Case Name: EDGEWATER CONSTRUCTION CO., Plaintiff-Appellee, v. PERCY WILSON MORTGAGE & FINANCE CORPORATION, Defendant-Appellant.-(STATE BANK OF CLEARING et al., Defendants.)
Court: Illinois Appellate Court
Jurisdiction: Illinois
Decision Date: 1976-11-30
Citations: 44 Ill. App. 3d 220
Docket Number: No. 61977
Parties: EDGEWATER CONSTRUCTION CO., Plaintiff-Appellee, v. PERCY WILSON MORTGAGE & FINANCE CORPORATION, Defendant-Appellant.-(STATE BANK OF CLEARING et al., Defendants.)
Judges: 
Reporter: Illinois Appellate Court Reports, Third Series
Volume: 44
Pages: 220–237

Head Matter:
EDGEWATER CONSTRUCTION CO., Plaintiff-Appellee, v. PERCY WILSON MORTGAGE & FINANCE CORPORATION, Defendant-Appellant.-(STATE BANK OF CLEARING et al., Defendants.)
First District (2nd Division)
No. 61977
Opinion filed November 30, 1976.
JIGANTI, J., specially concurring.
Harvey J. Barnett and Lester Rosen, both of Chicago (Rosenthal and Schanfield, of counsel), for appellant.
Keith F. Bode, Robert L. Byman, and Barbara S. Steiner, all of Chicago (Jenner & Block, of counsel), for appellee.

Opinion:
Mr. JUSTICE DOWNING
delivered the opinion of the court:
Pursuant to Supreme Court Rule 307(a)(1) which authorizes interlocutory appeals as a matter of right,1 defendant, Percy Wilson Mortgage & Finance Corporation (Percy Wilson), appeals an order of the circuit court of Cook County granting a preliminary injunction to restrain the cashing of a letter of credit, the details of which follow.
Plaintiff, Edgewater Construction Co., Inc., filed its verified complaint to enjoin Percy Wilson, State Bank of Clearing (State Bank) and Metropolitan Savings Bank (Metropolitan) from cashing certain letters of credit, and asked for the return of the letters, the return of certain monies held by Percy Wilson, and money damages against Percy Wilson for breach of contract. Percy Wilson filed its verified answer alleging that the complaint failed to state a cause of action; that there was no immediate or irreparable injury to plaintiff; that plaintiff had an adequate remedy at law; and that the complaint failed to allege any legal basis, right, title, or interest on plaintiff's part in or to the letters of credit. Involved in this last defense is the issue that Edgewater Walk Apartments (partnership), a limited partnership, was not a party plaintiff even though the letters of credit clearly state they were issued on behalf of the partnership.
After notice and hearing, the trial court entered an order for a preliminary injunction finding that the equities required that the status quo be preserved during the litigation; that the corporation and partnership, two business entities, would be treated as a single unit; and ordered State Bank to extend the letters of credit during the pendency of the litigation and enjoined it from cashing the letters; and that Metropolitan and Percy Wilson were enjoined from cashing, presenting for cashing, assigning, pledging, hypothecating, or otherwise encumbering the letters of credit. Pending appeal, plaintiff was required to post a bond.
On appeal Percy Wilson claims (1) plaintiff failed to properly plead and prove irreparable injury; (2) plaintiff has an adequate remedy at law for a breach of contract; and (3) the trial court had no legal right under the pleadings and evidence to issue such an injunction. Plaintiff urges that the trial court acted within its discretion in issuing the injunction to preserve the status quo.
Based on the pleadings and the evidence, the pertinent facts follow. Involved in the series of events were the following business organizations or individuals, although not all are named parties in this litigation:
Chicago Title and Trust Company (CT & T) as Trustee under Land Trust:
(a) 59130 the title owner of the real property involved in the instant project; and
(b) 51473 the title owner of certain real property for which Terry Davis (Davis) is the beneficiary. The beneficial interest was assigned to State Bank as part of the security agreement in connection with the subject letters of credit.
Edgewater Walk Apartments, a partnership. In 1972, at the time of most of the original activities involved in this litigation, there were four general partners. Later Davis became the sole general partner with nine limited partners. It owns the Apartments. Bank accounts were maintained at the First National Bank of Chicago and the La Grange State Bank.
Edgewater Construction Co., Inc., an Illinois corporation, the plaintiff, formed in 1972 for the purpose of working as the contractor on the subject project. Davis is the sole stockholder although originally there were three shareholders.
Terry Davis (Davis), the president and sole stockholder of plaintiff, and general partner in the partnership.
Percy Wilson Mortgage ir Finance Corporation, a Delaware corporation, with offices in Chicago. It provided the construction financing for the apartment project.
State Bank of Clearing, an Illinois banking corporation, which issued the letters of credit.
Metropolitan Savings Bank, a foreign banking corporation, which was to provide the permanent financing.
The Transactions
On January 24,1972, the partnership and Percy Wilson entered into an agreement for a *3,358,000 first mortgage loan for the construction of an apartment project. Amongst other provisions the agreement provided that the partnership would make such deposits as might be required for equity requirements with the right for Percy Wilson to accept letters of credit in lieu of cash deposits. The sponsors of the project included Davis and three other individuals who comprised the partnership.
Thereafter, on March 1, 1972, the following agreements were entered into:
A construction contract between the owner of the real estate, CT&T No. 59130, and plaintiff to build the apartment project. The agreement, amongst other provisions, specified the apartment would be built according to the drawings and specifications of Federal Housing Administration (FHA) Project No. 071-35130 arid would be completed by August 23, 1973, to cost *2,664,840 plus, and required the contractor (plaintiff) to furnish the owner (CT&T No. 59130) a completion assurance agreement in the amount of *333,105 to run to the owner and lender (Percy Wilson).
A construction loan agreement in the amount of *3,358,800 from Percy Wilson to CT&T No. 59130, secured by a mortgage payable December 1, 2013, with interest at 1%, and insured by FHA. It also provided that the apartment project would be completed by September 28, 1973, that CT&T No. 59130 shall furnish Percy Wilson an assurance of completion in such form as provided in FHA regulations.
A completion assurance agreement between plaintiff, CT&T No. 59130 and Percy Wilson. Pursuant to this agreement plaintiff, as contractor, was required to deposit with Percy Wilson, as lender, the amount of *333,105 to secure and indemnify CT&T No. 59130, as owner, and Percy Wilson from loss or damage should plaintiff default in this contract. It was understood that the fund would be under the control of Percy Wilson in the form of an unconditional, irrevocable letter of credit issued to Percy Wilson by a banking institution.
The Letters of Credit
On March 21, 1972, State Bank issued an 18-month letter of credit to Percy Wilson in the amount of *333,105. This was used in lieu of a performance bond. The verified complaint asserts plaintiff deposited this letter of credit with Percy Wilson pursuant to the completion assurance agreement. In its verified answer Percy Wilson alleges this was deposited by the partnership. We find no evidence in the record on this disputed point.
The apartment project was completed in July 1974. In August 1974, Percy Wilson made a demand on the letter of credit. The demand to Davis was made because, first, "a lot of money was owing by Davis to us"; second, "the case was teetering on default"; and third, there was a possibility of having to place a latent defect deposit with the permanent lender, Metropolitan. Thereupon, Percy Wilson sent its letter of credit to State Bank demanding cash. Thereafter, as the result of conversations between Davis and Percy Wilson, the latter received a payment of some *66,000, and Davis brought to Percy Wilson three new letters of credit from State Bank as follows:
Letter of Credit No. 325, issued by State Bank, dated January 2,1975, payable to Metropolitan in the amount of *120,000 for the account of the partnership. The evidence indicates this was issued to the permanent lender to secure the construction of a clubhouse at the project. Its terms were similar to those of No. 326 set forth in detail below.
Letter of Credit No. 326, the subject of the instant litigation, issued by State Bank, reads as follows:
"January 2, 1975
IRREVOCABLE STRAIGHT LETTER OF CREDIT NO. 326
AMOUNT: *79,274.00
TO: Percy Wilson Mortgage & Finance Corporation
221 North La Salle Street
Chicago, Illinois 60601
Re: FHA Project #071-35130 PM
Tinley Park, Illinois
Gentlemen:
We hereby establish our unconditional and irrevocable credit No. 326 in your favor for the account of EDGEWATER WALK APARTMENTS, a limited partnership, in the aggregate amount of Seventy Nine Thousand, Two Hundred Seventy Four Dollars and No Cents (*79,274.00) United State [sic] Currency available by your drafts on us at sight.
Drafts must be presented no later than March 1, 1975.
Drafts drawn under this credit must be marked "Drawn under Credit No. 326 of State Bank of Clearing" and accompanied by your signed certificate stating that the amount is due and owing in connection with FHA Project No. 071-35130 PM.
We hereby agree with you that the drafts drawn under and in compliance with the terms of this credit shall be duly honored on due presentation to the State Bank of Clearing, 5235 West 63rd Street, Chicago, Illinois 60638.
Very truly yours,
/s/ Ronald J. Homa
Ronald J. Homa
Assistant Vice President"
This letter of credit was subsequently extended from March 1, 1975, to June 1, 1975.
Letter of Credit No. 327, issued by State Bank, dated January 2,1975, payable to Metropolitan in the amount of *67,210, or 2U percent of the construction contract. This letter was assigned by Metropolitan to Percy Wilson and on April 4, 1975, paid by State Bank to Percy Wilson.
The evidence indicated that State Bank obtained promissory notes as security for the aforesaid letters issued on January 2, 1975, which were signed by "Edgewater Construction Co., Terry A. Davis, President" and guaranteed by "Terry A. Davis." The State Bank also received a chattel mortgage security agreement from the plaintiff with Davis assigning the beneficial interest in CT&T No. 51473.
Ronald J. Homa, vice president of State Bank, testified that the language used in letters 325, 326, and 327 was copied from the original 1972 letter, and that he did not know who was responsible for the original verbiage; that the letters of credit were extended from time to time at the request of Percy Wilson and the plaintiff in the name of the partnership; that the partnership was the sponsor of the project; that Davis was a partner in the partnership; that Davis filled in the signatures on the collateral promissory notes and security agreements; that so far as he was concerned it did not matter who signed as the property was the valuable collateral; and that plaintiff was the customer of the State Bank.
Davis testified that Homa typed the letters of credit, handed them to Davis who testified once he read them, and later said he did not read them, however, did deliver them to Percy Wilson. Davis also identified his signature on a letter of agreement, relevant to the instant transaction, with Percy Wilson dated October 10, 1974, wherein he signed on behalf of himself, as general partner on behalf of the borrower and as president of the original general contractor.
Jack Korshak, vice president of Percy Wilson, testified about his dealings with Davis on the project; that because of approximately *200,000 owing Percy Wilson in December 1974, he demanded of Davis cash rather than the letters of credit, however he accepted the three letters of credit, but that he did not know until in court how Davis obtained the letters of credit; and that his company was concerned about the soundness of letters of credit not issued by a major bank. Korshak further testified that as of May 2,1975 (shortly before the injunction hearing), the partnership owed Percy Wilson the amount of *226,768.39. On the other hand, Davis testified that the plaintiff and the partnership have various claims against Percy Wilson.
On or about April 28, 1975, Percy Wilson presented a draft to State Bank for payment upon letter of credit No. 326. The letter contained the certificate as required by its terms. On April 30, 1975, the instant injunctive action commenced.
The trial court at the conclusion of the hearing, amongst other things, stated it believed it most equitable to have State Bank continue with the letters of credit, and that he considered the partnership and plaintiff, "because of the identity and because of the involvement of the two, as one unit."
I.
The threshold issue concerns the absence of Edgewater Walk Apartments, the partnership, as a party in this litigation. Or to state the issue another way, is plaintiff, not described or identified in the subject letter of credit, entitled to an injunction enjoining the honor of the letter.
As outlined in the preceding statement of facts, the letter of credit confirms to Percy Wilson that State Bank established its unconditional and irrevocable credit in favor of Percy Wilson for the account of the partnership.
The initial agreement, dated January 24, 1972, for a *3,358,000 first mortgage loan was between the partnership and Percy Wilson. Pursuant to this mortgage loan agreement, the partnership, as mortgagor, was obligated to provide letters of credit as deposits for equity requirements. Plaintiff was the contractor whose contract to construct the apartments was with CT&T No. 59130, title owner of the real property. Plaintiff was required to deposit with Percy Wilson letters of credit to secure and indemnify the owner and Percy Wilson from loss and damage should plaintiff default. In our opinion, the record indicates Percy Wilson, as the lender of money, was receiving security from the partnership, as the borrower, and from the contractor, in order to protect itself should there be a default during or as the result of the construction.
The record clearly indicates that Davis, as the president and stockholder of plaintiff and general partner of the partnership, for whatever reason, created separate legal entities for apparently different purposes. For example, there was the partnership as owner of the apartments, a land trust as title owner of the real estate, and plaintiff corporation as the contractor. As we said in In re Application of County Treasurer (1st Dist. 1969), 113 Ill. App. 2d 50, 57, 251 N.E.2d 757, parties " cannot be permitted to adopt a legal entity and be blessed with both a sword and a shield depending upon the varying facts and circumstances."
It is apparent from the pleadings and the evidence that the partnership has, or should have, an interest in the subject matter of the litigation. In our opinion the partnership was an indispensable party and should have been joined. (Hobbs v. Pinnell (1959), 17 Ill. 2d 535, 536, 162 N.E.2d 361.) Both by its verified answer and in a colloquy with the trial court before the hearing commenced, the absence of the partnership as a party was brought to the attention of the trial court. In Georgeoff v. Spencer (1948), 400 Ill. 300, 302, 79 N.E.2d 596, our supreme court held that if the lack of proper parties is brought to the attention of the court, it should not proceed further until the omission has been corrected. All parties indispensable to a decision of the case are necessary parties to a bill of equity. (Gaumer v. Snedeker (1928), 330 Ill. 511, 515, 162 N.E. 137; People ex rel. Meyer v. Kerner (1966), 35 Ill. 2d 33, 38, 219 N.E.2d 617; B. J. Lind & Co. v. Diacou (1st Dist. 1971), 3 Ill. App. 3d 299, 302, 278 N.E.2d 526; Glickauf v. Moss (1st Dist. 1974), 23 Ill. App. 3d 679, 683-84, 320 N.E.2d 132.) Before an action can lie there must be a plaintiff with the requisite interest to bring the suit. Robinette v. Department of Public Works & Buildings (2nd Dist. 1971), 2 Ill. App. 3d 438, 444, 276 N.E.2d 804.
We think the trial court erred in failing to require the partnership to be joined as a necessary party plaintiff. To suggest, as did the trial court, that the two entities could be considered as one unit is to completely disregard the obviously careful pattern of the owners who created the separate entities. Having created separate entities and transacting business by means of such a device, the creators should then not be permitted to disregard the fruits of their planning. It was error to grant a preliminary injunction on the record in this case. Normally, if there were no other errors, the cause could be remanded to permit the partnership to be added. However, for the reasons set out in the subsequent sections of this opinion, a remand for such a purpose would be inappropriate.
II.
We next consider, aside from the problem discussed above, whether a preliminary injunction is appropriate based on the record in this case.
A.
As a letter of credit is the subject of the litigation, we first consider the Uniform Commercial Code in effect in Illinois (Ill. Rev. Stat. 1973, ch. 26, par. 1—101 et seq.). Section 5 — 103(a) of the Code defines a letter of credit as an engagement by a bank — either revocable or irrevocable — at the request of a customer that the bank honor drafts for payment (to the beneficiary) upon compliance with the conditions specified in the letter. Using the language of the subject letter, the parties in the definition are, "bank" — State Bank; "customer" — Edgewater Walk Apartments, the partnership; and "beneficiary" — Percy Wilson.
Section 5—103(g) states that a "customer" is a buyer or other person who causes an issuer to issue a credit. There is a conflict in the evidence as to who caused State Bank to issue the letter. The letters themselves clearly identify the partnership as the customer. Davis delivered the subject letters to Percy Wilson. Notwithstanding his contradictory testimony, it is difficult to believe Davis did not read the letter, an important document to say the least, and was not aware that the partnership was identified as the customer. The security for the letters of credit obtained by State Bank through Davis was from the plaintiff. We do not think the record clearly established who caused the State Bank to issue the letters, if it was not the partnership.
Section 5—106(2) provides that an irrevocable letter of credit cannot be modified as to the beneficiary (Percy Wilson) without its consent. Yet the trial court's action in effect modified the written terms of the letter by disregarding the fact that the partnership was the customer.
The comments by Judge Marshall in Baker v. National Boulevard Bank (N.D. Ill. 1975), 399 F. Supp. 1021, 1024, are pertinent: "It is often said that the obligation of the bank to pay the beneficiary is independent of the underlying transaction." As pointed out in Baker, the issuer's duties and rights are specifically provided for in section 5—114, "an issuer must honor a draft which complies with the terms of the relevant credit."
Section 5—114(2) (b) provides that:
"(b) in all other cases as against its customer, an issuer acting in good faith may honor the draft or demand for payment despite notification from the customer of fraud, forgery or other defect not apparent on the face of the documents but a court of appropriate jurisdiction may enjoin such honor."
There is no allegation of fraud, forgery, or other defect not apparent on the face of the letter. In fact there is no dispute over the compliance by Percy Wilson with the terms of the letter.
Section 5—114(2) (b) does authorize a "court of appropriate jurisdiction" to enjoin the honor of a letter. But as we have determined that the partnership should have been a party, as we believe the record does not support the conclusion that the plaintiff is the "customer" in this transaction, and as there is no allegation of fraud, forgery, or other defect, the applicability of section 5—114(2) (b) need not be resolved at this time. Even if this section is applicable to the case at bar, there is no authority which we have found to indicate that in deciding whether or not to issue an injunction in this type of litigation, the trial court should ignore traditional injunctive principles. The authority of the circuit court to issue injunctions is provided in section 26 of "An Act relating to the circuit courts" (Ill. Rev. Stat. 1973, ch. 37, par. 72.26). The procedure for obtaining an injunction is set forth in "An Act to revise the law in relation to injunctions" (Ill. Rev. Stat. 1973, ch. 69, par. 1 et seq.).
B.
Plaintiff, in its brief, asserts that the only issue before this court is whether the trial court acted within its discretion in issuing the preliminary injunction to preserve the status quo. It is a fundamental principle that the purpose of a preliminary injunction is to preserve the status quo pending disposition of the case on the merits. The status quo to be preserved by a preliminary injunction is the last actual, peaceable, uncontested status which preceded the pending controversy. (Duval v. Severson (1st Dist. 1973), 15 Ill. App. 3d 634, 640-41, 304 N.E.2d 747.) A preliminary injunction is an extraordinary remedy which should be granted in the discretion of the trial court with the utmost care. (Schwalm Electronics, Inc. v. Electrical Products Corp. (1st Dist. 1973), 14 Ill. App. 3d 348, 352, 302 N.E.2d 394.) But as we said in Schwalm, "There must be a showing that irreparable harm will be done if the status quo is not maintained." 14 Ill. App. 3d 348, 354.
Thus we next examine the record to determine whether the plaintiff proved it would suffer irreparable harm or damage if the preliminary injunction was not granted. In doing so we cannot consider the merits of the case, nor decide controverted facts, but determine only whether there was a legal basis to sustain the granting of the preliminary injunction. Summit Electric Co. v. Mayrent (1st Dist. 1974), 17 Ill. App. 3d 545, 550, 308 N.E.2d 313.
C.
In any action for preliminary injunction, the trial court must consider the issues as set forth in the pleadings. (21 Ill. L. & Pr. Injunctions §171 (1956).) As in all litigation, the burden of proof must rest on one of the parties, and in this case the burden is on the plaintiff to establish its right to injunctive relief.
In the instant complaint plaintiff alleged that if Percy Wilson is permitted to cash the letters of credit, it will be immediately and irreparably injured in that it will be deprived of the use of funds represented by said letters and will suffer irreparable injury to its business credit and reputation. Assuming for the purpose of discussion that the allegation in the complaint is factual and non conclusional in nature, upon Percy Wilson denying the same in its verified answer, the burden of proof on this issue rested on plaintiff. (Cf. Centennial Laundry Co. v. West Side Organization (1966), 34 Ill. 2d 257, 262, 215 N.E.2d 443.) We find no evidence in the record to prove that plaintiff would suffer irreparable damage if the draft on the letter is honored by State Bank. (Summit Electric Co. v. Mayrent (1st Dist. 1974), 17 Ill. App. 3d 545, 550-53, 308 N.E.2d 313.) It is true that when the letter is honored, Percy Wilson then has the use of the money. However, there is nothing in the record to indicate that if it is judicially determined that Percy Wilson was not entitled to the money, and plaintiff, or the partnership, obtained a money judgment, such would not be collectable from Percy Wilson. Cf. Rao Electrical Equipment Co., Inc. v. Macdonald Engineering Co. (1st Dist. 1970), 124 Ill. App. 2d 158, 172, 260 N.E.2d 294; Schwalm Electronics, Inc. v. Electrical Products Corp.; Veach Oil Co. v. Ogilvie (5th Dist. 1974), 22 Ill. App. 3d 233, 235, 317 N.E.2d 328; 21 Ill. L. & Pr. Injunctions §16 (1956).
Plaintiff, in its complaint, alleges it has no adequate remedy at law. The verified answer denies this allegation. Why plaintiff does not have an adequate remedy at law is not set forth in the complaint (cf. Washingtonian Home v. Chicago (1917), 281 Ill. 110, 119, 117 N.E. 737), nor as far as we can determine is it articulated in the record. The record does clearly establish that the entire controversy concerns a series of agreements. The letter of credit is an agreement by State Bank to pay Percy Wilson *79,274.00 if it complies with the terms of the credit. Underlying the letter of credit are: (1) the January 24, 1972, mortgage loan agreement, (2) the construction contract, (3) the construction loan agreement, (4) the completion assurance agreement, and (5) the promissory note with collateral as security for the letter. Plaintiff, on the one hand, asserts that the letter should be returned. Defendant claims that for various reasons it is entitled to present the letter for honor. For example, defendant claims the partnership owes it *226,768. Thus, the dispute can be easily and properly resolved in an action in law. The record indicates that the trial court, at the conclusion of the hearing, stated that the case would not be assigned the law division because "there is such interconnection between the chancery features of the case and the ultimate law issue that will be involved 0 # We fail to understand the trial court's reasoning. (Rao Electrical Equipment Co., Inc. v. Macdonald Engineering Co.; 21 Ill. L. & Pr. Injunctions §166 (1956).) We think the remedy at law in a case of this type is clear and complete. U-Haul Co. v. Kathan (1976), 42 Ill. App. 3d 316, 356 N.E.2d 144.
In conclusion we think the facts and circumstances in this record clearly indicate that the plaintiff has an adequate remedy at law, that it failed to establish irreparable injury or any ground for equitable relief, and therefore, that the trial court did abuse its discretion in granting the preliminary injunction.
For these reasons the judgment of the circuit court of Cook County is reversed and the cause is remanded for further action consistent with the views expressed herein.
Judgment reversed and remanded.
STAMOS, P. J., concurs.
See Ill. Rev. Stat. 1973, ch. 110A, par. 307(a)(1).
In its verified answer, Percy Wilson alleges the sole beneficiary of Trust No. 59130 was the partnership. Plaintiff's verified reply did not deny this allegation. Our review of the record fails to indicate any evidence to contradict the allegation in the answer.
Sometime during the litigation, Metropolitan surrendered the $120,000 letter to the plaintiff and was dismissed from the litigation.
A failure to allege facts constituting irreparable injury is of itself justification for denying a temporary injunction. While it is questionable whether the facts alleged in plaintiffs complaint constituted irreparable injury, we assume for argument that they did. 21 Ill. L. & Pr. Injunctions §126 (1956).
The only conditions set forth in the letter is the expiration date of the letter and the requirement that Percy Wilson submit a signed certificate stating that the amount is due and owing in connection with FHA Project No. 071—35130 PM.