1. Should the FDIC’s request for summary judgement against Culver be granted? Why or why not?

2. If Culver had just signed a blank piece of paper after being told that the bank would make a receipt out of it by printing the appropriate words around his signature, would he be able to avail himself of the defense of fraud? Why or why not?

3. If the Bank had made the note payable for an unreasonable amount, such as $1,000,000, could the FDIC have collected?

When Texan Nasib Ed Kalliel entered into a business deal with the Rexford State Bank of Rexford, Kansas, the bank was in excellent financial shape. Kalliel suggested that he had a plan to rescue several farmers from the financial disaster that many in the farming industry at that time were experiencing. He suggested that if the bank would loan its money to farmers in trouble, he would guarantee the loan repayment through one of his companies. Unfortunately, the bank did not have enough capital to make adequate loans to all the farmers who needed them. Consequently, the bank agreed to take deposits from a New Jersey firm in the form of high-yield large certificates of deposits. Most of the new deposits went directly to farm loans. However, about 20 percent were “farmed out” to Kalliel himself and his companies. Kalliel and a Missouri farmer, Gary Culver, agreed to a working relationship in which Kalliel would manage the business end and Culver the production end of the Culver farm. When Culver told Kalliel that he must have $30,000 to prevent foreclosure, the Rexford Bank provided the money. Shortly thereafter a Bank representative approached Culver and induced him to sign a blank promissory note form. The Bank’s representative maintained to Culver that the note was nothing more than a receipt for the money. Later the amount, interest rate, and due date on the note were filled in. However $50,000 was entered as the amount instead of $30,000. When the Rexford Bank later became insolvent, the FDIC bought the note as it did the remaining outstanding Rexford Bank notes. The FDIC then sought to collect on the note as it was mature and no collection efforts had ever been started on it. 

The FDIC moved for summary judgment. Culver defended that the circumstances surrounding the issuance of the note provided him with the defense of fraud which would be good even against the collection efforts of the FDIC. The FDIC maintained its right to collect, as under the UCC the defense of fraud is available only as long as there has not been “reasonable opportunity to obtain knowledge of its character or its essential terms” provided to the maker of the note. The FDIC maintained that Culver’s failure to take notice of the nature of the form of the instrument that he was presented as a “receipt” was negligence and that, therefore, it could collect to the full value of the face of the note.