                                       2015 IL App (1st) 141689
                                             No. 1-14-1689
                                       Opinion filed May 27, 2015
                                                                                        Third Division


                                                 IN THE

                                  APPELLATE COURT OF ILLINOIS

                                            FIRST DISTRICT


                                                          )
     THE PRIVATE BANK AND TRUST
                                                          )      Appeal from the Circuit Court
     COMPANY,
                                                          )      of Cook County.
                                                          )
            Plaintiff-Appellee,
                                                          )
                                                          )      No. 12 L 9313
     v.
                                                          )
                                                          )
     EMS INVESTORS, LLC, HERBERT P.
                                                          )      The Honorable
     EMMERMAN, and EQUITY MARKETING
                                                          )      Raymond Mitchell,
     SERVICES, INC.,
                                                          )      Judge, presiding.
                                                          )
            Defendant-Appellants.
                                                          )


            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
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     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.



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     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" 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,



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                 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.




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¶ 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. 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.



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¶ 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.




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¶ 16                              Release of a Joint and Several Co-Obligor

¶ 17          Defendants' primarily argues 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 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



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       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:



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                     " '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

                     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. at 408.

¶ 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


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       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




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       contained no reservation of rights clause, the agreement contains no evidence that Private Bank

       intended to reserve its rights against Emmerman and Investors.

¶ 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 the 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




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       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 is 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




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       defendants' co-obligor, Cheryl Bancroft. Therefore, the trial court did not err in granting 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 relied, in part, on El Funding Partnership v. Voegel, 2012 IL App (1st)

       113712-U. In El Funding, the appellate court mentioned the trial court's reliance there on section

       294 of the Restatement (Second) of Contracts but found it irrelevant, because Illinois courts

       modified the common law rule to find that intent is the determining factor in whether the release

       of a co-obligor is releases the remaining obligors. Even though, as noted above, the trial court

       improperly relied on El Funding under Supreme Court Rule 23 (eff. July 1, 2011), its reference

       does not amount to evidence that the trial court relied on the Restatement (Second) of Contracts

       in reaching its decision.

¶ 33                                           CONCLUSION

¶ 34          The trial court did no err in granting plaintiff's motion for summary judgment or entering

       judgment in plaintiff's favor.

¶ 35          Affirmed.




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