Langley v. Federal Deposit Insurance Corporation, 86-489
| Decision Date | 01 December 1987 |
| Docket Number | No. 86-489,86-489 |
| Parties | W.T. LANGLEY, et ux., Petitioners v. FEDERAL DEPOSIT INSURANCE CORPORATION |
| Court | U.S. Supreme Court |
To finance the purchase of land in Louisiana, petitioners borrowed money from a bank insured by the Federal Deposit Insurance Corporation (FDIC) and, in consideration for the loan, executed a note, a collateral mortgage, and personal guarantees. When petitioners failed to pay an installment due on a renewal of the note, the bank filed suit for principal and interest in a Louisiana court, which suit was removed on diversity grounds to Federal District Court. Petitioners alleged, as a defense against the bank's claim, that the land purchase and their note had been procured by the bank's misrepresentations overstating the amount of land and mineral acres in the tract, and falsely stating that there were no outstanding mineral leases on the property. No references to the alleged representations appeared in the documents executed by petitioners, in the bank's records, or in the minutes of the bank's board of directors or loan committee. While the suit was pending, a Louisiana official closed the bank because of its unsound condition and appointed the FDIC as receiver. The FDIC ultimately acquired petitioners' note and was substituted as a plaintiff in this lawsuit. The District Court granted summary judgment for the FDIC, and the Court of Appeals affirmed, holding that the word "agreement" in a provision of the Federal Deposit Insurance Act of 1950, 12 U.S.C. § 1823(e), encompassed the kinds of material terms or warranties asserted by petitioners in their misrepresentation defense and, because § 1823(e)'s requirements were not met, the defense was barred. Section 1823(e) provides that no "agreement" tending to diminish or defeat the FDIC's "right, title or interest" in any asset acquired by the FDIC under the section shall be valid against the FDIC unless it shall have been (1) in writing, (2) executed contemporaneously with the bank's acquisition of the asset, (3) approved by the bank's board of directors or loan committee and reflected in the minutes of the board or committee, and (4) continuously, from the time of its execution, an official record of the bank.
Held: A condition to payment of a note, including the truth of an express warranty, is part of the "agreement" to which the requirements of § 1823(e) attach. Because the representations alleged by petitioners constituted such a condition and did not meet the statute's requirements, they cannot be asserted as a defense here. Pp. 90-96.
(a) The word "agreement" in § 1823(e) is not limited to an express promise to perform an act in the future. The essence of petitioners' defense is that the bank made certain warranties regarding the land, the truth of which was a condition to performance of their obligation to repay the loan. As used in commercial and contract law, the term "agreement" often has a wider meaning than a promise, and embraces such a condition upon performance. This common meaning of the word "agreement" must be assigned to its usage in § 1823(e) if that section is to fulfill its intended purposes of allowing federal and state bank examiners to rely on a bank's records in evaluating the bank's assets, ensuring mature consideration of unusual loan transactions by senior bank officials, and preventing fraudulent insertion of new terms, with the collusion of bank employees, when a bank appears headed for failure. Cf. D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956. Pp. 90-93.
(b) There is no merit to petitioners' argument that even if a misrepresentation concerning an existing fact can sometimes constitute an agreement covered by § 1823(e), it at least does not do so when the misrepresentation was fraudulent and the FDIC had knowledge of the asserted defense when it acquired the note. Neither fraud in the inducement nor the FDIC's knowledge thereof is relevant to the section's application. No conceivable reading of the word "agreement" in § 1823(e) could cause it to cover a representation or warranty that is bona fide but to exclude one that is fraudulent. The bank's alleged misrepresentations here did not constitute fraud in the factum, which would render the note void and take it out of § 1823(e), but instead constituted only fraud in the inducement, which rendered the note voidable but not void. The bank therefore had and could transfer to the FDIC voidable title, which was enough to constitute "title or interest" in the note for the purpose of § 1823(e). Even if this Court had the power to engraft an equitable exception upon the statute's plain terms, the equities petitioners invoke are not the equities the statute regards as predominant. Pp. 93-96.
792 F.2d 541 (CA5 1986), affirmed.
William C. Shockey, Baton Rouge, La., for petitioners.
Richard G. Taranto, New Haven, Conn., for respondent.
Petitioners W.T. and Maryanne Grimes Langley seek reversal of a decision by the United States Court of Appeals for the Fifth Circuit granting the Federal Deposit Insurance Corporation (FDIC) summary judgment on its claim for payment of a promissory note signed by petitioners. 792 F.2d 541 (1986). The Fifth Circuit rejected petitioners' contention that a defense of misrepresentation of existing facts is not barred by 12 U.S.C. § 1823(e) because such a representation is not an "agreement" under that section. We granted certiorari to resolve a conflict in the Courts of Appeals. 479 U.S. 1028, 107 S.Ct. 871, 93 L.Ed.2d 826 (1987). Compare Gunter v. Hutcheson, 674 F.2d 862, 867 (CA11), cert. denied, 459 U.S. 826, 103 S.Ct. 60, 74 L.Ed.2d 63 (1982); FDIC v. Hatmaker, 756 F.2d 34, 37 (CA6 1985) (dictum).
The Langleys purchased land in Pointe Coupee Parish, Louisiana, in 1980. To finance the purchase, they borrowed $450,000 from Planters Trust & Savings Bank of Opelousas, Louisiana, a bank insured by the FDIC. In consideration for the loan, they executed a note, a collateral mortgage, and personal guarantees. The note was renewed several times, the last renewal being in March 1982, for the principal amount of $468,124.41.
In October 1983, after the Langleys had failed to pay the first installment due on the last renewal of the note, Planters brought the present suit for principal and interest in a Louisiana state trial court. The Langleys removed the suit, on grounds of diversity, to the United States District Court for the Middle District of Louisiana, where it was consolidated with a suit by the Langleys seeking more than $5 million in damages from Planters and others. The Langleys alleged as one of the grounds of complaint in their own suit, and as a defense against Planters' claim in the present suit, that the 1980 land purchase and the notes had been procured by misrepresentations. In particular, they alleged that the notes had been procured by the bank's misrepresentations that the property conveyed in the land purchase consisted of 1,628.4 acres, when in fact it consisted of only 1,522, that the property included 400 mineral acres, when in fact it contained only 75, and that there were no outstanding mineral leases on the property, when in fact there were.1 No reference to these representations appears in the documents executed by the Langleys, in the bank's records, or in the minutes of the bank's board of directors or loan committee.
In April 1984, the FDIC conducted an examination of Planters during which it learned of the substance of the lawsuits with the Langleys, including the allegations of Planters' misrepresentations. On May 18, 1984, the Commissioner of Financial Institutions for the State of Louisiana closed Planters because of its unsound condition and appointed the FDIC as receiver. The FDIC thereupon undertook the financing of a purchase and assumption transaction pursuant to 12 U.S.C. § 1823(c)(2), in which all the deposit liabilities and most of the assets of Planters were assumed by another FDIC-insured bank in the community. Because the amount of the liabilities greatly exceeded the value of the assets, the FDIC paid the assuming bank $36,992,000, in consideration for which the FDIC received, inter alia, the Langleys' March 1982 note.
In October 1984, the FDIC was substituted as a plaintiff in this lawsuit, and moved for summary judgment on its claim. The District Court granted the motion, 615 F.Supp. 749 (WD La.1985), and was sustained on appeal. The Fifth Circuit held that the word "agreement" in 12 U.S.C. § 1823(e) encompassed the kinds of material terms or warranties asserted by the Langleys in their misrepresentation defenses and, because the requirements of § 1823(e) were not met, those defenses were barred. 792 F.2d, at 545-546. We granted the Langleys' petition for certiorari on the issue whether, in an action brought by the FDIC in its corporate capacity for payment of a note, § 1823(e) bars the defense that the note was procured by fraud in the inducement even when the fraud did not take the form of an express promise.
The Federal Deposit Insurance Act of 1950, § 13(e), 64 Stat. 889, as amended, 12 U.S.C. § 1823(e), provides:
"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,...
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