734 F.3d 657
7th Cir.2013Background
- Wells Fargo extended a secured line of credit to Clark National (and related companies) conditioned on Hindman subordinating all present and future debts he was owed by the borrowers to Wells Fargo by written subordination agreements.
- In January 2010 Hindman instructed a Wells Fargo Bank VP (Bassett) to wire $750,000 from his personal investment account to Clark; Clark’s board had voted on January 8 to strip Clark’s president/CEO (D.D.H.) of authority to make corporate business decisions.
- Despite contemporaneous efforts by Clark’s authorized officers to stop/reverse the wire, the $750,000 posted to Clark’s cash‑collateral account on January 15 and Wells Fargo used incoming cash to pay down Clark’s line; subsequently $750,000 was returned/transferred to Hindman’s personal account and later wired to his bank in Florida.
- Wells Fargo sued Hindman for breach of the subordination agreements, arguing the transfer created “Subordinated Indebtedness” and Hindman accepted payment without Wells Fargo’s prior written consent; district court granted summary judgment for Wells Fargo and awarded $750,000 plus interest.
- The Seventh Circuit vacated and remanded, holding genuine disputes of material fact exist on key issues (whether a valid loan was formed/accepted, whether Wells Fargo consented, and whether rescission applies), so summary judgment was improper.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Hindman’s transfer created "Subordinated Indebtedness" (i.e., a valid loan) | Wells Fargo: transfer plus executed debenture by D.D.H. shows a loan was formed and Clark accepted, creating subordinated indebtedness | Hindman: no acceptance/meeting of minds because D.D.H. lacked authority when debenture/wire occurred and Clark’s authorized officers attempted to reject the funds | Remanded — genuine factual dispute whether Clark accepted the funds (authority and conduct issues unresolved) |
| Whether D.D.H. had authority/apparent authority to bind Clark | Wells Fargo: D.D.H. signed debenture as president/CEO; prior negotiations support loan formation | Hindman: board stripped D.D.H. of decisionmaking power Jan. 8; Hindman knew this, so no actual or reasonable apparent authority | Held for remand — court found evidence D.D.H. lacked actual authority and disputed reliance/apparent authority issues preclude summary judgment |
| Whether Hindman and Clark could rescind the purported loan to avoid subordination breach | Hindman: parties agreed to rescind or rejected the loan; rescission restores status quo | Wells Fargo: rescission cannot defeat the subordination agreement’s purpose; repayment/rescission without lender consent would circumvent protections | Court: If a valid loan existed, subordination prohibits rescission/repayment without lender consent; rescission cannot be used to defeat subordination |
| Whether Wells Fargo (or its agent Bassett) consented to repayment | Hindman: Bassett’s written message (“Done!”) and subsequent wirebacks show Wells Fargo (via Bassett) consented | Wells Fargo: Bassett (Wells Fargo Bank VP) lacked authority for Business Credit’s required "prior written consent," and no valid prior written consent was given | Remanded — contractual language is ambiguous ("Lender" vs "acting through" Business Credit); factual dispute whether Bassett’s written communications amounted to prior written consent |
Key Cases Cited
- Calcasieu‑Marine Nat’l Bank v. Am. Emp’rs Ins. Co., 533 F.2d 290 (5th Cir. 1976) (defines a loan as a transfer of money coupled with an agreement to repay).
- United States v. Kristofic, 847 F.2d 1295 (7th Cir. 1988) (loan contract principles and characterization of transactions).
- Hoffman v. Ralston Purina Co., 273 N.W.2d 214 (Wis. 1979) (acceptance may be shown by offeree’s conduct and acceptance of benefits)