Hundsman v. State Farm Bank, F.S.B.

NOTICE 2023 IL App (4th) 220600-UThis Order was filed under
FILED
Supreme Court Rule 23 and is NO. 4-22-0600 April 25, 2023
Carla Bender
not precedent except in the
IN THE APPELLATE COURT 4th District Appellate
limited circumstances allowed
Court, IL
under Rule 23(e)(1).
OF ILLINOIS
FOURTH DISTRICT
LAURENCE F. HUNDMAN, ) Appeal from the
Plaintiff-Appellant, ) Circuit Court of
v. ) McLean County
STATE FARM BANK, F.S.B., and STATE FARM ) No. 21L107
MUTUAL AUTOMOBILE INSURANCE COMPANY, )
Defendants-Appellees. ) Honorable
) Rebecca S. Foley,
) Judge Presiding.
JUSTICE STEIGMANN delivered the judgment of the court.
Justices Turner and Doherty concurred in the judgment.
ORDER
¶1 Held: The appellate court affirmed the trial court’s dismissal with prejudice of
plaintiff’s complaint for failure to state a claim for breach of contract.
¶2 In August 2021, plaintiff, Laurence F. Hundman, filed a complaint for breach of
contract against defendants, State Farm Bank, F.S.B., and State Farm Mutual Automobile
Insurance Company (collectively, State Farm), alleging State Farm failed to obtain Hundman’s
consent to modifications of various loan documents, which resulted in Hundman’s losing
property he mortgaged to secure those loans.
¶3 In October 2021, State Farm filed a motion to dismiss the complaint, arguing that
Hundman did not have any contractual rights he could enforce against State Farm. In March
2022, the trial court granted State Farm’s motion and dismissed the complaint with prejudice.
¶4 In April 2022, Hundman filed a motion to reconsider and included in that motion
a request to file an amended complaint. In the proposed amended complaint, which was attached
to the motion to reconsider, Hundman added significant detail to the allegations, explaining the
breach and surrounding circumstances. In June 2022, the trial court denied the motion to
reconsider and did not grant leave to amend.
¶5 Hundman appeals, arguing the trial court erred by (1) dismissing his complaint for
failure to state a claim and (2) denying him leave to file an amended complaint. We disagree and
affirm.
¶6 I. BACKGROUND
¶7 This case involves a series of commercial loans and the security provided for
those loans. We note that the case is complicated by the multitude of actors and companies
involved in the loans and their repayment. We attempt to simplify the information as much as
possible for ease of understanding.
¶8 A. The Complaint
¶9 In August 2021, Hundman filed a single-count complaint against State Farm
alleging breach of contract. Specifically, Hundman alleged that State Farm breached the terms of
a “pre-negotiation agreement” pertaining to various loans entered into between State Farm and
Hundman’s former company. We note that the following material, including the quoted material,
comes from allegations in the complaint.
¶ 10 1. The Loan Agreements
¶ 11 In March 2008, Hundman was the manager of CIP, LLC (CIP), a limited liability
company engaged in real estate development in Bloomington, Illinois. CIP was owned by
Hundman, Richard Owen, David Stark, and several others. Prior to 2008, the owners of CIP had
executed unlimited commercial guaranties in favor of State Farm to guarantee payment of any
and all loans between State Farm and CIP.
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¶ 12 In March 2008, State Farm entered into multiple loan agreements with CIP. Those
loans were secured by mortgages on various tracts of real property, some owned by CIP, and
others owned by the managers or owners of CIP. Relevant here, in March 2008, CIP executed a
promissory note in favor of State Farm in the amount of $1.15 million (hereinafter referred to as
the Loan). As part of the security for that Loan, CIP mortgaged certain real estate located on
Ekstam Drive in Bloomington (the Ekstam mortgage), and Hundman mortgaged certain real
estate he owned individually located on Westport Court, Bloomington (the Westport mortgage).
We note that other property was mortgaged to secure the Loan and the Ekstam properties were
earlier mortgaged to secure a separate loan with State Farm. The note had a maturity date of
March 2010.
¶ 13 In the years following the March 2008 loans, “the close business relationship
between [Hundman] and a number of the other [CIP owners], including Mr. Stark, deteriorated.”
The complaint alleged that Stark informed others that Stark “intended to pursue[ ] litigation
against Mr. Hundman and his family for the rest of Mr. Hundman’s life.” On March 1, 2010,
Hundman entered into a settlement agreement with CIP and its owners “in an effort to sever his
ties with Mr. Stark.” In exchange for a release of any future obligations to provide capital to CIP,
Hundman “transferred his interest in CIP, and in numerous other entities worth millions of
dollars, to various of the [CIP owners].”
¶ 14 2. The Pre-Negotiation Agreement
¶ 15 In March, June, and September 2010, CIP and State Farm entered into extension
agreements, extending the maturity date of the Loan, which CIP was unable to pay, to November
1, 2010. The complaint then alleged that later in September 2010, after the last extension
agreement, “CIP assigned the Ekstam Properties *** to Nokestraw, LLC (‘Nokestraw’), an
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Illinois limited liability company of which Mr. Stark and Mr. Owen (two of the [CIP owners]
and Guarantors) were the principal owners.” Pursuant to the assignment, Nokestraw assumed
CIP’s liabilities for the loans to State Farm that were secured by the Ekstam mortgages. The
complaint alleged that this assignment violated the terms of the Loan and “generated animosity
with the officers at [State Farm] overseeing that loan.”
¶ 16 In January 2011, CIP requested State Farm to enter into negotiations “exclusively
with Mr. Stark and Mr. Owen, and their attorneys, *** to explore a resolution of CIP’s (and
Nokestraw’s) liability to [State Farm].” The complaint alleged that the negotiations were sought
because (1) CIP faced a multimillion-dollar liability to State Farm under the defaulted Loan,
(2) CIP’s members, other than Hundman, faced enormous capital calls to satisfy the Loan, and
(3) Nokestraw also faced a multimillion-dollar liability to State Farm.
¶ 17 State Farm “preliminarily agreed to CIP’s request, provided that, because such an
agreement ([what would become the ‘Pre-Negotiation Agreement’ or PNA]) would jeopardize
the enforceability of the Guaranties and the Accommodation Mortgages,” the guarantors and
grantors were included as parties to the PNA. “In consideration for the Guarantors and Grantors,
including Mr. Hundman, consenting to the [PNA], [State Farm] agreed that the [PNA] would
prohibit [State Farm] *** from entering into any resolution of the *** Loan without the written
approval of the Guarantors and Accommodation Mortgag[ors].” (Emphasis in original.)
Hundman “agreed to become a party to the [PNA] because of the effective veto power [State
Farm] was offering him under the agreement.”
¶ 18 In January 2011, State Farm, CIP, Hundman, and the other guarantors executed
the PNA. Hundman attached a copy of the PNA to his complaint, the relevant provisions of
which provided as follows:
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“This Pre-Negotiation Agreement (the ‘Agreement’) is entered into as of
the 24th day of January, 2011 by and between State Farm Bank, F.S.B. (‘State
Farm’) and CIP, LLC (individually, the ‘Borrower’ and collectively with State
Farm, the ‘Parties’”).
***
[8](q) Approval of Parties. The consummation of any modifications,
waivers, amendments or other agreements that State Farm may, in its sole and
absolute discretion, choose to enter into, if any, in connection with the Loan will
be expressly conditioned on State Farm’s receipt of evidence, in form and
substance satisfactory to it, of the specific authority of all applicable parties to
enter into such agreements, including without limitation, the Borrower [(CIP)]
and its constituent entities and any guarantors of the Loan.
***
[8](s) Execution by Guarantors and Grantors. The Borrower shall cause all
guarantors of the obligations of the Borrower under the Loan Documents and the
Grantors under [the] two Mortgages to execute this Agreement to evidence their
consent to and acknowledgement of the terms hereof. State Farm shall require all
such guarantors and Grantors to execute any and all agreements requested by
State Farm to (i) evidence their consent to the terms of any definitive agreement
between the Parties arising from or in connection with this Agreement relating to
the Loan or the Loan Documents; and (ii) affirm the continuing effectiveness of
their guaranties or mortgages, as applicable, following the entry by the Parties
into any such agreement.”
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¶ 19 In March 2011, consistent with the PNA, State Farm, CIP, Hundman, and the
other guarantors approved in writing another extension agreement, extending the maturity date of
the Loan to December 31, 2011.
¶ 20 3. The Loan Resolution Agreement and Breach
¶ 21 The complaint alleged that in October 2011, CIP and State Farm negotiated a loan
resolution (hereinafter Loan Resolution) that would address CIP’s defaults under the Loan.
According to the complaint, the Loan Resolution provided that (1) a third party would purchase
the Ekstam properties; (2) the proceeds of the sale would be used first to pay in full a separate
loan from State Farm to CIP; (3) the remaining proceeds would be applied to the Loan, leaving a
balance due from CIP to State Farm of approximately $367,000; and (4) “HOS II, LLC, an
Illinois limited liability company in which Mr. Stark and Mr. Owen possessed majority
ownership interests[,] would pay” the remaining balance to State Farm. The Loan Resolution
further provided that, once these funds had been paid, State Farm would (1) release the Ekstam
mortgages, (2) assign the Loan and its accompanying mortgages to HOS II, and (3) agree to
assign the commercial guaranties to HOS II at a later date, when CIP paid off yet another loan to
State Farm.
¶ 22 The complaint alleged that State Farm never sought or obtained Hundman’s
authority, consent, or approval of the Loan Resolution. It further alleged that State Farm knew
that the only purpose of the Loan Resolution’s assignments to HOS II was to enable Stark to
collect the remaining balance from Hundman by foreclosing on the Westport mortgage.
¶ 23 In 2013, HOS II foreclosed on the Westport mortgage. Hundman litigated the case
until May 2021, spending hundreds of thousands of dollars in legal fees. Hundman eventually
settled with HOS II by surrendering all rents and sale proceeds of the mortgage property. The
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complaint alleged that had State Farm complied with the terms of the PNA, Hundman “would
not have agreed to the Loan Resolution—specifically, to the assignment of the Westport
Mortgage—and [State Farm] would have collected” the remaining balance from CIP, Nokestraw,
or one or more of the guarantors.
¶ 24 B. State Farm’s Motion To Dismiss
¶ 25 In October 2021, State Farm filed a motion to dismiss pursuant to section 2-619.1
of the Code of Civil Procedure (735 ILCS 5/2-619.1 (West 2020)), in which it alleged that the
complaint should be dismissed with prejudice because (1) State Farm had a preexisting
contractual right to assign the Westport mortgage, which right was preserved in the PNA; (2) the
PNA did not require State Farm to obtain Hundman’s written consent prior to assigning the
Westport mortgage; and (3) “the [n]egotiations did not result in the modification waiver or
amendment of the Westport mortgage or other loan documents.”
¶ 26 State Farm relied on sections 2 and 4 of the PNA, which provided as follows:
“2. Negotiations. At the request of the Borrower, the Parties will soon
enter into discussions and negotiations about the Loan and the Loan documents
(the ‘Negotiations’). Without liability for failing to do so, the Parties presently
plan to discuss various courses of action which may be taken in connection with
the Loan. Either party, in its sole and absolute discretion, may terminate the
Negotiations at any time and for any reason. It is understood that the Negotiations
*** shall be preliminary in nature and shall not be binding on either Party absent
a written agreement executed by both Parties and all guarantors, if applicable,
modifying, waiving or amending the terms, conditions or provisions of the Loan
Documents.
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***
4. Effectiveness of Loan Document. Absent any written agreement
executed by both Parties and any guarantor, if applicable, modifying, waiving
and/or amending any terms or conditions of the Loan Documents, the Loan
Documents shall remain in full force and effect in accordance with their terms.”
¶ 27 1. Pursuant to Section 2-619
¶ 28 State Farm first argued that Hundman’s complaint should be dismissed with
prejudice pursuant to section 2-619 of the Code of Civil Procedure (id. § 2-619) because the
terms of the Westport mortgage—which State Farm attached to its motion along with a
supporting affidavit—demonstrated that State Farm had a preexisting right to assign the
mortgage that was unaffected by the PNA. Specifically, section 4 provided that the loan
documents (hereinafter Loan Documents) remained in full force and effect unless modified in
writing. Because Hundman did not allege that he and State Farm ever modified the Westport
mortgage to limit State Farm’s ability to assign, his complaint should be dismissed.
¶ 29 2. Pursuant to Section 2-615
¶ 30 State Farm further asserted that the provisions of the PNA Hundman relied upon,
sections 8(q) and (s), did not require State Farm to obtain Hundman’s written consent. Section
8(q), State Farm argued, permitted State Farm to ensure that any person signing an agreement
modifying the Loan Documents had the authority to bind the party on whose behalf the person
was signing. Because Hundman’s complaint incorrectly claimed section 8(q) required his
consent, he could never assert a claim for breach under that section.
¶ 31 Regarding section 8(s), State Farm conceded that section 8(s) “require[s] ‘all such
guarantors and Grantors to execute any and all agreements requested by State Farm to (i)
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evidence their consent to the terms of any definitive agreement between [State Farm and CIP]
arising from or in connection with this [PNA] relating to the Loan or the Loan Documents.”
However, State Farm argued that the term “definitive agreement” was defined by sections 2 and
4 of the PNA. Because those sections made clear that the PNA did not affect any preexisting
rights unless and until the parties entered into a written agreement “modifying, waiving or
amending” the terms, conditions, or provisions of the Loan Documents, written consent was only
required if the parties’ definitive agreement modified, waived, or amended the Loan Documents.
Given that Hundman’s claims were predicated solely on State Farm’s assignment of the Loan
Documents, he could not allege the existence of a definitive agreement, and his complaint should
be dismissed pursuant to section 2-615 of the Code of Civil Procedure (id. § 2-615).
¶ 32 3. Hundman’s Response
¶ 33 Hundman filed a response in which he contested State Farm’s interpretation of the
PNA. Hundman argued that section 8(q) applied to any agreement relating to the Loan
Documents, which would include assignments, and that it required State Farm to obtain the
“specific authority of all applicable parties to enter into such agreements, including *** any
guarantors of the Loan.” Because Hundman was a guarantor, State Farm breached section 8(q)
by failing to obtain his authority in any form.
¶ 34 Hundman also contended that State Farm’s interpretation of “definitive
agreement” made section 8(s) meaningless and duplicative of sections 2 and 4 of the PNA.
Because sections 2 and 4 already required a written agreement executed by all applicable parties
to modify, waive, or amend the terms of the Loan Documents, section 8(s)’s use of “any
definitive agreement between the Parties *** relating to the Loan or the Loan Documents” must
be broader than merely amendment or modification of the Loan Documents. Hundman asserted
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that, at the motion to dismiss stage, the trial court was required to accept his plausible reading of
definitive agreement as “an agreement that permanently resolved the *** Loan.”
¶ 35 Last, Hundman argued that State Farm’s interpretation of sections 2 and 4 would
render the contract meaningless. Hundman asserted that State Farm was asking the trial court to
interpret sections 2 and 4 as nullifying any rights granted by the PNA itself because those rights
were obviously different from those contained in the Loan Documents. The more reasonable
reading was that the PNA itself modified the Loan Documents, including the Westport mortgage,
to require Hundman’s consent to an assignment when that assignment came from an agreement
between State Farm and CIP pursuant to the terms of the PNA.
¶ 36 Alternatively, Hundman maintained that the Loan Resolution described in the
complaint did “modify” the terms of the Loan Documents, and therefore was a “definitive
agreement” requiring his written consent even under State Farm’s own interpretation.
¶ 37 C. The Trial Court’s Order
¶ 38 In March 2022, the trial court entered a written order granting State Farm’s
motion to dismiss. Regarding the section 2-615 motion to dismiss, the court found that section
8(q) “cannot be interpreted to require Plaintiff’s consent before State Farm entered into any
modifications, waivers, amendments, or other agreements pertaining to the loan.” The court
noted that although the title to the section was “Approval of Parties,” section 8(n) of the contract
explicitly provided that paragraph headings are for convenience only and shall not be used to
interpret any provision of the contract. The court explained that the plain meaning of “authority”
in section 8(q) was not equivalent to “consent or approval.” Instead, authority related to being
able to enter into an agreement.
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¶ 39 Regarding section 8(s), the trial court found that the “definitive agreement”
referred to in that section, which required the consent of the guarantors and grantors, was defined
by sections 2 and 4 of the PNA. Those sections both emphasized that the terms of the Loan
Documents would remain in effect, unchanged, unless and until the parties and all guarantors, if
applicable, executed a written agreement modifying, waiving, or amending the terms or
conditions of the Loan Documents. Because Hundman did not allege “any modification, waiver
or amendment that resulted from the parties’ negotiations,” the court concluded that Hundman
failed to allege a “definitive agreement” was reached and section 8(s) did not apply.
Accordingly, the court granted State Farm’s motion to dismiss pursuant to section 2-615.
¶ 40 Regarding State Farm’s motion to dismiss pursuant to section 2-619, the trial
court concluded that the Westport mortgage reflected the intentions of the parties that the
mortgage be freely assignable. Given that section 4 of the PNA expressly reserved preexisting
rights under the Loan Documents, the court found that the complaint failed to state a claim
because it never alleged the parties executed an agreement modifying the terms of the Loan
Documents. The court rejected Hundman’s argument that the PNA altered the assignability of
the Westport mortgage and granted State Farm’s motion to dismiss pursuant to section
2-619(a)(9) with prejudice.
¶ 41 D. Hundman’s Combined Motion To Reconsider and for Leave To File an
Amended Complaint
¶ 42 In April 2022, Hundman filed a combined motion to reconsider the trial court’s
dismissal of the complaint and for leave to file an amended complaint. Hundman attached a copy
of his proposed amended complaint to the motion. The proposed amended complaint contained
dozens of additional allegations explaining (1) the relationships between the owners of CIP,
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(2) the circumstances surrounding the March 2008 loans, (3) details about Hundman’s falling out
with CIP, (4) the context surrounding CIP’s default and attempts to negotiate a resolution to the
Loan, (5) the negotiations and eventual agreement to the PNA, and (6) the specific negotiations
giving rise to the resolution agreement between CIP and State Farm and the terms of that
agreement. Hundman attached a copy of the “definitive agreement” between CIP and State Farm
that he claimed best demonstrated State Farm’s breach of the PNA.
¶ 43 In addition to this background information, the amended complaint added a new
count II, alleging that State Farm breached its implied obligation of good faith and fair dealing
when it failed to comply with section 8(q) of the PNA and notify or receive approval from
Hundman.
¶ 44 State Farm objected to the motion to reconsider on the grounds that the motion
did not raise any newly discovered facts or changes in the law. Similarly, State Farm asserted
that the trial court should not grant Hundman leave to amend because he could have raised all of
these allegations in his original complaint, thus making the amended complaint untimely. State
Farm further argued that Hundman’s claims were still based on inapplicable provisions of the
PNA that were unsupported by any allegations of a modification, waiver, or amendment of the
Loan Documents.
¶ 45 In June 2022, the trial court conducted a hearing on Hundman’s motion to
reconsider and heard extensive arguments from the parties. Ultimately, the court denied the
motion to reconsider and denied leave to amend.
¶ 46 The trial court explained that the motion to reconsider was based on an alleged
error in the application of the law to the facts and not on newly discovered evidence.
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“The Court wasn’t saying that Mr. Hundman is not an applicable party,
but rather the Court was relying on language found within section 8(q) in
differentiating between consent, or approval, and authority. Finding that plaintiff
could not be interpreted—finding that State Farm could not be interpreted to
require plaintiff’s consent before State Farm entered into any modifications,
waivers, amendments, or other agreements pertaining to the loan. There is a
difference between authority and consent. Someone may have authority to do
something, but obtaining consent is a completely different matter.
With respect to paragraph 8(s), the Court interpreted the contract as a
whole to determine the type of definitive agreement contemplated as a result of
the pre-negotiation agreement negotiations, ultimately finding this section did not
require plaintiff’s written consent.
***
Considering the request to add a second count ***, the Court finds leave
to amend is not warranted. In terms of the first factor, which is the curative effect,
the proposed amendment does not cure any pleading defect[.] *** [T]he conduct
alleged is in essence the same conduct that was addressed in the count which was
dismissed by the Court.”
¶ 47 The trial court further found that the prejudicial effect did not impact the court’s
determination, timing favored Hundman, and promptness favored State Farm. “While no single
factor is dispositive, the Court finds that the failure to cure a defect combined with the late
request weighs in favor of the defendant, and the request for leave to add Count 2 is denied.”
¶ 48 This appeal followed.
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¶ 49 II. ANALYSIS
¶ 50 Hundman appeals, arguing the trial court erred by (1) dismissing his complaint for
failure to state a claim and (2) denying him leave to file an amended complaint. We disagree and
affirm.
¶ 51 A. The Applicable Law
¶ 52 As an initial matter, State Farm’s motion to dismiss and part of the trial court’s
order was purported to be based on section 2-619(a)(9) of the Code of Civil Procedure (735
ILCS 5/2-619(a)(9) (West 2020)). “A motion for involuntary dismissal under section 2–619(a)(9)
of the Code admits the legal sufficiency of the complaint, admits all well-pleaded facts and all
reasonable inferences therefrom, and asserts an affirmative matter outside the complaint bars or
defeats the cause of action.” Reynolds v. Jimmy John’s Enterprises, LLC, 2013 IL App (4th)
120139, ¶ 31, 988 N.E.2d 984. Dismissal is not proper pursuant to section 2-619(a)(9) if the
claimed “affirmative matter” is actually one that contests or negates the allegations of the
complaint; such a motion is, in fact, a motion for summary judgment. Id. ¶ 34.
¶ 53 Here, State Farm argues that the Westport mortgage shows that State Farm was
permitted to assign that mortgage without obtaining Hundman’s prior consent, contrary to the
allegations in the complaint. Accordingly, State Farm’s motion was not proper pursuant to
section 2-619(a)(9), and we do not engage in any analysis thereunder.
¶ 54 1. Section 2-615
¶ 55 The Illinois Supreme Court recently explained the analysis when reviewing
motions to dismiss pursuant to section 2-615 in Nyhammer v. Basta, 2022 IL 128354, ¶ 23, in
which it wrote the following:
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“ ‘ “A section 2-615 motion to dismiss tests the legal sufficiency of a
complaint.” ’ O’Connell v. County of Cook, 2022 IL 127527, ¶ 18 (quoting
Patrick Engineering, Inc. v. City of Naperville, 2012 IL 113148, ¶ 31). ‘ “In
reviewing the sufficiency of a complaint, we accept as true all well-pleaded facts
and all reasonable inferences that may be drawn from those facts,” and we
“construe the allegations in the complaint in the light most favorable to the
plaintiff.” ’ Id. (quoting Marshall v. Burger King Corp., 222 Ill. 2d 422, 429
(2006)). ‘ “[A] cause of action should not be dismissed pursuant to section 2-615
unless it is clearly apparent that no set of facts can be proved that would entitle
the plaintiff to recovery.” ’ Id. (quoting Marshall, 222 Ill. 2d at 429). Our
standard of review for a dismissal under section 2-615 is de novo. Id. ¶ 19.”
¶ 56 2. Contract Interpretation
¶ 57 “To succeed on a breach of contract claim, a plaintiff must plead and prove (1) the
existence of a valid and enforceable contract, (2) substantial performance by the plaintiff,
(3) breach by the defendant, and (4) damages caused by that breach.” Ivey v. Transunion Rental
Screening Solutions Inc., 2022 IL 127903, ¶ 28.
¶ 58 In construing a contract, the primary objective is to give effect to the intention of
the parties. Gallagher v. Lenart, 226 Ill. 2d 208, 232, 874 N.E. 2d 43, 57 (2007). “A court must
initially look to the language of a contract alone, as the language, given its plain and ordinary
meaning, is the best indication of the parties’ intent.” Id. at 233. “If the words in the contract are
clear and unambiguous, they must be given their plain, ordinary and popular meaning.”
Thompson v. Gordon, 241 Ill. 2d 428, 441, 948 N.E.2d 39, 47 (2011). “A contract must be
construed as a whole, viewing each provision in light of the other provisions.” Id. “The parties’
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intent is not determined by viewing a clause or provision in isolation, or in looking at detached
portions of the contract.” Id.“A court will not interpret a contract in a manner that would nullify or render
provisions meaningless, or in a way that is contrary to the plain and obvious
meaning of the language used. [Citation.] Further, when parties agree to and insert
language into a contract, it is presumed that it was done purposefully, so that the
language employed is to be given effect.” Id at 442.
¶ 59 B. This Case
¶ 60 Hundman argues that the trial court’s interpretation of the PNA was in error and
that sections 8(q) and 8(s) gave him enforceable rights against State Farm. Hundman contends
that State Farm breached the PNA when it failed to get his “authority, approval, or consent” for
the Loan Resolution agreement between State Farm and CIP that resulted in State Farm
assigning Hundman’s mortgage to HOS II. In the alternative, Hundman argues that the trial court
erred by dismissing his complaint with prejudice and not granting him leave to amend the
complaint to cure any alleged defects.
¶ 61 It is not entirely clear what the parties were trying to accomplish when they
executed the PNA. Fortunately, the meaning of section 8(q) is readily apparent, and that section
cannot support any claim by Hundman for breach of contract. Unfortunately, the meaning of
section 8(s) is less clear. Nonetheless, section 8(s)’s lack of clarity does not inure to the benefit
of Hundman precisely because, whatever the exact meaning of that section, Hundman did not
receive any contractual rights under that provision, neither based on its plain text nor based on
State Farm’s action of assigning the loan to HOS II.
¶ 62 1. Section 8(q)
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¶ 63 Hundman repeatedly complains that the trial court and State Farm have failed,
throughout the litigation, to explain why the term “authority” in section 8(q) should not be read
as a synonym of “consent” or “approve.” At oral argument, Hundman clarified that he was, in
fact, arguing that the term “specific authority” means “approval,” and he conceded that if this
court disagreed with his argument, then he cannot state a claim based on section 8(q).
¶ 64 The dictionary defines “authority” as follows: “Legal Definition *** 2(a): a
power to act especially over others that derives from status, position, or office[;] (b): the power
to act that is officially or formally granted (as by statute, corporate bylaw, or court order)[;]
(c) power and capacity to act granted by someone in a position of control specifically: the power
to act granted by a principal to his or her agent.” (Emphases added.) Merriam-Webster Online
Dictionary, https://www.merriam-webster.com/dictionary/authority (last visited Mar. 24, 2023).
Similarly, Black’s Law Dictionary provides, “Authority 1. The official right or permission to
act, esp. to act legally on another’s behalf; esp., the power of one person to affect another’s legal
relations by acts done in accordance with the other’s manifestations of assent; the power
delegated by a principal to an agent .” (Emphases added.)
Black’s Law Dictionary (11th ed. 2019). Reading section 8(q) in context, the term “specific
authority” refers to the power of a person executing an agreement to bind the person or entity on
whose behalf that person is signing.
¶ 65 As a reminder, section 8(q) provided as follows:
“The consummation of any modifications, waivers, amendments or other
agreements that State Farm may, in its sole and absolute discretion, choose to
enter into, if any, in connection with the Loan will be expressly conditioned on
State Farm’s receipt of evidence, in form and substance satisfactory to it, of the
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specific authority of all applicable parties to enter into such agreements,
including without limitation, the Borrower [(CIP)] and its constituent entities and
any guarantors of the Loan.” (Emphasis added.)
¶ 66 Reading this provision as a whole, two meanings are immediately clear. First, it
provides State Farm, in its sole discretion, the ability to demand whatever evidence it requires to
satisfy it that those executing any agreement have the authority to do so. The phrase “in form and
substance satisfactory to it” demonstrates unequivocally that only State Farm may enforce this
provision in the exercise of its discretion.
¶ 67 Second, the term “specific authority of all applicable parties to enter into such
agreements” (emphasis added) allows State Farm to demand evidence demonstrating that the
individual actually signing the agreement has the authority to bind the entity on whose behalf the
individual is signing. More simply, section 8(q) allows State Farm to establish to its satisfaction
that the individuals signing on behalf of CIP, its constituent entities, and any guarantors have the
actual authority to enter into the agreement.
¶ 68 Hundman’s contrary reading of “authority,” as synonymous with “consent” and
“approval,” is inconsistent with the plain language of the PNA and does not fit the context of
section 8(q). Such an interpretation renders section 8(q) meaningless. Indeed, neither State Farm
nor any contracting party has any need for the nonsensical ability to demand evidence that a
person signing an agreement actually agrees with what he or she is signing; execution itself
demonstrates that the signor “authorizes” the agreement he or she just signed. All contracts
require acceptance.
¶ 69 By contrast, State Farm was already in a preexisting contractual relationship with
CIP. And State Farm was worried about the continuing efficacy of the guaranties and mortgages
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it had received as security if the negotiations yielded fruitful results. Given the maze of actors
and companies with which State Farm was dealing and depended on to secure its multimillion
dollar loans, State Farm would benefit from being able to condition any potential agreement
upon a showing, to its sole satisfaction, that all the individuals actually executing the agreement
had the actual authority on behalf of the company to enter into the agreement and conclusively
bind the company.
¶ 70 Here, State Farm clearly believed Hundman had the authority to enter into
agreements on his own behalf pertaining to the Westport mortgage and his guaranty because
Hundman signed the PNA in those capacities. Given that Hundman had the authority to enter
into any agreement, section 8(q) is entirely inapplicable; that is, section 8(q) grants State Farm,
and only State Farm, contractual rights, and it does not grant Hundman any enforceable rights at
all. Simply put, Hundman cannot, under any circumstances, state a claim for breach of contract
based on section 8(q). Accordingly, the trial court properly dismissed the complaint to the extent
it relied on section 8(q) to state a cause of action.
¶ 71 2. Section 8(s)
¶ 72 Because section 8(q) does not provide a cognizable breach of contract claim for
Hundman, whether Hundman stated a claim turns on the meaning of section 8(s), which reads as
follows:
“The Borrower shall cause all guarantors of the obligations of the
Borrower under the Loan Documents and the Grantors under [the] two Mortgages
to execute this Agreement to evidence their consent to and acknowledgement of
the terms hereof. State Farm shall require all such guarantors and Grantors to
execute any and all agreements requested by State Farm to (i) evidence their
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consent to the terms of any definitive agreement between the Parties arising from
or in connection with this Agreement relating to the Loan or the Loan Documents;
and (ii) affirm the continuing effectiveness of their guaranties or mortgages, as
applicable, following the entry by the Parties into any such agreement.”
¶ 73 The term “definitive agreement” is vague and not explicitly defined by the PNA.
However, State Farm contends—and the trial court agreed—that other sections of the PNA
demonstrate that “definitive agreement” means a modification, amendment, or waiver of the
terms or provisions of the Loan Documents.
¶ 74 State Farm seems to concede in its appellate brief, like it did in its motion to
dismiss before the trial court, that Section 8(s) requires “all . . . guarantors and Grantors to
execute any and all agreements requested by State Farm to . . . evidence their consent to the
terms of any definitive agreement between [State Farm and CIP] arising from or in connection
with this [PNA] relating to the Loan or the Loan Documents.” (Alterations in original). Rather
than explicitly contesting whether Hundman’s consent was required, State Farm asserts that
Hundman’s complaint never alleged CIP and State Farm entered into such a “definitive
agreement.”
¶ 75 Section 2 states that no obligations are created unless there is a written agreement
signed by State Farm, CIP, and the guarantors, if applicable. Section 4 likewise provides that the
rights and obligations under the Loan Documents remain in full force and effect absent a written
agreement executed by both State Farm and CIP and any guarantor, if applicable. A plain
reading of these sections, along with section 8(s), demonstrate that the PNA constituted an
illusory promise, at least as to any guarantor or grantor. See Carter v. SSC Odin Operating Co.,
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LLC, 2012 IL 113204, ¶ 20, 976 N.E.2d 344 (“An illusory promise appears to be a promise, but
on closer examination reveals that the promisor has not promised to do anything.”).
¶ 76 Section 5 of the PNA provides that a written agreement executed by State Farm,
CIP, and any guarantor is necessary to (1) create any new rights or obligations for any person
and (2) modify, amend, waive, or alter in any way the preexisting rights and obligations under
the Loan Documents. These provisions are circular and potentially self-defeating. In essence,
State Farm is required to obtain the written consent of the guarantors only after State Farm has
entered into a written agreement executed by CIP and those same guarantors.
¶ 77 Hundman alleges—indeed, his entire claim of wrongdoing is based on—State
Farm’s failure to obtain his written consent to the agreement that resulted in State Farm’s
releasing the Ekstam mortgage for less than the full balance of the relevant Loan. Because
Hundman asserts that he, as a guarantor, never executed any written agreement between State
Farm and CIP, he is necessarily asserting that, per the express terms of the PNA, either (1) State
Farm never reached an agreement with CIP that required his written consent or (2), and more
importantly, State Farm retained all of the rights it possessed under the terms of the Loan
Documents, including the right to assign the Loan and the Westport mortgage to anyone it
wished.
¶ 78 Hundman’s arguments, complaint, and proposed amended complaint contain
many allegations that suggest that State Farm promised to give him “veto power” over any
definitive agreement that came out of the negotiations pursuant to the PNA. Hundman never
alleged or argued that the terms of the PNA were incorrect or did not reflect the intention of the
parties; he never suggested a claim for reformation of the PNA. Instead, Hundman, presumably,
alleges that these assurances and understandings inform the meaning of the terms of the PNA.
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However, the PNA contains an explicit integration clause that provides, “This [a]greement
constitutes the entire agreement concerning the subject matter hereof and it supersedes any prior
or contemporaneous representations, statements, understandings or agreements concerning the
subject matter hereof.” Given this provision of the PNA, any allegations in Hundman’s
complaint that are contrary to the plain language of the PNA are not entitled to consideration.
See Bajwa v. Metropolitan Life Insurance Co., 208 Ill. 2d 414, 431-32, 804 N.E.2d 519, 531
(2004) (holding that when a written instrument upon which a claim is based conflicts with the
allegations in the complaint to which it is attached, the exhibit controls).
¶ 79 Whatever Hundman believed he was agreeing to, the plain language of the PNA
did not require State Farm to obtain his consent prior to (1) accepting less than the full amount of
the Loan in exchange for releasing the Ekstam mortgage and (2) selling the Loan and
accompanying mortgage to HOS II for the amount of the outstanding balance.
¶ 80 Hundman asserts that the Loan Resolution “definitively resolved CIP’s liability”
to State Farm under the terms of the Loan. Hundman further contends that he would not have
consented to the assignment of the Loan to HOS II. Hundman insists that had he been permitted
to “veto” the Loan Resolution, then State Farm would have recovered the remaining balance
from CIP or the other guarantors. But Hundman’s assertions are speculative.
¶ 81 First, CIP and State Farm did not enter into any “definitive agreement” that fully
resolved CIP’s liability to State Farm. State Farm and CIP only agreed to sell the Ekstam
properties and apply the proceeds of the sale to the Loan. Hundman’s complaint acknowledges
that CIP still owed roughly $367,000 on the Loan after the sale. Instead, State Farm entered into
an agreement with a third party, HOS II, to sell the Loan Documents in exchange for payment of
the then-outstanding balance. The Loan was still enforceable against CIP and any security given
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for the Loan. Whatever the meaning of “definitive agreement,” that term certainly did not
include agreements between State Farm and third parties to sell the Loan Documents.
¶ 82 Second, had Hundman vetoed the Loan Resolution, in its entirety or just the
assignment, the result would likely have been the same. CIP, as the owner of the Ekstam
properties, was free to sell those properties at any time; State Farm could not prevent CIP from
selling. Instead, the mortgages provided State Farm a right to the proceeds of any sale of the
Ekstam properties up to the full amount of the loans. Although State Farm and CIP agreed to
pursue this course of action, they did not need to do so. CIP could have simply done it on its
own, no matter how much State Farm or Hundman may have objected.
¶ 83 Similarly, State Farm was always free to assign the Loan at any time without any
prior approval. The PNA is crystal clear that State Farm (1) fully retained any and all rights in
the Loan Documents and (2) was not required to engage in any negotiations or agree to any
modifications of the Loan Documents. Not even CIP had the ability under the PNA to prevent
State Farm from assigning the Loan without its approval. Hundman’s complaint alleges that
State Farm wanted the guarantors and grantors to consent to any agreement because State Farm
was concerned that the guaranties and mortgages may be adversely affected by any agreement
without consent. Hence, section 8(s) provides that State Farm shall require the guarantors and
grantors to execute any agreement State Farm requests to evidence their consent to the terms of
any “definitive agreement” and affirm the effectiveness of the guaranties or mortgages.
¶ 84 But section 8(s) is a provision for State Farm’s benefit, stating that it will ensure
that the existing security for the Loan will continue in full effect if an agreement is reached
between CIP and State Farm. Given the wording of section 8(s), it is unclear that the provision is
enforceable at all because it contains a promise to obtain consent to a future agreement, the terms
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of which are unknown and unknowable. Academy Chicago Publishers v. Cheever, 144 Ill. 2d 24,
29-30, 578 N.E.2d 981, 983-84 (1991). To the extent it can be enforced, only CIP could enforce
it. CIP could, arguably, demand that State Farm ensure that the security for its Loan remain in
place before finalizing any “definitive agreement” to better protect CIP from insolvency.
¶ 85 Any guarantors, however, could not enforce section 8(s). Section 8(s) is primarily
for the benefit of State Farm, and secondarily for the benefit of CIP. Hundman and the other
guarantors are at most incidental third-party beneficiaries, who lack the right to sue for a breach
of contract. Salvi v. Village of Lake Zurich, 2016 IL App (2d) 150249, ¶ 53, 66 N.E.3d 894.
¶ 86 Hundman concedes in his brief that State Farm did not need his approval prior to
the PNA to assign the Loan to HOS II, and he concedes in his proposed amended complaint that
“[u]nder settled Illinois law and the terms of the Guaranties,” the guarantors’ signatures were not
necessary for any extension agreement to be binding up them. Given that State Farm did not
need Hundman’s approval under the Loan Documents, and that the PNA explicitly reserved State
Farm’s rights under the Loan Documents, section 8(s) did not grant Hundman any contractual
rights. Moreover, section 8(s) provides, “State Farm shall require all such guarantors and
Grantors to execute any and all agreements requested by State Farm.” (Emphasis added.)
Hundman alleges that State Farm never requested his written consent, making section 8(s)
inapplicable. (Section 8(s) may also be illusory in that State Farm could avoid its application by
simply not requesting consent.)
¶ 87 Section 8(s) is clearly drafted for the purpose of protecting State Farm’s rights to
any and all sources of recovery on the Loan. Hundman alleged that State Farm was worried
about the effect any negotiations may have on the mortgages and guaranties if State Farm
negotiated exclusively with Stark and Owen. Section 8(s) is a perfect fit to address this concern.
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To the extent State Farm failed to comply, then its fears, if valid, would be realized: State Farm’s
failure to comply with section 8(s) would mean that its transfer of mortgages and guaranties may
(1) be subject to additional defenses or (2) relieve the mortgagors and guarantors from liability.
Nonetheless, section 8(s) did not grant Hundman any contractual rights.
¶ 88 Had Hundman vetoed the Loan Resolution, State Farm and CIP both could have
acted as they did without his approval. Further, had Hundman vetoed the Loan Resolution, State
Farm would have been free to foreclose on the Westport mortgage or sue on Hundman’s
guaranty to recover the amounts owed under the Loan.
¶ 89 In short, section 8(s) is a provision solely for the benefit of State Farm, whose
failure to comply with that provision is at State Farm’s own peril.
¶ 90 C. Motion To Reconsider and File an Amended Complaint
¶ 91 Last, Hundman argues that the trial court erred by denying his motion to
reconsider and preventing him from filing his amended complaint, which he claims addressed the
problems with the original complaint that caused the trial court to dismiss it. We disagree.
¶ 92 We need not address Hundman’s arguments in depth because, at bottom, they are
predicated on arguments we have already rejected. For instance, Hundman adamantly asserts that
count II of his proposed amended complaint, asserting a claim for breach of the duty of good
faith and fair dealing, is meritorious and the trial court should have granted him leave to file it.
However, Hundman’s count II is entirely dependent upon his erroneous interpretation of section
8(q), as that is the very provision he claims State Farm failed to follow in good faith. Hundman
cites no other contractual provision in count II as a basis to support his claim.
¶ 93 As we earlier explained (supra ¶¶ 64-70), section 8(q) contains provisions to be
exercised in State Farm’s sole discretion, and the term “authority” used in that section means “to
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act legally on another’s behalf; esp., the power of one person to affect another’s legal relations
by acts done in accordance with the other’s manifestations of assent.” Black’s Law Dictionary
(11th ed. 2019). Hundman claims “authority” should be given the same meaning as “authorize.”
Hundman’s suggestion conflicts with a plain reading of the contract and cannot, as a matter of
law, provide a basis for any breach of contract claim.
¶ 94 Hundman makes various arguments regarding why the trial court’s reasoning for
denying him leave to file an amended complaint was erroneous. Even assuming Hundman were
correct that the trial court’s reasoning was flawed, this court reviews judgments, not reasons
therefor, and we may affirm on any basis clearly apparent in the record. People v. Johnson, 208
Ill. 2d 118, 129, 803 N.E.2d 442, 449 (2003).
¶ 95 But the issue before this court is whether Hundman stated a claim for breach of
contract against State Farm based on the pleadings contained in the record. Irrespective of what
one may think about State Farm’s decision to sell the loan instead of demanding payment from
CIP and the other debtors, State Farm was legally entitled to make that decision, and the PNA
that Hundman attempts to rely on simply does not support any cause of action against State Farm
for breach of contract. The facts and inferences contained in the plethora of allegations in the
amended complaint may or may not be able to support some other claim of wrongdoing against
someone, but they cannot help establish a breach of contract based on the PNA. Accordingly, we
affirm the trial court’s judgment.
¶ 96 III. CONCLUSION
¶ 97 For the reasons stated, we affirm the trial court’s judgment.
¶ 98 Affirmed.
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