United States Court of Appeals, Ninth Circuit
United States Court of Appeals, Ninth Circuit
2d 1009
The complaints in each case include other parties and other issues not involved
in these appeals. The district court, pursuant to Fed.R.Civ.P. 54(b), certified the
orders granting partial summary judgments as final judgments subject to
appeal. These appeals concern only the validity of the judgments on the
promissory notes.
The FDIC brought both of these actions on the promissory notes in its capacity
as receiver for the United States National Bank in the process of collecting
assets and winding up the affairs of the insolvent bank. Jurisdiction is founded
upon 12 U.S.C. 1819 and 28 U.S.C. 1331, 1345 and 1348.
First National Finance Company and United Oil Well Supply Company are
both California corporations. First National Finance owns all of the outstanding
stock of United Oil Well. John A. Smith is the president and controlling
director of both corporations. The four notes of First National Finance were
executed by John A. Smith as president, payable to the bank, and were in the
amounts of $1,400,000, $1,150,000, $250,000 and $525,000. The note of
United Oil Well was also executed by John A. Smith as president, payable to
the bank and was in the amount of $2,250,000.
In reviewing the orders granting the summary judgments, we must inquire first
whether there is any genuine issue as to any material fact. If there is no genuine
issue of material fact, then we must determine whether, viewing the evidence
and the inferences which may be drawn therefrom in the light most favorable to
the appellants, the FDIC is entitled to prevail as a matter of law. MGM Grand
Hotel, Inc. v. Imperial Glass Co., 533 F.2d 486, 488 (9th Cir. 1976). We find
that there is no genuine issue of fact in either case and that the FDIC is entitled
to prevail as a matter of law and therefore affirm the judgments of the district
court.
It is undisputed that all of these notes were duly executed and, under their
terms, are due and unpaid. The defendants, however, raise affirmative defenses
to the notes. We shall first consider the $1,400,000 and $1,150,000 notes of
First National Finance, along with the $2,500,000 note of United Oil Well,
since the same factual situation surrounds these notes and the same affirmative
defenses are asserted.
First National Finance and United Oil Well each contend that these three notes
were purely accommodation notes; that there was a lack of consideration and
that there was a collateral agreement with the bank that the notes would never
have to be paid.
The undisputed facts are as follows. First National Finance issued a promissory
note payable to the bank in the amount of $1,400,000 on October 16, 1972,
which was renewed on March 1, 1973. It also issued a second note payable to
the bank in the amount of $1,150,000 on October 25, 1972, which was renewed
on April 2, 1973. United Oil Well issued a promissory note payable to the bank
on December 29, 1972, which was renewed on March 1, 1973. All notes were
executed by John A. Smith as president of the respective corporations. The
affirmative defenses arise from the facts surrounding the issuance of the
original promissory notes. The funds representing the face amount of each note
were deposited to the account of each corporation. Simultaneously or shortly
thereafter, these funds were transferred to Yellow Cab Company by means of
corporate checks signed by John A. Smith. Yellow Cab Company was a
subsidiary of Westgate-California Corporation, which was controlled by C.
Arnholt Smith, the chairman of the board and chief administrative officer of the
bank and the brother of John A. Smith.
The major contention of the appellants is that there existed a collateral oral
agreement between C. Arnholt Smith, as chief executive officer of the bank,
and John A. Smith, as president of the appellant corporations, that the notes
were solely accommodation notes and would never have to be paid by the
appellants. Specifically, the affidavits of John A. Smith state, with regard to
each note, that "Mr. C. A. Smith expressly stated to me that this was an
accommodation loan and that neither myself nor my company would be
required to repay the said note, and that it was being made for the benefit of
assisting United States National Bank and the Yellow Cab Company, in
completion of certain bookkeeping corrections."
10
We hold that the appellants are estopped, as a matter of law, from asserting the
defense of a secret agreement not to enforce the promissory note, under the
rationale of D'Oench, Duhme & Co., Inc. v. FDIC, 315 U.S. 447, 62 S.Ct. 676,
86 L.Ed. 956 (1942). The appellants have asserted that the D'Oench case, as
interpreted by this circuit in FDIC v. Meo, 505 F.2d 790 (9th Cir. 1974) is not
applicable. The holding of the D'Oench case is summarized in Meo.
11
"(D'Oench
) involved a note, regular on its face, executed by the defendant, an
accommodation maker. The note was given to the bank to conceal certain
irregularities from the bank examiners, and at the time the note was executed the
bank agreed that the note would not be collected and that all interest payments made
would be repaid. After the bank closed, FDIC acquired its assets and sued to collect
on the note. At trial, the maker contended that the note was given without
consideration, and that the secret agreement by the bank was enforceable against
FDIC. Noting that federal policy protects FDIC and the public funds which it
Meo at 791-792.
13
The Meo case held the D'Oench doctrine to be inapplicable to the facts of the
Meo case. There, a note was given in exchange for 1,000 shares of San
Francisco National Bank stock which were to be held as security for the loan
from the bank. The bank did not issue the stock, but instead issued 1,000 voting
trust certificates and held them as security. The court notes in Meo that there
was no secret agreement whereby the assets of the bank would be overstated.
There was simply a failure of consideration of which the promissor was
unaware until after the bank was closed and the suit was filed by the FDIC.
14
The distinction between Meo and this case is clear. In this case, there was no
failure of consideration as existed in Meo. It is undisputed that the proceeds of
each of the loans were deposited to the accounts of the respective corporations
and subsequently paid over to Yellow Cab Company on checks issued by
appellants. There was in this case, as in D'Oench, participation by the
appellants in a secret agreement with the bank which permitted the bank to
overstate its assets.
15
It is the contention of appellants that the D'Oench case does not apply to this
situation, because John A. Smith had no specific knowledge of any particular
deceptive scheme of the bank to cover up the fact that it had loaned money to a
subsidiary of Westgate-California Corporation in excess of that allowed by law.
It is not necessary for the accommodation maker to have knowledge of the
specific scheme or fraudulent arrangement to preclude the defense; it is
sufficient that he lends himself to a scheme to aid the bank in concealing the
true nature of the transaction, thus misrepresenting the note as a valid asset of
the bank. The Court stated in D'Oench :
16
"Plainly
one who gives such a note to a bank with a secret agreement that it will not
be enforced must be presumed to know that it will conceal the truth from the vigilant
eyes of the bank examiners. . . . It would be sufficient in this type of case that the
maker lent himself to a scheme or arrangement whereby the banking authority on
which the respondent relied in insuring the bank was or was likely to be misled."
17
18
Appellants also seek to distinguish D'Oench on the grounds that the FDIC was
18
Appellants also seek to distinguish D'Oench on the grounds that the FDIC was
there proceeding as a creditor of the bank, whereas it is here proceeding as a
receiver of the bank. The express language of the Court in D'Oench, which
refers to receivers as well as creditors, precludes this distinction. D'Oench at
458, 62 S.Ct. 676.
19
The appellants contend that California law of estoppel requires that there must
be a finding that the FDIC as receiver relied upon the conduct of appellants to
its injury. Liability on the notes, however, involves a decision of federal law,
not state law. D'Oench at 456, 62 S.Ct. 676. The federal law does not
necessitate such a finding. The Supreme Court clearly announced:
20
"Furthermore,
the fact that creditors may not have been deceived or specifically
injured is irrelevant. As we held in the Deitrick case ((Deitrich v. Greaney ) 309 U.S.
(190) p. 198, 60 S.Ct. 480, 84 L.Ed. 694), it is the 'evil tendency' of the acts to
contravene the policy governing banking transactions which lies at the root of the
rule."
21
22
Appellants assert that the defense of estoppel was not properly raised because it
was not pled by the FDIC. The affirmative defense alleging the agreement not
to enforce the notes was necessarily first brought forth in the answer. No reply
to the answer is allowed, unless ordered by the court. Fed.R.Civ.P. 7(a).
Averments in a pleading to which no responsive pleading is required or
permitted shall be taken as denied or avoided. Fed.R.Civ.P. 8(d). No pleading
of estoppel by the FDIC was required.
23
24
We turn now to the remaining two notes of First National Finance, a $525,000
note executed on December 29, 1972 and a $250,000 note executed April 25,
1973. It is undisputed that First National Finance received the funds and that
the notes under their terms are due and remain unpaid. Appellant assigned as
collateral for both notes a promissory note secured by a deed of trust. Appellant
contends that the FDIC must proceed first to realize upon the security for the
notes before suing on the notes. The district court correctly ruled that the
collateral for the notes was personal property, Cal.Civ.Code 14(3) and that
California law permits the party to elect to sue on the notes without first
pursuing the collateral. Bank of California v. Leone, 37 Cal.App.3d 444, 112
Cal.Rptr. 394 (1974). The appellants further contend that the actions of the
bank and the FDIC have impaired the collateral. The affidavits produced in the
district court do not provide a factual basis to support this contention.
25
Lastly, appellants urge that the district court's certification of the partial
summary judgments pursuant to Fed.R.Civ.P. 54(b) was improper. Appellants
argue that the district court's finding of no just reason for delay in entering final
judgment against them on the promissory notes was in error. It is well
established that the determination of whether just reason for delay exists may
only be challenged upon a clear showing of an abuse of discretion. Illinois Tool
Works, Inc. v. Brunsing, 378 F.2d 234 (9th Cir. 1967); Metal Coating Corp. v.
National Steel Construction Co., 350 F.2d 521 (9th Cir. 1965). No such abuse
exists in this case.
26
Hon. Gus J. Solomon, Senior United States District Judge for the District of
Oregon, sitting by designation