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Beverly Bk. v. Alsip Bk.

OPINION FILED MAY 14, 1982.

BEVERLY BANK, PLAINTIFF-APPELLEE,

v.

ALSIP BANK, DEFENDANT-APPELLANT.



APPEAL from the Circuit Court of Cook County; the Hon. MYRON T. GOMBERG, Judge, presiding.

JUSTICE LORENZ DELIVERED THE OPINION OF THE COURT:

Rehearing denied June 18, 1982.

Defendant appeals from the entry of a summary judgment against it contending that the trial court erred (1) in granting judgment because there were genuine issues of material fact, and (2) in denying its motion for judgment on the pleadings.

Material to our disposition are the following facts.

This action arose out of a loan participation agreement between the plaintiff, Beverly Bank, and the defendant, Alsip Bank. A loan participation agreement is an instrument in banking whereby two or more banks each provide a portion of the funding for a loan considered to be too large to be made by one individual bank. The bank which coordinates the loan participation transaction and makes the actual loan, in this case the Alsip Bank, is referred to as the "lead bank." A participating bank is one which purchases an interest in the lead bank's loan to the borrower.

Ordinarily, there is only one note involved and that extends between the borrower and the lead bank.

In the present case, John Ziola, Jr., the owner of the beneficial interest in a land trust, directed the plaintiff, as trustee of the land trust, to borrow $420,000 from the defendant. The plaintiff purchased a one-third participation interest in this loan, pursuant to the terms of a loan participation agreement. The security for the loan was a first mortgage on real property which was the corpus of the land trust. The loan participation agreement and a collateral assignment of the beneficial interest in the trust, executed by Ziola, were both dated November 9, 1973.

The participation agreement provided in pertinent part:

"It is expressly understood that we do not make any representations or assume any responsibility with respect to the * * * collectability of said note or the collateral securing the same and that, subject to the limitations set forth below, we are entitled to use our discretion with respect to exercising or refraining from exercising any rights or * * * which we may be entitled to take or assert under the terms of said note and that, although we will exercise the same care to protect your interest as we do to protect our own. We shall not, so long as we exercise such care, be under any liability to you with respect to anything which we may do or refrain from doing in the exercise of our judgment * * *."

The "limitations set forth below" provided that "we will not, without your consent, * * * (d) sell, assign, or transfer any of the collateral; * * *."

In September of 1974, defendant approved an assignment of the beneficial interest in the land trust from Ziola to Phillip Grandinetti. The receipt of this assignment was executed by plaintiff, as trustee of the land trust. In June of 1975, Grandinetti filed bankruptcy proceedings under chapter XI of the Federal Bankruptcy Act in the Federal district court, thereby subjecting the participation loan to the jurisdiction of the bankruptcy court.

Plaintiff filed a two-count verified complaint in the law division. Count I alleged that, "pursuant to the terms of the participation agreement and the intent of the parties," the defendant had breached its duty as trustee of an express trust to protect and preserve the collateral, and had violated the participation agreement by allowing the assignment without the plaintiff's approval.

Count II was based upon breach of defendant's duty as trustee of an express trust to foreclose on the trust deed, or to take any affirmative action to preserve the collateral. Both counts alleged that plaintiff was free from contributory negligence.

Defendant moved for summary judgment before it filed an answer, arguing that the exculpatory clause contained within the participation agreement absolved it from liability arising out of any duties as trustee. The motion urged, inter alia, that the exculpatory clause did not violate public policy, and that the ...


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