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Schultz v. American Nat'l Bk. & Trust Co.





APPEAL from the Circuit Court of Lake County; the Hon. CHARLES S. PARKER, Judge, presiding.


Rehearing denied August 27, 1976.

Plaintiffs Marie and Lewis Schultz filed suit to cancel certain notes, deeds and security agreements on the grounds that there was no consideration given to plaintiffs. By answer defendant American National Bank and Trust Company (Bank) denied a lack of consideration. Plaintiffs and the defendant filed motions for summary judgment supported by affidavit. The Circuit Court of Lake County, after determining that no genuine issue of fact existed, entered summary judgment against plaintiffs.

Plaintiffs were shareholders, directors and principal officers of Merchants Moving and Storage, Inc. Mrs. Schultz was president of the corporation. As of April 3, 1972, the corporation was indebted to the Bank on a note of $10,000 plus accumulated interest of $192.87. The debt was due but the corporation was unable to pay. Plaintiffs on April 3 executed an $11,500 note in favor of the Bank. As consideration for the $11,500 note the Bank applied $10,192.87 to the full payment of the $10,000 corporate note. $1037.13 was deposited into the corporation checking account and $270 was applied to the first and second payments on the new $11,500 note.

On June 8, 1972, plaintiffs executed a $5000 note to the Bank. $5000 was credited to the corporation's checking account at the request of plaintiffs.

As of June 22, 1973, the corporation also owed the Bank substantial amounts which indebtedness was secured by pledges of accounts receivable. On that date the Bank advised plaintiff that it had discovered that although the corporation had collected many of the pledged accounts the money had not been properly applied to the debt owing the Bank. The Bank believed that about $30,000 had been collected and not applied to the debt. Then on June 22, 1973, Mrs. Schultz alone gave a $30,000 note to the Bank.

To secure the $11,500 note both plaintiffs gave the Bank a mortgage on real estate owned by them. Then to secure the $5,000 note plaintiffs transferred the same real estate to the Bank as trustee. A junior trust deed from the Bank as trustee to the Bank as creditor was executed. To secure the $30,000 note plaintiffs assigned their beneficial interest in the trust to the Bank.

All of the notes are in default and are still being held by the Bank.


Section 3-408 of the Uniform Commercial Code (Ill. Rev. Stat. 1973, ch. 26, par. 3-408) states:

"Want or failure of consideration is a defense as against any person not having the rights of a holder in due course * * *, except that no consideration is necessary for an instrument or obligation thereon given in payment of or as security for an antecedent obligation of any kind. * * *"

Plaintiffs contend that because the Bank did not affirmatively plead the "except" clause in its answer it cannot rely on that clause in its motion for summary judgment.

Unless contained in the enacting clause if the exception appears in a subsequent clause of a statute the party who wishes to rely on it has the burden of pleading it in order to avoid the operation of the statute. People ex rel. Illinois Armory Board v. Kelly, 369 Ill. 280, 283-84; Edwards v. Willcutts, 20 Ill. App.3d 699, 701.

• 1 The fact that the except clause states that "no consideration is necessary" does not mean that consideration was not in fact present. New money was given by the Bank for the $5,000 note (Commercial State Bank v. Folkerts, 200 Ill. App. 385); there was a discharge of the $10,000 note plus new money given for the $11,500 note (Farmers National Bank v. Rosenkrans, 240 Ill. App. 230); and forbearance was consideration for the $30,000 note (Weiland v. Weiland, 297 Ill. App. 239, 245). Further it was not necessary here for the Bank to affirmatively plead the except clause in order to rely on it. A court may consider affirmative defenses raised in a motion for summary judgment even if those matters were not raised in an answer or by motion. Houser v. Michener, 20 Ill. App.3d 391, 395; Metropolitan Sanitary District v. Anthony Pontarelli & Sons, Inc., 7 Ill. App.3d 829, 839; Slone v. Morton, 39 Ill. App.2d 495, 497.


• 2 The $30,000 note was signed by Mrs. Schultz as security for an antecedent debt then due from the corporation. Plaintiffs argue that since the bank had constructive knowledge that the pledged receivables had been collected and misapplied that it was somehow estopped to request additional security to replace the money diverted. They cite only two cases, United States Cold Storage Co. v. Central Manufacturing District Bank, 343 Ill. 503, and National Bank v. Sachs, 314 Ill. App. 570, arguing that when a pledged asset was collected by the corporation and deposited to its account the checks became the "property of the bank." This is no more than a statement of a general rule (5 Ill. L. & Pr. Banks § 189 (1953)) which has no application to the facts of this case.

The exercise by a bank of its right to apply a deposit made with it to the payment of an indebtedness due it from the depositor is optional with the bank. (Anderson v. Keystone Chemical Supply Co., 293 Ill. 468, 474.) There is no merit to this argument of plaintiffs.


Plaintiffs argue that the Bank has not responded to affidavits of Mrs. Schultz and her ...

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