Appellate Court of Illinois Upholds Discharge of Guaranty Contract on Discharge Grounds

Most businesses require loans to normalize their income stream and ensure that they have the cash necessary to operate. Some business owners enter into guaranty contracts to get the capital that they need, and in the process become personally liable for the debt of their company. In such instances, disputes often arise when the other party attempts to enforce the guaranty contract to collect on the debt. Lubin Austermuehle has been involved with contract disputes of all kinds, and our Elgin guaranty contract attorneys recently uncovered a case that illustrates why it is important to draft such contracts carefully and enforce them in a timely manner.

In Riley Acquisitions Inc. v. Drexler, Defendant and her husband initially entered into a guaranty contract and promissory note with a third party to get credit for the two companies owned by the couple. Eventually, the marriage dissolved, and each spouse took control of one of the companies. Defendant’s company dissolved shortly thereafter, and Defendant then sent a letter to the third party revoking her personal guaranty. Her ex-husband eventually filed for bankruptcy – discharging his liability under the guaranty in the process, and leaving Defendant as the only guarantor on the loan. The third-party who owned the debt eventually sold and assigned its interest to Plaintiff, who filed suit to collect on the loan. Defendant asserted affirmative defenses that her obligation under the note terminated after her company (the principal on the note) dissolved and that Plaintiff’s claims were barred under the applicable ten-year statute of limitations. Defendant won a directed verdict on the basis of her discharge and statute of limitations defenses, and Plaintiff appealed.

The Appellate Court found that because Defendant’s company dissolved, its obligation on the note terminated five years later under the applicable portion of the Illinois Business Corporation Act of 1983. This effectively terminated Defendant’s liability as well because the guaranty contract did not expressly provide that liability would continue in such a situation. Thus, because Plaintiff filed suit nine years after the dissolution of Defendant’s company, the Court upheld the trial court’s verdict on discharge grounds and did not address the statute of limitations issue.

Lubin Austermuehle is a business litigation firm based in Chicago, Illinois that concentrates in handling the legal issues confronting businesses in today’s world. We represent both plaintiffs and defendants, and we have experience representing clients in matters ranging from qui tam actions to contract disputes. Our attorneys have over two and a half decades of experience in business litigation and have won favorable verdicts in many “bet the business” lawsuits. Lubin Austermuehle’s lawyers can identify and understand the legal issues in disputes, no matter how complex they may be. We will use our resources and knowledge to formulate a plan of action that will help further your interests, resolve your problems, and get you back to growing your business. Our focus with each client is to understand and settle the legal issues efficiently and with minimal costs, while still providing outstanding representation. If your company is being sued, or you are seeking advice to stay out of court, call our Elgin business attorneys to discuss what Lubin Austermuehle can do for you. For a consultation, call 630-333-0333 or send us an email through our website.

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