Summary of a Recent
Judicial Development in
Commercial Transactions

Bank Failed to Meet Its Burden to Refute
Third Party Creditor's Testimony

Eric H. Foy
National AgLaw Center Research Associate

Summary of Decision

In Wells Fargo Bank, North America v. Siegel, 540 F.3d 657 (7th Cir. 2008), the United States Court of Appeals for the Seventh Circuit affirmed the judgment of the district court, which held that the plaintiff bank could not recover against the defendant for debt owed to the bank by a third party. Because the burden of proof was on the bank to provide proof that the defendant failed to pay off a loan to the third party and the bank did not contradict the defendant's testimony, the district court did not commit clear error by holding in favor of the defendant.

Background

The third party farming supplier's business closed, leaving behind a large debt owed to Wells Fargo Bank (bank). Id. at 658. The third party's debt was secured by its accounts receivables, one of which was with the defendant. Id. When the third party could not pay the debt owed, the bank went after the defendant for payment. Id. The defendant allegedly owed the third party a sum of money pursuant to an oral contract involving the trading of futures on behalf of the defendant. Id. Additionally, the bank asserted that the defendant owed the third party money for paying off the defendant's loan with the Commodity Credit Corporation, a discharge of indebtedness which the bank claimed that the defendant never paid. Id.

At trial, the defendant testified he repaid the third party for discharge of the debt. Id. Despite thorough documentation of the relationship between the third party and the defendant, the bank did not produce a single witness that could confirm the establishment of a contract, verbal or written, between the two parties. Id. at 659. The district court held that the scope of the agreement was narrower than the bank believed, and ruled that the bank could not recover against the defendant. Id.

Arguments

On appeal, the bank argued that the district court committed clear error in ruling that it could not recover monies owed by the third party from the defendant. Id. at 663.

Analysis and Holdings

The court found that there was no clear error in the district court's holding that the defendant never authorized the third party to engage in futures trading on his behalf, and stated that special deference should be given to determinations based on credibility which can rarely justify a clear error determination. Id. Additionally, the court held that the defendant's testimony, that he discharged the debt he owed to the third party for repayment of the CCC loan with corn, was sufficient to support the district court's holding in favor of the defendant. Id. at 665. It was the bank's burden to produce evidence showing that the defendant failed to discharge the loan debt, and it did not come forward with any proof to refute the defendant's testimony. Id.

The case was decided on September 2, 2008.