Facts
- W.T. Langley and his wife borrowed from a Louisiana state bank to finance a land purchase, executing a promissory note, collateral mortgage, and personal guarantees.
- The borrowers alleged the bank induced the transaction by misrepresenting the acreage and mineral acreage and by stating there were no outstanding mineral leases.
- The alleged representations were not included in the loan documents, bank records, or board/loan-committee minutes.
- After default on an installment of a renewal note, the bank sued for principal and interest; the borrowers asserted misrepresentation as a defense and sought damages.
- During the litigation, state officials closed the bank; the FDIC became receiver, acquired the note in its corporate capacity, and was substituted as plaintiff.
Issues
- Whether “agreement” in 12 U.S.C. § 1823(e) includes conditions to payment of a note, including the truth of express warranties.
- Whether fraud-in-the-inducement allegations based on such conditions are barred against the FDIC when the statutory requirements of § 1823(e) are not met.
Decision
- The Supreme Court affirmed summary judgment for the FDIC.
- “Agreement” under § 1823(e) includes conditions to payment of the note, including the truth of warranties that would provide a defense under state law.
- The borrowers’ misrepresentation-based defenses were invalid against the FDIC because the asserted conditions were not memorialized and recorded as § 1823(e) requires.
Legal Principles
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For purposes of 12 U.S.C. § 1823(e), an “agreement” is not limited to a separate executory side promise; it includes any condition to repayment that would diminish or defeat the FDIC’s interest in a bank asset.
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A borrower may not assert against the FDIC unwritten or unrecorded conditions (including fraud-in-the-inducement theories grounded in alleged warranties) unless the condition:
- is in writing,
- was executed contemporaneously with the bank’s acquisition of the asset,
- was approved by the bank’s board of directors or loan committee and reflected in the minutes, and
- has been continuously maintained as an official bank record.
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The statute protects the FDIC’s ability to rely on bank records when evaluating assets of failed banks; the risk of relying on undocumented conditions falls on the borrower who signs an otherwise unconditional note.
Conclusion
The Court held that § 1823(e) bars borrowers from using undocumented misrepresentations as defenses to repayment when those representations function as conditions to payment and do not satisfy the statute’s writing, approval, and recordkeeping requirements, thereby preserving the FDIC’s ability to enforce the note acquired from a failed bank.