## Facts

- A securities firm sold bonds to an Illinois bank; after the bonds defaulted, the firm and bank arranged to keep the defaulted bonds from appearing in the bank’s assets.
- The firm executed notes to the bank so the bank could carry the notes as assets in place of the defaulted bonds.
- The bank issued written receipts stating the notes were given with an understanding they would not be enforced and that interest payments would be repaid.
- The firm’s president knew the notes and interest payments were intended to keep the paper appearing collectible and to avoid disclosure of the bond defaults to bank examiners.
- In 1933, the firm executed a \$5,000 demand renewal note payable to the bank.
- The FDIC insured the bank beginning in 1934; the note was later carried among the bank’s charged-off assets.
- In 1938, the FDIC acquired the note as part of collateral for a loan exceeding \$1,000,000 made in connection with another bank’s assumption of the failed bank’s deposit liabilities.
- The FDIC did not learn of the non-enforcement understanding until after it demanded payment and sued on the note.

## Issues

1. Whether federal courts had subject-matter jurisdiction over the FDIC’s suit on the note.
2. Whether the note’s maker could defend against the FDIC by relying on a secret side agreement that the note would not be collected and lacked consideration.
3. Whether any state-law choice-of-law analysis was necessary given the federal interests implicated.

## Decision

- The Supreme Court affirmed judgment for the FDIC.
- Federal-question jurisdiction existed because Congress authorized the FDIC to sue and provided that civil suits to which it is a party are deemed to arise under federal law.
- The maker was estopped, as a matter of federal policy, from asserting a secret agreement that the note was accommodation paper not intended to be enforced.
- The Court found it unnecessary to decide conflict-of-laws questions (including whether forum-state choice-of-law rules applied) because the controlling rule derived from federal policy protecting the FDIC.

## Legal Principles

- Federal policy protecting the FDIC and public funds bars obligors from using undisclosed agreements that contradict a bank-held obligation to defeat the FDIC’s rights when the FDIC acquires the instrument as insurer or creditor.
- A party that enables a bank to record an instrument as a genuine asset—where the arrangement tends to mislead bank examiners—may be estopped from denying the instrument’s enforceability against the FDIC.
- Estoppel does not require proof that the maker specifically intended to mislead the FDIC; it is enough that the maker’s conduct permitted the bank to treat the obligation as a real asset for examination and banking purposes.
- When the dispositive question is a federal rule protecting the FDIC, resolving state-law choice-of-law disputes is unnecessary.

## Conclusion

The Court held that federal policy prevents a note’s maker from invoking secret non-enforcement agreements designed to mask a bank’s asset quality as a defense against the FDIC, and it sustained federal jurisdiction and recovery on the note.


D’Oench, Duhme & Co. v. Fed. Deposit Ins. Corp., 315 U.S. 447 (1942)