First Wisconsin Trust Co. v. Schroud
| Decision Date | 15 August 1986 |
| Parties | FIRST WISCONSIN TRUST COMPANY, Plaintiff-Appellee, v. Donald F. SCHROUD, Selim N. Mayer, and State and Savings Bank, as Trustee under Trust Agreement dated |
| Court | U.S. Court of Appeals — Seventh Circuit |
David I. Herbst, Raymond J. Werner, Jodi I. Firfer, Ronald A. Damashek, Portes, Sharp, Herbst, Kravets & Fox, Chicago, Ill., for plaintiff-appellee.
Anthony C. Valiulis, Arthur E. Rosenson, Much, Shelist, Freed, Denenberg, Ament & Eiger, Chicago, Ill., for defendants-appellants.
Before CUDAHY, KANNE, Circuit Judges, and PELL, Senior Circuit Judge. *
First Wisconsin Trust Company ("First Wisconsin") sought to recover from Donald Schroud, Selim Mayer, and State and Savings Bank ("Schroud and Mayer" collectively) the sum of $105,709.46 in deferred interest payments. These interest payments were owed to First Wisconsin by Schroud and Mayer who inadvertently received them--and, thereafter, purposefully retained them--as part of the proceeds from their sale of encumbered real estate.
Schroud and Mayer requested leave to amend their answer to formally plead an "estoppel" defense to First Wisconsin's "unjust enrichment" claim. The district court granted summary judgment in favor of First Wisconsin. Thereafter, the district court denied Schroud and Mayer's request for leave to amend their answer concluding as a matter of law that their allegations could not support such an equitable defense. This appeal followed. We affirm.
First Wisconsin, as its name would suggest, is a Wisconsin corporation having its principal place of business in Wisconsin. Dutch Gap Properties and State and Savings Bank are Indiana corporations having their principal places of business in Indiana. Donald Schroud and Selim Mayer are citizens of Illinois.
While the issue before us is simple, the background of the case involves a series of transactions in a complex financial arrangement. On October 1, 1964, Dutch Gap Properties borrowed $1,191,000 from Teacher's Insurance and Annuity Association of America ("TIAA") and, in evidence of that loan, issued a 5 3/8% promissory note for that amount ("original note"). The original note was secured by an earlier-dated mortgage between Dutch Gap as mortgagor and TIAA as mortgagee which encumbered certain real property located in Monticello, Indiana ("the property"). TIAA subsequently assigned its interest in that mortgage to First Wisconsin in an instrument dated October 10, 1967, thereby making First Wisconsin the trustee under the mortgage. In a separate instrument between Dutch Gap and First Wisconsin, also dated October 10, 1967, Dutch Gap exchanged the original note for a separate secured note in the principal sum of $1,191,000 ("the Series A Note"). In this same instrument, Dutch Gap and First Wisconsin modified the terms of the earlier mortgage; the modified document shall be referred to as the Mortgage.
The amount in controversy in this case results exclusively from the deferred interest provision of the Series A Note. That provision states:
In addition to current interest hereon at the rate of 5 3/8% per annum, this Note shall bear additional interest at the rate of 1/4% per annum on the unpaid principal hereof from time to time outstanding from the date hereof to maturity, and the amount of such additional interest which has accrued at the date of each Instalment Payment from the date of the next preceding Instalment Payment shall bear interest at a rate of 5 5/8% per annum compounded quarterly from the date of such Instalment Payment to maturity, in each case computed in the manner specified above with respect to current interest on this Note. All such additional interest and interest thereon is herein called deferred interest.
The Mortgage, which secured the Series A Note, provided in pertinent part, "Deferred interest which has accrued on such Series A Note shall be payable on the maturity of such Series A Note, whether by acceleration or otherwise, or upon the prepayment in whole of such Series A Note."
In August of 1986, Schroud and Mayer purchased the property located in Indiana and assumed the Mortgage under which the property was encumbered. Title to the property was taken through a Trust Agreement dated August 15, 1986 ("Trust No 109") executed by State and Savings Bank. Under Trust No. 109, State and Savings Bank owned the Monticello property as Trustee; Schroud and Mayer were the owners of the beneficial interest in the trust. Shortly thereafter, Schroud and Mayer contacted First Wisconsin and requested an accounting of the liability which they had assumed (via the Mortgage) under the Series A Note. In a letter dated September 2, 1986, First Wisconsin informed Schroud and Mayer that the outstanding principal amount on the note was $254,094.11 and that the accrued deferred interest was $95,021.50. First Wisconsin further informed Schroud and Mayer that the deferred interest amount would amortize up to $96,519.68 by October 15, 1986.
On January 14, 1988, Trust No. 109 executed a contract for the sale of Schroud and Mayer's property. Under the terms of that contract, Schroud and Mayer were obligated to transfer the property free of any liens or leases. As a result of this obligation, Schroud and Mayer held negotiations with the primary tenant on the property, Harnischfeger Corp., in an attempt to obtain compensation for their release of Harnischfeger's lease obligations. These negotiations were ultimately unsuccessful. In support of their estoppel argument, however, Shroud and Mayer argue that they chose to release Harnischfeger without penalty because they were satisfied with the return they were getting from the sale of the property.
On or about March 8, 1988, Schroud and Mayer's attorneys contacted First Wisconsin and requested that a "payoff-letter" be issued informing them of their obligations in paying off the Series A Note in full on April 15, 1988, the anticipated date of the sale of the property. Pursuant to that request, Donald Mayer, a Senior Trust Officer with First Wisconsin, enlisted Jo Ann Schalk, an administrative assistant, to prepare that payoff letter. In turn, Ms. Schalk asked Susan Barnes, the supervisor of First Wisconsin's billing department, to obtain the payoff figures. Finally, Ms. Barnes instructed Yvonne Siira, a First Wisconsin employee on the bottom rung of this corporate ladder, to do the "leg work" on those calculations.
Herein lies the foundation of the problem which we resolve today. In calculating the amount due to pay off the Series A Note, Ms. Siira did not refer to the Mortgage, to the note itself, or to any other loan document. Rather, she relied on First Wisconsin's computer system to obtain the principal amount outstanding on the note. Once she had obtained this figure, she manually determined the amount of "current" interest that would be due through April 15, 1988. Unfortunately, First Wisconsin's computer did not reveal to Ms. Siira the fact that "deferred interest" was also due. Consequently, the payoff letter which Ms. Schalk delivered to Schroud and Mayer's counsel, dated March 15, 1988, stated only that $142,283 in principal and $1,911.93 in interest was due on the note; it did not reflect the fact that Schroud and Mayer owed First Wisconsin an additional $105,709.46 as deferred interest.
The closing on Schroud and Mayer's sale of the property occurred in Indiana on April 6, 1988. Chicago Title Insurance Co., acting as escrow agent through its Indiana office, held $2,051,000 for disbursement to the various parties to the transaction. Because Schroud and Mayer did not attend the closing, Chicago Title held their proceeds from the sale for approximately ten days and then transferred those proceeds to Schroud and Mayer's bank accounts in Illinois. The transfer was undertaken at the request of Schroud and Mayer's attorneys.
Shortly after the closing, Donald Mayer (First Wisconsin's Senior Trust Officer) received a phone call from a representative of TIAA to confirm the payoff figures for the Series A Note. During the course of that conversation, Mr. Mayer was informed that deferred interest in the amount of $105,709.46 was owed on the Series A Note. Ms. Schalk immediately prepared a revised payoff letter, dated April 14, 1988, advising Schroud and Mayer's attorneys of the fact that this amount, accidentally omitted from the original payoff letter, was also owing on the Series A Note. First Wisconsin never received the $105,709.46 from Schroud and Mayer. The underlying dispute resulted.
In granting summary judgment in favor of First Wisconsin on Count Two, the district court made three rulings, each of which Schroud and Mayer challenge on review. First, the district court was presented with a choice-of-law issue as to whether Indiana or Illinois state law would apply. Applying Illinois choice-of-law rules, the district court concluded that Indiana substantive law would govern First Wisconsin's claim. Second, under Indiana substantive law, the district court held that First Wisconsin's failure to request deferred interest in the March 15 payoff letter was a "mistake of fact" recoverable under an unjust enrichment theory. Finally, with regard to Schroud and Mayer's petition for leave to amend their answer, the district court held that any amendment would have had no impact on the court's disposition of the summary judgment motions. Before addressing each of these arguments, we briefly visit the principles under which we review a district court's grant of summary judgment.
Our review of a district court's grant of summary judgment is de novo. Continental Corp. v. Aetna Casualty & Surety Co., 892 F.2d...
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