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Federal Deposit Insurance Corp. v. Blue Rock Shopping Center Inc.

decided: June 19, 1985.


On Appeal from the United States Court for the District of Delaware (D.C. Civ. No. 80-398).

Adams, Becker, Circuit Judges, and O'Neill, District Judge.*fn*

Author: O'neill


O'NEILL, District Judge.

Federal Deposit Insurance Corporation has brought this action on a note against Blue Rock Shopping Center, Inc., Max Ambach and his wife Rose Ambach. The district court granted summary judgment to plaintiff. 567 F. Supp. 952 (D. Del. 1983).

Summary judgment is, of course, proper only if there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Moreover, the inferences drawn from the evidence submitted to the trial court must be viewed in the light most favorable to the party opposing the motion. On review, this Court is required to apply the same test the district court should have used. Hollinger v. Wagner Mining Equipment Corp., 667 F.2d 402, 405 (3d Cir. 1981).

Viewed most favorably to defendants, the facts may be summarized as follows. On September 29, 1966, in return for a loan by Farmers Bank of the State of Delaware in the amount of $800,000, Blue Rock, by its President, Mr. Ambach, executed a Bond and Warrant in which it promised to pay Farmers $800,000 plus annual interest of 6.25 percent. The Bond was secured by a first mortgage on real estate owned by Blue Rock and located in Blue Rock Shopping Center, Wilmington, Delaware. As additional collateral, Blue Rock assigned to Farmers its interest in a lease of a warehouse located on the real estate. The payments to be made by the lessee, A.T.C. of Wilmington, Inc., which were assigned to Farmers, coincided with Blue Rock's installment obligations to Farmers under the Bond. Payment of the rent was guaranteed by Atlantic Thrift Centers, Inc., and ultimately by Arlen Realty and Development Corporation, its corporate successor.

Settlement of the transaction was held on September 29, 1966, the day that the Bond and Assignment of Lease were signed. These documents and others were delivered to Farmers, and the proceeds were disbursed.*fn1 Two letters were exchanged. Farmers' letter to the attorney for Blue Rock stated:

"P.S. the $800,000 Bond and Warrant is to be signed by Max Ambach and his wife, Rose."

The attorney's letter to Farmers said:

"I understand that it is your desire to have Max Ambach and Rose Ambach, his wife, individually sign the corporate bond and warrant, and consequently, I have prepared a new such bond and warrant and have forwarded it to Mrs. Ambach today for signature. When returned to me, I will then substitute this bond and warrant for the one which you presently possess."

Since the Bond sued upon is dated September, 1966, and is signed by all defendants, it is apparent that the contemplated substitution occurred.*fn2 The individual defendants did not receive any of the borrowed funds.

In July, 1975, Blue Rock defaulted on its obligations to Farmers. Its default was caused by the concomitant default of ATC and Arlen, who had discontinued operations at the Shopping Center. Farmers declined Blue Rock's request that it agree to a settlement proposal made by Arlen, which offered to pay $100,000 for the immediate termination of the lease and an additional $24,000 if the premises were not relet within a year. At the time of this request, approximately $428,000 remained due from Arlen on its guaranty of the lease. Instead, Farmers and Blue Rock executed a letter agreement in which Blue Rock assigned to Farmers all of its interest in the Arlen guaranty in consideration of Farmers' refraining from enforcement of its rights against Blue Rock arising out of the default.*fn3 Thereafter, in March, 1976, Farmers sued Arlen on the guaranty in the Delaware Superior Court.

On October 25, 1976, pursuant to an Assistance Agreement previously made between FDIC and Farmers, Farmers assigned to FDIC all of its interest in the Bond and Mortgage, the Assignment of Lease, and the guaranty of the lease payments.

In January, 1980, the Shopping Center was sold for $325,000 at a sheriff's sale which occurred because taxes due to the City of Wilmington had not been paid. FDIC received $188,115.33 from the proceeds of the sale, which was applied to the amount owing on the Bond. On November 12, 1982, without the consent of defendants, FDIC settled its Superior Court action against Arlen for the sum of $148,467. As a result, as of October 22, 1982, there was a deficiency balance of $523,105.71 plus interest. This suit seeks to collect the remaining debt.

The district court granted summary judgment to plaintiff and dismissed defendants' affirmative defense which asserted that FDIC's unreasonable delay in prosecuting the claim against Arlen and its unilateral settlement of the suit against Arlen constitute an impermissible impairment of collateral barring recovery in this action. The district court held that: (1) as a matter of Delaware law, section 3-606(1)(b) of the Uniform Commercial Code does not operate to discharge a co-maker of a note, as opposed to an accommodation maker; (2) because defendants do not rely upon any written agreements to prove that the Ambachs acted as accommodation makers, the FDIC should be considered a holder in due course under 12 U.S.C. § 1823(e) and any parol evidence tending to establish the Ambachs as accommodation makers would be barred; and (3) Max and Rose Ambach are co-makers, not accommodation makers, and are not discharged by virtue of section 3-606(1)(b).

The question to be resolved on this appeal is whether a co-maker of a negotiable instrument is entitled to assert the defense of unjustifiable impairment of collateral as provided by section 3-606(1)(b) of the Uniform Commercial Code. Since we hold that a co-maker with a right of recourse may assert the defense, we also will comment on the extent to which 12 U.S.C. § 1823(e) limits the evidence which the individual defendants may offer on remand.

The parties, the district court and this panel on its previous remand have all assumed, incorrectly, that the Uniform Commercial Code as enacted in Delaware determines whether a co-maker may assert the defense of unjustified impairment of collateral. Since the Supreme Court of Delaware has not resolved this issue, the case thus far has been concerned with a prediction as to how that Court would decide were it confronted with the problem. McKenna v. Ortho Pharmaceutical Corp., 622 F.2d 657, 661-62 (3d Cir.), cert. denied, 449 U.S. 976, 101 S. Ct. 387, 66 L. Ed. 2d 237 (1980).

Jurisdiction of this action is not, however, based on diversity of citizenship but on 28 U.S.C. § 1345 and 12 U.S.C. § 1819. The first of these provisions confers upon the district courts jurisdiction of all civil actions commenced by the United States or any agency thereof expressly authorized to sue by Act of Congress. ...

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