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Blackhawk Production Credit Ass'n v. Bay





APPEAL from the Circuit Court of Lee County; the Hon. THOMAS E. HORNSBY, Judge, presiding. MR. JUSTICE SEIDENFELD DELIVERED THE OPINION OF THE COURT:

Blackhawk Production Credit Association (Blackhawk) appeals from a judgment which confirmed a jury verdict finding the defendant Betty Bay not indebted for various loans and the defendant Jack Bay indebted in the amount of $107,090.60 (which was far less than the creditor claimed). Blackhawk contends that the trial court erred in refusing to direct a verdict in its favor, in failing to direct the manner in which payments were to be credited, and in instructing the jury. Blackhawk also claims that the verdict and judgment are against the manifest weight of the evidence.

Initially Blackhawk filed a complaint and confession on various judgment notes alleged to have been signed by the defendants. Included was a note dated September 14, 1971, in the amount of $528,139.55 together with 24 other notes covering the period from September 27, 1971, to May 30, 1975. Judgment by default was entered against the defendants in the amount of $397,853.85, which reflected $259,674.34 principal indebtedness, $118,996.51 interest, and $19,183 attorney's fees. Subsequently the default judgment was vacated and proofs were presented to a jury.

From the evidence presented at trial it appears that Blackhawk is a farmer-owned cooperative which loans money to farmers on a short and intermediate term basis usually from one to seven years strictly for farming production purposes. The money available for loans is received from the Federal Intermediate Credit Bank. If the farmer has otherwise qualified he must, in order to obtain a loan, make an investment in the Association, which in the case of Blackhawk is a purchase of $5 in stock and a deposit of $5 in a capital reserve account for each $100 borrowed. This could be added to the loan rather than paid in cash and defendant Jack Bay elected to add the payments to his loan account. In the case of the Bays the procedure followed was that they would request a line of credit in an application and if approved the association would take a note for the amount of the application. The member would have that money to draw on for his purchases, usually by a draft written on the association account or in some cases by requesting that the association issue the check. Interest rates were variable and could fluctuate monthly, based on the rates set by the Federal Intermediate Credit Bank with an additional charge determined by the association's board to cover its operating expenses. On some occasions a tentative interest rate was noted on a promissory note but this was subject to adjustment. Interest accrued only after the drafts were paid. The types of loans were identified in a range from the cipher zero to various numbers, with the higher numbers generally referencing longer maturity dates.

Interest was computed on a daily basis on the outstanding balance. An officer of Blackhawk testified that payments received were applied toward the total line of credit on a specific loan type and not against any one specific note. There was testimony that as of September 11, 1975, the total amount due on all the notes in evidence for principal only was the sum of $249,224.07. (This varied from the $259,674.34 principal alleged in the complaint and confession, which Blackhawk claimed as an error in computation.)

Both of the defendants defended on the theory that Blackhawk's computation of the principal balance did not take into account the proper allocation of payments and credits. In addition, Betty Bay denied signing a number of the notes purporting to bear her signature and also claimed she was being charged with indebtedness where her name did not appear as a maker.

There was testimony that on November 10, 1970, a note for $105,560 bearing the signature of Leslie Bothe, Marian Bothe and the defendants Jack Bay and Betty Bay was made for the purpose of purchasing livestock. This note established a new credit line designated type one. A second note bearing the signatures of Jack and Betty Bay and Leslie Bothe was made on February 9, 1971 for $100,000. Additional notes with the same signatures were made on February 24, 1971, for $40,000, March 17, 1971, for $50,000, April 17, 1971, for $47,000, June 25, 1971, for $18,000. Jack Bay testified that the names of Leslie Bothe and Marian Bothe were not on the notes when he signed them.

Several drafts bearing the signature of Leslie Bothe were drawn against the line of credit represented by the above notes. The name of Jack Bay appears written across several of the drafts but Bay denied ever having placed it there. The drafts totaled $97,630.47. Bay testified that he never had a business relationship with Mr. Bothe nor authorized him to draw against any of his notes.

In the late summer of 1971 the plaintiff requested that Jack Bay consolidate his loans and establish additional credit. A new note was signed for $528,139.55 on September 14, 1971. The application for the loans shows the purpose was renewal of type zero and type three loans for $37,088.18 and $191,051.37 respectively and an additional loan of $300,000. The note bore the signatures of both Jack and Betty Bay.

Subsequent to 1971 the defendants continued to do business with Blackhawk. As one credit line would run out a new application would be made, a note signed and drafts drawn against it. The defendant Betty Bay testified that she was not actually involved in procuring these loans nor the business of Mr. Bay. She testified that she had never placed her signature on a note which Mr. Bothe had signed. She admitted signing the renewal note dated September 14, 1971, in the amount of $528,139.55 (plaintiff's exhibit No. 13) and then other notes (plaintiff's exhibits Nos. 25, 27, 28, 29, 30, 37, 38, 39 and 41) which totaled $806,114.85. She identified notes on which her signature did not appear totaling $21,061.94. (Plaintiff's exhibits Nos. 40, 42, 43, 44, 45, 46, 47 and 48.) She testified she did not sign or authorize her signature to be placed upon notes where it purported to appear which totaled $375,366.73. (Plaintiff's exhibits Nos. 21, 22, 32-36.) Her husband later admitted that he had placed his wife's name on these notes.

It was stipulated that between September 14, 1971, and August 27, 1975, Mr. Bay paid $1,257,667.98 to Blackhawk. However, the defendants did not designate which notes they intended to pay when they made payments on the loans. The records of Blackhawk also showed that the notes drawn against by Leslie Bothe (type 1) were paid in full on July 13, 1971 (plaintiff's exhibits Nos. 1-6). It appears to be a clear inference from the record, although there is no direct testimony to the effect, that the type 1 notes were paid by being included in the renewal note of September 14, 1971.

Mr. Bay further testified that he was not given a line of credit for $300,000 purportedly included in the September 14, 1971, note and that he understood that the note consolidated all of his debts but did not agree on the figure. He said, however, that he signed in order to keep up his credit with Blackhawk.

Blackhawk first argues that the court erred in failing to grant its motion for a directed finding that there was consideration for the note drawn on September 14, 1971. It argues that the defendants' claim that there was a partial lack of consideration for the $528,000 represented by this note was unsupported. Blackhawk argues in this connection, that the defendants were liable on the note signed by Leslie Bothe because as joint makers they were responsible even if the jury believed that the drafts drawn against them were for Bothe purchases; also, that all of the notes signed by Bothe and drawn upon by the Bothe drafts were paid prior to the time of the consolidated note in September of 1971; and that, in any event, there was sufficient consideration for the September 14, 1971, note in the renewal of the prior notes.

We are not persuaded by Blackhawk's argument that defendants are liable on the notes upon which Leslie Bothe's signature appears no matter who signed the drafts. Both defendants testified that the Bothes' names were not on the instruments when they signed them. Jack Bay testified that he was not in partnership with Bothe and had not authorized Bothe to write drafts on the account nor had he told anyone at Blackhawk that Bothe could so draw on his account. While Blackhawk's representative testified that he received verbal authorization from Bay, the jury could have believed otherwise on this disputed question of fact.

• 1-3 Since the jury could have found a partial lack of consideration to the extent of the unauthorized drafts it would, to that extent, be a partial defense to the amount claimed. The defense of lack of consideration in whole or in part may be asserted against a holder not having the rights of a holder in due course. (Ill. Rev. Stat. 1977, ch. 26, par. 3-408.) The maker of a note under the Uniform Commercial Code engages to pay according to the tenure of the instrument when he signs or when it is completed according to his authorization (Ill. Rev. ...

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