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11/29/95 EDENS PLAZA BANK v. GUS J. DEMOS

November 29, 1995

EDENS PLAZA BANK, PLAINTIFF-APPELLANT,
v.
GUS J. DEMOS, ET AL., DEFENDANT-APPELLEE.



APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY. HONORABLE WILLIAM D. MADDUX, JUDGE PRESIDING.

The Honorable Justice Rizzi delivered the opinion of the court: Tully, J., concurs. Greiman, P.j., dissents.

The opinion of the court was delivered by: Rizzi

The Honorable Justice RIZZI delivered the opinion of the court:

This case involves two lawsuits that were consolidated. In lawsuit No. 87 L 24944, the plaintiff Edens Plaza Bank filed a two-count complaint against defendants Gus J. Demos, James Demos, 120 South State Street Restaurant, Inc., an Illinois corporation, and Louis Demos to recover the principal and interest on a promissory note given by Park Plaza Restaurant, Inc. d/b/a Park Plaza Restaurant, to Edens Plaza Bank. Count I of the complaint was against Gus J. Demos, James Demos and 120 South State Street Restaurant, Inc. Count II of the complaint was only against Louis Demos. In their answer to the complaint the defendants raised affirmative defenses.

In lawsuit No. 90 L 16268, plaintiff Park Plaza Restaurant, Inc. brought an action against defendant Edens Plaza Bank based on the promissory note and several lender liability claims similar to the affirmative defenses raised in lawsuit No. 87 L 24944. The No. 90 L 16268 lawsuit charges Edens Plaza Bank with breach of contract, consumer fraud and deceptive business practices, and bad faith with respect to the promissory note.

On the scheduled trial date of the consolidated lawsuits, pursuant to a Settlement Agreement and Mutual Release, all of the claims in lawsuit No. 90 L 16268 and all of the claims and affirmative defenses in count I of lawsuit No. 87 L 24944 were dismissed with prejudice. After a bench trial on count II in lawsuit No. 87 L 24944, the trial court filed Findings of Fact and Conclusions of Law, and entered judgment in favor of Louis Demos and against Edens Plaza Bank. Edens Plaza Bank has appealed. We affirm the judgment.

On June 30, 1985, Park Plaza Restaurant, Inc. d/b/a Park Plaza Restaurant, executed a promissory note for $320,000 plus interest, in favor of the Edens Plaza Bank. The U.S. Small Business Administration (SBA) was a participant-guarantor of the transaction; SBA was a 90% guarantor. In addition, Gus J. Demos, James Demos and 120 South State Street Restaurant, Inc. executed written guarantees as primary guarantors for the promissory note. Also, Louis Demos executed a written guarantee for the promissory note "limited to $50,000."

The loan agreement documents for the promissory note provided that as collateral the Edens Plaza Bank had a first lien security interest in the assets of the Park Plaza Restaurant. The loan agreement documents also provided that the $320,000 for the promissory note was not to be disbursed immediately, but rather the proceeds for the promissory note were to be disbursed in stages as follows:

"1. $163,000.00 for leasehold improvements on business premises located at 150 N. Michigan Ave. Chicago, Illinois.

2. $107,000.00 to purchase machinery, equipment, furniture and/or fixtures.

3. $50,000.00 for working capital. There is to be no blanket disbursement of working capital."

According to the testimony of the president of Edens Plaza Bank, John Jones, the Edens Plaza Bank disbursed the loan proceeds for the promissory note as follows:

1. On September 23, 1985, the Edens Plaza Bank paid $2,880 directly to SBA as a fee for being a participant-guarantor. The $2,880 that the Edens Plaza Bank paid directly to SBA as a fee was accounted for by the Edens Plaza Bank by treating it as if it were part of the $50,000 working capital to be disbursed under the promissory note.

2. On August 14, 1985, the Edens Plaza Bank paid $160,000 to Park Plaza Restaurant, Inc. for leasehold improvements.

3. On October 17, 1985, the Edens Plaza Bank debited and credited the Park Plaza Restaurant, Inc. account in the amount of $1,006 for interest due on the promissory note. The $1,006 debit and credit for interest due was accounted for by the Edens Park Bank by treating it as if it were part of the $50,000 working capital to be disbursed under the promissory note.

4. On November 6, 1985, the Edens Plaza Bank paid $57,649 to Park Plaza Restaurant, Inc. for leasehold improvements.

5. On November 6, 1985, the Edens Plaza Bank paid $35,767 to Park Plaza Restaurant, Inc. for furniture and fixtures.

6. In November 1985, the Edens Plaza Bank debited and credited the Park Plaza Restaurant, Inc. account in the amount of $1,660.26 for interest due on the promissory note. The $1,660.26 debit and credit for interest due was accounted for by the Edens Park Bank by treating it as if it were part of the $50,000 working capital to be disbursed under the promissory note.

7. On November 30, 1985, the Edens Plaza Bank debited and credited the Park Plaza Restaurant, Inc. account in the amount of $41,166.60 for interest due on the promissory note. The $41,166.60 debit and credit for interest due was accounted for by the Edens Park Bank by treating it as if it were part of the $50,000 working capital to be disbursed under the promissory note.

8. On January 16, 1986, the Edens Plaza Bank debited and credited the Park Plaza Restaurant, Inc. account in the amount of $2,616.35 for interest due on the promissory note. The $2,616.35 debit and credit for interest due was accounted for by the Edens Park Bank by treating it as if it were part of the $50,000 working capital to be disbursed under the promissory note.

9. On January 16, 1986, the Edens Plaza Bank made a $5,888.67 entry in the Park Plaza Restaurant, Inc. account. The record is unclear as to whether the $5,888.67 was actually transmitted to Park Plaza Restaurant, Inc. as working capital or was merely a debit and credit interest due entry charged to working capital. No documentary proof was introduced into evidence.

10. On March 6, 1986, the Edens Plaza Bank debited and credited the Park Plaza Restaurant, Inc. account in the amount of $2,728.29 for interest due on the promissory note. The $2,728.29 debit and credit for interest due was accounted for by the Edens Park Bank by treating it as if it were part of the $50,000 working capital to be disbursed under the promissory note.

11. On March 7, 1986, the Edens Plaza Bank debited and credited the Park Plaza Restaurant, Inc. account in the amount of $8,213.05 for interest due on the promissory note. The $8,213.05 debit and credit for interest due was accounted for by the Edens Park Bank by treating it as if it were part of the $50,000 working capital to be disbursed under the promissory note.

12. On May 13, 1986, the Edens Plaza Bank debited and credited the Park Plaza Restaurant, Inc. account in the amount of $8,257.54 for interest due on the promissory note. The $8,257.54 debit and credit for interest due was accounted for by the Edens Park Bank by treating it as if it were part of the $50,000 working capital to be disbursed under the promissory note.

13. On May 15, 1986, the Edens Plaza Bank paid $16,584 to Park Plaza Restaurant, Inc. for leasehold improvements, furniture and fixtures.

According to the testimony of John Jones, no other disbursements for the promissory note were made by the Edens Plaza Bank.

In sum, the total disbursements made by Edens Plaza Bank for leasehold improvements and furniture and fixtures was $270,000. According to Park Plaza Restaurant, Inc., no money was actually transmitted by Edens Plaza Bank to Park Plaza Restaurant, Inc. for working capital.

Park Plaza Restaurant, Inc. alleged that it made numerous phone calls and written demands to Edens Plaza Bank to disburse the $50,000 working capital to it pursuant to the promissory note, but the Edens Plaza Bank refused the requests and demands. As a result, the Park Plaza Restaurant closed in 1986, and all of its assets were sold for $50,000 at a public sale. The $50,000 was applied towards a reduction of the amount due on the promissory note pursuant to the Edens Plaza Bank's secured interest under the promissory note. Also, pursuant to it being a 90% guarantor on the promissory note, on November 18, 1986, the SBA reimbursed the Edens Plaza Bank for $284,261.25.

On November 23, 1987, the Edens Plaza Bank filed lawsuit No. 87 L 24944 based entirely on the promissory note. The SBA was not a party to the lawsuit, and the Edens Plaza Bank did not bring the lawsuit as an assignee or subrogee of the SBA. The SBA was not a party to either of the two lawsuits, ...


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