484 N.E.2d 174 | Ohio Ct. App. | 1984
The F.D.I.C. (Federal Deposit Insurance Corporation) appeals from a judgment finding appellee, E. Bruce Chaney, not liable on two negotiable notes issued by him to the now-defunct Northern Ohio Bank (N.O.B.), following trial by jury.
In September 1974, appellee issued the first note, in the amount of $140,000, to N.O.B. in return for either 3,200 or 3,600 shares of stock in Great Lakes Bancshares, Inc., a company formed to acquire stock in other banks. Appellee was allegedly assured that he would not have to pay the note, because the payments of principal and interest would be derived from dividends or sale of the Great Lakes Bancshares, Inc. stock, which was held as collateral for the note. When the first interest payment came due, apparently dividends from Great Lakes Bancshares, Inc. were not forthcoming, and appellee executed a second note in the amount of $4,000 to pay the interest. Shortly thereafter, in January 1975, appellee became a director of Northern Ohio Bank. A few weeks later, on February 14, 1975, N.O.B. failed, and the Ohio Superintendent of Banks took possession of the assets of N.O.B., pursuant to R.C. Chapter 1113. The F.D.I.C. was appointed receiver under the same provisions, and received title to all assets. As receiver, and pursuant to court approval issued pursuant to former R.C.
Appellee asserted several defenses to the notes. According to his brief on appeal, he had the following defenses to payment:
1. Failure of consideration (for the $140,000 note)
2. Lack of consideration (for the $4,000 note)
3. Discharge by payment (of $140,000 note)
4. Material alteration (of $140,000 note)
5. Fraud (with respect to both notes).
Appellee refers to the foregoing defenses throughout his appellate brief as "bona fide, transactional defenses," and contends that the F.D.I.C. should be subject to these defenses. Essentially, appellee contends that the F.D.I.C. stands in the shoes of the N.O.B., and that its rights are no greater than the rights of the N.O.B.
There are three arguments raised in favor of F.D.I.C. The first is that appellee cannot escape liability on the instruments on account of any agreement with N.O.B. which was not approved by *279 the board of directors of N.O.B. or its loan committee. This is mandated by federal statute, Section 1823(e), Title 12, U.S. Code, which states:
"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."
This statute prevents persons who executed notes or obligations to banks which have been subsequently taken over by the F.D.I.C. from claiming that there was a separate agreement (secret or not secret) that they would not be liable on the obligation, unless the four criteria are complied with.
This statute clearly prevents the appellee from raising as a defense to payment on the note the defense that there existed an oral side agreement under which it was never intended that he should be personally liable on the note. Black v. F.D.I.C. (C.A. 5, 1981),
Appellee has other defenses, however, not premised upon side agreements which are ineffective under Section 1823(e), Title 12, U.S. Code. He asserts that the note originally provided that he was to receive 3,600 shares of stock, and that he received only3,200 and that the note was altered without his permission to reflect the lower number; and that the proceeds of the loan were originally to go to the law firm of Arter Hadden which was to purchase the stock in his behalf, but that when the proceeds of the loan were issued by check to Arter Hadden, that law firm refused to accept it, whereupon the check was returned to N.O.B., the loan account was credited with the amount of the check, and another check was issued to R.G. Barhoover, an N.O.B. officer who endorsed it on behalf of N.O.B. The stock was then issued to the appellee, who allegedly returned it to N.O.B. to hold as collateral on the note.
Appellee testified that the morning after signing the note he attempted to cancel the transaction, but that N.O.B. officials told him that it was "too late," and that this was untrue.
Appellee claims that it was fraud1 for N.O.B. officials to tell him that it was too late to cancel the transaction; that the note was paid and discharged when Arter Hadden returned the first check to N.O.B.; that by issuing 3,200 instead of 3,600 shares, there was a failure of consideration; that by changing the reference on the note to the number of shares from 3,600 to 3,200, N.O.B. was guilty of material alteration2; and that since the original note for $140,000 was invalid for the foregoing reasons, the second note in the amount of $4,000 was also invalid for lack of consideration, because no interest could be owed to a nonexistent debt.
There was evidence that there was no "fraud" or other defense to these obligations. Appellee was knowledgeable, *280 and was an insider. On previous occasions, he had admittedly loaned money to N.O.B. to make its financial statement "look better." The F.D.I.C. alleges that this is essentially what he was doing on this occasion. But this evidence is susceptible of two interpretations, and would not entitle the F.D.I.C. to judgment as a matter of law. Section 1823(e), Title 12, U.S. Code affords no protection to the F.D.I.C. against these defenses. There is, however, another defense available to F.D.I.C.
In the case of D'Oench, Duhme Co. v. F.D.I.C. (1942),
Note that the D'Oench case did not hold that the F.D.I.C. is to be regarded as a holder in due course. The D'Oench theory was purely one of equitable estoppel, adopted to facilitate the federal policy of discouraging persons from helping to create the appearance of false assets in the possession of a bank.
This policy is especially pertinent where bank directors, such as the appellee herein, lend their names to instruments taken as bank assets which they know, or learn, to be unenforceable. InF.D.I.C. v. de Jesus Velez (C.A. 1, 1982),
In the case at bar, appellee became a bank director after he had entered into this transaction with N.O.B., and after he had notice of a purported defense to the note. He made no formal attempt to rescind the transaction, to have the note declared void, or to notify banking authorities. To all appearances, the note was a valid and enforceable asset of the bank.
Recent federal decisions have in effect extended the D'Oench
estoppel rule to bar assertion of all state law defenses of which the F.D.I.C. lacked actual knowledge. In Gunter v. Hutcheson
(C.A. 11, 1982),
Though this rule is harsh, it is no more harsh than the state law holder-in-due-course doctrine. Had N.O.B. conveyed these instruments by way of negotiation *281 to a good faith purchaser for value, who took without notice of any defense or claim under state law, the holder would be equally immune from any of the defenses asserted by the appellee in this case. The protection of the investing public requires that the F.D.I.C. be permitted to enforce the obligations of its predecessor bank without protracted litigation, except in cases where the F.D.I.C. takes the instrument with knowledge of a defense to the obligation.
Accordingly, the decision of the trial court is reversed, and judgment is entered on behalf of the F.D.I.C.3
The judgment of the trial court is reversed and judgment is entered on behalf of F.D.I.C.
Judgment reversed.
MARKUS and PRYATEL, JJ., concur.