The Federal Deposit Insurance Corporation (‘‘FDIC’’) brings this action to collect on promissory notes signed by certain former partners of the law firm of Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey (‘‘Finley Kumble’’). The promissory notes secured loans that the National Bank of Washington (‘‘NBW’’) made in 1986 to the Finley Partners to enable them to purchase stock in the Merchant Bank of California. After Finley Kumble declared bankruptcy, certain of the Finley Partners defaulted on their loans and NBW filed lawsuits in the Superior Court for the District of Columbia against defendants to collect on their promissory notes.

On August 10, 1990, the Office of the Comptroller of the Currency declared the NBW insolvent, closed the Bank, and appointed the Federal Deposit Insurance Corporation (‘‘FDIC’’) as Receiver. The FDIC then removed these cases to federal court on September 7, 1990, and moved for summary judgment against each defendant on the grounds that the Federal Deposit Insurance Act of 1950, 1 12 U.S.C. §1823(e) [places the FDIC in the position of a holder in due course and thus] provides special protections for the FDIC which bar all of the Finley Partners’ defenses as a matter of law. 

   Twenty of the Finley Partners now oppose the FDIC’s motion. * * *

                            Discussion
Defendants’ Defense of Economic Duress

   The Finley Partners argue that the FDIC’s motion for summary judgment should be denied because their defense of economic duress survives the effects of §1823(e). They concede that §1823(e) operates to place the FDIC in the position of a holder in due course, making promissory notes free of personal defenses. They argue, however, that §1823(e) does not extinguish real defenses set forth in the Uniform Commercial Code (‘‘UCC’’) and that their economic duress defense constitutes such a real defense.

   Defendants are correct that §1823(e) bars personal defenses but not real defenses * * *. As the Supreme Court explained in Langley v. FDIC, a real defense renders an instrument entirely void, leaving no interest that could be ‘‘diminish[ed] or defeat[ed].’’ [Citations.] In contrast, personal defenses render a note voidable but not void. * * *

   Thus, if the Finley Partners’ economic duress defense constitutes a real defense, then their promissory notes were void from the beginning. Asserting such a real defense could not ‘‘diminish or defeat’’ any interest of the FDIC because the FDIC did not have any interest to start with. On the other hand, if the Finley Partners’ economic duress defense is a personal defense, then the FDIC received voidable title to the promissory notes from the NBW, which [defense would be cut off by the FDIC]. * * *

   The main legal question, then, is whether economic duress is a personal defense that rendered NBW’s title to the promissory notes voidable, or a real defense that rendered its title entirely void. The Finley Partners suggest that duress of any nature constitutes a real defense, citing UCC §3–305 (2)(b) [Revised §3–305(a)(1)] and several cases from outside of the District of Columbia. A careful reading of the UCC and its Official Commentary reveals that it does not make such a blanket classification.

   First, §3–305(2)(b) [Revised §3–305(a)(1)] provides that holders in due course take free of all defenses except for ‘‘(b) such other incapacity, or duress, or illegality of the transaction, as renders the obligation of the party a nullity.’’ The words ‘‘such’’ and ‘‘as’’ indicate that the section is not stating that any type of duress renders an obligation to be a nullity. Rather, it suggests that only those types of duress that are so severe as to render it a nullity stand as exceptions to the rule that holders in due course take free of defenses.

   Of course, the question left open is what type of duress is severe enough to render it a nullity. Neither UCC §3– 305(2)(b) [Revised §3–305(a)(1)] nor the Official Comment attempt to establish a rule governing which types of duress render a transaction void as opposed to merely voidable. Instead, Official Comment 6 declares that ‘‘[a]ll such matters are therefore left to the local law.’’ * * *

   The Finley Partners do not cite any precedent from the District of Columbia that supports the view that economic duress renders a transaction void. In fact, they point out that [citation], the D.C. Court of Appeals quoted section 175 of the Restatement (Second) of Contracts which states that duress by threat (rather than by physical compulsion) renders a contract voidable rather than void. Although that case fails to distinguish between void and voidable contracts, it calls attention to the Restatement’s distinction between the two categories:

Duress takes two forms. In one, a person physically compels conduct that appears to be a manifestation of assent by a party who has no intention of engaging in that conduct. The result of this type of duress is that the conduct is not effective to create a contract (§174). In the other, a person makes an improper threat that induces a party who has no reasonable alternative to manifesting his assent. The result of this type of duress is that the contract that is created is voidable by the victim (§175). [Citation.]

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   The Finley Partners do not allege that they were physically compelled to sign the promissory notes in question. They themselves labeled their defense as ‘‘economic’’ duress, and the substance of their allegations are that they signed the notes because of the threat that their wages and standing in the firm would decrease if they refused. Such economic duress does not reach the level of physical compulsion capable of rendering a transaction entirely void. Thus, NBW held at least voidable title to the promissory notes when the FDIC took over as Receivers * * *. Thus, defendants’ economic defense duress is not valid against the FDIC.

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Conclusion

For the reasons discussed above, this Court finds that neither of the defendants’ arguments has merit and that the FDIC is entitled to summary judgment as a matter of law. The defendants opposing the FDIC’s motion for summary judgment are liable for the obligations they accepted when they signed the promissory notes. The FDIC is entitled to recover to the full extent of those obligations, as it requests in its motion for summary judgment.