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North Bk. v. Circle Investment Co.





APPEAL from the Circuit Court of Cook County; the Hon. JEROME LERNER, Judge, presiding.


The plaintiff filed suit against appellant, an accommodation guarantor of a secured note and certain other parties, to receive the amount due. The trial court after hearing the evidence dismissed the jury and directed a verdict for the plaintiff. Only Valessares has appealed, contending:

1. the plaintiff's extension of time for payment without the consent of the guarantor and without reserving rights released the guarantor;

2. the plaintiff's failure to insist on the performance of an agreement to pledge the beneficial interest in a land trust acted as an impairment of collateral and released the guarantor.

We agree with both contentions and reverse and enter judgment for the defendant-appellant.

On December 9, 1970, the plaintiff, North Bank, loaned $30,000 to Circle Investment Co., an investment group or joint venture whose members owned percentage interests in a land trust. This note was later renewed in 1971. Defendant Valessares (defendant) was not a party to either the initial note or the first renewal.

From the outset, North Bank carried the loan on its books as one for which collateral had been pledged. The security was to be the beneficial interests in the land trust. No collateral was actually delivered to the bank. But sometime prior to March 1972, the bank obtained four "Agreements to Pledge," on printed forms apparently belonging to the bank. These were signed in blank by the makers of the note, by Keefe (another member of the Circle group) and by defendant who was the mother-in-law of one of the co-makers. The evidence is undisputed, however, that defendant had no interest in the land.

Samuel Partipilo, who had been executive vice president of North Bank from February 1972 to February 1973, testified that the forms used were the kind customarily used at North Bank to obtain collateral security. The body of the document would be filled out by the bank, and the document would then be recorded so that the bank would have a lien against the property. In this case the forms were not filled out but were kept in the file. Partipilo continually brought to the attention of the president of the bank, who originally made the loan, that the documentation on the loan still had not been completed. Sometime between 1970 and 1975 the property was sold by Circle to another investment group, the sellers receiving between $340,000 and $370,000 for their portion.

In April 1972, the bank agreed to renew the note, which was in default, if defendant would guarantee it. This renewal note was a demand note in the principal amount of $27,000, 9% interest payable per annum and after maturity. The form of note prepared by the bank was that which it customarily used for secured loans. The printed portion of the note recited that as collateral security there had been deposited with the bank "the following property, vis." In the blank which followed Partipilo had written in the words "Collateral per register." He meant the words to mean that the note was secured by certain collateral which was indicated in the bank's credit file. Defendant's signature appears as guarantor on the back of the note; the bank concedes she is only an accommodation party. Unlike many such guarantees, there are no provisions in this guarantee permitting matters such as extensions of time and the release of collateral.

Because the note was long overdue and Rieke, one of the co-makers and co-guarantors of the original note, had never signed the 1972 renewal, the bank on September 24, 1973, demanded substantial payment on the note. Following this demand, Zouvas, the remaining co-maker, and Keefe made a commitment to pay off the loan on November 15, 1973. This time was, however, repeatedly extended with the bank's agreement, until the bank in June 1975 confessed judgment on the note. At no time was defendant given notice by the bank of these extensions of time for payment.


• 1, 2 It is clear from the record that plaintiff repeatedly agreed to extend the time for payment. It is also clear from the record that under Illinois law there was no consideration for plaintiff's agreement. The accrual of interest after the demand does not constitute additional consideration since the makers of the note were already obligated by the note to pay interest after the maturity of the note. (Waters v. Simpson (1845), 7 Ill. 570; Theodosakis v. Austin Bank (1981), 93 Ill. App.3d 634, 417 N.E.2d 806; but see Philco Finance Co. v. Patton (1967), 248 Or. 310, 432 P.2d 686.) Likewise the maker's promise to pay the loan from the proceeds from certain financing when that deal was completed cannot be considered as consideration since no payment was in fact made and any implied agreement to secure the debt was unexecuted. Newell v. Waller (1882), 12 Ill. App. 306.

Accordingly the issue before this court is whether under the Uniform Commercial Code an agreement to extend the time for payment is effective to discharge the surety where there was no consideration for the agreement. It is clear that both at common law and under the Negotiable Instruments Law, before the surety was discharged there had to be a binding agreement to extend the time for payment, that is there had to be consideration. Mitchell v. Peterson (1981), 97 Ill. App.3d 363, 422 N.E.2d 1026; Lee v. Pioneer State Bank (1981), 97 Ill. App.3d 97, 423 N.E.2d 218; Many, Blanc & Co. v. Jacobson (1909), 149 Ill. App. 240; section 119(5) of the Negotiable Instruments Law (Ill. Rev. Stat. 1959, ch. 98, par. 141(5), repealed with the enactment of the Uniform Commercial Code in Illinois).

Thus unless the Uniform Commercial Code has changed the common law, the bank's repeated extensions of time for nearly two years did not act to discharge the defendant. Section 3-606 of the Code ...

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