Appeal from the United States District Court for the Northern District of Illinois, Eastern Division, No. 86 C 2831, William T. Hart, Judge.
Coffey, Ripple, and Kanne, Circuit Judges.
Harold W. Lichterman and Seymour Kessler, as two shareholders in Titan Marine, Inc., signed promissory notes as evidence of a debt owed by Titan to USX Credit Corporation.*fn1 When Titan defaulted upon the debt, USX sued Lichterman and Kessler. The district court entered summary judgment in favor of USX. We Arm.
In January of 1982, Titan Marine, Inc., a Subchapter S corporation, borrowed over $2 million from USX to purchase an oil vessel. Titan signed a promissory note as evidence of its debt and USX took a security interest in the vessel as collateral. In addition, USX required each of Titan's nine shareholders to execute documents entitled "Direct Loan Obligations." As two of the nine shareholders in Titan, Lichterman and Kessler each signed a Direct Loan Obligation consistent with the percentage of their shareholder interest.
Each Direct Loan Obligation provided that in "consideration of giving by [USX] . . . credit to Titan Marine . . . and of the benefits to accrue to the undersigned arising out of such transaction, . . . the undersigned hereby . . . promises on demand (1) to pay [USX] when due [a percentage] of all amounts to be paid by [Titan] under all notes now or at any time hereafter entered into between [USX] and [Titan]." The agreement also stated that "this instrument is a primary obligation of the undersigned as if the Note and any of the Other Agreements had been contracted and was due and owing personally by the undersigned." Furthermore, the Direct Loan Obligation was made "continuing, absolute, unconditional and irrevocable." Finally, the shareholders expressly waived any requirement that USX proceed against Titan or the security, or pursue any other available remedy.
Until early 1983, Titan satisfied the monthly payments owed upon the promissory note. When Titan subsequently fell behind in its payments, Titan and USX entered into negotiations to restructure the loan. In December of 1983, Titan and USX executed a restructured promissory note ("1983 note"). The 1983 note required each of Titan's shareholders to execute a "Confirmatory Direct Loan Obligation." By signing the new agreement, each shareholder "confirmed and reaffirmed" the terms and covenants of the original Direct Loan Obligation. All of Titan's shareholders, including Lichterman and Kessler, signed a Confirmatory Direct Loan Obligation pursuant to the 1983 note.
In late 1984, Titan again fell behind in its payments. Titan approached USX, requesting a second restructuring of the note. On January 25, 1985, Titan and USX negotiated a third note ("1985 note").*fn2 As with the 1983 note, USX again requested Titan's shareholders to sign binding agreements, called "Second Confirmatory Direct Loan Obligations." The terms of the 1985 note expressly stated that USX would not accept the restructuring pursuant to the 1985 note unless all of Titan's shareholder executed the agreements. Although most of the shareholders executed the agreements, Lichterman and Kessler did not.
Thereafter, Titan made a few payments. However, Titan subsequently defaulted again and USX filed this action against Titan's shareholders, including Lichterman and Kessler. The district court entered summary judgment in favor of USX.
Lichterman and Kessler basically raise two issues upon appeal. First, they argue that summary judgment was unproper because a question of fact existed as to whether USX had waived Lichterman and Kessler's liability. Second, they argue that summary judgment was improper because a question of fact existed as to whether USX acted in a commercially reasonable manner with respect to the collateral after Titan defaulted. We will address each of these issues separately.
A. Alleged Waiver of Lichterman and Kessler's Liability
The district court entered summary judgment in favor of USX, finding that no material factual issues existed as to Lichterman and Kessler's liability for Titan's debt owed to USX. The court found that the terms of the 1985 note required all of Titan's shareholders to execute Second Confirmatory Direct Loan Obligations before the 1985 note could take effect. Because Lichterman and Kessler, among others, failed to execute the requisite documents, the 1985 note failed to take effect as a matter of law. Consequently, the court determined the appellants' liability ...