In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 02-2517

BANK OF AMERICA, N.A.,

Creditor-Appellant,

v.

ALEX D. MOGLIA,

Trustee-Appellee.

____________

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 02 C 110—Marvin E. Aspen, Judge.

____________

ARGUED JANUARY 21, 2003—DECIDED JUNE 2, 2003

____________

Before POSNER, KANNE, and DIANE P. WOOD, Circuit

Judges.

POSNER, Circuit Judge. Outboard Marine Corporation is

in Chapter 7 bankruptcy, and among its holdings are

the assets, currently worth some $14 million, in what is

known as a “rabbi trust.” Bank of America, as the agent

of Outboard’s secured creditors, claims a security interest

in these assets, while the trustee in bankruptcy claims

them for the unsecured creditors. The security agreement

on which Bank of America relies covers all Outboard’s

“general intangibles,” a term of great breadth in commercial

law, see UCC § 9-102(a)(42) and official comment 5(d), and
2 No. 02-2517

broadly defined in the agreement as well to include, besides

a number of irrelevant enumerated items, “all other intangible personal property of every kind and nature.” The term

describes the assets of the rabbi trust, but the bankruptcy

court, seconded by the district court, held that they nevertheless were not subject to the security agreement, and so

ruled for the trustee. The ruling was a final, appealable

order because it resolved a discrete dispute that, were it

not for the continuing bankruptcy proceedings, would

have been a stand-alone dispute between Bank of America

and the trustee as the representative of the general creditors.

In re Golant, 239 F.3d 931, 934 (7th Cir. 2001); In re Rimsat,

Ltd., 212 F.3d 1039, 1044 (7th Cir. 2000). “A judgment does

not lose its finality merely because there is uncertainty

about its collectibility, corresponding to uncertainty about

how many cents on the dollar the creditor will actually

receive on his claim once all the bankrupt’s assets are

marshaled and compared with the total of allowed claims,

and the priorities among those claims are determined.

Thus the fact that the bankruptcy proceeding continues

before the bankruptcy judge does not preclude treating

an interlocutory order by him—interlocutory in the sense

that it does not terminate the entire proceeding—as final

for purposes of appellate review. (And if it is final for

those purposes, then so is the district court’s affirmance

of his order.)” In re Szekely, 936 F.2d 897, 899 (7th Cir. 1991).

A rabbi trust, so called because its tax treatment was first

addressed in an IRS letter ruling on a trust for the benefit

of a rabbi, Private Letter Ruling 8113107 (Dec. 31, 1980); see

also IRS General Counsel Memorandum 39230 (Jan. 20,

1984), is a trust created by a corporation or other institution for the benefit of one or more of its executives (the

rabbi, in the IRS’s original ruling). See, e.g., Westport Bank

& Trust Co. v. Geraghty, 90 F.3d 661, 663-64 (2d Cir. 1996);

Hills Stores Co. v. Bozic, 769 A.2d 88, 99 (Del. Ch. 2000);
No. 02-2517 3

Kathryn J. Kennedy, “A Primer on the Taxation of Executive Deferred Compensation Plans,” 35 John Marshall L. Rev.

487, 524-27 (2002). The main reason (recited at the outset

of the trust document in this case) for such a trust is that,

should the control of the institution change, the new

management might reduce the old executives’ compensation, or even fire them; the trust, which consistent with

this purpose is not funded until the change of control

occurs, cushions the fall.

But as the IRS explained in the letter ruling, unless

an executive’s right to receive money from the trust is

“subject to substantial limitations or restrictions,” rather

than being his to draw on at any time (making it income to

him in a practical sense), the executive must include any

contribution to the trust and any interest or other earnings

of the trust in his gross income in the year in which

the contribution was made or the interest obtained. See

McAllister v. Resolution Trust Corp., 201 F.3d 570, 572-73,

575 (5th Cir. 2000). The “substantial limitations or restrictions” condition was satisfied in the transaction on which

the IRS ruled. The trust agreement provided that the rabbi

would not receive the trust assets until he retired or otherwise ended his employment by the congregation. Until

then the corpus of the trust and any interest on it would

be owned by the congregation, see Maher v. Harris Trust

& Savings Bank, 75 F.3d 1182, 1185 (7th Cir. 1996); Goodman

v. Resolution Trust Corp., 7 F.3d 1123, 1125 (4th Cir. 1993),

so the rabbi would have neither legal nor equitable right

to the money. Cf. 26 U.S.C. § 457(f)(1)(A). And, what is key

in this case, the trust instrument provided that “the assets of the trust estate shall be subject to the claims of

[the congregation’s] creditors as if the assets were the

general assets of [the congregation].”

The word “creditors” is not defined either in the IRS’s

letter ruling or in the trust agreement in this case; but a
4 No. 02-2517

“Model Rabbi Trust” agreement approved by the IRS states

that the assets of the trust are subject to the claims of the

settlor’s “general creditors,” Rev. Proc. 92-64, 1992-2 C.B.

422 (July 28, 1992), a term invariably used to refer to a

debtor’s unsecured creditors. See, e.g., United States v. Munsey Trust Co., 332 U.S. 234, 240 (1947); Dewsnup v. Timm, 502

U.S. 410, 431-32 (1992) (dissenting opinion); In re Merchants Grain, Inc., 93 F.3d 1347, 1352 (7th Cir. 1996); United

States v. One Sixth Share, 326 F.3d 36, 44 (1st Cir. 2003);

United States v. Watkins, 320 F.3d 1279, 1283 (11th Cir. 2003);

United States v. $20,193.39 U.S. Currency, 16 F.3d 344, 346

(9th Cir. 1994); Douglas G. Baird, The Elements of Bankruptcy 12, 101, 154, (3d ed. 2001). The cases assume rather

than hold that “general creditor” means “unsecured creditor,” but what else could it mean? What work does “general” do unless to distinguish unsecured from secured

creditors? Bank of America has no answer to that question.

Outboard is conceded to have established a bona fide

rabbi trust, so that its contributions to the trust and the

income that those contributions generated were not

includible in the executives’ gross income. Therefore, if

the validity of a rabbi trust depends on its assets’ being

reserved for the employer’s unsecured creditors, we can

stop right here and affirm; the Bank of America, as a

secured creditor, would have no right to the assets—

otherwise the trust’s beneficiaries would not have received

the favorable tax treatment accorded the beneficiaries of

a rabbi trust, and they did receive it. But it is uncertain

whether such a reservation actually is essential to the

favorable tax treatment of a rabbi trust. All that the tax law

requires is that there be substantial limitations on the

beneficiaries’ access to the trust assets, and a reservation

of the assets in the event of bankruptcy to both the secured and the unsecured creditors of the settlor, rather

than to the unsecured creditors, might well be thought
No. 02-2517 5

substantial. For the reservation would keep those assets,

most of them at any rate, out of the beneficiaries’

hands—though this is provided that the limitation were

coupled with a limitation on the beneficiaries’ having free

access to the assets of the trust before they leave their

employment with the grantor. Without such a limitation, the

reservation of creditors’ rights would be illusory—the

beneficiaries would pull the money out of the trust as

soon as insolvency loomed on the horizon—and indeed

the trust’s assets might well be taxable as income to the

beneficiaries. But we recall that, consistent with this concern, the assets of the rabbi trust were owned by the congregation until the rabbi’s employment ended.

We say that a limitation to all, rather than just to the

unsecured, creditors “might be” rather than “would be”

substantial enough to satisfy the Internal Revenue Service because executives often are creditors of their firm;

if they were secured creditors and their security interest

embraced the assets of the trust, their claims to those

assets would be superior to those of the firm’s unsecured

creditors, which would tend to make the limitation that

is fundamental to the favorable tax treatment of the rabbi

trust—that the creditors have a superior claim to the

beneficiaries—illusory. But the trust instrument in this

case took care of that concern by providing that Outboard’s executives could not obtain a security interest in

the trust’s assets.

Even if the executives would not have sacrificed their

favorable tax treatment had the trust instrument reserved

the assets of the trust for all the company’s creditors,

secured and unsecured alike, in the event of bankruptcy,

the instrument did not do this; it reserved those assets

for the unsecured creditors. It states (we italicize the key

terms) that the “Trust Corpus . . . shall remain at all times

subject to the claims of the general creditors of [Outboard].
6 No. 02-2517

Accordingly, [Outboard] shall not create a security interest

in the Trust Corpus in favor of the Executives, the Participants [a term that apparently refers to retired executives]

or any creditor.” In the event of insolvency, the trustee “will

deliver the entire amount of the Trust Corpus only as a

court of competent jurisdiction, or duly appointed receiver or other person authorized to act by such court,

may direct to make the Trust Corpus available to satisfy

the claims of the Company’s general creditors.”

This couldn’t be clearer: secured creditors have no claim

to the trust assets. And judges usually interpret written

contracts (the instrument creating the rabbi trust in this

case was an agreement nominally between Outboard and

the trustee of the trust, Northern Trust Company, but

realistically between Outboard and the executives who were

the beneficiaries of the trust, see Westport Bank & Trust Co.

v. Geraghty, supra, 90 F.3d at 663-64) according to the

conventional meaning of their terms, that is, literally. This

is especially appropriate in the case of a negotiated contract involving substantial stakes between commercially

sophisticated parties, as in this case, who know how to

say what they mean and have an incentive to draft their

agreement carefully. Such a style of interpretation protects the parties against the vagaries of the litigation

process—a major reason for committing contracts to

writing—without too great a risk of misinterpretation. But

literal interpretation of written contracts, even when the

parties are sophisticated and the stakes substantial, is

merely presumptively the right approach to take. Even

sophisticated lawyers and businessmen sometimes stumble in their use of language, or use language that is specialized to their trade and departs from normal usage, or fail

to anticipate contingencies that may make the language

of the contract yield absurd results if it is read literally, and

if these circumstances are evident to the court the contract
No. 02-2517 7

will not be interpreted literally. Bank of America argues in

this vein that of course all that Outboard intended to do in

the passages of the trust agreement that we quoted was

to create a rabbi trust, that is, a grantor trust that would

enjoy a favorable tax status, and so if a rabbi trust does

not necessarily forfeit its favorable tax status by reserving

the trust assets for secured as well as unsecured creditors,

neither does the trust agreement. The security agreement,

which we quoted at the beginning of this opinion, contains no language to suggest that the assets of the rabbi

trust would be excluded from Bank of America’s security interest just because they are pledged to any creditor

and not just to unsecured creditors.

This argument is not negligible but neither is it sufficiently compelling to rebut the presumption in favor of

literal interpretation to which we referred. Rather the

contrary. The language of the Model Rabbi Trust would

make it natural for Outboard to assume that to create a

valid rabbi trust it would have to reserve the trust’s assets

for its general creditors, which undoubtedly it would

understand to mean its unsecured creditors. The assumption may have been incorrect, more precisely may have been

excessively cautious; but it provides the best guide to the

meaning that Outboard and the executives ascribed to

the agreement. The executives in particular would tend to

favor the cautious approach rather than jeopardize their tax

benefits for the sake of Outboard’s secured creditors. And

though they might benefit indirectly, and Outboard directly,

from the company’s being able to pledge more of its assets to secure a loan to the company, this benefit—since the

assets in a rabbi trust are likely to be only a small fraction

of the company’s total assets—would probably be outweighed by the risk of forfeiting favorable tax treatment

by departing from the template of the Model Rabbi Trust.
8 No. 02-2517

The trust agreement does not merely reserve the trust’s

assets for the general creditors, moreover; it forbids Outboard to create a security interest in favor not only of the

executives (which might make the trust illusory and forfeit

the beneficiaries’ favorable tax treatment) but also of any

creditor. So even if Outboard thought that the term “general creditors” includes secured creditors, the agreement

explicitly forbids the creation of a security interest in the

trust assets. The trust instrument took as it were the extra

step to make clear that the parties really intended to reserve

the trust assets for Outboard’s unsecured creditors. The

security agreement, as we said, does not exclude the assets in the rabbi trust; but to determine what assets it does

include (because they are not listed in the agreement),

one must look beyond the security agreement. And when

one looks one finds the trust instrument, which excludes

those assets. It is important to note in this connection

that the rabbi trust was funded before the security agreement between Outboard and Bank of America was executed. Had it been funded after, Outboard’s contribution

of assets to the trust would have been subject to the security

agreement regardless of the terms of the trust. For Outboard could not be permitted to impair the bank’s security interest by putting some of the assets covered by

the agreement into a trust that the bank could not reach.

Bank of America has a second string to its bow: it argues

that Illinois law, which the parties agree governs the

interpretation of the trust agreement, will enforce a contractual antiassignment provision, such as the provision

in the trust instrument that forbids assigning a security

interest in the assets of the rabbi trust to creditors, against

an assignee only if the provision states that the assignor has

no power, and not merely no right, to assign. So, the

argument continues, because the trust instrument does not

say in so many words that any attempt by Outboard to
No. 02-2517 9

create a security interest in the trust assets would be void,

ineffectual, etc., the creation of such an interest is not

prohibited although a party (including any third-party

beneficiaries, which Outboard’s general creditors may or

may not be, see Exchange National Bank v. Harris, 466 N.E.2d

1079, 1084 (Ill. App. 1984); Town & Country Bank v. James M.

Canfield Contracting Co., 370 N.E.2d 630, 634-35 (Ill. App.

1977)—we needn’t decide), could sue for damages in the

event of a breach of the provision.

Clauses in conveyances, or in other instruments contractual or otherwise that create property rights, that forbid the recipient of the property to sell it free and

clear—or in legal jargon that create a “restraint on alienation”—are traditionally disfavored. Gale v. York Center

Community Co-op., Inc., 171 N.E.2d 30, 33 (Ill. 1961); AvonAvalon, Inc. v. Collins, 643 So. 2d 570, 574 (Ala. 1994). Sometimes this is because they are thought to create monopoly,

concentrate wealth, or cater to “the capricious whims of the

conveyor.” Gale v. York Center Community Co-op., Inc., supra,

171 N.E.2d at 33. But more often and more realistically it

is because they can increase transaction costs by preventing subsequent purchasers or assignees from knowing

what they are getting. Cf. Gregory S. Alexander, “The Dead

Hand and the Law of Trusts in the Nineteenth Century,” 37

Stan. L. Rev. 1189, 1258-60 (1985). A legal requirement that

the restraint be express, recorded, or otherwise readily

ascertainable by potential purchasers and assignees minimizes, and often eliminates, those additional costs, cf.

Noblesville Redevelopment Comm’n v. Noblesville Limited

Partnership, 674 N.E.2d 558, 562-63 (Ind. 1996); if the recipient’s purchaser knows exactly what he is (not) getting,

a refusal to enforce the restriction merely confers a windfall

on him.

The requirement of express and readily ascertainable

notice is satisfied here. When Bank of America made its
10 No. 02-2517

credit agreement with Outboard, it knew, if it bothered to

read the trust agreement along with the other documents

that defined Outboard’s assets, as it should have done

and no doubt did do, that the security interest it was acquiring would not cover the assets (currently some $14 million)

in the rabbi trust. Nothing would have been added to the

trust agreement but empty verbiage had it said “and not

only is Outboard forbidden to create a security interest in

these assets in favor of any creditor, but if it tries to do so

its action shall be null, void, and of no effect.” Of course,

if Illinois required those magic words, as many states

still do, see Rumbin v. Utica Mutual Ins. Co., 757 A.2d 526,

530-33, 535 (Conn. 2000), and cases cited there, to rebut the

presumption of nonassignability, then Bank of America

could argue persuasively that it had relied on their absence

when it signed the security agreement. But Illinois does

not require them. In re Nitz, 739 N.E.2d 93, 96, 101 (Ill.

App. 2000); Henderson v. Roadway Express, 720 N.E.2d 1108,

1113 (Ill. App. 1999); see also CGU Life Ins. Co. v. Singer Asset

Finance Co., 553 S.E.2d 8, 15 (Ga. App. 2001).

Illinois’s approach implements the modern view, expressed in Restatement (Second) of Contracts § 322(2) (1981),

that an antiassignment provision in a contract is unenforceable against an assignee “unless a different intention is

manifested.” Magic words are not required: “Where there

is a promise not to assign but no provision that an assignment is ineffective, the question whether breach of the

promise discharges the obligor’s duty depends on all the

circumstances.” Id., comment c. The circumstances here

weigh heavily in favor of enforcing the antiassignment

provision when we consider the alternative remedy that

is all that a “magic words” state would allow in the absence of the magic words—a suit for damages for breach

of the provision. If the credit agreement between Outboard

and Bank of America violated it by creating a security
No. 02-2517 11

interest in the trust assets, then the contract breaker, and

therefore the defendant in such a suit, would be Outboard, which is to say the trustee, while the plaintiffs would

be the general creditors—the trustee also. Enough said.

The Bank of America has one last argument, this one

thoroughly frivolous—that the trustee under the trust

agreement, who, remember, was in the event of Outboard’s

solvency to seek directions from a court concerning the

disposition of the trust assets, was an “account debtor” of

Outboard, that is, someone who owed Outboard money.

UCC § 9-105(1)(a) (now superseded by UCC § 9-102(a)(3),

unchanged however so far as bears on this case). An

antiassignment clause is ineffective against an assignment of the debt of an account debtor. UCC § 9-318(4) (now,

and again with immaterial changes, UCC § 9-406(d)(1)).

Accounts and other simple written promises to pay are

important collateral in modern commercial transactions,

and their value as collateral is maximized by stripping

them of encumbrances, such as an antiassignment clause

unlikely to be noticed in the haste of transacting. The trust

agreement was not that kind of instrument. And in any

event the trustee owed Outboard nothing. The trustee

was the debtor in a sense (an odd sense—one doesn’t

usually think of a trustee as the debtor of the trust’s beneficiaries, though of course he holds its assets on their behalf) of the executives so long as Outboard was solvent,

and after that he was the “debtor” in the same odd sense

of Outboard’s creditors. But he was never Outboard’s

“debtor.”

Bank of America, a large, responsible, and well represented enterprise, should not have made the account-debtor

argument. Nor should it have treated a district court decision (Lomas Mortgage U.S.A., Inc. v. W.E. O’Neil Construction

Co., 812 F. Supp. 841 (N.D. Ill. 1993)) as an authoritative
12 No. 02-2517

statement of Illinois law. Not only has the Supreme

Court instructed us not to give special weight to a district

judge’s interpretation of state law even if it is the state

in which he sits, Salve Regina College v. Russell, 499 U.S. 225,

230-31 (1991); Beanstalk Group, Inc. v. AM General Corp., 283

F.3d 856, 863 (7th Cir. 2002), but we have repeatedly reminded the bar that district court decisions cannot be

treated as authoritative on issues of law. “The reasoning

of district judges is of course entitled to respect, but the

decision of a district judge cannot be a controlling precedent. E.g., Colby v. J.C. Penney Co., 811 F.2d 1119, 1124

(7th Cir. 1987); Anderson v. Romero, 72 F.3d 518, 525 (7th

Cir. 1995). The law’s coherence could not be maintained

if district courts were deemed to make law for their circuit, let alone for the nation, since district courts do not

have circuit-wide or nationwide jurisdiction.” FutureSource

LLC v. Reuters Ltd., 312 F.3d 281, 283 (7th Cir. 2002).

AFFIRMED.

A true Copy:

Teste:

 _____________________________

Clerk of the United States Court of 

Appeals for the Seventh Circuit 

USCA-02-C-0072—6-2-03