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Corn Belt Bk v. Lincoln Sav. & Loan Ass'n

OPINION FILED SEPTEMBER 15, 1983.

CORN BELT BANK, PLAINTIFF,

v.

LINCOLN SAVINGS AND LOAN ASSOCIATION ET AL., DEFENDANTS — (LINCOLN SAVINGS AND LOAN ASSOCIATION, THIRD-PARTY PLAINTIFF-APPELLEE,

v.

ROBERT B. DARLEY ET AL., THIRD-PARTY DEFENDANTS-APPELLANTS). — AMERICAN STATE BANK OF BLOOMINGTON, ILLINOIS, PLAINTIFF,

v.

LINCOLN SAVINGS AND LOAN ASSOCIATION ET AL., DEFENDANTS — (CORN BELT BANK, PLAINTIFF-APPELLEE,

v.

LINCOLN SAVINGS AND LOAN ASSOCIATION, DEFENDANT-APPELLANT; BARNEY LEON SCHULTZ ET AL., DEFENDANTS).



Appeal from the Circuit Court of McLean County; the Hon. William T. Caisley, Judge, presiding. JUSTICE GREEN DELIVERED THE OPINION OF THE COURT:

These consolidated cases arose from suits filed by certain Bloomington banks against the makers of various promissory notes and against defendant, Lincoln Savings and Loan Association (Lincoln) and its individual directors. This appeal concerns recovery sought by plaintiff, Corn Belt Bank, against Lincoln as a guarantor of certain loans made by plaintiff to defendants, Barney and Joan Schultz, and Donald and Beverly Sizelove. Also in issue are third-party complaints by Lincoln against third-party defendants, Robert B. Darley and Alfred J. Frisch, officers of Lincoln who were alleged to have made the claimed guaranties on behalf of Lincoln, but without authority to do so. The third-party complaints sought indemnity for the allegedly unauthorized acts of making the guaranties. The purported guaranties were contained in letters written by Darley or Frisch to plaintiff.

Plaintiff's original complaint was filed on July 1, 1977. On July 13, 1982, and July 20, 1982, respectively, the circuit court entered summary judgments in favor of plaintiff and against Lincoln in the sums of $50,000 and $125,000 on the notes representing the Schultz loans. After a bench trial on the merits that court entered judgments on November 18, 1982, in favor of plaintiff and against Lincoln in the sums of $114,969.65 and $88,000 on the notes representing the Sizelove loans. On that same day, the court entered judgments for indemnity against Darley and Frisch in the respective total sums of $387,450.02 and $50,000. In doing so the trial court granted summary judgment to Lincoln and against Darley as to an affirmative defense alleged by Darley. On January 12, 1983, the court also gave judgment to Lincoln and against Darley and Frisch in respective sums of $38,436.49 and $23,067.58 to reimburse Lincoln for attorney fees it had expended in defending the litigation brought by plaintiff.

Lincoln has appealed the judgments entered in favor of plaintiff and against it. Third-party defendants Darley and Frisch appeal the judgments for indemnity, including attorney fees, entered in favor of Lincoln.

Lincoln maintains that the summary judgment entered against it with reference to the Schultz notes should be reversed because a genuine issue of fact existed as to whether (1) Darley or Frisch had apparent authority to guaranty those loans, and (2) any liability of Lincoln was defeated by implied conditions of the documents purporting to be guaranties. Lincoln also asserts that the court erred in entering judgments against it on the Sizelove notes because: (1) The court prevented Lincoln from introducing evidence as to Darley and Frisch's lack of apparent authority to make guaranties; (2) plaintiff's conduct released Lincoln as a guarantor; and (3) Lincoln received no consideration for the alleged guaranties.

Darley and Frisch maintain that the trial court erred in finding against them in the indemnity actions because the evidence showed as a matter of law that: (1) They had express or implied authority to make guaranties of the loans in question; and (2) their conduct was, at least impliedly, ratified by Lincoln. They also contend that: (1) Lincoln failed to prove damages against them; (2) error occurred in rulings on evidence; and (3) the court erred in (a) allowing Lincoln to amend its complaint to request indemnity for attorney fees, and (b) allowing the fees.

We hold that the trial court erred in granting plaintiff summary judgment against Lincoln as to the Schultz' notes. As we subsequently explain, because of that ruling we must reverse the judgment in favor of plaintiff and against Lincoln on the Sizelove notes and remand to the trial court for further proceedings as to all of the relief sought by plaintiff against Lincoln. Because of the foregoing rulings, any judgment for indemnity would be contingent upon recovery by plaintiff against Lincoln. We contingently affirm the judgments for indemnity but we reverse the portions of those judgments awarding damages and also remand to the trial court for a new hearing as to damages. We reverse the award of attorney fees but direct that on remand, such attorney fees be awarded to Lincoln as it is then entitled under the evidence.

This case is quite complex, particularly from a factual standpoint. We recognize the effort put forth by court and counsel in grappling with these complexities and regret the necessity to require additional proceedings. In order to shorten those proceedings as much as possible, we will pass upon questions raised which may not be necessary to our decision. We suggest that at retrial the parties may be able to stipulate to the use of certain evidence already taken.

SUMMARY JUDGMENT ON THE SCHULTZ NOTES

• 1 We turn first to the important question of the propriety of the summary judgment in favor of plaintiff on the Schultz notes. In order for the judgment to stand, the evidence before the court must have been such that, had it existed at a jury trial, the court would have been required to direct a verdict in favor of plaintiff. Fooden v. Board of Governors (1971), 48 Ill.2d 580, 272 N.E.2d 497.

• 2 Under the pleadings, a crucial element that plaintiff was required to prove was that, in guarantying the Schultz notes, Darley and Frisch had apparent authority to do so on behalf of Lincoln. An agent has such authority to bind the principal when the principal has permitted the agent to assume such authority or held the agent out to the public as possessing such power. (Lynch v. Board of Education (1980), 82 Ill.2d 415, 412 N.E.2d 447.) The conduct of the principal, whether it consists of affirmative action or of acquiescence, is a necessary element in the creation of apparent authority.

The record before the court at the time it granted summary judgment did show that Lincoln had given Darley and Frisch great discretion in the manner in which they did business at Lincoln's Bloomington branch where the loans in question were made. Lincoln had its original place of business in the city of Lincoln. Darley had been Lincoln's executive vice-president and chief executive officer since 1954. Frisch had been a vice-president under Darley's supervision during all times in question. Apparently, one of their practices was for them to make real estate loans and then report afterwards to the appropriate Lincoln loan committee. This committee apparently seldom disapproved of their actions. The two had been granted express authority from Lincoln's board of directors to borrow money from plaintiff.

One of Lincoln's directors had testified in a deposition that Darley "did pretty much [as] he wanted to" concerning the operations at Lincoln's Bloomington branch. Lincoln's secretary-treasurer had similarly testified that "[w]hen Darley spoke, it was Lincoln Savings and Loan Association speaking." The record was clear that, as far as the ordinary operations of the Bloomington branch was concerned, Darley and Frisch had apparent authority to bind Lincoln.

The question of whether the showing of the apparent authority possessed by Darley and Frisch in the foregoing matters conclusively proved that they had apparent authority to make guaranties of loans on behalf of Lincoln is a more complex problem.

Lincoln asserts that it had no power to make guaranties. It was organized and operated under the Illinois Savings and Loan Act (Ill. Rev. Stat. 1977, ch. 32, par. 701 et seq., now Ill. Rev. Stat. 1981, ch. 17, par. 3001 et seq.). Article 5 of the Act (Ill. Rev. Stat. 1977, ch. 32, pars. 791 through 806) defines with particularity the power of associations operating under the Act to make investments. Article 5 allows associations to make loans, but the Act does not confer the express power to associations to guaranty loans. However, section 1-8 of the Act (Ill. Rev. Stat. 1977, ch. 32, par. 708) provides that such an association "shall have any power conferred on a corporation by the Business Corporation Act [Ill. Rev. Stat. 1977, ch. 32, par. 157.1 et seq.] and any power not prohibited by law, which is reasonably incident to the accomplishment of the express powers" granted by the Illinois Savings and Loan Act. (Emphasis added.) The Business Corporation Act ...


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