Bowling Greene Sports Center, Inc. v. G.A.G. LLC
2017 IL App (2d) 160656
| Ill. App. Ct. | 2017Background
- Bowling Green (junior lender) loaned $405,000 to G.A.G. LLC; Gold Coast Bank (senior lender) loaned $3,412,750; both loans personally guaranteed by James and Peter Gochis.
- Gold Coast and Bowling Green entered an intercreditor agreement providing Bowling Green would not sue until Gold Coast’s senior indebtedness was paid in full and requiring Gold Coast to obtain Bowling Green’s consent before modifying its loan.
- Gold Coast increased its loan by $51,000 via a modification agreement without Bowling Green’s knowledge or consent.
- Bowling Green sued the defendants for breach of contract after the defendants failed to repay Bowling Green. Gold Coast intervened and moved to dismiss under section 2-619, invoking the intercreditor agreement to bar Bowling Green’s suit.
- Trial court found Gold Coast had materially breached the agreement but held section 11(b) preserved Gold Coast’s entire senior priority and dismissed Bowling Green’s complaint as premature. Bowling Green appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Gold Coast’s unauthorized $51,000 loan modification voided the intercreditor agreement or forfeited Gold Coast’s entire priority | Bowling Green: Gold Coast’s breach renders the intercreditor agreement unenforceable; Gold Coast forfeits priority so Bowling Green may sue now | Gold Coast: Section 11(b) preserves senior lender’s rights regardless of modifications; Bowling Green must wait until Gold Coast debt is paid in full | Modification that materially prejudices junior lender defeats senior priority only as to the modification amount; Gold Coast loses priority for $51,000 but retains priority for the original loan balance |
| Proper remedy for senior lender’s breach of consent clause | Bowling Green: seeks elevation to full priority (forfeit senior’s lien) | Gold Coast: denial — full preservation of priority per §11(b) | Court applies authority and Restatement: deny priority only to the materially prejudicial increase ($51,000); full subordination of entire senior lien is unwarranted absent substantial impairment |
| Whether Bowling Green preserved arguments against §11(b) | Bowling Green: preserved challenge when opposing intervention and in reconsideration | Gold Coast: contends Bowling Green failed to timely raise applicability challenge | Court: Bowling Green sufficiently preserved the challenge |
| When Bowling Green may proceed with its complaint | Bowling Green: may proceed immediately given breach | Gold Coast: suit premature until Gold Coast loan paid in full | Court modifies dismissal: Bowling Green’s suit is premature only until Gold Coast’s outstanding principal is reduced to $51,000; at that point Gold Coast may not collect remaining amount until Bowling Green is paid in full |
Key Cases Cited
- Burney v. McLaughlin, 63 S.W.3d 223 (Mo. Ct. App. 2001) (senior lender’s unauthorized modification ineffective as to junior lender; junior gains priority to extent of prejudicial modification)
- Shultis v. Woodstock Land Dev. Assocs., 594 N.Y.S.2d 890 (N.Y. App. Div. 1993) (junior consent required when modification prejudices junior’s rights)
- Shane v. Winter Hill Fed. Sav. & Loan Ass’n, 492 N.E.2d 92 (Mass. 1986) (senior lender’s modifications that impair junior’s security require junior’s consent)
- Gluskin v. Atlantic Sav. & Loan Ass’n, 108 Cal. Rptr. 318 (Cal. Ct. App. 1973) (substantial loan modifications can wholly divest senior’s priority)