Court Opinion

ID: 9516848
Source: CourtListenerOpinion
Date Created: 2023-08-06 23:54:05.586167+00
Date Added: 2024-06-11T09:39:34.347630
License: Public Domain

PRESIDING JUSTICE GREIMAN, dissenting: Working our way through pages of debits and credits and, in their entirety, affirmative defenses not considered by the trial court or this court as a basis for their decision, the majority opinion appears predicated upon the conclusion that (1) there was no longer any indebtedness to be guaranteed or (2) the settlement of the case against the primary obligors extinguished the liability of the defendant under his written guaranty. Can the clear language of the instrument of guaranty be ignored? This transaction is based upon a loan by Edens Plaza Bank (the Bank) which is guaranteed by the Small Business Administration (SBA). The loan is further guaranteed by the defendant and others. The majority makes much of the fact that the SBA has paid a large sum to the Bank in satisfaction of its obligations under its loan agreement with the Bank and that the Bank has also received the proceeds of the sale of the debtor’s restaurant equipment and fixtures in reduction of the loan. The instrument of guaranty executed by the defendant, however, has been carefully tailored to be a part of an SBA transaction. The guaranty expressly provides: "The Undersigned acknowledges and understands that if the Small Business Administration (SBA) enters into, has entered into, or will enter into, a Guaranty Agreement with Lender or any other lending institution, guaranteeing a portion of Debtor’s liabilities, the Undersigned agrees that it is not a coguarantor with SBA and shall have no right of contribution against SBA. The Undersigned further agrees that all liability hereunder shall continue notwithstanding payment by SBA under its Guaranty Agreement to the other lending institution.” It seems clear that the payment by the SBA was not intended to affect the defendant’s liability under the guaranty. The reason for this is apparent from the ample testimony concerning the relationship between the Bank and the SBA. Under the terms of the SBA lending agreement, sums collected from debtors or guarantors after payment of the loan by the SBA shall be remitted to the SBA in reduction of its outlay.1  The evidence also showed that the $50,000 received by the Bank upon the sale of the restaurant equipment and fixtures was not retained by the Bank, but rather that $45,000 was remitted to the SBA and only $5,000 was retained by the Bank. The general rule is that the liability of the guarantor is limited by and is no greater than that of the principal obligor and that if no recovery could be had against the principal obligor, the guarantor would also be absolved from liability. (Hensler v. Busey Bank (1992), 231 Ill. App. 3d 920, 596 N.E.2d 1269.) Similarly, the general rule is that discharge, satisfaction or extinction of the principal obligation also terminates the guarantor’s liability. Palen v. Cullom Capital Woodworking, Inc. (1987), 154 Ill. App. 3d 685, 506 N.E.2d 1062. The express language of the agreement, however, leads to the conclusion that Demos remains liable upon his guaranty of $50,000 despite the SBA payment to the Bank. Substantially similar agreements have been enforced against the guarantor seeking release, since, under Illinois law, "[wjhere a contract of guaranty is unequivocal in its terms it must be interpreted according to the language used, for it is presumed that the parties meant what their language clearly imports.” National Acceptance Co. v. Exchange National Bank (1968), 101 Ill. App. 2d 396, 402, 243 N.E.2d 264; see also Du Quoin State Bank v. Daulby (1983), 115 Ill. App. 3d 183, 450 N.E.2d 347. Moreover, the few cases addressing SBA-lender participation agreements have held that the relationship created by the agreement is an independent one between the lender and the SBA, creating no legal rights, duties, or benefits in third parties. United States v. Perkins (E.D. Okla. 1975), 71 F.R.D. 22; United States v. Martin (E.D. Mich. 1972), 344 F. Supp. 350. Finally, as to the first issue raised by the defendant, neither the trial court nor the majority examines or considers the testimony as to accrued interest still due and owing under the principal obligation. While there may be some question as to the amount of the interest due and owing — did it continue to accrue upon the full balance after the SBA paid its share? — the majority ignores completely this factor of the defendant’s liability which would greatly increase the balance due. The majority’s conclusion that release of the principal obligors or other guarantors acts as a release of the defendant is equally without substance. Again, the terms of the instrument of guaranty have been ignored! The guaranty allows the Bank "full power, in its uncontrolled discretion,” "to modify or otherwise change any terms of all or any part of the Liabilities” and to "effect any release, compromise or settlement with respect thereto.” In the case at bar, the trial court determined that release of other guarantors also released the defendant. Again, the language of the instrument controls and it is clear that the Bank may deal with each guarantor in a separate manner and that release of one does not necessarily release the others. Cohen v. Continental Illinois National Bank & Trust Co. (1993), 248 Ill. App. 3d 188, 618 N.E.2d 1060; Brzozowski v. Northern Trust Co. (1993), 248 Ill. App. 3d 95, 618 N.E.2d 405. If the express terms of the instrument of guaranty signed by the defendant are still not enough, then we must look to the events surrounding the dismissal of count I as to the other parties. In construing a release and settlement agreement, the intention of the parties controls the scope and effect of the release and such intent is discerned from the language used and the circumstances of the transaction. (Village of Fox River Grove v. Grayhill, Inc. (N.D. Ill. 1992), 806 F. Supp. 785.) The record indicates that both the agreement itself and the parties’ intentions envisioned continued litigation between the Bank and Demos. The agreed order of dismissal reflecting the settlement agreement dismisses only count I of the Bank’s complaint, specifically maintaining the second count pertaining exclusively to defendant. The only reasonable construction of the release agreement would be recognition that the parties did not intend to release defendant from his original guaranty. In fairness, the majority appears to be attempting to provide a sort of rough justice since the defendant was the individual with the least to gain from the transaction and ends up with the largest personal liability. Defendant was a good brother in guaranteeing this obligation but will have to exercise more caution in the future use of his fountain pen.  Although the agreement between the Bank and the SBA was not offered into evidence, there was testimony from the Bank’s president establishing the specifics of the relationship between the parties.