Bowling Greene Sports Center, Inc. v. G.A.G. LLC
77 N.E.3d 728
| Ill. App. Ct. | 2017Background
- Gold Coast Bank (senior lender) made a $3,412,750 loan to G.A.G. LLC; Bowling Green (junior lender) made a $405,000 loan; intercreditor agreement (Jan. 14, 2008) subordinated Bowling Green and required Gold Coast to obtain Bowling Green’s consent before modifying its loan.
- On April 30, 2008, Gold Coast and G.A.G. executed a modification increasing Gold Coast’s loan by $51,000 without Bowling Green’s knowledge or consent.
- Bowling Green sued the borrowers for breach of contract in 2015; Gold Coast intervened and moved to dismiss under the intercreditor agreement, arguing Bowling Green agreed not to sue until the senior debt was paid in full.
- The trial court found Gold Coast materially breached the intercreditor agreement by increasing the loan without consent but held section 11(b) preserved Gold Coast’s senior status and dismissed Bowling Green’s complaint as premature.
- On appeal, the court held the $51,000 increase was materially prejudicial to Bowling Green and stripped Gold Coast of priority only as to that $51,000; the remainder of Gold Coast’s lien remains senior.
Issues
| Issue | Plaintiff's Argument (Bowling Green) | Defendant's Argument (Gold Coast) | Held |
|---|---|---|---|
| Enforceability of intercreditor agreement after Gold Coast’s unconsented modification | Gold Coast’s breach forfeits its entire priority; Bowling Green may sue without waiting for full senior repayment | Section 11(b) preserves Gold Coast’s senior rights as to the full loan regardless of modifications | Breach was remedied by stripping priority only for the $51,000 modification; Bowling Green’s suit is premature until senior outstanding is reduced to $51,000 |
| Effect of increasing principal without junior’s consent | Increase prejudiced Bowling Green; junior should gain priority over the added amount | Modification remains effective; section 11(b) prevents loss of priority | Increase was materially prejudicial; junior gains priority as to the $51,000 increase |
| Scope of contractual clause preserving obligations despite amendments (section 11(b)) | Clause does not validate modifications that materially prejudice junior lenders | Clause makes senior’s rights ‘‘remain in full force’’ irrespective of changes | Court rejects Gold Coast’s expansive reading; cannot render section 4(d) meaningless |
| Remedy for breach of intercreditor agreement | Forfeiture of entire senior priority (Bowling Green seeks elevated status) | Maintain senior priority in full despite breach | Remedy limited to rearranging priorities only to the extent of the prejudicial modification ($51,000), not entire loan |
Key Cases Cited
- Burney v. McLaughlin, 63 S.W.3d 223 (Mo. Ct. App.) (senior lender’s unconsented modification can be ineffective as to junior and may cost senior priority to extent of prejudice)
- Shultis v. Woodstock Land Dev. Assocs., 594 N.Y.S.2d 890 (N.Y. App. Div.) (junior’s consent required for modifications that impair junior’s rights)
- Shane v. Winter Hill Fed. Sav. & Loan Ass’n, 492 N.E.2d 92 (Mass.) (modification prejudicial to junior can alter priority)
- Gluskin v. Atlantic Sav. & Loan Ass’n, 108 Cal. Rptr. 318 (Cal. App.) (substantial and varied modifications can substantially impair junior’s security)
- Thompson v. Gordon, 241 Ill.2d 428 (Ill. 2011) (contracts should not be interpreted to render provisions meaningless)