Federal Deposit Insurance Corporation v. Zook Brothers Construction Company, a Corporation Glenn T. Zook Donald R. Zook Louise M. Zook Eunice E. Zook

The FDIC brought suit against Louise Zook on a guaranty executed in support of a loan to Zook Brothers Construction Company by Continental Illinois National Bank and Trust Company of Chicago, which had assigned agreements relating to ZBCC to the FDIC. The district court decided after a bench trial that the Bank’s failure to obtain Zook’s consent to alterations in the credit arrangement released her from the guaranty, rendering it unenforceable under Illinois law. The FDIC argues that enforceability is a matter of federal law, and that the district court should have applied 12 U.S.C. § 1823 and the D’Oench doctrine in making its determination. We agree and, because Louise Zook never cancelled her guaranty, it should be enforced. Accordingly, we reverse.

I

This dispute arises out of Louise Zook’s participation and involvement in the ongoing credit relationship between Continental Illinois and ZBCC. Donald and Glenn Zook are ZBCC’s sole shareholders. Louise Zook is Donald’s wife. In April 1977, ZBCC obtained a $2,000,000 loan from the Bank. In October of that year, Donald and Louise co-signed a $500,000 guaranty on the amounts owed by ZBCC. Through 1978 and 1979, the ZBCC loan was…