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Bank of Commerce v. Riverside Trails





APPEAL from the Circuit Court of De Kalb County; the Hon. CARL A. SWANSON, JR., Judge, presiding.


Rehearing denied October 19, 1977.

The Bank of Commerce of Milwaukee (hereinafter referred to as the plaintiff Bank) appeals from a decree of foreclosure which foreclosed a mortgage executed by a land trustee — The De Kalb Bank — but relieved the beneficiaries of the land trust of any personal liability on the note secured by said mortgage. While the DeKalb Bank is a nominal defendant here by reason of having executed the promissory note in question, it specifically disclaimed any liability under the note by the following exculpatory language which appeared just above the signature of its trust officer:

"This note is executed by DE KALB TRUST AND SAVINGS BANK, not personally but as Trustee as aforesaid in the exercise of the power and authority conferred upon and vested in it as such Trustee, and is payable only out of the property specifically described in said mortgage securing the payment hereof by the enforcement of the provisions contained in said mortgage. No personal liability shall be asserted or be enforcible against the Trustee, such liability, if any, being expressly waived by each taker and holder hereof, but nothing herein contained shall modify or discharge the personal liability expressly assumed by the guarantors hereof, if any."

M.G. Astleford, Gordon E. Carncross and Robert Kassel (hereinafter referred to as the defendants) whose names appear as guarantors of the note, were partners with others in a joint venture known as Riverside Trails. The joint venture was formed to acquire and develop certain vacant land in DeKalb County. This land had previously been owned by Darrell R. Wild and the defendants borrowed $375,000 from the plaintiff Bank and used these funds to pay off a previous encumbrance owed by Wild and for expenses in developing the property.

At the time the loan was made the land was in a land trust with The DeKalb Bank, as trustee. The mortgage given to secure the debt of $375,000 and the promissory note evidencing same were executed by the land trustee as noted above with the usual disclaimer as to any personal liability whatsoever on the DeKalb Bank's part. The promissory note in the amount of $375,000 at 8% per annum had attached to it an accompanying document entitled "Guaranty," reading as follows:

"For value received, we hereby guarantee the payment of the within note at maturity or at any time thereafter or any renewal of the same with interest at the rate of eight (8%) percent per annum until paid, and hereby waive protest, demand and notice of demand and nonpayment and suit against the makers and consent that the time of the payment of this note may be extended from time to time without affecting our liability thereon."

The note was executed on July 31, 1972, and was due July 31, 1973. On July 25, 1973, the directors of the plaintiff Bank authorized an extension of the $375,000 loan for one year, from July 31, 1973, to July 31, 1974. An "extension note" was prepared by the plaintiff Bank bearing interest at the rate of 11% instead of the original 8% and was apparently initially sent to Jerry Shea, a Wisconsin attorney representing the defendants, to procure the necessary signatures. Gary Cordes, a De Kalb attorney, testified that Shea, not being familiar with Illinois land trust procedure, sent the extension note to him for completion of the necessary paper work. Cordes testified that he prepared separate original letters of direction for Astleford, Carncross and Kassel, and another for a joint venturer (who did not sign the Guaranty but who, along with the three defendants, apparently had the power of direction), and sent one to each of these persons asking them to sign the direction and return it to Cordes for presentation to the De Kalb Bank, if they wished the De Kalb Bank to sign the extension note and return it to the plaintiff Bank. He testified that with each letter of direction he sent a copy of the extension note. The letter of direction described the document to be signed by the trustee merely as "Extension Note Agreement," however it stated that a copy of that document was attached. The paper work took some time to complete. The letters of direction were eventually all executed and returned to attorney Cordes for delivery to the De Kalb Bank and in turn the document designated "Extension Note" was executed by the De Kalb Bank, as trustee, and returned to the plaintiff Bank on December 14, 1973. The Extension Note, dated July 31, 1973, promised to pay the sum of $375,000 to The Bank of Commerce "with interest on the unpaid balance at the rate of 11% per year plus 1% service charge." It was due July 31, 1974. Just above the signature line appears the following:

"This note is executed, delivered and accepted, not in payment, but to extend the time of payment and modify the provisions of a note in the original amount of $375,000 dated July 31, 1972, between the maker(s) and payee of this note."

It was executed by the De Kalb Bank as trustee and not personally.

The extension note not having been paid on July 31, 1974, the plaintiff Bank made demand on Riverside Trails, Astleford, Carncross and Kassel for payment thereof. There was some point raised about whether proper notice of default and demand for payment had been served on all these parties. Registered mail return receipts and other correspondence in the record, however, leave little doubt that legally sufficient notice of default and demand for payment were made and came to the attention of the debtor parties.

In a letter to the president of the plaintiff Bank dated September 9, 1974, which is in evidence, Kassel explained that the three guarantors could not raise the money to pay the note off at that time, without severe sacrifice and asked for additional time. In the course of this letter he said:

"I recognize that we are personally on the loan * * * I reaffirm for all my partners our liability under the loan * * * I just tell you that because of this terrific financial crunch it would be an impossible chore to come up with $375,000.00 today."

To this letter the plaintiff Bank's vice-president replied that he was sorry that they could not extend the loan any further and must take legal action unless it was paid by October 1. The note not being paid, the plaintiff Bank instituted foreclosure proceedings and asked for a personal deficiency decree, if ...

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