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Rock Island Bk. & Tr. Co. v. Stauduhar

OPINION FILED MAY 15, 1978.

ROCK ISLAND BANK AND TRUST COMPANY, PLAINTIFF-APPELLANT,

v.

CHARLES STAUDUHAR ET AL., DEFENDANTS-APPELLEES.



APPEAL from the Circuit Court of Rock Island County; the Hon. JOHN L. POOLE, Judge, presiding.

MR. JUSTICE SCOTT DELIVERED THE OPINION OF THE COURT:

This is an appeal from a judgment of the circuit court of Rock Island County which denied the prayer in the second amended complaint of the Rock Island Bank and Trust Company to reform or set aside a release of a judgment taken by the plaintiff against the defendants Leo C. Gannon and Eileen R. Gannon. The judgment also denied the plaintiff's prayer for a judgment against the defendants.

The scenario of events which resulted in this appeal commenced on July 22, 1969, when the defendant Leo C. Gannon and the former defendant Charles R. Stauduhar executed a promissory note in the amount of $150,000 payable to the plaintiff bank. The note was due and payable in six months. The loan was made to the defendants in order to assist them financially in their efforts to purchase the Fort Armstrong Hotel located in Rock Island. A land trust for the hotel was established with the plaintiff serving as trustee.

As of the date of the execution of the note written guarantees were executed in favor of the plaintiff bank to secure the obligation of the defendants Leo C. Gannon and Charles R. Stauduhar. One guarantee was executed by the defendant Eileen R. Gannon which guaranteed both defendant Lee C. Gannon and Charles R. Stauduhar on the note. A second guarantee was executed by defendant Leo C. Gannon which guaranteed his own obligation on the note and the obligation of Charles R. Stauduhar. Charles R. Stauduhar and Joan M. Stauduhar executed similar guarantees; however, each of these parties have filed for bankruptcy and their liability was not litigated in the trial court proceedings which resulted in this appeal.

The defendant Leo C. Gannon as a 50% beneficiary of the land trust directed the plaintiff bank to place one-fourth of the trust (being one-half of his interest) in the name of his wife, defendant Eileen Gannon, who was aware of the transfer.

The initial note was not paid but a series of renewals of the same were made after payment of accrued interest. Charles Stauduhar on one occasion made a payment of $20,000 on the principal of the indebtedness and in March of 1972 the defendant Leo Gannon borrowed $12,000 from the plaintiff and from this loan $6,500 was paid on the accrued interest on the indebtedness of the parties. No release was given to the defendant Leo C. Gannon when he negotiated this personal loan. The personal loan of $12,000 was ultimately repaid to the plaintiff.

Upon the payment of accrued interest the last renewal note in the sum of $130,000 was executed by the defendant Leo C. Gannon and Charles Stauduhar on April 1, 1972. This note was due and payable in one month.

Adversity continued to plague the operation of the hotel so the defendant Leo C. Gannon sought to borrow $20,000 from the National Bank of Moline. If the loan could be negotiated the money obtained was to be applied on the operating expenses of the hotel and it was not contemplated that any of the proceeds would be applied on the loan from the plaintiff bank.

The defendant Leo C. Gannon had two discussions concerning the $20,000 loan with the president of the Moline bank, Sam Harris. An application for the loan was made and at such time the defendant Leo Gannon was unaware of the fact that a judgment had been taken against him by the plaintiff on the renewal note of April 1, 1972. The confessed judgment was in the sum of $143,837.50, which sum included interest and attorney fees. The Moline bank discovered this judgment when it conducted a search of the records before committing itself to the $20,000 loan which was sought by the defendant Leo C. Gannon.

The plaintiff bank had directed an attorney Galvin to take judgment on the note of April 1, 1972, and this was done on May 9, 1972. The judgment was taken against both of the Gannons and both of the Stauduhars even though there was no confession of judgment clause contained in the written guarantee documents. A motion to vacate the judgment as to Joan Stauduhar was made by her and allowed. The defendant Eileen R. Gannon made no appearance in this proceedings.

The Moline bank upon learning of the confessed judgment taken by the plaintiff informed the defendant Leo C. Gannon that they would not loan him the $20,000.

While the testimony is somewhat conflicting, it is established that Sam Harris of the Moline bank called Mr. Miller, president of the plaintiff bank, and after this conversation Miller directed Mr. Young, trust officer of the plaintiff bank, to have the confessed judgment set aside as to the defendants Gannon only. Attorney Galvin prepared a release or satisfaction of judgment as to the Gannon's and after being inspected by an attorney of the defendants Gannon the release of judgment was recorded on May 16, 1972, and filed in court on June 1, 1972.

The $20,000 loan was made by the Moline bank to defendant Leo C. Gannon and all of the proceeds of this loan was used to pay outstanding bills which had accrued as operating expenses of the hotel.

In October 1972, the plaintiff bank president Miller called attorney Galvin and asked him why the defendant Leo Gannon had not been making any payments on his obligation to the bank. Attorney Galvin talked with Leo Gannon and during the trial of this cause testified that the defendant Leo Gannon acknowledged that he knew he was still obligated to the plaintiff bank. It was the testimony of the defendant Leo Gannon that he did not ever recall making such an acknowledgement, that no one from the plaintiff bank ever advised him that he was still liable for the $130,000 obligation after the judgment was released. He further testified that he never made any further payments to the plaintiff bank after May 16, 1972, which was the date the release of judgment was filed.

A petition to reform the release or satisfaction of judgment was filed by attorney Galvin for the plaintiff bank. After substitution of counsel for both the plaintiff and defendants and various amended pleadings were filed a hearing on ...


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