APPEAL from the Circuit Court of Cook County; the Hon. NATHAN
M. COHEN, Judge, presiding.
MR. PRESIDING JUSTICE JIGANTI DELIVERED THE OPINION OF THE COURT:
This appeal arises from two separate lawsuits. One suit was filed by the plaintiffs, H. Watson Development Company, Inc. (Watson Development) and Bartlett Valley Iron Works, Inc. (Bartlett Valley) against the defendant, The Bank and Trust Company of Arlington Heights (the Bank), alleging that certain security agreements and notes, executed by the corporate officers, were obtained by the Bank in a fraudulent manner, and that the corporations never received any money or consideration following execution of the notes. The plaintiffs asked that the notes be cancelled and declared null and void, and requested monetary damages. During the course of the trial, it was learned that the Bank had obtained judgments by confession against Hugh and Katherine Watson on certain guaranties they had executed. A motion was made to vacate the confessed judgments. The court entered judgment for the defendant Bank in the one action and refused to vacate the confessed judgments against Hugh and Katherine Watson in the other. This appeal followed.
The plaintiffs, Watson Development and Bartlett Valley argue on appeal that the court erred in denying their petition for change of venue, that the judgment was against the manifest weight of the evidence; and that the execution of the notes and security agreements was an ultra vires action and therefore void. The defendants, Hugh and Katherine Watson argue that the guaranty executed by Katherine Watson was void for lack of consideration.
Hugh Watson first came into contact with the Bank in February 1972. He testified that he applied for a $350,000 mortgage on a parcel of real estate (the "Bartlett property") held in a land trust at the Bank and that the loan was approved by Robert Nelson, a Bank vice-president in the real estate department. Watson told Nelson that he would need interim financing to erect a building on the Bartlett property, and was advised that the Bank would be willing to finance the construction. Within six months, the Bank made a $78,000 loan to Watson secured by a mortgage on the Bartlett property. Watson testified he believed the loan would be increased to $350,000 when the buildings were completed on those premises.
The testimony of Robert Nelson and Donald Carrara, who was also a Bank vice-president in the commercial loan department at the time of these transactions, contradicts Watson. Nelson testified that he never made a commitment to Watson for a mortgage in the amount of $350,000 or any amount other than the $78,000 actually dispersed, although he did have many conversations regarding financing construction on the Bartlett property, none of which resulted in a commitment. Carrara testified that when he first met Watson in February 1972, he was seeking a $200,000 not $350,000 mortgage. He lent Watson $20,000, secured by the land trust, for "inter-financing purposes" in connection with construction on that property, but the $200,000 mortgage was declined by the real estate department. He stated that when advised of this, Watson said that he would attempt to obtain financing elsewhere and if necessary would accept a lesser amount. The Bank then approved the $78,000 loan to Watson.
The notes in the bank's loan file on Watson indicate that the application for the $200,000 mortgage was declined on May 30, 1972; the entry for August 16, 1972, shows that a 10-year mortgage for $75,000 was approved and increased to $78,000 prior to disbursement on October 2, 1972.
Although Watson's initial contact with the Bank was with the real estate department regarding a mortgage on the Bartlett property, the notes from which this litigation arose were the result of transactions completed with the commercial loan department. Watson was in the business of acquiring real estate, constructing houses, and then selling the completed house. The Melrose & Maywood Savings & Loan Association normally provided the mortgage loan to the purchaser of the house, while the commercial loan department of the Bank provided interim financing to Watson for the acquisition of the property and construction. Watson testified that the actual construction was done by Watson Development, of which he owned all of the stock. He owned 62% of the stock of Bartlett Valley, which was in the business of structural steel fabrication, along with Donald Dobosz and Luther Garrett, each of whom owned 19%. In connection with these construction projects, a second land trust was opened at the Bank which took title to the lots under construction. The beneficial interest in this trust was used as additional collateral for the loans.
Carrara testified that throughout the early part of 1973, the loan relationship between the Bank and Watson was "quite good" and that he was a satisfactory customer with no problems. During this time, the Bank continued lending Watson money which served as interim financing for various construction projects, including the six loans in the amounts of $35,000, $20,000, $28,000, $45,000, $16,610 and $143,397.96, which totaled $288,007.96. Some of these, notably the $143,397.96 loan, consolidated other smaller loans made to Watson during the time period preceding the signing of the corporate notes in December 1973. However, in about August 1973, overdrafts began to appear on the accounts of both Bartlett Valley and Watson Development. This condition persisted with respect to both accounts as evidenced by their monthly bank statements through December 1973, when the complained of transactions occurred.
In September 1973 according to Watson's testimony, Watson approached the Bank in order to obtain financing for his two corporations, asking the Bank to issue $300,000 to each corporation so they could be properly capitalized to handle the business that was being generated. He was told by a Bank officer to bring in financial statements, accounts receivable, and the records of each corporation for the Bank to study before making any decision. Carrara testified that in late September 1973, he met with one of Watson's accountants, Gerald Catalano of Leaf, Dahl & Company, and requested that he update the financial statements on Watson and his companies and determine what portion of the total loans to Watson had been channeled into Bartlett Valley and Watson Development.
On or about October 12, 1973, Carrara prepared security agreements for each of the corporations, covering furniture, fixtures, equipment, inventory, and assignment of all accounts receivable. These agreements were to secure the amount of $300,000, approximately the amount outstanding in loans to Watson. Watson testified that he was advised that the Bank would furnish each of his corporations a $300,000 line of credit, and that for this reason he had the proper officers of the two corporations execute the security agreements. Carrara, however, denied making any promises or commitments to Watson with respect to a line of credit, stating that in light of the overdraft situation, he had wanted additional security. The notes in Watson's loan file for October 12, 1973, state that regarding the security agreements, "it is our intention to segregate the advances which in the past had been made to Mr. Watson and funneled to Bartlett Valley and H. Watson Development. The advances will now be made on a direct basis to the respective corporations and we will then support each respective advance in turn by the pledge of adequate collateral."
On December 11, 1973, the two corporate notes were executed by Watson Development and Bartlett Valley. Watson testified that he was advised by the Bank that money was available for the corporations, and that he took the notes to the officers of the corporations and had them executed, advising the officers that they were going to receive the money they had requested. The note for Watson Development was in the amount of $160,007.96, and the note for Bartlett Valley was in the amount of $128,000. Watson stated that Carrara said he would give the corporations a $300,000 line of credit, but that Watson would have to personally guarantee it. Watson also stated that Carrara told him the loans had to be approved and could not be disbursed until February, and that of the $133,000 he had asked for Bartlett Valley, only $128,000 was available, and of the $179,000 he had requested for Watson Development, only $160,000 was available. On that same date, December 11, Watson's own personal notes were due, and he testified that he executed notes in the amounts of $160,007.96 and $128,000 to renew them. A few days later, Watson's wife, Katherine, was requested to execute a personal guaranty on the corporate notes, which she did.
Carrara testified that he requested that the two corporate notes be executed on December 11, 1973, as evidence of the obligations of Watson Development and Bartlett Valley to the Bank by virtue of the fact that the proceeds of the loans to Hugh Watson had been received by the two corporations. Carrara stated that he believed that the corporations were "indirectly indebted" to the Bank, but the Bank had no documentation of this indebtedness. He testified that when he told Watson of his intentions, Watson acquiesced. The notation in the loan file for December 11, 1973, states that the purpose of the notes, due February 9, 1974, was "[c]onsolidation of all of Mr. Watson's obligations which total $288,007.96. * * * [T]he new obligations were a segregation of funds which we advanced to Mr. Watson personally and which he in turn advanced to the respective corporate entities referred to above [Bartlett Valley and Watson Development]." The Bank also had Watson and his wife Katherine, execute personal guaranties to make them secondarily liable.
On December 11, 1973, Watson had six notes due which totaled $288,007.96. The two corporate notes due February 9, 1974, converting these loans to direct liabilities of the two corporations, also totaled $288,007.96 (a $160,007.96 note from Watson Development, and a $128,000 note from Bartlett Valley). On the same date, Carrara also prepared two notes for Watson individually, in identical amounts and due the same date as the two corporate notes. Watson executed the two originals of the personal notes and left them with Carrara at the Bank. Carrara testified that he gave Watson the originals of the two corporate notes (the top parts of which, the security agreements, had been executed on October 12, 1973) to be signed by the proper officers of each corporation with the understanding that when they were returned to Carrara they would be substituted for Watson's personal notes. When the corporate notes were returned to him a few days later, Carrara either cancelled and returned to Watson the originals of his personal notes, or destroyed them. Carrara never "booked" Watson's two personal notes of December 11, 1973. Instead of taking them to the note teller for assignment of a loan number and preparation of a ledger card, he put them in a "pending drawer in the note cage" and no ledger sheet was made up.
All the parties agree that no money ever passed to the two corporations as a result of the transactions of October 12, 1973, and December 11, 1973. However, Carrara denied Watson's assertions that the Bank agreed to lend additional cash to the two corporations, denying that the Bank ever made any promise or commitment to make any additional loan proceeds available on the basis of the corporate ...