Federal Deposit Ins. Corp. v. Manatt

• Decision Date: 25 May 1988
• Docket Number: No. J-C-87-53.,J-C-87-53.
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, in its Corporate Capacity, Plaintiff, v. Scott MANATT, Defendant.
• Court: U.S. District Court — Eastern District of Arkansas

688 F. Supp. 1327

FEDERAL DEPOSIT INSURANCE CORPORATION, in its Corporate Capacity, Plaintiff, v. Scott MANATT, Defendant.

No. J-C-87-53.

United States District Court, E.D. Arkansas, Jonesboro Division.

May 25, 1988.

COPYRIGHT MATERIAL OMITTED

H. Keith Morrison, Little Rock, Ark., Jeffrey Axelrad, and Dina L. Biblin, U.S. Dept. of Justice, Washington, D.C. for plaintiff.

Scott Manatt, Corning, Ark., pro se.

ORDER

ROY, District Judge.

Before the Court are Motions for Summary Judgment filed by both parties. Extensive briefs have been filed over a period of several months, and the matter is now ripe for determination.

This case arises out of a dispute over the liability of defendant on certain promissory notes that were given to Corning Bank. FDIC contends that it acquired the indebtedness totaling $316,531.76 due the bank when the Corning Bank closed on June 15, 1984. FDIC also contends that prior to the closing of the Bank, Manatt had conveyed certain items of collateral to the Bank, which were liquidated and sold, either by the Bank or by the FDIC, and the proceeds received thereon were applied in partial satisfaction of Manatt's indebtedness.

In its supplemental brief, FDIC cites the recent Supreme Court case of Langley v. FDIC, ___ U.S. ___, 108 S.Ct. 396, 98 L.Ed.2d 340 (1987) as being dispositive.

Manatt claims that he entered into a mutual agreement for liquidation of collateral on January 4, 1984, and that the execution of this document completely satisfied his indebtedness to the Bank. Manatt also raises issues of estoppel, res judicata and collateral estoppel, waiver and ratification.

In order for the agreement upon which defendant relies to be a valid defense in this case, the four requirements of 12 U.S. C. § 1823(e) must be met. This statute provides:

No agreement which tends to diminish or defeat the right, title, or interest of the 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 the bank.

If any one of the four requirements of § 1823(e) is shown to be unsatisfied, any side agreement between Manatt and the Bank is not enforceable against the FDIC. See FDIC v. Gardner, 606 F.Supp. 1484, 1488 (S.D.Miss.1985). Section 1823 does not grant the court discretion to balance the equities in determining whether an agreement can be enforced. See FDIC v. TWT Exploration Co., 626 F.Supp. 149, 156 (W.D.Okla.1985).

The agreement which Manatt claims acts as an accord and satisfaction appears to have been executed on January 4, 1984. Section 1823(e)(2) requires that any such writing be executed contemporaneously with the acquisition of the asset by the bank. The "asset" at issue in the instant case is Manatt's indebtedness evidenced by the seven promissory notes. These notes were executed as early as December 1980. Prior to the decision in Langley, supra, the FDIC was ready to concede that a fact issue existed on the issue of whether or not the requirements of § 1823(e) had been met. However, FDIC argues that the Court in Langley addressed the "contemporaneously" requirement, and thus resolved the issue in the case sub judice. In Langley, the Court stated that § 1823(e) requires:

the "agreement" not merely be on file in the bank's records at the time of an examination, but also have been executed and become a bank record "contemporaneously" with the making of the note ... Id., 108 S.Ct. at 401.

These requirements ensure mature consideration of unusual loan transactions and prevent fraudulent insertion of new terms, with the collusion of bank employees, when a bank appears headed for failure. Id.

Manatt argues that § 1823(e) is not even applicable since an accord and satisfaction was reached prior to the FDIC acquiring the assets of the bank, citing FDIC v. Nemecek, 641 F.Supp. 740 (D.Kan.1986). Therefore, it is argued that the obligation on the notes was extinguished, and these "assets" being sued upon in this case were non-existent. Manatt further argues that even if § 1823(e) is applicable, his agreement met the requirements of § 1823(e) because it was contemporaneous with the acquisition by the Corning Bank of the assets conveyed by defendant.

In Public Loan Company, Inc. v. FDIC, 803 F.2d 82 (3rd Cir.1986) the Court held that plaintiffs could not successfully assert the defense of oral accord and satisfaction against the FDIC because it did not meet the statutory requirements of § 1823. Although this case involves the defense of written accord and satisfaction, it is clear that the statutory requirements of § 1823 must nevertheless be satisfied when the defense of accord and satisfaction is raised.

Even though defendant takes issue with the applicability of Langley to this case, the Court nevertheless finds the language persuasive. The Court in Langley clearly stated that the "agreement" must have been executed and become a bank record "contemporaneously" with the making of the note. As stated earlier, this requirement is to ensure mature consideration of unusual loan transactions by senior bank officials, and to prevent fraudulent insertion of new terms, with the collusion of bank employees, when a bank appears headed for failure. The Court finds that the "contemporaneous" requirement has not been met.

This holding precludes the necessity of discussing the other three requirements under the statute. The Court notes that it does appear that there may be a fact question as to whether the agreement was kept continuously as an official record of the bank. However, although a reference to a mutual agreement for liquidation was made in the minutes, the reference did not specifically refer to defendant's agreement. The Court questions whether this vague reference to an agreement would satisfy the requirement under the statute. See FDIC v. Gardner, 606 F.Supp. 1484, 1488 (S.D.Miss.1985) (reference to the agreement must be specifically reflected in the minutes of the board or committee).

Even if the Court held that the requirements of § 1823(e) were met, the Court would nevertheless find the FDIC is entitled to partial summary judgment because there was no valid accord and satisfaction, and, the FDIC is a holder in due course of Manatt's notes.

The general rule is that an accord and satisfaction may not result from the partial payment of a liquidated or undisputed claim. Dyke Industries, Inc. v. Waldrop, 16 Ark.App. 125, 697 S.W.2d 936 (1985). In the present case, it is clear that both parties knew exactly how much was owed by Manatt to the Bank, precluding the assertion of accord and satisfaction.

Furthermore, even if a valid accord and satisfaction had been reached, summary judgment in favor of the FDIC would still be appropriate, because it is a holder in due course under federal common law.

The FDIC was organized and exists pursuant to the laws of the United States, 12 U.S.C. § 1811, et seq. Its primary function is to provide a system of insurance to stabilize or promote the stability of banks, protecting depositors of banking institutions from losses which would otherwise be occasioned upon the failure of such institutions. First State Bank of Hudson County v. United States, 599 F.2d 558 (3rd Cir.1979), cert. denied, 444 U.S. 1013, 100 S.Ct. 662, 62 L.Ed.2d 642 (1980).

All banks which are members of the Federal Reserve System are required to be insured under the Act. Bank of China v. Wells Fargo Bank & Union Trust Co., 209 F.2d 467, 473 (9th Cir.1953).

When an insured bank becomes unable to meet its demand obligations, the FDIC may be appointed receiver. When a state bank is involved, as here, the FDIC may act in what has been termed a dual capacity. Under 12 U.S.C. § 1821(e), the corporation is authorized to accept the appointment as receiver of a state bank. FDIC v. Ashley, 585 F.2d 157, 161 (6th Cir.1978). With this appointment as receiver, the FDIC may enter into a purchase and assumption agreement with itself to allow the FDIC in what is termed its "corporate capacity" to purchase assets of the insolvent bank and facilitate the acquisition of the acceptable assets of the insolvent bank by a bank in the geographical vicinity. Assets purchased by the FDIC in its corporate capacity are acquired pursuant to 12 U.S.C. § 1823(e). The FDIC has been recognized as having broad powers to carry out its statutorily prescribed duties. See, e.g., Chatham Ventures, Inc. v. FDIC, 651 F.2d 355 (5th Cir.1981), cert. denied, 456 U.S. 972, 102 S.Ct. 2234, 72 L.Ed.2d 845 (1982) ("The FDIC may exercise all powers specifically granted ..., and such incidental powers as shall be necessary to carry out the powers granted.").

The federal courts have enunciated as a matter of federal common law a holder-in-due-course rule which is applicable to the FDIC when it acts in its corporate capacity. The Sixth Circuit Court of Appeals articulated this rule when it held that:

when the FDIC in its corporate capacity, as part of a purchase and assumption transaction, acquires a note in good faith, for value, and without actual knowledge of any defenses against the note, it takes the note free of all defenses that would not prevail against a holder in due course.

FDIC v. Wood, 758 F.2d 156, 161 (6th Cir. 1985), cert. denied, 474 U.S. 944, 106 S.Ct. 308, 88 L.Ed.2d 286 (1985). Accord Gunter v. Hutcheson, 674 F.2d 862, 872 (11th Cir.1982), cert. denied, 459 U.S. 826, 103 S.Ct. 60, 74 L.Ed.2d 63 (1982); FDIC v. Leach, 525 F.Supp....