Appeal from the Circuit Court of De Witt County; the Hon.
William C. Calvin, Judge, presiding.
JUSTICE WEBBER DELIVERED THE OPINION OF THE COURT:
Plaintiff filed a complaint against defendant seeking to enforce a loan guaranty agreement signed by defendant. Defendant's affirmative defenses alleging negligence and fraud were dismissed prior to trial. Following a bench trial, the trial court entered judgment for plaintiff and against defendant in the amount of $204,858.17 plus costs and denied defendant's request for reformation of the loan guaranty agreement. On appeal, defendant argues that the trial court improperly dismissed the affirmative defenses and that the trial court's finding that the evidence was insufficient to establish grounds for reformation is against the manifest weight of the evidence.
Plaintiff, Farmer City State Bank (bank) filed a complaint in the circuit court of DeWitt County against defendant, Vern Guingrich, seeking to enforce a loan guaranty agreement which provided that defendant would guarantee payment of any past, present, or future indebtedness or obligations of Lotus Grain & Coal Company (Lotus Grain) to the bank to the extent of $200,000. The complaint sought to enforce the guaranty to the extent of a deficiency judgment rendered against Lotus Grain and other debts and obligations of Lotus Grain. Defendant filed an answer in which he pleaded the defenses of negligence and fraud. Defendant alleged that the guaranty was intended to be limited to guaranteeing a letter of credit issued by the bank in the amount of $200,000 and that another guaranty signed by the directors of Lotus Grain was to have the effect of indemnifying defendant in case he suffered a loss on the guaranty he signed. Defendant alleged that the guaranty he signed was obtained by fraud in that the bank's officers falsely represented that the other guaranty would serve to indemnify him for any loss he suffered and that the bank's officers were negligent in preparing the guaranty agreements. Plaintiff filed a motion to strike the defenses alleged by defendant. The court granted plaintiff's motion to strike the defenses sounding in fraud and negligence. A bench trial was then held on plaintiff's complaint, and defendant's request for reformation of the guaranty which he signed. The following facts were elicited at trial.
Defendant had been in the grain business for nearly 40 years. At the time of the transactions involved in the instant action, defendant was the manager of Lotus Grain. The bank had handled the Lotus Grain credit line for as long as defendant had been associated with Lotus Grain. The primary loan officer with whom defendant dealt was Dean Bright. Bright testified at trial that his relationship with defendant was a good and trusting relationship. Defendant stated that his relationship with the bank was friendly. In 1980 Bright went on a semiretired status at the bank.
In November 1979 the Illinois Department of Agriculture (Department) notified Lotus Grain that its grain dealer's bond would be increased from $37,000 to $100,000. At a hearing in December 1979 the Department informed Lotus Grain that its bond application would be temporarily approved if $80,000 of additional capital was posted on behalf of Lotus Grain. The Department agreed to accept a certificate of deposit in the amount of $67,000 in lieu of the bond and additional capital.
To satisfy the Department, the bank issued a certificate of deposit in the amount of $67,000 payable to the Department. The certificate of deposit was issued December 31, 1979, and its maturity date was February 29, 1980. Although the facts are not clear, Lotus Grain was apparently required to sign a note promising to pay the bank $67,000 plus interest upon the maturity of the certificate of deposit. As an additional prerequisite to the issuance of the certificate of deposit, the bank required defendant and three other officers or directors of Lotus Grain to guarantee payment of the $67,000 note. Bright prepared a loan guaranty agreement for the amount of $67,000 which defendant and the three officers or directors signed. The bank did not request that those signing the guaranty be responsible for payment of debts or obligations other than the note, and the printed loan guaranty form limited the loan guaranty agreement to the "note dated 12/31/79 due 2/29/80." Bright testified that although the normal procedure of the bank is not to limit a guaranty to a particular note or amount, it did so in that case. The parties agree that upon maturity of the certificate of deposit, the $67,000 debt of Lotus Grain was either paid or cancelled, thereby releasing the personal liability of defendant and the three other officers or directors who signed the loan guaranty agreement.
Late December 1979 or early January 1980, the Department requested that Lotus Grain post two bonds, a grain dealer's bond and a grain warehouse bond, each in the amount of $100,000. A bonding company agreed to post the bonds on behalf of Lotus Grain upon receipt of an irrevocable letter of credit in the amount of $200,000. The bank agreed to issue the letter of credit if defendant and each member of the board of directors executed a loan guaranty agreement in the amount of $200,000.
Bright told defendant that the bank would issue the letter of credit only if it received a guaranty from defendant and each director of Lotus Grain. Bright testified that the personal guaranties were required due to the deteriorating financial condition of Lotus Grain. Bright stated that although all of his conversations with defendant at the time concerned the letter of credit, there was no discussion concerning limiting the guaranties to the letter of credit. Defendant testified that Bright mentioned that he should sign a guaranty and that the directors should become more involved by also signing a guaranty. Defendant testified that in all of his conversations with Bright, there was no discussion concerning debts or obligations of Lotus Grain other than the letter of credit.
Prior to execution of the guaranty documents, Bright became semiretired and left for a Florida vacation. In Bright's absence, Dick Maxwell prepared the guaranties and the letter of credit at Bright's direction. Bright instructed Maxwell to secure a loan guaranty agreement to enable the bank to issue the letter of credit. In written instructions to Maxwell, Bright stated that "Vern and the Board should guaranty the letter of credit." At trial, Bright stated that his intention was that there would be one guaranty agreement which both defendant and the directors would sign obligating them all equally.
Maxwell prepared the guaranty agreements with the understanding that Bright had determined that Lotus Grain was not worthy of credit and that Bright wanted additional security. Maxwell prepared two loan guaranty agreements using printed form documents. One guaranty was to be signed by defendant and the other was to be signed by the directors of Lotus Grain. The guaranty to be signed by defendant designated Lotus Grain as the debtor while the guaranty to be signed by the directors designated defendant as the debtor. Maxwell's understanding of the effect of the guaranties was that the guaranty signed by defendant would enable the bank to issue the letter of credit and would protect the bank in case of a loss on the letter of credit and that the guaranty signed by directors would indemnify defendant should he suffer a loss on his personal guaranty. At no time had Maxwell been directed to obtain security for debts or obligations of Lotus Grain other than the letter of credit, and no records of the bank, other than the loan guaranty agreements themselves, indicate that the guaranty was intended to secure any and all obligations of Lotus Grain. However, the bank's files contained a document, in Maxwell's handwriting, stating, in part, "Vern to guaranty the $200,000."
After Maxwell completed the documents, defendant went to Maxwell's office at the bank. Defendant signed a loan guaranty agreement, guaranteeing payment of any and all of Lotus Grain's debts and obligations to the extent of $200,000. Although Maxwell made no statement to defendant concerning limiting the guaranty to the letter of credit, defendant assumed that such a limitation was present in the document. Defendant recalled that he did not read the guaranty as carefully as he should have. Defendant testified that in his conversations with Maxwell, no debts or obligations of Lotus Grain other than the letter of credit were discussed. Defendant also testified that had he known that the written guaranty covered any and all obligations of Lotus Grain, he would not have executed the document.
Bright testified that loan guaranty agreements normally cover the debtor's entire credit line. Maxwell testified that most of the bank's loan guaranty agreements normally are not limited to a particular note or obligation.
At the time defendant signed his guaranty, Maxwell gave defendant a supporting document for the directors to sign. Defendant stated that Maxwell had told him that the guaranty to be signed by the directors would cover him and provide him with a guaranty. Maxwell testified that he did not inform defendant of his rights; and obligations under the two guaranties. Defendant obtained the necessary signatures of the directors, and the guaranty was returned to Maxwell.
Maxwell issued an irrevocable letter of credit to the bonding company in the amount of $200,000. The bonding company then issued the ...