Opinion ID: 468166
Heading Depth: 2
Heading Rank: 1

Heading: standard of review

Text: 27 Pearson argues that the district court applied an improper standard of review to the bankruptcy court judgment. According to Pearson, the bankruptcy judge relied on extrinsic evidence in interpreting an ambiguous term (indirect obligation or debt) in the contract between Pearson and Galva, the account agreement. Under Pearson's theory, the bankruptcy judge's determination that a loan participation was not an indirect obligation under the account agreement was a finding of fact, which may be overturned only if the district court finds it to be clearly erroneous. An examination of the record reveals that the term, indirect debt or obligation, was not defined in the contract and was the subject of disagreement. To provide a meaning to this contract term, the bankruptcy judge listened to extrinsic evidence, the testimony of Hatch and Bartholme as to the meaning given the term indirect obligation by the banking industry. The admission of extrinsic evidence to resolve an ambiguity in a contract is proper. Sunstream Jet Exp. v. International Air Service Co., 734 F.2d 1258 (7th Cir.1984) In determining whether an ambiguity exists, as a matter of law, the trial court may consider parol and extrinsic evidence.... If ... the court determines that an ambiguity is present in the contract, then the court may permit extrinsic and parol evidence to be introduced at trial, to allow the trier of fact to determine the intent of the parties in entering into the contract. Id. at 1268. When a court interpreting a contract goes beyond the four corners of the contract and considers extrinsic evidence, the court's determination of the parties' intent is a finding of fact. See, id.; Moody v. Amoco Oil Co., 734 F.2d 1200 (7th Cir.1984). Under Illinois law, the law governing the contract between Pearson and Galva, findings of fact based on evidence as to trade usage or custom, such as these witnesses' testimony as to the meaning given indirect obligations by the banking industry, is a factual finding. Clark v. General Foods Corp., 80 Ill.App.3d 74, 36 Ill.Dec. 447, 400 N.E.2d 1027 (1980). A district court when reviewing the decision of the bankruptcy court, must accept the bankruptcy court's findings of fact unless they are clearly erroneous, Fed.R.Bankr.P. 8013 3 , and the court of appeal's review of the bankruptcy judge's findings of fact is also governed by the clearly erroneous standard of review. In re Kimzey, 761 F.2d 421 (7th Cir.1985). We hold that the bankruptcy judge's determination that a loan participation was not an indirect obligation or debt under the account agreement on file was a finding of fact which may not be set aside unless clearly erroneous. An examination of the district court decision reveals that the district court treated the bankruptcy court's determination as a conclusion of law rather than as a finding of fact. We hold that the district court erred in treating the bankruptcy court's determination (that a loan participation is not an indirect debt or obligation under the contract) as a question of law rather than as a finding of fact, which may not be reversed unless clearly erroneous. 28