Private Bank & Trust Co. v. EMS Investors, LLC

• Decision Date: 27 May 2015
• Docket Number: No. 1–14–1689.,1–14–1689.
• Citation: 33 N.E.3d 892
• Parties: The PRIVATE BANK AND TRUST COMPANY, Plaintiff–Appellee, v. EMS INVESTORS, LLC, Herbert P. Emmerman, and Equity Marketing Services, Inc., Defendant–Appellants.
• Court: United States Appellate Court of Illinois

33 N.E.3d 892

The PRIVATE BANK AND TRUST COMPANY, Plaintiff–Appellee

v.EMS INVESTORS, LLC, Herbert P. Emmerman, and Equity Marketing Services, Inc., Defendant–Appellants.

No. 1–14–1689.

Appellate Court of Illinois, First District, Third Division.

May 27, 2015.

William T. Dwyer, Jr., of O'Rourke, Hogan, Fowler & Dwyer, of Chicago, for appellants.

Jason M. Metnick and Monica J. Paine, both of Meltzer, Purtill & Stelle, LLC, of Chicago, for appellee.

OPINION

Justice HYMAN delivered the judgment of the court, with opinion.

¶ 1 In the absence of a reservation of rights, co-borrowers contend that a lender's release and discharge of a third co-borrower regarding mortgages secured by property of the third co-borrower and others released and discharged them as well.

¶ 2 Herbert P. Emmerman and Cheryl Bancroft formed EMS Investors, LLC (Investors), to convert an apartment building in downtown Chicago into condominiums. To finance the project, Emmerman, Bancroft, and Investors borrowed $1.62 million from The Private Bank and Trust Company (Private Bank). Equity Marketing Services, Inc. (EMS), another entity Bancroft and Emmerman owned, guaranteed the loan. Bancroft and her husband also had several mortgages with Private Bank on property they owned individually, together and through Bancroft Group LP (BGLP). When the housing bubble collapsed in late 2008, Bancroft, Emmerman, and Investors slid into financial difficulties. Sales of condominium units stalled, making repayment of the $1.62 million loan difficult. Before the note became due, Bancroft filed for chapter 11 bankruptcy (11 U.S.C. § 101 et seq. (2006) ), and she and her husband entered into a settlement agreement with Private Bank. The settlement agreement, which only mentioned the Bancrofts' personal real estate and not the $1.62 million loan, released and discharged them “from any and all claims, demands, actions, causes of action, suits, costs, damages, expenses and liabilities of every kind, character and description, either direct or consequential, at law or in equity.” Emmerman was not a party to the release or aware of it at that time.

¶ 3 When the note matured, Emmerman asked for an extension or modification. Private Bank refused and filed a breach of contract action against Emmerman and Investors on the loan and EMS on its guaranty. The parties filed cross-motions for summary judgment. Emmerman and Investors contended that Private Bank's release of Bancroft also released them from liability as co-obligors under the note. The trial court disagreed, granting Private Bank's motion for summary judgment and denying defendants' motion. The court also entered judgment in Private Bank's favor for the amount owed on the loan, interest, and attorney fees.

¶ 4 Emmerman and Investors argue the trial court erred in finding that the Private Bank's settlement agreement with Bancroft did not release all of them from liability on the note in the absence of a reservation of rights. We affirm. The language of the release between the Bancrofts and Private Bank and the circumstances under which it arose present enough evidence to demonstrate that Private Bank did not intend to release defendants from liability on the note. Thus, the trial court did not err in granting Private Bank's motion for summary judgment and entering judgment in the bank's favor.

¶ 5 BACKGROUND

¶ 6 The facts are not in dispute. EMS Investors, LLC, is an Illinois limited liability company, with two members, Herbert C. Emmerman and Cheryl Bancroft. On January 29, 2008, Private Bank loaned $1.62 million to Investors, Emmerman and Bancroft, which was documented by a promissory note and a first amended promissory note. Emmerman and Bancroft were co-makers on the promissory note and agreed to be “jointly and severally” liable under it. Defendant Equity Marketing Services, Inc., guaranteed repayment of the loan. Defendants defaulted under the terms of the note and amended note by failing to make payment due on the maturity date, January 1, 2012. EMS also defaulted by failing to make payments after defendants defaulted.

¶ 7 On November 22, 2011, a few months before the note became due, Private Bank entered into a settlement agreement with Cheryl Bancroft, Stephen Bancroft, and BGLP. The settlement agreement noted that Private Bank had mortgages on several residential properties owned together and separately by Cheryl and Stephen, and that “disputes exist among the Parties with respect to various claims and issues relating to” the residential real estate, and they want to “settle any and all claims and disputes by, among and against each other under this Agreement.” The agreement also noted that Cheryl filed for bankruptcy under chapter 11 on January 14, 2011, and that the bank had begun legal action against Stephen on property he owned separately and with BGLP. The settlement agreement then stated, in relevant part:

“10) Release of Cheryl, Stephen and BGLP. Except as expressly set forth in this Agreement, the Bank, and each of its respective successors, affiliates, assigns, shareholders/members, directors, officers, agents, servants, employees, heirs, executors, administrators and assigns, does hereby forever release and discharge Cheryl, Stephen, and BGLP, and their respective parents, successors, affiliates, assigns, directors, officers, agents, servants, and employees from any and all claims, demands, actions, causes of action, suits, costs, damages, expenses and liabilities of every kind, character and description, either direct or consequential, at law or in equity, which they may now, may have had at any time heretofore, or in any manner whatsoever, provided, however, that such released claims shall not include any claims asserted by any Party arising solely out of any obligation specifically set forth in this Agreement.

* * *

26) Parties in Interest. Nothing herein shall be construed to be to the benefit of any third party, nor is it intended that any provision shall be [for] the benefit of any third party.”

¶ 8 The settlement agreement does not specifically mention the note or the amended note with Emmerman or Investors and does not mention Emmerman or Investors by name.

¶ 9 On August 16, 2012, Private Bank filed a two-count complaint in the circuit court of Cook County alleging breach of contract claim against Emmerman and Investors, as obligors of the loan (count I), and against EMS, as guarantor of the loan (count II). Defendants filed an answer admitting the note was in default and raising as an affirmative defense that Private Bank's unconditional release of Bancroft's liability under the note, without a reservation of rights, also released Emmerman and Investors from liability under the note and EMS from liability under the guaranty.

¶ 10 Private Bank moved to strike EMS's affirmative defense as to its liability on the guaranty, which the trial court granted, with prejudice. Private Bank then moved for summary judgment. Defendants filed a combined motion for summary judgment and a response to Private Bank's motion for summary judgment. Among the exhibits attached to Private Bank's motion was an affidavit from Kimberly Kourelis, a Private Bank managing director, stating, that the bank's settlement agreement with Bancroft was unrelated to the note, amended note, and guaranty and was not intended to apply to Emmerman, Investors, or EMS. Private Bank also attached deposition testimony from Emmerman stating that at the time the settlement agreement was executed, he had no knowledge of it and had not been asked to review it at any time. Emmerman also stated that after the loan matured in January 2012, he spoke with Alan Fine, another Private Bank managing director, about how Emmerman was going to repay the loan. Emmerman stated, “I was looking for a modification of the loan. None of that was forthcoming. They were interested in me paying or else.”

¶ 11 On May 1, 2014, the trial court granted Private Bank's motion for summary judgment and denied defendants' motion. The court also entered judgment in Private Bank's favor in the amount of $1,704,718.79, which included the principal due on the loan, plus interest, attorney fees, and costs. The court found that defendants' liability under the note was joint and several, and thus, “a plaintiff is entitled to pursue distinct remedies upon the same instrument, treating it as a joint contract and as a several contract, until satisfaction is fully obtained. [Citation].” Further, citing Diamond Headache Clinic, Ltd. v. Loeber, 172 Ill.App.3d 364, 369, 122 Ill.Dec. 340, 526 N.E.2d 599 (1988), the trial court stated that joint and several liability permits the plaintiff to sue until payment in full from one or more of the defendants, with the limitation that the plaintiff may not collect more than what is owed by the defendants jointly. This prevents multiple recoveries for a single injury.

¶ 12 Addressing the settlement agreement, the court stated, “an obligor is not released when it is apparent from the circumstances that the settling parties did not intend the release of one to act as a release of all.” The court found that the evidence, including Kourelis's affidavit, Emmerman's deposition testimony, and a third-party beneficiary clause in the release (“[n]othing herein shall be construed to be to the benefit of any third party”) demonstrates that Private Bank always intended to enforce its rights against defendants.

¶ 13 ANALYSIS

¶ 14 Defendants' primary contention is that the trial court erred in entering summary judgment and a monetary judgment in Private Bank's favor, because the release of one joint and several co-obligor releases all other joint and several co-obligors absent a reservation of rights. Defendants also contend the trial court erred by: (i) referring to Bancroft as a guarantor rather than as a co-obligor and (ii) relying on section 294 of the Restatement (Second) of Contracts (Restatement (Second) of Contracts § 294 (1981) ), which has not been enacted in...