terms of the written note, or by its conduct waived certain
terms, and, therefore, the FDIC, as Continental's assignee, is
estopped from enforcing the written terms of the loan documents.
In response, the FDIC argues that under 12 U.S.C. § 1823(e), the
doctrine announced in D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447,
62 S.Ct. 676, 86 L.Ed. 956 (1942), and federal common law, the
defendants may not assert these defenses against it. Because the
FDIC is immune to such defenses, it argues that summary judgment
should be granted in its favor on both its action and defendants'
counterclaim against it and Continental. For the reasons given
below, we agree that the defendants may not assert these defenses
against the FDIC, but continue its motion for summary judgment.
The FDIC and defendants agree to the following facts. There are
six defendants: (1) MM & S Partners ("MM & S"), a general
partnership; MM & S' three general partners, (2) Mehl MM & S
Limited, (3) Smith MM & S Limited, and (4) Patrick D. Maher, (5)
Robert L. Mehl, and (6) Jordan Smith. On or about May 7, 1980, MM
& S entered into a credit agreement with Continental, by which
the bank provided the partnership with a line of credit not to
exceed $10 million. Pursuant to that 1980 credit agreement, the
partnership executed a promissory note, and, subsequently, MM &
S drew upon the line of credit. Two years later, the credit
agreement was amended to increase the line of credit to $20
million; MM & S executed another promissory note and drew on the
line of credit. Finally, on or about March 22, 1983, the 1982
credit agreement was further amended by an agreement titled
Amended and Restated Agreement ("Restated Agreement"). Pursuant
to the Restated Agreement, MM & S executed a promissory note in
the amount of $23 million, and the partnership's line of credit
was again increased. On the same day, defendants Maher, Mehl and
Smith executed a guaranty by which they guaranteed the full and
prompt payment of all of MM & S' obligations to the bank.
Since that date, MM & S has not paid the amounts stated in the
Restated Agreement to be due on certain dates, and Continental
has declared the outstanding principal of and all accrued
interest on the 1983 note to be immediately due and payable. It
notified the partnership of its alleged default, has demanded
payment in full, and MM & S has not paid the sum declared to be
owing. Continental has also notified the guarantors of MM & S'
default and the acceleration of the partnership's indebtedness
and have demanded payment in full, but the guarantors have not
The defendants add to this scenario two disputed fact
assertions: Continental, either by agreement or conduct, excused
the defendants from meeting certain terms in the Restated
Agreement, and the FDIC was aware of this excuse when it
purchased the loan documents. Specifically, the defendants allege
that Continental "understood" that defendants would be using the
money to purchase oil and gas properties, and "represented" to
defendants that it would not require MM & S to make payments at
the times or in the amounts stated in the Restated Agreement.
First Affirmative Defense, ¶ 2. Continental further "represented"
that it would accept, in full satisfaction of MM & S' obligations
under the Restated Agreement, the proceeds of sales of MM & S'
assets. Id., ¶ 3.
Relying on Continental's understandings, agreements and
representations, defendants allege that they performed certain
acts, such as selling the partnership's assets and providing
Continental with additional collateral. Id., ¶¶ 4, 5. Continental
has accepted defendants' payments not made in accordance with the
terms of the Restated Agreement, and the FDIC "had knowledge" of
Continental's conduct. Id., ¶ 8.
Based on these additional fact allegations, defendants argue
that Continental waived MM & S' compliance with the written terms
of the Restated Agreement, and the FDIC is barred by
Continental's waiver. Id. This waiver concept is rephrased in
defendants' other affirmative defenses and counterclaim counts to
allege estoppel and breach of contract.
The FDIC argues that even if defendants' additional factual
allegations are true (which it disputes), it cannot be bound by
Continental's agreements or conduct for two reasons. First,
12 U.S.C. § 1823(e) prevents a debtor from asserting an agreement
between him and the bank from which the FDIC purchased the note
unless certain requirements are met, and these requirements were
admittedly not met here. Second, even if § 1823(e) does not
apply, under D'Oench, the defendants still cannot utilize these
defenses, even if the FDIC knew of Continental's conduct.
In response, the defendants argue that § 1823(e) does not apply
because their defenses are based on Continental's conduct, not an
"agreement," and, under federal common law, they may assert such
a defense if the FDIC had actual knowledge of the defenses when
it purchased the defendants' note. Because recent cases on these
two points are somewhat contradictory, we must look at the law in
D'Oench, § 1823(e) and Federal Common Law
In 1942, the Supreme Court decided D'Oench. There, the FDIC
sought to enforce a note, and the maker argued that he was not
liable because the note was an accommodation paper, given without
consideration and upon an understanding that it would not be
collected. Applying federal common law, the Court held that the
maker could not use this defense, because, although he had not
known that the note would be used to deceive the FDIC, by his
actions he had "lent himself" to the bank's scheme to make the
FDIC believe that the note was good and owing. Since it is a
federal policy to protect the institution of banking from ...