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NORTHERN TRUST CO. v. E.T. CLANCY EXPORT

June 19, 1985

THE NORTHERN TRUST COMPANY, PLAINTIFF AND COUNTERDEFENDANT,
v.
E.T. CLANCY EXPORT CORPORATION, DEFENDANT AND COUNTERPLAINTIFF, AND E.T. CLANCY, DEFENDANT.



The opinion of the court was delivered by: Shadur, District Judge.

MEMORANDUM OPINION AND ORDER

Northern Trust Company ("Bank")*fn1 has sued E.T. Clancy Export Corporation ("Exporter") and its president E.T. Clancy ("Clancy") to recover amounts outstanding on two notes Bank purchased from Exporter. Now Bank moves under Fed.R.Civ.P. ("Rule") 12(c) for a judgment on the pleadings on the issue of liability under Counts II through IV of its four-count Amended Complaint (the "Complaint"). For the reasons stated in this memorandum opinion and order, Bank's motion is granted as to Counts II and III and denied without prejudice as to Count IV.

Facts*fn2

In January 1982 Bank agreed with Exporter to finance sales of equipment to certain Mexican corporations ("Buyers"). Under that agreement Bank was to purchase from Exporter notes issued by Buyers in a total principal amount not to exceed $1,239,257.50, with interest computed at 1/2% per annum over Bank's floating prime rate. To guarantee payment on the notes Exporter was to obtain insurance against Buyer's default from the Foreign Credit Insurance Association ("FCIA") and Export-Import Bank of the United States (collectively "Insurers"), and to assign the proceeds of the insurance policy to Bank. Under the terms of the policy Insurers were to pay the notes to the extent of (1) 100% of any unpaid principal amount, plus interest at 6%, if the cause of the default was "political" and (2) 90% of any unpaid principal, plus interest at 6%, if the cause of the default was "commercial."

On January 22, 1982 Buyers issued a note payable to Exporter in the principal amount of $618,757.50, with interest at the prime-linked rate (the "First Note"). Payments were to be made in twelve approximately equal quarterly installments. Three days later Exporter and Bank entered into a Promissory Note Purchase Agreement (the "Agreement"), which included the following paragraph (the emphasized portion indicates language typed in with a different type face and juxtaposed to the handwritten initials "ETC"*fn3):

    4. All Notes acquired by the Bank will be purchased
  with full recourse to the Exporter for the uninsured
  amount or any amount not recovered under the FCIA
  policy, including any interest rate differential or
  unrecovered past due interest.

At the same time the Agreement was executed, Clancy signed an undertaking (the "Guaranty") guaranteeing personally the prompt payment of any amount due Bank from Exporter.*fn4 Under the Guaranty Clancy also agreed to pay any expenses incurred by Bank in collecting amounts owing from Exporter or in enforcing the Guaranty. But the Guaranty expressly provided:

  The right of recovery against the undersigned is,
  however, limited to the amount of $61,875.75 plus the
  interest on such amount and plus all expenses
  hereinbefore mentioned.

Less than two months later (on March 15) Buyers issued another note payable to Exporter (the "Second Note"), with terms matching those of the First Note except for its principal amount: this time, $306,446.25. Several days later Exporter endorsed the Second Note:

  Pay to the Order of Northern Trust Co. 90% without
  recourse, 10% with recourse.

With that endorsement, Bank purchased the Second Note from Exporter without the parties having executed any amendment to the Agreement or a separate note purchase agreement.

Buyers defaulted on both the First and Second Notes, and Bank then filed a claim with Insurers. Characterizing the default as resulting from "political" causes, Insurers paid 100% of the principal amount outstanding on both Notes plus interest at 6%. But because the notes by their terms had accrued interest at the substantially higher rate of 1/2% over Bank's floating prime rate, large amounts remained due on the notes: $181,935.21 on the First Note and at least $38,998.40 on the Second Note.*fn5 Bank made demand on ...


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