                                    United States Court of Appeals,

                                              Fifth Circuit.

                                             No. 91–1090.

    RESOLUTION TRUST CORPORATION, as receiver for Meridian Savings Association,
Plaintiff–Appellee, Cross–Appellant,

                                                    v.

 OAKS APARTMENTS JOINT VENTURE, Eric R. Veigel, L. Glenn Terrell, Robert S. West,
Brad L. Wilemon, Mike Gibson, and H. Don Guion, Jr., Defendants–Appellants, Cross–Appellees.

                                             July 24, 1992.

Appeals from the United States District Court for the Northern District of Texas.

Before POLITZ, Chief Judge, BROWN and SMITH, Circuit Judges.

        JOHN R. BROWN, Circuit Judge:

        This suit was originally filed by a savings and loan institution to enforce a promissory note and

a contemporaneously created loan guaranty against Oaks Apartments Joint Venture (the Partnership),

the five individual part icipants in the partnership (the Partners), and Eric R. Veigel (Veigel).

Subsequently, the Resolution Trust Corporation (RTC) was appointed receiver of the savings and

loan and ultimately became the successor in interest to the action. The RTC contends that each of

the partners should be held jointly and severally liable for the entire amount of the note. However,

the Partners argue that a liability limitation clause contained within the guaranty limits their individual

liability to 20% of the total disbursement under the note. The district court determined that each

partner's liability was limited by the terms of the Guaranty to 20% of the outstanding indebtedness

on the Note. 753 F.Supp. 1332 (1990). The RTC subsequently appealed to this Court the judgment

finding liability limitation. Not surprisingly, the RTC stands or falls on their assertion of the D'Oench,

Duhme doctrine. Finding the record void of necessary facts needed to determine the applicability of

the D'Oench, Duhme doctrine, we affirm in part, vacate in part, and remand for further proceedings.



                                             Web of Default

        The Partnership and the individual Partners executed a promissory note (the Note) in the
amount of two million dollars "or so much thereof as may be advanced in accordance with the terms

of a certain Loan Agreement executed on even date herewith" to Meridian Service Corporation1

(Meridian Savings) on June 28, 1984. 2 The Partnership used the money to purchase land and

construct an apartment complex. At the same time, the Partners executed an unconditional personal

guaranty (the Guaranty) of the Note. By the terms of the Guaranty, each partner's liability for the

total amount of the simultaneously executed Note is limited to 20%.3

   1
   Meridian Service Corporation is a wholly owned subsidiary of Meridian Savings Association.
Both entities will be referred to hereafter as "Meridian Savings."
   2
       The Note provides, in pertinent part:

                          FOR VALUE RECEIVED, THE OAKS APARTMENTS JOINT
                  VENTURE, a Texas Joint Venture composed of ROBERT S. WEST, L. GLENN
                  TERRELL, BRAD WILEMON, H. DON GUION, JR., AND MIKE GIBSON as
                  joint venturers (all hereinafter referred to as "Maker"), promises to pay to the
                  order of MERIDIAN SERVICE CORPORATION, a Texas Corporation
                  (hereinafter collectively referred to as "Payee"), the sum of TWO MILLION AND
                  NO/100 DOLLARS ($2,000,000.00) or so much thereof as may be advanced in
                  accordance with the terms of a certain Loan Agreement executed on even date
                  herewith, with interest thereon at the rate provided below.
   3
    The unconditional guaranty, executed at the same time the note was executed, provides in
pertinent part:

                          WHEREAS, THE OAKS APARTMENTS JOINT VENTURE, a Texas
                  Joint Venture, composed of ROBERT S. WEST, L. GLENN TERRELL, BRAD
                  WILEMON, H. DON GUION JR., AND MIKE GIBSON as Joint Venturers, of
                  Tarrant County, Texas ("Borrower"), desires to borrow from MERIDIAN
                  SERVICE CORPORATION, ("Lender"), from time to time, (the "Loan"), a
                  principal sum not in excess of TWO MILLION AND NO/100 DOLLARS
                  ($2,000,000.00), such borrowings to be secured by; among other things, a Deed
                  of Trust dated of even date herewith, from Borrower to FRANK R. JELINEK,
                  Trustee, as Trustee (the "Deed of Trust") against the property described on Exhibit
                  "A" attached hereto and incorporated herein for all purposes (the "Property"); and

                          WHEREAS, the undersigned [partners] desires Lender to make the
                  aforesaid Loan, the Lender requires, as a condition thereof, that a guaranty in the
                  form hereof be executed and delivered by the undersigned (emphasis added);

                         ....

                          The Obligations of Guarantor and any other guarantor of the Note shall be
                  joint and several (emphasis added).

                         ....

                         Notwithstanding the above and foregoing, it is expressly understood and
       The Partnership sold the apartment complex to Eric Veigel in 1985. Veigel entered into an

agreement with Meridian Savings modifying the time and manner of payment on the Note.



       After payments required by the terms of the Note were not made, the Partnership, the

Partners, and Veigel were issued written notice of default by Meridian Savings on January 20, 1986.

The default was not cured and accordingly Meridian Savings, on February 9, 1987 and March 9,

1987, sent each of the defendants notice of acceleration and intent to foreclose.



       Meridian Savings foreclosed on and sold the apartment complex at a trustee's sale on April

7, 1987. Following the foreclosure sale, a deficiency of $755,249.06 remained owing according to

the Note. Except for the simultaneously created personal Guaranty, Meridian Savings never entered

into any written agreement with any of the Partners which released the Partnership or the Partners

from their obligations incurred as makers or guarantors under the Note.



                                     How Did We Get Here?

       Meridian Savings originally filed this suit in state court on June 13, 1988 to recover the

deficiency owed on the Note. The case was subsequently removed to United States District Court

on May 5, 1989 by the Federal Savings & Loan Insurance Corporation (FSLIC) after it was

appointed conservator for Meridian Savings by the Federal Home Loan Bank Board. The RTC was

substituted as a party to this suit when it succeeded the FSLIC as conservator for Meridian Savings

under the Financial Institution's Reform, Recovery and Enforcement Act of 1989 (FIRREA).4



       The case was tried on the pleadings, stipulated facts, and exhibits. The district court



               agreed that the individual guarantors set forth below who have executed this
               instrument, shall be limited in their liability to the extent of 20% of the debt
               described herein, including interest and all costs incurred.
   4
    Pub.L. No. 101–73, Title IV, § 407, 103 Stat. 363 (abolishing FSLIC and transferring its
functions to other federal agencies).
determined that each Partner's liability under the Note was limited by the Guaranty to 20% of the

outstanding indebtedness under the Note. The district court also found that there had been no

showing of a usurious charge based on the claims of Meridian Savings and the RTC that each partner

was liable for payment of the entire outstanding balance.



                             D'Oench, Duhme: Easier Done Than Said

        Once again the doctrine developed through the controversial 1942 Supreme Court decision

in D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942) is called upon

to relieve a dispute between the successor in interest of a failed financial institution and one of its

debtors. The D'Oench, Duhme decisio n and its progeny have developed a well known, though

sometimes misunderstood, federal common law doctrine immunizing the FDIC and the RTC, as

receivers and conservators of defunct financial institutions, from claims and defenses based upon

agreements not firmly established in the failed financial institution's official records. Bowen v. FDIC,

915 F.2d 1013, 1015–16 (5th Cir.1990); Beighley v. FDIC, 868 F.2d 776, 783–84 (5th Cir.1989).

In D'Oench, the Court held that an obligor who "lent himself to a scheme or arrangement whereby

the banking authority ... was or was likely to be misled" may not assert against the FDIC any part of

an agreement that might diminish the value of his written loan obligation. D'Oench, Duhme, 315 U.S.

at 460, 62 S.Ct. at 681, 86 L.Ed. at 965. D'Oench, Duhme applies to bar defenses or claims against

federal regulators in those instances where a financial institution enters into an oral or secret

agreement with a borrower that alters the terms of an existing unqualified obligation. 315 U.S. at

460, 62 S.Ct. at 680, 86 L.Ed. at 965. The doctrine also precludes the enforcement of any defense

or claim based upon a written agreement that is not found within the financial institution's records

covering the instant financial transactions. This result has been frequently characterized as harsh

when considered from the position of a well-intending borrower or lending institution lacking any

suggestion of fraud or overreaching.         However, D'Oench, Duhme provides well reasoned

unchallengeable finality to the lender's books and records when used by regulatory agencies to assess

the lending institution's degree of solvency.
       At least two persuasive policy considerations have been recognized in support of the outcome

achieved through the application of D'Oench, Duhme. In its decision of the seminal case, the

Supreme Court recognized the need to protect the FDIC and the public funds which it administers

against misrepresentations of the assets in the portfolios of the banks that it insures, inspects, or

extends credit. 315 U.S. at 457, 62 S.Ct. at 679, 86 L.Ed. at 962.



       The past and continuing demise of financial institutions straddles federal examiners and

regulators with the heavy burden of reviewing and assessing the assets of more and more financial

institutions. The D'Oench, Duhme doctrine allows examiners accurately to determine the health of

institutions based on an examination of the formally maintained written records of the institution

within the contemplation of D'Oench, Duhme without resorting to often incomplete recitations of oral

agreements and previously undisclosed sidetrack concessions. In essence, the government is relieved

of the burden of discovering agreements contained somewhere within the institution's general records

as documentary proof of hidden liabilities or defenses.



       The Supreme Court stated in D'Oench, Duhme that the doctrine's applicability depends upon

whether or not the alleged agreement was "designed to deceive the creditors or the public authority

or would have that effect." 315 U.S. at 460, 62 S.Ct. at 682, 86 L.Ed. at 963. If borrowers lend

themselves in any way to a scheme or arrangement whereby the banking authority is or is likely to

be mislead, the D'Oench, Duhme doctrine will prevent the enforcement of the agreement. Bowen,

915 F.2d at 1015; Bell & Murphy & Assoc., Inc., v. Interfirst Bank Gateway, N.A., 894 F.2d 750,

752–53 (5th Cir.), cert. denied, ––– U.S. ––––, 111 S.Ct. 244, 112 L.Ed.2d 203 (1990). The

doctrine neutralizes the defenses and claims of a borrower even though the borrower did not intend

to deceive. Bowen, 915 F.2d at 1017.



       The foregoing discussion of the ever-evolving D'Oench, Duhme doctrine provides the

foundation of the RTC's cause of action. The RTC argues that since the Note itself does not directly
refer to a limitation of the Partners' liability as makers of the Note, the Note should stand alone as a

separate agreement. That is, it contends that the simultaneously created personal Guaranty, limiting

the Partners' individual liability, is a separat e and distinct agreement that should not be read in

conjunction with the Note. Accordingly, the RTC argues that the Partners' attempt to imply into the

facially unqualified Note the limitation on liability contained within the Guaranty constitutes the

equivalent of an unwritten side agreement that should be barred by D'Oench, Duhme.



        While D'Oench, Duhme does require full and complete disclosure of agreements between

lenders and borrowers, it does not require that such agreements be confined to the face of any one

particular lending/borrowing document.        The doctrine precludes enforceability of those side

agreements that are either designed to deceive creditors and bank examiners or actually have that

effect. The fact that an agreement between the failed lender and the borrower is manifested in more

than one document does not automatically imply a deceptive secret agreement. After all, this court

has previously rejected the argument that the D'Oench, Duhme doctrine prohibits claims and defenses

based on written agreements that are integral to the loan transaction. See FDIC v. Laguarta, 939

F.2d 1231, 1238–39 (5th Cir.1991).5



                                    D'Oench, Duhme Quenched?

        The District Court found that the Note and Guaranty complied with the requirements of

D'Oench, Duhme and that, therefore, D'Oench, Duhme did not bar the defense raised by the Partners

based upon the liability limitation clause contained within the Guaranty. We find the record to be

lacking the necessary facts needed to determine whether or not the doctrine bars the Partners'

limitation defense. Accordingly, we remand this portion of the District Court judgment for further

proceedings.

   5
     Moreover, D'Oench, Duhme has no application to the RTC's claim that the "side agreement"
is the defendant's attempt during litigation to read two admittedly "nonsecret" documents together
in such a way as to limit its liability. See Laguarta, 939 F.2d at 1239. Of course, any
characterization of the Guaranty as "nonsecret" necessarily turns on where the Guaranty was filed,
an entirely separate question which, in contrast, is ripe for a D'Oench, Duhme determination.
       The list of stipulated facts submitted to the district court was not comprehensive enough to

determine whether the requirements of the D'Oench, Duhme doctrine have been met. Whether or

not D'Oench, Duhme has been satisfied hinges upon the ultimate determination of where the Guaranty

was filed by Meridian Savings. The District Court must determine whether the Guaranty was part

of the integral loan transaction files associated with the Note executed by the Partners.



       The District Court limited its D'Oench, Duhme analysis to whether the Partners were

attempting to avoid their liability on the Note. While shedding some light upon the Partners' motive

in creating the Guaranty, a more penetrating inquiry is required. Clearly, the Partners were

attempting to avoid unlimited personal liability for the total loan amount by including the liability

limitation clause in the Guaranty. However, the facts presented to the district court did not disclose

where the papers constituting the Guaranty were filed. Notwithstanding the District Court's

"inescapable" conclusion that the Note and Guaranty were contained within the same loan file, neither

party presented evidence that the Note and Guaranty were or were not part of integral loan

documents kept in the same file. The record shows that District Judge McBryde asked whether or

not the Guaranty was in the file with the Note and he was told that the stipulated facts simply do not

indicate where or by whom the Guaranty was held.



       Without this information we cannot determine whether the Guaranty was a secret side

agreement between the Partners and Meridian Savings or whether it was in fact a valuable asset kept

in tandem with the Note to ensure payment. On remand, the District Court needs to determine the

circumstances surrounding the creation of the Note and the Guaranty and the handling of the papers

by the lender thereafter. For example, if the Guaranty was in fact requested by Meridian Savings, it

would, at least facially, support the conclusion that the Guaranty was conceived to benefit Meridian

Savings. The Guaranty itself states that Meridian Savings required the Partners to execute the

Guaranty as a condition of the loan disbursement. As an enhancement of Meridian Savings' rights

under the loan transaction, the Guaranty would presumably be kept by the lender in the same file as
the integral papers of the loan transaction. But in any event, the Guaranty—to the extent of each

partner's 20%—gave added security to the lender since the Guaranty, unlike the Note, expressly

provided for joint and several liability.



        As an asset to Meridian Savings, the Guaranty would be an important document used by the

RTC to determine the health of the institution. If the Guaranty was in fact kept in the same loan file

with the Note, presumably the RTC would have been aware of the liability limitation when assessing

the solvency of Meridian Savings.



        If the District Court determines that the Guaranty was in fact part of the integral loan

transaction file, then the requirements of D'Oench, Duhme are satisfied, and the subsequent

determination of whether or not the liability limitation clause within the Guaranty may be used to

modify the terms of the Note would require the application of Texas laws governing contractual

construction of simultaneously creat ed documents. On the other hand, if the District Court

determines that the Guaranty was not contained within the loan transaction files, the requirement of

D'Oench would not be met and the Partners' defense based upon the Guaranty would not be allowed,

unless for some other reason D'Oench, Duhme would not apply.



        As this Court has many times held, when an agreement between a borrower and a lender

imposes mutual obligations to perform agreed-to requirements, and the lender does not fully perform,

D'Oench, Duhme will not bar the borrower from asserting claims or defenses based upon the failure

of the lender to satisfy his respective obligation.6


   6
    See, e.g., Howell v. Continental Credit Corp., 655 F.2d 743, 746–47 (7th Cir.1981)
(D'Oench, Duhme does not serve as a bar where the document the FDIC seeks to enforce is one
which facially manifests bilateral obligations and serves as the basis of the borrower's defense);
Bell & Murphy, 894 F.2d at 754 (for defense to apply, regardless of D'Oench, Duhme, bank's
obligation must appear on the face of the document which the FDIC seeks to enforce and
document must be properly recorded in the bank's records); Laguarta, 939 F.2d at 1238–39
(D'Oench, Duhme does not bar defense based upon lender's failure to fulfill funding obligations
spelled out in integral loan documents).
          In order for this principle to apply, the mutual obligation must be in the written bank records

and must state specifically the obligation incurred. On remand, if the District Court determines that

the requirements of D'Oench, Duhme have not been met because the Guaranty was not in the

financial records of the loan transaction, the District Court should then determine whether or not the

liability limitation clause amounts to a contractual obligation on the part of Meridian Savings which

was not performed. If, in fact, the District Court decides that the Guaranty created an obligation on

the part of Meridian Savings to limit the personal liability of each partner to 20% of the outstanding

debt, the Court must determine whether this obligation constitutes a mutual obligation not performed

by the lender. If so, D'Oench, Duhme will not bar the Partners' defense based on the Guaranty.



                                              Duhme'd by Statute

          The statutory companion of the D'Oench, Duhme doctrine is 12 U.S.C. § 1823(e). This

section provides the RTC with the power to avoid any agreement that tends to diminish or defeat the

interest of the RTC in any asset acquired by it as a receiver unless such agreement: (1) is in writing,

(2) was executed by the depository institution and the obligor contemporaneously with the acquisition

of the asset, (3) was approved by the depository institution's board of directors or its loan committee,

and (4) has been continuously an official record of the depository institution.7 Since the District

   7
       12 U.S.C. § 1823(e) provides:

                           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—

                         (1) is in writing,

                         (2) 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,

                          (3) 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

                         (4) has been, continuously, from the time of its execution, an official record
Court's factual inquiry on remand will undoubtedly uncover all necessary items needed for the

application of D'Oench, Duhme, there is no reason at this time for us to consider, independently of

D'Oench, Duhme, whether § 1823 is satisfied. This is especially so in light of no special findings by

the District Court on compliance with § 1823.



                                           Certain-ly Not

       The RTC argues the alternative theory that the limited liability defense of the Partners should

be barred by the federal holder in due course doctrine. This federal common law doctrine provides

the FDIC with protection as a holder in due course when it acquires a negotiable instrument. FDIC

v. Wood, 758 F.2d 156 (6th Cir.), cert denied, 474 U.S. 944, 106 S.Ct. 308, 88 L.Ed.2d 286 (1985).



       This same protection is extended to the RTC when it acquires negotiable instruments as a

subsequent holder from the FDIC. FSLIC v. Mackie, 949 F.2d 818, 824 (5th Cir.1992); Campbell

Leasing, Inc. v. FDIC, 901 F.2d 1244, 1248 (5th Cir.1990).



        The district court determined that the RTC did not qualify as a holder in due course because

it concluded that the Note was not a negotiable instrument. 8 The dist rict court based its decision

upon its finding that the note failed to contain an unconditional promise to pay a sum certain. In his

memorandum opinion, Judge McBryde stated:



       The note in this case does not contain an obligation to pay a "sum certain", but rather "the
       sum of TWO MILLION AND NO/100 DOLLARS ($2,000,000) or so much thereof as may
       be advanced...."

753 F.Supp. at p. 1337 n. 2.



               of the depository institution.
   8
    To be negotiable, an instrument must be in writing, signed by the maker, contain an
unconditional promise to pay a sum certain in money, on demand or at a definite time, to order or
to bearer. Tex.Bus. & Com.Code § 3.104(a) (Vernon 1968); Hinckley v. Eggers, 587 S.W.2d
448, 450 (Tex.Civ.App.—Dallas 1979, writ ref'd n.r.e.).
        Notwithstanding the RTC's argument that the sum certain requirement should be liberally

construed, we agree with the finding of the district court and hold that the Note fails to demand the

payment of a sum certain. The language employed by the Note fails to disclose the exact amount to

be repaid by the Partners. The amount advanced to the Partners cannot be certainly determined

absent an inquiry to other documents. Since the Note does not facially demand payment of a sum

certain, the Note is non-negotiable. The RTC, therefore, cannot enjoy the protection provided to a

holder in due course. 9 Texas Refrigeration Supply, Inc. v. FDIC, 953 F.2d 975, 980 n. 10 (5th

Cir.1992); Sunbelt Savings, FSB Dallas, Texas v. Montross, 923 F.2d 353, 356 (5th Cir.), aff'd,

Resolution Trust Corporation v. Montross, 944 F.2d 227 (1991) (en banc) (per curiam).10




   9
    In rejecting the RTC's holder in due course status because the note is not a negotiable
instrument, we do not base our view on the fact that the Note was a variable interest rate note. In
fact, the Fifth Circuit recently certified to the Texas Supreme Court the question of whether a
variable interest rate note demands a payment of a sum certain in order to be considered a
negotiable instrument under Texas Law. Ackerman v. FDIC, 930 F.2d 3, 4 (5th Cir.1991),
certified question accepted sub nom., Amberboy v. Societe de Banque Privee, 34 Tex.Sup.Ct.J.
690 (June 22, 1991). In its answer, not yet considered by the certifying Fifth Circuit Court, the
Texas Supreme Court concluded that variable interest rate notes meet the sum certain
requirements of Texas U.C.C. § 3.106 and are negotiable instruments. Amberboy v. Societe de
Banque Privee, ––– S.W.2d ––––, ––––, 35 Tex.Sup.Ct.J. 621, 625 (April 15, 1992).

                Thus, the fact that the note was based upon a variable rate of interest does not, in
        and of itself, bar the RTC's claim to holder in due course status. Instead, because the
        portion of the Note dealing with the Note's principal describes the amount payable as two
        million dollars, "or so much thereof as may be advanced in accordance with the terms of a
        certain Loan Agreement executed on even date herewith," the Note, variable interest rate
        aside, is not a contract for a sum certain. Furthermore, the Texas Supreme Court in
        Amberboy did not venture to resolve the negotiability status of the note in its entirety
        because "a certified question is a limited procedural device that constrains us to answer
        only the question certified and nothing more." ––– S.W.2d at ––––, 35 Tex.Sup.Ct.J. at
        625. After all, Texas law makes clear that a note, for it to be negotiable with respect to
        the interest, must first be negotiable with respect to the principal. Hinckley v. Eggers, 587
        S.W.2d 448, 451 (Tex.Civ.App.—Dallas 1979, writ ref'd n.r.e.).
   10
    Judge Gee's original panel opinion in Montross advanced this Court's view that holder in due
course status should not be extended to the FDIC when it acquires a non-negotiable instrument.
Judge Gee stated:

                       Extending holder in due course status to the FDIC and its successors
               respecting non-negotiable instruments is both unnecessary and undesirable.

        Montross, 923 F.2d at 357.
        Thus, on remand, the Partners are not limited by the federal holder in due course doctrine

from asserting their liability limitation defense.



                                          Not Too Interesting

         The Partners contend that the demand letters sent by Meridian Savings as well as the

pleadings filed by the RTC constitute usurious charges of interest because they demand from each

partner the entire amount of principal and interest owed by the Partnership under the terms of the

Note. The Partners argue that the liability limitation in the Guaranty limits the amount owed by any

one of the Partners to 20% of the total and any demand for payment exceeding such 20% is a

usurious charge of interest. We agree with the district court in its finding that the Note is not

usurious and that usury has not been demanded. Whatever the result of the District Court's factual

inquiry on remand, the district court's decision barring the Partners' usury defense was correct and

is affirmed.



                                              Final Words

        We vacate the decision of the district court limiting the liability of the Partners and remand

for further inquiry as to whether the Note and Guaranty fulfilled the requirements of D'Oench,

Duhme. Specifically, the District Court should determine the circumstances surrounding the creation

of the Note and the Guaranty and the handling of the papers by the lender thereafter. We affirm the

District Court's denial o f the RTC's holder in due course status, and affirm the District Court's

decision barring the Partners' usury defense.



        AFFIRMED IN PART, VACATED AND REMANDED IN PART.
