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Schwarzwalder v. Waitkoss

OPINION FILED NOVEMBER 5, 1981.

RICHARD L. SCHWARZWALDER, PLAINTIFF-APPELLEE,

v.

ALEX J. WAITKOSS, DEFENDANT-APPELLANT.



APPEAL from the Circuit Court of Will County; the Hon. JOHN VERKLAN, Judge, presiding.

MR. JUSTICE ALLOY DELIVERED THE OPINION OF THE COURT:

The defendant, Alex J. Waitkoss, appeals from the judgment entered in favor of the plaintiff, Richard Schwarzwalder, an assignee of the original obligee, Community Bank of Galesburg (C.B.G.), on the plaintiff's action to collect the arrearage owing on a note of indebtedness executed by the defendant. The issue raised is whether the circuit court's finding that the defendant was personally liable was contrary to the manifest weight of the evidence where the defendant contended he signed the note in a representative capacity only.

In 1977, the defendant was a one-sixth shareholder in United Energies, Inc. (U.E.), a corporation which owned mineral rights and which was involved in coal mining. Other U.E. shareholders included Ernest Huls and Ernest Streigel. Huls also served as the chairman of C.B.G., of which he was the major shareholder. In January 1977, Huls approached the plaintiff, who was then president of C.B.G., and inquired about a loan to U.E. to be used to purchase a coal washer/crusher. The plaintiff testified that he was hesitant to extend credit to U.E. because of Huls' dual position with both the bank and U.E. Apparently nothing resulted from this inquiry, because, at about the same time, Huls and Streigel approached the defendant in search of the necessary funds to purchase the equipment for U.E. After meeting with them, the defendant agreed to execute a note to C.B.G. on behalf of U.E. Although he received no written authorization, the defendant believed that he was to sign the note in his representative capacity only and that the note would be solely a corporate obligation of U.E. In fact, he received the impression from Huls that all U.E. shareholders were to sign the note. Prior to the execution of the note, C.B.G. requested and received the defendant's personal financial statement.

On January 18, 1977, the defendant executed a one-year note for the principal sum of $40,000 at an interest rate of 8 1/2 percent. At this time, the defendant had no discussions with the plaintiff or any other C.B.G. official, other than Huls, regarding the loan. The defendant signed the note in two places:

"I (we) Hereby Warrant and Certify that the proceeds of this loan will be used solely for business purposes only as follows: For construction of recycling plant (washer/crusher) on behalf of United Energies, Inc. at West Frankfort, Illinois.

__________ ___________ s/ Alex J. Waitkoss Date Signature Signature

By executing this instrument, the undersigned agrees to all terms and provisions and acknowledges the receipt of a completely filled in copy prior to execution thereof.

Phone (312) 896-1916 Soc. Sec. No. 449-20-2289

Address United Energies, Inc. s/ Alex J. Waitkoss c/o Post Office Box 384 Signature 404 South Logan Street

West Frankfort Illinois 62896 NOT NEGOTIABLE" City State Zip Code Signature

Upon signing the note, which he considered to be an obligation of U.E., the defendant mailed it to either Huls or Streigel. C.B.G. applied the loan proceeds to an account held by U.E. and Carbon Energies, a partnership related to U.E. At no time did the defendant have direct access to the funds contained in that account. In an unrelated transaction, C.B.G. also extended credit to Carbon Energies in 1977 which was guaranteed by U.E. As with the defendant, C.B.G. required a financial statement from Carbon Energies before granting its loan.

As the note signed by the defendant approached maturity, the plaintiff, acting as president of C.B.G., sent to the defendant a renewal note which was intended to replace the original note upon payment of the interest owing. The plaintiff testified that at no time did he seek payment from U.E. because he considered the note to be the defendant's personal obligation. Upon receiving the second note, the defendant requested that U.E. pay the entire amount owing, but he was informed by Huls that U.E. was without sufficient funds to pay either the principal or interest and that the note must be renewed. Huls told the defendant that if he were to pay the interest owing and sign the renewal note, U.E. would reimburse him. So believing, the defendant paid the interest and on January 14, 1978, executed the renewal note, which contained the identical terms as those of the first note. As with the first note, the defendant affixed his signature beneath the recital of the purpose for the loan and at the end of the note immediately to the right of U.E.'s name and address. This time, the defendant also signed his name in a box located at the top of the note on the line indicating "Signature of Borrower." Following the renewal of the obligation, the defendant requested, but did not receive, reimbursement from U.E. for interest paid. As with the previous note, the defendant discussed the terms with neither the plaintiff nor any other bank official except Huls.

Then in December 1978, the plaintiff, Huls, and a third C.B.G. shareholder, James Franks, received an offer to sell their ownership interests. As one condition of the stock transfer, the purchasers required that the sellers remove certain loans from C.B.G.'s assets, including the note executed by the defendant, which was referred to as the "United Energies" loan.

The plaintiff accepted the offer to sell on January 8, 1979, and on that day the C.B.G. board passed a resolution requiring Huls to effect collection of so-called "insider" loans. The resolution denominated the renewal note as being of this type and referred to it as "United Energies, Inc. #10281." A letter sent by the plaintiff which accompanied the resolution, as well as a second letter, also referred to the note in issue as the "United Energies, Inc." or "United Energies" loan. As part of the stock transfer agreement, the sellers entered into an agreement in which Huls would indemnify the plaintiff and Franks for any loss incurred due to the noncollection of ...


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