Koenig & Strey GMAC Real Estate v. Renaissant 100 South Michigan I
2016 IL App (1st) 161783
| Ill. App. Ct. | 2016Background
- First American Bank (Bank) made two loans to Renaissant totaling $22,450,000, secured by a mortgage on 1000 S. Michigan and related loan documents; several guarantors (including the Borkowski brothers) executed a guaranty limiting principal liability to $7,000,000 plus 100% of accrued/unpaid interest, late fees, enforcement costs, and extraordinary claims.
- The Notes were extended repeatedly; a $4,000,000 irrevocable letter of credit was required from the borrower as additional collateral (naming the Bank as beneficiary).
- Borrowers defaulted; the circuit court entered a Judgment Order of Foreclosure and Sale on January 26, 2009 finding amounts due and stating the LOC proceeds would be applied as of that date.
- The Bank credit‑bid at foreclosure and ultimately acquired the property; the sale confirmation and deficiency/guaranty amounts were litigated and recalculated over several years.
- The circuit court ultimately held the guarantors jointly liable for $18,421,241.04; the Borkowskis appealed, challenging (1) inclusion of post‑judgment interest in guaranty liability, (2) nonapplication of the LOC proceeds to guarantied principal, and (3) Bank’s application of its credit bid to principal before interest/expenses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether guarantors liable for post‑judgment interest that accrued after foreclosure judgment | Bank: post‑judgment interest is interest on sums due under the Notes and thus covered by guaranty’s "accrued and unpaid interest" language | Borkowskis: guaranty covers only "accrued and unpaid interest under the Notes," not statutory post‑judgment interest | Held: Guarantors are not liable for post‑judgment interest; statutory post‑judgment interest is not "interest under the Notes." |
| Whether $4M LOC proceeds should reduce guarantied principal ($7M) rather than borrower debt | Bank: LOC was posted by borrowers per loan amendment; LOC proceeds properly applied to borrower indebtedness | Borkowskis: LOC came from them and should reduce their guaranteed principal | Held: LOC issued on order of borrowers and was properly applied to borrower obligations, not to guarantied principal. |
| Whether LOC proceeds should be applied as of draw date (Apr 3, 2008) or as of foreclosure judgment (Jan 26, 2009) | Bank: Judgment fixed application date (Jan 26, 2009); that order was appealable and final as to allocation | Borkowskis: LOC should have reduced balances as of draw date | Held: Borkowskis failed to timely appeal Jan 26, 2009 order; allocation date fixed by that order and is not reviewable here. |
| Whether Bank breached implied covenant by applying its credit bid to principal before interest/expenses | Bank: Mortgage controls application order; §4.11 required payment of costs first and left remaining application to Bank’s sole discretion | Borkowskis: Guaranty silence creates ambiguity and should be construed against Bank; applying bid to principal increased guarantors’ liability | Held: Mortgage governed application order; Bank properly applied credit bid first to foreclosure costs and then (in its discretion) to principal; no breach of implied covenant. |
Key Cases Cited
- Doerr v. Schmitt, 375 Ill. 470 (1941) (debt merges into judgment; note ceases to exist upon judgment).
- Blakeslee's Storage Warehouse v. City of Chicago, 369 Ill. 480 (1938) (post‑judgment interest is statutory in origin).
- Owens v. McDermott, Will & Emery, 316 Ill. App. 3d 340 (2000) (contract interpretation principles; clear and unambiguous contracts govern).
- Mount Prospect State Bank v. Marine Midland Bank, 121 Ill. App. 3d 295 (1983) (letters of credit involve multiple contracts and are construed as written contracts).
- Molter Corp. v. Amwest Surety Insurance Co., 267 Ill. App. 3d 718 (1994) (general contract rules apply to letters of credit).
- American Nat’l Bank & Trust Co. of Chicago v. Mack, 311 Ill. App. 3d 583 (2000) (mortgage provisions govern application of foreclosure proceeds).
- Bank One, Springfield v. Roscetti, 309 Ill. App. 3d 1048 (1999) (implied covenant of good faith cannot override express contract terms).
- JP Morgan Chase Bank v. Fankhauser, 383 Ill. App. 3d 254 (2008) (Rule 304(a) appealability principles).