After a rapid growth in its business during recent years, the Wilson
Lumber Company, in the spring of 2006, anticipated a further substantial increase in sales. Despite good profits, the company had experienced a shortage of cash and had found it necessary to increase its borrowing from the Suburban National Bank to $399,000 in the spring of 1996. The maximum loan that Suburban National would make to any one borrower was $400,000 and Wilson had been able to stay within this limit only by relying very heavily on trade credit. In addition, Suburban was now asking that Mr. Wilson guarantee the loan personally. Arne Wilson, sole owner and president of the Wilson Lumber Company, was therefore actively looking elsewhere for a new banking relationship where he would be able to negotiate a larger loan that did not require a personal guarantee. Mr. Wilson had recently been introduced by a friend to George
Dodge, an officer of a much larger bank, the Northrup National Bank.
The two men had tentatively discussed the possibility that the
Northrup bank might extend a line of credit to Wilson Lumber up to a maximum amount of $750,000. Mr. Wilson thought that a loan of this size would improve profitability by allowing him to take full advantage of trade discounts. Subsequent to this discussion, Mr.
Dodge had arrange for the credit department of the Northrup
National Bank to investigate Mr. Wilson and his company.
The Wilson Lumber Company had been founded in 1991 as a partnership by Mr. Wilson and his brother-in-law, Henry Holtz. In
2004, Mr. Wilson bought out Mr. Holtz's interest for $200,000. Mr.
Holtz had taken a note for $200,000, to be paid off in 2005 and
2006 in order to give Mr. Wilson time to arrange for the necessary financing. This note carried an interest rate of 11%, and was repayable in semi-annual installments of $50,000, beginning June
The business was located in a growing suburb of a large city in