Page 13 - John Hundley 2013

Banking Law Roundup

Sharp Thinking

No. 88 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. April 2013

Not All Check Signers Are Fiduciaries, Court Says

Not everyone authorized to sign a check is a fiduciary for purposes of the Uniform Fiduciaries Act
(760 ILCS 65), the Seventh Circuit U.S. Court of Appeals ruled last month.

The act frequently makes payees liable to organizational payors when a fiduciary
uses the payor’s account to pay a personal debt in breach of the fiduciary’s duties to
the organization. However, the court in West Bend Mut. Ins. Co. v. Belmont State
Corp., __ F.3d __, 2013 WL 1110855 (7th Cir. 2013), rejected the idea that
everyone who signs checks is necessarily a fiduciary under the act, reasoning that a
fiduciary for purposes of the act “is a person with discretion to act on a principal’s
interest.”

In West Bend, the signer was no longer an investor or a manager of the organization. If he cut the
checks without authority, “he was a thief or embezzler” but not necessarily a fiduciary, the court said.

Guarantor Sanctioned for Contest of Forbearance Agreement

The Seventh Circuit U.S. Court of Appeals has joined other courts in finding forbearance
agreements enforceable (see Sharp Thinking No. 43 (March 2011); No. 76 (Nov. 2012)), and has
even sanctioned a defendant for appealing from a judgment upon the agreement and an underlying
guaranty.

In Harris N.A. v. Hershey, __ F.3d __, 2013 WL 1276515 (7th Cir. 2013), the
court rejected arguments that the plaintiff’s claims were barred by fraud in the
inducement, duress, violation of the duty of good faith and fair dealing, and
violation of the Illinois Credit Agreement Act (815 ILCS 160). It said the
guarantor engaged in “obfuscation and confusion” in making its appeal, for
which the court would impose sanctions under Federal Rule of Appellate
Procedure 38.

Lender Owes No Evaluation Duty to Mortgagor

A mortgage lender owes borrowers no duty to correctly evaluate their mortgage application, a
panel of the Seventh Circuit Court of Appeals has held.

Interpreting Indiana law, but giving no hint that it varied from generally-applicable law, the court
said a mortgage contract “does not, on its own, create a confidential relationship between a creditor
and a debtor.” Jackson v. Bank of Am. Corp., __ F.3d __, 2013 WL 1274534 (7th Cir. 2013).

Noting that the papers at issue were similar to “untold numbers of other mortgage refinancing
contracts”, the court also rejected a claim that the contract was unconscionable.

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Sharp Thinking is an occasional newsletter of The Sharp Law Firm, P.C. addressing developments in the law which may be of interest. Nothing contained in Sharp
Thinking shall be construed to create an attorney-client relation where none previously has existed, nor with respect to any particular matter. The perspectives herein
constitute educational material on general legal topics and are not legal advice applicable to any particular situation. To establish an attorney-client relation or to obtain legal
advice on your particular situation, contact a Sharp lawyer at the phone number or one of the addresses provided on page 2 of this newsletter.