Source: http://seymourcpa.com/recovering-defendants-attorneys-fees-consumer-fraud-act-plaintiffs-worry-not
Timestamp: 2019-04-19 06:33:04+00:00

Document:
How a Guarantor Became a Surety - Seymour & Associates, S.C.
In Wurster et.al. v. Albrecht17 the Appellate Court for the Second District examined the section of the Sureties Act quoted above and found that if not for the statutory provision, the holder of the note would not be required to comply with the surety’s demand to sue. However, the “statute was undoubtedly enacted for the purpose of compelling diligence by a creditor to the end that a surety may be protected against loss.”18 Thus, if demand is made by the surety under the provisions of the Section 1 of the Sureties Act and a lawsuit is not diligently brought by the creditor, then the surety may be protected from liability to the creditor.
It was not until the Second District Appellate Court’s decision in JP Morgan Chase Bank, N.A. that the protections of the Sureties Act have been extended to apply to a guarantor. The facts of JP Morgan Chase Bank, N.A. are stated fairly simply: the plaintiff in the case extended a line of credit to the primary defendant, Earth Foods, Inc. (Earth Foods), which was “personally guaranteed” by three co-owners of Earth Foods.19 The defendants sent the plaintiff a letter in which they warned that Earth Foods was depleting its inventory and demanded that the plaintiff take action. When the plaintiff filed suit against Earth Foods and the co-guarantors, the co-guarantors responded by asserting an affirmative defense based on the protections found in Section 1 of the Sureties Act.
The circuit court granted the plaintiff’s motion for summary judgment on the ground that defendants were guarantors, not sureties, and, therefore, the Sureties Act did not apply. On appeal, the defendants argued, in part, that the circuit court erred when it found that the provisions of the Sureties Act did not apply. The Plaintiff countered with its successful argument in the circuit court that the Sureties Act did not apply because the defendants were guarantors, not sureties.
However, that did not end the court’s examination of the relationship between sureties and guarantors, though it did seemingly end any chance the plaintiff had of prevailing. The court went on to state that “the dictionary definition [of the term surety] does not in this case provide the ‘popularly understood’ meaning of the term.”23 After alluding to the fact that it did not agree with the definition of the word “surety” found in Black’s Law Dictionary, the court set out on an extended analysis of the use of the words surety and guaranty.
After the analysis described above, the Court circled back to the issue of whether the legislature intended to distinguish between a surety and a guaranty or whether the legislature meant to use the term surety in its general sense to describe both surety and guaranty scenarios. The court concluded that based upon the intertwined use of the terms guaranty and surety and the confusion surrounding the use of the term surety, the “legislature did not mean to draw the type of precise distinctions we discussed above, but instead used the word in its general sense.”37 That court offered no authority for its determination of what the legislature intended.
It would seem that the very essence of the legislature is to make precise distinctions between divergent positions in the statutes that it enacts. Certainly, some statutes allow for more than one reasonable interpretation. However, where the legislature has specifically used a single, precisely defined term and left out another related, yet distinctly different, term, it would seem that the statute should be read to include only the term that has been used to the exclusion of the unused term.
An example of the fine distinctions made by the legislature and enforced by the appellate court is demonstrated in Micro Switch Employees’ Credit Union v. Collier.38 In that case, the plaintiff loaned $7,300 to the defendant for him to purchase a car from a car dealer. The defendant fell into arrears, so the plaintiff repossessed the car and filed suit for certification of title and judgment in the amount owed on the loan. The circuit court granted judgment in the plaintiff’s favor, and the defendant appealed arguing that the Motor Vehicle Retail Installment Sales Act (“MVRISA”) applied to the transaction and that the plaintiff violated the provisions of the MVRISA with respect to the notice required to be provided to the defendant.
Though the language of the statute at issue in Micro Switch Employees’ Credit Union may not have the history of double use that the term surety has, it is difficult to determine how the language of the Sureties Act is any less certain than that of the MVRISA that would prompt the court to step outside of the clear language of the statute and apply it to guarantors as well as sureties.
As support for its decision, the court notes that the Sureties Act was created “to compel diligence by a creditor to make certain a surety is protected against loss” and that such purposes would be better served by extending such protections to guarantors and sureties.44 The court continued, “Given the [Sureties] Act’s purpose, which applies to sureties and guarantors alike, and given the exceptionally close relationship between those two terms, we agree with defendant’s position that the legislature must have intended the word ‘surety’ in the [Sureties] Act to encompass a guarantor.”45 The court did not make reference to any Illinois authority for its determination that the Sureties Act should apply to guarantors as well as sureties. However, it did refer to a decision from the First Circuit of the United States Court of Appeals that interpreted the Sureties Act and found that is applied to guarantors and sureties alike.
When asked by a client for advice regarding surety and guaranty agreements, the Illinois practitioner would be wise to advise his clients as to the differences between sureties and guarantees as they relate to the applicability of the Sureties Act. Additionally, as long as JP Morgan Chase Bank, N.A. remains authority, clients should also be counseled that a court may determine that the Sureties Act applies to both surety and guaranty agreements.
1 No 2-07- 0045 (Ill. App. 2d Dist. Nov. 4, 2008) (2008 WL 4880189) (leave to appeal granted Jan. 28, 2009).
2 Vermont Marble Co. v. Bayne, 356 Ill. 127, 136, 190 N.E. 291, 295 (1934) (Justice Orr, dissenting).
3 Id. at 132, 190 N.E.2d at 294.
4 Chandler v. Maxwell Manor Nursing Home, 281 Ill. App. 3d 309, 321, 666 N.E.2d 740, 749 (1 st Dist. 1999).
5 Kreizelman v. Stevens, 311 Ill. App. 3d 161, 168, 35 N.E.2d 532, 535 (1941).
6 Vermont Marble Co., 356 Ill. at 132, 190 N.E. at 293.
7 Chandler, 281 Ill. App. 3d at 322, 666 N.E.2d at 749.
8 Vermont Marble Co., 356 Ill. at 133, 190 N.E. at 294; City Nat’l Bank of Murphysboro, Ill. v. Reiman, 236 Ill. App. 3d 1080, 1093, 601 N.E.2d 316, 324 (5 th Dist. 1992).
9 Vermont Marble Co., 356 Ill. at 131, 190 N.E. 293.
10 Id. at 132, 190 N.E. at 294.
11 Id. at 131, 190 N.E. at 293.
12 Id. at 133, 190 N.E. at 294.
14 740 ILCS 155/0.01.\ et seq.
15 City Nat’l Bank of Murphysboro, Ill., 236 Ill. App. 3d at 1091, 601 N.E.2d 323.
17 237 Ill. App. 284 (2d Dist. 1925).
18 Wurster v. Albrecht, 237 Ill. App. 284, 288 (2d Dist. 1925).
19 From the appellate court’s opinion, it does not appear as though the issue of whether the guaranty may have actually been a surety was raised.
20 JP Morgan Case Bank, N.A. v. Earth Foods, Inc. No 2-07- 0045, slip op. at 5 (Ill. App. 2d Dist. Nov. 4, 2008).
38 175 Ill. App. 3d 828, 530, N.E.2d 595 (2d Dist. 1988).
39 Micro Switch Employees’ Credit Union v. Collier, 175 Ill. App. 828, 830, 530 N.E.2d 595, 596 (2d Dist. 1988).
42 Id. at 831, 530 N.E.2d at 597.

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