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PRUDENTIAL INS. v. CURT BULLOCK BUILDERS

December 30, 1985

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, A NEW JERSEY CORPORATION, PLAINTIFF-COUNTERDEFENDANT,
v.
CURT BULLOCK BUILDERS, INC., A NEVADA CORPORATION, DEFENDANT-COUNTERCLAIMANT.



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

  MEMORANDUM AND ORDER

This diversity action presents the question of whether a creditor protecting its interests under a loan agreement also could be liable to the debtor in tort if another creditor caused unnecessary economic harm while both were in the process of collection.

Prudential, the plaintiff here, and the First Midwest Bank of Danville, Illinois (formerly the Second National Bank), which is not a party to these proceedings, each loaned defendant Bullock Builders over two million dollars — plaintiff in 1979 and the bank in 1983. By January 1984 both were uneasy about Bullock's financial health. They pressed for changes in management and for security interests in Bullock's assets to put their loans on a sounder footing.

Initially it appeared that a plan satisfactory to all parties had been worked out. Two officers of Bullock were replaced and terms of the proposed security interests were discussed. However, at a meeting on March, 26, 1984, Bullock Builders flatly refused to collateralize either loan. Prudential and the bank responded by finding Bullock in default under the respective loan agreements, even though it was not behind in its payments, and announcing acceleration of each loan. Bullock was also a depositor of the bank. Allegedly it had previously sought and received assurances that the bank would not exercise its right of setoff. Nevertheless, the bank at once set the loan amount off against the Bullock checking account. As a result, several Bullock checks were returned for insufficient funds. Negotiations continued, however. In late June and early July, Bullock again seemed near to granting its lenders security interests, but again negotiations broke down. In August, the bank terminated its financing plan for customers of Bullock Builders.

Meanwhile, Prudential filed this suit, seeking a judgment for the loan principal. The bank filed a similar suit in state court. In both actions Bullock filed counterclaims alleging that the accelerations of the loans were not justified, and further, that Prudential and the bank had wrongfully conspired to cause it economic injury. This court has already granted summary judgment to Prudential on its claim. Bullock had violated terms of its loan agreement with Prudential, for example, by allowing working capital to fall below the required minimum, and so was in default. However, the counterclaim remained open. Prudential Insurance Company of America v. Curt Bullock Builders, Inc., No. 84 C 3387 (N.D.Ill. Dec. 24, 1984).

An assortment of motions is presently before the court. Prudential seeks summary judgment on the counterclaim and also moves under Rule 54(b) of the Federal Rules of Civil Procedure for entry of final judgment on its claim. Bullock Builders opposes both the grant of summary judgment and the Rule 54(b) motion, arguing first that no judgment should be entered while its counterclaim is viable, and, secondly, that the amount of the judgment should not include 13 per cent interest and attorneys' fees. Each side has also moved to strike most of the other side's affidavits.

The order in which each of these motions will be discussed is dictated by their practical consequences. Since existence of the counterclaim is a significant obstacle to granting entry of final judgment, the analysis turns first to the counterclaim to see if that obstacle can be removed. The initial step in that analysis will be to determine if Bullock's complaint still states a claim after our earlier judgment for Prudential. Finding that it does, the discussion then must turn to the affidavits, to see what evidence can be considered in the motion for summary judgment. Those preliminaries will show the key issue to be whether Prudential could be found vicariously liable for the bank's conduct. An examination of that issue indicates that a genuine issue of fact exists as to whether the bank was Prudential's agent or conspired with it. Summary judgment would therefore be premature. The analysis then shifts to the Rule 54(b) motion, finding that despite the counterclaim, final judgment can be entered for Prudential on the loan principal and interest. However, inspection of the loan documents reveals that Prudential is not entitled to attorneys' fees.

I. THE COUNTERCLAIM

Bullock Builders' complaint is not easily deciphered, but it appears to allege that Prudential conspired with the bank as its agent to drive Bullock Builders out of business. It maintains that Prudential and the bank wrongfully accelerated their loans as one of the acts to further the conspiracy. It also complains that the bank, acting for Prudential, first promised not to use its setoff right, and then exercised it, without warning, making both the bank and Prudential liable, apparently on a promissory estoppel theory. Further, since the setoff was wrongful because of the promise, dishonor of the checks was also wrongful. Also, the bank, as Prudential's agent, wrongfully deprived Bullock of working capital by luring it away from a potential lender, with promises of a loan on more favorable terms that were never fulfilled.*fn1

Prudential argues that it is entitled to summary judgment essentially for two reasons. First, it contends that after this court's previous decision Bullock's complaint no longer states a claim. This court found Bullock in default, so therefore Prudential did not wrongfully accelerate the loan. There was no tortious conduct, but rather conduct justified by the need to protect an economic interest. Secondly, even if there was wrongful conduct, Prudential cannot be liable for it. Except for acceleration of the loan — which was not wrongful — all the acts complained of were taken by the bank, not Prudential. The bank was not Prudential's agent and it did not conspire with the bank, so there is no claim against Prudential.

A. Issues Remaining in the Counterclaim

The counterclaim, however, is not so easily extinguished. A finding that Bullock was in default does not insulate its creditors from all liability. Under Illinois law a lender can have a right to collect from a corporation under the terms of a loan agreement and nevertheless commit a tort or breach of contract. Bank Computer Network Corp. v. Continental Illinois National Bank, 110 Ill.App.3d 492, 442 N.E.2d 586, 66 Ill.Dec. 160 (1st Dist. 1982). In that case, as here, a corporation was both a depositor with and a debtor to its bank. The corporation fell behind in its payments. The bank, however, made no effort to collect and instead engaged in negotiations with the depositor for an extension of the loan, and for additional loans, over several weeks. The depositor, however, was reluctant to give collateralized personal guarantees for the new loans. When the negotiations broke down, the bank immediately took a setoff for the loan against the corporate checking account, dishonoring several checks in the process. In the resulting litigation the bank's motion for summary judgment was denied. The court held that the depositor had a claim under promissory estoppel. The bank had impliedly promised not to enforce its rights at once by its failure to demand payment and its negotiations. It was estopped by those actions from offsetting the account until the depositor had a reasonable time to find other funds with which to pay the loans. 110 Ill.App.3d at 497-500, 442 N.E.2d at 591-592, 66 Ill.Dec. at 165-166. The bank here could similarly be found estopped by the claimed promise not to use its setoff rights. Further, if the bank had no immediate right of setoff, then the resulting dishonor of checks was wrongful and liability would be imposed for the damages proximately caused by the dishonor. Ill.Rev.Stat. ch. 26, ¶ 4-402; Coles County National Bank v. First National Bank & Trust Co. of Tuscola, 20 Ill.App.3d 23, 312 N.E.2d 643 (4th Dist. 1974) (abstract). In appropriate circumstances a creditor with a loan that is due can nevertheless accelerate wrongfully.

The allegation that Bullock was misled from finding alternative loan sources also could serve as a ground for liability. One of the court's concerns in Bank Computer was that the bank's offers of loans could have caused the debtor to forego actively seeking other sources of capital, which it could have used to pay off its debts. 110 Ill.App.3d at 498, 442 N.E.2d at 591, 66 Ill.Dec. at 165. If Bullock indeed had found another willing lender, then it could have been misled to its damage by the bank's actions.

Prudential could be found liable for such breach of promise and wrongful dishonor either on an agency or conspiracy theory even if the bank was not at all times following Prudential's orders. A principal is liable for the torts of his agent which are committed either at his orders or within the scope of the agency. CFTC v. Premex, Inc., 655 F.2d 779, 784 n. 10 (7th Cir. 1981); Gomien v. Wear-Ever Aluminum, Inc., 50 Ill.2d 19, 276 N.E.2d 336 (1971). A conspirator is responsible for the acts of each co-conspirator, whether or not he knew in advance of the precise methods which would be used for the common goal. Old Security Life Insurance Co. v. Continental Illinois National Bank, 740 F.2d 1384 (7th Cir. ...


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