In this recent decision of the Illinois Appellate Court for the First District, the Court rejected a claim by a borrower that the 365/360 interest calculation method violated the Illinois Interest Act. According to the Court, Asset Exchange is a limited liability company owned by "two sophisticated businessmen." On December 14, 2007, Asset Exchange entered into a commercial loan agreement with the Defendant Bank whereby the Bank agreed to loan $1,250,000 to Asset Exchange. The interest rate was 8.25%, computed on a 365/360 basis. The loan states: "'the annual interest rate for this Note is computed on a 365/360 basis; that is by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding.'" Plaintiff claimed that, by using a year of less than 365 days, the Bank was wrongfully using a definition of "year" that was in violation of the Illinois Interest Act and thus charged and received more interest than was due. The Bank moved to dismiss on the ground that the Interest Act does not apply to commercial loans. The trial court agreed and the Appellate Court affirmed. The Appellate Court noted that prior Illinois decisions have held that the Interest Act does not apply to corporations. See Computer Sales Corp. v. Rousonelos Farms, Inc., 190 Ill. App. 3d 388, 392 (1989). The Appellate Court rejected the breach of contract claim because (a) the terms of the Note were unambiguous and (b) the Bank complied with the terms of the Note. Comment: this is a victory for Banks as the 365/360 interest calculation method is commonly used in commercial transactions. Edward X. Clinton, Jr.
Saturday, 3 September 2011
Sunday, 21 August 2011
What Statute of Limitations Applies to A Claim That A Mortgage Was Unconscionable?
Posted on 16:55 by Unknown
Estate of Davis v. Wells Fargo Bank, 633 F. 3d 529 - Court of Appeals, 7th Circuit 2011 - Google Scholar
The Seventh Circuit affirmed the dismissal of the plaintiff's claim against Wells Fargo Bank, which took over the servicing of a predatory mortgage loan.
The plaintiff asserted claims for unconscionability and fraud under Illinois law. The Seventh Circuit noted that the fraud and unconscionalbility claims were subject to a five-year statute of limitations. See 735 ILCS 5/13-205.
The dismissal of the fraud claim was affirmed by the Seventh Circuit on the ground that Davis disputed the charges and failed to pay them.
The Court explained: "On appeal, Mrs. Davis contends that the district court erred in not also considering the defendants' demands that she pay her loan, demands that continued even after the defendants knew that the Kankakee County court had ruled that her loan was based in part on Mortgage Express's fraud. We agree that overlooking this allegation was incorrect. Statements made to induce someone to pay a purported debt that they do not actually owe, if made with the requisite knowledge and intent, can support an allegation of fraud. See Hartigan v. E & E Hauling, Inc., 153 Ill.2d 473, 180 Ill.Dec. 271, 607 N.E.2d 165, 175-77 (1992) (allegations that contractor's letter sent to a metropolitan authority contained material misrepresentations as to contractor's compliance with minority business enterprise contract requirements, made for purpose of inducing authority's reliance in paying contract installment, supported allegation of common-law fraud). However, we agree with the district 537*537 court that Davis's fraud claim still fails for a different reason. Even though Mrs. Davis alleged that the defendants attempted to induce her to pay money that they knew she did not owe, Mrs. Davis did not allege that she had relied on the defendants' demands for payment or that she had suffered any damages as a result of those demands. To the contrary, with the help of her attorney, she fought those unjustified demands. Without reliance or damages, Mrs. Davis does not have a viable claim for fraud. We affirm the district court's dismissal of Mrs. Davis's fraud claim."
Comment: Illinois does not recognize attempted fraud. To sue for fraud the aggrieved party must allege damages.
The Breach of Contract claim of unconscionability was barred by the five-year statute of limitations.
The court reasoned: "Under Illinois law, a contract may be found to be unconscionable as a matter of law on either a "procedural" or "substantive" basis, or both. Razor v. Hyundai Motor America, 222 Ill.2d 75, 305 Ill.Dec. 15, 854 N.E.2d 607, 622 (2006). Procedural unconscionability refers to a situation in which a term is so difficult to find, read, or understand that the party could not fairly be said to have been aware she was agreeing to it. Procedural unconscionability also takes into account the party's relative lack of bargaining power. Razor, 305 Ill.Dec. 15, 854 N.E.2d at 622, citing Frank's Maintenance & Engineering, Inc. v. C.A. Roberts Co., 86 Ill.App.3d 980, 42 Ill.Dec. 25, 408 N.E.2d 403, 410 (1980). Substantive unconscionability, on the other hand, refers to contractual terms which are inordinately one-sided in one party's favor. Razor, 305 Ill.Dec. 15, 854 N.E.2d at 622, citing Rosen v. SCIL, LLC, 343 Ill.App.3d 1075, 278 Ill.Dec. 770, 799 N.E.2d 488, 493 (2003).
Mrs. Davis has not shown that the district court erred when it barred consideration of the formation of her mortgage contract in September 1999 on statute of limitations grounds. In this federal lawsuit, Mrs. Davis was not using the doctrine of unconscionability in its most familiar way, as an affirmative defense to bar enforcement of a contract or a particular term of a contract. See, e.g., Razor, 305 Ill.Dec. 15, 854 N.E.2d at 622-24 (holding that exclusion of consequential damages in limited warranty was not enforceable because it was unconscionable). Mrs. Davis instead sought damages from the successors in interest to the original lender. We do not address here whether unconscionability gives rise to a standalone claim for damages under Illinois law, as Mrs. Davis asserts here. We do not address that issue because even if such a claim is cognizable in Illinois, it is clear that such a claim would be barred by the five-year statute of limitations."
Edward X. Clinton, Jr.
The Seventh Circuit affirmed the dismissal of the plaintiff's claim against Wells Fargo Bank, which took over the servicing of a predatory mortgage loan.
The plaintiff asserted claims for unconscionability and fraud under Illinois law. The Seventh Circuit noted that the fraud and unconscionalbility claims were subject to a five-year statute of limitations. See 735 ILCS 5/13-205.
The dismissal of the fraud claim was affirmed by the Seventh Circuit on the ground that Davis disputed the charges and failed to pay them.
The Court explained: "On appeal, Mrs. Davis contends that the district court erred in not also considering the defendants' demands that she pay her loan, demands that continued even after the defendants knew that the Kankakee County court had ruled that her loan was based in part on Mortgage Express's fraud. We agree that overlooking this allegation was incorrect. Statements made to induce someone to pay a purported debt that they do not actually owe, if made with the requisite knowledge and intent, can support an allegation of fraud. See Hartigan v. E & E Hauling, Inc., 153 Ill.2d 473, 180 Ill.Dec. 271, 607 N.E.2d 165, 175-77 (1992) (allegations that contractor's letter sent to a metropolitan authority contained material misrepresentations as to contractor's compliance with minority business enterprise contract requirements, made for purpose of inducing authority's reliance in paying contract installment, supported allegation of common-law fraud). However, we agree with the district 537*537 court that Davis's fraud claim still fails for a different reason. Even though Mrs. Davis alleged that the defendants attempted to induce her to pay money that they knew she did not owe, Mrs. Davis did not allege that she had relied on the defendants' demands for payment or that she had suffered any damages as a result of those demands. To the contrary, with the help of her attorney, she fought those unjustified demands. Without reliance or damages, Mrs. Davis does not have a viable claim for fraud. We affirm the district court's dismissal of Mrs. Davis's fraud claim."
Comment: Illinois does not recognize attempted fraud. To sue for fraud the aggrieved party must allege damages.
The Breach of Contract claim of unconscionability was barred by the five-year statute of limitations.
The court reasoned: "Under Illinois law, a contract may be found to be unconscionable as a matter of law on either a "procedural" or "substantive" basis, or both. Razor v. Hyundai Motor America, 222 Ill.2d 75, 305 Ill.Dec. 15, 854 N.E.2d 607, 622 (2006). Procedural unconscionability refers to a situation in which a term is so difficult to find, read, or understand that the party could not fairly be said to have been aware she was agreeing to it. Procedural unconscionability also takes into account the party's relative lack of bargaining power. Razor, 305 Ill.Dec. 15, 854 N.E.2d at 622, citing Frank's Maintenance & Engineering, Inc. v. C.A. Roberts Co., 86 Ill.App.3d 980, 42 Ill.Dec. 25, 408 N.E.2d 403, 410 (1980). Substantive unconscionability, on the other hand, refers to contractual terms which are inordinately one-sided in one party's favor. Razor, 305 Ill.Dec. 15, 854 N.E.2d at 622, citing Rosen v. SCIL, LLC, 343 Ill.App.3d 1075, 278 Ill.Dec. 770, 799 N.E.2d 488, 493 (2003).
Mrs. Davis has not shown that the district court erred when it barred consideration of the formation of her mortgage contract in September 1999 on statute of limitations grounds. In this federal lawsuit, Mrs. Davis was not using the doctrine of unconscionability in its most familiar way, as an affirmative defense to bar enforcement of a contract or a particular term of a contract. See, e.g., Razor, 305 Ill.Dec. 15, 854 N.E.2d at 622-24 (holding that exclusion of consequential damages in limited warranty was not enforceable because it was unconscionable). Mrs. Davis instead sought damages from the successors in interest to the original lender. We do not address here whether unconscionability gives rise to a standalone claim for damages under Illinois law, as Mrs. Davis asserts here. We do not address that issue because even if such a claim is cognizable in Illinois, it is clear that such a claim would be barred by the five-year statute of limitations."
Edward X. Clinton, Jr.
Friday, 29 July 2011
Illinois Court Holds That Judgment Obtained By Unlicensed Bill Collector is Void
Posted on 21:19 by Unknown
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.
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.
Greenberger v. GEICO General Ins. Co., 631 F. 3d 392 - Court of Appeals, 7th Circuit 2011 - Google Scholar
Posted on 21:06 by Unknown
Greenberger v. GEICO General Ins. Co., 631 F. 3d 392 - Court of Appeals, 7th Circuit 2011 - Google Scholar
The Seventh Circuit has affirmed the dismissal of a proposed class action by a policyholder against GEICO insurance.
Plaintiff alleged that GEICO had a practice of omitting necessary repairs from auto collision damage estimates and that he was damaged thereby.
The Seventh Circuit summarized the allegations and procedural history as follows:
"Though legally distinct, Greenberger's contract and fraud claims are all premised on the same basic factual allegation: that GEICO systematically omits necessary repairs from its collision-damage estimates in violation of the promise to restore the policyholder's vehicle to its preloss condition. The district court sidestepped the class-certification question, dismissed the statutory consumer-fraud claim, and then entered summary judgment for GEICO on 395*395the breach-of-contract and common-law fraud counts. Greenberger appeals."
The Seventh Circuit affirmed the dismissal of the case in all respects, finding that the fraud claims were really breach of contract claims dressed up as fraud claims.
"We affirm. All of Greenberger's claims are foreclosed by the Illinois Supreme Court's comprehensive decision in Avery v. State Farm Mutual Automobile Insurance Co., 216 Ill.2d 100, 296 Ill.Dec. 448, 835 N.E.2d 801 (2005). Among other important holdings, Averyestablished the common-sense proposition that a policyholder's suit against his insurer for breach of its promise to restore his collision-damaged car to its preloss condition cannot succeed without an examination of the car. Id., 296 Ill.Dec. 448, 835 N.E.2d at 826. Greenberger gave away his car, and without it, he cannot prove that what GEICO paid him was inadequate to restore the car to its preloss condition.
Avery also made clear that fraud claims must contain something more than reformulated allegations of a contractual breach. Id., 296 Ill.Dec. 448, 835 N.E.2d at 844. Greenberger alleges that GEICO never intended to restore his car to its preloss condition and failed to disclose that it regularly breaches this contractual promise. These are breach-of-contractallegations dressed up in the language of fraud. They cannot support statutory or common-law fraud claims."
Comment: this was an attempt to resurrect a type of class action against an auto insurer. In Illinois, these claims do not work. They can be brought on an individual basis, but the plaintiff must retain the car for examination to determine if the insurance company acted appropriately.
Edward X. Clinton, Jr.Thursday, 28 July 2011
Harvard Law Society of Illinois
Posted on 12:04 by Unknown
Thanks to the Harvard Law Society of Illinois for hosting today's lunch to discuss small firm practice.
Thanks to Daniel Ebner and Stacy Austin, the hosts of today's event.
Edward X. Clinton, Jr.
Thanks to Daniel Ebner and Stacy Austin, the hosts of today's event.
Edward X. Clinton, Jr.
Sunday, 12 June 2011
Seventh Circuit Interprets A "Best Efforts" Clause In a Contract
Posted on 09:58 by Unknown
Peter Denil and Gerald Nardella v. Deboer, Inc.,Et Al - The American Lawyer
The Seventh Circuit has issued a decision interpreting a series of contracts involving the aborted sale of a business.
Ronald DeBoer started a trucking business known as deBoer Transportation in 1967. In 2007, he and the other family members wanted to sell the business and retire. (Given what happened, it appears that DeBoer was not willing to retire or sell the business.)
There were two contracts (a) an employment agreement and (b) a stock-purchase contract.
The employment contract provided that one of the plaintiffs, Peter Denil, would become the CEO of DeBoer. The other plaintiff, Gerald Nardella, would become the Executive Vice President. DeBoer became an Executive Vice President. He held the right to discharge the plaintiffs with or without cause. If the discharge was without cause, plaintiffs would receive additional payments.
The stock-purchase contract called for Denil to buy 4% of DeBoer's stock for $500,000 and for Nardella to buy 2% for $250,000. The closing date was set for April 15, 2009. The parties agreed that the failure to purchase the stock by April 15, 2009, the plaintiffs' employment would be terminated. The parties also agreed that the signing of a buy-sell contract "would be a condition precedent to the obligation to purchase the 4% and 2% interests. The stock-purchase contract contained a clause in which the parties promised to use their best efforts to conclude the buy-sell contract."
The buy-sell contract was never signed. The parties had a dispute about how the purchase price would be allocated among the shareholders.
When April 15, 2009 arrived, the negotiations were stalled. Denil and Nardella refused to purchase the 4% and 2% interests in the company. They also failed to put the $750,000 purchase price into an escrow. DeBoer then fired the plaintiffs and they sued, seeking reinstatement, the opportunity to invest in DeBoer and damages for tortious interference. DeBoer filed a counterclaim. The case was decided under Wisconsin law. The district court entered summary judgment on all claims and the case was appealed to the Seventh Circuit, which affirmed in an opinion by Judge Easterbrook.
Plaintiffs contended that DeBoer did not use "best efforts" to conclude the Buy-Sell Agreement. The Seventh Circuit disagreed. Neither side violate cdd the best efforts clause because both exchanged many proposals. As the court stated: "[Plaintiffs] were free to buy the sock, with or without a buy-sell agreement; they just shoe not to do so. They agreed that they can't complain about the termination of their management positions. Ronald DeBoer wanted to ensure that the new managers' interests were aligned with those other shareholders. Plaintiffs were not entitled to retain the positions without making the investment essential to that end."
The Seventh Circuit also rejected the tortious interference with contract claim and the bad faith claim. "No one interfered with any contract: DeBoer simply enforced the contracts it had negotiated."
There was no lack of good faith because DeBoer did what it was entitled to do under the contract. As the court noted, "'good faith' in contract law means honesty plus refraining from opportunistic conduct that exploits the other side's sunk costs." See Market Street Associates L.P. v. Frey, 941 F.2d 588 (7th Cir. 1991). The court described bad faith - an actor who sulks in his dressing room during a movie production. The conduct is bad faith because the producer has already invested a great deal of money in the production and cannot afford to start with a new actor.
Because DeBoer complied with the terms of the contract, he did breach.
Edward X. Clinton, Jr.
Plaintiffs contended that DeBoer did not use "best efforts" to conclude the Buy-Sell Agreement. The Seventh Circuit disagreed. Neither side violate cdd the best efforts clause because both exchanged many proposals. As the court stated: "[Plaintiffs] were free to buy the sock, with or without a buy-sell agreement; they just shoe not to do so. They agreed that they can't complain about the termination of their management positions. Ronald DeBoer wanted to ensure that the new managers' interests were aligned with those other shareholders. Plaintiffs were not entitled to retain the positions without making the investment essential to that end."
The Seventh Circuit also rejected the tortious interference with contract claim and the bad faith claim. "No one interfered with any contract: DeBoer simply enforced the contracts it had negotiated."
There was no lack of good faith because DeBoer did what it was entitled to do under the contract. As the court noted, "'good faith' in contract law means honesty plus refraining from opportunistic conduct that exploits the other side's sunk costs." See Market Street Associates L.P. v. Frey, 941 F.2d 588 (7th Cir. 1991). The court described bad faith - an actor who sulks in his dressing room during a movie production. The conduct is bad faith because the producer has already invested a great deal of money in the production and cannot afford to start with a new actor.
Because DeBoer complied with the terms of the contract, he did breach.
Edward X. Clinton, Jr.
Wednesday, 8 June 2011
Opinion analysis: Attorney’s fees for frivolous claims : SCOTUSblog
Posted on 13:28 by Unknown
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