Appeal from the Circuit Court of St. Clair County. No. 91-CH-431. Honorable James M. Radcliffe, Presiding Judge.
The opinion of the court was delivered by: Lewis
PRESIDING JUSTICE LEWIS delivered the opinion of the court:
The counterdefendants, James A. Biethman (Biethman) and Magna Bank of Southern Illinois (formerly known as Magna Bank of Centralia) (Magna Bank), appeal from a judgment of foreclosure entered on September 15, 1992, in favor of counterplaintiff, United Fire and Casualty Company (United Fire) in the principal amount of $700,000. On appeal, Biethman and Magna Bank raise the following issues: (1) whether the trial court erred in admitting into evidence a written agreement (agreement), dated September 13, 1990, between Biethman and United Fire, in addition to a promissory note and deed of trust executed by Biethman, since United Fire did not attach a copy of the agreement to its complaint; and (2) whether the trial court erred in denying Biethman's motion for judgment at the close of United Fire's case because (a) the evidence established that Biethman had paid the mortgage, and (b) no security interest existed above the face amount of the note. We affirm the judgment of the trial court for reasons we will more fully set forth.
On October 15, 1991, the original plaintiff, Farm Credit Bank of St. Louis (Farm Credit Bank), filed a complaint for foreclosure against Biethman, United Fire, and Magna Bank. On December 2, 1991, United Fire filed its answer to Farm Credit Bank's complaint and also filed a counterclaim for foreclosure of its promissory note and deed of trust against Farm Credit Bank, Biethman, Consolidated Insurance Agency, Inc. (Consolidated), and Magna Bank. United Fire attached copies of the promissory note and deed of trust signed by Biethman but neither referred to nor attached a copy of the agreement to the countercomplaint. Biethman filed his answer to the countercomplaint, requesting that the court "set aside" the trust deed and promissory note, in relevant part, because he did not owe and never had owed United Fire $700,000.
On January 21, 1992, the trial court entered a judgment of foreclosure in favor of Farm Credit Bank and against Biethman in the amount of $432,191.08 on their mortgage recorded June 1, 1989. Biethman then exercised his right of redemption, and the judgment of foreclosure was vacated as to Farm Credit Bank only.
On April 20, 1992, Biethman filed a motion to stay the proceedings or, in the alternative, for a continuance of the trial on United Fire's countercomplaint, alleging that United Fire had filed a case in Federal district court against Biethman and the company of which he was president, Evansville Cement Finishers, Inc. (ECF). Biethman attached a copy of the Federal court case and the agreement to his motion. The motion further alleged that the note and trust deed "which are the basis of United's cross-claim herein and the Agreement which is the basis of the Federal Court lawsuit are all dated September 13, 1990, and all arise out of the same transaction whereby United purportedly advanced funds to or on behalf of [Biethman] and ."
United Fire filed its response in opposition to Biethman's motion for stay or continuance, alleging that the circuit court action was not dependent upon the outcome of the Federal court case but depended only upon the validity of the promissory note and deed of trust. The trial Judge denied the motion to stay but continued the case and granted leave to file amended affirmative defenses, to conduct discovery, and to file other motions.
On May 4, 1992, Biethman filed a "First Amended Answer to Counterclaim," requesting again that the promissory note and deed of trust be set aside, inter alia, because the note and deed were given to United Fire without consideration.
On May 21, 1992, Biethman filed a memorandum by which he sought a ruling from the trial court to exclude "any evidence, whether by testimony, documents or otherwise regarding any amounts which were advanced by United Fire" to ECF or Biethman in excess of $700,000. Also on May 21, 1992, the trial court conducted a hearing, in which Farm Credit Bank was allowed to prove up its defense to the counterclaim. Farm Credit Bank established that it had the first lien on the real estate in the amount of $341,465.77 plus attorney fees. Consolidated attempted to prove up its position but did not have sufficient evidence, and the issues with respect to Consolidated were reserved. Magna Bank established that it had a mortgage on the subject real estate, recorded on December 3, 1990, with a principal outstanding balance of $898,202.83.
After the other lienholders presented their evidence, Biethman's attorney argued that United Fire should not be allowed to introduce evidence of any money paid on behalf of Biethman or ECF above $700,000 because the promissory note was a "straight demand note," the mortgage was tied into the note, and neither contained any future advance clauses. The attorney for United Fire responded that the note and trust deed were "prepared as part of a larger transaction" and that the parties agreed that advances would be made pursuant to the note and deed of trust; however, he did not intend to prove that Biethman owed United Fire any more than the principal amount of the note, $700,000. In response to a question from the trial Judge, Biethman's attorney stated that the defenses he intended to pursue were lack of consideration and payment of the note. The trial Judge then asked how he could preclude United Fire from going into the entire transaction given Biethman's affirmative defenses. Biethman's attorney agreed that the lack of consideration defense opened the door for the court to consider the entire transaction.
On June 1, 1992, Biethman filed his second amended answer, alleging lack of consideration as an affirmative defense, as well as the affirmative defenses that neither the trust deed nor the promissory note contained a future-advance clause, and that the trust deed was void and invalid. On June 11, 1992, the trial court entered an order denying Biethman's motion to exclude evidence regarding moneys advanced by United Fire in excess of $700,000 and finding that the lack of a future-advance clause in the trust deed was not fatal to the foreclosure.
On August 20, 1992, the court proceeded to trial on United Fire's countercomplaint for foreclosure. For brevity's sake, we will summarize all of the evidence from this hearing together with the evidence presented to the court on September 2 and 3, 1992. United Fire's surety-claims representative, David Lange, testified that Biethman and Lange and several others met on September 11, 1990. Before the meeting, according to Lange, Biethman "had made it clear" he wished to meet with representatives of United Fire to obtain financial assistance in order to remain contractor of record on the numerous projects bonded by United Fire, because ECF faced default on several bonded jobs within a few days if it did not get funds from United Fire. Lange testified that the purposes of the bonds issued by United Fire to ECF were to guarantee the project owners that ECF would complete its contracts as it had promised the owners and to insure the subcontractors and suppliers of payment, but that ECF and Biethman were the principals, and that they were required first to exonerate and indemnify United Fire, but that if United Fire had to pay anything on behalf of ECF, ECF and Biethman were required to reimburse United Fire.
On January 23, 1985, as part of the process of issuing bonds for ECF, Biethman and ECF entered into an agreement of indemnity (indemnity contract), which provided that if ECF defaulted on any project bonded by United Fire, United Fire was assigned an interest in all claims and equipment of ECF and that United Fire was authorized to advance funds to ECF or Biethman as necessary under the bonds. Lange testified, however, that United Fire was not required to advance any funds to or on behalf of Biethman or ...