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First Nat'l Bk. v. Bd. of Education





APPEAL from the Circuit Court of St. Clair County; the Hon. DELMAR KOEBEL, Judge, presiding.


This is an appeal by the First National Bank at East St. Louis (hereinafter referred to as the bank) from a judgment in favor of the Board of Education of School District No. 189 (hereinafter referred to as the school board, or the board) entered by the Circuit Court of St. Clair County after a bench trial on the bank's action for damages allegedly caused by the school board's failure to honor an assignment to the bank of certain amounts due from the board to East St. Louis Illinois Homes, Inc. (hereinafter referred to as the company).

On June 26, 1968, the company and the school board entered into a written contract for the construction of certain mobile classrooms to be located at various schools in East St. Louis. The contract had been formally approved by the board and recorded in its minutes on April 23 of that year. The company had previously conferred with Harry Cruncleton, executive vice president of the bank, about providing the financing necessary for the company to obtain this contract. Cruncleton's initial reluctance to make the loan was overcome after Charles Merritts, Sr., president of the school board, suggested that the bank take an assignment of income to become due to the company from the board during the term of their contract. Merritts told Cruncleton that he would watch over the transaction and see that the bank received its money.

On October 15, 1968, the company executed an assignment to the bank of all of the amounts due and to become due under the company's contract with the board. The assignment recited that it was made in consideration of and as security for a loan granted to the company by the bank. On October 17, 1968, the bank made the first of a series of advances of money to the company in connection with the project; the advances were to continue over the next four years.

On October 18, 1968, Cruncleton sent a registered letter to "Mr. Charles Merritts, President, Board of Education, School District #189, East St. Louis, Illinois." The letter purported to give notice that the company had assigned to the bank its right to receive payments under the contract with the board. The last sentence of the letter asked: "Will you please acknowledge receipt and consent to this assignment, and return to me a signed copy of said consent?" The letter did not specifically direct that payments be made directly to the bank.

It is undisputed that Merritts received the letter. The evidence does not clearly indicate, however, whether he received a copy of the assignment, nor whether he received the letter at the board's office or at his home, nor what he did with the letter after he received it. No acknowledgement of the board's receipt of the assignment was ever made to the bank as requested in the letter. The school board's records nowhere contained any mention of either the letter or the assignment.

At no time did the school board make any payment directly to the bank; payments were made to the company, which in turn made payments to the bank. The bank at no time objected to this course of dealing.

The final advance by the bank to the company was made on November 29, 1972, in the amount of $35,000. At the time of this advance, the board had already made its final payment to the company under their contract. The $35,000 advance was not repaid when it became due on February 27, 1973.

On March 21, 1973, in response to a telephone request from the bank president for information pertaining to the status of the school board's account with the company, the business manager-treasurer of the board wrote to advise the bank that the board had satisfied all of its obligations to the company as of September 27, 1972.

On July 24, 1974, the bank filed suit against the school board, alleging that the board had wrongfully paid funds directly to the company in derogation of the bank's rights under the assignment, despite due notification of the assignment to the board. The board denied that it had been notified of the assignment.

After a trial to the court, judgment was entered in favor of the board. This appeal followed denial of the bank's post-trial motion.

On appeal, the bank accepts the trial court's statement of the elements of a cause of action for wrongful payment by an account debtor to an assignor after notice of an assignment:

"The Plaintiff * * * must prove that at the time of the execution of the assignment the Defendant was obliged or indebted to the assignor; that in fact an assignment of that obligation or indebtedness was made to the Plaintiff; and that the Defendant had notice of the assignment prior to payment by the Defendant to the assignor."

The bank contends that it proved each of these elements, and that the judgment in favor of the board was against the manifest weight of the evidence and contrary to the law of this ...

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