Bank of Commerce v. Riverside Trails

Decision Date31 March 1972
Docket NumberNo. 665,665
Citation367 N.E.2d 993,52 Ill.App.3d 616,10 Ill.Dec. 384
CourtUnited States Appellate Court of Illinois
Parties, 10 Ill.Dec. 384 The BANK OF COMMERCE, a Wisconsin Corporation of Milwaukee, Wisconsin, Plaintiff-Appellant, v. RIVERSIDE TRAILS, an Illinois joint venture, Riverside Trails Development Corporation, a Wisconsin Corporation, M. G. Astleford, Gordon E. Carncross, Pamela Carncross, Robert Kassel, Darrell R. Wild, Paul A. Montavan, Trustee, DeKalb Trust & Savings Bank, now known as the DeKalb Bank, as Trustee under Trustdated

Rissman & Jenkins, Charles E. Cronauer, Harold A. Rissman, Robert C. Jenkins, DeKalb, for plaintiff-appellant.

Ross & Stevens, S. C., Madison, Wis., Edward Diedrich, DeKalb, for defendants-appellees.

RECHENMACHER, Presiding Justice.

The Bank of Commerce of Milwaukee (hereinafter referred to as the plaintiff Bank) appeals from a decree of foreclosure which foreclosed a mortgage executed by a land trustee--The DeKalb Bank--but relieved the beneficiaries of the land trust of any personal liability on the note secured by said mortgage. While the DeKalb Bank is a nominal defendant here by reason of having executed the promissory note in question, it specifically disclaimed any liability under the note by the following exculpatory language which appeared just above the signature of its trust officer:

"This note is executed by DE KALB TRUST AND SAVINGS BANK, not personally but as Trustee as aforesaid in the exercise of the power and authority conferred upon and vested in it as such Trustee, and is payable only out of the property specifically described in said mortgage securing the payment hereof by the enforcement of the provisions contained in said mortgage. No personal liability shall be asserted or be enforcible against the Trustee, such liability, if any, being expressly waived by each taker and holder hereof, but nothing herein contained shall modify or discharge the personal liability expressly assumed by the guarantors hereof, if any."

M. G. Astleford, Gordon E. Carncross and Robert Kassel (hereinafter referred to as the defendants) whose names appear as guarantors of the note, were partners with others in a joint venture known as Riverside Trails. The joint venture was formed to acquire and develop certain vacant land in DeKalb County. This land had previously been owned by Darrell R. Wild and the defendants borrowed $375,000 from the plaintiff Bank and used these funds to pay off a previous encumbrance owed by Wild and for expenses in developing the property.

At the time the loan was made the land was in a land trust with The DeKalb Bank, as trustee. The mortgage given to secure the debt of $375,000 and the promissory note evidencing same were executed by the land trustee as noted above with the usual disclaimer as to any personal liability whatsoever on the DeKalb Bank's part. The promissory note in the amount of $375,000 at 8% Per annum had attached to it an accompanying document entitled "Guaranty", reading as follows:

"For value received, we hereby guarantee the payment of the within note at maturity or at any time thereafter or any renewal of the same with interest at the rate of eight (8%) percent per annum until paid, and hereby waive protest, demand and notice of demand and nonpayment and suit against the makers and consent that the time of the payment of this note may be extended from time to time without affecting our liability thereon."

The note was executed on July 31, 1972, and was due July 31, 1973. On July 25, 1973, the directors of the plaintiff Bank authorized an extension of the $375,000 loan for one year, from July 31, 1973, to July 31, 1974. An "extension note" was prepared by the plaintiff Bank bearing interest at the rate of 11% Instead of the original 8% And was apparently initially sent to Jerry Shea, a Wisconsin attorney representing the defendants, to procure the necessary signatures. Gary Cordes, a DeKalb attorney, testified that Shea, not being familiar with Illinois land trust procedure, sent the extension note to him for completion of the necessary paper work. Cordes testified that he prepared separate original letters of direction for Astleford, Carncross and Kassel, and another for a joint venturer (who did not sign the Guaranty but who, along with the three defendants, apparently had the power of direction), and sent one to each of these persons asking them to sign the direction and return it to Cordes for presentation to the DeKalb Bank, if they wished the DeKalb Bank to sign the extension note and return it to the plaintiff Bank. He testified that with each letter of direction he sent a copy of the extension note. The letter of direction described the document to be signed by the trustee merely as "Extension Note Agreement", however it stated that a copy of that document was attached. The paper work took some time to complete. The letters of direction were eventually all executed and returned to attorney Cordes for delivery to the DeKalb Bank and in turn the document designated "Extension Note" was executed by the DeKalb Bank, as trustee, and returned to the plaintiff Bank on December 14, 1973. The Extension Note, dated July 31, 1973, promised to pay the sum of $375,000 to The Bank of Commerce "with interest on the unpaid balance at the rate of 11% Per year plus 1% Service charge". It was due July 31, 1974. Just above the signature line appears the following:

"This note is executed, delivered and accepted, not in payment, but to extend the time of payment and modify the provisions of a note in the original amount of $375,000 dated July 31, 1972, between the maker(s) and payee of this note."

It was executed by the DeKalb Bank as trustee and not personally.

The extension note not having been paid on July 31, 1974, the plaintiff Bank made demand on Riverside Trails, Astleford, Carncross and Kassel for payment thereof. There was some point raised about whether proper notice of default and demand for payment had been served on all these parties. Registered mail return receipts and other correspondence in the record, however, leave little doubt that legally sufficient notice of default and demand for payment were made and came to the attention of the debtor parties.

In a letter to the president of the plaintiff Bank dated September 9, 1974, which is in evidence, Kassel explained that the three guarantors could not raise the money to pay the note off at that time, without severe sacrifice and asked for additional time. In the course of this letter he said:

"I recognize that we are personally on the loan . . . I reaffirm for all my partners our liability under the loan . . . I just tell you that because of this terrific financial crunch it would be an impossible chore to come up with $375,000.00 today."

To this letter the plaintiff Bank's vice-president replied that he was sorry that they could not extend the loan any further and must take legal action unless it was paid by October 1. The note not being paid, the plaintiff Bank instituted foreclosure proceedings and asked for a personal deficiency decree, if necessary, to cover the amount of the note, accumulated interest and attorney fees.

The foreclosure suit resulted in a large deficiency, but the defendants were not held personally liable therefore. The court adopted defendants' theory that there had been a material alteration of the obligation assumed by the guaranty which voided their liability.

In its initial answer to the complaint for foreclosure filed January 13, 1975, the defendants contended that a personal deficiency decree should not be allowed against them because the plaintiff Bank had breached a commitment to lend additional moneys to develop the property, which commitment had induced the defendants to guarantee the indebtedness. The plaintiff Bank denied this commitment was ever made. In November 1975, some ten months after the case had been set for trial, the defendants amended their answer to include the defense that "the note upon which the obligation herein is based, made and delivered to the plaintiff, was materially altered from that described by the plaintiff in the complaint in that the note so made originally specified interest at the rate of 8% Per annum, and that said note was later altered without the consent or knowledge of the defendants, and each of them, to read 11% Interest herein."

The affirmative defense further alleged that the alteration was made "after the delivery to the plaintiff" and "was altered by the plaintiff or at the instruction of the plaintiff, with the intent to wrongfully cheat and defraud the defendants * * *."

The testimony at trial, however, was far from proving these allegations. It showed very clearly that the note was not "altered" in the sense that word is used in the affirmative defense. Indeed, the defendants admitted that they were not claiming there had been actual alterations of the extension note they admitted at trial the "alteration" was merely a difference between the interest rate as set out in the original note and the interest rate as shown in the extension note. They also contended the interest rate had been made more onerous after the signing thereof by the DeKalb Bank when plaintiff Bank inserted the word "quarterly" after it received the executed note back from the DeKalb Bank. This is an unwarranted claim, for the original note clearly required interest to be paid quarterly and the note was accepted by the defendants on that basis. The DeKalb Bank is not making this contention and it is difficult for us to understand how the defendants can at the same time disclaim any personal knowledge of the terms of the extension note which they all testified they did not recall ever having seen and yet complain that the word "quarterly" was inserted after the note was signed by the DeKalb Bank.

The...

To continue reading

Request your trial
18 cases
  • Bernstein v. Lind-Waldock & Co.
    • United States
    • U.S. Court of Appeals — Seventh Circuit
    • June 18, 1984
    ...thus discharging him as guarantor under principles of suretyship illustrated by Bank of Commerce v. Riverside Trails, 52 Ill.App.3d 616, 620, 10 Ill.Dec. 384, 388, 367 N.E.2d 993, 997 (1977). Bernstein named the Exchange as a defendant so that he could be sure of getting complete equitable ......
  • Providence v. Jt Bldg.
    • United States
    • Rhode Island Superior Court
    • November 8, 2010
    ...claim that his obligations have been materially altered and may not escape personal liability. Bank of Commerce v. Riverside Trails, 52 Ill. App.3d 616, 620, 367 N.E.2d 993, 997 (Ill. App. 1977) (stating that the law of guaranty is not designed to protect a guarantor who after authorizing a......
  • Davis v. JT Building and Development, LLC
    • United States
    • Rhode Island Superior Court
    • November 5, 2010
    ... ... review of the Chois' Financial Statement and Stearns Bank ... commitment letter, the Landlord believed their financial ... liability. Bank of Commerce v. Riverside Trails , 52 ... Ill.App.3d 616, 620, 367 N.E.2d 993, ... ...
  • Kozonis v. Tamburello
    • United States
    • United States Appellate Court of Illinois
    • December 19, 2016
    ...Steel Co. v. Appel , 98 Ill.App.3d 167, 172, 53 Ill.Dec. 288, 423 N.E.2d 957 (1981) (citing Bank of Commerce v. Riverside Trails , 52 Ill.App.3d 616, 10 Ill.Dec. 384, 367 N.E.2d 993 (1977) ); see also Mitchell v. Peterson , 97 Ill.App.3d 363, 367, 52 Ill.Dec. 817, 422 N.E.2d 1026 (1981) ("I......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT