2018 IL App (1st) 172601
Ill. App. Ct.2019Background
- Plaintiff Branko Shapich sold his MPD, Inc. stock to MPD in 2013 in exchange for a $1.5M promissory Note payable in annual installments; MPD’s lender (the Bank) required a subordination agreement as a condition of financing.
- The Bank drafted and Shapich and MPD signed a First Subordination Agreement (Oct. 15, 2013) that defined "Subordinated Indebtedness" (Shapich) and "Superior Indebtedness" (Bank) broadly and generally prohibited payment on subordinated debt while superior debt remained owing.
- The First Subordination Agreement also included a clause stating that "the contractual principal and interest payments referenced on the Note are allowed." MPD made one installment payment after execution.
- In 2014 MPD refinanced with the Bank; the Bank requested Shapich sign a new subordination agreement, which he refused. The Bank, via its manager, told MPD not to make payments to Shapich; MPD stopped payments.
- Shapich sued MPD (breach of contract) and the Bank (tortious interference with a contractual relationship). The trial court granted summary judgment for Shapich against both MPD and the Bank and awarded money relief; the Bank appealed and Shapich cross-appealed on damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the First Subordination Agreement permitted MPD to make contractual principal and interest payments on the Note while Bank debt remained outstanding | Shapich: the Agreement’s clause allowing "contractual principal and interest payments" authorizes MPD’s payments under the Note; Bank’s instruction to stop payments wrongfully induced breach | Bank: the Agreement’s broad definitions plus prohibition on any payments while superior debt existed bar such payments; Bank’s conduct was privileged to protect its security interest | The Agreement is ambiguous on whether contractual payments were permitted; summary judgment for Shapich on tortious interference reversed and issue remanded for factual resolution |
| Whether the Bank’s conduct in inducing MPD to stop payments was privileged | Shapich: Bank’s instruction was unjustified interference causing breach and damages | Bank: actions were privileged as reasonably protecting its own equal/greater interests | Court: premature to decide privilege on summary judgment given contract ambiguity; denial of Bank’s cross-motion affirmed |
| Whether summary judgment against the Bank and monetary award were proper | Shapich: award against Bank appropriate and damage quantum sufficient | Bank: summary judgment and monetary award improper because no breach occurred as a matter of law | Court: reversed summary judgment and monetary award against Bank; left judgment against MPD undisturbed because MPD did not appeal |
| Whether contractual ambiguity should be resolved against the drafter (Bank) on summary judgment | Shapich: contract should be construed against drafter to resolve ambiguity in his favor | Bank: disputes that clause allows payments; argues clear prohibition | Court: cannot apply contra proferentem at summary judgment; ambiguity raises factual issues precluding summary disposition |
Key Cases Cited
- Stevens v. McGuireWoods LLP, 2015 IL 118652 (standard for cross-motions for summary judgment)
- Pielet v. Pielet, 2012 IL 112064 (cross-motions do not automatically eliminate material factual disputes)
- Morningside North Apartments I, LLC v. 1000 N. La Salle, LLC, 2017 IL App (1st) 162274 (appellate review of summary judgment de novo)
- Thompson v. Gordon, 241 Ill. 2d 428 (contract interpretation: primary objective is to effect parties’ intent)
- Central Illinois Light Co. v. Home Insurance Co., 213 Ill. 2d 141 (when a term is ambiguous)
- Quake Construction, Inc. v. American Airlines, Inc., 141 Ill. 2d 281 (ambiguity is a question of law)
- Szafranski v. Dunston, 2015 IL App (1st) 122975-B (resort to surrounding circumstances and conduct when resolving ambiguity)
- Hufford v. Balk, 113 Ill. 2d 168 (contract construed as whole; avoid rendering words meaningless)
- Strosberg v. Brauvin Realty Services, Inc., 295 Ill. App. 3d 17 (distinguishable precedent where subordinate creditor could not recover because payments were contractually barred)
- HPI Health Care Services, Inc. v. Mt. Vernon Hospital, Inc., 131 Ill. 2d 145 (privilege to protect one’s economic interests may justify interference)
- Nickel Plate Cloverleaf Federal Credit Union v. White, 120 Ill. App. 2d 91 (judgment against non-appealing party left undisturbed)