Savers Federal Savings & Loan Association, Plaintiff,resolution Trust Corporation, As Conservator for Saverssavings Association, Plaintiff-appellee,r.f.s. Management Company of Alabama, Inc., Receiver,aircoa Hospitality Services, Inc., Intervenor, v. Amberley Huntsville, Ltd., Amberley Decatur Joint Venture,amberley Associates, Warner E. Stone, Defendants-appellants,joe R. Faulk, G.n. Olson, Donald E. Redford, Defendants.savers Federal Savings & Loan Association, Plaintiff,resolution Trust Corporation, As Conservator for Saverssavings Association, Plaintiff-appellee,rfs Management Company of Alabama, Inc., Receiver, v. Amberley Decatur, Ltd., Amberley Decatur Joint Venture,amberley Associates, Warner E. Stone, Defendants-appellants,joe R. Faulk, Jr., Gerald Nels Olson, Donald E. Redford, Defendants, 934 F.2d 1201 (11th Cir. 1991)

This is an appeal of two related cases¹  in which the district court granted summary judgment in favor of the Resolution Trust Corporation ("RTC"), which is acting as conservator for Savers Savings Association ("Savers"), and against appellants Amberley Huntsville Joint Venture ("Joint Venture"), Amberley Huntsville, Ltd. ("Limited"), Amberley Associates ("Associates"), and Warner E. Stone ("Stone"). Appellants contend that the summary judgment should be vacated because there remain issues of material fact regarding their respective liabilities on two promissory notes and the accompanying guaranties. We affirm the district court's judgments in favor of RTC but modify the amounts of the judgments and remand only the issue of the amount due under the Huntsville Guaranty.

This appeal involves two promissory notes, each of which is accompanied by a guaranty, executed by appellants in favor of Savers Federal Savings and Loan Association ("Savers Federal"), the predecessor in interest to the RTC.

On or about November 10, 1983, Joint Venture executed a Note ("Huntsville Note") in which it promised, among other things, to repay to Savers Federal the principal sum of $7,840,000, or so much of the principal as was actually disbursed, plus other amounts required by the note. The Huntsville Note was nonrecourse. It limited Joint Venture's liability to the assets that Joint Venture had pledged as security for the note and expressly provided that Savers Federal could not seek to enforce the debt against assets not specifically pledged as security.²  The note expressly provided that Savers Federal was not entitled to recover a deficiency judgment against Joint Venture if the foreclosure and sale of the pledged assets failed to cover the amount due.³  The principle collateral for the note was an improved parcel of real property on which Joint Venture had constructed and was operating a hotel ("mortgaged property").

In addition to the terms regarding payment of principal and interest, the Huntsville Note stated that Joint Venture promised to pay certain other amounts to Savers Federal as "additional interest." This provision addressed two contingencies. If Joint Venture sold the mortgaged property prior to maturity of the note, the note required Joint Venture to pay Savers Federal fifteen percent of the "Net Sales Proceeds" as "additional interest."⁴  If Joint Venture repaid its obligations in full at maturity or prior to maturity, the note required Joint Venture to pay Savers Federal fifteen percent of the "Fair Market Value" of Savers Federal's "additional interest."⁵ 

As part of the same transaction, Warner E. Stone, Joe R. Faulk, Jr., Gerald N. Olson and Donald E. Redford, as individuals, executed a Guaranty in which they promised to repay a portion of the amount due under the note if Joint Venture defaulted. For purposes of this appeal, the Guaranty required the guarantors to pay Savers Federal the amount "by which the outstanding principal balance of the Note exceeds $5,880,000."⁶ 

On or about July 22, 1985, Joint Venture executed another Note ("Decatur Note") in favor of Savers Federal, promising to pay the principal sum of $5,750,000, or so much of the principal as was actually disbursed, and other amounts required by the terms of the note. The terms of the Decatur Note were quite similar to those of the Huntsville Note but varied in certain details. Like the first note, the Decatur Note was nonrecourse, providing that Savers "shall not seek a personal deficiency judgment against the [Joint Venture] but will pursue any deficiency judgment against the guarantors of the indebtedness...." The Decatur Note also contained a provision similar to the "additional interest" provision in the Huntsville Note. The Decatur Note granted Savers an "Equity Share" which required Joint Venture to pay Savers fifteen percent of the "Net Sales Proceeds" of the mortgaged property if it was sold during the "Construction Phase" of the loan or twenty-five percent of the proceeds if the mortgaged property was sold during the "Permanent Phase" of the loan.⁷  The Decatur Note also provided that if Joint Venture paid its obligations at or before maturity, Joint Venture had to pay Savers fifteen percent of the "Fair Market Value of the Mortgaged Property," but if Joint Venture failed to pay its obligations at maturity, it had to pay Savers twenty-five percent of the fair market value of the property.⁸  Finally, the four guarantors of the Huntsville Note also executed a guaranty of Joint Venture's obligations under the Decatur Note on or about July 22, 1985.

On November 16, 1988, Savers Federal filed suit in Alabama state court alleging that Joint Venture had defaulted on both notes. Savers Federal alleged that it was entitled to recover judgment and to foreclose on the mortgaged properties pursuant to the respective Mortgage and Security Agreement for each note. Savers Federal sought to recover the outstanding principal, interest, and other costs associated with the loans as well as all expenditures related to the actions of foreclosure. Savers Federal also alleged that Faulk, Olson, Redford and Stone would be liable under the guaranties for any deficiencies resulting from the foreclosure actions.

The defendants answered and alleged as affirmative defenses that the "additional interest" provision had created a partnership in fact between Savers Federal and the defendants and that Savers Federal had breached its fiduciary duties arising from that partnership. Specifically, defendants alleged that Savers Federal misled them into believing that it had restructured the loan when in fact, it had not. Defendants also alleged that Savers Federal violated its duty of good faith and fair dealing under the Uniform Commercial Code.

On February 10, 1989, the Federal Home Loan Bank Board appointed the Federal Savings and Loan Insurance Corporation ("FSLIC") to serve as conservator for Savers Federal. FSLIC removed the case to federal court under 28 U.S.C.A. Sec. 1331 (Supp.1990) and 12 U.S.C.A. Secs. 1730(k) (1) (B) & (C) (1989). On August 9, 1989, the Resolution Trust Corporation ("RTC") succeeded FSLIC as conservator for Savers Federal upon the enactment of the Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA"). See 12 U.S.C.A. Sec. 1441a(b) (3) (1989). Subsequently, the Office of Thrift Supervision placed Savers Federal into receivership and appointed RTC as receiver. All of the assets of Savers Federal were then transferred to Savers Savings Association ("Savers") with RTC remaining as Savers' conservator. The liabilities of the former Savers Federal remained with RTC in its capacity as receiver for Savers, and the district court entered an order substituting RTC for Savers Federal as the proper plaintiff.

On May 30, 1989, Joint Venture, Limited and Associates filed for protection under Chapter 11 of the Bankruptcy Code. The district court issued an order lifting the automatic stay of proceedings under the Code and permitting this case to go forward against Joint Venture, Limited and Associates. Guarantors Faulk, Olson and Redford also filed bankruptcy and currently remain under the protection of the Bankruptcy Code's automatic stay provision. Guarantor Stone did not file for bankruptcy protection.

On January 23, 1990, RTC filed motions for summary judgment on each note and guaranty. In each motion, RTC sought a judgment on the relevant note and foreclosure of the accompanying mortgage against Joint Venture, Limited and Associates. Pursuant to the terms of the notes, RTC did not seek deficiency judgments against Joint Venture, Limited and Associates. Instead, RTC sought a deficiency judgment against guarantor Stone, the only guarantor not under bankruptcy protection, under the terms of both guaranties. In support of each motion for summary judgment, RTC attached an affidavit from Knighten Starnes, the asset manager at RTC responsible for both the Huntsville and Decatur Notes. Starnes testified that under the Huntsville Note, the "arrearage" was $8,034,386.38 and the total outstanding balance was $10,125,694.95, and that under the Decatur Note, the "arrearage" was $5,796,791.19 and the total amount due was $7,495,665.19.⁹ 

To oppose the motions for summary judgment, appellants submitted the affidavit of Stone, a general partner in Joint Venture and one of the guarantors of both notes. Stone testified that Savers had assumed an equity interest in the property beyond that of a mere creditor, that Joint Venture had turned management of the properties over to a third-party in reliance upon promises by Savers, that Savers had agreed to accept cash flow payments rather the regular payments specified in the notes, and that Savers had breached the above promises by enforcing the original terms of the notes.¹⁰  With respect to the Huntsville Note, Stone also testified that a condition precedent had occurred under the terms of the guaranty that limited his liability.

On February 28, 1990, the district court entered summary judgment in favor of RTC on both notes and both guaranties. On the Huntsville Note, the district court entered judgment in the amount of $8,034,386.38 against Joint Venture, Limited, Associate, Olson, Redford and Stone. The judgment also named as a debtor Joe R. Faulk, who had had some dealings with Savers and was the father of one of the defendants, Joe R. Faulk, Jr., but was not actually a party to the case. On the Decatur Note, the court awarded $5,796,791.19 against the same parties.

All parties realized immediately that the summary judgment contained errors. RTC moved to alter or amend the summary judgment and filed a proposed summary judgment order for each note. Under the Huntsville Note, RTC asked for a judgment of $10,125,694.95 against no specified person or entity, the right to foreclose, and a judgment against Stone, in his capacity as guarantor, in the amount of $4,245,694.95. The proposed summary judgment order for the Decatur Note was identical but sought $7,495,665.19 under the note, foreclosure, and $1,873,916.97 under Stone's guaranty. In its proposed judgments, RTC did not seek deficiency judgments against Joint Venture, Associates or Limited and did not seek any judgment against Faulk, Olson or Redford, all of whom remained under bankruptcy protection.

On March 22, 1990, the district court substantially adopted RTC's proposed summary judgment orders, including the amounts due, but entered the judgments against Joint Venture, Limited, Associates and Stone rather than against no persons or entities in particular. Following the entry of the amended orders of summary judgment, appellants filed a Motion for Reconsideration or, in the Alternative, to Alter or Amend Order and Judgment. The district court denied this motion on April 6, 1990.

1. Liability Under the Huntsville and Decatur Notes

Appellants contend that the Huntsville and Decatur Notes created a partnership between themselves and Savers, giving rise to a mutual fiduciary duty. Appellants argue that Savers' efforts to obtain foreclosures in order to collect on the notes violated Savers' fiduciary duty to appellants under the partnership arrangement. To the extent that this argument is based upon any collateral or side agreements, written or unwritten, between appellants and Savers, it is barred by the D'Oench Duhme doctrine and 12 U.S.C.A. Sec. 1823(e) (1989). In D'Oench, Duhme & Co. v. Federal Deposit Ins. Corp., 315 U.S. 447, 62 S. Ct. 676, 86 L. Ed. 956 (1942), the Supreme Court held that when the Federal Deposit Insurance Corporation ("FDIC") assumes control of a bank and attempts to enforce a note under the terms on its face, the borrower against whom the note is enforced cannot assert as a defense a collateral written agreement by the bank not to collect on the note. The Court held that permitting such collateral agreements to frustrate the collection of bank loans by the FDIC would completely destroy the ability of the FDIC to assess the solvency of lending institutions. Id. 62 S. Ct. at 679-81. When examining a bank, the FDIC would not be able to evaluate its strength from the bank's records because it could not identify which loans were subject to non-collection agreements and which were enforceable. Id. As a result of this decision, the principle of prohibiting the enforcement of agreements not appearing in bank records against federal regulatory agencies has become known as the D'Oench Duhme doctrine.

Congress codified D'Oench Duhme the doctrine at 12 U.S.C.A. Sec. 1823(e) (1989). This statute precludes enforcement against the FDIC of any "agreement" that is adverse to the interests of the FDIC unless the agreement is in writing, was executed by the relevant parties at the same time as the loan, is approved in the minutes of the lender's board of directors or appropriate loan committee, and has continuously appeared in the lender's official records of the loan.¹¹  The Supreme Court recently interpreted Sec. 1823(e) broadly in Langley v. FDIC, 484 U.S. 86, 108 S. Ct. 396, 98 L. Ed. 2d 340 (1987). There, the Court affirmed a summary judgment against defaulted borrowers who alleged that the FDIC should not be able to enforce a note and mortgage agreement because the lender had fraudulently misrepresented the acreage of the mortgaged property, the acreage within that property containing minerals, and the presence of preexisting mineral rights leases. Id. 108 S. Ct. at 400. Even though the alleged misrepresentations were not recorded anywhere in the loan documents, the borrowers contended that D'Oench Duhme should not bar the defense of misrepresentation because the conduct of the bank was fraudulent and the FDIC knew of the allegations of fraud when it assumed control of the loan. Id. 108 S. Ct. at 401-02. The Supreme Court held that Sec. 1823(e) did bar the defense of misrepresentation, concluding that the term "agreement" in the statute was not limited to express promises by a bank to perform some obligation in the future. The Court reasoned that in order for Sec. 1823(e) to serve Congress' stated purpose of preserving the ability of the FDIC to regulate depository institutions, the term "agreement" must encompass not only written collateral agreements but any unwritten or unrecorded agreements as well, including fraudulent misrepresentations by the bank. The Court also held that neither the fraudulent nature of the alleged misrepresentation nor the FDIC's prior knowledge of the allegations of fraud affected the operation of Sec. 1823(e).

From the above discussion, we are convinced that the D'Oench Duhme doctrine and Sec. 1823(e) bar appellants from asserting any defense or argument based upon any collateral written or unwritten agreement that was not part of the initial transaction and does not appear in the bank's records of the Huntsville or Decatur Notes. Therefore, any arguments relating to the duties owed by the parties or to the existence of a partnership must be based on the terms appearing on the faces of the loan documents.

Appellants argue that the Huntsville and Decatur Notes created a partnership between themselves and Savers under Alabama law. The Alabama Code defines a partnership as an "association of two or more persons to carry on as co-owners a business for profit." Ala.Code Sec. 10-8-2(7) (1975). The Huntsville and Decatur Notes each contain a provision which requires appellants to pay to Savers at the termination of the loan a lump sum equal to a specified percentage of the value of the mortgaged property. Appellants argue that these provisions give Savers a "beneficial interest" in the mortgaged properties and therefore indicate that Savers and appellants are co-owners of the properties within the meaning of Ala.Code Sec. 10-8-2(7). Appellants also argue that because Savers agreed to accept as payment a percentage of the value of the mortgaged property, Savers agreed to accept "a share of the profits" for purposes of Ala.Code Sec. 10-8-20(4) (1975), which provides that " [r]eceipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business ..." Based on these statutes and the terms of the notes, appellants assert that Savers entered into a partnership.

Appellants' argument fails for a number of reasons. Most obviously, there are no partnership agreements between the parties and there is no language in the loan documents of either the Huntsville Note or the Decatur Note indicating or referring to the existence of a partnership. Significantly, the Decatur Note contains an express disclaimer of any "partnership, joint venture or association" between Savers and appellants.¹²  In addition, appellants' argument that Alabama law implies a partnership from the terms of repayment is misplaced. The presumption of partnership only applies when two persons or entities share the "profits" of a venture. The payments required by the two notes in the instant case were not from the "profits" of Joint Venture. The payments were due only upon events that terminated the mortgage, and the loan documents did not require appellants to pay any of their operating revenue to the bank beyond the scheduled repayment of principal and interest. Even if the payments had been from Joint Venture's profits, appellants' argument still fails. The presumption that a recipient of a share of the profits of a venture is a partner in the venture does not apply when the profits are received " [a]s interest or other payment on a loan, though the amount of payment varies with the profits of the business...." Ala.Code Sec. 10-8-20(4)d. (1975). Both the Huntsville and Decatur Notes are clear that the provisions which entitle Savers to a lump sum payment at the termination of the loan were intended as payments on the loans, not as Savers' share of the profits earned by appellants. Indeed, the provision in the Huntsville Note refers to the lump sum payment as "additional interest." The fact that the amount of the lump sum payment varies according to the appreciated value of the mortgaged property does not create a presumption of partnership, as is evident from Ala.Code Sec. 10-8-20(4)d.'s express language "though the amount of the payment varies with the profits of the business." Finally, the lump sum payment provisions did not place any risk of loss on Savers. Under Alabama law, a significant factor "in determining whether a partnership relationship exists is the existence of a legally binding obligation to share in the losses of the business." Adderhold v. Adderhold, 426 So. 2d 457 (Ala.Civ.App.1983). In each note, appellants alone bore the risk of loss. The Huntsville Note requires appellants to repay the loan in full, regardless of whether their business makes a profit, expressly including a lump sum payment equal to twenty percent of the value of the mortgaged property in the event of default. Both notes also provide that if at any time the outstanding loan balance exceeds eighty percent of the fair market value of the mortgaged property, appellants must provide either a new appraisal or pay down the loan balance.¹³  Thus, each note contains specific provisions that protect Savers from potential losses due to depreciation or insufficient appreciation of the mortgaged properties and provide Savers with express rights if appellants are unable to pay. Neither of these provisions places any risk of loss on Savers. For the several reasons stated above, we find that neither the Huntsville Note nor the Decatur Note created a partnership between appellants and Savers.

In addition, we find that Savers owed no duty of good faith to appellants in exercising its rights under the acceleration provisions of the respective notes. Appellants contend that Savers owed them a duty of good faith and fair dealing under the Alabama Commercial Code and Alabama common law and breached that duty by exercising its right to accelerate the loan. More precisely, appellants argue that Savers agreed to accept cash flow payments in lieu of the scheduled payments of principal and interest to help appellants avoid default while short on cash. Appellants assert that Savers, after accepting a number of cash flow payments, nevertheless accelerated the entire amount due under the notes with full knowledge that appellants could not pay because they had been paying Savers all of their available cash reserve in the form of the cash flow payments. There is no evidence in the bank records of either the Huntsville or Decatur loan that Savers agreed to accept cash flow payments instead of the scheduled payments of principal and interest. Consequently, appellants cannot rely upon the existence of such an agreement to create a duty of good faith. See D'Oench, Duhme & Co. v. Federal Deposit Ins. Corp., 315 U.S. 447, 62 S. Ct. 676, 86 L. Ed. 956 (1942); 12 U.S.C.A. Sec. 1823(e).

With respect to the Alabama Commercial Code, Savers acted within the statutory definition of "good faith" in the context of loan acceleration. Ala.Code Sec. 7-1-208 (1984) provides that a party possessing the power of acceleration "shall have the power to do so only if he in good faith believes that the prospect of payment is impaired."¹⁴  There is no dispute that appellants could not make the scheduled payments under either note at the time they were due. Under these facts, Savers' acceleration of the loan was completely within the bounds of good faith as defined in Ala.Code Sec. 7-1-208.

2. Amount Due Under the Huntsville and Decatur Notes

Having concluded that Savers had no fiduciary duty or duty of good faith to appellants, we affirm the district court's summary judgment of liability on the Huntsville Note and the Decatur Note. We agree with appellants, however, that the district court's order must be modified to reflect the nonrecourse nature of these notes. With respect to the Huntsville Note, the district court entered judgment against Joint Venture, Associates and Warner E. Stone in the amount of $10,125,694.95 plus the costs of the action and reasonable attorneys' fees. This order directs Joint Venture, Associates and Stone to pay $10,125,694.95, the entire amount due under the note. However, the note expressly provides that the liability of its signatories is limited to the value of the assets pledged as security:

The Maker shall be liable upon the indebtedness under this Note, all sums to accrue or become payable thereon ... to the extent, but only to the extent, of the security pledged for the payment of this Note, including without limitation all property rights and estates described in the Mortgage and Security Agreement, Loan Agreement, and other Security Documents.

(emphasis added). The note further provides that the legal action available to Savers against the makers in the event of default is limited to the preservation, enforcement and foreclosure of the liens pledged as security for the note, expressly forbidding Savers from seeking to recover assets of the makers not pledged as security for the note or under the accompanying guaranty. Finally, the note specifically precludes Savers from obtaining a deficiency judgment against the makers, except in their capacity as guarantors. From the foregoing provisions, we are convinced that Savers' remedies under the note are limited to foreclosure upon the assets pledged as security thereto. Thus, we affirm the district court's judgment of foreclosure. However, we modify the district court's order to eliminate any recovery against Joint Venture, Associates or Stone¹⁵  of any amount above and beyond the value derived from the assets pledged as security under the note and its accompanying security agreements.

The same is true for the Decatur Note. The district court entered summary judgment under this note against Joint Venture, Limited, Associates and Warner E. Stone in the amount of $7,495,665.19. This order included a judgment of foreclosure in favor of RTC under the Mortgage and Security Agreement that permitted the clerk of the court to sell the foreclosed property at public auction. We find that the provisions of the Decatur Note clearly limit the liability of the makers to the value of the pledged collateral:

It is understood and agreed that in any proceedings for the enforcement of the indebtedness secured hereby, the Payee shall not seek a personal deficiency judgment against Maker, but will pursue any deficiency judgment against the guarantors of the indebtedness.

Therefore, although we affirm the district court's order permitting the foreclosure and public sale of the property pledged as security for the note by the makers, we modify the district court's order to eliminate any recovery against Joint Venture, Associates, Limited or Stone of any amount above and beyond the collateral.¹⁶ 

Appellant Stone does not dispute that he is bound to pay RTC under the terms of the Huntsville and Decatur guaranties.¹⁷  The only remaining issue is the amount of Stone's liability. The district court entered summary judgment against Stone under the Decatur Guaranty in the amount of $1,873,916.97. The parties do not dispute the amount of this judgment, which is thus affirmed.

With respect to the Huntsville Guaranty, however, Stone asserts that the district court erred in calculating the amount of his liability. The provision of the Huntsville Guaranty that defines the amount recoverable from Stone provides as follows:

The term "Guaranteed Indebtedness" shall mean all sums stated to be payable under the terms of the Note ... including, without limitation, each and every installment of principal and/or interest under said Note ...; provided, however, on and after the Limitation Date (as hereinafter defined) the Guaranteed Indebtedness shall only include, if any, the amount of the principal balance of the Note from time to time outstanding by which the unpaid principal balance of the Note exceeds $5,880,000.00.

(emphasis added). The "Limitation Date" has passed and thus the amount due under the guaranty is governed by the highlighted portion of the text of the guaranty. The parties dispute, however, the amount guaranteed by this provision.

Stone contends that his liability under the Huntsville Guaranty is limited to the amount by which the outstanding principal on the loan exceeds $5,880,000.00. Stone urges that the "outstanding ... principal balance" includes only principal and does not include accrued interest.

RTC argues that the guaranty requires Stone to pay the difference between $5,880,000.00 and the total amount outstanding under the Huntsville Note, including both unpaid principal and accrued interest. RTC asserts that there was an unlimited guaranty of principal and interest, and then after a certain date the guaranty of principal was limited to the excess over $5,880,000.00, leaving the guaranty of accrued interest unlimited.

This issue was fairly presented to the district court, but was not addressed. We decline to address it now, preferring that the district court do so in the first instance. Accordingly, the judgment against Stone on the guaranty is vacated and this issue is remanded to the district court for adjudication.¹⁸ 

For the foregoing reasons, the judgment against Amberley Huntsville Joint Venture, Amberley Huntsville Associates, and Warner E. Stone on the Huntsville Note is affirmed. The judgment against Amberley Decatur Joint Venture, Amberley Decatur, Ltd., Amberley Huntsville Associates and Warner E. Stone on the Decatur Note is also affirmed. However, the judgment is modified to reflect the nonrecourse nature of the loans by limiting the liability to the value of the assets pledged as security for the loans. We also affirm the district court's summary judgment in the amount of $1,873,916.97 against Warner E. Stone on the Decatur Guaranty. With respect to the Huntsville Guaranty, we vacate the judgment against Warner E. Stone and remand to the district court for adjudication of the amount due.

For the foregoing reasons, the district court's judgment is

AFFIRMED in part, MODIFIED in part, VACATED in part, and REMANDED in part.