First Arlington Nat. Bank v. Stathis
| Decision Date | 27 May 1983 |
| Docket Number | No. 82-1940,82-1940 |
| Parties | , 71 Ill.Dec. 145, 36 UCC Rep.Serv. 1284 FIRST ARLINGTON NATIONAL BANK, Plaintiff-Appellant and Cross-Appellee, v. Gus STATHIS, Defendant-Appellee and Cross-Appellant, and Denis J. Rintz, Marilyn Rintz, Phillip Grandinetti, Jr., Betty L. Grandinetti, Ralph L. Edgar and Judy Edgar, Defendants, and Gus STATHIS, Counter-Plaintiff, v. Denis J. RINTZ, Marilyn Rintz, Phillip Grandinetti, Jr., Betty L. Grandinetti, Ralph L. Edgar and Judy Edgar, Counter-Defendants. |
| Court | United States Appellate Court of Illinois |
Jerome H. Torshen, Ltd., Chicago, for defendant-appellee and cross-appellant; Jerome H. Torshen and Abigail K. Spreyer, Chicago, of counsel.
This appeal is from the entry of summary judgment for Gus Stathis (defendant) in an action for declaratory judgment brought to determine the rights and obligations of the parties under a letter of credit issued by the plaintiff bank. Plaintiff contends that the trial court erred in ruling that (1) none of the exceptions contained in section 5-114(2) of the Uniform Commercial Code (the Code) (Ill.Rev.Stat.1979, ch. 26, par. 5-114(2)) excused plaintiff's duty to honor the letter of credit; (2) defendant did not breach any warranties made by him pursuant to section 5-111(1) of the Code (Ill.Rev.Stat.1979, ch. 26, par. 5-111(1)); (3) none of the other warranty sections of the Code were applicable to the transaction in question; and (4) defendant was entitled to prejudgment interest pursuant to section 2 of "An Act in relation to the rate of interest and other charges in connection with sales on credit and the lending of money" (the Interest Act) (Ill.Rev.Stat.1979, ch. 74, par. 2) 1 from the date of his demand for payment. In his cross-appeal, defendant maintains that the trial court erred in limiting its award of prejudgment interest to 5%.
In a prior appeal in this case, First Arlington National Bank v. Stathis (1980), 90 Ill.App.3d 802, 46 Ill.Dec. 175, 413 N.E.2d 1288, we reversed the trial court's entry of summary judgment for plaintiff and remanded for further consideration of defendant's cross-motion for summary judgment. The facts of the transaction in question are set forth in detail in that opinion, and the parties presented no additional evidence after remand; therefore, we shall In 1973, defendant agreed to sell certain real estate to Ralph Edgar, Denis Rintz, and Phillip Grandinetti, Jr., and as partial consideration therefor received a promissory note dated March 30, 1973 (the March note), executed by the three purchasers and their wives in the principal amount of $575,000 with an interest rate of 8% on the outstanding principal. The debt was to be secured by a letter of credit in the amount of $575,000 which was to be replaced each year at least 30 days before its expiration date. If the letter of credit was not renewed, or if the purchasers defaulted in the payment of either interest or principal, the balance due was immediately payable without notice.
[71 Ill.Dec. 148] repeat only such facts as are relevant to the issues herein.
Plaintiff issued the required letter of credit, to expire May 5, 1974, in exchange for a note executed by Rintz, Edgar, and Grandinetti in the principal amount of $575,000 at 10% interest, secured by certain property, and the pledge of collateral, i.e., a certificate of deposit in the amount of $187,000 owned by Grandinetti and real estate owned by Rintz and Edgar. The letter of credit guaranteed payment of $575,000 to defendant upon default of the March note, provided that his demand was accompanied by the March note, endorsed by him without recourse to the order of plaintiff; any documents securing the note; defendant's notarized statement that the note was due by reason of acceleration and a detailed statement of the nature of the default; defendant's notarized statement that demand had been made on the makers, and the demand was not complied with for a period of at least 10 days following the demand; and copies of the demand letters.
The makers defaulted on the first payment of interest, due on March 30, 1974, and failed to provide a timely renewal of the letter of credit. On April 23, 1974, Grandinetti, desirous of avoiding litigation concerning the interest due, entered into an agreement with defendant (the Grandinetti agreement). Pursuant thereto, Grandinetti executed a note for one-third of the first interest installment, due June 5, 1974, and a second note for the remaining two-thirds, payable on demand. Defendant agreed to attempt to collect the remaining two-thirds of the interest from the Edgars and Rintzes (Grandinetti's wife was not mentioned) and, if successful, cancel the second note. 2
On April 25, 1974, defendant sought payment on the letter of credit and presented to plaintiff the documents required by the terms thereof. Plaintiff refused to pay, claiming that, among other defects, the March note did not comply with the letter of credit in that the Grandinetti agreement effectively released Grandinetti's wife from liability on the March note and, as a result, released the other comakers as well by application of section 3-606 of the Code. (Ill.Rev.Stat.1979, ch. 26, par. 3-606.) It filed a complaint for declaratory judgment and, in granting plaintiff's motion for summary judgment therein and denying defendant's cross-motion, the trial court ruled that plaintiff was not required to honor the letter of credit as a result of the Grandinetti agreement. On appeal, we held that plaintiff could not look beyond the documents presented to the underlying agreement in determining whether to honor the letter of credit. (First Arlington National Bank v. Stathis (1980), 90 Ill.App.3d 802, 809, 46 Ill.Dec. 175, 182, 413 N.E.2d 1288, 1295.) Since the documents presented complied on their face with the letter of credit (90 Ill.App.3d 802, 816, 46 Ill.Dec. 175, 186, 413 N.E.2d 1288, 1299) and there was no fraud arising from the Grandinetti agreement which would justify dishonoring the letter of credit (90 Ill.App.3d 802, 811, 46 Ill.Dec. 175, 182, 413 N.E.2d 1288, 1295), plaintiff was required to honor the demand pursuant to section 5-114 of the Code (Ill.Rev.Stat.1979, ch. 26, par. 5-114), and we reversed the order granting summary judgment to plaintiff and denying it to defendant. However, because plaintiff had raised other arguments in opposition to defendant's motion On remand, the parties agreed that the only remaining issue with regard to defendant's motion for summary judgment was whether he breached any warranties on presentment of his draft for payment under the letter of credit. Plaintiff argued that the Grandinetti agreement, which allegedly released Grandinetti's comakers from liability on the March note, and defendant's failure to deliver to it the personal judgment notes executed by Grandinetti under that agreement, breached warranties made by defendant under sections 5-111, 3-417, 4-207, 7-507, and 8-306 of the Code. (Ill.Rev.Stat.1979, ch. 26, pars. 5-111, 3-417, 4-207, 7-507, 8-306.) The trial court concluded that our prior opinion barred any consideration of the Grandinetti agreement as grounds for dishonoring the letter of credit. 3 However, it went on to rule that the only applicable warranty was section 5-111(1), and that defendant warranted thereunder merely that the tendered documents complied on their face with the terms of the letter of credit; that this warranty was not breached; and that, in any event, the Grandinetti agreement did not release any of the comakers, contrary to plaintiff's assertion. It further ruled that defendant was entitled to prejudgment interest from April 25, 1974, the date of his demand for payment, at the rate of 5%, "although a greater rate of interest would be more equitable in the present situation." These cross-appeals followed.
[71 Ill.Dec. 149] for summary judgment which were not considered by the trial court in ruling thereon, we remanded the matter for further consideration.
OPINIONPlaintiff first contends that the trial court erred in ruling that none of the exceptions to an issuer's duty to honor a demand which complies on its face with the terms of the letter of credit excused plaintiff's duty to honor. It relies on section 5-114(2)(b) of the Code (Ill.Rev.Stat.1979, ch. 26, par. 5-114(2)(b)), which provides in relevant part:
The trial court held that the warranties under sections 7-507 and 8-306 (Ill.Rev.Stat.1979, ch. 26, pars. 7-507, 8-306) are inapplicable to the transaction in question and that plaintiff could not relitigate the question of fraud in the transaction, which was decided adversely to it in our prior opinion. Plaintiff apparently concedes the inapplicability of sections 7-507 and 8-306 but maintains that the trial court read section 5-114(2)(b) too restrictively, and that the intent of the drafters was clearly to include not only the warranties arising thereunder but also those arising under sections 3-417 and 4-207. (Ill.Rev.Stat.1979, ch. 26, pars. 3-417, 4-207.) It further argues that because defendant did...
To continue reading
Request your trial
-
Lincoln Nat'l Life Ins. Co. v. TCF Nat'l Bank
...State Bank v. Marine Midland Bank, 121 Ill.App.3d 295, 76 Ill.Dec. 844, 459 N.E.2d 979 (1983); First Arlington Nat. Bank v. Stathis, 115 Ill.App.3d 403, 71 Ill.Dec. 145, 450 N.E.2d 833 (1983);Professional Modular Surface, Inc. v. Uniroyal, Inc., 108 Ill.App.3d 1046, 64 Ill.Dec. 625, 440 N.E......
-
Union Pacific R. Co. v. Village of S. Barrington
...Janivo Holding, B.V. v. Continental Bank, 859 F.Supp. 316, 321 (N.D.Ill.1994) (citing First Arlington Nat'l Bank v. Stathis, 115 Ill.App.3d 403, 71 Ill. Dec. 145, 450 N.E.2d 833, 840 (1983)). Significantly, Section 5-114(2) does not provide a warranty for the truth of the statements in the ......
-
601 West 81st Street Corp. v. City of Chicago, 7449
...interest. We agree. Prejudgment interest is recoverable only on the basis of contract or statute. (First National Bank v. Stathis (1983), 115 Ill.App.3d 403, 71 Ill.Dec. 145, 450 N.E.2d 833, appeal denied.) The lease here did not provide for interest. Ill.Rev.Stat.1983, ch. 17, par. 6402 pr......
-
In re Carley Capital Group
...48 Cornell L.Q. 92, 93 (1963). The same argument raised by the Plaintiffs was raised in First Arlington National Bank v. Stathis, 115 Ill.App.3d 403, 71 Ill.Dec. 145, 450 N.E.2d 833 (1983). There the court stated that "the obvious flaw in plaintiff's position is that, if adopted, it would c......