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Telegraph Sav. & Loan v. Guaranty Bk. & T.

OPINION FILED DECEMBER 29, 1978.

TELEGRAPH SAVINGS & LOAN ASSOCIATION, PLAINTIFF-APPELLANT,

v.

GUARANTY BANK & TRUST COMPANY ET AL., DEFENDANTS. — (HAROLD COHEN ET AL., DEFENDANTS-APPELLEES.)



APPEAL from the Circuit Court of Cook County; the Hon. GEORGE J. SCHALLER, Judge, presiding.

MR. JUSTICE DOWNING DELIVERED THE OPINION OF THE COURT:

This case involves (1) the failure of the trial court to enforce the borrowers' personal guaranty upon default of a $75,000 loan with a deficiency of $20,036.86 after the foreclosure sale of the real estate securing the loan; and (2) the trial court's failure to permit a recovery of unpaid rents due under the leases assigned as additional security for the loan.

Telegraph Savings & Loan Association (hereinafter Telegraph) made a loan of $75,000 to Guaranty Bank & Trust Company (hereinafter Guaranty) as trustee under Trust Agreement No. 10389. Guaranty executed to Telegraph an installment note dated February 2, 1966, promising to repay the $75,000 loan with interest in monthly installments beginning on April 1, 1966, with final payment due on March 1, 1984. This note was secured by a first mortgage trust deed limiting Guaranty's liability on the note to the property described in the trust deed. Guaranty had leased this property to Merit Mutual Insurance Company (hereinafter Merit Mutual) and C&B Realty Company (hereinafter C&B Realty). As additional security for the loan, Guaranty assigned to Telegraph its right to receive rent payments made by these lessees.

This assignment of rents, recorded on April 12, 1966, in the office of the recorder of deeds of Cook County as Document No. 19793662, transferred Guaranty's right to receive rent payments due under the leases to Telegraph with the right to apply the rents due to any present or future indebtedness or liability of Guaranty to Telegraph. Telegraph's rights under the assignment could not be exercised until after default occurred in any payment secured by the mortgage.

In letters dated April 21, 1966, and addressed to Telegraph, both Merit Mutual and C&B Realty stated that they were in possession of the property secured by the first mortgage as lessees under leases dated November 19, 1965, effective until November 30, 1985; that they had been advised of the $75,000 loan Telegraph made to the lessor of the property, Guaranty; that they had received notice of the terms and conditions of the assignment of rents assigned to Telegraph as additional security for the mortgage debt; that they had not and would not make any payment of rent except as then provided by the lease; and that they would not make any modification of the lease without Telegraph's written direction or consent. Merit Mutual's letter was signed by the president of the company and attested to by the secretary, A. Charles Brody. C&B Realty's letter was signed by Albert C. Brody.

Since the $75,000 loan was secured by property worth approximately $40,000, Telegraph required the personal guaranty of the individual borrowers for $35,000. The individual borrowers, who were the beneficiaries under the trust, Harold Cohen, Lewis Cohen, Albert Brody, and Philip Brody (hereinafter guarantors), signed a rider which was attached to and became part of the installment note made by Guaranty to Telegraph and provided in pertinent part:

"The Undersigned, for good and valuable consideration, hereby guarantee the prompt and punctual performance of each of the covenants, agreements and conditions of the foregoing Note and the Trust Deed securing it, at all times hereafter until the principal amount of said Note and Trust Deed has been reduced to Forty Thousand ($40,000.00) Dollars and we do hereby guarantee, promise and agree promptly to pay the first Thirty Five ($35,000.00) Thousand Dollars of the principal of said indebtedness, and interest on the said first Thirty Five Thousand ($35,000.00) Dollars in the manner and in accordance with the terms therein described, but provided that our obligation under this Rider shall cease when the principal amount of said Note and Trust Deed has been reduced to Forty Thousand ($40,000.00) Dollars. We hereby waive all notice, presentment and demand whatsoever and agree to be and remain bound hereunder until said first Thirty Five Thousand ($35,000.00) Dollars of principal, and interest thereon, shall be fully paid, notwithstanding any act or omission of or on the part of the Trustee named in said Trust Deed or the holder thereof."

On April 1, 1973, Merit Mutual and C&B Realty failed to pay rent due under the lease agreement.

On February 1, 1975, a default in the installment payments on the note occurred leaving an amount in excess of $40,000 still due.

In July 1976, Telegraph filed an amended complaint in four counts. Count I sought foreclosure of the trust deed; count II sought enforcement of the guaranty; and counts III and IV sought damages for breach of contract and to recover rents owing from lessees, Merit Mutual and C&B Realty.

Thereafter, Telegraph filed motions for summary judgment against the guarantors and lessees. The lessees, Merit Mutual and C&B Realty, filed cross-motions for summary judgment alleging a failure of consideration between themselves and Telegraph.

On January 6, 1977, the circuit court of Cook County entered an amended decree of foreclosure and sale and reversed ruling on the liability of defendant guarantors for the deficiency, if any, resulting from the sale.

On January 11, 1977, the foreclosure sale was held and the property was purchased by Harold Cohen, one of the guarantors, for $41,000. The sheriff's report of sale and distribution approved by court order entered January 21, 1977, indicated a deficiency of $21,853.60 from the sale. *fn1 Since the proceeds from the foreclosure sale reduced the deficiency on the loan below $40,000, the guarantors filed a motion to dismiss count II of the amended complaint.

On March 25, 1977, the trial court granted the guarantors' motion to dismiss. On March 29, 1977, the trial court granted the lessees' cross-motions for summary judgment as to Counts III and IV and made its March 25, 1977 order final. On April 6, 1977, Telegraph filed a motion to reconsider the dismissal of count ...


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