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01/24/94 OLD KENT BANK-ST CHARLES N.A. v. SURWOOD

January 24, 1994

OLD KENT BANK-ST CHARLES N.A., PLAINTIFF-APPELLEE,
v.
SURWOOD CORPORATION; WILDWOOD GROUP, INC.; DESIGN AND MANAGEMENT ASSOCIATES, INC.; GORDON K. DRAWER; MYRON D. ANDERSEN; STEVEN M. WALTER, DEFENDANTS-APPELLANTS (AMERICAN RESOURCES DEVELOPMENT CORPORATION; WILDWOOD COVE HOMEOWNER'S ASSOCIATION; VILLAS OF WILDWOOD COVE CONDOMINIUM ASSOCIATION, INC.; UNKNOWN OWNERS; NONRECORD CLAIMANTS; AND UNKNOWN TENANTS AND OCCUPANTS, DEFENDANTS).



Appeal from the Circuit Court of Kane County. No. 91-CH-0204. Honorable James F. Quetsch, Judge, Presiding

Released for Publication March 3, 1994.

Doyle, McLAREN, Geiger

The opinion of the court was delivered by: Doyle

JUSTICE DOYLE delivered the opinion of the court:

Plaintiff, Old Kent Bank-St. Charles N.A., filed a six-count complaint to foreclose two mortgages in the circuit court of Kane County against defendants, Surwood Corporation; Wildwood Group, Inc.; Design and Management Associates, Inc.; American Resources Development Corporation; Wildwood Cove Homeowner's Association; Villas of Wildwood Cove Condominium Association, Inc.; Gordon K. Drawer; Myron D. Andersen; Steven M. Walter, unknown owners, nonrecord claimants; and unknown tenants and occupants. Defendants, Surwood Corporation; Wildwood Group, Inc.; Design and Management Associates, Inc.; Gordon K. Drawer; Myron D. Andersen; and Steven M. Walter timely appeal from an order denying their motion to reconsider the trial court's grant of summary judgment in favor of plaintiff on counts I, II, and V of its complaint. Counts I and II were directed solely against Surwood, and count V was directed solely against Gordon K. Drawer. The trial court's order contained the requisite Supreme Court Rule 304(a) finding. See 134 Ill. 2d R. 304(a).

The present dispute arose from defendants' less than successful attempt to develop a residential real estate project known as Wildwood Cove in St. Charles, Illinois. Following Surwood's default on an $875,000 promissory note, plaintiff filed an action to foreclose a first and second mortgage on certain tracts of real property securing the note. Defendants' primary contention on appeal is that the trial court erred in granting summary judgment in favor of plaintiff because genuine issues of material fact remained with respect to plaintiff's foreclosure action against Surwood and the seven affirmative defenses interposed by defendants.

To appreciate fully the issues raised, it is necessary to understand first the basic relational structure of the project. The project essentially involved two separate legal entities: Surwood Corporation and Wildwood Group, Inc. Surwood was wholly owned by Gordon K. Drawer, and its role was to procure undeveloped tracts of land and improve the property with basic infrastructure. In order to finance the procurement and improvement phase of the project, Surwood executed an $875,000 promissory note in favor of plaintiff. The note was dated August 23, 1989, Surwood was listed as the sole obligor, and the note was signed by Gordon K. Drawer as president of Surwood. Securing the note was a first mortgage on 10.43 acres of land known as Wildwood Cove unit 1 and unit 2, and a second mortgage on 1.98 acres of land known as Surrey Woods Drive. Additionally, Gordon Drawer executed a personal guaranty on the note in favor of plaintiff.

Wildwood Group, Inc., was a closely held corporation with Gordon K. Drawer, Myron D. Andersen, and Steven Walter as the sole shareholders. Under a separate agreement executed between Wildwood and Surwood, Wildwood agreed to purchase, following the infrastructure improvements, the improved tracts and complete the construction phase of the project. In order to meet its land purchase obligations, Wildwood executed a $2 million promissory note in favor of plaintiff. The note was dated February 9, 1990, the sole obligor was Wildwood, and it was signed by Steve Walters and Gordon Drawer, as officers of the corporation. Additionally, Myron Andersen and Gordon Drawer executed personal guarantees on the note in favor of plaintiff.

On June 11, 1991, plaintiff filed a six-count complaint to foreclose the mortgages securing both the $875,000 note and the $2 million note. Counts I and II were directed against Surwood, as mortgagor. Counts III and IV were directed against Wildwood, as mortgagor. Count V sought payment under Drawer's personal guaranty in the amount of $860,035.77 plus interest, and count VI likewise sought to enforce the personal guarantees relative to the Wildwood obligation.

In their answer, defendants denied that Surwood defaulted on the loan obligations and raised seven affirmative defenses. Individually and collectively, the affirmative defenses asserted that plaintiff had breached its contractual duties to Surwood and Wildwood by declaring the loan in default and refusing to advance monies. Additionally, defendants asserted that plaintiff breached its contractual duty of good faith, that plaintiff was estopped from foreclosing the mortgage because it failed to meet its contractual obligations, that plaintiff waived its right to declare a default, and that plaintiff acted with unclean hands.

Plaintiff moved for summary judgment on counts I, II, and V. In its motion, plaintiff asserted that it was undisputed that plaintiff extended to Surwood amounts in excess of the full credit line, that neither Surwood nor Drawer, as personal guarantor, repaid the outstanding principal balance, which was due on September 1, 1991, and that the maturity date had passed, thus placing the loan in default. Plaintiff further maintained that defendants' contentions that plaintiff breached its contractual obligations by failing to advance funds were unsupported by the facts. Attached to its motion were numerous documents, including copies of the Wildwood and Surwood notes and mortgages, Drawer's personal guaranty, two irrevocable letters of credit issued in favor of the City of St. Charles for the account of Surwood, an affidavit of Steven W. George, an officer of plaintiff, and a copy of a schedule of the Surwood loan account balances prepared from plaintiff's books and accounts.

In their response to plaintiff's motion, defendants maintained that although plaintiff sought only to obtain summary judgment on the Surwood loan, plaintiff's line of credit to Wildwood, and its conduct with respect thereto, was "inexorably intertwined" with the Surwood loan. The primary thrust of defendants' response was since plaintiff wrongfully revoked the Wildwood line of credit, Surwood was prevented from meeting its loan obligations on the $875,000 note. Surwood argued that plaintiff was fully aware of the interdependent nature of the two loan obligations and when plaintiff wrongfully revoked the Wildwood line of credit, Wildwood could no longer fulfill its purchase obligations to Surwood thus causing Surwood to be unable to meet its loan obligation to plaintiff. Surwood maintained (1) that plaintiff had no right to revoke the Wildwood line of credit; (2) that plaintiff was estopped from alleging a default on the Wildwood line of credit; and (3) that plaintiff through its control of Wildwood breached its covenant of good faith and fair dealing running to Wildwood.

Attached to defendants' response was the affidavit of Gordon Drawer. Drawer averred that in or about June 1989 Wildwood and Surwood entered into a land purchase contract, wherein Wildwood agreed to purchase various land parcels from Surwood. During the summer of 1989, Drawer met with representatives of plaintiff, including Edward Ryan, president of Old Kent Bank, and negotiated an $875,000 loan. This loan enabled Surwood to purchase property from a third party, conduct site work, and perform certain infrastructure improvements. The Surwood loan closed on August 23, 1989.

During the summer and fall of 1989, Drawer met with Myron Andersen, Steve Walters, and representatives of plaintiff, and, as a result of their meetings, plaintiff extended a $2 million revolving line of credit to Wildwood. This loan enabled Wildwood to purchase the infrastructure-improved parcels from Surwood and construct the buildings. ...


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