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Washburn v. Union Nat'l Bank & Tr. Co.





Appeal from the Circuit Court of Will County; the Hon. Thomas M. Ewert, Judge, presiding.


The debtor-insurance company appeals from summary judgment entered in the circuit court of Will County in favor of the creditor-bank in an action for wrongful liquidation of collateral securing a loan.

Plaintiff, United States Savings Life Insurance Company (the company), borrowed large sums of money from defendant, Union National Bank and Trust Company of Joliet (the bank), on a regular basis beginning in 1981. The loans were for varying lengths of time — always less than a year and were routinely renewed. Because of the close personal relationship between the chairman of the bank and the president of the company, the bank accomplished each renewal by filling in blank note forms previously signed by the company president. In late 1983 the company began to experience financial problems, and a new president took charge. In June of 1984, shortly before loans totaling $1,200,000 were due to mature, the company sought to have its loans increased to $2,500,000. That request was denied by the bank. The loans remained unpaid while the company sought other sources of financing. About two weeks after the loans were due, the bank sold the "Ginnie Mae" bonds (issued by the Government National Mortgage Association) which had been the collateral securing those loans. The sale was accomplished without prior notice to the company. Because Ginnie Mae bonds pay out principal as well as interest on a monthly basis, the amortized value carried on the books of the company was greater than the market price at the time of sale. As a result, the capital of the company was impaired.

When plaintiff company learned that the bonds were being sold, it sought a temporary restraining order (TRO) against the bank. The bank informed the trial court that the bonds had been delivered to the buyer in New York, and so the petition for a TRO was withdrawn. The company filed suit against the bank to recover damages resulting from the allegedly wrongful sale of the bonds without prior notice. Defendant bank's motion for summary judgment was granted by the trial court, and the company has perfected this appeal. The record on appeal includes 22 volumes of depositions.

Plaintiff contends that the trial court erred in entering summary judgment because of several issues of material fact which should be submitted to the trier of fact at trial. Specifically, plaintiff asserts that there is a dispute as to (1) whether the notes were in default or, in the alternative, (2) whether the bank was estopped or waived default, (3) whether the sale of collateral was commercially reasonable, and (4) whether the bank acted in good faith in dealing with plaintiff.

There is no dispute that the loans totaling $1,200,000 became due on June 30, 1984, and that the company had not executed any blank notes for renewal of those loans prior to the maturity date. Furthermore, there is no dispute that the bank sent the company a notice (labelled "a friendly reminder") stating that the loans were past due. The company, nonetheless, insists that the bank actually did renew the loan in keeping with prior practice, and, in support of that contention, the company refers to a statement in the minutes of the bank officers' loan committee meeting on June 18, 1984, as follows:

"Loans maturing from June 26, 1984 through July 2, 1984 were presented, and the rates and renewals approved."

That entry was explained by bank officers as indicating that the pricing analysis of the maturing loans was approved — i.e. the recommended interest rates to be charged if the loans were renewed — but that the actual decision as to whether a loan would be renewed was made by the loan officer, not by the committee. It seems clear from the depositions that the loan officer, John Lynch, did not take any formal action renewing the loans in question.

• 1 We note that the company does not offer any evidence contradicting the bank's explanation of those minutes but simply argues that the plain language of the minutes is sufficient to create an issue of fact. However, such is not the case. The statement contained in the minutes of the loan committee is consistent with the testimony of the bank's witnesses, and no issue of fact exists as to renewal.

• 2 The company also argues, in the alternative, that there is a question of fact as to whether the bank was estopped to liquidate the collateral without prior notice or whether any default was waived because of the bank's consistent course of dealing with the company in the past whereby the loans were renewed almost "automatically." In order to establish estoppel, the company must show that it was induced to change its position to its detriment in reliance on words or conduct amounting to a misrepresentation or concealment of a material fact. (Ptaszek v. Konczal (1955), 7 Ill.2d 145, 130 N.E.2d 257.) There is nothing in the record here to indicate that the company changed its position in reliance on anything the bank did or said. There had been conversations between officers of the bank and the company concerning the cash needs of the company, but the bank did not make any express or implied promise to extend the due date or to renew the loans. In a similar situation in Huggins v. Central National Bank (1984), 127 Ill. App.3d 883, 886, 469 N.E.2d 302, 305, the court said, "The failure to demand immediate payment when plaintiff said he would pay at a later date is not the type of conduct that could reasonably be expected to induce a debtor to rely on his security not being sold."

While it is true that in the past the loans were renewed with regularity, a number of circumstances were different in June of 1984. For one thing, a new president had taken over the company so that a close personal relationship no longer existed between the top officers of the company and the bank. Secondly, the company had come upon difficult financial times and was desperately in need of additional cash. The company did not formally request renewal of the $1,200,000 loans and did not sign any blank notes for use in renewal but rather requested an increase in the company's line of credit to $2,500,000. When the bank denied the request, the company informed the bank that it would seek alternative financing elsewhere. The company did begin negotiating with other financial institutions, and the bank was informed of this activity. It seems clear that neither party could reasonably have expected the previous course of dealing to continue as before. By the time the notes became due, the prior relationship had been altered, and the company acknowledged that fact in its communications with the bank. Under these facts, we agree with the trial court that the essential elements of estoppel were not established by the company.

• 3 Similarly, the bank's conduct and statements did not constitute a waiver of its rights as secured lender. Waiver is the intentional abandonment or relinquishment of a known right. (Vermilion County Production Credit Association v. Izzard (1969), 111 Ill. App.2d 190, 249 N.E.2d 352.) Here the bank never expressly waived its rights under default, and certainly inaction by the bank did not constitute an implied waiver of its rights as a secured lender. In order to establish an implied waiver, there must be a clear, unequivocal, and decisive act of a party showing such a purpose. (Kane v. American National Bank & Trust Co. (1974), 21 Ill. App.3d 1046, 316 N.E.2d 177.) No such act was present here. The trial court correctly entered summary judgment in favor of the bank on the issues of estoppel and waiver.

The company's next contention is that the liquidation of the collateral without notice to the company was not "commercially reasonable" as required by section 9-504(3) of the Uniform Commercial Code (Code) (Ill. Rev. Stat. 1985, ch. 26, par. 9-504(3).) Section 9-504(3) provides, in part:

"Disposition of the collateral may be by public or private proceedings and may be made by way of one or more contracts. * * * Unless collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, reasonable notification of the time and place of any public sale or reasonable notification of the time after which any private sale or other intended disposition is to be made shall be sent by the secured party to ...

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