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01/25/88 Mclean County Bank, v. Charles E. Brokaw

January 25, 1988





519 N.E.2d 453, 119 Ill. 2d 405, 116 Ill. Dec. 561 1988.IL.69

Appeal from the Appellate Court for the Fourth District; heard in that court on appeal from the Circuit Court of McLean County, the Hon. Keith E. Campbell, Judge, presiding.


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


The plaintiff, McLean County Bank, filed a two-count complaint against the defendants, Charles E. Brokaw, Sr., and his wife, Eleanor. Charles E. Brokaw, Sr. (hereafter Mr. Brokaw), was the defendant named in count I, which alleged breach of a guaranty agreement that he had executed,

The McLean County Bank (hereafter the Bank) began making loans in 1977 to the defendants' son, Charles E. Brokaw, Jr., to finance his farming business. The defendants, at the Bank's request, signed a guaranty agreement on January 24, 1977, in the principal amount of $50,000 as security for their son's debt. In the following year, the Bank agreed to make an additional loan to the defendants' son and requested that the defendants execute another guaranty agreement in the principal amount of $75,000. The defendants signed the second guaranty agreement, which the parties agreed would be substituted for the first agreement. At the time the $75,000 guaranty agreement was signed by the defendants, Charles Brokaw, Jr., owed the Bank $133,466.17. The defendants later signed a $100,000 guaranty in December 1978, at which point the junior Brokaw was indebted to the Bank for $182,957.01. About a year later, on November 5, 1979, the first of the two guaranty agreements involved here, the $200,000 agreement, was signed by both Brokaws.

The Bank then requested by letter that the Brokaws sign a $250,000 guaranty agreement. The younger Brokaw at that time owed $216,724.23. Mrs. Brokaw refused to sign the $250,000 agreement, but Mr. Brokaw signed it on March 28, 1980. Mr. Brokaw testified that he signed the $250,000 agreement without his wife's knowledge. Both defendants testified that they understood the agreements guaranteed they would be liable up to the principal amounts specified in the agreements. The Brokaws testified it was the Bank's practice to request a new loan guaranty when the outstanding indebtedness reached the upper limits of an existing guaranty.

The Bank's former agriculture loan officer, Robert Fry, who had acted in these transactions as the Bank's representative, testified that the Bank, after both the $200,000 and the $250,000 agreements had been executed, considered that it had guaranties for $450,000, the total of the two guaranties. The Bank, in April 1981, asked the defendants to execute a $300,000 loan guaranty, but neither of the defendants did so. The junior Brokaw owed the Bank $291,785.34 at that time. Fry could not explain why the Bank sought a $300,000 agreement when it believed it already had $450,000 guaranteed by the defendants. It had been the practice between the parties, Fry testified, that when a subsequent loan agreement was signed for a greater amount, the prior agreement was deemed replaced, except that he believed the $250,000 agreement was not to replace the $200,000 agreement.

Upon Charles Brokaw, Jr.'s default on his loan, the Bank filed this complaint. The trial court, as previously stated, decided in favor of Mrs. Brokaw on the $200,000 agreement, holding that, in the course of dealings between the Bank and the defendants since 1978, the subsequent guaranty agreements had superseded the previous agreements so that the $250,000 agreement signed by Mr. Brokaw had superseded the $200,000 agreement that had been previously signed by both defendants. The trial court decided for the Bank on the $250,000 guaranty agreement. The appellate court, however, held that Mr. and Mrs. Brokaw were jointly and severally liable on the $200,000 agreement, and for accrued interest, and held Mr. Brokaw individually liable for an additional $50,000, plus interest. This was the result, the court said, of his individually executing the $250,000 guaranty agreement.

The Brokaws contend the appellate court should be reversed because both guaranty agreements established, under their terms, maximum amounts that could be loaned to the principal debtor, Charles Brokaw, Jr. When the Bank loaned the junior Brokaw in excess of the principal amount specified in the guaranty agreements, there was a breach, they argue, releasing them from all liability as guarantors. The Bank contends that a guarantor is not discharged from its obligation by an extension of credit in excess of the amount stated in the agreement, particularly where the guarantor has knowledge of and assents to such action.

The $250,000 guaranty agreement, where relevant, provides:

"FOR VALUE RECEIVED, and for the purpose of enabling Charles E. Brokaw, Jr. (hereinafter called the "Debtor") to obtain credit or other financial accommodations from McLEAN COUNTY BANK, Bloomington, Illinois (hereinafter called the "bank"), the undersigned hereby guarantee(s) absolutely and unconditionally the prompt payment when due, whether at maturity, by declaration, demand or otherwise, of any and all indebtedness from the Debtor to the Bank in a principal amount not to exceed $250,000.00 (Two Hundred Fifty Thousand & no/100) Dollars in aggregate at any one time outstanding, plus such interest as may accrue theron [ sic ], whether such indebtedness is incurred as principal, guarantor or endorser, is direct or indirect, absolute or contingent, due or to become due or whether such indebtedness is now existing or arises hereafter, . . ..

Each of the undersigned waives presentment, protest, demand, notice of dishonor or default, notice of acceptance of this guaranty, notice of loans made, extensions granted, or ther [ sic ] action taken in reliance hereon and all demands and notices of ...

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