D’Oench, Duhme & Co. v. FDIC – Case Brief Summary (U.S. Supreme Court)

In D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447 (1942), the obligor sold the bank certain bonds that were in default.

To allow the bank to avoid showing the defaulted bonds on its books, the obligor executed notes to the bank, with the secret understanding that the notes would never be repaid.

After the FDIC acquired the notes, it sued for payment.

The Court held that the obligor was estopped from denying its liability under the notes. D'Oench, 315 U.S. at 461-62.

The United States Supreme Court held that the receiver of a failed, FDIC-secured bank cannot be bound by a secret side agreement in which the bank allegedly promised not to collect a debt owed by a borrower.

Section 1823(e) was enacted to codify the D'Oench, Duhme doctrine. See FDIC. v. Adams, 187 Ariz. 585, 588, 931 P.2d 1095, 1098 (App. 1996).

In D'Oench, Duhme, the Supreme Court rejected a borrower's assertion that an undisclosed agreement with the bank had given the borrower greater rights than were reflected in the loan documents. 315 U.S. at 460-61.

The Court noted that the side agreement "was designed to deceive the creditors or the public authority or would tend to have that effect." Id. at 460.

Under D'Oench, Duhme, borrowers are thus prevented from asserting defenses based on undisclosed agreements in order to "protect the FDIC from misrepresentations and secret agreements which might result in the FDIC incorrectly assessing the value of bank holdings for institutions which it insures, makes loans, or acquires in its corporate capacity." Bateman v. FDIC, 970 F.2d 924, 926 (1st Cir. 1992).