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*Local Rule 47.5 provides: "The publication of opinions
that have no precedential value and merely decide particular
cases on the basis of well-settled principles of law imposes
needless expense on the public and burdens on the legal
profession." Pursuant to that Rule, the Court has determined
that this opinion should not be published.
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 92-5658
Summary Calendar
RESOLUTION TRUST CORP. as Receiver for
Banc Iowa Federal Savings Bank, Plaintiff-Appellee,
versus
JACK PAUL LEON and ROSEMARY U. LEON, Defendants-Appellants.
Appeal from the United States District Court
for the Western District of Texas
(SA 90 CA 407)
March 19, 1993
Before HIGGINBOTHAM, SMITH, and DeMOSS, Circuit Judges.
PER CURIAM:*
The Resolution Trust Corporation brought this suit against the
Leons for a deficiency judgment on four promissory notes. The
district court granted summary judgment in favor of RTC, holding
that the affirmative defenses asserted by the Leons were barred by
the D'Oench, Duhme doctrine and its codification, 12 U.S.C.
§ 1823(e). We affirm.

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2
On December 27, 1984, Jack and Rosemary Leon executed four
promissory notes and corresponding deeds of trust to finance the
purchase of four condominium units from Park Greene Townhomes, Ltd.
The notes contained variable interest rate provisions based on U.S.
Treasury Bills. The notes, whose principal amounts totalled
$242,800, were unqualified on their faces regarding the Leons'
personal liability as makers.
In opposing RTC's motion for summary judgment, the Leons
submitted evidence concerning the execution of the notes. They
claim that Park Greene's agents represented that, under the terms
of the notes, the Leons could not be held personally liable. Three
to seven months before the execution of these notes, Park Greene
showed the Leons other documents relating to the townhouses which
were not used when the sale and financing were completed. The
Leons believe that those documents expressly excluded the Leons'
personal liability. The Leons claim that Park Greene represented
that the notes at issue here contained the same terms as those
previously examined. They also maintain that Park Greene stated
that the notes would not be transferred. It is undisputed that at
the time of execution Jack Leon, an attorney, noticed and deleted
a paragraph from the notes and deeds which he believed was contrary
to the agreement.
The notes were soon transferred to Banc Iowa Savings Bank,
which notified the Leons that they were delinquent in their
payments in May, 1986. Other purchasers of Park Greene townhouses
filed suit against Banc Iowa and Park Greene, alleging unfair trade

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3
practices. Their notes were voided and Banc Iowa acquired their
townhouses as part of a settlement. The Leons did not join that
litigation, but avoided foreclosure by executing four "Renewal,
Modification and Extension" notes on July 31, 1986. By these
documents the Leons agreed to pay Banc Iowa the principal due from
the original notes on essentially the same terms as before.
When Banc Iowa sold all of the Park Greene townhouses it
controlled, which did not include the Leons' units, in 1989 the
Leons complained of unfair dealing. According to the Leons, this
dispute was resolved by an agreement among them, Banc Iowa, and the
purchaser of the other townhouses, the Frankel Family Trust. As
part of this agreement, Banc Iowa would accept $150,000 as
satisfaction of the debts, with $100,000 coming from the Trust to
purchase the townhouses plus a $50,000 unsecured note from the
Leons. The townhouse sale, however, was never consummated due to
title problems. No payments were made after April 1, 1989, and
Bank Iowa gave notice of default and intent to accelerate on
October 10, 1989. Six days later, Banc Iowa was declared
insolvent. Its assets of Banc Iowa were immediately transferred to
Banc Iowa Federal Savings Bank under the conservatorship of RTC.
In January, 1990, the four townhouses were sold at foreclosure to
the Trust. RTC subsequently became receiver for Banc Iowa Federal
Savings Bank and sued the Leons to recover for the deficiencies
remaining after foreclosure.
Acting on the recommendation of the magistrate judge, the
district court granted summary judgment against the Leons. Summary

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4
judgment is appropriate if the record discloses "that there is no
genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law."
Fed. R. Civ. P. 56(c). We review the grant of summary
judgment de novo and "review the evidence and inferences to be
drawn therefrom in the light most favorable to the non-moving
party." FDIC v. Laguarta, 939 F.2d 1231, 1236 (5th Cir. 1991)
(citations omitted).
This case turns on the viability of the Leons' affirmative
defenses. They asserted fraud in the inducement, fraud in the
factum, failure of consideration, accord and satisfaction, and
novation. The district court concluded that each of these defenses
was barred by § 1823(e) and the related doctrine of D'Oench, Duhme
& Co. v. FDIC, 315 U.S. 447, 62 S. Ct. 676 (1942). The Leons raise
three principal arguments on appeal. First, they contend that
§ 1823(e) does not apply to non-negotiable instruments. Second,
they claim to have established a fraud in the factum defense that
may be asserted despite § 1823(e) and D'Oench, Duhme. Third, they
maintain that RTC cannot enforce the notes because of a novation.
Recent decisions dispose of the Leons' first position. We
have held that notes providing for publicly ascertainable, variable
interest rates executed in Texas are negotiable instruments.
Ackerman v. FDIC, 973 F.2d 1221, 1223 (5th Cir. 1992) (relying on
answer to certified question given in Amberboy v. Societe de Banque
Privee, 831 S.W.2d 792 (Tex. 1992)). Even if this negotiability
issue was unresolved, § 1823(e) and D'Oench, Duhme would govern

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1Fraudulent representations about the risk of a venture
constitute fraud in the inducement, not fraud in the factum,
where makers know that they are executing promissory notes to
finance that venture. Kilpatrick v. Riddle, 907 F.2d 1523, 1527
n.6 (5th Cir. 1990), cert. denied, 111 S. Ct. 954 (1991).
5
because they apply "irrespective of whether the note is
negotiable." Park Club, Inc. v. RTC, 967 F.2d 1053, 1055 (5th Cir.
1992).
Next, the Leons claim that misrepresentations regarding
personal liability constituted fraud in the factum, an arguably
viable defense despite D'Oench, Duhme and § 1823(e).
Supreme Court dictum noted a concession by the FDIC that
the real defense of fraud in the factum--that is, the
sort of fraud that procures a party's signature to an
instrument without knowledge of its true nature or
contents--would take the instrument out of § 1823(e),
because it would render the instrument entirely void
. . . .
Langley v. FDIC, 484 U.S. 86, 93, 108 S. Ct. 396, 402 (1987)
(citations omitted). As in Langley, we need not pass on the
validity of that concession, because the facts asserted by the
Leons constitute fraud in the inducement, not fraud in the factum.
Fraud in the factum exists "when a party signs a document
without full knowledge of the character or essential terms of the
instrument." McLemore v. Landry, 898 F.2d 996, 1002 (5th Cir.),
cert. denied, 111 S. Ct. 428 (1990)(internal quotations omitted).1
The Leons knew that the essential terms of the instruments made
them promissory notes for known amounts of principal. The
representation that the Leons would not be personally liable was
fraud inducing them to execute the documents, not fraud disguising

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2See Restatement (Second) of Contracts § 163 cmt. b, illus.
2 (1981); 1 James J. White & Robert S. Summers, Uniform
Commercial Code § 14-9, at 732 (West 3d ed. 1988) ("Most cases
arise because the defendant was tricked into signing another
document different from the one which he read").
3See Tex. Bus. & Com. Code § 3.305, comment 7 (suggesting an
"excusable ignorance" test which considers the sophistication of
the maker).
6
the true character of the documents. In Langley, where the Court
found no fraud in the factum, one of the representations made to
the makers was that they would not be personally liable on the
promissory notes. 484 U.S. at 89 n.1, 108 S. Ct. at 400 n.1.
The Leons contend that they were the victims of a document
switch, so that they did not sign the instruments which they were
originally shown and intended to sign.2 Several months before the
execution of these notes, Park Greene gave the Leons documents
which the Leons believe protected makers from personal liability.
The notes which the Leons executed in December, 1984 do not limit
the makers' personal liability. Our analysis of fraud in the
factum is guided by the Uniform Commercial Code, which requires
that an instrument be signed "with neither knowledge nor reasonable
opportunity to obtain knowledge of its character or its essential
terms." Tex. Bus. & Com. Code § 3.305 (Vernon 1968) (emphasis
added); see also Restatement (Second) of Contracts § 163 (1981).
The Leons' assertion of excusable ignorance3 is belied by the
undisputed fact that Jack Leon, an attorney, examined the documents
presented to him in December and deleted a paragraph from each two-
page note and three-page deed of trust which he signed. Even
viewing the record in favor of the Leons, they have failed to

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4An Asset Classification Report prepared by Banc Iowa
sometime after June 30, 1989 states: "Mr. Leon would like to
deed his buy-out hiss [sic] personal guaranty. We will be
obtaining personal financial statement from Mr. and Mrs. Leon
prior to accepting the note. If we do accept deeds in lien, we
will sell the units to Dr. Frankel. Dr. Frankel has offered . .
. Mr. Leon $25,000 per unit."
The deal was not completed because apparent title problems
thwarted the sale of the Leons' townhouses to the Trust.
7
establish a genuine issue of material fact regarding fraud in the
factum.
The Leons also argue that the 1989 agreement constituted a
novation which extinguished their obligations under the prior
notes. Hence, they argue, RTC did not acquire enforceable notes
when Banc Iowa failed and § 1823(e) is not implicated. The Leons
rely on a case holding that the FDIC may not enforce a mortgage
note when the corresponding promissory note was paid, automatically
terminating the mortgage, before the lender failed. FDIC v.
Bracero & Rivera, Inc., 895 F.2d 824, 830 (1st Cir. 1990); see also
Langley, 484 U.S. at 93-94, 108 S. Ct. at 402 (noting that a void
note would not be a "right, title, or interest" of the FDIC).
This attempted evasion of § 1823(e) fails. The Leons cannot
rely upon an agreement that is not evidenced by the bank records in
order to escape the requirement that all agreements diminishing the
RTC's interests comply with § 1823(e). Jack Leon testified by
affidavit that on July 21, 1989, he made a deal extinguishing his
1984 notes with Banc Iowa's chairman that was approved by Banc
Iowa's board over the telephone. Banc Iowa's records do not
indicate the approval of this ultimately unconsummated agreement.4
For all practical purposes, an unrecorded novation does not differ

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8
from a secret agreement between a lender and borrower that a note
will not be enforced. We are not persuaded that Langley's obiter
dicta regarding "void" notes applies under these circumstances.
The remainder of the Leons' arguments amount to no more than
an appeal to equity and lack merit. "The requirements of § 1823(e)
are certain and 'categorical.'" Beighley v. FDIC, 868 F.2d 776,
782 (5th Cir. 1989) (quoting Langley, 484 U.S. at 95, 108 S. Ct. at
403 (1987)). As the Court noted, "[o]ne purpose of § 1823(e) is to
allow federal and state bank examiners to rely on a bank's record
in evaluating the worth of the bank's assets." Langley, 484 U.S.
at 91-92, 108 S. Ct. at 401. The exception requested by the Leons
would undermine that purpose.
AFFIRMED.

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