JP Morgan Chase Bank, N. A. v. Earth Foods, Inc.

SUPREME COURT CASES

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State: Illinois

Court: 2nd District Appellate

Docket No: 2-07-0045 Rel

Case Date: 11/04/2008

Preview:No. 2--07--0045 Filed: 11-4-08 ______________________________________________________________________________ IN THE APPELLATE COURT OF ILLINOIS SECOND DISTRICT ______________________________________________________________________________ JP MORGAN CHASE BANK, N.A., as Successor by Merger to Bank One, N.A., ) Appeal from the Circuit Court ) of Kane County. ) Plaintiff-Appellee, ) ) v. ) No. 04--AR--1003 ) EARTH FOODS, INC., MICHAEL ) JARVIS, and THEODORE L. PETROVICH, ) ) Defendants ) Honorable ) F. Keith Brown, (Leonard S. DeFranco, Defendant-Appellant). ) Judge, Presiding. ______________________________________________________________________________ JUSTICE O'MALLEY delivered the opinion of the court: Defendant Leonard S. DeFranco appeals the trial court's order denying his motion to dismiss and granting summary judgment against him and in favor of plaintiff, JP Morgan Chase Bank, on plaintiff's suit to recover from defendant as a guarantor of a defaulted loan. On appeal, defendant argues that the trial court should have entered judgment in his favor based on section 1 of the Sureties Act (Act) (740 ILCS 155/1 (West 2004)), that the trial court should have ruled in his favor as a sanction for plaintiff's discovery violations, and that an order the trial court entered nunc pro tunc to correct its original order should be considered invalid. For the reasons that follow, we affirm the decision of the trial court in part, reverse in part, and remand for further proceedings.

No. 2--07--0045 The parties do not dispute the basic facts underlying this case. In 2001, plaintiff extended a line of credit to Earth Foods, Inc. (Earth Foods), and the three co-owners of Earth Foods (defendant, Michael Jarvis, and Theodore Petrowich) all personally guaranteed the loan. Before plaintiff sent Earth Foods a notice of default, defendant sent plaintiff a letter that warned it that Earth Foods was depleting its inventory (which was to serve as collateral for the loan) and demanded that plaintiff take action. Earth Foods stopped making payments to plaintiff in February 2004, and plaintiff sent a notice of default and demand for payment on April 23, 2004. Earth Foods failed to make any payments after the demand. On May 6, 2004, the largest shareholder of Earth Foods (a person who acquired the interest of one of the three co-owners and is not a party to this appeal) transferred all of the assets of Earth Foods to a new company. On June 9, 2004, plaintiff filed suit against Earth Foods as well as the three co-owners who had guaranteed the note. Defendant's answer claimed an affirmative defense on the ground that he was protected under section 1 of the Act. The matter was eventually set for arbitration on April 26, 2006. However, on the day of the hearing, plaintiff advised defendant that a witness, whom defendant intended to call as an adverse witness, was no longer in plaintiff's employ and therefore was not present at the hearing. Another witness defendant sought to question was also absent. The arbitrator continued the hearing. In the meantime, on May 4, plaintiff filed a motion for summary judgment against defendant. The motion included an affidavit from one of plaintiff's employees who attested that plaintiff had incurred $64,826 in damages (including attorney fees, costs, and the principal and interest on the note) as of May 3, 2006. (With its reply to defendant's response, plaintiff included a petition

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No. 2--07--0045 detailing damages of $70,485 as of November 1, 2006.) Defendant responded with a motion to strike plaintiff's motion and to strike plaintiff's complaint, as sanctions for plaintiff's alleged discovery violations in failing to produce witnesses for the scheduled April 26 arbitration hearing (and also for failing to provide an address for the witness no longer employed by plaintiff). The trial court thereafter entered an order stating in pertinent part that "[t]he motion to strike the motion for summary judgment is denied in part, the motion to dismiss the complaint included in said motion is reserved." The record contains no further ruling on the motion to dismiss the complaint. On December 19, 2006, the trial court granted plaintiff's motion for summary judgment on the ground that defendant was a guarantor, not a surety, and thus the Act did not apply. The motion for summary judgment was thus "granted *** in the amount of $42,056.43 as of September 30, 2005, [sic] as set forth in the Affidavit *** filed in support of this Motion plus interest, attorneys fees and costs accruing after that date." The trial court added, pursuant to Supreme Court Rule 304(a) (210 Ill. 2d R. 304(a)), that there was no reason to delay appeal in the matter. On January 9, 2007, defendant filed a notice of appeal. Later that same day, plaintiff filed a "Motion to Modify Order Dated December 19, 2006 Nunc Pro Tunc." Plaintiff asserted that the trial court erroneously entered judgment based on the amount of damages described in plaintiff's initial motion for summary judgment instead of the updated amount contained in plaintiff's reply. On January 19, the trial court entered an order stating that the December 19 order contained a clerical error to be "amended, nunc pro tunc, to provide that judgment is entered in favor of plaintiff in the amount of $73,478.51." We later granted defendant's motion to amend his notice of appeal to incorporate this January 19 order.

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No. 2--07--0045 Defendant's first argument on appeal is that the trial court erred in entering summary judgment in favor of plaintiff, because defendant was protected by section 1 of the Act. Summary judgment is appropriate only where the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. 735 ILCS 5/2--1005(c) (West 2004). The use of the summary judgment procedure is to be encouraged as an aid in the expeditious disposition of a lawsuit, but, because it is a drastic means of disposing of litigation, it should be used only when the right of the moving party is clear and free from doubt. Adams v. Northern Illinois Gas Co., 211 Ill. 2d 32, 43 (2004). A reviewing court considers a challenge to the propriety of a summary judgment ruling under the nondeferential de novo standard of review. Adams, 211 Ill. 2d at 43. Defendant argues that the Act applies here, even though the contract lists him as a guarantor and not a surety. Plaintiff counters that the Act does not apply because the Act does not apply to guarantors. As this argument hinges on the application of section 1 of the Act, we begin our analysis with that section, which provides as follows: "When any person is bound, in writing, as surety for another for the payment of money, or the performance of any other contract, apprehends that his principal is likely to become insolvent or to remove himself from the state, without discharging the contract, if a right of action has accrued on the contract, he may, in writing, require the creditor to sue forthwith upon the same; and unless such creditor within a reasonable time and with due diligence, commences an action thereon, and prosecutes the same to final judgment and proceeds with the enforcement thereof, the surety shall be discharged; but no such discharge

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No. 2--07--0045 shall not [sic] in any case affect the rights of the creditor against the principal debtor." 740 ILCS 155/1 (West 2004). The fundamental rule of statutory construction is to ascertain and give effect to the intent of the legislature. Wisniewski v. Kownacki, 221 Ill. 2d 453, 460 (2006). The most reliable indicator of legislative intent is the language of the statute, which "must be afforded its plain, ordinary, and popularly understood meaning." Alvarez v. Pappas, 229 Ill. 2d 217, 228 (2008). Both parties here rely on the same statutory language--the statute's use of the word "surety"--to support their respective arguments. Defendant argues that the term "surety" includes guarantors, and plaintiff argues that it does not. Courts often turn to dictionaries to supply the plain and popularly understood meanings of statutory terms (see Alvarez, 229 Ill. 2d at 225). According to Black's Law Dictionary, a "surety" is "[a] person who is primarily liable for the payment of another's debt or the performance of another's obligation." Black's Law Dictionary 1455 (7th ed. 1999). "A surety differs from a guarantor, who is liable to the creditor only if the debtor does not meet the duties owed to the creditor; the surety is directly liable." Black's Law Dictionary 1455 (7th ed. 1999). Thus, the dictionary definition of the word "surety" supports plaintiff's argument that sureties are distinct from guarantors. However, the dictionary definition does not in this case provide the "popularly understood" meaning of the term. " 'The terms "suretyship" and "guaranty" are often confounded from the fact that the guarantor is in common acceptation a surety for another,' " and thus "[t]he word 'guarantee' is frequently used interchangeably with the word 'surety.' " Vermont Marble Co. v. Bayne, 356 Ill. 127, 131, 132 (1934), quoting 27 Am. & Eng. Ency. of Law 432-33 (2d ed.); see also F. Bae & M.

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No. 2--07--0045 McGrath, The Rights of a Surety (or Secondary Obligor) Under the Restatement of the Law, Third, Suretyship and Guaranty, 122 Banking L.J. 783, ___ (2005) ("There is still considerable dispute about the distinction between a surety and a guaranty," and "[s]ometimes the words are used interchangeably" (emphases omitted)); Restatement (Third) of Suretyship & Guaranty

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