NO. 5-00-0434

	IN THE

	APPELLATE COURT OF ILLINOIS

	FIFTH DISTRICT

________________________________________________________________________

MILDRED E. EMRICK,				)  Appeal from the

							)  Circuit Court of

     Plaintiff-Appellant,				)  Union County.

							)

v.							)  No. 97-L-14

							)

FIRST NATIONAL BANK OF JONESBORO	)	

and SCOTT WILKINS,				)  Honorable

							)  D.D. Bigler,

     Defendants-Appellees.				)  Judge, presiding.

________________________________________________________________________

	JUSTICE KUEHN delivered the opinion of the court:

	Mildred E. Emrick appeals from the trial court's April 14, 1999, and June 14, 2000,

orders relative to the defendants' summary judgment motion.  We reverse and remand.

	This suit stems from a dispute involving the manner in which the First National Bank

of Jonesboro applied the proceeds from a sale of collateral.  On August 20, 1992, Jeff

Emrick, who owned and operated a trucking company known as Emrick Trucking, Inc.,

borrowed $421,252 from the First National Bank of Jonesboro (the Bank) for purposes of

debt consolidation.  Jeff Emrick is the son of Mildred E. Emrick.  The August 20, 1992, loan

was secured by a security agreement, bearing the same date, between Jeff Emrick, doing

business as Emrick Trucking, Inc. (Emrick Trucking), and the Bank.  That security

agreement gave the Bank a security interest in several trucks, trailers, and other equipment

in the event of a default on the loan.  However, the Bank felt that it needed further

guaranties in order to make this loan, and it required Mildred to personally guaranty the

August 20, 1992, loan up to $150,000.  On that same date, Mildred signed a guaranty

document to which only she and the Bank were parties.  That guaranty was secured by a mortgage on her home.

	On January 3, 1994, Emrick Trucking borrowed an additional $30,000 from the Bank

to pay bills and expenses.  This loan was not specifically secured.  Mildred was not a party

to this loan, and she did not specifically guaranty its repayment.  The original security

agreement between Emrick Trucking and the Bank contained language that could be

construed as including this second loan.  The security interest Emrick Trucking gave the bank

applied to the original loan and to "all other additional indebtedness or liabilities for which

[Emrick Trucking] is now or may become liable to [the Bank]."  Mildred's guaranty

contained no such similar language.

	Sometime during that first quarter of 1994, Emrick Trucking defaulted on both loans. 

Apparently without the Bank's consent, Emrick Trucking sold most of the trucks, trailers, and

other equipment pledged as collateral on the first loan, raising $343,252.  Proceeds from

these sales were given to the Bank.  The Bank applied these proceeds first to pay off the

unsecured $30,000 note and then to reduce the outstanding balance owed on the first note. 

After taking these steps, $108,000 remained due on the original loan.

	Since there was still a deficiency on the original loan, the Bank instituted a mortgage

foreclosure action against Mildred.  It appears that Mildred sold a portion of her real estate

for $108,917.32, but the record and briefs do not clarify if she sold it pursuant to the

foreclosure or otherwise.  In any event, the Bank applied those proceeds to the principal

balance still due on the original note.  The Bank dismissed the foreclosure suit for reasons

that cannot for certain be determined from the record, although it appears that the Bank

dismissed the suit when Mildred offered the Bank an amount equaling the balance owed on

the first loan.

	Mildred sued the Bank for breach of the guaranty document she had signed. 

Specifically, Mildred objected to the Bank's application of the proceeds of the sale of

collateral to the unsecured note before the application of any amount to the loan to which her guaranty was connected.  Mildred contended that the Bank's giving priority to the unsecured

loan  increased her risk under the guaranty.  The Bank filed a motion for summary judgment

claiming that the first loan and security agreement, to which Mildred was not a party, gave

it the right to apply the proceeds from the sale of collateral to the subsequent loan.  The Bank

also contended that the issues Mildred raised in her suit were compromised by way of an

accord and satisfaction, in that Mildred offered the $108,917.32 in full satisfaction of her

$150,000 guaranty and the Bank accepted her offer.  

	During the pendency of this case, Mildred amended her complaint to add Scott

Wilkins, the Bank's president, as an additional defendant.  She essentially made the same

allegations against Scott Wilkins as she had made against the Bank.  As the bank president,

he was the one allegedly responsible for making the priority determinations when the money

from the sale of collateral was presented to the Bank.1

	The motion for summary judgment was originally filed in late February 1998 and was

later withdrawn and refiled in June 1998.  The motion was set for a hearing on September

30, 1998, at which time the parties were given 30 days in which to file briefs.  By docket

entry we know that the trial judge reviewed the documentation filed by Mildred in mid-

March 1999.  On April 6, 1999, the trial judge filed his docket entry indicating his intent to

grant the Bank's summary judgment motion.  The order was signed by the trial judge and

filed on April 14, 1999.  The order contained no basis for the decision.  Mildred appealed

that decision to this court.  On August 17, 1999, we dismissed the appeal because Mildred

lacked jurisdiction pursuant to Supreme Court Rule 304(a) (155 Ill. 2d R. 304(a)), in that the

order from which she appealed did not involve all of the parties and the summary judgment order did not indicate that there was no just reason for delaying either enforcement or appeal. 

	Thereafter, on February 7, 2000, defendant Scott Wilkins filed his motion for

summary judgment on the same grounds as those included in the Bank's earlier-granted

motion.  The motion was set for hearing on June 7, 2000.  The trial judge entered its order

granting Scott Wilkins's summary judgment motion on June 14, 2000.  As with the Bank's

order, the trial judge included no reasons for his decision.  Mildred appeals from both orders.

	In determining the appropriateness of a summary judgment, the trial court strictly

construes all evidence in the record against the movant and liberally in favor of the opponent. 

Purtill v. Hess, 111 Ill. 2d 229, 240, 489 N.E.2d 867, 871 (1986).  The court must consider all pleadings, depositions, admissions, and affidavits on file to decide if there is any issue of

material fact.  Myers v. Health Specialists, S.C., 225 Ill. App. 3d 68, 72, 587 N.E.2d 494, 497 (1992).  On appeal, courts review summary judgment orders de novo.  Myers, 225 Ill. App. 3d at 72, 587 N.E.2d at 497.

	Simply stated, the Bank's position is that the original security agreement signed by

Emrick Trucking allowed it to do whatever it wanted with the collateral proceeds in the event

of a default on the loan.  The Bank believes that its position is accurate even with respect to

the subsequent loan and that it was specifically allowed to apply the proceeds to whichever

loan it deemed appropriate, because of the all-inclusive language of the original security

agreement.  Mildred counters that she was never a party to the original security

agreement–only to the guaranty.  Consequently, Mildred contends that she cannot be held

to the language contained within that security agreement.  She argues that because the Bank

paid the balance of the second loan before it reduced the balance owed on the original loan,

the amount of money for which she was potentially "on the hook" was increased.  

	Will the language of the security agreement allow the Bank to impair Mildred's rights

to a portion or all of the guaranteed amount in the remaining collateral proceeds?  We reverse the trial court's orders of summary judgment, hold that the Bank and Scott Wilkins cannot

do what they did with the collateral proceeds, and remand this case to the trial court for

further consideration.

	Upon our review of the documents at issue, it would appear that if we did not consider

Mildred's guaranty and were only concerned with the relationship between Emrick Trucking

and the Bank, then the Bank could do what it did.  A clause contained within the security

agreement applicable to the first loan picks up any subsequent loans.  Such a clause is clearly

allowed under the Uniform Commercial Code (Ill. Rev. Stat. 1991, ch. 26, par. 9-204(3)

(now see 810 ILCS 5/9-204(2)(c) (West 2000))).  Therefore, the Bank could legally apply

the proceeds from the sale of collateral to any loan it selected.

	The problem with the application of this theory to this case is that Mildred was never

a party to the first or second loan documents, nor was she a party to the security agreement. 

By applying the proceeds to the second loan, the Bank increased Mildred's risk under the

guaranty in the amount of $30,000.

	In oral argument, the Bank acknowledged that its actions increased Mildred's risk by

$30,000, but it argued that it was entitled to do so by a key provision contained within her

guaranty.  The Bank argues that paragraph four of her guaranty put Mildred on notice as to

potential subsequent loans.  The specific language at issue is as follows: "Indebtedness may

be created and continued in any amount, whether or not in excess of such principal amount,

without affecting or impairing the liability of *** [Mildred] hereunder."  The Bank

acknowledges that this provision is subject to two separate interpretations.  The Bank argues

that the word "indebtedness" should really read "debt," thus allowing the Bank to make

additional loans over and above the original amount loaned.  The other interpretation is that

the word "indebtedness" refers to the actual amount the Bank loaned initially, and that as the

debt is paid down, additional amounts could be given to the borrower up to the amount of the original debt.

	If there are any doubts relative to the language of a guaranty, those doubts must be

resolved in favor of the guarantor.  Lawndale Steel Co. v. Appel, 98 Ill. App. 3d 167, 173-74, 423 N.E.2d 957, 963 (1981) (quoting Telegraph Savings & Loan Ass'n v. Guaranty Bank & Trust Co., 67 Ill. App. 3d 790, 794, 385 N.E.2d 97, 100 (1978)).  Additionally, the guarantor's undertaking pursuant to the guaranty must be strictly construed, and his or her

liability cannot be varied or extended beyond the precise terms of the guaranty.  Lawndale Steel Co., 98 Ill. App. 3d at 174, 423 N.E.2d at 963 (quoting Telegraph Savings & Loan Ass'n, 67 Ill. App. 3d at 794, 385 N.E.2d at 100).

	In light of these basic tenets of contractual construction, we conclude that the guaranty

Mildred signed did not extend to increase her obligation to include the second loan in the

amount of $30,000.

	The Bank also argues that pursuant to Mildred's guaranty, it had the right to take the

first $150,000 upon her son's default.  In other words, it argues that before collecting upon

her guaranty, it did not need to wait to see how much money was obtained from the sale of

the collateral.  The Bank is correct about this assertion.  However, the Bank further contends

that it essentially did Mildred "a favor" by taking the collateral proceeds and then charging

her for the balance owed–$108,000.  In essence, the Bank argues that it saved Mildred

$42,000.

	In making this argument, the Bank misses an extremely important point.  By first

paying itself back for the $30,000 loan and then applying the balance to the amount owed

under the first loan, $108,000 remained due pursuant to Mildred's guaranty.  If the full

amount of the collateral proceeds, $343,252, was applied to the original loan amount without

regard to the second loan, Mildred would only have been responsible for the $78,000

deficiency.

	In response to this argument, the Bank reiterates its position that it could have merely

taken Mildred's $150,000 before it looked to the collateral.  Furthermore, the Bank argues

that Mildred has no legal or contractual rights to the excess collateral.  If this was true, then

the Bank would serve to profit mightily by not only taking $150,000 from Mildred but also

collecting $343,252 from the sale of collateral.  The Bank is clearly not entitled to receive

more than the amount of its loan.  Consequently, the Bank's argument is flawed.

	The Uniform Commercial Code provides guidance relative to this transaction.  As the

guarantor to a secured party (the Bank), Mildred would become subrogated to the Bank's

rights and duties relative to collateral.  Ill. Rev. Stat. 1991, ch. 26, par. 9-504(5) (now 810

ILCS 5/9-504(5) (West 2000)).  That section states, "A person who is liable to a secured

party under a guaranty *** and who *** is subrogated to his rights has thereafter the rights

and duties of the secured party."  Ill. Rev. Stat. 1991, ch. 26, par. 9-504(5).  Once the

collateral was sold and the proceeds were in the Bank's possession, Mildred became

subrogated to the Bank's rights relative to the collateral.  Simply stated, Mildred would be

entitled to the excess, up to the amount that she was required to expend to make the Bank

whole, pursuant to her guaranty.

	As Mildred did not guaranty the second loan in the amount of $30,000, she could not

be responsible for paying it back.  The Bank's actions in first applying the collateral proceeds

to the second loan increased Mildred's liability pursuant to her guaranty by the $30,000 and

impaired her rights against the collateral in that amount.  Regardless of the contractual rights

the Bank had against Emrick Trucking relative to the second loan, the Bank could not impair

Mildred's rights.

	The Bank also argues that, pursuant to paragraph seven of Mildred's guaranty, she

waived any defenses she might have had.  We disagree.  Paragraph seven of the guaranty

begins with a general waiver and then more specifically details her waiver of all possible defenses that could be raised by Emrick Trucking or otherwise against the Bank relative to

the "indebtedness."  Mildred's arguments are not centered upon the first loan but upon the

fact that she did not guaranty the second loan and should not have had to pay the $30,000

loan.  These were not arguments about the legality of the original loan and her guaranty

thereof.  At best, Mildred waived any defenses she had relative to the original indebtedness. 

Again, to the extent that the term "indebtedness" was subject to two meanings–the original

loan amount or the total of both loans, we construe that ambiguity against the Bank.  

	The Bank also argues that it reached an accord and satisfaction with Mildred when

she paid the remaining deficiency on the original loan, $108,000.

	An accord and satisfaction is basically an agreement between the parties that settles

a bona fide dispute over an unliquidated claim.  A.F.P. Enterprises, Inc. v. Crescent Pork, Inc., 243 Ill. App. 3d 905, 911, 611 N.E.2d 619, 623 (1993).  The three elements of an accord and satisfaction are "(1) an honest dispute between the parties as to the amount due

at the time payment was tendered; (2) a tender of payment with the explicit understanding

of both parties that it is in full payment of all demands; and (3) an acceptance by the creditor

with the understanding that the tender is accepted as full payment."  A.F.P. Enterprises, Inc., 243 Ill. App. 3d at 911, 611 N.E.2d at 623.  Additionally, as an accord and satisfaction is

grounded in contract law, there must be consideration and a meeting of the minds with the

intent to compromise.  A.F.P. Enterprises, Inc., 243 Ill. App. 3d at 911, 611 N.E.2d at 623.  The "intent to compromise" can be inferred from the parties' words and actions.  A.F.P. Enterprises, Inc., 243 Ill. App. 3d at 911, 611 N.E.2d at 623.

	After reviewing the record, which included the depositions of both Mildred and Scott

Wilkins, we conclude that there is a genuine issue of material fact precluding a summary

judgment.  Mildred seemed unclear as to whether or not she disputed the manner in which

the Bank applied the proceeds from the sale of collateral.  However, Scott Wilkins was not uncertain.  He testified that Mildred specifically objected to the application of any of the

proceeds towards the second $30,000 loan.  He indicated that despite her objections, the

Bank proceeded to first extinguish the amount owed on the second loan.  While Scott

Wilkins believed that Mildred's $108,000 payment took care of her obligations pursuant to

the guaranty that she signed, he testified that if Mildred was still disputing the Bank's

planned applications of the collateral proceeds, then all disputes between the parties had not

been resolved.  He additionally testified that Mildred never agreed to the application of the

collateral proceeds to the $30,000 loan and that the Bank never asked her for permission.  

	Based upon the parties' deposition testimony, we find that there is a question as to

whether or not there is a bona fide dispute between the parties.  Additionally, we find that there was no meeting of the minds relative to having the "intent to compromise."  Mildred

did not agree to the Bank's application of the proceeds to the $30,000 loan.  Accordingly,

there was a genuine issue of material fact regarding whether the Bank and Mildred achieved

an accord and satisfaction, and so the summary judgment on that issue was improper.

	For the foregoing reasons, the judgment of the circuit court of Union County is hereby

reversed, and the cause is remanded.

	Reversed; cause remanded.

	MAAG, P.J., and WELCH, J., concur.

                                     	NO. 5-00-0434

	IN THE

	APPELLATE COURT OF ILLINOIS

	FIFTH DISTRICT

___________________________________________________________________________________

MILDRED E. EMRICK,				)  Appeal from the

							)  Circuit Court of

     Plaintiff-Appellant,				)  Union County.

							)

v.							)  No. 97-L-14

							)

FIRST NATIONAL BANK OF JONESBORO	)	

and SCOTT WILKINS,				)  Honorable

							)  D.D. Bigler,

     Defendants-Appellees.				)  Judge, presiding.

___________________________________________________________________________________

Opinion Filed:		September 18, 2001	

___________________________________________________________________________________

Justices:	Honorable Clyde L. Kuehn, J.

	Honorable Gordon E. Maag, P.J., and

	Honorable Thomas M. Welch, J.,

	Concur

___________________________________________________________________________________

Attorneys	D. Keith Kessler, Jr., David M. Foreman, Crain, Miller & Milner, Ltd., 623 E.

for	Broadway, P.O. Box 867, Centralia, IL 62801

Appellant	

___________________________________________________________________________________

Attorneys	Edward Renshaw, Feirich, Mager, Green, Ryan, 2001 West Main Street, P.O. Box

for	1570, Carbondale, IL 62903

Appellees	

___________________________________________________________________________________