Sahadi v. Continental Illinois Nat. Bank and Trust Co. of Chicago

• Decision Date: 01 June 1983
• Docket Number: No. 82-1767,82-1767
• Parties: Fred N. SAHADI and Helen Sahadi, Individually and as Assignees of the Claims of the Trustee of Great Lakes and European Lines, Inc., Bankrupt, Plaintiffs-Appellants, v. CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF CHICAGO, a National Banking Association, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 193

706 F.2d 193

Fred N. SAHADI and Helen Sahadi, Individually and as

Assignees of the Claims of the Trustee of Great

Lakes and European Lines, Inc., Bankrupt, Plaintiffs-Appellants, v. CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF

CHICAGO, a National Banking Association, Defendant-Appellee.

No. 82-1767.

United States Court of Appeals, Seventh Circuit.

Argued Dec. 8, 1982.

Decided March 31, 1983.

As Modified April 5, 1983.

As Amended on Denial of Rehearing and Rehearing En Banc June 1, 1983.

Thomas K. McQueen, Jenner & Block, Chicago, Ill., for plaintiffs-appellants.

Paul E. Plunkett, Mayer, Brown & Platt, Chicago, Ill., for defendant-appellee.

Before WOOD and ESCHBACH, Circuit Judges, and HOFFMAN, Senior District Judge. ^*

HARLINGTON WOOD, Jr., Circuit Judge.

This is an appeal from the district court's order granting partial summary judgment in favor of the defendant-appellee Continental Illinois Bank (the Bank) in an action alleging that the Bank breached its agreement with the plaintiff-appellant's business, Great Lakes and European Lines, Inc. (GLE), by calling a $7 million loan when GLE tendered interest payments less than one day after they were due. On appeal, the plaintiffs argue that the district court erred in granting summary judgment because there existed an array of genuine and material disputed factual issues concerning, inter alia, whether GLE's day-late tender of payment was a "material" breach of the underlying agreement warranting the Bank's calling of the loan, whether the Bank's conduct in accepting late interest payments under the predecessor loan agreement with GLE resulted in a waiver of its right to call the loan for the delayed tender without notice, and whether the Bank's calling of the loan without notice violated its duty of "good faith" under the Uniform Commercial Code and the common law. Because there existed a genuine factual dispute at least as to the question of whether there was a "material" breach of the agreement, we find that the district court's award of summary judgment to defendant on the question of breach was inappropriate, and we remand for a trial.

I.

Viewing the facts in the light most favorable to the plaintiffs, as we must, there emerges a story of financial brinkmanship and opaque dealing in which neither side emerges wholly blameless. GLE, an international shipping line, began its relationship with the Bank in 1976 with a $3 million loan, personally guaranteed by the Sahadis. The Bank increased its loan commitment to $11 million in 1977, a commitment upon which GLE relied in expanding its business Negotiations ensued in which, the evidence indicated, the Bank primarily sought to obtain release from the Sahadis and GLE of their claims stemming from the Bank's purported breach of its loan commitment, and to obtain further collateral from the Sahadis to secure their guarantee of the outstanding loan. The Bank also sought to have GLE's outstanding interest payments, which had been withheld during the several months of the dispute, brought up to date.

but which was repudiated by the Bank, to the detriment of GLE, when personal and institutional friction developed between the parties. The parties quickly reached a stalemate, with GLE threatening to sue the Bank for breach of its loan commitment and the Bank threatening to call the loans already extended. Meanwhile, GLE successfully interested another lender which conditioned its backing on GLE's settlement of its differences with the Bank.

The negotiations resulted in two agreements executed on October 25, 1977. One agreement ran between the Sahadis and the Bank, completely releasing the Bank from any claims stemming from its failure to fulfill the loan commitment; it also extensively collateralized the Sahadis' guarantee of the Bank's outstanding loan to GLE. The other agreement, cross-referenced to the first and running between GLE and the Bank, provided in turn for the payment of interest and for the Bank's forbearance from demanding payment of the entire outstanding loan and accrued interest:

1. [The Bank] hereby agrees to forbear from demanding payment of the Liabilities during the period ending December 31, 1977, except for payment of current interest thereon as more fully set forth in clause (i) of paragraph 3 below.

The agreement went on to state:

3. Notwithstanding the foregoing, [the Bank] may demand payment in full of the Liabilities prior to December 31, 1977 if ... (i) [GLE] shall fail to make payment of interest accrued on the Liabilities through September 30, 1977 on or before November 15, 1977.

This latter paragraph, as initially drafted, provided for October 7, 1977 as the deadline for the payment of accrued interest. This date was changed to November 15, 1977 at Sahadi's request with no objection by the Bank; moreover, there was no evidence that the precise date on which accrued interest was to be paid was ever a point of contention in the negotiations.

Despite the seeming air of reconciliation surrounding these agreements and despite the fact that the Bank had routinely accepted late interest payments from GLE under the underlying loan which the agreement modified, plaintiff's evidence established that after October 25, the Bank furtively prepared to take advantage of GLE's propensity for late payment to call the loan under the technical letter of the new agreement. Although the Bank sent a billing to GLE headquarters on November 9, 1977 reminding GLE of the interest due on November 15 and referring to the October 25, 1977 agreement, the letter made no mention of the Bank's intent to call the loan if payment did not arrive on the precise contractually specified date. In speaking with top GLE representatives on November 14 and 15, the Bank made no mention of its intent to call the loan.

Sahadi was reminded by a subordinate on November 14 of the November 15 interest payment date, but Sahadi responded that the payment should be delayed so that GLE monies in Chicago would be available to satisfy other immediate liabilities. As Sahadi noted in his affidavit, "There was no great significance attached to the payment of interest in this covenant; it did not occur to us that the bank would treat the interest payment date any differently than it had treated previous payment dates." On the morning of November 16, a GLE representative was queried by the Bank as to whether the interest payments had been made; when the GLE representative responded negatively but indicated that the payment would be made by the end of the week, the Bank representative responded that the matter could be discussed later that day. At that later meeting, the Bank presented the surprised GLE representative with notification The Sahadis, indirectly as assignees of GLE, thereafter filed this action against the Bank, seeking release from their personal guarantee agreement and damages for the destruction of GLE. Chiefly, they contended that GLE's brief delay in tender of the November 15 interest payment did not amount to a "material" breach of the October 25 agreements justifying the Bank's cessation of forbearance, and that the Bank's conduct was in any case unjustified under principles of waiver and "good faith."

                that the loan was called.  The GLE representative immediately offered to tender payment for the due interest from the company's account with the Bank, but the Bank refused. 1   The calling of the loan destroyed GLE and subjected the Sahadis to liability on the personal guarantee
                

In granting partial summary judgment to the Bank, the district court rejected the Sahadis' waiver argument, but did not directly address their "material" breach or "good faith" contentions, either of which, the Sahadis argued, required a trial to assess the conflicting evidence. Instead, the district court chose the alternative analytical framework of "ambiguity" and held that, since the November 15 date was not "ambiguous," there was no room for factual difference as to whether a brief delay in payment was permitted. After the district court denied the Sahadis' motion for reconsideration, this appeal followed.

II.

The limitations upon the use of summary judgment are stringent, and we may not affirm the district court's order unless the record reveals the absence of any genuine issue of material fact. Fed.R.Civ.P. 56(c). We cannot agree with the district court that under Illinois law, expressly made applicable in the agreements here, this record presents no issues of material fact requiring a full trial. While outstanding issues of material fact may well exist also in relation to the Sahadis' waiver and breach of "good faith" claims, we need not reach those questions here and so confine our analysis for the purposes of this appeal to the issues of "material" breach.

It is black letter law in Illinois and elsewhere that only a "material" breach of a contract provision by one party will justify non-performance by the other party. See Janssen Bros. v. Northbrook Trust and Savings Bank, 12 Ill.App.3d 840, 299 N.E.2d 431, 434 (2d Dist.1973); Herbert Shaffer Associates, Inc. v. First Bank of Oak Park, 30 Ill.App.3d 647, 332 N.E.2d 703, 710 (1st Dist.1975); Anderson v. Long Grove Country Club Estates, 111 Ill.App.2d 127, 249 N.E.2d 343, 349 (2d Dist.1969); Wright v. Douglas Furniture Corp., 98 Ill.App.2d 137, 240 N.E.2d 259, 262 (1st Dist.1968); See also C.G. Caster Co. v. Regan, 88 Ill.App.3d 280, 43 Ill.Dec. 422, 426, 410 N.E.2d 422-426 (1st Dist.1980); John Kubinski & Sons, Inc. v. Dockside Development Corp., 33 Ill.App.3d 1015, 339 N.E.2d 529, 534 (1st Dist.1975); 5 Williston on Contracts Secs. 675, 805 (3d ed. 1961); Restatement (Second) of Contracts Sec. 229 (1979). Moreover, the determination of "materiality" is a complicated question of fact, involving an inquiry into such matters as whether the breach worked to defeat the bargained-for objective of the parties or caused disproportionate prejudice to the...