Such a threat constituted economic duress, which, they contended, is not a personal defense but a real defense. Discuss who should prevail.

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Such a threat constituted economic duress, which, they contended, is not a personal defense but a real defense. Discuss who should prevail.

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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 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.

Explanation & AnswerSolution by a verified expert

Explanation

Organization FDIC is the holder in due course here and is going to want to collect the promissory notes signed by the partners of Organization FK. But the partners said that they signed the promissory note through duress. It is the severity of the duress that determines if Organization FDIC renders the holder in due course to nullity. The severity is determined by the local law and can vary from state to state. If the duress is too severe, Organization FDIC is going to lose the position of holder in due course and if the duress is not too severe, Organization FDIC can hold the position of holder in due course.

Verified Answer

The final judgement depends on the severity of the duress that has been used upon the partners of Organization FK. If the duress is not so severe, it does not render the holder in due course a nullity. In this case, Organization FDIC is going to prevail. If the duress is so severe that it does render the holder in due course a nullity, the judgement is going to be against Organization FDIC.

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