In D'Oench, D. & Co. v. Federal Deposit Ins. Corp. (1942) 315 U.S. 447, a securities dealer sold bonds to a bank. After default on the bonds, the firm's president executed a note in favor of the bank so that the transaction could be carried on the bank's books as an asset rather than a liability. An oral agreement that the note need not be paid was reflected on a receipt but not on the note. The bank charged off the note. (D'Oench, supra, 315 U.S. at p. 454.)
The bank was declared insolvent and the FDIC was appointed as receiver. When the FDIC sued on the note, the oral agreement was raised as an affirmative defense. The Supreme Court held that a federal policy, evidenced by the Federal Reserve Act, existed to "protect the FDIC from misrepresentations made by the bank to induce or influence third parties, including misstatements as to the . . . integrity of securities . . . ." (Id. at p. 459.) Allowing a secret agreement as a defense would enable the note maker to mislead bank examiners and defeat the statute's purpose.
Congress codified the D'Oench doctrine in section 1823(e) of title 12 of the United States Code, which states, in part: "(1) No agreement which tends to diminish or defeat the interest of the Corporation in any asset acquired by it under this section or section 1821 of this title, either as security for a loan or by purchase or as receiver of any insured depository institution, shall be valid against the Corporation unless such agreement --(A) is in writing,(B) was executed by the depository institution and any person claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the depository institution,(C) was approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the minutes of said board or committee, and(D) has been, continuously, from the time of its execution, an official record of the depository institution."