International Supply Co. v. Campbell

• Decision Date: 23 April 2009
• Docket Number: No. 3-08-0221.,3-08-0221.
• Citation: 907 N.E.2d 478
• Parties: INTERNATIONAL SUPPLY COMPANY, an Illinois corporation, and E. Lee Hofmann, an Illinois Resident, Plaintiffs-Appellants and Cross-Appellees, v. Roland E. CAMPBELL, an Illinois Resident, Melody L. Campbell, an Illinois Resident, and John K. Miller, an Illinois Resident, Defendants-Appellees and Cross-Appellants.
• Court: United States Appellate Court of Illinois

907 N.E.2d 478

INTERNATIONAL SUPPLY COMPANY, an Illinois corporation, and E. Lee Hofmann, an Illinois Resident, Plaintiffs-Appellants and Cross-Appellees, v. Roland E. CAMPBELL, an Illinois Resident, Melody L. Campbell, an Illinois Resident, and John K. Miller, an Illinois Resident, Defendants-Appellees and Cross-Appellants.

No. 3-08-0221.

Appellate Court of Illinois, Third District.

April 23, 2009.

Joseph B. VanFleet, Brian A. Peterson (argued), VanFleet Law Offices, Peoria, for International Supply Co.

Stephen J. Thomas, Jackson Thomas LLP, Peoria, for Roland E. Campbell.

Jeffrey B. Rock (argued), Hasselberg, Rock, Bell & Kuppler, Peoria, for John K. Miller.

Justice CARTER delivered the opinion of the court:

Plaintiffs (International Supply Company and E. Lee Hofmann) filed a two-count complaint against defendants (Roland E. Campbell, Melody L. Campbell, and John K. Miller) for breach of contract. After a bench trial, the trial court ruled in plaintiffs' favor on count I of the complaint (the personal guaranty claim) but stayed the judgment on that claim until certain real property held by plaintiffs as collateral was sold. On count II of the complaint (the loan assistance claim), the trial court ruled in defendants' favor. Both sides appeal. The issues raised on appeal are: (1) whether the trial court erred in ruling in plaintiffs' favor on the personal guaranty claim, (2) whether the trial court erred in staying the judgment on the personal guaranty claim, and (3) whether the trial court erred in ruling in defendants' favor on the loan assistance claim. We reverse the trial court's ruling on the personal guaranty claim, enter judgment in defendants' favor on that claim, vacate the portion of the trial court's order staying judgment on the personal guaranty claim, and affirm the trial court's ruling on the loan assistance claim.

FACTS

Defendants and a person named Roland Pitcher (the original investors) sought to develop a convention center (the project or the development) in East Peoria, Illinois. For that purpose, the original investors purchased two adjacent tracts of land, referred to as "the convention center property" and "the Powley property."¹ In 2003, plaintiffs—Hoffman and his company, International Supply Company—were brought into the project to help the original investors secure additional financing from a local bank. Hoffman was a business person and a friend of Miller's.

To obtain the additional financing that the original investors sought, plaintiffs borrowed approximately $3.8 million from Central Illinois Bank (the CIB loan) and guaranteed an additional $1.4 million of existing debt (the Powley loan) that was incurred by the original investors in purchasing the Powley property.² Although Hofmann was a primary obligee on the CIB loan, it was the intention of the parties that the cash flow from the development would be sufficient to pay both the CIB loan and the Powley loan (the two loans).

In return for plaintiffs helping to secure the additional financing, the original investors agreed to pay plaintiffs a $500,000 loan assistance fee. To provide security to plaintiffs, the original investors also agreed to place the deeds to the two properties in escrow to be transferred to plaintiffs in the event of a default on either loan. In addition, Pitcher, Miller, and Roland Campbell signed an unconditional personal guaranty, in which they essentially agreed to reimburse or indemnify plaintiffs for any losses resulting from a default on either loan up to $1.3 million ($300,000 as to Pitcher and $500,000 each as to Miller and Roland Campbell). Those promises were given effect through a series of complicated documents that were interrelated. The documents were prepared by plaintiffs' attorney and were signed by the parties on November 7, 2003, at the closing on the CIB loan. The original investors were not represented by an attorney at the closing and there was some testimony at the later trial that Hofmann had told the original investors that they could save a lot of money by having his attorney draft all of the documents.

Although there are numerous documents in the record, the four main documents that the parties have focused on throughout the proceedings in the trial court and on appeal are a personal guaranty, a loan assistance agreement, a unit pledge agreement, and an escrow agreement. The personal guaranty was signed by Pitcher, Miller, and Roland Campbell in their individual capacities. In the text of the personal guaranty, Pitcher, Miller, and Roland Campbell were referred to as the "guarantors." The personal guaranty provided that Pitcher, Miller, and Roland Campbell would: (1) unconditionally guaranty full and prompt payment of all of the indebtedness, liabilities, and obligations of every kind incurred by plaintiffs as a result of a default on either of the two loans; (2) pay all costs and expenses, including reasonable attorney fees, incurred by the lenders in attempting to collect upon plaintiffs' obligations under the two loans; (3) have a total liability under the personal guaranty of up to $1.3 million ($300,000 as to Pitcher and $500,000 each as to Miller and Roland Campbell); and (4) waive all legal and equitable defenses regarding enforcement of the personal guaranty, including the fact that plaintiffs could be deemed to be oversecured with collateral. The personal guaranty provided further that plaintiffs had the right to enforce the personal guaranty without first attempting to liquidate any collateral and that plaintiffs would look to the collateral for any damages exceeding the $1.3 million limit.

The loan assistance agreement was signed by all of the original investors in their individual capacities and by plaintiffs. The written text of the loan assistance agreement referenced the personal guaranty, the unit pledge agreement, and the escrow agreement. Plaintiffs and a certain limited liability company related to the development were referenced in the loan assistance agreement as the "[g]uarantors." The loan assistance agreement provided that: (1) plaintiffs would receive a $500,000 loan assistance fee out of the loan proceeds at the closing on the CIB loan; (2) that fee would be reduced by a certain amount (and that portion returned) if plaintiffs were released early from their obligations under the two loans (e.g., the fee would be reduced by $150,000 if plaintiffs were released within the first year); (3) plaintiffs would receive an additional annual fee of $100,000 if plaintiffs were not released from their obligations under the two loans within three years; (4) plaintiff Hofmann would receive a one-third ownership interest in the Powley property and a certain number of membership units (securities) in the limited liability company that owned the Powley property; (5) as additional collateral security to protect plaintiffs in the event of a default on either of the two loans, the original investors would pledge all of their units of membership in the limited liability companies that were involved in the development by way of the unit pledge agreement and would place in escrow security quit claim deeds transferring both properties to plaintiffs, which would be given effect and recorded in the event of a default as specified in the escrow agreement; (6) while plaintiffs' obligations on the two loans remained, plaintiff Hofmann would serve as the operating manager of the limited liability companies involved in the development; and (7) if there was no default in either loan and plaintiffs were released from their obligations under the two loans, plaintiffs would cancel the personal guaranty contract and the deeds in escrow, would transfer ownership in the Powley property and in the limited liability companies involved in the project back to the original investors, and would take the steps necessary to completely remove themselves from the project. As to the loan assistance fee, testimony at the later trial established that plaintiffs were paid the original $500,000 fee in November of 2003 at the closing on the CIB loan.

The unit pledge agreement was signed by all of the original investors, by plaintiffs, and by plaintiff Hofmann as the authorized representative of the limited liability companies involved in the development. The unit pledge agreement provided that: (1) as security for plaintiffs' obligations under the two loans, the original investors would pledge all of their ownership interest in the form of securities or units of membership in the various limited liability companies involved in the project; (2) if there was a default on either of the two loans that was not cured, all of the ownership interest in the limited liability companies (the pledged securities) would be transferred to plaintiffs; (3) if no default occurred and plaintiffs were released from their obligations under the two loans, the ownership interest would be returned to the original investors; (4) in the event of a default, plaintiffs as the pledgees had the rights and remedies available under the Uniform Commercial Code (810 ILCS 5/1-101 et seq. (West 2006)), including the right to sell the pledged securities; (5) if the pledged securities were sold as the result of a default, the remaining proceeds would be returned to the original investors after the expenses of the sale were taken out and all of the liabilities were paid in full; and (6) while the loans were pending, the original investors retained the voting rights of the pledged securities, unless the loans were in default, then plaintiffs would have the right to vote the pledged securities.

The escrow agreement was signed by all of the original investors, by plaintiffs, and by plaintiff Hofmann as the authorized representative of the limited liability companies involved in the development. Plaintiffs and a certain limited liability company related to the development were referenced in the escrow agreement as the "guarantor...