## Facts

- Herbert Barness signed a promissory note payable to Centennial Bank.
- The note stated that the undersigned “promises to pay to the order of Centennial Bank,” language commonly used to make an instrument payable to order.
- Centennial Bank later closed, and the FDIC acquired the note as part of the FDIC’s takeover of the failed bank’s assets.
- The FDIC sued Barness to collect on the note.
- Barness defended on the ground that the note was issued without consideration to him.

## Issues

1. Whether the FDIC, as the acquirer of Centennial Bank’s promissory note after the bank’s closure, could enforce the note despite Barness’s defense that the note lacked consideration.

## Decision

- The court held the FDIC could enforce the note.
- The court rejected Barness’s lack-of-consideration defense as a basis to avoid liability to the FDIC on the instrument.

## Legal Principles

- A promissory note payable “to the order of” a named payee is generally treated as a negotiable instrument under Article 3 of the Uniform Commercial Code.
- In an action to enforce a negotiable instrument, a defendant’s personal defenses—such as lack or failure of consideration—do not defeat the claim of a holder in due course.
- When the FDIC acquires notes from a failed bank in its statutory capacity, it may enforce those notes free of certain personal defenses that could have been asserted against the failed bank, absent a legally sufficient defense that runs against such a transferee.

## Conclusion

The court ruled for the FDIC on its claim to collect on Barness’s promissory note acquired from Centennial Bank after the bank closed, concluding that Barness’s asserted lack of consideration did not bar the FDIC from enforcing the obligation.


Federal Deposit Insurance Corp. v. Barness, 484 F. Supp. 1134 (1980)