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Mills v. State National Bank

MAY 1, 1975.




APPEAL from the Circuit Court of Cook County; the Hon. NATHAN M. COHEN, Judge, presiding.


Plaintiffs, James W. Mills and Mary Ann Mills, filed a class action complaint in the circuit court of Cook County against State National Bank (hereinafter the Bank) and Bankers Consultants Corporation, Bankers Consultants Corporation-North, and Mortgage Service Corporation (hereinafter the Brokers). Plaintiffs' first count of the amended complaint charged that a loan made by the Bank to plaintiffs which had been procured by the Brokers was tainted by usury and violations of Federal and State law. The second and third counts alleged that the Brokers had violated the Illinois Deceptive Trade Practices Act and the Illinois Consumer Fraud Act, respectively. After extensive pretrial discovery had been completed and after all parties had filed motions for summary judgment, the trial court granted defendants' motions with respect to count one, denied the Brokers' motions as to counts two and three, and denied plaintiffs' motions with respect to all of the counts. The trial judge accompanied his order with a written memorandum. Thereafter, plaintiffs voluntarily dismissed the second and third counts of the amended complaint. They have appealed from the order regarding count one.

The record consists of pleadings, affidavits, depositions, answers to interrogatories, and exhibits. It reflects the following pertinent facts.

State National Bank is a national banking association engaged in the general banking business, including the making of loans. Bankers Consultants Corporation and Bankers Consultants Corporation-North are both Illinois corporations involved in the loan brokerage business. Mortgage Service, another Illinois corporation under substantially the same ownership and control as the above-mentioned firms, specializes in evaluating credit for customers of the two loan brokerage corporations.

In April, 1967, plaintiffs borrowed $15,000 from a savings and loan association, secured by a first mortgage on their residence. In May, 1969, plaintiffs borrowed an additional $5,580 from Harris Mortgage Loan Corporation, secured by a junior mortgage on their home. The second loan was for a period of 3 years, payable in 36 monthly installments of $155 each, including interest at a purported annual percentage rate of 19.5 per cent.

In August, 1969, an employee of the Brokers contacted plaintiffs, informed them that he was aware of their latest loan, and related that his company might be able to refinance the loan on better terms. The parties in this case differ as to the precise nature of the representations made by the Brokers' employee. In any event, on August 12, 1969, after concluding a meeting with a different representative of the Brokers, plaintiffs signed a "Retention Agreement" authorizing the Brokers to negotiate a loan on their behalf with a bank up to $5,800 or such other sum as might be mutually satisfactory. The agreement further provided that successful negotiation of a loan would entitle the Brokers to a $700 commission which the Brokers could "cause the lender to disburse * * * from the principle amount of the loan at the same time and as part of the proceeds of the said loan * * *." In the event that plaintiffs failed to follow through with an approved loan agreement secured by the Brokers, the agreement stipulated that the Brokers would still be entitled to their fee as "liquidated damages" for the negotiation of the loan. At the meeting the Brokers' representative prepared a loan application for plaintiffs using the Brokers' forms and credit information furnished by plaintiffs.

Subsequently, the Brokers submitted the loan application to defendant bank. The Bank independently verified the credit information contained in the application and made additional credit inquiries. The Bank eventually approved the loan. The loan was evidenced by a certain installment of $159.55 each, including certain add-on finance charges at a purported annual percentage rate of 19.75 per cent. The note was secured by a trust deed on plaintiffs' property.

At the closing on August 27, 1969, the Bank delivered to plaintiffs a document purporting to be a full disclosure of information concerning the particulars of the loan as required by the Federal Truth-In-Lending Act (15 U.S.C. § 1601 et seq. (1970)) and Regulation Z thereunder, as well as the Illinois interest statute (Ill. Rev. Stat. 1969, ch. 74, par. 4a). On the face of the document, the finance charge was listed as follows:

"FINANCE CHARGE, consists of: ............................... $2,379.86 Service Charge ................................ $ 700.00 Interest ...................................... $1,679.86"

Plaintiffs then executed all the pertinent documents and approved the disbursements of the loan proceeds, including the fee that was paid to the Brokers.

The notice of right of rescission contained an error. Although the printed copy stated that the borrowers had until midnight of the third business day after consummation of the deal to rescind the transaction, the date "August 29" instead of "August 30" was typed in the pertinent blanks.

Plaintiffs made their payments on the loan until this action was filed. They thereupon fully paid off the loan and discharged the debt.

Plaintiffs' first principal contention is that the Brokers acted in this matter as agents of the Bank and, therefore, that the Brokers' fee should be treated as additional interest, thereby rendering the loan usurious. Plaintiffs additionally argue that the loan should be considered void because of various violations of Federal and State disclosure laws.

In denying the existence of a principal-agency relationship between it and the Brokers, the Bank points to the following facts ...

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