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Mitchell v. Peterson





APPEAL from the Circuit Court of Cook County; the Hon. ROBERT G. WREN, Judge, presiding.


This appeal arises from an action brought by plaintiff, Mitchell, the payee of a promissory note, against defendants, Peterson and Michaels, co-guarantors of the note, after the maker defaulted on the third annual installment of the four-year instrument. After a bench trial, the court found that defendants were released from their guaranty concerning the third installment, due April 1, 1977, since the maker of the note, and Mitchell agreed to an extension of time for the payments of that installment.

Defendants were held liable, however, for payment of the fourth or final payment due on April 1, 1978. The court further found that Michaels and Peterson executed an indemnity agreement concerning the note in question, and ordered Michaels to pay Peterson the money owed Mitchell under the note. Peterson was awarded $622.50 for attorneys' fees and $27 in court costs against Michaels pursuant to the indemnity agreement.

Peterson appeals from the trial court's finding concerning his liability for payment of the fourth installment, and from the findings with respect to the amounts of attorneys' fees and costs awarded him. He contends that: (1) the trial court erred in finding that he was not entitled to a complete discharge as a guarantor from liability under the note, since the extension of time for payment of the third installment was made without his knowledge and consent; and (2) the trial court's award of attorneys' fees and costs was erroneous in that it did not include all such expenses incurred, as provided by the indemnity agreement.

Plaintiff cross-appeals from the court's finding which releases defendant from liability for payment of the third installment. He contends that the agreement to extend the period of payment for that installment was not supported by any consideration and that the guarantors therefore remained liable for the amounts due thereunder, as well as for those due under the last installment.

On April 4, 1974, Mitchell entered into a stock redemption agreement with Prairie State Cold Storage Ltd. (Prairie State) by its vice-president and treasurer, Michaels. The agreement provided that Prairie State would redeem its $15,000 promissory note and all of plaintiff's 250 shares of stock in the company for the sum of $19,000. This $19,000 amount was to be paid by a promissory installment note, which was issued on April 1, 1974, by Prairie State to Mitchell bearing interest at 6% per annum and payable in four annual installments of $4,750 and accumulated interest. The installments were due on April 1, 1975, April 1, 1976, April 1, 1977, and April 1, 1978.

Along with the note, a separate guaranty agreement was entered into on April 4, 1974, by Mitchell with Michaels and Peterson, also shareholders in the company. In consideration of Mitchell entering into the stock redemption agreement, Peterson and Michaels agreed jointly and severally to guaranty the performance of Prairie State with regard to the stock redemption agreement, including without limitation, prompt payment of the note in question.

The installment due on April 1, 1975, was paid by Prairie State without incident.

No payment was made on the next installment due on April 1, 1976. However, Peterson and Michaels had each written letters on March 31, 1976, requesting that Mitchell extend the time for payment of the April 1, 1976, installment. Mitchell's attorney responded to defendants by letters dated April 12, 1976, April 23, 1976, and May 3, 1976, which proposed a rescheduling of payments for the April 1, 1976, installment. The letters outlined a revised payment plan in which payments were due in varying amounts starting in April with additional payments due on the first day of May, June, July and August of 1976. Mitchell's letters requested defendants' signatures and specifically provided that his acceptance of the new payment plan was conditioned upon their continued liability according to their agreement to personally guarantee the note. Neither Michaels nor Peterson signed any of the letters, but payment was tendered in full to Mitchell in accordance with the altered schedule of payments.

The installment due on April 1, 1977, was likewise not paid when due. Shortly thereafter, Mitchell called Michaels requesting payment, and the latter stated that payment was impossible due to lack of funds. The two agreed to meet at a restaurant to discuss rescheduling of this installment. At the meeting, Mitchell proposed to Michaels a handwritten schedule of payments similar to that proposed in 1976. According to Michaels, this new schedule, which was introduced into evidence at trial, reflected the agreement they reached concerning payment of the 1977 installment. Mitchell considered this schedule only as a proposal, which was subject to written confirmation. Peterson had no knowledge of the meeting between Mitchell and Michaels or of any payment schedule other than the one set forth in the note. The new schedule proposed the following payments:

Installment due 4-1-77 $1,000.00 Interest due (570.00) __________ $1,570.00

Installment due 5-1-77 $1,000.00) Interest due (18.75)

Installment due 6-1-77 $1,000.00 Interest due (13.04)

Installment due 7-1-77 $1,000.00 Interest due (8.91)

Installment due 8-1-77 $ 795.46 Interest due (3.96)

Two of the payments proposed in Mitchell's schedule were, in fact, paid to him by check: one for $1,570 on May 2, 1977, and another on May 23, 1977, for $1,000. Notice of default for the third annual payment was served on defendants on May 3, 1977, and judgment was entered against Prairie State on the note for the total amount due of $8,070. Demand was made upon defendants to perform their personal guarantees, but they refused.

On October 12, 1977, plaintiff filed suit against defendants to perform their guaranties. Peterson later filed a counterclaim against Michaels seeking indemnity for any liability to Mitchell arising from the note in question based upon a separate indemnity agreement executed between Michaels and Peterson on April 28, 1976. Following a bench trial in which the claim on the note and the counterclaim were litigated, the trial court entered the order from which the parties appeal.


We first turn to the propriety of the trial court's finding with regard to Peterson's liability for the third installment due April 1, 1977. Peterson argues that the trial court's finding of his liability for this installment was erroneous since Mitchell and Michaels agreed to extend the time of payment for the 1976 and 1977 installment without his consent, and this discharged his liability as a guarantor of the note. Mitchell maintains ...

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