NICHOLAS J. BUA, UNITED STATES DISTRICT JUDGE
In 1984, plaintiff Continental Bank N.A. ("Continental") loaned a substantial sum of money to a North Carolina corporation. After that corporation filed for bankruptcy, Continental demanded repayment from eight individuals who guaranteed the loan. Having been paid by five of the guarantors, Continental seeks payment from the remaining three: Robinson Everett, Kathrine Everett, and J.H. Froelich. Continental contends that there is no factual dispute on the issue of liability and, therefore, its claim against these three guarantors may be resolved on summary judgment. This court agrees, and grants Continental's motion for summary judgment.
The following facts are not in dispute. In 1983, an agent of Guilford Telecasters, Inc. ("Guilford") contacted Continental for purposes of obtaining a loan. Guilford, a North Carolina corporation, needed financing to operate a television station in North Carolina.
Several months of negotiations culminated in a loan agreement dated January 1, 1984. Pursuant to this agreement, Continental loaned $ 4,200,000 to Guilford. In connection with the loan, defendants Robinson Everett, Kathrine Everett, and J.H. Froelich agreed to guarantee repayment of the loan. The guaranty agreements were also executed on January 1, 1984. On December 31, 1985, Guilford executed and delivered a term note to Continental in evidence of the $ 4,200,000 loan.
To secure repayment of the loan, Continental obtained a security interest in Guilford's assets.
For the most part, Continental perfected its security interest in this collateral by filing the requisite financing statements with the appropriate governmental entities. Continental, however, did not perfect its security interest with respect to three of Guilford's most valuable assets: 1) Guilford's operating license from the Federal Communications Commission ("FCC"); 2) Guilford's broadcast tower lease; and 3) Guilford's studio lease.
For approximately two years, Guilford honored its obligations under the loan agreement. In 1986, Guilford's financial situation deteriorated. Guilford filed for Chapter 11 bankruptcy on December 31, 1986. Uncomfortable with this situation, Continental accelerated the payment schedule. On January 1, 1987, Continental sent a letter to Guilford demanding immediate payment in full.
As a debtor-in-possession, Guilford was in critical need of working capital to meet its daily operating expenses. Guilford's only source of funds was cash collateral.
Because Continental had a security interest in Guilford's cash collateral, Guilford needed either Continental's consent or the authorization from the bankruptcy court to use the collateral. On January 16, 1987, the United States Bankruptcy Court for the Middle District of North Carolina (the court presiding over Guilford's bankruptcy) entered an order authorizing Guilford to use the cash collateral on a limited basis. Approximately three weeks later, the bankruptcy court entered a consent order which permitted Guilford to continue using the cash collateral. See In re Guilford Telecasters, Inc., No. B-86-02633C-11 (Bankr. M.D.N.C. Feb. 5, 1987). The order was subject to several conditions for the protection of Continental's interests. One such condition was that Guilford's loan payments be made on a weekly basis.
Guilford continued paying Continental until May 1987. Unable to maintain its loan obligations, Guilford went into default. At that point, the guarantors picked up the loan payments. In 1989, however, the guarantors also stopped paying Continental. To enforce the guaranties, Continental filed this lawsuit in federal court (based on diversity jurisdiction).
Robinson Everett, Kathrine Everett, and J.H. Froelich then moved to dismiss the case for lack of personal jurisdiction. That motion was denied. See Continental Bank N.A. v. Everett, 742 F. Supp. 508 (N.D. Ill. 1990). Continental now moves for summary judgment.
Continental may prevail on its motion for summary judgment only if there is no genuine issue of material fact and it is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). There is a genuine issue of material fact "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). Conversely, "where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no 'genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986) (citing First Nat'l Bank v. Cities Serv. Co., 391 U.S. 253, 289, 20 L. Ed. 2d 569, 88 S. Ct. 1575 (1968)).
Continental asserts that there is no genuine issue of material fact with respect to defendants' liability under the guaranty agreements. In an action to enforce a guaranty under Illinois law,
a prima facie case is established "when the plaintiff enters proof of the original indebtedness, the debtor's default and the guarantee." Mid-City Indus. Supply Co. v. Horwitz, 132 Ill. App. 3d 476, 483, 476 N.E.2d 1271, 1277, 87 Ill. Dec. 279 (1985). None of these elements are in dispute. Continental is therefore entitled to judgment on the guaranties unless defendants have a valid defense.
Defendants have asserted four affirmative defenses and three counterclaims in opposition to Continental's claim. Since the allegations in defendants' counterclaims are parallel to those set forth in the affirmative defenses, the defenses and counterclaims shall be treated together.
A. First Affirmative Defense/Counterclaim
In their first defense, defendants raise three separate arguments regarding the collateral for the loan. First, defendants allege that when they executed the guaranty agreements, Continental failed to disclose a material fact -- i.e., that it is legally impossible to obtain a security interest in an FCC license. Second, defendants assert that their guaranties were conditioned on Continental's ability to perfect a security interest in all of the collateral. Third, defendants seek a discharge from the guaranties based on an "unjustified impairment of collateral" theory. The court will examine each theory separately.
1. Failure to Disclose a Material Fact
According to defendants, they entered into the guaranty agreements with the understanding that the loan was secured by more than enough collateral to protect them from loss in the event of a default by Guilford. The loan agreement stated that the loan would be secured by a first lien and security interest in the assets listed as collateral. Loan Agreement, § 6.1(a), supra note 1. Defendants apparently relied on Continental to take the necessary steps to perfect a security interest in the collateral put up by Guilford. What defendants did not realize, however, was that a party cannot obtain a security interest in an FCC broadcast license. See Stephens Indus., Inc. v. McClung, 789 F.2d 386, 390 (6th Cir. 1986). This is significant because the FCC license was one of Guilford's most valuable assets, a fact which Continental does not dispute. Defendants insinuate that Continental was aware that a security interest in the license could not be obtained, yet chose not to inform them. Defendants further assert that they would not have executed the guaranties if Continental had disclosed the fact that a security interest in the FCC license could not be obtained. Based on Continental's nondisclosure, defendants seek a complete discharge from their obligations under the guaranties.
In response, Continental argues that defendants have expressly waived any objections to Continental's failure to perfect a security interest in the collateral. Specifically, Continental relies on section 6(c) of the guaranty agreement, which contains the following waiver provision: "The Guarantor hereby expressly waives . . . all diligence in . . . protection of or realization upon . . . any security for [the loan]." Guaranty, § 6(c). Continental also emphasizes that under section 6(a), it has the discretion to release or surrender its security interest. Id. § 6(a). These clauses are unavailing. Contractual waiver provisions do not foreclose defendants' first argument because defendants have brought Continental's good faith into question. In Illinois, a duty of good faith and fair dealing is implied in every contract (including guaranties), Dayan v. McDonald's Corp., 125 Ill. App. 3d 972, 989-90, 466 N.E.2d 958, 971, 81 Ill. Dec. 156 (1984); McHenry State Bank v. Y & A Trucking, Inc., 117 Ill. App. 3d 629, 632-33, 454 N.E.2d 345, 348, 73 Ill. Dec. 485 (1983); see also Jordan v. Duff and Phelps, Inc., 815 F.2d 429, 438 (7th Cir. 1987), cert. dismissed, 485 U.S. 901, 99 L. Ed. 2d 229, 108 S. Ct. 1067 (1988); and the obligation to perform in good faith may not be waived. BA Mortgage and Int'l Realty Corp. v. American Nat'l Bank and Trust Co., 706 F. Supp. 1364, 1376 (N.D. Ill. 1989); Morris v. Columbia Nat'l Bank, 79 Bankr. 777, 785 (N.D. Ill. 1987).
As a matter of law, a creditor does not stand in a fiduciary relationship with the guarantor. Farmer City State Bank v. Guingrich, 139 Ill. App. 3d 416, 423, 487 N.E.2d 758, 763, 94 Ill. Dec. 1 (1985). In certain cases, however, the duty of good faith may require the creditor "to inform [the guarantor] of circumstances which materially increase [the] risk as guarantor." McHenry State Bank, 117 Ill. App. 3d at 634, 454 N.E.2d at 349. If the creditor takes any action which "increases the guarantor's risk or deprives the guarantor of the opportunity to protect himself," the guarantor should be released from the guaranty to the extent of his injury. Id. at 633, 454 N.E.2d at 348.
In this case, there is evidence in the record that Continental knew, at the time of contracting, that it could not perfect a security interest in Guilford's FCC license. Continental did not inform defendants of this fact, even though the license was a valuable asset. But this nondisclosure, standing alone, does not demonstrate that Continental was acting in bad faith. There is absolutely no evidence that Continental actively concealed material facts from defendants. The ability to obtain a security interest in a license is a matter of law, and such information was available to defendants from sources other than Continental. Notwithstanding Continental's duty of good faith, defendants have an obligation to make an inquiry into all circumstances that are relevant to their risk as guarantors. St. Charles Nat'l Bank v. Ford, 39 Ill. App. 3d 291, 295, 349 N.E.2d 430, 434 (1976). Defendants should have made some inquiry into the facts affecting their risk; their failure to do so precludes them from complaining of Continental's failure to disclose.
Defendants admit that as early as August 1987, they learned that Continental did not have a security interest in the FCC license. Rather than raising an objection to the collateral at that time, they continued to make payments under the guaranties for two more years. In light of the fact that defendants continued to honor their guaranties after discovering the truth, there is reason to question the sincerity behind defendants' declarations of bad faith. The Illinois Supreme Court has suggested that the failure to promptly object upon the discovery of fraud may, under certain circumstances, amount to a waiver. Eisenberg v. Goldstein, 29 Ill. 2d 617, 195 N.E.2d 184 (1963), cert. denied, 377 U.S. 964, 12 L. Ed. 2d 735, 84 S. Ct. 1645 (1964). In Eisenberg, the court stated:
A person who has been misled by fraud or misrepresentation is required, as soon as he learns the truth, to disaffirm or abandon the transaction with all reasonable diligence, so as to afford both parties an opportunity to be restored to their original position. If, after discovering the untruth of the representations, he conducts himself with reference to the transaction as though it were still subsisting and binding, he thereby waives all benefit of relief from the misrepresentations.
Id. 29 Ill. 2d at 622, 195 N.E.2d at 186-87. At any rate, it is unnecessary to reach the waiver question because there is insufficient evidence pointing to a lack of good faith on the part of Continental.
Defendants have not cited any Illinois cases in which a creditor was deemed to have acted in bad faith by failing to disclose information relating to the risk of the guaranty. Instead, defendants rely primarily on a not-so-recent New York case, First Citizens Bank & Trust Co. v. Sherman's Estate, 250 A.D. 339, 294 N.Y.S. 131 (1937). In that case, the guarantor (Sherman) guaranteed a bank loan to his son-in-law (Hatfield). The guaranty agreement purported to fully detail the collateral securing the loan. At the top of the list of collateral was Hatfield's interest in the estate of his father, which Hatfield had assigned to the bank. The bulk of this estate consisted of a farm. Prior to the execution of the guaranty, the bank released its interest in the farm back to Hatfield. When Sherman signed the guaranty, he did not know that the loan was no longer secured by the farm, and the bank failed to inform him. The court concluded that the bank's nondisclosure amounted to fraud:
While in many instances mere silence cannot be made the basis of fraud, yet, where the circumstances are of such a nature as to impose a duty upon one to speak, and where he deliberately fails to do so, his neglect will be deemed a deliberate suppression of the truth, and will amount to constructive, if not actual, fraud.