JLM Financial Investments 4, LLC v. Aktipis

Filing 99

MEMORANDUM Opinion and Order signed by the Honorable Joan B. Gottschall on 6/3/2013. (jmm-r, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

JLM FINANCIAL INVESTMENTS 4,
LLC,
Plaintiff,
v.
STELIOS AKTIPIS,
Defendant.

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Judge Joan B. Gottschall
Case No. 11 C 2561

MEMORANDUM OPINION & ORDER
Plaintiff JLM Financial Investments 4, LLC (“JLM”) filed a complaint for breach of
contract against Defendant Stelios Aktipis. JLM alleges that Aktipis was guarantor of a loan
made to Inland Springhill Fashion Center, LLC (“Springhill”) for property in Kane County,
Illinois; that JLM was assigned the loan agreement and related documents; that Springhill’s
successor-in-interest failed to make required payments due under the loan documents; and that
Aktipis, as guarantor, is liable for all amounts now due under the loan. Now before the court are
Aktipis’s motion for summary judgment and JLM’s motion for partial summary judgment as to
liability, both pursuant to Federal Rule of Civil Procedure 56. The court concludes that Aktipis
is not liable as guarantor for the entire amount of the debt. Aktipis’s motion for summary
judgment is therefore granted, and JLM’s motion is denied.
I. FACTS
The following facts are undisputed for purposes of the motions for summary judgment,
except as otherwise noted. JLM is a Texas limited liability company. Aktipis is an individual
residing in Illinois. The parties agree that jurisdiction is proper in this court under 28 U.S.C.

§ 1332(a) because complete diversity of citizenship exists between the parties and the amount in
controversy exceeds $75,000.
The Loan and Guaranty
On October 25, 2004, LaSalle Bank National Association (“LaSalle”) made a loan to
Springhill in the original principal amount of $7,900,000.00, as evidenced by a loan agreement
and a promissory note executed by Springhill in favor of LaSalle. The loan was collateralized by
a shopping center located in West Dundee, Illinois (“the Property”), pursuant to a mortgage,
security agreement, fixture filing, and assignment of leases and rents.
Section 9.4 of the loan agreement described the circumstances under which the borrower
could be held personally liable for a money judgment. It first explains that the loan is a nonrecourse loan (i.e, a loan secured only by the Property):
Subject to the qualifications below, Lender shall not enforce the liability and
obligation of Borrower to perform and observe the obligations contained in the
Note, this Agreement, the Mortgage or the other Loan Documents by any action
or proceeding wherein a money judgment shall be sought against Borrower,
except that Lender may bring a foreclosure action, an action for specific
performance or any other appropriate action or proceeding to enable Lender to
enforce and realize upon its interest under the Note, this Agreement, the Mortgage
and the other Loan Documents, or in the Property, the Rents following an Event
of Default, or any other collateral given to Lender pursuant to the Loan
Documents; provided, however, that except as specifically provided herein, any
judgment in any such action or proceeding shall be enforceable against Borrower
only to the extent of Borrower’s interest in the Property, in the Rents following an
Event of Default and in any other collateral given to Lender, and Lender, by
accepting the Note, this Agreement, the Mortgage and the other Loan Documents,
agrees that it shall not sue for, seek or demand any deficiency judgment against
Borrower in any such action or proceeding under or by reason of or under or in
connection with the Note, this Agreement, the Mortgage or other Loan
Documents.

2

(Def.’s Statement of Facts (“SOF”) Ex. 4 (Loan Agreement) 69-70, ECF No. 76-4.) The loan
agreement, however, includes certain provisions under which Springhill would become
personally liable for part or all of the debt:
The provisions of this section shall not, however, . . . (g) constitute a waiver of the
right to Lender to enforce the liability and obligation of Borrower, by money
judgment or otherwise, to the extent of any loss, damage, cost, expense, liability,
claim or other obligation incurred by the Lender (including attorneys’ fees and
costs reasonably incurred) arising out of or in connection with the following:
...
(vii) Failure to pay charges for labor or materials or other charges that can create
liens on any portion of the Property; or
...
Notwithstanding anything to the contrary in this Agreement, the Note, the
Indemnity Agreement or any of the Loan Documents, (A) the Debt shall be fully
recourse to the Borrower . . . in the event that . . . (III) Borrower fails to obtain
Lender’s prior written consent (to the extent such consent is required) to any
subordinate financing or other voluntary lien encumbering the Property . . .
(Id. at 70-71.) The language of this section of the loan agreement is expressly incorporated into
both the note and the mortgage.
The mortgage includes several provisions limiting permissible encumbrances to the
Property: It states, in relevant part:
3.6 Payment for Labor and Materials. (a) Subject to the terms, provisions and
conditions of the Loan Agreement, Borrower will promptly pay or cause to be
paid when due all bills and costs for labor, materials, and specifically fabricated
materials (“Labor and Material Costs”) incurred in connection with the Property
and never permit to exist beyond the due date thereof in respect of the Property or
any part thereof any lien or security interest, even though inferior to the liens and
the security interests hereof, and in any event never permit to be created or exist
in respect of the Property or any other party thereof any other or additional lien or
security interest other than the liens or security interests hereof except for the
Permitted Encumbrances.
...
3

6.2 No Sale/Encumbrance. . . . Borrower agrees that Borrower shall not, without
the prior written consent of Lender, sell, convey, mortgage, grant, bargain,
encumber, pledge, assign, or otherwise transfer the Property or any part thereof,
including but not limited to, a grant of an easement, restriction, covenant,
reservation or right of way . . . or permit the Property or any part thereof to be
sold, conveyed, mortgaged, granted, bargained, encumbered, pledged, assigned,
or otherwise transferred, unless Lender shall consent thereto.
(Def.’s SOF) Ex. 5 (Mortgage) 8, 12, ECF No. 76-5.) Under the loan agreement, “Permitted
Encumbrances” are defined as:
(a) the Liens and security interests created by the Loan Documents, (b) all Liens,
encumbrances and other matters disclosed in the Title Insurance Policy relating to
the Property or any part thereof (c) Liens, if any, for Taxes imposed by any
Governmental Authority not yet due or delinquent, and (d) such other title and
survey exceptions as Lender has approved or may approve in writing in Lender’s
reasonable discretion . . . .
(Loan Agreement 8.)
On November 10, 2004, LaSalle assigned the note, loan agreement, mortgage, and related
documents to Wells Fargo Bank, N.A., as Trustee (“Wells Fargo”). On or about May 11, 2007,
Springhill assigned its obligations under the loan documents to Springhill Gateway, LLC.
(“Springhill Gateway”). Springhill Gateway acknowledged that the principal balance of the note
as of the date of assumption was $7,900,000.00.
In connection with Springhill Gateway’s assumption of the loan, Aktipis executed a
guaranty, pursuant to which he agreed to guarantee payment of certain “Guaranteed Recourse
Obligations of Borrower,” for the benefit of Wells Fargo and its successors and assigns (the
“Guaranty”). The Guaranty defines “Guaranteed Recourse Obligations of Borrower” as:
all obligations and liabilities of Borrower set forth in subparagraphs (a) and (b)
below for which Borrower shall be personally liable pursuant to and as may be
defined in any of the Note, the Security Instrument, or the Other Security
Documents:
4

...
(b)

The entire Debt in the event of Borrower’s default under the provisions of
the Note, Security Instrument, or other Security Documents relating to . . .
(ii) a prohibition of sale, transfer, or encumbrance of the Property without
Lender’s consent . . .

(Def.’s SOF Ex. 2 (Guaranty) 8, 12, ECF No. 76-2.) The Guaranty was drafted by an attorney
who represented Wells Fargo.
The Mechanic’s Liens
Between 2009 and 2010, contractors working at the Property sought to enforce the
following three purported liens against the Property (the “Mechanic’s Liens”):
•

On May 26, 2009, the Sure-Light Sign Company recorded a mechanic’s lien against the
Property in the amount of $38,114.20 (the “Sure-Light Lien”);

•

On September 11, 2009, the William A. Duguid Company (“Duguid”) recorded a
mechanic’s lien against the Property in the amount of $218,408.00 (the “Duguid Lien”);

•

On January 15, 2010, the Robert L. Hummel Construction Company recorded a
mechanic’s lien against the Property in the amount of $9,700 (the “Hummel Lien”).

Springhill Gateway did not consent to the recording of the Mechanic’s Liens against the
Property. They arose as a result of actions taken by Springhill Gateway’s creditors. The
Mechanic’s Liens are not disclosed in the title insurance policy referenced in the loan agreement.
Nor do they fall into the categories of Permitted Encumbrances listed in the loan agreement. The
Mechanics Liens were not approved in writing or consented to by JLM or Wells Fargo. 1
1

Aktipis disputes this fact. In support of the fact, JLM cites a statement in the affidavit of
JLM member Jimmy Nassour that JLM did not approve the filing of the liens in writing, nor does
it have records of any written approval of the liens by Wells Fargo. (Pl.’s SOF Ex. 1 (Nassour
Aff.) ¶ 12, ECF No. 79-1.) Aktipis attempts to challenge the fact by pointing to a notice of
default sent to Springhill Gateway by Wells Fargo and a written demand for payment sent to
Aktipis by JLM. These documents, however, do not demonstrate a dispute as to whether JLM
approved the liens in writing. The notice of default does not mention the Mechanic’s Liens; it
5

Once the liens arose, Springhill Gateway took steps to contest them. The mortgage states
that the borrower can in certain situations contest liens filed against the Property:
Subject to the terms, provisions and conditions of the Loan Agreement, after prior
written notice to Lender, Borrower . . . may contest by appropriate legal
proceeding, promptly initiated and conducted in good faith and with due
diligence, the amount or validity or application in whole or in part of any of the
Labor and Material Costs, provided that (i) no Event of Default has occurred and
is continuing under the Loan Agreement, the Note, this Mortgage or any of the
other Loan Documents, (ii) Borrower is permitted to do so under the provisions of
any other mortgage, deed of trust or deed to secure debt affecting the Property,
(iii) such proceeding shall suspend the collection of Labor and Material Costs
from Borrower and from the Property or Borrower shall have paid all of the Labor
and Material Costs under protest, (iv) such proceeding shall be permitted under
and be conducted in accordance with the provisions of any other instrument to
which Borrower is subject and shall not constitute a default thereunder, (v) neither
the Property nor any part thereof or interest therein will be in danger of being
sold, forfeited, terminated, canceled or lost, and (vi) Borrower shall have
furnished the security as may be required in the proceeding, or as may be
reasonably requested by Lender to insure the payment of any contested Labor and
Material Costs, together with all interest and penalties thereon.
(Mortgage § 3.6(b).)
JLM contends that Springhill Gateway did not provide written notice of its intent to
contest any of the Mechanic’s Liens, as required by the mortgage. In support, JLM cites a
statement to that effect in JLM member Jimmy Nassour’s affidavit. (Nassour Aff. ¶ 14.) Aktipis
disputes this fact, citing the affidavit of G. Ryan Liska, which states that Duguid “caused its

states only that the “Events of Default” included Springhill Gateway’s failure to make monthly
payments due under the loan documents. (Def.’s SOF Ex. 11 (May 29, 2010 Notice of Default).)
The written demand states only that Springhill Gateway “has allowed mechanics liens to
encumber the property.” (Def.’s SOF Ex. 14 (Apr. 8, 2011 Demand Letter).) In the absence of
any record evidence demonstrating a genuine dispute, the fact is deemed admitted.
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notice of claim of mechanic’s lien to be served on all interested parties, including Wells Fargo.”
(Def.’s SOF Ex. 7 (Liska Aff.), ECF No. 76-7.)
The parties agree that, on or about July 30, 2009, Wells Fargo received written notice of
the Duguid Lien. On October 9, 2009, Duguid filed suit in Kane County, Illinois to foreclose the
Duguid Lien (the “Duguid Action”). Both Springhill Gateway and Wells Fargo were named as
defendants in the Duguid Action. On December 24, 2009, Duguid filed a Chapter 11 bankruptcy
petition in the U.S. Bankruptcy Court for the Northern District of Illinois (the “Bankruptcy
Proceeding”). On February 26, 2010, Duguid filed an adversary action in connection with its
bankruptcy (the “Adversary Action”), in which it sought to foreclose the Duguid Lien against the
Property. Both Springhill Gateway and Wells Fargo were named as defendants in the Adversary
Action, and both appeared in the action and contested the validity of the Duguid Lien.
On November 18, 2010, the Bankruptcy Proceeding was dismissed after Duguid failed to
file operating reports and pay fees. The Adversary Action was remanded to the Sixteenth
Judicial Circuit Court of Kane County, Illinois. Duguid renewed its efforts to foreclose the
Duguid Lien, and Springhill Gateway continued to contest those efforts. JLM entered into a
settlement agreement with Duguid to resolve the Duguid Lien, pursuant to which it made a
payment to Duguid in exchange for the release of the lien. In doing so, JLM acted without the
consent or knowledge of either Springhill Gateway or Aktipis.
The Mortgage Foreclosure Case
An “Event of Default” occurs under the loan documents “if any payment required . . . is
not paid on or prior to the date when due.” Section 7.1(a) of the mortgage states that upon an
Event of Default, the lender may “declare the entire unpaid debt to be immediately due and
payable.” In April 2010, Springhill Gateway ceased making required monthly payments due
7

under the loan documents. On May 28, 2010, Wells Fargo sent Springhill Gateway a notice of
default, acceleration, and demand for payment. The notice of default did not allege that the
existence of the Mechanic’s Liens constituted a default under the loan documents.
On August 19, 2010, Wells Fargo initiated foreclosure proceedings with respect to the
Property by filing a verified complaint for mortgage foreclosure and other relief in the Sixteenth
Judicial Circuit Court of Kane County, Illinois (the “Foreclosure Action”). Wells Fargo declared
that the loan had been accelerated pursuant to Section 7.1(a) of the mortgage. Wells Fargo
assigned the loan documents to JLM pursuant to an allonge and agreements dated December 14,
2010. JLM was granted leave to substitute in as Plaintiff in the Foreclosure Action. On June 11,
2011, JLM filed an amended complaint naming Aktipis as a defendant in the Foreclosure Action.
Springfield Gateway challenged the Mechanic’s Liens in the Foreclosure Action. On
March 14, 2011, the court in the Foreclosure Action declared the Sure-Light Lien and the
Hummel Lien to be null and void.
On August 27, 2012, an order confirming sale was entered in the Foreclosure Action.
The court awarded JLM a judgment in rem against Springhill Gateway in the amount of
$10,537,358.38. The court indicated that the judgment “stands satisfied as to $1,431,416.”
The Guaranty Action
On April 8, 2011, JLM sent Aktipis a written demand for payment of amounts allegedly
due and owing under the Guaranty. In its correspondence, JLM asserted that the recording of the
Mechanic’s Liens against the Property had triggered the full recourse provisions of the loan
documents and the Guaranty. This was the first time that either JLM or Wells Fargo had claimed
that the Mechanic’s Liens against the Property caused Springhill Gateway or Aktipis to become
personally liable under the loan documents. JLM has received no payment from Aktipis. On
8

April 15, 2011, JLM initiated this action by filing a one-count complaint for breach of the
Guaranty. The complaint alleges that Atkipis breached the Guaranty for failing to pay the entire
balance currently due on the loan, totaling $9,114,546.00 as of March 31, 2011.
II. LEGAL STANDARD
Summary judgment is appropriate when the movant shows there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56;
Smith v. Hope Sch., 560 F.3d 694, 699 (7th Cir. 2009). The court ruling on the motion construes
all facts and makes all reasonable inferences in the light most favorable to the nonmoving party.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Summary judgment is called for
when the nonmoving party is unable to establish the existence of an essential element of its case
on which it will bear the burden of proof at trial. Kidwell v. Eisenhauer, 679 F.3d 957, 964 (7th
Cir. 2012). Summary judgment may be rendered on liability alone, even if there is a genuine
issue as to the amount of damages. See, e.g., Wisc. Alumni Research Found. v. Xexon Pharm.,
Inc., 591 F.3d 876, 885 (7th Cir. 2010).
III. ANALYSIS
Most of the facts in this case are not in dispute.

The parties agree that JLM’s

predecessor-in-interest loaned money to Springhill, and that when Springhill Gateway obtained
the rights and obligations of the original borrower, Aktipis served as guarantor on the loan. They
agree that the Guaranty is a valid and enforceable contract governed by Illinois law. They agree
that the loan was a nonrecourse loan, and that the loan documents generally precluded the
original lender or its successors in interest (henceforth referred to collectively as “JLM”) from

9

seeking any personal deficiency judgment against Springhill Gateway. 2

Under certain

circumstances, however, Springhill Gateway, and Aktipis as guarantor, could become liable for
the full amount of the debt.
The parties dispute whether the circumstances here triggered the recourse provisions of
the loan documents, and thus whether Aktipis breached the Guaranty by failing to satisfy the
debt. Under Illinois law, “[t]he elements of a breach of contract claim under Illinois law are: (1)
the existence of a contract, (2) the performance of its conditions by the plaintiff, (3) a breach by
the defendant, and (4) damages as a result of the breach.” Am. Safety Cas. Ins. Co. v. City of
Waukegan, 776 F. Supp. 2d 670, 707 (N.D. Ill. 2011) (citing Roberts v. Adkins, 921 N.E.2d 802,
811 (Ill. App. Ct. 2010)). Only the third element of a breach of contract claim is at issue here.
Aktipis argues that he is entitled to summary judgment on JLM’s complaint for three
reasons: 1) Springhill Gateway’s personal liability was extinguished by the judgment entered in
favor of JLM in the Foreclosure Action, absolving Aktipis from his own obligations as
guarantor; 2) the Mechanic’s Liens recorded against the Property did not trigger a full recourse
event under the loan documents and Guaranty; and 3) JLM’s construction of the documents at
issue would produce an absurd result contradictory to Illinois law. JLM, in turn, argues that it is
entitled to summary judgment as to liability because Springhill Gateway allowed encumbrances
to be placed on the Property, triggering Aktipis’s liability as guarantor for the entire amount of
the debt. The court addresses these arguments in turn.
2

“By definition, a loan is ‘nonrecourse’ where the debtor is not personally liable for the
debt upon default, but rather, the creditor’s recourse is solely to repossess the property granted as
security for the loan.” Heller Fin., Inc. v. Lee, No. 01 C 6798, 2002 WL 1888591, at *4 (N.D.
Ill. Aug. 16, 2002) (internal quotation marks omitted). In contrast, a recourse debt may be
satisfied by pursuing the debtor’s other assets in addition to the collateral securing the note.
BLACK’S LAW DICTIONARY 1086 (West 1999).
10

A. The Judgment in the Foreclosure Action
Aktipis first argues that Springhill Gateway is not personally liable for any deficiency
because it was discharged from personal liability by the judgment entered in favor of JLM in the
Foreclosure Action. According to Aktipis, when a judgment in rem was entered in favor of JLM
in the Foreclosure Action, the loan itself was extinguished. Aktipis argues that the liability of a
guarantor can be no greater than that of the debtor, and that if no recovery can be had against the
debtor, the guarantor is absolved of liability as well.
The court disagrees. Generally, Illinois courts have held that a mortgage foreclosure
action adjudicates only the interests in the property subject to the mortgage, and that a remedy
pursued under a guaranty can proceed independently from the foreclosure action. See, e.g., LP
XXVI, LLC v. Goldstein, 811 N.E.2d 286, 289 (Ill. App. Ct. 2004) (“Here, foreclosure on the
mortgage was chosen as the first action; thereafter, plaintiff was entitled to proceed upon the
guaranty.”). The Seventh Circuit has also indicated that, under Illinois law, a lender may sue a
guarantor to collect a deficiency judgment after a foreclosure proceeding. Freedom Mortg.
Corp. v. Burnham Mortg., Inc., 596 F.3d 667, 671 (7th Cir. 2009).
Aktipis cites Riley Acquisitions, Inc. v. Drexler, 946 N.E.2d 957 (Ill. App. Ct. 2011), and
Northbrook PLIC, LLC v. CVS Pharmacy, Inc., No. 10 C 0873, 2012 WL 581223 (N.D. Ill. Feb.
17, 2012), in support of his argument that when a borrower’s obligations are extinguished, the
guarantor’s obligations are extinguished as well.

But those cases involved specific

circumstances absolving the guarantor that are not found here.

In Riley, the borrower’s

obligations under the note had been completely satisfied, “meaning that the liability clause [did]
not impose any liability on [the] defendant as guarantor.” 946 N.E.2d at 965. In Northbrook, a

11

lease was terminated and supplanted by an entirely new lease; the termination ended the
guarantor’s liability under the original lease. 2012 WL 581223, at *6.
Here, nothing in the state court order or the loan documents absolves Aktipis of liability
for a deficiency judgment. The August 27, 2012, order of the Kane County court stated that the
total judgment was $10,537,358.38, and that it “stands satisfied as to $1,431,416.” (Def.’s SOF
Ex. 13 (Order), ECF No. 76-9.) The order was silent as to JLM’s ability to recover the
remainder of the judgment from the guarantor. The loan documents also explicitly indicate that
JLM may seek recovery from the guarantor for a deficiency judgment. The mortgage states that
“in the event Lender commences a foreclosure action against the Property, Lender is entitled to
pursue a deficiency judgment with respect to such obligations against . . . any guarantor . . . with
respect to the Loan.” (Mortgage § 7.10.) The Guaranty provides that “the obligation of the
Guarantor . . . shall in no way be terminated, affected, or impaired . . . by reason of the release or
exchange of any property covered by the Security Instrument or other collateral for the
indebtedness evidenced by the Note.” (Guaranty 3.) Based on the broad language of these
documents, the court concludes that Aktipis was not absolved of liability by the judgment in rem
entered in favor of JLM in the Foreclosure Action.
B. The Mechanic’s Liens
Aktipis next argues that the Mechanic’s Liens did not trigger full recourse liability under
the loan documents. Rather, Springhill Gateway’s liability—and thus his own as guarantor—is
limited to the actual damages sustained by JLM as a result of the liens. In support of this
argument, Aktipis first points to § 9.4 of the loan agreement, which states that the lender may
enforce the liability and obligation of Borrower, by money judgment or otherwise,
to the extent of any loss, damage, cost, expense, liability, claim or other obligation
incurred by the Lender (including attorneys’ fees and costs reasonably incurred)
12

arising out of or in connection with . . . (vii) Failure to pay charges for labor or
materials or other charges that can create liens on any portion of the Property.
(Loan Agreement § 9.4 (emphasis added).) The loan agreement then states that “the Debt shall
be fully recourse to the Borrower . . . in the event that . . . (III) Borrower fails to obtain Lender’s
prior written consent (to the extent such consent is required) to any subordinate financing or
other voluntary lien encumbering the Property.” (Id. (emphasis added).)
According to Aktipis, § 9.4 of the loan agreement contemplates different bases for
holding the borrower personally liable for either actual damages incurred by the lender or the full
amount of the debt. Pursuant to § 9.4(vii), the filing of the Mechanic’s Liens triggered liability
on the part of Springhill Gateway only for the actual damages sustained by JLM as a result of
Springhill Gateway’s failure to pay for materials resulting in a lien on the Property. Under
§ 9.4(III), the full recourse trigger creating personal liability for the entire amount of the debt
only occurs when a “voluntary lien” is allowed to encumber the property without the lender’s
consent. Aktipis argues that the Mechanic’s Liens were not “voluntary liens,” because Springhill
Gateway never agreed to the liens.

In other words, they were not created voluntarily by

Springhill Gateway in order to secure an extension of credit, but rather arose involuntarily by
operation of law. Thus, under § 9.4(vii), Springhill Gateway could be held personally liable only
for actual damages resulting from the Mechanic’s Liens, not for the entirety of the debt.
According to Aktipis, he can be held liable as guarantor only to the extent that Springhill
Gateway could be held personally liable, because the Guaranty explicitly incorporates the scope
of Springhill Gateway’s personal liability, as set out in the loan documents. He points out that
the Guaranty defines “Guaranteed Recourse Obligations of Borrower” as “all obligations and
liabilities of Borrower set forth in subparagraphs (a) and (b) below for which Borrower shall be
13

personally liable pursuant to and as may be defined in any of the Note, the Security Instrument,
or the Other Security Documents.” (Guaranty 8.) He argues that because Springhill Gateway
was not liable for the entirety of the debt under § 9.4(vii), but only for actual damages resulting
from the Mechanic’s Liens, JLM cannot recover the entire amount of the debt from him under
the Guaranty. Rather, his liability is likewise limited to the actual damages sustained by JLM.
In response, JLM argues that the Guaranty states that Aktipis would be liable for:
(b)

The entire Debt in the event of Borrower’s default under the provisions of
the Note, Security Instrument, or other Security Documents relating to . . .
(ii) a prohibition of sale, transfer, or encumbrance of the Property without
Lender’s consent . . .

(Guaranty 12.) JLM argues that Aktipis is obligated under the Guaranty to satisfy the debt
because three Mechanic’s Liens were filed against the property.

JLM contends that the

Mechanic’s Liens were not “Permitted Encumbrances,” that they were not filed with prior
consent from the lender, and that Springhill Gateway failed to provide notice to JLM of its intent
to contest the liens or their underlying costs. According to JLM, Atkipis is liable for the entire
debt under subpart (b)(ii) of the Guaranty because Springhill Gateway defaulted under the note
and allowed the Property to be encumbered without JLM’s consent. JLM further argues that
Aktipis’s liability under the Guaranty is not limited to Springhill Gateway’s liability under the
loan agreement, and that even if JLM could only recover actual damages resulting from the liens
from Springhill Gateway, it can collect the entire amount of the debt from Aktipis.
In interpreting the Guaranty, the court applies general rules of contract construction.
“Where the language of a contract is unequivocal, it must be carried out according to its
language.” McLean Cnty. Bank v. Brokaw, 519 N.E.2d 453, 456 (Ill. 1988). To the extent that
there is any ambiguity in the language of the Guaranty, however, it must be construed in the
14

guarantor’s favor. Riley Acquisitions, Inc. v. Drexler, 946 N.E.2d 957, 965 (Ill. App. Ct. 2011)
(“[O]ur analysis must be guided by the well-established principle that a guarantor ‘is a favorite
of the law.’”). In Northbrook, this court noted “Illinois law’s special solicitude to guarantors,
which requires that this court accord [guarantors] the benefit of the doubt when interpreting
guaranty contracts.” 2012 WL 581223, at *6 (internal quotation marks omitted).
The court first examines the language of the Guaranty. Although JLM quotes part of the
Guaranty, which states that Aktipis would be liable for “[t]he entire Debt” in the event of a
default by the borrower, it omits the immediately preceding language which states that Aktipis
guarantees to the lender the “Guaranteed Recourse Obligations of Borrower,” defined as “all
obligations and liabilities of Borrower . . . for which Borrower shall be personally liable pursuant
to and as may be defined in any of the Note, the Security Instrument, or the Other Security
Documents.” (Guaranty 2 (emphasis added).) Keeping in mind the rule that the guarantor must
be accorded the benefit of any ambiguity in the language of a guaranty, the court concludes that
this language indicates that Aktipis could not become liable as guarantor for the entire debt
unless Springhill Gateway was personally liable for the entire debt under the loan documents.
To determine whether an event triggering Springhill Gateway’s personal liability for the
full amount of the debt occurred, the court next examines the loan documents. The court agrees
with Aktipis that under § 9.4(III) of the loan agreement, the full recourse trigger occurs only
when a “voluntary lien” is allowed to encumber the property without the lender’s consent. In In
re Barnes, 276 F.3d 927, 929 (7th Cir. 2002), the Seventh Circuit explained the difference
between voluntary and involuntary liens:
[T]here is a difference well recognized in bankruptcy and secured-transactions
law between a voluntary and an involuntary lien. The former, sometimes called a
consensual lien or a security interest, is the type of lien that you give someone to
15

secure his extension of credit to you; the latter, sometimes called a nonconsensual
lien . . . , arises from your having defaulted on an obligation to the tax authorities,
employees, or other involuntary creditors.
Id. In this case, the Mechanic’s Liens were involuntary liens that arose when Springhill Gateway
failed to make payments for construction work. The full recourse trigger set out in § 9.4(III) is
therefore inapplicable.

Under § 9.4(vii), the filing of the Mechanic’s Liens triggered only

liability for the actual damages sustained by JLM, not liability for the entire amount of the debt.
Having so concluded, the court holds that Aktipis did not breach the Guaranty, because
he is not liable for the full amount of the loan, but only for any actual damages for which
Springhill Gateway could be personally liable under § 9.4(vii) of the loan agreement. This
conclusion resolves the issues contested by the parties. The court need not address Aktipis’s
final argument—that because the loan documents permitted Springhill Gateway to contest liens
filed against the Property, the mere filing of a lien could not trigger full recourse liability.
IV. CONCLUSION
Because Aktipis is not liable as guarantor for all amounts due under the loan, he is
entitled to summary judgment as to Count I of the complaint. Accordingly, the court grants his
motion for summary judgment and denies JLM’s motion for partial summary judgment as to
liability. The clerk is directed to enter judgment in favor of Aktipis and to close this case.

ENTER:

/s/
JOAN B. GOTTSCHALL
United States District Judge
DATED: June 3, 2013
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