Illinois Official Reports
Appellate Court
Private Bank & Trust Co. v. EMS Investors, LLC, 2015 IL App (1st) 141689
Appellate Court THE PRIVATE BANK AND TRUST COMPANY,
Caption Plaintiff-Appellee, v. EMS INVESTORS, LLC, HERBERT P.
EMMERMAN, and EQUITY MARKETING SERVICES, INC.,
Defendants-Appellants.
District & No. First District, Third Division
Docket No. 1-14-1689
Filed May 27, 2015
Decision Under Appeal from the Circuit Court of Cook County, No. 12-L-9313; the
Review Hon. Raymond Mitchell, Judge, presiding.
Judgment Affirmed.
Counsel on William T. Dwyer, Jr., of O’Rourke, Hogan, Fowler & Dwyer, of
Appeal Chicago, for appellants.
Jason M. Metnick and Monica J. Paine, both of Meltzer, Purtill &
Stelle, LLC, of Chicago, for appellee.
Panel JUSTICE HYMAN delivered the judgment of the court, with opinion.
Presiding Justice Pucinski and Justice Lavin concurred in the
judgment and opinion.
OPINION
¶1 In the absence of a reservation of rights, co-borrowers contend that a lender’s release and
discharge of a third co-borrower regarding mortgages secured by property of the third
co-borrower and others released and discharged them as well.
¶2 Herbert P. Emmerman and Cheryl Bancroft formed EMS Investors, LLC (Investors), to
convert an apartment building in downtown Chicago into condominiums. To finance the
project, Emmerman, Bancroft, and Investors borrowed $1.62 million from The Private Bank
and Trust Company (Private Bank). Equity Marketing Services, Inc. (EMS), another entity
Bancroft and Emmerman owned, guaranteed the loan. Bancroft and her husband also had
several mortgages with Private Bank on property they owned individually, together and
through Bancroft Group LP (BGLP). When the housing bubble collapsed in late 2008,
Bancroft, Emmerman, and Investors slid into financial difficulties. Sales of condominium
units stalled, making repayment of the $1.62 million loan difficult. Before the note became
due, Bancroft filed for chapter 11 bankruptcy (11 U.S.C. § 101 et seq. (2006)), and she and
her husband entered into a settlement agreement with Private Bank. The settlement
agreement, which only mentioned the Bancrofts’ personal real estate and not the $1.62
million loan, released and discharged them “from any and all claims, demands, actions,
causes of action, suits, costs, damages, expenses and liabilities of every kind, character and
description, either direct or consequential, at law or in equity.” Emmerman was not a party to
the release or aware of it at that time.
¶3 When the note matured, Emmerman asked for an extension or modification. Private Bank
refused and filed a breach of contract action against Emmerman and Investors on the loan
and EMS on its guaranty. The parties filed cross-motions for summary judgment. Emmerman
and Investors contended that Private Bank’s release of Bancroft also released them from
liability as co-obligors under the note. The trial court disagreed, granting Private Bank’s
motion for summary judgment and denying defendants’ motion. The court also entered
judgment in Private Bank’s favor for the amount owed on the loan, interest, and attorney
fees.
¶4 Emmerman and Investors argue the trial court erred in finding that the Private Bank’s
settlement agreement with Bancroft did not release all of them from liability on the note in
the absence of a reservation of rights. We affirm. The language of the release between the
Bancrofts and Private Bank and the circumstances under which it arose present enough
evidence to demonstrate that Private Bank did not intend to release defendants from liability
on the note. Thus, the trial court did not err in granting Private Bank’s motion for summary
judgment and entering judgment in the bank’s favor.
¶5 BACKGROUND
¶6 The facts are not in dispute. EMS Investors, LLC, is an Illinois limited liability company,
with two members, Herbert C. Emmerman and Cheryl Bancroft. On January 29, 2008,
Private Bank loaned $1.62 million to Investors, Emmerman and Bancroft, which was
documented by a promissory note and a first amended promissory note. Emmerman and
Bancroft were co-makers on the promissory note and agreed to be “jointly and severally”
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liable under it. Defendant Equity Marketing Services, Inc., guaranteed repayment of the loan.
Defendants defaulted under the terms of the note and amended note by failing to make
payment due on the maturity date, January 1, 2012. EMS also defaulted by failing to make
payments after defendants defaulted.
¶7 On November 22, 2011, a few months before the note became due, Private Bank entered
into a settlement agreement with Cheryl Bancroft, Stephen Bancroft, and BGLP. The
settlement agreement noted that Private Bank had mortgages on several residential properties
owned together and separately by Cheryl and Stephen, and that “disputes exist among the
Parties with respect to various claims and issues relating to” the residential real estate, and
they want to “settle any and all claims and disputes by, among and against each other under
this Agreement.” The agreement also noted that Cheryl filed for bankruptcy under chapter 11
on January 14, 2011, and that the bank had begun legal action against Stephen on property he
owned separately and with BGLP. The settlement agreement then stated, in relevant part:
“10) Release of Cheryl, Stephen and BGLP. Except as expressly set forth in this
Agreement, the Bank, and each of its respective successors, affiliates, assigns,
shareholders/members, directors, officers, agents, servants, employees, heirs,
executors, administrators and assigns, does hereby forever release and discharge
Cheryl, Stephen, and BGLP, and their respective parents, successors, affiliates,
assigns, directors, officers, agents, servants, and employees from any and all claims,
demands, actions, causes of action, suits, costs, damages, expenses and liabilities of
every kind, character and description, either direct or consequential, at law or in
equity, which they may now, may have had at any time heretofore, or in any manner
whatsoever, provided, however, that such released claims shall not include any claims
asserted by any Party arising solely out of any obligation specifically set forth in this
Agreement.
***
26) Parties in Interest. Nothing herein shall be construed to be to the benefit of
any third party, nor is it intended that any provision shall be [for] the benefit of any
third party.”
¶8 The settlement agreement does not specifically mention the note or the amended note
with Emmerman or Investors and does not mention Emmerman or Investors by name.
¶9 On August 16, 2012, Private Bank filed a two-count complaint in the circuit court of
Cook County alleging breach of contract claim against Emmerman and Investors, as obligors
of the loan (count I), and against EMS, as guarantor of the loan (count II). Defendants filed
an answer admitting the note was in default and raising as an affirmative defense that Private
Bank’s unconditional release of Bancroft’s liability under the note, without a reservation of
rights, also released Emmerman and Investors from liability under the note and EMS from
liability under the guaranty.
¶ 10 Private Bank moved to strike EMS’s affirmative defense as to its liability on the
guaranty, which the trial court granted, with prejudice. Private Bank then moved for
summary judgment. Defendants filed a combined motion for summary judgment and a
response to Private Bank’s motion for summary judgment. Among the exhibits attached to
Private Bank’s motion was an affidavit from Kimberly Kourelis, a Private Bank managing
director, stating that the bank’s settlement agreement with Bancroft was unrelated to the note,
amended note, and guaranty and was not intended to apply to Emmerman, Investors, or EMS.
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Private Bank also attached deposition testimony from Emmerman stating that at the time the
settlement agreement was executed, he had no knowledge of it and had not been asked to
review it at any time. Emmerman also stated that after the loan matured in January 2012, he
spoke with Alan Fine, another Private Bank managing director, about how Emmerman was
going to repay the loan. Emmerman stated, “I was looking for a modification of the loan.
None of that was forthcoming. They were interested in me paying or else.”
¶ 11 On May 1, 2014, the trial court granted Private Bank’s motion for summary judgment
and denied defendants’ motion. The court also entered judgment in Private Bank’s favor in
the amount of $1,704,718.79, which included the principal due on the loan, plus interest,
attorney fees, and costs. The court found that defendants’ liability under the note was joint
and several, and thus, “a plaintiff is entitled to pursue distinct remedies upon the same
instrument, treating it as a joint contract and as a several contract, until satisfaction is fully
obtained. [Citation.]” Further, citing Diamond Headache Clinic, Ltd. v. Loeber, 172 Ill. App.
3d 364, 369 (1988), the trial court stated that joint and several liability permits the plaintiff to
sue until payment in full from one or more of the defendants, with the limitation that the
plaintiff may not collect more than what is owed by the defendants jointly. This prevents
multiple recoveries for a single injury.
¶ 12 Addressing the settlement agreement, the court stated, “an obligor is not released when it
is apparent from the circumstances that the settling parties did not intend the release of one to
act as a release of all.” The court found that the evidence, including Kourelis’s affidavit,
Emmerman’s deposition testimony, and a third-party beneficiary clause in the release
(“[n]othing herein shall be construed to be to the benefit of any third party”) demonstrates
that Private Bank always intended to enforce its rights against defendants.
¶ 13 ANALYSIS
¶ 14 Defendants’ primary contention is that the trial court erred in entering summary judgment
and a monetary judgment in Private Bank’s favor, because the release of one joint and
several co-obligor releases all other joint and several co-obligors absent a reservation of
rights. Defendants also contend the trial court erred by: (i) referring to Bancroft as a
guarantor rather than as a co-obligor and (ii) relying on section 294 of the Restatement
(Second) of Contracts (Restatement (Second) of Contracts § 294 (1981)), which has not been
enacted in Illinois. Defendants ask us to reverse the summary judgment in plaintiff’s favor
and enter summary judgment in their favor and vacate the monetary judgment.
¶ 15 Summary judgment is proper where the pleadings, depositions, admissions and affidavits
on file, when viewed in the light most favorable to the nonmoving party, reveal no genuine
issue of material fact and the moving party is entitled to judgment as a matter of law. 735
ILCS 5/2-1005(c) (West 2012); Home Insurance Co. v. Cincinnati Insurance Co., 213 Ill. 2d
307, 315 (2004). We review the entry of summary judgment de novo and may affirm on any
ground appearing in the record. Id.
¶ 16 Release of a Joint and Several Co-Obligor
¶ 17 Defendants primarily argue that the trial court erred in finding that Private Bank’s release
of Cheryl Bancroft did not release defendants from liability on the note. But we first address
defendants’ contention that the trial court erred when, in its order, it referred to Cheryl
Bancroft, who is not a party, as a guarantor rather than as a co-obligor on the note. We agree
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the trial court erred when it stated that “Cheryl Bancroft also guaranteed the obligations
brought about by the loan documents” and “Private Bank *** released Cheryl Bancroft from
any obligations she had arising under the guaranty.” But the court then proceeded to whether
Private Bank’s release of Bancroft also released defendants, who were jointly and severally
liable under the note or whether they were not released because the circumstances indicated
that Private Bank did not intend for their release of Bancroft to also release defendants. Thus,
because in making its decision the trial court addressed whether joint and several co-obligors
on a note are released after release of one of a co-obligor, any error in describing Bancroft as
a guarantor rather than a co-obligor did not affect the outcome and was harmless.
¶ 18 Turning to the liabilities of joint and several co-obligors on a loan, under Illinois law, a
joint and several contract has been deemed “equivalent to independent contracts, founded
upon one consideration, for performance severally, and also for performance jointly, and
distinct remedies upon the same instrument, treating it as a joint contract and as a several
contract, may be pursued until satisfaction is fully obtained.” Moore v. Rogers, 19 Ill. 347,
348 (1857); see also People v. Harrison, 82 Ill. 84, 86 (1876) (“Contracts which are joint and
several may be regarded as furnishing two distinct remedies: one by a joint action against all
the obligors, the other by a several action against each.”); 735 ILCS 5/2-410 (West 2012)
(“All parties to a joint obligation, including a partnership obligation, may be sued jointly, or
separate actions may be brought against one or more of them. A judgment against fewer than
all the parties to a joint or partnership obligation does not bar an action against those not
included in the judgment or not sued. Nothing herein permits more than one satisfaction.”).
Each of the obligors “may be liable for the entire damages resulting from the failure to
perform.” Brokerage Resources, Inc. v. Jordan, 80 Ill. App. 3d 605, 608 (1980).
¶ 19 Despite the general rule holding joint and several co-obligors separately liable, a release
of one co-obligor may also release the other co-obligor. Under Illinois common law, the full
release of one co-obligor released all “even if the release contained an express reservation of
rights against the others.” Porter v. Ford Motor Co., 96 Ill. 2d 190, 193 (1983). As observed
by the supreme court in Porter, it “rejected the strict common law rule ‘in favor of the more
reasonable rule, that where the release of one of several obligors shows upon its face, and in
connection with the surrounding circumstances, that it was the intention of the parties not to
release the co-obligors,’ ” the agreement shall be construed as a covenant not to sue, rather
than a release. (Emphasis omitted.) Id. at 194-95 (quoting Parmelee v. Lawrence, 44 Ill. 405,
413-14 (1867)). In other words, the entry of one co-obligor into an unconditional release will
release all co-obligors except when a contrary intent appears from the face of the document
with the release. Id.; see also Cherney v. Soldinger, 299 Ill. App. 3d 1066, 1070 (1998).
¶ 20 In Parmelee four partners, Bigelow, Parmelee, Gage, and Johnson, borrowed $50,000
from Lawrence and conveyed real estate to Lawrence as security. The partners agreed to
repay the loan in five annual installments with 10% interest, after which Lawrence agreed to
reconvey the property to the partners. Parmelee, 44 Ill. at 406-07. After they stopped
repaying the loan, the partners argued that a release executed in favor of one of the partners,
Bigelow, served to release them all. Id. at 408. The release read, in relevant part:
“ ‘I release and discharge *** Bigelow, his property and estate, from all claims on
account of the same.
If the property mentioned in the above articles has to be sold under any order of
the court at Chicago, the interest of said Bigelow in it is to be protected according to
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this settlement. Nothing herein shall in anywise affect my rights or demand against
said Parmelee, Gage or Johnson, or their interest in said property.’ ” Id.
¶ 21 In examining the effect of the release on the liability of Bigelow’s partners, the Illinois
Supreme Court held that a “release, like every other written instrument, must be so construed
as to carry out the intention of the parties. This intention is to be sought in the language of the
instrument itself when read in light of the circumstance which surrounded the transaction.”
Id. at 410. The court further stated that “where the release of one of several obligors shows
upon its face, and in connection with the surrounding circumstances, that it was the intention
of the parties not to release the [co-obligors], such intention, as in the case of other written
contracts, shall be carried out, and to that end the instrument shall be construed as a covenant
not to sue.” Id. at 414.
¶ 22 Accordingly, a court must assess whether the parties intended the agreement to serve as
an “absolute and unconditional” release of the co-obligor executing the agreement. Id. The
purpose of this doctrine is to prevent a claimant from receiving multiple recoveries for a
single claim (Diamond Headache Clinic, 172 Ill. App. 3d at 369), and not to release a
co-obligor when a claim has been only partially settled if the claimant’s intent is not to
release the other obligor but to hold him or her responsible for the balance (id.).
¶ 23 In ruling in Lawrence’s favor, the Parmelee court had “no hesitation or doubt” finding
that Lawrence executed the release “for the purpose of saving Bigelow from further legal
liability so far, and only so far, as this could be done without affecting [his claim] against the
[co-obligors].” Parmelee, 44 Ill. at 411. The court noted the release contained an express
reservation of rights and that Lawrence had refused to sign other releases Bigelow presented
to him lacking a reservation of rights out of concern that it might jeopardize his rights against
the co-obligors. Id.
¶ 24 To determine Private Bank’s intent in releasing Bancroft from liability, we examine the
language of the release and the circumstances leading to its execution. In finding that Private
Bank’s release of Bancroft did not release defendants from liability under the note, the trial
court cited the affidavit of Kimberly Kourelis of Private Bank, the deposition testimony of
Herbert Emmerman, and the third-party beneficiary language of the settlement agreement
(“Nothing herein shall be construed to be to the benefit of any third party, nor is it intended
that any provision shall be [for] the benefit of any third party.”).
¶ 25 Addressing the last item first, defendants assert that the trial court erred in relying on the
third-party beneficiary language in paragraph 26 of the settlement agreement as evidence that
Private Bank reserved its rights against Emmerman and Investors. Defendants note that in
Holland v. United States, 621 F.3d 1366 (Fed. Cir. 2010), a case from the Federal Circuit
Court of Appeals interpreting Illinois law, the court stated that “the general ‘Third Party
Beneficiaries’ clause in the Settlement Agreement is not sufficient to show that the parties
intended the release to be less than an absolute release of the FDIC as a manager of the FRF
and thus, under Illinois law, fails to establish that the agreement should be construed as
merely a covenant not to sue the FDIC as manager of the FRF.” Id. at 1381. Defendants
contend that because the third-party beneficiary clause is not sufficient to reserve rights
against them and the settlement agreement contained no reservation of rights clause, the
agreement contains no evidence that Private Bank intended to reserve its rights against
Emmerman and Investors.
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¶ 26 State courts are not bound to follow decisions of the federal district courts or circuit
courts of appeal. Hinterlong v. Baldwin, 308 Ill. App. 3d 441, 452 (1999) (except for the
United States Supreme Court, federal courts exercise no appellate jurisdiction over state
courts and their opinions are not binding on state courts). Federal decisions may, however, be
considered persuasive authority. Wilson v. County of Cook, 2012 IL 112026, ¶ 30. In the
absence of Illinois precedent on whether a general third-party beneficiary clause shows an
intent to reserve rights against other co-obligors, we may be inclined to follow Holland and
find that the third-party beneficiary clause in the release failed to expressly reserve Private
Bank’s rights against defendants. But we need not address that issue, because even absent
that clause, the remainder of the settlement agreement, the circumstances surrounding its
execution, and the stated intent and understanding of both Private Bank and Emmerman as to
the effect of the release establish that Private Bank did not intend to release Emmerman or
Investors from liability under the note.
¶ 27 We start with the fact that the release refers to mortgages on several parcels of residential
real estate Cheryl Bancroft and her husband own individually, together, and through BGLP.
Private Bank and the Bancrofts entered into the settlement 10 months after Cheryl Bancroft
filed for chapter 11 bankruptcy and while Private Bank had pending litigation against
Stephen Bancroft and BGLP involving property referred to in the release. The note, the
amended note, or the co-obligors here are not mentioned at all. In her affidavit, Kourelis
states that the settlement agreement was unrelated to the note, the amended note, or the
obligations of Emmerman, Investors, and EMS and was not intended to apply to them.
Emmerman’s deposition testimony likewise indicates he did not think that in releasing
Bancroft, Private Bank also intended to release him or Investors from their obligations under
the note.
¶ 28 Emmerman testified that he was unaware of the release just before and after it was
signed, that when the note became due in January 2012, three months after the release was
executed, he spoke with Alan Fine from Private Bank about a modification but none was
forthcoming and that he knew that the bank was “interested in me paying or else.” Private
Bank’s actions in attempting to obtain payment from Emmerman and Investors, as the only
remaining liable co-obligors, show it intended to continue to hold them liable despite the
release of Bancroft.
¶ 29 Further, we reject defendants’ contention that the mere absence of a reservation of rights
clause in the note and amended note means that Private Bank did not intend to reserve its
rights against defendants. Specifically, defendants assert that because all other notes and loan
modifications they or Bancroft executed included a reservation of rights clause and because
Private Bank almost always included that provision in their notes and loan agreements, the
absence of that clause in this note and amended note is evidence that Private Bank did not
intend to preserve its rights against co-obligors. As noted, Illinois case law holds that it is the
intent of the parties to the release and the language of the release that controls its scope and
effect. Defendants offer no cases to support their argument that the language of the note
alone controls whether a later release of one co-obligor also releases the other co-obligors.
¶ 30 Thus, even in the absence of an express reservation of rights in the release, the
circumstances, which we must consider, show that Private Bank did not intend to release
defendants from their liability under the note when they entered into a settlement agreement
with defendants’ co-obligor, Cheryl Bancroft. Therefore, the trial court did not err in granting
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Private Bank’s motion for summary judgment and entering a judgment in the bank’s favor.
¶ 31 Section 294 of Restatement of Contracts
¶ 32 Defendants contend the trial court erred in relying on section 294 of the Restatement
(Second) of Contracts (Restatement (Second) of Contracts § 294 (1981)), because it has not
been enacted as law in Illinois. Nothing in the record or the order granting summary
judgment shows that the trial court relied on the Restatement in reaching its decision.
Defendants note that in its order, the trial court cited El Funding Partnership v. Voegel, 2012
IL App (1st) 113712-U. In El Funding, the appellate court found that the trial court’s reliance
on section 294 of the Restatement (Second) of Contracts was irrelevant, because Illinois
courts have modified the common law rule to find that intent is the determining factor in
whether the release of a co-obligor releases the remaining obligors. El Funding, 2012 IL App
(1st) 113712-U, ¶ 27. This does not amount to evidence that the trial court improperly relied
on the Restatement (Second) of Contracts in reaching its decision.
¶ 33 CONCLUSION
¶ 34 The trial court did not err in granting plaintiff’s motion for summary judgment or
entering judgment in plaintiff’s favor.
¶ 35 Affirmed.
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