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09/21/87 Sharon Kramer Et Al., v. Exchange National Bank of

September 21, 1987





515 N.E.2d 57, 118 Ill. 2d 277, 113 Ill. Dec. 248 1987.IL.1384

Appeal from the Appellate Court for the First District; heard in that court on appeal from the Circuit Court of Cook County, the Hon. Albert S. Porter, Judge, presiding.


JUSTICE WARD delivered the opinion of the court. SIMON and CUNNINGHAM, JJ., took no part in the consideration or decision of this case.


The defendant, Exchange National Bank of Chicago, on May 24, 1983, brought a forcible entry and detainer action in the circuit court of Cook County to obtain possession of the residence of the plaintiffs, Sharon and Arnold Kramer. The plaintiffs, on July 7, 1983, filed a complaint in that same court to enjoin the defendant from selling or otherwise disposing of the residence, which the defendant claimed the plaintiffs had pledged as collateral security on a loan made by the defendant. The circuit court consolidated the suits and granted the plaintiffs' motion for summary judgment. The appellate court reversed and remanded the cause to the circuit court with directions to award possession of the residence to the defendant. (139 Ill. App. 3d 1093.) We granted the plaintiffs' petition for leave to appeal (103 Ill. 2d R. 315).

On November 30, 1979, the defendant loaned $300,000 to American Properties Corporation , a corporation wholly owned by Arnold Kramer (Kramer), one of the plaintiffs. The note was executed by Kramer as secretary/treasurer of APC. The collateral specified in the note of APC was:

"Trust Deed on property [owned by Ferridge Properties of New York, Inc., a corporation also wholly owned by Kramer] commonly known as 1200 Niagara Street, Buffalo, New York" (hereafter, New York property).

The defendant acknowledged that after the note had been signed and delivered, it inserted the following addition to the listed collateral:

"Assignment of Beneficial Interest [of the plaintiffs' personal residence] in LaSalle National National [ sic ] Bank Trust No. 44263."

Subsequently APC defaulted on the note, and the defendant, under article 9 of the Uniform Commercial Code (Ill. Rev. Stat. 1981, ch. 26, par. 9-504), scheduled a sale of the plaintiffs' residence. However, the sale was automatically stayed when the Kramers, on June 22, 1981, filed a personal petition for reorganization under chapter 11 of the United States Bankruptcy Code in the United States District Court for the Northern District of Illinois. The stay remained in effect for over a year, at which time it was vacated because the plaintiffs failed to maintain payments of the current interest due on the APC note-a condition required for continuation of the stay. Thereupon, the defendant, on May 3, 1983, conducted a sale of the plaintiffs' residence and, as the highest bidder, purchased it for $120,000. The defendant's forcible entry and detainer action and the plaintiffs' suit for an injunction were successively filed and, as we mentioned above, were consolidated.

Shortly after the plaintiffs had filed under chapter 11, the defendant instituted foreclosure proceedings in New York against the New York property. The proceeding was stayed upon the filing of a bankruptcy petition in New York by the Ferridge corporation, of which Kramer was the sole owner. The stay was later lifted and the defendant was permitted to continue the foreclosure proceeding.

As stated, after the defendant had instituted the forcible entry and detainer action for possession of the plaintiffs' residence, the plaintiffs filed a verified complaint for injunctive relief, which acknowledged that the collateral security for the loan to APC consisted of the New York property and their residence. They claimed, however, that the non-judicial sale conducted by the defendant of the residence was "void and barred" under article 9 of the UCC (Ill. Rev. Stat. 1983, ch. 26, par. 9-501(4)). They attached to the complaint an assignment to the defendant of the beneficial interest in their residence. The beneficial interest was held under a land trust, which resulted in the beneficial interest being legally regarded as personal, not real property. In re Estate of Alpert (1983), 95 Ill. 2d 377, 382; St. Charles Savings & Loan Association v. Estate of Sundberg (1986), 150 Ill. App. 3d 100, 104-05.

The plaintiffs later filed a motion for summary judgment, complaining that the note of APC had been materially altered by the defendant's inclusion of the residence as collateral for the loan. The defendant admitted adding the residence as collateral but denied that it was a material alteration of the note. The defendant stated that the inclusion had been authorized under a continuing guarantee and security agreement in favor of the defendant, executed by the Kramers in an independent transaction involving a loan in 1978 to APC by the defendant. Under that agreement, the defendant ...

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