Before the loan was approved, Manning obtained some estimates from Maher as to what profit was anticipated on the project. The bank has a document in its file indicating a profit of $25,000 after all expenses. The document was submitted by Maher of Valley. The loan was approved, and the joint venture opened an account at the bank.
APPELLATE COURT OF ILLINOIS, SECOND DISTRICT
518 N.E.2d 1345, 166 Ill. App. 3d 18, 116 Ill. Dec. 365 1988.IL.137
Appeal from the Circuit Court of McHenry County; the Hon. Roland Herrmann, Judge, presiding.
JUSTICE INGLIS delivered the opinion of the court. NASH and REINHARD, JJ., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE INGLIS
This is an action in equity to recover from defendant bank certain funds that were deposited by Valley Engineering Company (Valley) in defendant, which defendant had taken claiming a setoff to satisfy certain indebtedness of Valley.
Plaintiffs, Gluth Brothers Construction, Inc., and Wayne E. Zimmerman, had entered into a joint venture agreement with Valley to enter into a contract with the city of Elgin for a public works project known as the "Western Elgin Area 1 Contract." The joint venture agreement provided in pertinent part:
"TRUST FUNDS: All monies contributed by the parties to this Joint Venture and all monies received as payment under the Construction Contract are hereby designated as trust funds and shall remain such until the Construction Contract shall have been fully completed and accepted by the Owner, until all obligations of the parties hereto have been paid, otherwise discharged, or provided for by adequate reserves and until the profits, if any, shall have been distributed to the members of the Joint Venture. Such reserves shall likewise be treated as trust funds until they have served the purposes for which they were created."
On October 16, 1981, the joint venture wrote a check, from an account held with defendant, payable to Valley in the amount of $195,609.56. Dennis Maher deposited that check into Valley's checking account. At this time, Valley was indebted to defendant in an amount of approximately $280,000. Thereafter, defendant set off the funds on deposit in the Valley checking account to satisfy the indebtedness that Valley owed to defendant.
Valley subsequently defaulted on its obligation and filed for relief under the bankruptcy laws.
A bifurcated trial was held to determine liability and damages.
At the trial on liability, William E. Manning, who was president of Union National Bank when the incidents in question took place, testified that he knew Dennis Maher, who had been a customer of the bank for some time. He discussed the Elgin project with Maher, received a request for funds for the project from Maher and received documents for consideration from Maher. He knew about the joint venture with Gluth, Zimmerman and Maher.
Manning testified that he received a copy of the joint venture agreement prior to approval of the loan. He also accepted a copy of the joint venture agreement to open up the joint venture checking account in April 1981. At his request, article 10 was eliminated from the joint venture agreement so Valley could assign its interest to the bank. The assignment in evidence is the one submitted to the bank by Valley.
Manning never asked that paragraph seven concerning trust funds be eliminated from the joint venture agreement. The entire loan committee and Fred Shaw, the executive vice-president of the bank, would have participated in the decision relating to the making of this loan to Valley Engineering.
The bank had also obtained a copy of the specifications on the contract. All the officers of the bank would have been involved in the loan committee.
Manning further testified that before he went to the hospital (he was in the hospital on October 16, 1981) he and Maher reviewed Maher's income on the site. Each time Maher came in with a payout where he received a payout, he brought the worksheet in that he had on it.
Manning did not tell Maher that they were going to offset any of the funds in his account. When Manning was asked, "[Did] you at any time demand of Mr. Maher in the months prior to October 16, 1981, that he make payment on this indebtedness to the bank?" Manning answered, "How could we? He wasn't making any money. How could we demand payment when he did not have it?" Manning also acknowledged that during that period of time before he went in the hospital Maher did not have any money to make payments.
While Manning was in the hospital, Shaw came to the hospital and told Manning about the $195,000 check. Manning told Shaw, "Let's offset our loans against it." When asked if Shaw told him where that $195,000 came from, Manning answered, "I can't recall if he did or not." After a colloquy between the lawyers, the court, and the witness (Manning), questioning continued, and Manning stated that he had given the following answer to the following question at an earlier deposition. "Did he tell you how the funds happened to get in the account? I don't recall. There was only one place it could have come from, the Joint Venture." He went on to say that, "We may have had a Discussion as to the source of the funds."
Fred Shaw, who was president of the bank at the time of trial, testified that he did not recall checking Valley's loan file or reviewing the joint venture agreement before he offset the funds. Rod Kuecker, a loan officer, told Shaw there had been a large deposit into the account. Kuecker was monitoring the account. Kuecker said there had been a large payout under a contract that was due to Valley. Shaw did not recall exactly if he said what contract. He understood from Manning that Valley was involved in a joint venture. Manning and he discussed the setoff at the hospital.
The offset took place on October 20, 1981.
At the close of the trial on liability, the trial court found that defendant had wrongfully set off the funds in Valley's account and, after a hearing ...