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Liberty Savings Association v. Sun Bank of Jacksonville

March 27, 1978


Appeal from the United States District Court for the Northern District of Illinois. No. 75-C-3829 - Abraham L. Marovitz, Judge.

Author: Pell

Before CASTLE, Senior Circuit Judge, PELL, and TONE, Circuit Judges.

PELL, Circuit Judge. The apparent villains in this case are, so far as we can tell, fugitives from justice, thought to be in Costa Rica. Needless to say, they are not parties. The two banks which are, Liberty Savings Association (Liberty)*fn1 and Sun Bank of Jacksonville (Sun), were the honest businesses that were taken, and their classic legal dispute over a fund the villains left behind is now before this court.

Liberty's complaint invokes the diversity jurisdiction of the district court and seeks a declaratory judgment that Liberty's claim to twenty-one $2000 savings accounts established with it by Capital Title and Trust Company (Capital), the company of which the villains were principals, is superior to Sun's claim to the accounts. The complaint alleges that in February 1974, Liberty purchased twenty-one secondary real estate mortgage loans pursuant to an agreement with Capital that Capital would establish the $2000 accounts to secure the loans. It also alleges that in April 1974 Sun requested from Liberty approval of an assignment to it by Capital of the accounts to secure a loan made by it to Capital, and that Liberty gave its approval conditioned upon the priority of its claim to the accounts.

In its answer and counterclaim, Sun alleges that it loaned $40,000 to Capital on April 23, 1974, receiving as security an assignment of the twenty-one accounts and possession of the passbooks evidencing the accounts. Sun alleges that it entered this transaction without any notice of any claim by Liberty, and, indeed, the passbooks Sun received bear no indications of any limitation on transferability or any claim of Liberty.*fn2 Sun admits that it sent Liberty a form document entitled "Request for Approval of Assignment" to advise and give notice to Liberty of its interest in the accounts. The counterclaim also sets out Capital's default on its loan from Sun and demands payment from Liberty of the proceeds of the accounts, plus accrued dividends, interest, and costs.

Both parties moved for summary judgment. The district court granted summary judgment in Liberty's favor, giving particular significance to the Request for Approval form, and certain language therein. Notably, the form states that the account passbooks had been tendered and were being "held by us for safekeeping subject to your approval." Also, the portion of the form signed by the assignor (Capital) says, "This assignment is acknowledged and approved by the undersigned account (holders), subject to approval of the Association." Finally, the form has a printed section to be signed by the association to which the form is sent, which begins by stating, "This Association hereby approves the above requested assignment...." (It was to this last section that Liberty added the typed language conditioning its approval on the priority of its claims to the accounts.)

The district court reasoned that with this "clear language" Sun "conditioned the validity of Capital's assignment upon approval by [Liberty]...." Accordingly, Sun either accepted the conditional approval by Liberty, thus subordinating its claims, or, if it rejected the conditions of Liberty's approval, then it has no claims at all, "since the assignment by Capital to Sun Bank was specifically made subject to [Liberty's] approval...." On appeal, Liberty defends the judgment on the same grounds, arguing that the sole issue in the case is whether Sun subordinated its claims (or has none at all by reason of rejecting Liberty's conditional approval) and that this issue is "controlled simply and exclusively" by the terms of the Request for Approval form, as modified by Liberty.

We cannot accept the underlying premise of the theory advanced to sustain the judgment, that when Sun and Capital executed their loan agreement on April 23, 1974, it was intended by them that the assignment of accounts which secured the loan be contingent on Liberty's approval thereof. Surely the law required no such approval. The Illinois Savings and Loan Act specifically provides that:

[the] holder of a withdrawable capital account may transfer his rights therein absolutely or conditionally to any other person eligible to hold the same, by written assignment accompanied by delivery of the appropriate certificate or account book.... Ill. Rev. Stat. 1975, ch. 32, § 768(b). The same section provides that even though such an assignment be effective between the parties, the savings association may treat the account holder of record as the account owner for various purposes until procedures for transferring record ownership are undertaken. By necessary implication, no approval by or even notice to the association is required to effect the assignment.*fn3

We see no reason to conclude that Sun and Capital intended to condition their assignment on an event not required by law. Strangely, after arguing, to justify its reliance on the Request for Approval form as indicative of the intended nature of the assignment, that documents executed together as part of the same transaction must be construed together, Liberty gives extremely short shrift to the language contained in the "Note" and the "Assignment" executed on April 23. The Note refers to a previously or contemporaneously executed pledge or assignment of the accounts, and the Assignment expressly, completely, and immediately purports to assign all of Capital's interest in the accounts*fn4 to Sun. Neither document contains any indication that there was anything conditional about it.

In this context, the import of the "approval" language in the Request for Approval form appears much less clear than it might have if that document constituted the entire agreement between Sun and Capital. We cannot know from the record before us exactly what the parties intended the approval language to mean. The form asks Liberty to credit dividends directly to the accounts, and the approval sought may have been to that procedure. Perhaps more likely, the form's language may have been designed to refer to the fact that transfers of formal interests in accounts on Florida savings and loan associations must be on the books of the associations, and the associations have a right to approve the transferees as members. Fla. Stat. Anno. § 665.231(1) (1976 Supp.).*fn5 Viewed in this light, the form could, as Sun asserts, have been sent to Liberty just to give notice and give the directions referred to above. While, as we have said, we cannot be positive what Sun and Capital did intend the form to mean, the undisputed facts do allow the firm conviction they did not intend their transactions to be dependent on Liberty's approval.

The parties' conduct sheds the determinative light in this regard. For obvious reasons, Liberty strenuously objects to any consideration of matters outside the "four corners" of the documents executed by Sun and Capital. Illinois' parol evidence rule, which applies here, see 1A-2 MOORE'S FEDERAL PRACTICE P0.313 at 3502-04 (2d ed. 1977), is not that strict. The very case cited by Liberty for the proposition that the Request for Approval form must be construed as part of the contract in question demonstrates the point in the sentence immediately following the one Liberty quotes:

Courts in the construction of contracts, look to the subject matter, the language employed and the surrounding circumstances. They are not excluded from the light which the parties enjoyed when the contract was executed.... In case of doubt, the interpretation which the parties by their acts under the contract have given it, will have weight, and may be controlling, provided the plain terms of the agreement are not overthrown. [Citations omitted.]

Nelson v. Colegrove and Co. State Bank, 354 Ill. 408, 413, 188 N.E. 461 (1933). See also Ortman v. Stanray Corporation, 437 F.2d 231 (7th Cir. 1971); International Minerals and Chemical Corporation v. ...

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