Business Law and the Regulation of Business 11th Edition by Richard Mann, Barry Roberts

Exercise 12

Certain partners of the Finley Kumble law firm signed promissory notes that secured loans made to the law firm by the National Bank of Washington (NBW). When Finley Kumble subsequently declared bankruptcy and defaulted on the loans, NBW filed suit to collect on the notes. Then NBW itself became insolvent, and the Federal Deposit Insurance Corporation (FDIC) was appointed as receiver for NBW. The FDIC brought suit against the partners who had signed the note. Section 1823(e) of the Federal Deposit Insurance Act of 1950 places the FDIC in the position of a holder in due course and thus bars all personal defenses against the FDIC claims. Twenty of the Finley partners claimed that they had signed the notes under the threat that their wages and standing in the firm would decrease if they refused to sign. Such a threat constituted economic duress, which, they contended, is not a personal defense but a real defense. Discuss who should prevail.