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Alaska Southern Partners v. Prosser, Prosser, and Besse (1/22/99), 972 P 2d 161
Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the attention of the
Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone (907)
264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
ALASKA SOUTHERN PARTNERS, )
) Supreme Court No. S-7795
) Superior Court No.
v. ) 3AN-94-3429 CI
WILLIAM C. PROSSER, ROBERT A. ) O P I N I O N
PROSSER, and RICHARD L. BESSE,)
Appellees. ) [No. 5069 - January 22, 1999]
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Brian C. Shortell, Judge.
Appearances: Calvin R. Jones, Hoge & Lekisch,
Anchorage, for Appellant. William L. Choquette, Artus & Choquette,
P.C., Anchorage, for Appellees.
Before: Matthews, Chief Justice, Compton,
Eastaugh, Fabe and Bryner, Justices.
BRYNER, Justice, dissenting.
When the Federal Deposit Insurance Corporation (FDIC)
became receiver for the failing Alliance Bank, the bank's loan
files showed that Huffman Hills Development Company (HHDC) owed it
money. Alaska Southern Partners, acting as the FDIC's successor,
sued to collect the loan. In defense, HHDC successfully asserted
that the bank had accepted an assignment of certain third-party
notes to satisfy the loan, but had never fully credited this
assignment in its loan files. Does 12 U.S.C. sec. 1823(e)(1) -- a
law that invalidates agreements tending to diminish the FDIC's
acquired interest in any "asset"documented in a failing bank's
preclude HHDC's defense? We find no preclusion, because HHDC's
payment in full left no asset for the FDIC to acquire.
I. FACTS AND PROCEEDINGS
Although the parties dispute the legal significance of --
and to some extent the reasonable inferences arising from -- the
evidence contained in the record, they do not dispute the basic
facts. On August 25, 1986, William C. Prosser, Robert A. Prosser,
and Richard L. Besse, acting collectively as HHDC, signed a loan
note (Note 5744) in the principal amount of $815,000, payable to
Alaska Mutual Bank (AMB) in thirty-five monthly installments of
$9500 each. To secure Note 5744, HHDC assigned to AMB a security
interest in six secured notes that HHDC had received from third
parties who had purchased lots in HHDC's developments.
In 1987 HHDC and AMB began negotiating an agreement to
repay Note 5744 by an unconditional transfer of five of the third-
party notes in which HHDC had given AMB a security interest.
According to affidavits submitted by William Prosser of HHDC and
Victor Mollozzi, then AMB's Senior Vice President, the arrangement
was advantageous to AMB, since the makers of the HHDC notes had
better credit than HHDC, and the notes themselves were secured and
well seasoned. The principal balances due on four of the five
notes were undisputed. But the makers of the fifth note -- the
Petersons -- disputed the amount owing on their note.
It took over a year for AMB and the Petersons to resolve
the value of the note. In early 1988, while the amount of the
Peterson note remained unresolved, AMB merged with United Bank of
Alaska to form Alliance Bank. Victor Mollozzi continued to deal
with both HHDC and the Petersons as Alliance's Regional Commercial
Loan Officer. In February 1988, the Petersons and Alliance agreed
that the remaining balance owing on the Peterson note was $362,000.
Mollozzi's affidavit states that shortly after Alliance
reached an understanding with the Petersons as to the outstanding
balance on their note, Mollozzi, acting on behalf of Alliance,
verbally accepted HHDC's proposal to convey its five notes to
Alliance in satisfaction of Note 5744. Mollozzi's assertion of a
verbal agreement to accept HHDC's notes is corroborated in the
record by a letter from Mollozzi to the Petersons dated March 11,
1988, declaring that Alliance Bank had become the owner of the
Peterson note and warning that any future attempt by HHDC to
reconvey the note would be invalid. Prosser's affidavit further
corroborates Mollozzi's assertion that HHDC transferred ownership
of all five notes to Alliance. According to both Prosser and
Mollozzi, HHDC and Alliance specifically agreed that HHDC's
assignment of the notes would take effect on May 16, 1988; on that
date, the unpaid balance on the five notes -- which in total
exceeded the unpaid balance owing on Note 5744 -- was to have been
credited as payment in full on Note 5744.
Despite this verbal agreement, Alliance never actually
credited HHDC with the full amount of the five notes. A letter
from Mollozzi to HHDC dated May 17, 1988 (the day after the
transferred notes were to be credited as payment), listed only four
of the five HHDC notes as having been purchased by Alliance. The
letter listed the current unpaid principals on these notes as
$428,532.84 and credited this amount against the principal then
owing on Note 5744 -- $767,026.45 -- "leaving a balance of
$338,493.61."The letter did not credit the agreed upon $362,000
owing on the Peterson note; the bank's loan file for Note 5744 also
failed to credit the Peterson note.
In his affidavit, Mollozzi could not recall why the bank
failed to credit the value of the Peterson note as payment on
Note 5744. But the bank's correspondence with the Petersons
indicates that, after informing the Petersons in March 1998 that it
had acquired their note, the bank began negotiating with them for
a discounted early payoff of the note's agreed-upon unpaid balance.
By March 15, 1989 -- ten months after HHDC's agreement with the
bank was to have taken effect -- the bank's negotiations with the
Petersons had culminated in an agreement as to the terms of an
early payoff. On that date, Alliance's counsel wrote to HHDC,
confirming the bank's intent to credit the value of the Peterson
note as satisfaction in full for Note 5744:
By accepting the money from Mr. Peterson,
Alliance agrees to release the deed of trust it holds as assignee
of Huffman Hills on [the Petersons' lot]. In addition to agreeing
to release this particular property from any encumbrance assigned
to Alliance Bank, Alliance also agrees that Note No. 5744 signed by
Huffman Hills . . . will be considered satisfied in full. (Emphasis
On April 18 and 19, 1989, Alliance actually received the agreed-
upon payment from the Petersons -- $294,861.43.
Two days later, on April 21, 1989, Alliance failed, and
the FDIC was appointed as its receiver. As of that date, the loan
file for Note 5744 still reflected no credit for the Peterson note;
the outstanding balance on the loan was adjusted to reflect only
the four HHDC notes credited a year before, in May 1988.
It is standard practice for the FDIC to review the assets
of a failed bank upon being appointed as receiver. Based on its
review of Alliance's loan files, the FDIC concluded that Note 5744
was an outstanding asset of Alliance. After counting the
Petersons' April 18 and 19 payment of $294,861.43 as a credit
against Note 5744's previously shown unpaid balance, the FDIC
determined that $77,179 plus interest remained unpaid on the loan;
it demanded payment in this amount from HHDC. HHDC did not pay.
Alaska Southern Partners (ASP) subsequently purchased
Note 5744 from the FDIC in a bulk sale of loans. In 1994, ASP sued
HHDC in superior court to collect $77,178.76 plus interest on
Note 5744. HHDC answered that the loan had been paid in full by
the transfer of its five notes to Alliance. Both parties filed
motions for summary judgment. The court granted summary judgment
for HHDC. ASP appeals, claiming that HHDC's motion for summary
judgment should have been denied and that its own summary judgment
motion should have been granted.
A. Standard of Review
We review summary judgment decisions de novo, [Fn. 1] and
will uphold an order granting summary judgment only if the record
presents no genuine issues of material fact and "the moving party
[is] entitled to judgment on the law applicable to the established
facts."[Fn. 2] In conducting our review, we draw all factual
inferences in favor of the non-moving party and deny summary
judgment when our review reveals a genuine dispute as to any
material fact. [Fn. 3]
B. Summary Judgment in Favor of HHDC Was Appropriate Because
Note 5744 Was Fully Satisfied Prior to the FDIC's Taking Over the
In D'Oench, Duhme & Co. v. FDIC, [Fn. 4] the United
States Supreme Court articulated a doctrine that greatly limits the
rights of debtors to defend against collection efforts of the FDIC
when it acts in its capacity as receiver of a failed bank. [Fn. 5]
Congress has enacted the substance of the D'Oench, Duhme doctrine
as 12 U.S.C. sec. 1823(e)(1). [Fn. 6] As set out in this
the doctrine invalidates improperly documented agreements that tend
to diminish an asset that the FDIC acquires when it takes over a
(1) In general
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
(D) has been, continuously, from
the time of its execution, an official record of the depository
Courts have allowed successors in interest of the FDIC to assert
the protections of this statute as well. [Fn. 7]
By invalidating any improperly documented "agreement
which tends to diminish or defeat the interest of [the FDIC] in any
asset"it acquires from a failing bank, sec. 1823(e) greatly limits
situations in which a failed bank's debtors can alter the terms and
conditions for repayment of the loans reflected in the bank's loan
files: because loans are "assets"acquired by the FDIC, the statute
nullifies undocumented agreements that could diminish a loan's
worth by altering the terms of payment reflected in the bank's loan
file. The statute enables the FDIC to rely on a bank's records in
evaluating the worth of its assets; it ensures mature consideration
of unusual loan transactions; and it prevents fraudulent insertion
of new terms into the loan files of a bank that is headed for
failure. [Fn. 8]
But because sec. 1823(e)(1) only invalidates agreements
that tend to diminish or defeat assets in which the FDIC "acquires"
interest, the statute does not preclude a debtor from proving that
the FDIC acquired no asset: "The 'no asset' exception to D'Oench,
Duhme and sec. 1823(e) is widely recognized."[Fn. 9]
Specifically, a number of courts have recognized that the no asset
applies when "the [loan] asset had been discharged by the payment
and cancellation of the underlying debt before the FDIC obtained
the assets of the bank."[Fn. 10] For purposes of the "no asset"
exception, a bank's records need not meet the requirements of
sec. 1823(e)(1). [Fn. 11] Once "uncontroverted documentation and
testimony verify"the fact that payment in full has been made, a
rebuttable presumption arises in favor of the paying party, and the
FDIC must come forward with evidence to prove that the note has not
been paid. [Fn. 12]
Here, HHDC acknowledges that its agreement to repay
Note 5744 by assigning Alliance third-party notes of equivalent
value does not meet the requirements of sec. 1823(e)(1). But HHDC
insists that the statute does not govern the agreement. HHDC
reasons that because the bank agreed to accept the HHDC notes as
payment in full for Note 5744 and HHDC actually transferred them
before the FDIC was appointed as receiver of the failing bank's
assets, the FDIC simply acquired no asset.
We conclude that HHDC's argument has merit. Ordinarily,
a creditor's unconditional acceptance of a third-party note as full
payment on a note of equivalent value operates as full payment of
the debtor's obligation. [Fn. 13] Although we have never before
determined the effect of a substituted note like the one at issue
here, we have previously recognized that if a creditor agrees to
and accepts an unconventional form of payment, we should construe
it as a payment toward an underlying debt. [Fn. 14]
In Breaux Bridge Bank & Trust Co. v. Simon, [Fn. 15] the
Louisiana Court of Appeals confronted a situation very similar to
the one here. Breaux Bridge Bank and Trust had accepted a loan
note valued on its face at $10,647.14 in payment of a $10,000 debt.
The FDIC subsequently sued on the original $10,000 note, asserting,
under 12 U.S.C. sec. 1823(e)(1), that the bank's acceptance of the
third-party note was not a valid defense against the FDIC. [Fn. 16]
But the court in Breaux declined to apply the statute, holding that
the underlying debt had been discharged by the transfer of the
third-party note, whose face value the FDIC had not disputed. [Fn.
17] Breaux and other authorities recognizing the "no
asset"exception persuade us that the superior court correctly
granted summary judgment to HHDC. HHDC produced evidence that it
transferred five notes to Alliance, which the bank agreed to accept
as full payment on Note 5744. The most conclusive evidence of
payment is Alliance's March 15, 1989, letter to HHDC
unconditionally declaring that the bank considered the Petersons'
payment to be full satisfaction for Note 5744. In addition, the
affidavits of HHDC's William Prosser and Alliance's Victor Mollozzi
confirm that the bank agreed, effective May 16, 1988, to accept
HHDC's notes in full satisfaction of Note 5744, and to assign the
Peterson note a value of $362,000 for purposes of the transaction.
These affidavits are further supported by evidence establishing
that HHDC did in fact transfer the five notes -- including the
Peterson note -- to Alliance with the understanding that the bank
would accept them as full payment on Note 5744.
The evidence that HHDC presented below to show that the
bank accepted the notes as full payment is essentially unrebutted.
ASP in effect contends that the bank's failure to credit the
Peterson note and its eventual collection of only $294,861.43 from
the Petersons suffice to raise issues of fact for trial. But
considering the overwhelming nature of the record evidence showing
that the bank accepted the five notes as full payment for
Note 5744, neither its unexplained failure to credit the Peterson
note to the loan file nor its later acceptance of separately
negotiated cash payments on that note at less than face value can
suffice to raise a genuine issue of material fact as to whether
HHDC paid Note 5744 in full.
Because we find no genuine issues of material fact on the
issue of HHDC's payment in full, we AFFIRM the superior court's
order granting HHDC summary judgment.
BRYNER, Justice, dissenting.
The case law discussing 12 U.S.C. sec. 1823(e)(1) seems
opaque, making the statute's limits hard to define with confidence.
But the statute's primary purpose is clear: it is to ensure that
the records of a failing bank permit accurate and immediate
appraisal of its assets in the event of FDIC intervention.
The purpose [of sec. 1823(e)(1)] is to protect
the FDIC from hidden agreements that would defeat its interest in
what is otherwise a facially valid note. Such hidden agreements
would prevent the FDIC from accurately valuing assets and from
making informed decisions on how best to handle a bank's
insolvency. The concern is thus with agreements that are not made
part of the note.[ [Fn. 1]]
The statute thus reflects a clear policy choice by
Congress to saddle borrowers, rather than depositors or others,
with risks generated by inaccuracies and uncertainties in an
insolvent bank's loan files:
As among borrowers, thrift regulators,
depositors, and creditors, the borrower is in the best position to
protect himself and must therefore suffer the risk of loss if he
fails to ensure that his agreement is properly recorded.[ [Fn. 2]]
In light of these statutory purposes, I believe that
sec. 1823(e)(1) precludes a borrower from claiming to have paid off
note -- thereby leaving no asset for the FDIC to acquire -- if, to
prove full payment, the borrower must rely on evidence of an
agreement that is neither reflected on the face of the note nor
documented in the bank's files in the statutorily prescribed
manner. Admittedly, the principal case relied on by the court --
Breaux Bridge Bank & Trust Co. v. Simon, [Fn. 3] reaches a contrary
conclusion. But in my view, Breaux is ill-considered and should
not be followed, for it too readily allows end runs around
sec. 1823(e)(1)'s basic goals. Federal precedent supports the
conclusion that a party can establish a no-asset defense only by
"acts independent of any understanding or side agreement."[Fn. 4]
I would follow this precedent.
Here, HHDC's no-asset defense unquestionably relies on
proof of a side agreement -- the bank's agreement to accept HHDC's
third-party notes as full payment for Note 5744 -- that was
undocumented in the loan file. To prevail on its defense, HHDC had
to establish that the bank agreed to accept the third-party notes
as payment. For purposes of sec. 1823(e)(1), it is immaterial that
this agreement was executed before the bank failed. [Fn. 5]
Because I believe that sec. 1823(e) precluded HHDC from asserting
side agreement in defense of payment, regardless of how
convincingly it might have established the agreement, I would hold
that the superior court erred in granting HHDC summary judgment and
in denying summary judgment to ASP.
Accordingly, I dissent.
Beilgard v. State, 896 P.2d 230, 233 (Alaska 1995).
Wassink v. Hawkins, 763 P.2d 971, 973 (Alaska 1988).
315 U.S. 447 (1942).
Id. at 456-59, 461.
See 12 U.S.C. sec. 1823(e)(1)(1994); see also FDIC v.
33 F.3d 532, 536 (5th Cir. 1994) (discussing relationship between
D'Oench, Duhme doctrine and 12 U.S.C. sec. 1823(e)(1)).
See, e.g., FSLIC v. Cribbs, 918 F.2d 557, 560 (5th Cir. 1990);
Porras v. Petroplex Sav. Ass'n, 903 F.2d 379, 380-81 (5th Cir.
1990); FDIC v. Newhart, 892 F.2d 47, 49-50 (8th Cir. 1989).
Langley v. FDIC, 484 U.S. 86, 91-92 (1987).
McFarland, 33 F.3d at 537.
Id. at 538; see also FDIC v. Bracero & Rivera, Inc., 895 F.2d
824, 829-30 (1st Cir. 1990); Commerce Fed. Sav. Bank v. FDIC, 872
F.2d 1240, 1245 (6th Cir. 1989); Breaux Bridge Bank & Trust Co. v.
Simon, 570 So. 2d 156, 157-58 (La. App. 1990); First Heights Bank,
FSB v. Gutierrez, 852 S.W.2d 596, 607 (Tex. App. 1993).
McFarland, 33 F.3d at 538; see also First Heights Bank, 852
S.W.2d at 607 (holding that "D'Oench and 12 U.S.C. sec. 1823(e) do
bar proof that a note has been repaid in whole or in part"and
asserting that loan records and parol evidence could be used to
See Commerce Fed. Sav. Bank, 872 F.2d at 1246.
See, e.g., Berardini v. Hart, 682 P.2d 519, 520-21 (Colo. App.
1984); cf. Evinger v. Greeley Gas Co., 902 P.2d 941, 945 (Colo.
App. 1995) (citing Berardini and J. White & R. Summers, Uniform
Commercial Code sec. 13-20, at 541 (1980), for the proposition that
"the tender of a promissory note represents only 'conditional
payment.' And, such delivery will be deemed as discharging the
underlying debt only if the parties thereto so intend."). See
generally 60 Am. Jur. 2d Payment sec. 78 (1987).
See Gudenau v. Bierria, 868 P.2d 907, 910 (Alaska 1994)
(acceptance by creditor of insurance check payable to debtor and
his bank constituted payment).
570 So. 2d 156 (La. App. 1990).
Id. at 157-58.
Commerce Fed. Sav. Bank v. FDIC, 872 F.2d 1240, 1245 (6th Cir.
1989) (quoting FDIC v. Hatmaker, 756 F.2d 34, 37 (6th Cir. 1985),
overruled on other grounds, Langley v. FDIC, 484 U.S. 86 (1987)).
FDIC v. Caporale, 931 F.2d 1, 2 (1st Cir. 1991).
570 So. 2d 156 (La. App. 1990).
FDIC v. Merchants Nat'l Bank of Mobile, 725 F.2d 634, 639
(11th Cir. 1984); FDIC v. Blue Rock Shopping Ctr., Inc., 766 F.2d
744, 753 (3d Cir. 1985); see also FDIC v. Leach, 772 F.2d 1262,
1267 (6th Cir. 1985); cf. FDIC v. O'Malley, 643 N.E.2d 825, 832
Cf. Langley v. FDIC, 484 U.S. 86, 91-92 (1987).