The opinion of the court was delivered by: Richard Mills, U.S. District Judge
The Court now considers Defendant-Appellant Dr. William N. Coughlin's appeal.
This case arises from claims the parties have as to a defunct hospital's accounts receivable. Debtor Health Management Limited Partnership ("Health Management") operated a Springfield, IL area hospital known as "Doctors Hospital". Health Management began a credit arrangement with First of America Bank in October 1992. First of America later became National City Bank and, for purposes of this case, the two banks will be jointly referred to as "National City". Health Management gave National City a first mortgage on its hospital facility and a first priority lien on its other business assets, including accounts receivable.
Via a 1999 lending agreement, Marine Bank of Springfield ("Marine Bank") became Health Management's primary lender for accounts receivable. Pursuant to the agreement, Marine Bank took a second mortgage on the hospital and other Health Management assets, including accounts receivable. At Marine Bank's request, National City agreed to subordinate its hospital receivables to Marine Bank.
The hospital company executed a series of promissory notes with Marine Bank after starting its lending relationship with Health Management. Each loan proposed to Health Management was preceded by a Loan Presentation. The terms of the proposed loan were taken to Marine Bank's loan review board. When Marine Bank issued the loan to Health Management, the promissory note which Health Management executed described the collateral which was secured by the loan.
In early 2003, Health Management reached the limit on its line of credit with Marine Bank account. Health Management was also $150,000.00 overdrawn on its own Marine Bank. The debtor and certain of its partners negotiated a new short term loan for $250,000.00 from Marine Bank which Marine identified as Loan No. 26378. This short term note was secured by the personal guarantees of these certain partners. The collateral section of the January 10, 2003, promissory note recited the following pledge of collateral:
COLLATERAL. Borrower acknowledges this Note is secured by a SECURITY AGREEMENT DATED APRIL 30, 1999. ASSIGNMENT OF ACCOUNTS RECEIVABLE DATED APRIL 30, 1999. ASSIGNMENT OF ACCOUNTS DATED APRIL 30, 2001. ASSIGNMENT OF MARINE BANK, SPRINGFIELD CHECKING ACCOUNTS DATED APRIL 30, 1999. BUSINESS LOAN AGREEMENT DATED APRIL 30, 1999. REAL ESTATE MORTGAGE DATED APRIL 30, 2000. ASSIGNMENT OF RENTS DATED APRIL 30, 2000. SECOND AMENDED AND RESTATED LOAN AGREEMENT WITH THE EFFECTIVE DATE OF APRIL 30, 2002. COMMERCIAL SECURITY AGREEMENTS DATED APRIL 30, 2000. COMMERCIAL GUARANTY'S DATED JANUARY 10, 2003 FOR T. KENT COCHRAN, F. DONALD DAVIS, AND CHRISTIAN C. RICE, JR. SEE ATTACHED EXHIBIT "A".
The "guarantors" of this $250,000.00 loan requested and received a commitment letter from Marine Bank under which Marine Bank promised that all of Health Management's receivables which Marine Bank collected would first be used to satisfy the $250,000.00 promissory note. In January 2003 the $250,000.00 note became past due. Marine Bank set off sufficient funds from Health Management accounts receivable account at Marine Bank to pay off the loan.
Health Management executed a second $250,000.00 note on March 7, 2003. Unlike the prior $250,000.00 note, the second $250,000.00 loan had no "guarantors". It was an emergency loan which Health Management used to cover the hospital's payroll. The loan was drafted and executed in about one day's time. Defendant-Appellant William Coughlin was a staff physician at Doctors Hospital who became a participant in this second $250,000.00 loan. Dr. Coughlin did not negotiate any provision for repayment of the loan through the account receivables. During the bankruptcy proceedings, he testified that he did not review or read the loans.
The March 2003 payroll loan involving Dr. Coughlin was the only loan from Marine Bank secured by cash. Given Doctors Hospital's circumstances, Marine Bank would only loan the money if it was a 100% cash collateralized loan. Thus, Dr. Coughlin had to pledge $250,000.00 cash to secure the loan.
Marine Bank prepared loan presentation documents for the approval of its loan review board. Each loan contained the terms under which each loan was made to Health Management. In 2002, when Marine Bank considered the renewal of Health management's outstanding two loans, a "Loan Presentation" was prepared. The security for the renewed loans was described as:
Collateral: Commercial Security Agreement dated 4-30-99 Assignment of accounts receivable dated 4-30-99 Assignment of Accounts dated 4-30-99 Assignment of MBS checking account dated 4-30-99 Business loan agreement dated 4-30-99 R/E mortgage and ALR on 5230 S. 6th St $5,299,012.00 Net accounts Receivable dated 5-06 The "Gross Collateral Value was listed in the Loan Presentation at $5,294,012.00 When the March 7, 2003, loan was arranged, a Loan Presentation was ...