Illinois Court Holds That Judgment Obtained By Unlicensed Bill Collector is Void

LVNV FUNDING, LLC v. Trice, Ill: Appellate Court 2011 - Google Scholar

This case could have a broad ranging impact on the debt collection industry as it holds that an unlicensed bill collection firm's judgment against a debtor is void as a matter of law.

The Court held that the judgment debtor can attack a void judgment under Section 2-1401 without showing diligence. It wrote:"Trice has adequately alleged that before it filed the lawsuit, LVNV had not registered as a collection agency, as required by the Illinois Collection Agency Act (Act) (225 ILCS 425/14, 14b (West 2008)). But Trice did not raise this issue before the trial court entered a final judgment against him on LVNV's complaint. Trice raises the issue only in a section 2-1401 petition for relief from the judgment. Finally, Trice claims that LVNV's failure to register makes the judgment in its favor void, and not merely voidable.

When the trial court enters a void judgment, a party aggrieved by the judgment may attack it in a section 2-1401 motion without showing diligence. "[T]he allegation that the judgment or order is void substitutes for and negates the need to allege a meritorious defense and due diligence." Sarkissian v. Chicago Board of Education, 201 Ill. 2d 95, 104 (2002)."

The Appellate Court then reasoned that because the collection agency had committed a crime in attempting to collect without a license, the judgment was void.

"A party who acts as a collection agency without proper registration commits a Class A misdemeanor and must also pay a civil penalty. 225 ILCS 425/4.5, 14, 14b (West 2008).

Assuming the truth of the allegations in Trice's section 2-1401 motion, that LVNV had not registered as a collection agency before it sued Trice, LVNV committed one crime when it purchased the debt from Citibank (see 225 ILCS 425/3(d) (West 2008)), and it committed a second crime when it filed the complaint. See 225 ILCS 425/14 (West 2008).

Williston states the general rule that applies here:

"When a contracting party is required to have a license to engage in a business and violation of required licensing statute is made a crime, a contract calling for performance in violation of this requirement is illegal and void." 10 Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts §19.47, at 562 (4th ed. 1993).

The rule follows from the "elementary principle[] of contract law *** that an illegal contract is void ab initio." People v. Caban, 318 Ill. App. 3d 1082, 1089 (2001). In support of the general rule, Williston cites Reilly v. Clyne, 234 P. 35, 37 (Ariz. 1925), for the proposition that "where a statute pronounces a penalty for an act, a contract founded on the act is void.""

Comment: this decision is consistent with the current trend of courts attempting to rein in collection agencies. There have been reports in the press and in the cases of debt collectors attempting to obtain a judgment where the debt collector does not own the debt.

Edward X. Clinton, Jr.