FDIC V. ALTO CONSTR. CO., 1989-NMSC-075,
109 N.M. 165, 783 P.2d 475 (S. Ct. 1989)
THE FEDERAL DEPOSIT INSURANCE
CORPORATION,
Plaintiff-Appellee,
vs.
ALTO CONSTRUCTION COMPANY, INC., et al.,
Defendants-Appellants
SUPREME COURT OF NEW MEXICO
1989-NMSC-075, 109 N.M. 165, 783 P.2d 475
Appeal from the District Court of
Lincoln County, Richard S. Parsons, District Judge.
Hawthorne & Hawthorne, P.A., Richard
A. Hawthorne, Ruidoso, New Mexico, for Appellants.
Underwood, Dutton & Griffin, Ltd.,
Don Dutton, Ruidoso, New Mexico, for Appellee.
{1} Defendants George Cliff
(Cliff), Thomas Deason and George Slaughter appeal a summary judgment entered
in favor of plaintiff Federal Deposit Insurance Corporation (FDIC) on a claim
for a $152,424.75 deficiency judgment, plus interest, arising from a mortgage
foreclosure. We affirm.
{2} Cliff, Deason and
Slaughter, along with Hal Cliff, were the four shareholders of Alto Construction
Company, a New Mexico corporation principally involved in construction of
residential homes in Ruidoso, New Mexico. Hal Cliff was the president of the
corporation and ran its day-to-day operations until the latter part of 1985. He
is not a party to the present appeal.
{3} In November 1982, Deason
executed an unlimited guaranty in favor of First City National Bank
1 (bank) guaranteeing the indebtedness
of Alto Construction Company. In May 1984, Cliff and Slaughter executed
identical guaranties in favor of the bank. The guaranties covered "any and
all existing and future indebtedness and any liability of any kind, nature,
[or] character... from the debtor [Alto Construction] to bank, howsoever and
whensoever created, or advised, or evidenced, or acquired, including but not
limited to those as maker, drawer, principal, surety, or guarantor * * *
*"
{4} Sometime prior to June 1,
1984, purportedly without the prior knowledge of the other shareholders of Alto
Construction, Hal Cliff entered into a partnership on behalf of the corporation
with several other individuals and business entities. The resulting general
partnership was named "Westsun Group." Westsun's purpose was to
undertake real estate investments, and it borrowed $178,562.50 from the bank to
purchase a parcel of real estate in Ruidoso. To secure the note, Westsun gave
to the bank the mortgage in question. Additionally, various Westsun partners
gave personal guaranties on the note. Hal Cliff also gave his personal
guaranty. The appellants did not directly participate in these transactions,
nor did they give guaranties specifically to secure the Westsun note.
{5} Westsun subsequently
defaulted on the promissory note. In addition, Alto Construction defaulted on
three other notes held by the bank. In August 1985, the bank sent a letter to
appellants and Alto Construction demanding payment of the Westsun note. Later that
month, Deason and Slaughter met with the president of the bank to discuss the
Westsun loan and the other outstanding obligations of Alto Construction. At
this meeting, Deason and Slaughter acknowledged that the Westsun note was an
obligation of Alto Construction, but the bank stated that it intended to seek
repayment only from those persons who signed guaranties on behalf of Westsun.
The bank entered into an agreement with Deason and Slaughter to restructure the
remaining three notes, and Deason and Slaughter executed new guaranties to
cover those notes. The Westsun loan was not covered under this agreement or the
new guaranties.
{6} In December 1985, FDIC
closed the bank and began liquidation of its assets. In November 1986, FDIC
filed suit against
{*167} Westsun, the
partners of Westsun, including Alto Construction, and various individuals whose
guaranties were alleged to cover the Westsun note, including Cliff, Deason, and
Slaughter. The suit sought foreclosure of the mortgage on the Westsun property
and money damages. In May 1987, the parties agreed there were no legal defenses
to the foreclosure suit, and the court entered a judgment of foreclosure on the
property. The May judgment reserved the court's jurisdiction on the issue of
individual liability for any deficiency remaining after the foreclosure sale.
It also provided that such issues, along with various counterclaims and
cross-claims were "reserved * * * for trial by jury at a date to be set by
the Court in the future." In October 1987, however, the court granted
FDIC's motion for summary judgment on the individual liability of defendants,
including Cliff, Deason and Slaughter.
{7} Appellants argue the
court erred for two reasons in granting summary judgment. First, they argue,
genuine issues of material fact remained regarding whether they intended the
facially unlimited guaranties executed prior to the formation of Westsun to
secure Alto's obligations as a partner of Westsun. Second, they argue, the May
1987 judgment of foreclosure was a stipulated judgment, and the trial court was
bound to enforce its terms by allowing the issue of appellant's individual
liability to be tried by a jury.
{8} Summary judgment proper
under federal law. Summary judgment should be granted when no genuine issue of
material fact exists that requires a jury trial. SCRA 1986, 1-056(C). When a
party makes a prima facie showing of no genuine issue of material fact, the
nonmovant has the burden to come forward with affidavits or other documentation
sufficient to raise a reasonable doubt that such an issue exists.
Goodman v.
Brock, 83 N.M. 789,
498 P.2d 676 (1972).
{9} In response to FDIC's
motion for summary judgment, appellants presented affidavits stating that, at
the time each executed the facially unlimited guaranties to the bank, they
intended the guaranties to cover only those obligations of Alto Construction
that related to its home building activities. In their brief in chief,
appellants argue these affidavits created an issue of fact regarding whether
there was a meeting of minds on the extent of the guaranties. Since guaranties
are a species of contract, they argue, if there was no meeting of minds over
the subject of financial obligations unrelated to Alto Construction's home
building activities, then the guaranties do not cover such activities,
2 and FDIC is precluded, as successor
in interest of the bank, from enforcing them in this case.
{10} At oral argument,
appellants reframed their argument, alleging the bank understood and agreed
that the guaranties only would cover Alto Construction's home building
activities. We note that the statements of the bank president at the August
1985 meeting to restructure the corporation's debt and the resulting agreement
could be interpreted as indicating the existence of such a prior understanding.
Nonetheless, we conclude that summary judgment was proper under applicable
federal law.
{11} The Federal Deposit
Insurance Act, 12 U.S.C. Section 1823(e), provides:
No agreement which tends to diminish or defeat the right,
title or interest of the Corporation [FDIC] 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 {*168} 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
execution, an official record of the bank.
{12} One policy animating
this section is to allow both federal and state bank examiners to rely
completely on a bank's records when evaluating its assets pursuant to
liquidation of assets or to providing financing for purchase of assets and
liabilities by another bank.
3
Langley v. FDIC, 484 U.S. 86, 91, 108 S. Ct. 396, 401, 98 L. Ed. 2d 340
(1987). The latter sort of evaluations "must be made 'with great speed,
usually overnight, in order to preserve the going concern value of the failed
bank and avoid an interruption in banking services.'"
Id. (quoting
Gunter
v. Hutcheson, 674 F.2d 862, 865 (11th Cir.),
cert. denied, 459 U.S.
826, 103 S. Ct. 60, 74 L. Ed. 2d 63 (1982)). Such evaluations would be
impossible if "seemingly unqualified notes * * * are in fact subject to
undisclosed conditions."
Id. Because of such considerations,
certain defenses that may be available to a debtor if sued by a bank are not
available against FDIC. In short, FDIC "does not simply step into the
private shoes of the local bank * * * *"
FDIC v. Tito Castro Constr.
Co., 548 F. Supp. 1224, 1226 (D.P.R. 1982),
aff'd, 741 F.2d 475 (1st
Cir. 1984).
See also, FDIC v. Cardinal Oil Well Serv. Co., 837 F.2d 1369
(5th Cir. 1989) (in light of the unequivocal language in guaranties securing corporation's
debts, court would not look to extraneous evidence of intent).
{13} In
D'Oench, Duhme
& Co. v. FDIC, 315 U.S. 447, 62 S. Ct. 676, 86 L. Ed. 956 (1942), the
Court held that a debtor could not assert against the FDIC a defense of no
consideration based on an undisclosed side agreement with the failed bank not
to enforce a particular obligation, because such an agreement would tend to
mislead banking authorities. Similarly, the
Langley Court reasoned the
defense that a mortgage note was subject to an unwritten condition precedent
could not be used to defeat a claim brought by FDIC subsequent to its
appointment as receiver for a failed bank, because "one who signs a
facially unqualified note subject to an unwritten and unrecorded condition upon
its repayment has lent himself to a scheme or arrangement that is likely to
mislead the banking authorities." 484 U.S. at 93, 108 S. Ct. at 402.
{14} Appellants assert that
the understanding they had with the bank limiting the scope of the facially
unlimited guaranties does not constitute an "agreement" within the
meaning of Section 1823(e) because there was no intent to defraud FDIC. Such an
intent is not necessary to the application of the rule in question. The
D'Oench
court held that a debtor could not assert a "secret" agreement as a
defense against suit by FDIC even when there was no intent to deceive banking
authorities. 315 U.S. at 457-58, 62 S. Ct. at 679-80.
{15} We conclude that the
unwritten condition alleged by appellants, whether a secret agreement with the
bank or their own unilateral understanding, does not provide a defense against
FDIC. Like the unwritten agreements considered in
D'Oench, Duhme & Co.
and
Langley, appellants' asserted defense would tend to diminish or
defeat the interest of FDIC and mislead banking authorities as to the true
status of a bank's assets. We also note that, as the August 1985 agreement
restructuring Alto Construction's debt with the bank took place subsequent to
the execution of the original guaranties, it also cannot be raised as a defense
against FDIC under 12 U.S.C. Section 1823(e)(2). Therefore, we hold the claim
that the guaranties were intended only to cover the home building activities of
Alto Construction did not give rise to an issue of material fact.
{*169} {16} Stipulated judgment did not necessitate a jury
trial. Assuming that the May 1987 judgment was a "stipulated
judgment" and hence a contract that the trial court was obliged to
enforce, we nonetheless hold the court acted correctly in refusing to conduct a
jury trial on the issues here appealed. See Owen v. Burn Constr. Co., 90
N.M. 297, 563 P.2d 91 (1977) (stipulated judgment is a contract between the
parties). The power of the parties to enter into a binding contract does not
extend to obligating the trial court to act in contravention of the rules of
civil procedure, under which we have held summary judgment was appropriate in
this case. Moreover, we do not construe the language of the May judgment as
implying such an obligation. The judgment expressly reserved the court's
jurisdiction on the question of individual liability, and reserved these
issues for jury trial to be set by the trial court at a future date. We
construe this language to imply that the trial court reserved for itself the
power to decide, as provided by the rules of civil procedure, if and when
a jury trial would be necessary.
{17} For the foregoing
reasons, the judgment is affirmed.
SOSA, C.J., and MONTGOMERY, J., concur.
1
First City National Bank changed its name, first to Moncor Bank, then to First
National Bank of Lincoln County.
2
There is no claim that the guaranties were of no legal effect by reason of a
failure in mutuality of intent. Cf. Langley v. FDIC, 484 U.S. 86, 91,
108 S. Ct. 396, 402 (fraud inducing a party to sign an instrument without
knowing its true nature or contents would render that instrument void, and such
a defense can be raised against FDIC in a suit to enforce said instrument).
3
These policies were first recognized as implicit in federal banking law by the
Supreme Court prior to the passage of Section 1823(e). See D'Oench, Duhme
& Co. v. FDIC, 315 U.S. 447, 457-62, 62 S. Ct. 676, 679-82, 86 L. Ed.
2d 956 (1942). The FDIC need not show reliance in fact as a condition precedent
to application of the prophylactic rule announced in D'Oench and now
codified by Section 1823(e). Id. at 458, 62 S. Ct. at 679-80; Langley
v. FDIC, 484 U.S. at 93-95, 108 S. Ct. at 402-03 (FDIC entitled to rely on
face of note and collateral mortgage, notwithstanding that FDIC had actual
notice of the allegations of fraudulent oral warranty made by bank prior to
FDIC's appointment as receiver upon bank's closure).