Federal Deposit Insurance Corporation, Plaintiff-appellee, v. the Cremona Company, et al., Defendants, Richard F. Gonda,defendant-appellant, 832 F.2d 959 (6th Cir. 1987)

Harry T. Quick (argued), Benesch, Friedlander, Coplan & Aronoff, Cleveland, Ohio, for defendant-appellant.

Frances Floriano Goins (argued), Squire, Sanders & Dempsey, Cleveland, Ohio, for plaintiff-appellee.

Before ENGEL and BOGGS, Circuit Judges; and HILLMAN, District Judge.^* 

HILLMAN, District Judge.

The Federal Deposit Insurance Company ("F.D.I.C.") initiated this action to recover money due on three promissory notes executed by partners of the Cremona Company, an Ohio general partnership, in favor of the now defunct Northern Ohio Bank ("N.O.B."). The complaint named as defendants, Cremona Company, Rene Cremona, Jenan Cremona, Ruth W. Kellogg, John W. Kellogg, and the appellant in this matter, Richard F. Gonda.

The Cremonas, Ruth W. Kellogg and appellant Gonda, entered into an Agreement of Partnership on April 12, 1974. The purpose of the partnership was to open and operate a restaurant to be managed by the Cremonas. While the partnership was created as a general partnership under Ohio law, the partners' interests in the venture were not equal. The Cremonas held a 70 percent interest, while Kellogg and Gonda each held a 15 percent interest. The agreement required that each partner consent in writing to the borrowing or lending of money by the partnership. In addition, the agreement provided that:

Gonda shall only be liable for the following contemplated partnership debts:(a) Fifteen percent (15%) of funds to be borrowed from Northern Ohio Bank, which in no event shall exceed the principal sum of Eighteen Thousand Dollars ($18,000.00) plus accrued interest thereon.

(b) Fifteen percent (15%) of funds to be borrowed from Citizens Federal Savings & Loan Association, which in no event shall exceed the principal sum of Twenty-Four Thousand Dollars ($24,000.00) plus accrued interest thereon.

On April 30, 1974, Cremona executed a promissory note to N.O.B. The note was for $120,000.00 plus interest, and came due on April 30, 1975. The note was signed by all four partners. At the same time each of the partners executed an Agreement to be Bound,¹  which was required by the bank as a condition of the loan. The Agreement to be Bound was a standard form prepared by the bank. However, to the agreement signed by Gonda a typewritten sentence was added which provided that: " [s]aid liability of the undersigned shall be limited to fifteen (15%) per cent of the total liability, at time of default."² 

On May 31, 1974, an additional $50,000.00 was borrowed from the bank in the name of the Cremona Company. The promissory note was only signed by the Cremonas. A third note was executed in the name of the partnership by the Cremonas in July of 1974 and was also only signed by the Cremonas. This note was for $25,000. All three notes had an interest rate of prime plus 2 1/2 percent.

In February of 1975 the bank failed and its assets were acquired by the F.D.I.C. in its receivership capacity. The F.D.I.C., in its corporate capacity, then acquired some of the assets of N.O.B., including the three promissory notes, through a "purchase and assumption" transaction.³ 

The three notes remain due and owing, and the F.D.I.C., in its corporate capacity, filed this action in order to recover, from Gonda, the principal and interest due on all three notes. In the district court Gonda contended that he is only liable for fifteen percent (15%) of the $120,000 note, plus accrued interest up to the time of default. He asserted that he could not be held liable for either the $50,000 or $25,000 notes as the Partnership Agreement provided that the partnership could not borrow money without the written consent of all of the partners. He further asserted that his liability on the $120,000 note was limited by both the Partnership Agreement and the Agreement to be Bound. On January 21, 1986, after a bench trial, Frank J. Battisti, Chief Judge of the Northern District of Ohio, entered judgment in favor of the F.D.I.C. and against Gonda in the amount of $195,000 plus interest.⁴  Gonda now appeals.

In support of this appeal, appellant first argues that the district judge erroneously held that both the Agreement to be Bound and the Partnership Agreement had to meet the requirements set forth in 12 U.S.C. § 1823(e) (West Supp.1987)⁵  before they could be asserted against the F.D.I.C. However, after the decision of this court in F.D.I.C. v. Allen, 801 F.2d 863 (6th Cir. 1986) (district court erred in holding that protection of Section 1823(e) was unavailable to the F.D.I.C. where partnership agreements and loan guaranties were part of bank's file), it is clear that Section 1823(e) is to be applied to these types of agreements. Furthermore, application of Section 1823(e) is not, as appellant asserts, limited to side agreements which call into question the F.D.I.C.'s right to the asset which it has acquired, as contrasted with the value of the asset. See e.g., F.D.I.C. v. Hatmaker, 756 F.2d 34, 37 (6th Cir. 1985).

Appellant also argues that even if the district court judge was correct in holding that both the Partnership Agreement and the Agreement to be Bound were subject to the provisions of Section 1823(e) he erred in holding that those requirements were not met.

As to the Partnership Agreement, we agree with the findings of the district court. From the record it is clear that the Partnership Agreement was not executed by the bank and by Gonda contemporaneously with the acquisition of any of the notes by the bank. In addition, the minutes of N.O.B.'s loan committee do not reflect the loan committee's approval of the Partnership Agreement. In fact, there is no evidence that the loan committee ever considered the issue. Furthermore, it is not enough that the Partnership Agreement was eventually found in the records of the N.O.B. As another panel of this court held in Allen, a failed bank's knowledge will not be imputed to the F.D.I.C. Allen, 801 F.2d at 865.

It is conceded by the appellant that the Cremona Partnership was formed as a general partnership under Ohio law. Brief for Appellant at n. 1. Under Ohio law, each partner of a general partnership is jointly liable for all obligations of the partnership. Ohio Rev.Code Ann. Sec. 1775.14(B) (Baldwin 1987); Battista v. Lebanon Trotting Assn., 538 F.2d 111, 116 (6th Cir. 1976). In addition,

Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority.

Ohio Rev.Code Ann. Sec. 1775.08(A) (Baldwin 1987). In other words, for appellant to assert successfully the limitations of liability contained in the partnership agreement as a defense against the F.D.I.C. he must show that the agreement met the requirements of Section 1823(e).

As we find that the Partnership Agreement does not meet the requirements of Section 1823(e), we find that the F.D.I.C. is not bound by any of the limitations contained in the Cremona Partnership Agreement and Gonda is liable for the full amount due on all three notes pursuant to Ohio Rev.Code Ann. Sec. 1775.14(B) unless he can assert some other defense to the liability claimed by the F.D.I.C.

We disagree with the district court's conclusion that the Agreement to be Bound did not meet the requirements of Section 1823(e). The district court stated that "even if the fact that the Agreement to be Bound was apparently drafted by the Bank amounted to execution by the Bank, the agreement would still fail to satisfy the requirement that it be approved by the board of directors or the loan committee." Slip. Op. at 5; Jt.App. at p. 29. A review of the record in this matter shows that the minutes from the July 11, 1974 meeting of Northern Ohio Bank's Officers Loan Committee refer specifically to the personal guaranty of Richard Gonda in approving the $120,000 loan to Cremona. Jt.App. at 72. There is nothing in the record to suggest that this "personal guaranty" could be anything other than the Agreement to be Bound which Gonda signed. We find that the district court erred insofar as it held that the Agreement to be Bound was not approved by the loan committee of the bank.

In addition, for the purposes of Section 1823(e) the Agreement to be Bound was executed by the bank contemporaneously with the acquisition of the asset by the bank. It is undisputed that the Agreement to be Bound was prepared by the bank, and presented to and signed by the appellant at the same time as the $120,000 note. The purpose of requiring the bank to execute the agreement is clearly to help insure that the bank has considered the content of the agreement as it relates to the transaction with which it is associated. As Justice Stevens has noted, "in all cases of statutory construction, our task is to interpret the words of those statutes in light of the purposes Congress sought to serve." Chapman v. Houston Welfare Rights Organization, 441 U.S. 600, 608, 99 S. Ct. 1905, 1911, 60 L. Ed. 2d 508 (1979). In the case of Section 1823(e), the Congressional purpose in requiring that the bank execute any agreement which is to be asserted against the F.D.I.C. in order to diminish or defeat the F.D.I.C.'s interest in an asset acquired during a purchase and assumption transaction is fulfilled when the agreement is prepared by the bank.

We also find that from the time of execution the Agreement to be Bound has continuously been an official record of the bank. At trial, counsel for the F.D.I.C. stipulated that the Agreement to be Bound was found in the files of N.O.B. Jt. App. at 76; Tr. at 3. Appellee suggests that there is some relevance in the fact that the Agreement to be Bound was not transferred to the F.D.I.C. at the same time as the promissory notes which created the obligations at issue in this proceeding. We find none. All that Section 1823(e) requires is that the agreement be a continuous part of the bank's official record. Absent evidence to the contrary, we find that where a document which meets the other requirements of Section 1823(e) is found in the official records of the failed bank it is considered to have been a continuous part of the official records of the bank from the time of its execution. To hold otherwise would be to place an insurmountable burden of proof upon the party seeking to assert the validity of an agreement under Section 1823(e). This is not consistent with the Congressional purpose in enacting the section.

Finally, it is clear that the other requirement set forth in Section 1823(e) has been met. The Agreement to be Bound is in writing. We conclude that the Agreement to be Bound meets the requirements of Section 1823(e) and is therefore valid against the F.D.I.C. We make this finding only with respect to the $120,000 obligation. It is clear that this agreement was not entered into contemporaneously with the execution of the other two obligations and therefore cannot be used by the appellant to decrease his liability for those obligations.

This does not end our inquiry. We must now determine the effect of the document; to wit, whether a side agreement can limit the liability of an obligor on the principal debt, and, if such is the case, whether such a limitation of liability can be asserted against the F.D.I.C.

As a general rule federal law applies to this inquiry. However, in the absence of applicable federal law, state law will be incorporated into the federal law where it permits a rational resolution of the matter and does not interfere with the attainment of the federal objectives embodied in the law. D'Oench, Duhme & Co. v. F.D.I.C., 315 U.S. 447, 473-74, 62 S. Ct. 676, 686-87, 86 L. Ed. 956 (1942) (Jackson, J., concurring); F.D.I.C. v. Armstrong, 784 F.2d 741, 744 (6th Cir. 1986).