Appeal from the Circuit Court, Nineteenth Judicial Circuit of
Lake County; the Hon. GLENN K. SEIDENFELD, Judge, presiding.
Mortgage foreclosure decree reversed.
MR. PRESIDING JUSTICE MORAN DELIVERED THE OPINION OF THE COURT.
Rehearing denied November 17, 1966.
This is an appeal from a mortgage foreclosure decree entered in favor of the plaintiff mortgagee, Equitable Life Assurance Society. The defendant mortgagors, Mauro L. Scali and his wife, Joanna, defendant the action on the ground, among others, that the mortgage loan was usurious. Their appeal from the adverse ruling of the lower court presents a case of first impression in this State.
In 1957, the defendants purchased a home in Deerfield, Illinois, for $34,000 and obtained $25,000 of the purchase money by borrowing that amount from the plaintiff. The loan was secured by a twenty-five year mortgage at five percent interest. At the time of the loan, plaintiff had appraised the market value of the property at $38,500. The amount of the loan was, therefore, roughly two-thirds the market value of the property.
As a condition of the loan, the plaintiff also required Scali to take out an Equitable life insurance policy in the amount of $25,000, and to assign the policy to Equitable as collateral security for the loan. At the time of the loan, Scali already had life insurance policies in force with the Northwestern Mutual Life Insurance Company in the face amount of $58,500. It appears that the "family income" provisions of these Northwestern Mutual policies brought their total value to approximately $75,000. These Northwestern Mutual policies were permanent insurance and not term insurance.
Scali testified that he inquired of the Equitable agent as to whether he could assign his Northwestern policies to Equitable as collateral security for the loan, in lieu of purchasing an additional life insurance policy from Equitable. He was informed that this could not be done, and that Equitable would accept only a new or already existing Equitable policy. This testimony was not contradicted by the plaintiff, and the record is clear that, at the time of the loan in question, every mortgage loan made by Equitable had to be secured by one of its own insurance policies on the life of the borrower, regardless of what other life insurance the borrower might already have had or have been willing to acquire in lieu of an Equitable policy. Subsequent to the Scali loan, Equitable changed its policy in this respect. Moreover, the Equitable policy had to be one of ordinary life insurance, and not term insurance, which would have been less costly to the insured.
The defendants were required to make monthly payments of $195.73. Of this amount, $146.25 was for the principal and interest on the mortgage loan, and $49.48 was for the life insurance premium. The payments on the mortgage and the insurance policy were inseparable, and it was provided that any default in payment on the insurance premiums would be considered a default on the mortgage, and the entire loan would become due.
Beginning in the latter part of 1958, Scali encountered problems with his employment and the monthly payments to Equitable were often delinquent. This situation continued for several years, and finally this foreclosure action was filed by Equitable in 1964.
In their answer to the complaint, the Scalis raised the affirmative defense of usury, pleading that the insurance premium was an additional charge exacted for the loan, and that when the insurance premium was added to the stipulated five percent interest, the total charge for the loan exceeded the seven percent maximum permitted by statute. It was their theory that, because of the usurious nature of the transaction, all interest on the loan was forfeited and, pursuant to Ill Rev Stats ch 74, § 6, defendants were entitled to a setoff against the remaining amount due on the principal, of all interest and insurance premiums paid, together with reasonable attorneys' fees and court costs.
It was stipulated that the monthly payment on a $25,000 loan for twenty-five years at seven percent interest the legal maximum was $176.70. As previously noted, the combined payment of the Scalis was $195.73.
One normally thinks of "usury" as the simple practice of charging a greater amount of "interest," clearly labeled as such, than the law allows. Since the "interest" in this case was only five percent, whereas the law allows seven percent, it is apparent at the outset that we are not dealing with the typical usury case, and, as we have indicated, there is no reported decision in this State which deals with the question presented.
We start with the fact that, by the terms of the statute itself, "usury" is by no means limited to the charging of excessive "interest." Sec 5 of ch 74, Ill Rev Stats, provides that:
"No person or corporation shall directly or indirectly accept or receive, in money, goods, discounts or thing in action, or in any other way, any greater sum or greater value for the loan, forbearance or discount of any money, goods or thing in action, than is expressly authorized by this Act or other laws of this State. . . ." (Emphasis added.)
The basic law concerning usury seems relatively uniform throughout the country, and it is clear that under certain circumstances the requirement of insurance in connection with a loan can, in some instances, render the entire transaction usurious. The cases from other jurisdictions are collected in a comprehensive annotation at 91 ALR2d ...