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Mt. Prospect Bk. v. Forestry Recycling Sawmill

OPINION FILED OCTOBER 30, 1980.

MOUNT PROSPECT STATE BANK, PLAINTIFF-APPELLEE AND CROSS-APPELLANT,

v.

FORESTRY RECYCLING SAWMILL ET AL., DEFENDANTS. — (ERWIN B. NEIMAN ET AL., DEFENDANTS-APPELLANTS AND CROSS-APPELLEES.)



APPEAL from the Circuit Court of Cook County; the Hon. NATHAN ENGELSTEIN, Judge, presiding.

MR. PRESIDING JUSTICE LINN DELIVERED THE OPINION OF THE COURT:

Rehearing denied March 12, 1981.

Defendants, Erwin B. Neiman, Roland F. Thomas, Martin S. Abrams, Rosecrain Collins, and Harold Laker, bring this appeal from an order entered in the circuit court of Cook County granting plaintiff's motion for summary judgment. We reverse this order and remand for further proceedings.

Plaintiff, Mount Prospect State Bank (Bank), cross-appeals from an order which declared judgments by confession entered against the above defendants to be void. We affirm this order.

The record discloses that in December 1974 a limited partnership known as Forestry Recycling Sawmill (Sawmill) was in the process of being formed. At this time, negotiations were underway between Harvey Goldstein, one of the two general partners of Sawmill, and Bank to obtain a loan from Bank so that Sawmill could begin operations.

In late December 1974, Bank loaned Sawmill $343,740. In return Bank received a promissory note from Sawmill promising to repay the loan in monthly installments over a period of five years. Bank also received personal guarantees from Sawmill, Goldstein, and the other general partner securing repayment of the full amount of the loan. In addition, Bank received personal guarantees from several but allegedly not all of the limited partners. The five appellants are limited partners in Sawmill from whom Bank received personal guarantees. Each appellant signed a separate guaranty agreement, but all of the agreements contained the same terms except for the maximum amount of liability of each guarantor. Under the terms of these agreements, the appellants promised, jointly and severally, to pay the full amount outstanding on any loans made by Bank to Sawmill if Sawmill defaulted in its payments on those loans. However, the maximum liability of the appellants was limited to the following amounts:

Limited Partner Maximum Liability Neiman $19,000 Thomas 38,000 Abrams 76,000 Collins 38,000 Laker 19,000

All of the guaranty agreements allowed for confession of judgment if Bank had to bring an action to recover any amounts due on outstanding loans.

Following the initial loan, Bank made another loan to Sawmill in the amount of $11,500 on June 30, 1975. In September 1975, Sawmill defaulted on its payments on both loans. On November 25, 1975, Bank brought an action against Sawmill, Goldstein, and all of the limited partners who had signed and delivered personal guarantees. By this action Bank sought to recover the full balance due on the outstanding loans. The total amount sought was $269,003. On that date, Bank also obtained judgments by confession against all of the named defendants for the maximum amount allowed by their individual guaranty agreements.

On November 25, 1975, summons to confirm the judgments by confession was issued against all the defendants but none of the appellants was served until after December 1, 1975. However, on December 1, Goldstein, an attorney, filed an answer and a counterclaim to the complaint. These documents were filed on behalf of Sawmill and Goldstein, "individually and as fiduciary for all the partners." It is unclear from the record if this meant that Goldstein was representing the limited partners and filing an answer and counterclaim on their behalf.

The answer admitted the making of the loans but denied that Sawmill had defaulted. The answer also alleged that the judgments by confession were improperly entered. The counterclaim asserted that Sawmill could not pay the loans because Bank and several other individuals had conspired to prevent Sawmill from beginning its operations. The counterclaim sought damages for this alleged conspiracy to interfere with Sawmill's business.

Thereafter, negotiations began between Goldstein and Bank to settle the suit. Also, several other creditors of Sawmill became parties to these negotiations as a result of Sawmill's initiating bankruptcy proceedings in Federal court. Because of these negotiations, Bank delayed the confirmation and enforcement of the judgments entered by confession.

On December 30, 1977, a settlement agreement was entered into. The parties to this agreement were Sawmill, Goldstein, Bank, and some of Sawmill's other creditors. None of the appellants was a party to this agreement. Under the terms of this agreement, Sawmill agreed to pay Bank $303,847 with monthly installments to begin August 1, 1978. Sawmill also agreed to become fully operational by April 1, 1978. In addition, Sawmill and Goldstein agreed to allow their counterclaim to be dismissed with prejudice.

In return, Bank agreed not to oppose several claims filed by other creditors in the bankruptcy court. Bank also agreed to forego confirming or enforcing the judgments by confession as long as Sawmill carried out the terms of the agreement.

This agreement was filed in the bankruptcy court where it was accepted by that court. As a result, on February 1, 1978, an agreed order was entered in the circuit court dismissing the counterclaim with prejudice.

Subsequently, Sawmill failed to carry out the December 1977 agreement. On December 4, 1978, Bank filed its motion to confirm the judgments by confession. Thereafter, further negotiations took place between Bank and Sawmill (apparently through Goldstein) to settle the dispute. As a result of these negotiations, Bank agreed to defer monthly payments on the December 1977 agreement until April 11, 1979. In return, Bank received the immediate payment of $25,000 as partial payment in compliance with the December 1977 agreement. Two of the appellants, Collins and Thomas, each contributed $5,000 towards the $25,000 paid to Bank.

On January 10, 1979, Bank sent a letter confirming the above agreement to all of the defendants including appellants. In this letter Bank also informed appellants that the motion to confirm judgments by ...


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