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Carrico v. Delp





Appeal from the Circuit Court of Jersey County; the Hon. Gordon D. Seator, Judge, presiding.


The plaintiffs, Daniel and Donna Mae Carrico, filed suit against the defendant, Jersey State Bank (bank) and its president, Everett Delp. The plaintiffs' amended complaint contained six counts. Count I alleged breach of a line-of-credit agreement, and count II alleged malicious breach of the agreement and requested punitive damages. Counts III through VI were based on fraud. The trial court allowed defendants' motion to dismiss as to counts I and II, with leave to file amended counts, and denied the motion as to counts III through VI. The plaintiffs appeal from the trial court's order granting the bank's motion to dismiss counts I and II of the amended complaint, the trial court having entered the requisite Rule 304(a) finding (87 Ill.2d R. 304(a)). At issue is whether the plaintiff sufficiently pleaded an enforceable contract and breach thereof, and whether they may seek to recover punitive damages.

On October 31, 1978, the plaintiff and the bank entered into a security agreement to provide the plaintiffs with a line of credit not to exceed $80,000. The bank obtained a lien on all of the plaintiffs' machinery, equipment, livestock and offspring. Between October 31, 1978, and May 1981, the line of credit was gradually increased to $185,000. In May 1981, the plaintiffs requested their line of credit be increased by $25,000. The bank referred them to the Farmers Home Administration (FHA). The FHA agreed to lend the $25,000 provided the bank would subordinate its rights to a portion of the plaintiffs' livestock. The bank refused. The plaintiffs made a second attempt to secure FHA financing, but the FHA again conditioned the loan on the livestock lien, which the bank refused.

In August 1981, the bank agreed to increase the line of credit by $25,000 in exchange for additional security, including a second mortgage on the plaintiffs' real estate and an assignment of the cash surrender value of the plaintiffs' life insurance policies. The parties executed a line-of-credit agreement on August 12, 1981, which stated in part:

"1. This Agreement is entered into to induce the Bank to provide farm operating funds for Borrowers use from time to time.

2. The Bank agrees to loan Borrowers (at bank discretion) an amount up to an aggregate of Two Hundred, Ten Thousand Dollars ($210,000.00) in such amounts as needed from time to time by Borrowers.

3. The Borrowers agree that at such time as Borrowers use any part or all of the Two Hundred Ten Thousand Dollars ($210,000.00) Borrowers shall execute and deliver to Bank a Note before funds are distributed bearing maturity dates not to exceed six months with interest payable at maturity at an interest rate established by the Bank."

The agreement also stated the collateral, including the mortgages on the plaintiffs' real estate and cash surrender value of their insurance policies, secured all existing and future loans from the bank.

On August 12, 1981, the plaintiffs had 16 outstanding promissory notes for the total sum of $185,000. The notes were dated between February 23, 1981, and June 19, 1981. Each matured six months after execution, with interest rates varying from 16% to 19%. Each of the notes refers to the collateral listed on the October 31, 1978, security agreement. The last three notes also refer to the August 12, 1981, line-of-credit agreement and its collateral. These notes were all timely paid. After the line-of-credit agreement was executed, the plaintiffs executed seven more promissory notes, dated between August 17 and November 18, 1981. Each matured in six months, with interest rates varying between 17% and 19.5%.

On November 24, 1981, the plaintiffs had reduced their obligations to the bank to $179,000. On that date, the bank notified the plaintiffs that it was unilaterally terminating the line-of-credit agreement. After that, the bank refused to loan additional money. The plaintiffs alleged that they were forced to sell their machinery, equipment and livestock to pay their outstanding debts, including debts to third parties incurred in reliance on the line-of-credit agreement.

• 1 The bank maintains the line-of-credit agreement was not an enforceable contract for two reasons. First, the bank argues the contract lacked mutuality because it did not require the plaintiffs to borrow funds from the bank. Mutuality of obligation means that either both parties to the agreement are bound or neither is bound. (Kraftco Corp. v. Koblus (1971), 1 Ill. App.3d 635, 274 N.E.2d 153.) The validity of a contract does not always depend upon mutuality of obligation. If it did, then no option contract could ever be valid. Only when no other consideration has been transferred must the mutual promises of the parties be binding. Garber v. Harris Trust & Savings Bank (1982), 104 Ill. App.3d 675, 432 N.E.2d 1309.

• 2 Mutuality becomes a nonissue when consideration has otherwise been conferred upon one of the parties.

"The classic and time-honored definition of consideration is `anything which is of benefit to one of the parties to a contract or a detriment or disadvantage to the other.' (12 Ill. L. & Prac. Contracts sec. 71 (1983).)" (Worner Agency, Inc. v. Doyle (1985), 133 Ill. App.3d 850, 856, 479 N.E.2d 468, 473.)

Once the plaintiffs gave the bank mortgages and liens on their property and assigned the cash surrender value of their life insurance policies, they could not use those assets to secure other financing. The additional assets pledged secured both future loans and existing ones. The ...

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