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Exchange National Bank of Chicago v. Daniels

July 12, 1985


On Petition for Rehearing.

Author: Easterbrook

Before WOOD and EASTERBROOK, Circuit Judges, and DUMBAULD, Senior District Judge.*fn*

EASTERBROOK, Circuit Judge. Our decision in this case dismissed two of the three appeals as untimely. The third appeal, we held, brought up only the award of attorneys' fees, which we affirmed. The district court's judgment on the merits was entered on May 10, 1984, and appeal No. 84-2037 was filed on June 18. The decision to dismiss this appeal rested in part on a construction of a minute order of the district court filed on June 18, stating that the "time for filing notice of appeal is extended ten (10) days from May 10, 1984." This is a puzzling order, because the Danielses (the Borrowers) had 30 days from May 10 even without the order. But because the parties had not sought clarification of this order from the district court and had not argued its meaning in this court, we concluded that it did not make the notice of appeal filed June 18 timely. Before reaching this conclusion, we searched the record for any clue about the order's meaning, particularly a contemporaneous explanation by the district court. We found none.

After we decided the case, the Borrowers had the court reporter prepare a transcript of the proceedings before the district court on June 28. This transcript reveals that the district judge meant to grant an extension sufficient to permit a timely appeal. The judge stated that "if I gave you another 10 days, that takes you to June 19th, and you file[d] it on the 18th. . . . I think you are entitled to a 10-day extension from May 10th, because I think you are entitled to appeal." The Borrowers state in their petition for rehearing that the minute order was supposed to grant an extra ten days from June 10, rather than from May 10. So reconstructed, the order makes the notice of appeal in No. 84-2037 timely.

We are dismayed that the Borrowers' counsel did not bring the proceedings of June 28 to our attention in their brief on the merits. The two excuses they give -- first that no one reads minute orders very carefully, second that "everyone knew" the meaning of the order and so did not think it necessary to elaborate -- are not very persuasive.*fn1 The order in this case was a potential basis of jurisdiction. The Borrowers should have expected the court to read it carefully, even if they did not. And the judges of this court cannot know that "May 10" really means "June 10" unless the party relying on the order brings the necessary information to light. Almost all of the briefing on the jurisdictional issue was devoted to the question whether the judgment of May 10 was "final" and appealable; neither side paid any attention to the meaning of the order of June 28. It is more than a little discomfiting to learn, after disposing of all the grounds that had been presented for decision, that the effort was wasted.

Nonetheless, just as a court must notice a lack of jurisdiction even when raised for the first time in a petition for rehearing, so the court must decide on the merits any case of which it has jurisdiction, even when the ground of jurisdiction appears belatedly. We therefore take jurisdiction of appeal No. 84-2037. For the reasons stated in our opinion of May 29, 1985, however, appeal No. 84-2232 is untimely, and appeal No. 84-2737 presents only the question of fees. Our original opinion therefore stands, although it has become necessary to address the merits in appeal No. 84-2037. The district court granted summary judgment for Exchange National Bank (the Bank), and to the extent facts are disputed (largely they are not), we draw inferences in favor of the Borrowers.

The affidavits and depositions filed in the district court show that Harold Daniels is the maker, and Irene Daniels the guarantor, of a note for $4.5 million. The Bank extended credit to the Borrowers on the basis of representations made by the Borrowers that they would use the money in their cattle business. The Borrowers furnished financial statements showing their personal and business assets. When the Borrowers did not pay, the Bank filed this diversity suit to collect.

The Borrowers paint a more sinister picture. They say that much of the money was invested not in their personal business but in that of Four Way Cattle Co. The Borrowers held a one-fourth interest in Four Way; other equal shares were held by Robert Odle, William Clune, and Ronald Garrett. Clune and Garrett were the officers of the Bank responsible for approving and supervising the loan to the Borrowers (and thus to Four Way). It is unlawful for a borrower to misrepresent affairs to a national bank in seeking a loan; it is undisputed that the Borrowers misrepresented the assets that would support repayment by describing Four Way's assets as their own. It is also unlawful for officers of a national bank to make loans in which they have beneficial interests, at least without specific written approval of a sort missing here. 18 U.S.C. § 1006; 12 C.F.R. § 215.5.

The Borrowers imply that Clune and Garrett initially induced them to borrow for the use of Clune and Garrett in order to have access to legitimate loans for the purpose of buying cattle. Then, the Borrowers maintain, Clune and Garrett induced them to borrow ever-increasing sums in order to avoid disaster; Harold Daniels says that Clune told him that any resistance to increases would "lead to [his] being financially ruined." Clune and Garrett supposedly assured the Borrowers that they would not be personally liable to the Bank because Clune and Garrett would repay any credit of which Clune and Garrett had the benefit. An affidavit suggests that a Vice Chairman of the Bank knew that Clune and Garrett had a beneficial interest in the proceeds of the loans to the Borrowers; the affidavit does not suggest, however, that the Bank ever approved this interest formally or knew that Clune and Garrett had promised to excuse the Borrowers' repayment.

We agree with the district court that these facts do not give the Borrowers a defense to the suit on the note. The note is unconditional on its face. It says nothing about the uses of the funds; it does not set out any circumstances under which the Borrowers received the $4.5 million (although the Bank disputes whether they turned all of this over to Four Way). No one maintains that Clune and Garrett had actual authority to excuse repayment. Indeed, under Illinois law, which applies to this diversity case, even an express pledge not to collect the note would have been ineffectual. See Central Republic Trust Co. v. Evans, 378 Ill. 58, 37 N.E.2d 745 (1941), in which the Court ordered repayment even though the Chairman of the bank explicitly promised not to collect. Such a promise, the Court concluded, required at least the formal approval of the Board of Directors, and even that might not have been enough in light of the obvious threat to the bank's business of promises not to collect loans. There was no formal approval here, and Evans therefore is dispositive. Moreover, the promise (as the Borrowers describe it) was that Clune and Garrett would make good the debt. This is a matter among the Borrowers, Clune, and Garrett; it does not excuse the Borrowers from paying the Bank.

The Borrowers try several devices to avoid this result. The Borrowers say, for example, that there was a lack of consideration for the note. Yet it is undisputed that the Borrowers received the $4.5 million and re-lent it to Four Way, in which they held a 25% interest. This is a lot more than a peppercorn, which would be consideration enough.

The Borrowers say that the loan was an illegal tie-in under 12 U.S.C. § 1972 because the Bank "tied" the extension of lawful credit (for the Borrowers' use in buying cattle) to unlawful credit (for the benefit of Four Way). The Borrowers never quote the statute, and for good reason. The pertinent portion says that a "bank shall not . . . extend credit . . . on the condition or requirement -- (A) that a customer shall obtain some additional credit, property, or service from such bank other than a loan. . ."

12 U.S.C. § 1972(1) (emphasis added).

This court has construed § 1972 as prohibiting exclusive dealing practices -- those that attempt to prevent customers from dealing with other banks. McCoy v. Franklin Savings Association, 636 F.2d 172, 175 (7th Cir. 1980). It is similar to other anti-tying laws meant to preserve competition among rival businesses. We treat it, in other words, as the banking equivalent of § 3 of the Clayton Act, 15 U.S.C. § 14. It does not prevent banks from making one in-house loan contingent on another.*fn2 The Borrowers do not ...

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