APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, SECOND DIVISION
523 N.E.2d 1218, 169 Ill. App. 3d 1062, 120 Ill. Dec. 307 1988.IL.717
Appeal from the Circuit Court of Cook County; the Hon. David Cerda, Judge, presiding.
JUSTICE BILANDIC delivered the opinion of the court. STAMOS* and SCARIANO, JJ., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE BILANDIC
Plaintiff brought this action to recover a $50,000 loan which he alleged was personally guaranteed by defendant, William S. Reed, president of defendant corporation. Following a bench trial, the court entered judgment against the corporate defendant for the amount of the loan plus interest but found William Reed was not personally liable for the loan. Plaintiff appeals from the judgment in favor of William S. Reed, individually.
In late January 1973, defendant William Reed approached plaintiff, Thomas Ricci, a member of the Chicago Mercantile Exchange (hereinafter referred to as the Exchange), and requested that Ricci loan $50,000 to Reed & Company. At that time, Reed & Company, was having difficulty meeting the capital requirements for a clearing firm on the Exchange.
Initially, Reed suggested that Ricci purchase $50,000 of nonvoting stock in Reed & Company. Subsequently, Ricci chose to lend the money to Reed & Company in return for William Reed's personal guarantee. Ricci and Reed agreed that in lieu of interest on the loan, Ricci would clear his trades through Reed & Company, for Exchange fees only.
On February 5, 1973, Ricci loaned Reed & Company $30,000 by transferring the money from his trading account to Reed & Company. This was the first installment of the $50,000 loan. That same day, Reed gave Ricci a handwritten note as follows: "I.O.U. Mr. Tom Ricci, $30,000." This "IOU" was signed "William Reed" and witnessed by Peter Adan. Mr. Adan was the vice-president of Reed & Company at that time.
On or about February 20, 1973, Ricci presented Reed with an "Agreement for Sale and Assignment of Stock Interest." That written agreement embodied the initial proposal that Ricci was to purchase $50,000 worth of stock from Reed & Company and provided that Ricci could trade through Reed & Company at a commission rate no greater than fees charged by the Exchange.
Ricci, however, testified that he decided that he did not want to own nonvoting stock in a financially troubled corporation but, instead, would lend the money to Reed & Company on the condition that the entire loan be guaranteed by Reed in his individual capacity.
On February 21, 1973, Ricci transferred the remaining $20,000 of the loan to Reed & Company. At that time, Reed & Company was under financial pressure to obtain sufficient capital before the end of February in order to continue its business pursuant to Exchange rules.
Reed explained to Ricci that the Exchange rules required a lender to sign a subordinated loan document. Without the execution of a subordinated loan agreement, Ricci's $50,000 loan to Reed & Company would be unavailable for capitalization purposes. The testimony of Mr. Berry, financial officer of Reed & Company at the time, corroborated the urgent need for Ricci's money to be used to satisfy the capital requirements of the Exchange.
On February 28, 1973, Reed presented the subordinated loan agreement to Ricci. Ricci agreed to execute the agreement if Reed personally guaranteed the $50,000 loan. It is uncontested that Ricci fully understood ...