Court Opinion

ID: 4102074
Source: CourtListenerOpinion
Date Created: 2016-11-23 19:07:02.100784+00
Date Added: 2024-06-11T14:46:13.822924
License: Public Domain

2016 IL App (1st) 161783

                                                                          SIXTH DIVISION
                                                           Opinion filed: November 23, 2016

                        Nos. 1-16-1783 & 1-16-0771 (cons.)
______________________________________________________________________________

                                          IN THE

                          APPELLATE COURT OF ILLINOIS

                                    FIRST DISTRICT

KOENIG & STREY GMAC REAL ESTATE, a                    )       Appeal from the
limited liability company,                            )       Circuit Court of
                                                      )       Cook County
      Plaintiff,                                      )
                                                      )
v.                                                    )       No. 07 CH 27475
                                                      )
RENAISSANT 1000 SOUTH MICHIGAN I, LP, an              )
Illinois limited partnership; RENAISSANT 1000         )
SOUTH MICHIGAN, LLC, an Illinois limited liability    )
company; FIRST AMERICAN BANK; DESTEFANO               )
AND PARTNERS, LTD., an Illinois corporation;          )
TRAINOR GLASS COMPANY, an Illinois                    )
corporation; CURTAIN WALL AND DESIGN                  )
CONSULTING INCORPORATED, a Texas                      )
corporation; and UNKNOWN OWNERS, HEIRS,               )
LEGATEES and NON-RECORD CLAIMANTS,                    )
                                                      )
      Defendants.                                     )

FIRST AMERICAN BANK, an Illinois banking              )       Appeal from the
corporation,                                          )       Circuit Court of
                                                      )       Cook County
      Plaintiff and Defendant-Appellee,               )
                                                      )
v.                                                    )       No. 08 CH 16304
                                                      )
RENAISSANT 1000 SOUTH MICHIGAN LLC, an                )
Illinois limited liability company; RENAISSANT 1000   )
SOUTH MICHIGAN I, L.P., an Illinois limited           )
partnership; WARREN BARR; JAMES CARROLL;              )
JOHN BORKOWSKI; EDWARD BORKOWSKI;                     )
Nos. 1-16-1783 & 1-16-0771 (cons.)

 RICHARD BORKOWSKI; CONTRACTORS LIEN            )
 SERVICES, INC.; DESTAFANO AND PARTNERS         )
 LTD.; TRAINOR GLASS COMPANY; CURTAIN           )
 WALL & DESIGN CONSULTING                       )
 INCORPORATED; KOENIG AND STREY GMAC            )
 REAL ESTATE; TISHMAN CONSTRUCTION              )
 CORPORATION OF ILLINOIS; CHICAGO TITLE         )
 LAND AND TRUST COMPANY, as trustee under       )
 trust number 1106328; 1000 SOUTH MICHIGAN      )
 AVENUE, LLC; UNKNOWN OWNERS; and NON-          )
 RECORD CLAIMANTS,                              )
                                                )
        Defendants,                             )    Honorable
                                                )    Robert J. Quinn and
 (John Borkowski; Edward Borkowski; and Richard )    Anthony Kyriakopoulos,
 Borkowski, Defendants-Appellants).             )    Judges, Presiding.
______________________________________________________________________________

       PRESIDING JUSTICE HOFFMAN delivered the judgment of the court, with opinion.
       Justices Rochford and Delort concurred in the judgment and opinion.

                                            OPINION

¶1     The defendants, John Borkowski, Edward Borkowski and Richard Borkowski

(collectively referred to as the Borkowskis), appeal from a $18,421,241.04 judgment entered

against them on a guaranty agreement which they executed in favor of the plaintiff, the First

American Bank (Bank). They argue that the circuit court erred in: (1) including post-judgment

interest on the judgment entered against the underlying borrowers in the computation of the sums

owed on their guaranty; (2) failing to require the Bank to apply the amount of its credit bid on

the foreclosure sale of the borrowers' property to expenses and accrued interest before crediting

principal; and (3) failing to grant a credit against their liability for the proceeds of a $4 million

letter of credit drawn upon by the Bank on April 3, 2008. For the reasons which follow, we

vacate the circuit court's judgment and remand this matter back to the circuit court with

directions to recalculate the amounts due by the Borkowskis on their guaranty agreement

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Nos. 1-16-1783 & 1-16-0771 (cons.)

consistent with the opinions expressed herein and enter judgment in favor of the Bank in that

sum.

¶2     The Bank made two loans to Renaissant 1000 South Michigan LLC (Renaissant) totaling

$22,450,000 which were memorialized by a $16 million Term Land Note and a $6,450,000 Term

Mezzanine Note (collectively, the Notes).     The Notes were secured by a mortgage on the

property commonly known as 1000 South Michigan Avenue in Chicago (Mortgage), an

Assignment of Rents and Leases, and a Security Agreement and Financing Statement. The

Borkowskis, along with Warren Barr and John Carroll (collectively, the guarantors), jointly and

severally, guaranteed the payment of certain specified sums owed to the Bank by Renaissant.

The Guaranty Agreement provides, in relevant part, as follows:

              "Notwithstanding anything to the contrary contained in the foregoing, or in this

       Guaranty, the joint and several liability of Guarantors under this Agreement shall not

       exceed (a) for the principal portion of the Guaranteed Liabilities the sum of Seven

       Million and No/100 Dollars ($7,000,000.00) (The 'Guaranteed Principal Amount'), one

       hundred percent (100%) of the accrued and unpaid interest under the Notes, as well as

       one hundred percent (100%) of the late fees due under the Notes, (c) [sic] all

       Enforcement Costs, and (d) [sic] any Extraordinary Claim. The Guaranteed Principal

       Amount, all accrued and unpaid interest under the Note, all late fees, the Enforcement

       Costs, any Extraordinary Claim and any and all costs, losses, damages and reasonable

       attorney's fees incurred by the Lender in connection with or arising out of any

       Extraordinary Claim are collectively referred to as the 'Guaranteed Obligations'."

The Notes were renewed from time to time. With the third extension of the Notes, the Bank

required Renaissant to post, as additional collateral, a $4 million irrevocable letter of credit

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Nos. 1-16-1783 & 1-16-0771 (cons.)

naming the Bank as the beneficiary. With the sixth extension, the Renaissant 1000 South

Michigan I, L.P. was added as a borrower (Renaissant and Renaissant 1000 South Michigan I,

L.P. are collectively referred to as the Borrowers). The guarantors reaffirmed the Guaranty

Agreement in writing with each extension of the Notes.

¶3     Pursuant to the final extensions, the maturity date of the Notes was March 31, 2008.

When the Borrowers defaulted, the Bank filed the instant action. In count I of its complaint, the

Bank sought to foreclose upon the Mortgage. In count II, the Bank sought a judgment against

the guarantors.

¶4     On the Bank's motion for summary judgment on count I of its complaint, the circuit court

entered a Judgment Order of Foreclosure and Sale on January 26, 2009. In that order, the circuit

court found that, as of April 21, 2008, there was due and owing to the bank:

                         "• $22,443,427.61, representing the principal amount due on the Notes;

                  plus

                         • $285,371.84, representing interest accrued on the Notes from March 31,

                  2008, to April 21, 2008;

                         • Less $4,000,000.00 representing the proceeds of a letter of credit drawn

                  by [the Bank], which will be applied as of the date of entry of [the] order;

                         • for a total of $18,728,799.45."

The court also found that per diem interest under the Notes would accrue after April 21, 2008, at

the rate of $13,878.58.

¶5     On April 23, 2009, pursuant to the Bank's motion, the circuit court entered an order

finding that the guarantors are liable to the Bank on the Guaranty Agreement, "the amount of

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Nos. 1-16-1783 & 1-16-0771 (cons.)

which shall be determined by the Court after confirmation of the sale of the Mortgaged

Premises."

¶6     The initial judicial sale of the mortgaged property took place on March 17, 2009. The

Bank was the successful bidder at that sale with a credit bid of $12 million. However, the circuit

court declined to approve the sale, sustaining the objection of the Borkowskis who argued that

the Bank's bid was unconscionably low. On July 27, 2010, a second judicial sale of the property

was held, and the Bank was again the highest bidder with a credit bid of $11.3 million. On

August 26, 2010, the matter came before the circuit court on the Bank's motion to confirm the

July 27, 2010 sale. The Bank advised the court that it would stand on its original bid of $12

million.     Nevertheless, the Borkowskis again objected to confirmation of the sale on

unconscionability grounds. The circuit court sustained the objection and declined to confirm the

sale. The Bank appealed, and this court reversed the circuit court's order and remanded the

matter back with directions to approve the sale.        Koenig & Strey GMAC Real Estate v.

Renaissant, 2011 IL App (1st) 103036-U, ¶ 38.

¶7     On remand, the circuit court entered an order on August 30, 2012, confirming the sale to

the Bank. In that order, the circuit court reserved for determination at a later date the amount of

the deficiency judgment to be entered against the Borrowers and the amounts due under the

Guaranty Agreement.

¶8     On October 25, 2012, the Bank filed a motion seeking a determination of the amounts

due under the Notes following the foreclosure sale, the amount of the deficiency judgment, and

the amounts due under the Guaranty Agreement. The Bank alleged that it was entitled to a

deficiency judgment against the Borrowers in the amount of $17,412,934.60 and a judgment

against the guarantors in the same amount. Included in the amount claimed was $6,075,298.45

                                               -5-
Nos. 1-16-1783 & 1-16-0771 (cons.)

in principal remaining due on the Notes, $10,158,844.84 in interest, and $1,178,791.30 for

expenses. Following discovery, a hearing on the Bank's motion was held on September 14,

2014, and the circuit court entered its Order and Memorandum Opinion on October 21, 2014. In

that order, the circuit court addressed three issues, namely: (1) whether the Bank correctly

applied the proceeds of the $4 million letter of credit on January 26, 2009; (2) whether the

proceeds of the letter of credit should be applied against the "Guaranteed Principal Amount" due

by the guarantors; and (3) whether the Bank had discretion in the application of its credit bid to

the principal remaining due under the Notes before first applying that sum to accrued interest and

expenses. The circuit court found that: the letter of credit was not delivered by the guarantors in

their individual capacity and, therefore, the Bank is not required to credit the proceeds against

the "Guaranteed Principal Amount" due by them under the Guaranty Agreement; the Bank

properly applied the proceeds of the letter of credit against the amounts due under the Notes on

January 26, 2009; and the Bank had discretion in the application of its credit bid and did not

breach any covenant of good faith and fair dealing by applying the bid sum to principal due

under the Notes before accrued interest. Based upon its findings, the circuit court ordered the

Bank to submit a "new computation" of the amounts due under the Guaranty Agreement.

¶9     The Bank submitted a revised calculation of $16,421,849.60, exclusive of attorney's fees,

as the amount due by the guarantors. The Borkowskis objected to the inclusion in the calculation

of post-judgment interest that accrued after January 26, 2009, the date of the entry of the

Judgment Order of Foreclosure and Sale. On December 11, 2014, the circuit court entered an

order, finding that the guarantors are not liable for post-judgment interest owed by the

Borrowers, accruing after January 26, 2009. Thereafter, the Bank filed a motion to reconsider

that order. On September 16, 2015, the circuit court entered an order which, in addition to other

                                               -6-
Nos. 1-16-1783 & 1-16-0771 (cons.)

relief, granted the Bank's motion to reconsider, finding that the guarantors are liable for the

payment of post-judgment interest owed by the Borrowers.

¶ 10   On February 18, 2016, the circuit court found that the liability of the Borkowskis under

the Guaranty Agreement is $18,421,241.04, consisting of $7 million for principal,

$10,882,462.84 for accrued interest, and $538,778.18 for expenses. On March 17, 2016, the

Borkowskis filed a notice of appeal which was docketed in this court as No. 1-16-0771. On June

28, 2016, the circuit court entered an order pursuant to Illinois Supreme Court Rule 304(a) (eff.

Mar. 8, 2016), finding that there is just reason to delay either enforcement or appeal from the

judgment entered against the Borkowskis on February 18, 2016. In addition, the circuit court

amended its order of February 18, 2016, to provide that the joint and several liability of all of the

guarantors, including the Borkowskis, to the Bank under the Guaranty Agreement is

$18,421,241.04. On June 29, 2016, the Borkowskis filed a second notice of appeal which was

docketed in this court as No. 1-16-1783. Thereafter, this court consolidated the Borkowskis' two

appeals.

¶ 11   For their first assignment of error, the Borkowskis argue that the circuit court erred in

including post-judgment interest due by the Borrowers in the judgment entered against them on

the Guaranty Agreement. They assert that, although the Guaranty Agreement provides that they

are liable for the accrued and unpaid interest on the Notes, there is no provision within the

document which renders them liable for the statutory post-judgment interest on the foreclosure

judgment entered against the Borrowers. We agree.

¶ 12   The liability of a guarantor is determined by the terms of the guaranty contract which is

interpreted by the application of general contract principles. Ringgold Capital IV, LLC v. Finley,

2013 IL App (1st) 121702, ¶ 16. In construing a contract, the primary objective is to give effect

                                                -7-
Nos. 1-16-1783 & 1-16-0771 (cons.)

to the intentions of the parties at the time that the contract was made. Owens v. McDermott, Will

& Emery, 316 Ill. App. 3d 340, 344 (2000). When the parties dispute the meaning of a contract,

the initial question is whether the contract is ambiguous. Ringgold, 2013 IL App (1st) 121702,

¶ 19. Whether a contract is ambiguous is a question of law. Owens, 316 Ill. App. 3d at 348. If

the contract is clear and unambiguous, the intent of the parties is determined solely from the

plain language of the contract. Id. at 344.

¶ 13   Guided by these principles, we have examined the Guaranty Agreement and find that the

provisions fixing the liability of the guarantors are not ambiguous. As noted earlier, the liability

of the guarantors shall not exceed the sum of $7 million for principal owed on the Notes, 100%

of the accrued and unpaid interest on the Notes, 100% of the late fees under the Notes,

enforcement costs, and any extraordinary claim. As guarantors, the liability of the Borkowskis

under the Guaranty Agreement for the payment of interest is limited to 100% of the "accrued and

unpaid interest under the Notes."

¶ 14   In support of the interest component in the circuit court's judgment against the

Borkowskis, the Bank contends that "post-judgment interest is in fact interest on the amounts due

under the Notes." We disagree.

¶ 15   Interest accruing on a note prior to the entry of a judgment is incident to the debt itself.

Upon the entry of a judgment on a note, the debt is merged into the judgment, and the note

ceases to exist. Doerr v. Schmitt, 375 Ill. 470, 471-72 (1941). Interest on a judgment is not part

of the judgment; rather, it is purely statutory in origin. Blakeslee's Storage Warehouse v. City of

Chicago, 369 Ill. 480, 482-83 (1938); see also 735 ILCS 5/2-1303 (West 2008) ("Judgments

recovered in any court shall draw interest at the rate of 9% per annum from the date of the

judgment until satisfied ***.").

                                               -8-
Nos. 1-16-1783 & 1-16-0771 (cons.)

¶ 16   "A guarantor is only liable for that which he has guaranteed." Ringgold, 2013 IL App

(1st) 121702, ¶ 16. When, as in this case, the terms of a guaranty contract are unambiguous, the

liability of a guarantor cannot be extended by implication or construction beyond the terms of the

guaranty contract. Id. The Borkowskis' liability for interest under the terms of the Guaranty

Agreement is limited to accrued and unpaid interest under the Notes. As post-judgment interest

is purely statutory in origin and does not arise under the Notes, the Borkowskis are not liable for

the post-judgment interest owed by the Borrowers accruing after the entry of the Judgment Order

of Foreclosure and Sale entered on January 26, 2009.

¶ 17   The Borkowskis next argue that the proceeds of the $4 million letter of credit should have

been applied to reduce their "Guaranteed Principal Amount" of $7 million under the Guaranty

Agreement, rather than to the amounts due from the Borrowers under the Notes. Their argument

in this regard appears to be based on the assertion that they were the source of the letter of credit.

The Bank argues that the plain language of the letter of credit belies the argument that the

Borkowskis were the applicants or that the letter of credit was delivered by them as collateral for

the Guaranty Agreement. We agree with the Bank.

¶ 18   There are several contracts involved in a letter-of-credit transaction, including:         the

contract between the issuer and its customer whereby the issuer agrees to issue the letter of credit

to the beneficiary; the contract between the customer and the beneficiary which is the agreement

underlying the letter of credit; and the contract obligating the issuer to pay the beneficiary upon

demand if the beneficiary complies with the conditions specified in the letter. Mount Prospect

State Bank v. Marine Midland Bank, 121 Ill. App. 3d 295, 299 (1983). As a contract, a letter of

credit is construed by applying the same general principles used in construing other written

contracts. Molter Corp. v. Amwest Surety Insurance Co., 267 Ill. App. 3d 718, 721 (1994).

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Nos. 1-16-1783 & 1-16-0771 (cons.)

¶ 19   The undisputed facts of this case establish that the issuance of the letter of credit was a

requirement imposed upon Renaissant pursuant to the Third Amendment to the Loan Documents

as consideration for the Bank's agreement to extend the maturity dates of the Notes. The letter of

credit states that it was issued by Fifth Third Bank by order of its clients, Renaissant 1000 South

Michigan LLC, Midwest Warehouse & Distribution Systems, Inc., Bedford Motor Services, Inc.,

and Logistic Resources, Inc. The Borkowskis are not mentioned in the letter of credit.

¶ 20   We find nothing ambiguous about the terms on the letter of credit. Fifth Third Bank

issued the letter of credit on the order of its named clients, not the Borkowskis. It was posted

with the Bank as a requirement placed upon the Borrowers, not as a requirement placed upon the

guarantors. We conclude, therefore, that when drawn upon, the $4 million in proceeds of the

letter of credit were properly applied to the sums due by the Borrowers under the Notes.

¶ 21   Next, the Borkowskis argue that the circuit court erred in ordering the proceeds of the

letter of credit be applied to the amounts due to the Bank as of January 26, 2009, the date of the

entry of the Judgment Order of Foreclosure and Sale. They contend that the proceeds of the

letter of credit should have been applied by the Bank on April 3, 2008, the date that it drew on

the letter of credit. In response, the Bank argues that the date upon which the proceeds of the

letter of credit were to be applied to the amount due to it from the Borrowers was fixed in the

Judgment Order of Foreclosure and Sale that was entered on January 26, 2009. It contends that,

by reason of their failure to timely appeal from that order, the Borkowskis cannot seek review of

that order in the context of this appeal. Again, we agree with the Bank.

¶ 22   The order of January 26, 2009, which provides that the proceeds of the letter of credit

were to be applied to the sums owed to the Bank upon its entry, also contains the requisite

language under Illinois Supreme Court Rule 304(a) (eff. Mar. 8, 2016) making the order

                                              - 10 -
Nos. 1-16-1783 & 1-16-0771 (cons.)

immediately appealable. JP Morgan Chase Bank v. Fankhauser, 383 Ill. App. 3d 254, 260

(2008). The Borkowskis did not file a notice of appeal from that order within 30 days of its

entry. Nevertheless, they argue that, because the order of January 26, 2009, did not address how

the proceeds of the letter of credit were to be applied in calculating the sums due under the

Guaranty Agreement, they are at liberty in this appeal to contest the propriety of fixing January

26, 2009, as the date that the proceeds were to be credited.

¶ 23   Under the Guaranty Agreement, the Borkowskis are liable for specified sums due by the

Borrowers to the Bank under the terms of the Notes and the mortgage. As we found earlier, the

letter of credit was posted with the Bank as collateral for the obligations of the Borrowers under

the Notes, and as a consequence, the proceeds of that letter were properly applied to the

Borrowers' outstanding liabilities. Therefore, the order which determined the date upon which

the proceeds were to be applied to the sums due to the Bank by the Borrowers also affected the

liability of the guarantors. As the order of January 26, 2009, affected their liability as guarantors,

the Borkowskis could have appealed from that order. Having failed to do so, they may not seek

a review of that order in this appeal from a subsequent order entered in the same case. Battaglia

v. Battaglia, 231 Ill. App. 3d 607, 615 (1992).

¶ 24   Finally, the Borkowskis argue that the Bank's credit bid should have been applied first to

accrued interest due on the Notes and enforcement costs before being applied to unpaid

principal. The Guaranty Agreement is silent as to the manner in which the proceeds of a

foreclosure sale are to be applied. As a consequence, the Borkowskis argue that the agreement is

ambiguous and must be construed in their favor. They contend that, by applying the credit bid

first to unpaid principal, the Bank maximized their liability as guarantors and, thereby, violated

the covenant of good faith and fair dealing implied in the Guaranty Agreement.

                                                - 11 -
Nos. 1-16-1783 & 1-16-0771 (cons.)

¶ 25   The Bank asserts that, contrary to the Borkowskis' contention, it did not apply its credit

bid first to the unpaid principal on the Notes. Relying upon the provisions of section 4.11 of the

Mortgage, the Bank argues that its credit bid was properly applied first to enforcement costs and

then applied to any unpaid principal. We agree.

¶ 26   Pursuant to the terms of the Guaranty Agreement, the Borkowskis guaranteed any and all

indebtedness, obligations and liabilities of Renaissant arising out of or in connection with the

Notes as evidenced by, among other documents, the Notes and the Mortgage. The Notes and the

Mortgage determine the manner of calculating Renaissant's obligations to the Bank. The liability

of the Borkowskis for those obligations is determined by the provisions of the Guaranty

Agreement. The Guaranty Agreement does not establish Renaissant's obligations, nor does it

provide for the manner in which those obligations are calculated. The Mortgage is the source of

the Bank's right to foreclose, and it is also the instrument which provides for the manner in

which the proceeds of a foreclosure sale are to be distributed and applied.

¶ 27   The Bank's credit bid constitutes the proceeds of the foreclosure sale of the mortgaged

property. Section 4.11 of the Mortgage provides that the proceeds of a foreclosure sale shall be

distributed and applied as follows:

               "(a) on account of all costs and expenses incident to the foreclosure proceedings

               ***; (b) all other items that, under the terms of this Mortgage, constitute secured

               indebtedness additional to that evidenced by the Notes, with interest thereon at the

               applicable Default Interest Rate; (c) all principal and interest, together with any

               prepayment charge, remaining unpaid under the Notes, in the order of priority

               specified by the [Bank] in its sole and absolute discretion ***."

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Nos. 1-16-1783 & 1-16-0771 (cons.)

¶ 28   We need look no further than the terms of the Mortgage to ascertain the agreed upon

manner in which the Bank's credit bid was to be applied. See American National Bank & Trust

Co. of Chicago v. Mack, 311 Ill. App. 3d 583, 588 (2000). The Bank was required, as it did, to

apply its credit bid first to the cost and expenses incident to the foreclosure proceedings. The

order of priority for the application of the remaining $10,968,065.10 to unpaid principal and

interest was a matter left to the sole discretion of the Bank. The Bank's election to apply the

excess sale proceeds to unpaid principal was a matter between the Bank and the Borrowers

pursuant to the terms of the mortgage. Any effect upon the guarantors would be governed by the

terms of the Guaranty Agreement.       Section 5(b) of the Guaranty Agreement provides that

nothing contained in the document would prevent the Bank from suing on the Notes or

foreclosing upon the Mortgage "or from exercising any other right thereunder." Consequently,

the guarantors undertook the risk that, in the event of a foreclosure sale of the mortgaged

property, the Bank would exercise its discretion under the Mortgage and apply any excess

proceeds of a foreclosure sale to unpaid principal after the payment of expenses.          By its

expressed terms, the Guaranty Agreement did not prevent the Bank from exercising its rights

under the mortgage, and the implied covenant of good faith and fair dealing cannot modify those

express terms. Bank One, Springfield v. Roscetti, 309 Ill. App. 3d 1048, 1059-60 (1999). For

these reasons we, like the circuit court, find no breach of the implied covenant of good faith and

fair dealing of the Guaranty Agreement by reason of the Bank's application of the proceeds of its

credit bid first to expenses incident to the foreclosure proceeding and the remainder to unpaid

principal under the Notes.

¶ 29   In summary, we find that the circuit court erred in including post-judgment interest owed

by the Borrowers accruing after January 26, 2009, in calculating the amounts due by the

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Nos. 1-16-1783 & 1-16-0771 (cons.)

guarantors, including the Borkowskis, under the terms of the Guaranty Agreement. We find no

error in the circuit court's conclusion that the proceeds of the letter of credit and the Bank's credit

bid were properly applied. As a consequence, we vacate the judgment entered against the

Borkowskis and the other guarantors, and remand this matter back to the circuit court with

directions to recalculate the amount due by the Borkowskis and the other guarantors consistent

with the opinions expressed herein and to enter judgment against them, jointly and severally, for

that sum.

¶ 30   Vacated and remanded with directions.

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