Bank of Chicago-Garfield Ridge v. Park Nat. Bank, CHICAGO-GARFIELD

• Decision Date: 22 September 1992
• Docket Number: No. 1-91-3096,CHICAGO-GARFIELD,1-91-3096
• Citation: 606 N.E.2d 72,237 Ill.App.3d 1085
• Court: United States Appellate Court of Illinois
• Parties: , 179 Ill.Dec. 240 BANK OFRIDGE, formerly known as Garfield Ridge Trust & Savings Bank, an Illinois banking corporation, Plaintiff-Appellant, v. PARK NATIONAL BANK, a national association, Defendant-Appellee.

Page 72

606 N.E.2d 72

237 Ill.App.3d 1085, 179 Ill.Dec. 240

BANK OF CHICAGO-GARFIELD RIDGE, formerly known as Garfield Ridge Trust & Savings Bank, an Illinois banking corporation, Plaintiff-Appellant, v. PARK NATIONAL BANK, a national association, Defendant-Appellee.

No. 1-91-3096.

Appellate Court of Illinois First District, Second Division.

Sept. 22, 1992.

Rehearing Denied Jan. 7, 1993.

Holleb & Coff, Chicago (Paul T. Fox, Lori A. Goldstein and Stuart N. Rappaport, of counsel), for plaintiff-appellant.

Jones, Day, Reavis & Pogue, Chicago (James R. Daly, Irene Savanis and Nancy A. Tanck, of counsel), for defendant-appellee.

Presiding Justice HARTMAN delivered the opinion of the court:

This is an appeal pursuant to a Supreme Court Rule 304(a) (134 Ill.2d R. 304(a)) certification. Plaintiff, Bank of Chicago-Garfield Ridge (Garfield), brought suit in chancery against defendant, Park National Bank (Park), for damages and other relief arising from the alleged breach of a loan participation agreement. During the pendency of this suit, Garfield repurchased Park's interest in an unrelated loan participation, and set off amounts claimed in the suit against the proceeds due Park from this repurchase. Garfield then sought a declaration that the setoff was valid.

Park moved for summary judgment challenging Garfield's right to set off the proceeds of the unrelated loan participation. Park's motion for summary judgment was allowed. Garfield appeals, contending that the circuit court erred (1) in holding the setoff invalid; and (2) in determining that declaratory judgment was an improper procedural means by which to determine the validity of a setoff, and then proceeding to rule against Garfield on the merits of the summary judgment based upon this perceived impropriety.

On April 30, 1990, Garfield filed an eight-count chancery complaint against Park, alleging in general the following. Pursuant to an established lending relationship, Park advanced Evron Industries, Inc. (Evron) two loans: $1 million, evidenced by a promissory note dated September 18, 1987; and $400,000, evidenced by an April 20, 1988 note. Both loans were secured with specific Evron assets. On October 15, 1988, Park's senior vice-president, Sheldon Bernstein, proposed to Garfield's vice-president, Marc Holland, that Garfield participate in either or both loans for "up to one year." Garfield responded with a counteroffer, setting forth as conditions that: (a) Garfield's participation be limited to a period of 120 days; (b) the funds advanced to Evron by Park be limited to the sum of 75 percent of Evron's accounts receivable which were less than 90 days old, plus 25 percent of the book value of Evron's inventory; and (c) Park's right to be paid from proceeds of Evron collateral in the event of default be subordinate to that of Garfield.

Park allegedly agreed to these additional terms, resulting in the "Evron participation." The participation agreement was embodied in two separate documents dated November 4, 1988, namely, the participation certificate (certificate), and a letter from Bernstein to Holland (Bernstein letter). The Bernstein letter provided as follows "Re: Participation in loans to Evron Industries [Park] agrees that future advances to Evron Industries will not exceed the total of 75% of their receivables due within 90 days plus 25% of their inventory. In addition, [Park] subordinates its position on the collateral pledged to secure this loan to [Garfield]. This participation will expire on March 3, 1989."

Garfield alleged that on February 28, 1990, Evron filed a petition for bankruptcy relief, and thereafter discontinued payments to Park on all its outstanding loans, including that comprising the Evron participation. Despite Garfield's repeated requests, Park refused to repurchase or retire Garfield's interest in the Evron loan. Garfield sought, in count I, a declaration of Park's duty under the participation agreement to repurchase Garfield's interest; in count II, a declaration of Park's obligation to subordinate its right to the proceeds of the Evron collateral to those of Garfield, and to have those proceeds applied to Garfield's participation until it has been satisfied in full, including all accrued interest and costs; count III sought, in the alternative, damages in excess of $250,000 for breach of the participation agreement; count IV requested damages for Park's breach of duty as lead bank; and counts V through VIII sought rescission or damages against Park and Bernstein for fraud or negligent misrepresentation in inducing Garfield to enter into the participation arrangement.

On motion by Park, counts IV and VIII of the complaint were eventually dismissed. On January 24, 1991, Park filed its verified amended answer, amended affirmative defenses and counterclaim, in which it disputed Garfield's interpretation of the participation agreement, and denied any liability for breach. Park's counterclaim sought Garfield's proportionate share of the collection expenses for the Evron loan, which Garfield had agreed to pay under the participation certificate.

On or about March 1, 1991, Garfield filed an amended complaint increasing its damage request and adding count IX, the subject of this appeal, which made the following allegations. Some time after December 23, 1987, Garfield and Park had executed a contract under which Park agreed to participate in the full amount of a $1.9 million loan by Garfield to Wright Industries, Inc. (Wright participation). On January 29, 1991, when the principal balance due on the Wright note was $1,855,487.64, Garfield notified Park that it had repurchased Park's participation in the note, and set off the proceeds from that repurchase against amounts Park owed Garfield "arising from Garfield's participation in Park's lending to Evron," which were the subject of the pending litigation. According to Garfield, those amounts exceeded $2 million, as evidenced by counts I through III, VII and VIII of the complaint. Accordingly, count IX requested that the validity of this setoff be declared.

On March 7, 1991, Park moved for an expedited summary judgment on count IX, alleging that, as a matter of law, Garfield was not entitled unilaterally to set off funds belonging to Park from the Wright participation against the unliquidated, not yet matured, and disputed litigation claims emanating from the Evron participation.

Garfield requested that Park's motion be continued to enable Garfield to prepare a summary judgment motion as to count II, because such judgment in its favor would dispose of the dispute regarding Park's obligation on the Evron note, thereby rendering the setoff valid. On April 26, 1991, Garfield filed a motion for partial summary judgment as to count II, alleging that Park received proceeds in excess of $1.5 million from the bankruptcy sale of the Evron collateral. Garfield further alleged it was "undisputed" that the "Bernstein letter and the undertakings of Park which were contained in it were part of the [Evron participation agreement]"; that by this letter, Park "unambiguously" agreed to "subordinate its position" to Garfield's on the collateral pledged by Evron to secure its loan; and that notwithstanding this agreement, Park has failed to pay Garfield any part of the collateral proceeds, although the collateral assets had been "liquidated for an amount in excess of the balance due on Garfield's participation."

Park filed a reply in support of its motion for expedited summary judgment on May 13, 1991, and apparently filed a memorandum opposing Garfield's summary judgment motion on July 5, 1991, although the record copy is unstamped. In the latter memorandum, Park maintained that the terms of the participation agreement were controverted; that the parties' interpretations of Bernstein's letter conflicted; and that, under the certificate, Garfield's share of the collateral proceeds was limited to its pro rata share of the total indebtedness.

Following a hearing, the court granted summary judgment for Park, finding Garfield's setoff invalid. On August 1, 1991, the court denied Garfield's motion for summary judgment on count II. On August 19, 1991, the court granted Park's request for Rule 304(a) findings as to the ruling on count IX.

I.

Garfield initially seeks de novo review from the grant of summary judgment to Park, because the question raised on appeal is solely one of law.

In reviewing a grant of summary judgment, this court considers anew the facts and law related to the case and determines whether the circuit court was correct in its ruling. (Shull v. Harristown Township (1992), 223 Ill.App.3d 819, 824, 166 Ill.Dec. 142, 585 N.E.2d 1164; In re Estate of Hoover (1992), 226 Ill.App.3d 422, 168 Ill.Dec. 499, 589 N.E.2d 899; but see Evans v. United Bank of Illinois (1992), 226 Ill.App.3d 526, 168 Ill.Dec. 533, 589 N.E.2d 933.) Where no factual dispute exists, the question of law is properly reviewed independently of the circuit court's judgment. See Scottish & York International Insurance Group/Guarantee Insurance Co. v. Comet Casualty Co. (1990), 207 Ill.App.3d 881, 885, 152 Ill.Dec. 790, 566 N.E.2d 477; Bohnen International, Inc. v. Liberty Mutual Insurance Co. (1983), 120 Ill.App.3d 657, 662-63, 76 Ill.Dec. 244, 458 N.E.2d 644.

Although the decision of whether to grant declaratory relief is discretionary with the circuit court (Ill.Rev.Stat.1987, ch. 110, par. 2-701; Howlett v. Scott (1977), 69 Ill.2d 135, 142, 13 Ill.Dec. 9, 370 N.E.2d 1036), the exercise of this discretion is subject to a "searching," or independent, appellate review, and is not given the same deference as in other contexts. (Chicago & Eastern Illinois R.R. Co. v. Reserve Insurance Co. (1981), 99 Ill.App.3d 433, 436, 54 Ill.Dec. 564, 425 N.E.2d 429; Carl Sandburg Village Condominium Association No. 1 v. Carl Sandburg Village Condominium Home Owner's Association (1987), 175 Ill.App.3d 1, 5, 125 Ill.Dec....