West Bend Mutual Insurance Co v. Belmont State Corporation
2013 U.S. App. LEXIS 5551
| 7th Cir. | 2013Background
- Belmont State Corp. failed to pay subcontractors; West Bend sued for over $2 million to satisfy Belmont’s obligations.
- Gizynski, Belmont’s former officer, signed checks on Belmont’s U.S. Bank account payable to Banco Popular and instructed application to his loan.
- Banco Popular knew Gizynski’s connection to Belmont but did not ask Belmont how funds should be applied.
- Illinois law requires a bank named as payee to ask the drawer how funds should be applied; the Bank failed to do so.
- West Bend sought to recover the misdirected funds; the district court held the record inadequate to show Belmont’s likely instruction, and found no breach by Gizynski.
- Banco Popular’s cross-appeal argued the Bank’s security interest in rents was superior; the district court held West Bend’s lien superior because rents were not directly paid to the Bank.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Bank’s duty to verify fund application | West Bend argues Bank should have asked Belmont how funds were to be applied. | Banco Popular contends no duty to seek application; implied authority to apply per drawer’s intent. | Bank failed to ask; no reversal of West Bend’s claim. |
| Fiduciary status of Gizynski | West Bend asserts Gizynski acted as Belmont’s fiduciary when issuing checks. | Banco Popular contends Gizynski was not Belmont’s fiduciary; mere signing authority is not fiduciary duty. | Gizynski was not Belmont’s fiduciary; fiduciary status not shown. |
| Priority of security interest in rents | West Bend claims its lien is superior to Bank’s rent-assignments; Bank’s interests may be subordinated when rents are paid to the debtor. | Banco Popular contends its security interest is perfected by recordation and superior to West Bend’s. | Bank’s security interest in rents is senior due to recordation; doctrine of perfection governs priority. |
| Vendor’s fee/attorney fees under citation to discover assets | West Bend seeks recovery of its costs and attorneys’ fees. | Bank contends no statutory basis for attorneys’ fees; fees limited to contempt remedies under §2–1402(f)(1). | District court’s award of West Bend’s legal fees reversed; fees not authorized. |
Key Cases Cited
- Mutual Service Casualty Insurance Co. v. Elizabeth State Bank, 265 F.3d 601 (7th Cir. 2001) (bank must ask drawer how funds are to be applied)
- Travelers Casualty & Surety Co. v. Wells Fargo Bank N.A., 374 F.3d 521 (7th Cir. 2004) (burdens in fraudulent-check cases clarified)
- Deland v. Dixon National Bank, 111 Ill. 323 (1884) (older view on duties of banks and payees)
- Prodromos v. Everen Securities, Inc., 341 Ill. App. 3d 718 (2003) (fiduciary/signatory authority distinctions)
- Johnson v. Citizens National Bank of Decatur, 30 Ill. App. 3d 1066 (1975) (edge of fiduciary status and bank knowledge)
- Bloomfield State Bank v. United States, 644 F.3d 521 (7th Cir. 2011) (assignment of rents and perfection)
- Fidelity Mutual Life Insurance Co. v. Harris Trust & Savings Bank, 71 F.3d 1306 (7th Cir. 1995) (rents doctrine and in-possession effects)
- In re Wheaton Oaks Office Partners L.P., 27 F.3d 1234 (7th Cir. 1994) (Illinois law on assignment of rents; departures from UCC)
- Comerica Bank–Illinois v. Harris Bank Hinsdale, 284 Ill. App. 3d 1030 (1996) (Illinois treatment of rent security interests)
- Mid-American Elevator Co. v. Norcon, Inc., 287 Ill. App. 3d 582 (1996) (contempt/fee-shifting under Illinois citation statutes)