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Bain v. Financial Security Life Ins. Co.

OPINION FILED OCTOBER 6, 1977.

L.R. BAIN ET AL., PLAINTIFFS-APPELLEES,

v.

FINANCIAL SECURITY LIFE INSURANCE COMPANY ET AL., DEFENDANTS-APPELLANTS.



APPEAL from the Circuit Court of St. Clair County; the Hon. ROBERT L. GAGEN, Judge, presiding.

MR. JUSTICE EBERSPACHER DELIVERED THE OPINION OF THE COURT:

This is an appeal from a summary judgment entered in the circuit court of St. Clair County in favor of holders of 119/120th interests in a promissory note made by defendant Financial Security Life Insurance Company, a corporation, to Metromodular Corporation, and assigned by the latter to plaintiffs and one individual defendant.

On March 29, 1971, defendant Financial Security Life Insurance Company purchased certain real property and improvements from Metromodular Corporation. Defendant paid part of the purchase price in cash at closing and the balance by its interest-bearing promissory note in the principal amount of $120,000 payable to Metromodular. At the same time Metromodular leased back from defendant the real property and improvements.

Two provisions of these written instruments are relevant for discussion of the issues raised on appeal. First, the note for $120,000 contains the following paragraph:

"It is expressly understood and agreed that Maker's obligations hereunder are subject to any and all amounts due it from Payee herein and/or any and all offsets to which it may be, during the term of this note, in any manner entitled as an offset against Payee upon any and all obligations of Payee to the Maker, whether executed concurrently herewith or subsequent to the date of this instrument, and that no other shall claim to be a holder of this note in due course without knowledge of Maker's claimed offsets."

Secondly, the lease to Metromodular provides that in the event of default or bankruptcy by Metromodular, defendant

"* * * shall have the right, at its election * * * to re-enter and take * * * possession of the leased premises * * * and to declare the term of this lease ended, whereupon this lease and all the right, title and interest of Lessee hereunder shall terminate and be of no further force or effect. In the event of such declaration, Lessor shall have the right to sue and recover all rents and other sums accrued up to the time of such termination including damages arising out of any breach on the part of Lessee. Lessor shall also have the right, without re-entering the leased premises or terminating this lease, to sue for and recover all rents and other sums, including damages, at any time and from time to time accruing hereunder."

Between April 19, 1971, and July 12, 1971, 100 percent of the interests in the note were sold and assigned by Metromodular to the plaintiffs and to defendant Alva F. Rauch. Thus, after July 12, 1971, Metromodular had no interest in the proceeds of the note as all of its interest had been transferred to various parties. In connection with the transfer of the interests in the note an escrow agreement was entered into between Metromodular and the First National Bank of Springfield whereby the bank was to receive payments on the note and distribute the payments to the various assignees as their interests appeared. In the event of default on the note the bank's sole obligation was to notify Metromodular and the assignees. The agreement provides, "other than for notice upon default, the Escrow Agent shall have no other responsibility as to the collection of said note."

Metromodular paid to defendant the sums due under the lease for the months of April, May and June, 1971. Likewise, defendant made the required interest payments on the note for the same period. Each defaulted thereafter.

On July 30, 1971, Metromodular filed a petition in the Bankruptcy Court in the United States District Court for the Southern District of Illinois, Southern Division, proposing a chapter XI arrangement under the Bankruptcy Act. On September 22, 1971, Metromodular was adjudicated bankrupt (the proceeding having been changed to one under chapters I-VII of the Bankruptcy Act), and on that same day defendant, in the bankruptcy proceedings, filed a petition to reclaim property in which it was alleged that Metromodular had breached its lease by failing to pay rent for the months of July, August and September, 1971, defendant claiming its right to immediate possession of the leased premises and demanding that Metromodular and its trustee surrender possession of the premises.

Plaintiffs, assignees of 119/120ths of the interests of Metromodular, sued defendant on the note. They named as an additional party defendant, Alva F. Rauch, holder of 1/120th of Metromodular's interest in the note. The trial court granted plaintiff's motion for summary judgment and entered judgment on the note against defendant. Damages were calculated against defendant on the basis of 119/120ths of the amount due.

Defendant raises on this appeal the following issues:

1. The trial court erred in denying defendant's motions to dismiss plaintiff's complaint.

2. The trial court erred in striking defendant's first, third and fourth ...


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