Ricci v. Reed
| Decision Date | 10 May 1988 |
| Docket Number | No. 87-1612,87-1612 |
| Citation | 120 Ill.Dec. 307,523 N.E.2d 1218,169 Ill.App.3d 1062 |
| Parties | , 120 Ill.Dec. 307 Thomas C. RICCI, Plaintiff-Appellant, v. William S. REED and Reed & Company, Inc., an Illinois Corporation, a/k/a W.S. Reed and Company, Inc., Defendants-Appellees. |
| Court | United States Appellate Court of Illinois |
Bellows and Bellows, Chicago, for plaintiff-appellant.
William J. Bolotin, Phelan & Doyle, Ltd., Chicago, for defendants-appellees.
Plaintiff brought this action to recover a $50,000 loan which he alleged was personally guaranteed by defendant, William S. Reed, president of defendant corporation. Following a bench trial, the court entered judgment against the corporate defendant for the amount of the loan plus interest but found William Reed was not personally liable for the loan. Plaintiff appeals from the judgment in favor of William S. Reed, individually.
In late January 1973, defendant William Reed approached plaintiff, Thomas Ricci, a member of the Chicago Mercantile Exchange (hereinafter referred to as the "Exchange"), and requested that Ricci loan $50,000 to Reed & Company. At that time, Reed & Company, was having difficulty meeting the capital requirements for a clearing firm on the Exchange.
Initially, Reed suggested that Ricci purchase $50,000 of non-voting stock in Reed & Company. Subsequently, Ricci chose to lend the money to Reed & Company in return for William Reed's personal guarantee. Ricci and Reed agreed that in lieu of interest on the loan, Ricci would clear his trades through Reed & Company, for Exchange fees only.
On February 5, 1973, Ricci loaned Reed & Company $30,000 by transferring the money from his trading account to Reed & Company. This was the first instalment of the $50,000 loan. That same day, Reed gave Ricci a handwritten note as follows: This "IOU" was signed "William Reed" and witnessed by Peter Adan. Mr. Adan was the vice president of Reed & Company at that time.
On or about February 20, 1973, Ricci presented Reed with an "Agreement for Sale and Assignment of Stock Interest." That written agreement embodied the initial proposal that Ricci was to purchase $50,000 worth of stock from Reed & Company and provided that Ricci could trade through Reed & Company at a commission rate no greater than fees charged to by the Exchange.
Ricci, however, testified that he decided that he did not want to own non-voting stock in a financially troubled corporation but, instead, would lend the money to Reed & Company on the condition that the entire loan be guaranteed by Reed in his individual capacity.
On February 21, 1973, Ricci transferred the remaining $20,000 of the loan to Reed & Company. At that time, Reed & Company was under financial pressure to obtain sufficient capital before the end of February in order to continue its business pursuant to Exchange rules.
Reed explained to Ricci that the Exchange rules required a lender to sign a subordinated loan document. Without the execution of a subordinated loan agreement, Ricci's $50,000 loan to Reed & Company would be unavailable for capitalization purposes. The testimony of Mr. Berry, financial officer of Reed & Company at the time, corroborated the urgent need for Ricci's money to be used to satisfy the capital requirements of the Exchange.
On February 28, 1973, Reed presented the Subordinated Loan Agreement to Ricci. Ricci agreed to execute the Agreement if Reed personally guaranteed the $50,000 loan. It is uncontested that Ricci fully understood the ramifications of the Subordinated Loan Agreement.
Reed handed Ricci a personal check for $50,000 made payable to plaintiff and bearing the notation: "Purchase of Loan to Reed & Co." Satisfied with Reed's personal guarantee and check, Ricci executed the Subordinated Loan Agreement.
An interest provision contained in the Subordinated Loan Agreement had been stricken pursuant to the agreement between Ricci and Reed that Ricci would trade for Exchange fees only, in lieu of interest, as long as Reed & Company was a clearing member of the Exchange and the loan remained unpaid.
Ricci continued to trade for Exchange fees through Reed & Company from February 1, 1973 until June, 1974, at which time Reed & Company went out of business.
At trial, Reed claimed that he did not personally guarantee the loan. He stated that the notation on his check was not given to "buy" the loan, rather, he had made a "bad choice of words." He meant to give Ricci the option to take his money back. It is uncontested that Reed's "IOU" and check were executed in his individual capacity.
Mr. Berry testified that Reed & Company did not have sufficient funds to meet its Exchange requirements on February 28, 1973.
Subsequent to June 1974, Ricci demanded payment. Neither Reed & Company nor Mr. Reed paid the loan and Ricci filed this cause of action.
After a bench trial, the court found, inter alia : (1) while plaintiff's testimony was credible, Reed's personal guarantee fell within the Statute of Frauds as a matter of law; (2) the notation on Reed's personal check was insufficient to take the transaction out of the Statute of Frauds; (3) Reed executed the note in his individual capacity; (4) the $30,000 loan, evidenced by the "IOU" did not satisfy Reed's need for capitalization of $50,000; (5) the "IOU" was never intended to be an end of itself but was part payment of the $50,000 loan; and (6) the "IOU" merged into the subordinated loan agreement between the corporate defendant and plaintiff.
After a hearing on clarification of judgment, the court entered judgment in favor of plaintiff and against defendant Reed & Company in the sum of $50,000 plus statutory interest from the date of default on the loan and Judgment for William Reed and against plaintiff. This appeal followed.
A trial court's determination on a guaranty agreement will not be set aside unless contrary to the manifest weight of the evidence. (State Bank of East Moline v. Cirivello (1978), 74 Ill.2d 426, 432, 24 Ill.Dec. 839, 386 N.E.2d 43.) Application of that standard to the facts in this case demonstrates that the trial court's determination was indeed against the manifest weight of the evidence.
The first question is whether the facts bring this case within the Statute of Frauds. (Ill.Rev.Stat.1985, ch. 59, par. 1.) The statute provides, in part:
"That no action shall be brought * * * to charge the defendant upon any special promise to answer for the debt, default or miscarriage of another person * * *, unless the promise or agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith, or some other person thereunto by him lawfully authorized."
Ill.Rev.Stat.1985, ch. 59, par. 1.
It is well settled that only a collateral promise is within the meaning of the term "special promise" in the statute. An original or independent promise is not a "special promise" within the statute. (Swartzberg v. Dresner (1st Dist.1982), 107 Ill.App.3d 318, 324, 63 Ill.Dec. 211, 437 N.E.2d 860, appeal denied, 91 Ill.2d 581; Bonner & Marshall Co. v. Hansell (1st Dist.1914), 189 Ill.App. 474, 481) When a promise to guarantee a loan to another is part of the consideration for the loan, the promise is "original" and does not fall within the purview of the Statute of Frauds. Bonner, 189 Ill.App. 474, 481.
Illinois courts have generally distinguished between collateral and original promises, not from the particular words used, but from all of the circumstances of the transaction. 189 Ill.App. 474, 481-82.
If the promisor is a stranger to the transaction, without interest in it, the obligations of the statute are to be strictly upheld....
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