Integration Clauses and the Implied Duty of Good Faith and Fair Dealing – An Illinois Case Note

In JPMorgan Chase Bank, N.A. v. East-West Logistics, LLC, 2014 IL App (1st) 121111, the Illinois First District affirmed summary judgment for the plaintiff bank in its lawsuit for breach of a commercial guaranty.  In doing so, the Court re-emphasized the key rules governing affirmative defenses, the nature of a guarantor’s liability in Illinois and the content of a proper summary judgment affidavit.  Part I of this post examines the Court’s salient holdings on the court’s Section 2-615 dismissal of the defendant’s affirmative defenses.  Part II will focus on the Court’s dismissal of the guarantor’s fraud counterclaims and the Court’s discussion of summary judgment affidavits.


The guarantor (Defendant is the guarantor’s estate) signed a continuing guaranty in 2003 in which he guaranteed over $1M of a logistics company’s loan debt to plaintiff.  The guaranty provided that the plaintiff could proceed directly against the guarantor without first suing the principal debtor.

Plaintiff sued after the loan matured and the guarantor filed multiple affirmative defenses and counterclaims.  After the guarantor died, his Estate substituted in as defendant and prosecuted the defenses and counterclaims on the guarantor’s behalf.  The trial court struck all defenses and counterclaims and granted summary judgment for the bank in an amount exceeding $2M.  The court also denied the Estate’s motion to strike two of the lender’s summary judgment affidavits.  The Estate appealed

Held: affirmed:

Q: Why?!

A: The Court rejected the Estate’s affirmative defenses that the guaranty was extinguished.  The Estate’s affirmative defenses were deficient under Illinois fact-pleading rules.  In Illinois, an affirmative defense must allege facts with the same degree of specificity required to establish a cause of action.  An affirmative defense should not be stricken where well-pleaded facts raise the possibility that the party asserting the defense will prevail.

Illinois treats a guaranty like any other contract: the same formation and interpretation rules apply.  And while a guaranty is construed in favor of the guarantor (since he’s promising to answer for another’s debt), this rule only applies where there is ambiguity or doubt about a guaranty’s meaning.  Where the guaranty’s terms are clear, the terms should be enforced as written; with no need for outside evidence to interpret  the guaranty’s meaning.  A guarantor will be discharged where a creditor takes  action without the guarantor’s consent that either varies the terms of the underlying obligation or materially increases the guarantor’s risk. (¶¶ 32-33).


The Estate claimed that the guaranty was erases because the plaintiff increased the late guarantor’s liability by continuing to lend money to the corporate debtor knowing that it was in fiscal distress.  The Court disagreed and noted that the guaranty was “unconditional” and “unlimited” and the plaintiff was within its rights to continue lending monies to the corporate borrower without telling the guarantor.  The guarantor also waived any notice of the corporation’s default.  Illinois allows contractual waivers where they are clear and unambiguous.  (¶¶ 35-36).

The Court also upheld the trial court striking the Estate’s breach of duty of good faith and fair dealing and integration clause  defenses.  Good faith and fair dealing is implied in every contract, including guaranties.  A creditor has a good-faith obligation to inform the guarantor of any facts that will materially increase the guarantor’s risk beyond that which he intended to assume.  But parties are still entitled to enforce a contract to the letter and the implied covenant of good faith and fair dealing can’t overrule the express terms of a written contract.

Here, the  duty of good faith and fair dealing didn’t alter the clear and expansive guaranty language.  The guaranty required  the decedent/guarantor to actively monitor the corporate debtor’s financial state.  As a result, the bank’s continued loans to the struggling corporate borrower without informing the guarantor didn’t violate the duty of good faith and fair dealing. (¶¶47-52).

The Court also rejected the Estate’s claim that an integration clause in the underlying loan agreement (between the bank and the corporation) terminated the deceased’s guaranty obligations.  An integration clause  manifests the parties’ intent to protect against misinterpretations of a contract that might arise from extrinsic evidence.  It bars from consideration any evidence outside of the contract that tries to explain a certain term’s meaning. 

Here, since the deceased wasn’t party to the underlying loan contract (it was between the  bank and a corporation), he couldn’t rely on that contract’s integration clause to affect his guaranty obligations.  As a result, the loan agreement integration clause didn’t impact the guarantor’s obligations.  (¶¶ 59-63).

Conclusion: East-West Logistics presents a thorough summary of Illinois’ pleading rules for affirmative defenses and the substantive law on written guaranty construction and enforcement.  Even though a guarantor is a proverbial “favorite” of the law, a guaranty will still be enforced as written – no matter how seemingly  harsh the terms are.  The case reaffirms the proposition that a breach of implied duty of good faith defense can’t override clear, countervailing language in a written contract.  It’s also post-worthy for its discussion of the purpose and scope of integration clauses in written contracts.


Chiropractor’s Lien Can Be Adjudicated by Court Without Obtaining Personal Jurisdiction Over Chiropractor

Illinois’ Healthcare Services Lien Act, 770 ILCS 23/1 (the Act), allows a health care provider to impress a lien on a patient’s claim for personal injuries up to the amount of the provider’s services.  So, if I give medical services to an injured patient worth $2,000, that patient doesn’t pay me, and he later settles a personal injury suit for $10,000, I will have a claim to $2,000 of that settlement amount.  I would then ask the court – through a written petition – to validate (or “adjudicate”) the lien.

Smith v. Hammel, 2014 IL App (5th) 130227, examines the elements of a statutory healthcare service lien and the court’s expansive jurisdictional power to assess the validity and amount of a lien in the context of a personal injury claim.

The defendant lien claimant was a chiropractor who rendered about $3,000 worth of services to a patient who was injured in a car crash.  The chiropractor served notice of his healthcare services lien under the Act.  That patient later settled with the other driver before filing a personal injury suit.  The patient’s attorney (who negotiated the settlement with the other driver) filed a petition to adjudicate the chiropractor’s lien and served it by certified mail on the chiropractor.  When the chiropractor failed to show up on the petition date, the Court entered a default against the chiropractor and deemed the lien “void and discharged.”  About 18 months later, the chiropractor moved to vacate the order nullifying his lien on the basis that he was never personally served and so the Court lacked personal jurisdiction over him.  The court denied his motion.

Result: Affirmed


To perfect a healthcare services lien, the medical provider must serve notice of his lien by certified mail or in person upon (a) the injured party  and (b) the person against whom the claim exists.  770 ILCS 23/10(b).  To have the lien adjudicated by the court, either the injured party or the lien claimant may file a petition to adjudicate the lien and serve the petition by personal service, substitute service, registered or certified mail.  770 ILCS 23/30.

The Court found that the plaintiff’s counsel’s certified mail service of his petition to adjudicate the lien was sufficient to confer jurisdiction over the settlement proceeds.  The chiropractor argued that the Court lacked jurisdiction over him since he wasn’t personally served with a summons or the petition to adjudicate.

Personal jurisdiction means a court’s authority to determine the rights and duties of a litigant.  Firmly entrenched alternatives to personal jurisdiction are in rem jurisdiction and quasi in rem (“power against a thing”) jurisdiction – which involve jurisdiction based on the relationship between the defendant and a state with respect to specific property in the state.  (So, if I live in Florida but have a bank account in IL, a lawsuit seeking control over my IL bank account would implicate in rem jurisdiction.)  In rem jurisdiction rests exclusively on the site of the res (or “thing”).  A state has jurisdiction over property located within its borders and the settlement funds – here, the “res” – don’t have to be deposited into court for the court to exercise jurisdiction over them.

Since the litigation involved the settlement proceeds (the “thing” or “res”) paid to the plaintiff, he didn’t have to serve a summons on the chiropractor and the court didn’t have to have personal jurisdiction over him in order to adjudicate his lien.  By serving notice of the petition to adjudicate by certified mail in compliance with the statute, the plaintiff satisfied the predicate for the court to exercise in rem jurisdiction over the settlement funds.  (¶¶ 26-27).


If you receive a notice of a petition to adjudicate a healthcare services lien, you should show up – even  if you’re not personally served.  The case is also noteworthy for its illustration of a court’s expansive jurisdictional power over property – even where claimants to that property haven’t been personally served with summons.  To adjudicate a lien, all that’s required is the court to have jurisdiction over the settlement funds.  It doesn’t have to have personal jurisdiction over the individual parties claiming an interest in the funds.