Appeal from the Circuit Court of Cook County; the Hon. IRVING
KIPNIS, Judge, presiding. Reversed and remanded with directions.
MR. PRESIDING JUSTICE MCCORMICK DELIVERED THE OPINION OF THE COURT.
Rehearing denied May 8, 1970.
This appeal is taken from an order denying a motion to vacate a judgment by confession. The judgment was entered against the defendants, Dominic and Antoinette Passarelli, on behalf of the plaintiff, Winter & Hirsch, Inc. Defendants made a motion before the trial court to vacate the judgment; the motion was denied, and from that order of the trial court this appeal is taken. The questions before this court are: 1) whether the loan entered into between the parties provided for a usurious rate of interest; and 2) whether the plaintiff was a holder in due course of the note evidencing the loan in question.
The defendants first contacted the Equitable Mortgage & Investment Corporation (hereafter referred to as Equitable), attempting to secure a loan. Equitable is a brokerage firm which makes its profits by selling loan contracts to finance companies at a discount. In this case Equitable was to lend the defendants $10,000. Of the several provisions in the note, we will consider the following: 1) a provision whereby the defendants agreed "for value received" to repay a total of $16,260 over a period of 60 monthly payments of $271 each; and 2) a confession of judgment clause. The promissory note signed by the defendants provided for payment to the bearer and was secured by a trust deed.
The maximum legal rate of interest which could have been charged the defendants was exceeded by Equitable, and it is uncontested that Equitable charged a usurious rate of interest. The question to be resolved by this court, however, is whether the defense of usury is available for use against the plaintiff, who claims to be holder in due course of the promissory note and therefore claims to have taken it free from the defense of usury. In the trial court the defense of usury was rejected and judgment was entered against the defendants based on the court's conclusion that the plaintiff was a holder in due course of the promissory note.
In this appeal the defendants pray that the trial court's order be reversed and that the loan be held to be usurious. Defendants further ask that the trial court be directed to enter an order allowing them twice the rate of interest, plus attorney's fees and court costs. They seek this relief based on Ill Rev Stats 1965, c 74, § 6. At the time of the original transaction that section allowed one aggrieved by the imposition of a usurious rate of interest to be freed of the obligation to pay any interest at all, but an amendment to the statute, in effect at the time of trial, granted one the right to a penalty in the amount of double the usurious interest charged, plus attorney's fees and court costs.
Defendants defaulted on the note and the plaintiff obtained a judgment by confession. At the trial the defendants attempted to show that before the plaintiff purchased the note it knew of the usurious interest being charged, and consequently could not have become a holder in due course. Defendants point out that the loan application which the defendants filled out on January 7, 1963, has on it the name of the plaintiff. They also call attention to the testimony of Dominic Passarelli that he had been told by an agent of Equitable that Winter & Hirsch might give them $10,000. By the terms of the promissory note the monthly payments were to be made at the office of Ralph E. Brown, an attorney for plaintiff.
The most compelling fact presented to the court is that plaintiff issued a check to Equitable for $11,000 on February 18, 1963, with the notation on the stub that the funds were for "the Passarelli deal," but the defendants did not receive the $10,000 until February 28, 1963, ten days later. In other words, the plaintiff had extended the money to Equitable for the Passarelli loan prior to the time the defendants executed the note which plaintiff claims to have bought from Equitable. This fact renders inapposite an entire series of cases upon which plaintiff relies. Those cases hold that a loan may be discounted at more than the usury rate if the purchaser is without knowledge that the note was originally tainted with usury. Stevenson v. Unkefer, 14 Ill. 103; Sherman v. Blackman, 24 Ill. 345; Colehour v. State Sav. Institution, 90 Ill. 152. The critical factual distinction between those cases and the one before us is that the plaintiff in the instant case provided the money for the usurious loan before the loan was actually made, whereas in the cited cases the party claiming to be the innocent holder of the usurious note had purchased it subsequent to its execution.
On oral argument counsel for plaintiff argued that there must have been a clerical error in the dates, and that no loan company would have given out money without the loan contract in its possession. The insurmountable difficulty with counsel's argument is that the date of the check issued to Equitable (February 18) and the date of the note executed by the defendants (February 28) are clearly established through the admission into evidence, without objection, of the check issued to Equitable and the note signed by the defendants. This court must accept those dates as accurate.
From these dates it appears that the plaintiff was a cooriginator of the note since it advanced the funds for the usurious loan before the loan was formalized. As a cooriginator it is charged with the knowledge of the terms of the loan, and that knowledge includes information regarding anticipated return on its investment. Such information should have made it clear that a usurious rate of interest was being charged the defendants; nevertheless, the plaintiff still elected to consummate the transaction, and it must now accept the consequences.
We note, however, that the plaintiff has argued that it did not give the $11,000 to Equitable until after it saw the loan contract; in other words, that it was a purchaser of the note after it had already been executed. Although the facts do not sustain this contention because of the respective dates on which the check to Equitable was issued and the note signed by the defendants, even if that version were correct, we would hold for the defendants.
If the note was seen, as alleged by plaintiff, prior to its giving Equitable $11,000, then the plaintiff also saw that the defendants had signed a note promising to repay $16,260. From the face of the note one cannot ascertain the principal amount the defendants had received; it can only be known that "for value received" the defendants agreed to repay $16,260. We feel, however, that as reasonable businessmen, assuming arguendo that plaintiff did not know the truth, it should have raised the question of why Equitable was willing to sell a $16,260 note for $11,000. The difference between what the plaintiff was paying Equitable and the amount of the note, was a charge beyond that permitted under the usury statute, and plaintiff should, therefore, have inquired how much money the defendants were receiving. We cannot permit parties to intentionally keep themselves in ignorance of facts which, if known, would defeat their unlawful purpose.
The Uniform Commercial Code (Ill Rev Stats 1965, c 26, § 3-304(1)) provides that when an instrument is so incomplete as to call its validity into question, a purchaser of that instrument is on notice of the possibility of a claim against it. In this case we feel that the instrument, without the information as to the principal sum of the loan extended to the defendants, was "so incomplete" as ...