The opinion of the court was delivered by: Marovitz, District Judge.
MOTION FOR SUMMARY JUDGMENT
Plaintiff contends that there are no relevant factual issues
in dispute and it has presented a sufficient amount of
uncontroverted evidence by way of affidavit, admissions and
exhibits to eliminate any factual doubt as to defendants'
liability. We agree and, therefore, grant summary judgment.
The executed documents clearly indicate that defendants
represented that $150,000 was owed them by Murphy Carpet.
The Murphy Carpet Financial Statement (Exhibit "H") dated
July 2, 1969 lists the debt as $150,000 as does the balance
sheet dated February 2, 1970 (Plaintiff's request for
admissions Exhibit "A"). A subsequent balance sheet dated
November 30, 1970 shows the balance owed defendants as being
$100,000. Thus, sometime between February 2, 1970 and November
30, 1970 the debt was reduced by $50,000. If it was reduced
prior to May 22, 1970, the date of the subordination
agreements then defendants misrepresented the amount owed to
them by Murphy Carpet; if it occurred after May 22, 1970 then
it was in effect a cancellation of a portion of the debt in
violation of the terms of the agreement. Plaintiff in Count II
claims that the reduction of the amount owed was a result of
the cancellation of a $50,000 note owed by defendant Rieger to
the corporation which was subsequently written off against the
amount owed by the corporation to defendants. (See Exhibits
"E" and "F".) This plaintiff correctly argues would constitute
a cancellation of a portion of the debt since the defendants
are sole shareholders of the corporation and the write-off
cancellation could not have been done without their approval.
Thus, if we were to view the reduction of amount owed by
Murphy Carpets as occurring subsequent to May 22, then it must
be a cancellation of debt in violation of the agreement's
terms. If, on the other hand, we view the reduction as
occurring prior to the signing of the subordination agreement
as Count III claims, then defendants falsely represented the
amount owed them by Murphy Carpet. In fact, defendants
themselves assert (Para. 4 Memorandum in Opposition to
Plaintiff's Motion.) that had plaintiff examined the records
of Murphy Carpet it would have ascertained that the debt was
only $100,000. Thus, by their own admission defendants concede
that they falsely represented the amount owed when they signed
the subordination agreements. This misrepresentation induced
plaintiff to forbear collection and extend credit. Defendants'
sole rebuttal of these claims is that plaintiff should have
examined the minute books, financial statements and records of
Murphy Carpet to determine the exact amount owing, and,
further, that defendants were of the "opinion" that it indeed
was $150,000 that was due them. Both of these arguments are
irrelevant. Plaintiff was under no duty to examine any records
and it was perfectly within its discretion to rely on the
sworn and signed subordination agreement that attested to a
$150,000 debt. The fact that defendants were of the "opinion"
that it was $150,000 does not make the signed agreement any
less false or plaintiff's reliance thereon any less justified.
The fact that they may prove at trial that they were of this
"opinion" will have established nothing
to change their liability given the fact that they were the
sole shareholders of Murphy Carpet and, therefore, they and
not plaintiff should have been apprised of what amount was
It is also obvious that while the amount owed defendants by
Murphy Carpet, whatever that amount might be, was subordinated
to all other creditors by the terms of a corporate resolution
dated July 2, 1969 (Exhibit "H") defendants nevertheless
warranted that no other subordination existed and breached an
express term of the agreement. Undoubtedly a subordination
agreement is worthless to one extending further credit to a
corporation that is financially unstable when the amount
assigned to it is subordinate to the claims of all other
creditors. What remains is an agreement which misrepresents
the amount owed or assigned and falsely states that no other
Thus, if Count II is incorrect, then plaintiff must win
under Count III and vice versa since these are the only two
factual possibilities available and under both counts
plaintiff has stated grounds for liability; either
misrepresentation or breach.
The only legal issue to be decided is whether sufficient
consideration was given by United Factors to defendants for
the subordination agreements. The law is quite evident that
forbearance from suing on a valid claim is consideration and
United Factors has adequately proven that it extended further
credit and forbore from suing based on its reliance on
defendants representations in the subordination agreements.
See McNeill v. Shober & Carqueville Lithographing Co.,
44 Ill. App.? 297 (1892); Allanson v. Frieder, 305 Ill. App. 232,
27 N.E.2d 307 (1940); Meyer v. Pfahler, 362 Ill. 336,
199 N.E. 801 (1935). In addition an extension of time given by a
creditor to his debtor is sufficient consideration for a third
person's promise Moore v. Lee Tire and Rubber Co. of New York,
273 F. 465 (8th Cir. 1921) (Cooke v. Louisville Trust Co.,
380 S.W.2d 255 (Ky. 1964). See generally Corbin on Contracts §
We hold that plaintiff has proven by affidavit, admissions
and exhibits that defendants violated the terms of the
agreement; that defendants have failed to controvert these
claims and therefore there being no question of fact summary
judgment is ordered in the amount of $14,761.52.
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