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Household Finance Corp. v. Mowdy

AUGUST 27, 1973.

HOUSEHOLD FINANCE CORPORATION, PLAINTIFF-APPELLEE,

v.

WILLARD MOWDY ET AL., DEFENDANTS-APPELLANTS.



APPEAL from the Circuit Court of Winnebago County; the Hon. FRED J. KULLBERG, Judge, presiding.

MR. JUSTICE SEIDENFELD DELIVERED THE OPINION OF THE COURT:

Plaintiff, Household Finance Corporation (HFC), recovered a judgment of $3511.58 plus costs on a promissory note contained in a retail installment sales contract for a swimming pool. HFC had purchased the contract from Diversified Industries, Inc. (Diversified), the seller of the pool, and not a party to this action. The buyers, Willard and Mary Mowdy, denied the debt, asserted defenses against the contract, and counterclaimed for a $500 down payment paid to Diversified. They now appeal the decision of the trial court finding HFC a holder in due course immune from defendants' claims and defenses against Diversified.

Defendants maintain they have valid defenses against Diversified in that Diversified fraudulently induced them to purchase a swimming pool through false advertising and an unlawful sales technique; and that Diversified breached its express guarantee in various respects. Defendants further contend that they had the right, under the Uniform Commercial Code, to revoke their acceptance of the pool and recover so much of the price ($500) as had been paid. Finally, defendants contend, based on section 2D of the Consumer Fraud Act (Ill. Rev. Stat. 1971, ch. 121 1/2, par. 262D), that HFC is chargeable with the defenses and rights of action which could be asserted against the seller, Diversified.

Plaintiff relies on its status as a holder in due course, and contends that section 2D of the Consumer Fraud Act was satisfied by a notice provision in the contract. Further, HFC claims that evidence showing fraudulent inducement was based on inadmissible hearsay.

Because of the view we take of the case, a detailed summary of the evidence is unnecessary. It is conceded that the obligation contained in the installment contract here in question is negotiable; and it is undisputed that HFC took the note for value and in good faith without notice of any claim or defense at the time the note and contract were assigned to HFC.

• 1 A financial institution is a holder in due course if it takes a negotiable note for value in good faith without notice of a claim or defense and before it is due. (Ill. Rev. Stat. 1971, ch. 26, par. 3-302 (hereinafter UCC).) A holder in due course is entitled to the rights specified in UCC § 3-305. Specifically the holder takes the instrument free from the defenses that the buyer may assert against the seller-assignor except the so-called real defenses (e.g., infancy, illegality, fraud in the execution, bankruptcy).

However, the buyers contend that the assigned contract and note failed to comply with the notice requirement of section 2D of the Consumer Fraud Act (Ill. Rev. Stat. 1971, ch. 121, par. 262D), so that they may assert against HFC any defenses and claims they have against Diversified, the seller.

Section 2D pertinently provides:

"If a consumer in a retail installment sales transaction gives the seller a negotiable instrument in part or full payment for the merchandise which is the subject of a purchase order, retail charge agreement or retail installment sales contract before that merchandise is delivered or furnished to him, the assignment of that agreement or contract or the transfer of that negotiable instrument does not bar that consumer from asserting against the assignee or transferee any defense or right of action he may have against the seller unless (1) the contract or agreement contains, in at least 10-point bold type, the following notice:

`NOTICE TO BUYER

You have the right to give the assignee named (or if no assignee is named, to give the seller) written notice of any defense or right of action which you may have against the seller within 5 days of delivery of the merchandise described herein. If a notice is not received within that time, you may not assert such defense or right of action against the assignee.'; and (2) such a notice is not given within the time period stated. Notice is received within the meaning of this Section if the seller or assignee has refused to accept delivery by certified or registered mail of such a notice."

• 2 HFC relies upon a notice contained in the contract which provides that the buyer may cancel the agreement if it has been signed at a place other than the seller's place of business by giving a notice within three days after the signing of the agreement. However, this notice is pursuant to another statute (Ill. Rev. Stat. 1971, ch. 121 1/2, par. 262B), is designed for a different purpose, and does not fulfill the requirements of section 2D.

• 3, 4 Section 2D is unequivocal in its requirement. The statute is designed to combat a specific evil and is remediable in nature. It therefore should be liberally construed to effect its purpose of providing aggrieved buyers in explicit terms a method whereby they may communicate their complaints following delivery of purchased merchandise so as to preserve their claims and defenses against an assignee to whom payments will have to be made. Assuming that defendants did not advise HFC of possible defenses within a reasonable time by waiting 60 days following installation before giving written notice of cancellation, such fact would not obviate the requirement of inserting proper notice in the contract so that defendants would be informed of their rights under the Consumer Fraud Act.

While we hold that section 2D of the Consumer Fraud Act was not complied with in the installment contract assigned to HFC, we must also consider whether or not an express or implied clause in the contract which in substance purports to waive the buyer's defenses and claims against the assignee, ...


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