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Bartlett Bank & Trust Co. v. Mcjunkins

OPINION FILED AUGUST 18, 1986.

BARTLETT BANK & TRUST COMPANY, F/K/A BARTLETT STATE BANK, PLAINTIFF AND COUNTERDEFENDANT-APPELLEE,

v.

TRACY C. MCJUNKINS ET AL., DEFENDANT AND COUNTERPLAINTIFFS-APPELLANTS.



Appeal from the Circuit Court of Cook County; the Hon. Louis A. Wexler and the Hon. Francis Barth, Judges, presiding.

JUSTICE O'CONNOR DELIVERED THE OPINION OF THE COURT:

This appeal arises out of a counterclaim for damages based on breach of contract filed by defendants, Tracy C. and Dorothy J. McJunkins, in a foreclosure action instituted by plaintiff, Bartlett Bank after it had accelerated the maturity of a promissory note executed by the McJunkins and secured by a mortgage on the McJunkins' home. The bank voluntarily dismissed its foreclosure suit and the jury subsequently found in favor of the McJunkins on the counterclaim and awarded damages in the amount of $60,000. The post-trial judge granted the bank's motion in arrest of judgment and conditionally granted the bank's motions for a judgment notwithstanding the verdict and for a new trial. The McJunkins appealed. During the pendency of this appeal, Tracy McJunkins died and Dorothy was substituted as his personal representative. We reverse in part, affirm in part and remand.

In 1979, the McJunkins began a series of loan transactions with Bartlett Bank which were evidenced by promissory notes secured by a junior mortgage on their home located at 550 Ashland Avenue in Hoffman Estates, Illinois. The McJunkins bought their house in 1960 for $24,000 and had financed the purchase in part through a mortgage from Bell Federal Savings and Loan. Tracy McJunkins was a painter/decorator, and his wife worked as a secretary. Periodically from 1979 to 1982 the McJunkins renegotiated their loan obligations with Bartlett Bank. As the old notes matured, they were either paid off or renewed. On February 10, 1982, the McJunkins executed a six-month promissory note in the amount of $33,252, which was secured by the junior mortgage on their home. The promissory note was payable in monthly installments of $650 with final payment due on August 19, 1982. A provision in the promissory note stated that upon default the bank at its option could accelerate the maturity of the note and declare the remaining balance due and owing. One event of default listed in the note was when the "Bank shall reasonably consider itself to be insecure."

Apparently, the McJunkins used the proceeds of the loan to acquire an interest in a company called Countryside Painting and Decorating, Inc. In 1980, Countryside began a loan relationship with Bartlett Bank that was evidenced by a series of promissory notes. On May 14, 1980, Tracy McJunkins, as secretary of Countryside, executed a written guaranty to the bank as security for Countryside's right to receive credit to the extent of $44,625.63. Sometime in late 1981 or early 1982, Countryside ceased doing business and defaulted on its loans with the bank. Tracy McJunkins' liability under the guaranty was subsequently litigated in a separate proceeding and, in a Rule 23 order, this court recently affirmed a judgment in the amount of $9,971.17 against Tracy McJunkins. Northwest Federal Savings & Loan Association v. Lewis (1986), 144 Ill. App.3d 1173.

In a letter dated April 30, 1982, the bank informed the McJunkins that it deemed itself insecure as to the promissory note executed by the McJunkins in 1982 and demanded payment in full within three days. The remaining balance on the note was $32,965.20. The McJunkins were not otherwise in default or behind in the monthly payments at the time the bank exercised its option to accelerate the maturity of the promissory note under the "insecurity" clause. When the McJunkins were unable to pay the amount deemed due, the bank instituted the instant foreclosure action against the McJunkins. Bell Federal Savings and Loan Association, the holder of the first mortgage on the McJunkins' home, was joined as a defendant in the suit.

In their answer, the McJunkins asserted a two-count counterclaim against the Bartlett Bank. Count I alleged intentional infliction of mental distress, but was stricken with prejudice on the motion of the bank. Count II sounded in breach of contract. Subsequently, the bank voluntarily withdrew its foreclosure suit and the case proceeded to trial on count II of the McJunkins' counterclaim. As amended, count II alleged that the Bartlett Bank "unlawfully breached its contract with [the McJunkins], namely the promissory note, by demanding payment in full prior to the due date of said note and by filing a complaint against the McJunkins in the nature of a mortgage foreclosure action." The counterclaim sought compensatory and punitive damages for, among other things, "substantial costs, expenses, attorneys' fees and other losses sustained by the McJunkins." Bartlett Bank's motion to strike was denied.

In its answer to count II of the counterclaim, the bank claimed as an affirmative defense that it accelerated the debt based on a good-faith belief that it was insecure pursuant to section 1-208 of the Uniform Commercial Code (Ill. Rev. Stat. 1985, ch. 26, par. 1-208). The court struck this affirmative defense prior to trial and ordered the bank to refrain from filing further pleadings raising its good faith under the "insecurity" clause. In an order in limine, the court also excluded evidence concerning the McJunkins' relationship to Countryside Painting and Tracy McJunkins' guarantee of Countryside's obligations with the bank.

At trial, before Judge Wexler, the McJunkins called as an adverse witness Earl H. Gromer, the chairman of the board of Bartlett Bank. Despite objections by the bank concerning Gromer's lack of familiarity with the McJunkins' loan, he was allowed to identify various documents pertaining to the McJunkins' loan relationship with the bank. The McJunkins also presented the testimony of Steven Stark, an employee of Bell Federal Savings and Loan, who identified Bell Federal records purporting to show payments by the McJunkins on their mortgage with Bell Federal from 1979 through 1983. Tracy McJunkins testified about his loan relationship with Bell Federal and Bartlett Bank, stating that he had been current in his payments to both institutions. He also testified that after Bartlett Bank instituted its foreclosure action he sought to borrow money from Bartlett Bank, Bell Federal and Harris Bank to pay off the promissory note held by the Bartlett Bank, but he was unable to obtain a loan. He also stated that he paid his attorney $2,500 to represent him in the foreclosure action. During his testimony, a photograph of the McJunkins' home was admitted into evidence over the objection of the bank.

Dorothy McJunkins testified as to the payments made to Bartlett Bank and Bell Federal. She also testified about various doctor visits and medical bills to treat the physical and emotional stress allegedly caused by the bank's actions. At the close of the McJunkins' case, the trial court granted the bank's motion for a directed verdict on the issue of punitive damages.

The only testimony presented by the bank was that of Peter F. Geraci, an attorney concentrating in bankruptcy and personal injury cases, who testified that he would have charged a maximum of $500 to represent the McJunkins in the foreclosure action. In various conferences with the trial judge out of hearing of the jury, counsel for the bank indicated a desire to call as witnesses Robert Ullbricht and Gordon Ramsey, who were loan officers with Bartlett Bank. The bank's counsel indicated that they would testify as to the reasons behind the bank's decision to call in the McJunkins' loan. However, when the trial judge reiterated his order excluding evidence of the bank's good faith and other transactions involving Countryside Painting, the bank never called Ullbricht and Ramsey to testify.

At the close of all the evidence, the trial judge denied Bartlett Bank's motion for a directed verdict. The judge then instructed the jury. Over the bank's objection, an instruction on proximate cause was given. The court refused to give the bank's proposed instructions on the applicability and definition of good faith under section 1-208 of the Uniform Commercial Code. The jury returned a verdict of $60,000 in favor of the McJunkins and against the bank. Judge Wexler subsequently retired and the post-trial matters of the cause were assigned to Judge Barth. On May 20, 1985, the post-trial judge granted the bank's motion in arrest of judgment and conditionally granted its motions for a judgment notwithstanding the verdict and for a new trial.

In granting the bank's motion in arrest of judgment, Judge Barth, the post-trial judge, found the Uniform Commercial Code was applicable and stated:

"My reason for entering a motion in arrest for judgment is that the complaint does fail to contain a necessary allegation of lack of good faith on the part of the creditor here, the Bank, and that this was an essential allegation necessary for the [McJunkins] here * * *."

His finding reversed a pretrial ruling by Judge Wexler that the McJunkins were under no obligation to plead and prove the bank's lack of good faith in this matter since ...


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