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Aluminum Co. v. Home Can Mfg. Corp.

OPINION FILED JUNE 28, 1985.

ALUMINUM COMPANY OF AMERICA, PLAINTIFF-APPELLEE,

v.

HOME CAN MANUFACTURING CORPORATION ET AL., DEFENDANTS (RICHARD KEEFE, SR., DEFENDANT-APPELLANT).



Appeal from the Circuit Court of Cook County; the Hon. Lawrence P. Hickey, Judge, presiding. JUSTICE HARTMAN DELIVERED THE OPINION OF THE COURT:

Defendant, Richard A. Keefe, incorrectly named in the pleadings as Richard Keefe, Sr. (hereinafter referred to as defendant), appeals from a judgment of the circuit court finding him secondarily liable on a note executed by co-defendant Home Can Manufacturing Corporation (Home Can) and awarding plaintiff, Aluminum Company of America, also known as ALCOA, $16,248.61 plus $8,361.77 in interest, or a total of $24,610.38. *fn1 Defendant's primary argument on appeal is that he was discharged from liability as a guarantor of the note by the subsequent making of six installment notes without his consent also payable to plaintiff for the same debt, which were executed by Home Can and guaranteed by defendant's son Richard I. Keefe. *fn2

Count II of plaintiff's amended complaint, the count upon which the circuit court found defendant liable, alleged the following: (1) on April 21, 1977, and again on May 10, 1977, Home Can ordered certain aluminum stock from plaintiff which was delivered and accepted on December 19, 1977, and June 6, 1978, at a total cost of $18,248.61; (2) on October 9, 1978, defendant as officer and agent of Home Can executed a note for $18,248.61 payable by Home Can to plaintiff on December 11, 1978, with interest at 12% per annum; (3) defendant "acting in his individual capacity, personally endorsed the reverse [side] of the October 9, 1978, Note * * * and thereby promised to pay ALCOA the amount of the Note according to its terms and effect in the event that Home Can did not pay the amount of the Note"; (4) Home Can paid only $2,000 of the principal due; and (5) despite presentment and demand for payment defendant had not paid the balance of $16,248.61 plus interest. A copy of the front and reverse side of the note as attached to the complaint are reproduced below.

Also appended to the complaint were copies of the six installment notes. Each of those notes is dated December 12, 1978; they total $18,248.61, bear interest at an annual rate of 12% and mature on the first of every month from April through September 1979. The parties do not dispute that the installment notes were executed on behalf of Home Can by Richard I. Keefe acting as its officer and agent. Nor is it disputed that the reverse side of each of the installment notes has the words "PAYMENT GUARANTEED" typed on it, ostensibly followed by Richard I. Keefe's signature. The installment notes differ from the October 9, 1978, note in that they include the additional term: "that upon the default in the payment of any one of the [installment] notes the remaining notes shall immediately become due and payable without notice."

In his amended answer to plaintiff's amended complaint defendant: (1) denied that he executed or endorsed any of the notes payable to plaintiff and asserted that his son Richard I. Keefe had actually signed the note dated October 9, 1978, as well as the six installment notes; (2) alleged that the notes were to be paid out of a fire insurance settlement which had not yet been received; and (3) claimed that plaintiff had agreed to accept the installment notes and the first payment of $2,000 in lieu of and as payment for the October 9, 1978, note, as a result of which there was a novation of that note.

At trial, plaintiff's case consisted entirely of evidence that defendant either personally signed the October 9, 1978, note or represented to plaintiff's agents that he had done so, and evidence that plaintiff had not made any agreement to condition payment of that note on Home Can's receipt of fire insurance proceeds.

The only evidence concerning the issue of novation was introduced by the defense during direct examination of defendant. Defendant testified that the six installment notes dated December 12, 1978, were actually delivered by plaintiff's attorney to Richard I. Keefe, and executed by him, in April 1979. Defense counsel inquired of defendant on two occasions as to the purpose of the six installment notes. Defendant answered as follows:

"A the purpose was to rearrange and take care of the first note and replace it with a series of six notes.

A They replaced the original note, they paid off the original note of $18,000 and made a series of notes out of the original note."

Defendant was then asked whether he had agreed in writing to the extension of the October 9, 1978, note, to which he replied that he had not. Plaintiff did not cross-examine defendant on his testimony concerning the purpose of the installment notes and did not introduce any rebuttal evidence on that issue.

The circuit court found that: defendant had signed and personally guaranteed the October 9, 1978, note; the parties had not agreed to condition payment of that note on Home Can's receipt of the fire insurance settlement; and the conditions supporting a novation had not been satisfied. The court thereupon entered judgment against defendant and in favor of plaintiff for the balance due on Home Can's account plus accrued interest. In his post-trial motion defendant attempted to raise as a new defense theory that he was an accommodation party under the note of October 9, 1978, and that he was discharged from liability on the note by an agreement between plaintiff and Home Can to extend the time for payment of the note without his consent and without plaintiff reserving its right to proceed against defendant. The trial court denied the post-trial motion, and defendant has appealed.

On appeal defendant has presented three theories in support of his contention that he was discharged from liability on the note of October 9, 1978, by the subsequent making of the six installment notes at plaintiff's behest for the same debt but with a different guarantor. *fn3 First, defendant claims he was discharged from liability on the note under section 3-802(1) of the Uniform Commercial Code. (Ill. Rev. Stat. 1983, ch. 26, par. 3-802(1) (UCC).) Second, under common law, defendant argues that the installment notes were given in "payment" of the original note, which extinguished that note and discharged its obligors, rather than in "renewal" of the original note which would have merely postponed the time for payment. Third, defendant asserts that he was discharged from liability under section 3-606(1)(a) of the UCC (Ill. Rev. Stat. 1983, ch. 26, par. 3-606(1)(a)) because plaintiff, without his consent, agreed to suspend the right to enforce the note against him.

I

• 1 The portion of section 3-606(1)(a) of the UCC relied upon by defendant provides, in part:

"(1) The holder discharges any party to the instrument to the extent that without such ...


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