Weber v. New West Federal Savings & Loan Assn.

• Decision Date: 11 September 1992
• Docket Number: No. F016069,F016069
• Citation: 12 Cal.Rptr.2d 468,10 Cal.App.4th 97
• Court: California Court of Appeals Court of Appeals
• Parties: Philip WEBER et al., Plaintiffs and Appellants, v. NEW WEST FEDERAL SAVINGS AND LOAN ASSOCIATION, Defendant and Respondent.

Page 468

12 Cal.Rptr.2d 468

10 Cal.App.4th 97

Philip WEBER et al., Plaintiffs and Appellants, v. NEW WEST FEDERAL SAVINGS AND LOAN ASSOCIATION, Defendant and Respondent.

No. F016069.

Court of Appeal, Fifth District, California.

Sept. 11, 1992.

Opinion Modified Oct. 8, 1992.

Bourdette & Partners and Douglas L. Hurt, Visalia, for plaintiffs and appellants.

Brown & Wood, Richard B. Schreiber and Michael S. Danko, San Francisco, for defendant and respondent.

Before MARTIN, Acting P.J., THAXTER, J., and BIANCHI, J., Assigned.

OPINION

BIANCHI, Associate Justice, Assigned. ^*

INTRODUCTION

Title 12 United States Code section 1823(e) (section 1823(e)) is a section of the Federal Deposit Insurance Act which invalidates certain agreements between a bank and its obligor(s) that tend to diminish the interest of the Federal Deposit Insurance Corporation (FDIC) in assets acquired by it in its corporate capacity. In sum, section 1823(e) provides that unless a bank and its borrower(s) execute a written agreement which has gone through all the normal approval processes of the bank, and said agreement is a part of the bank's records, the FDIC is not required to honor the agreement when it takes over the assets of the bank, should the bank fail.

Section 1823(e) is a partial codification of the so-called D'Oench, Duhme doctrine (D'Oench, Duhme & Co. v. F.D.I.C. (1942) 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956), widely recognized and applied as an equitable rule of estoppel. (Walsh v. New West Federal Savings & Loan Assn. (1991) 234 Cal.App.3d 1539, 1542-1543, 1 Cal.Rptr.2d 35; Webb v. Superior Court (1990) 225 Cal.App.3d 990, 995, 275 Cal.Rptr. 581; see Note, Borrower Beware: D'Oench, Duhme and Section 1823 Overprotect the Insurer When Banks Fail (1988) 62 So.Cal.L.Rev. 255, 271 (hereafter Note).)

It is widely recognized in federal and California cases that the D'Oench, Duhme doctrine is applicable as well in receivership actions involving the Federal Savings and Loan Insurance Corporation (FSLIC) and its member savings and loan associations. (Webb v. Superior Court, supra, 225 Cal.App.3d at pp. 1001-1002, 275 Cal.Rptr. 581; Victor Hotel Corp. v. FCA Mortg. Corp. (11th Cir.1991) 928 F.2d 1077, 1082-1083; Note, op. cit. supra, 62 So.Cal.L.Rev. at pp. 266-267.) The defendant/respondent here evolved from the actions of the FSLIC as receiver, in reference to a series of successor and newly created savings and loan associations, the final entity here being defendant/respondent New West Federal Savings and Loan Association (New West).

The question presented is whether the trial court erred in barring admission of a savings and loan association document proffered by plaintiffs in support of their breach of contract action because it did not satisfy the terms of section 1823(e). The trial court recognized the statute itself did not specifically apply to the FSLIC, but concluded "the codification itself is no different from the common law D'Oench, Duhme rule."

PERTINENT FACTS ¹

In March of 1979 plaintiffs and appellants Philip and Donna Weber entered into an escrow to purchase a 108-acre tract of land known as the Golden Dawn Ranch. They proposed to develop the parcel, located at the corner of Kings Canyon and Fowler Avenues in the County of Fresno. In July of 1980, while the property remained in escrow, the Webers sold an undivided one-half interest in their purchase agreement to William and Joan Probasco.

Escrow closed on the $2,200,000 sale on October 10, 1980. On the date escrow closed, a vice-president of State Savings and Loan Association (State Savings) wrote Philip Weber and William Probasco (the general partners) a letter on behalf of State Savings setting out the terms of a proposed 24-month, $6.9 million development loan. Subject to a number of express conditions precedent, the letter provided "[t]his letter shall constitute a commitment by us upon your [written] acceptance of its terms, and payment of our commitment fee of $17, 453 [sic ], on or before October 30, 1980."

However, the gist of this so-called "commitment letter" by State Savings was not previously approved by the State Savings executive committee during a telephone poll on October 7, 1980. Rather, as reflected in the "meeting" minutes of the executive committee, the committee proposed advancing two loans in the total amount of $1,100,000 in order to facilitate purchase of the property, provide funds for processing the final map and pay certain fees. Shortly thereafter the executive committee approved such a loan. ² The meeting minutes, executed October 28, 1980, reflect the following plan of the executive committee: "When the subdivision map is approved, further consideration will be given this project by the Real Estate Investment Department."

After numerous preliminary steps, the Fresno Planning Commission recommended approval of a tentative map and the rezoning and conditional use permit applications on May 19, 1982; the tentative map was approved on June 15, 1982, subject to a number of conditions which (respondent represents) the general partners ultimately found unacceptable.

During the same period the general partners were pursuing approval of the tentative map, (respondent represents) they also sought, unsuccessfully, to bring their development costs within the amount of State Savings's proposed maximum loan. On June 9, 1982, the Webers assigned and transferred to the Probascos all of their interest in the acreage, with the exception of a 50 percent interest in profits generated by the development in excess of $8,500,000. On the same date the Probascos placed a number of their business interests in a chapter 11 bankruptcy. The Probascos filed a personal chapter 11 bankruptcy in August 1982, at which time all efforts to proceed with the project under the 1980 conditional loan commitment letter ceased.

THE WEBERS' ACTION AGAINST STATE SAVINGS

Sometime prior to September 1988 the Webers filed an action against State Savings alleging breach of contract (i.e., breach of the October 10, 1980, "commitment letter" regarding the $6.9 million development loan); fraud (an alleged oral promise by a State Savings loan officer on behalf of the entity to enter into a joint venture in the development of the Golden Dawn Ranch with the Webers); constructive trust, and rescission. They sought to recover expenses, lost profits and punitive damages. ³

HISTORY OF RECEIVERSHIP

During September 1988, the Federal Home Loan Bank Board declared the former State Savings, by then operating under the name American Savings and Loan Association (American), to be insolvent. The FSLIC was appointed as receiver in December 1988; it transferred certain of the assets and liabilities of American, including this litigation, to a new entity, American Savings, a federal savings and loan association (American Savings). When American Savings was placed in receivership in December 1988, the FSLIC, again acting as receiver, assigned/transferred certain assets and liabilities--including this litigation--to New West. (See Webb v. Superior Court, supra, 225 Cal.App.3d at p. 994, fn. 1, 275 Cal.Rptr. 581.) New West was substituted by name as the defendant prior to the scheduled trial date of March 11, 1991, and is the respondent here.

MARCH 11, 1991, MOTION IN LIMINE

On the date set for jury trial, the court heard several of New West's motions in limine, including a motion to exclude evidence of the October 10, 1980, "commitment letter." In support of the motion, New West cited the D'Oench, Duhme doctrine (D'Oench, Duhme & Co. v. F.D.I.C., supra, 315 U.S. 447, 62 S.Ct. 676), which provides that the FDIC, as receiver, may not be held liable for a claim that is inconsistent with the written documents of a failed banking institution or that is based upon unrecorded oral or written side agreements. The doctrine operates to bar both defenses and affirmative claims for relief and encompasses any claim against an insolvent institution that would either diminish the value of the institution's assets or increase its liabilities. The doctrine, as it pertains to the FDIC (also referred to as the Corporation), was codified in part by enactment of 12 United States Code section 1823(e) in 1950. (Webb v. Superior Court, supra, 225 Cal.App.3d at pp. 1001-1002, 275 Cal.Rptr. 581.) Section 1823(e) states:

"No agreement which tends to diminish or defeat the interest of the Corporation in any asset acquired by it under this section or section 1821 ⁴ of this title, either as security for a loan or by purchase or as receiver of any insured depository institution, shall be valid against the Corporation unless such agreement--

"(1) is in writing,

"(2) was executed by the depository institution and any person claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the depository institution,

"(3) was approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the minutes of said board or committee, and

"(4) has been, continuously, from the time of its execution, an official record of the depository institution." (Emphasis added.)

The Webers argued D'Oench, Duhme should not bar admission of the letter because the letter was a part of State Savings's records. They maintained section 1823(e) was inapplicable in that the instant case did not involve the FDIC and a failed bank; rather it involved the FSLIC as a receiver for a failed savings and loan. The matter was argued at length. The parties agreed with the language in Webb v. Superior Court, supra, 225 Cal.App.3d at pages 1001-1002, 275 Cal.Rptr. 581, that by its very terms section 1823(e) applies only to the FDIC. However, the trial court reasoned that while the statute itself did not specifically apply to the FSLIC, "the codification itself is no different from the common law D'Oench, Duhme rule," and the D'Oench,...