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Goodman v. Advance Mortgage Corp.

NOVEMBER 12, 1975.

M. STUART GOODMAN ET AL., PLAINTIFFS-APPELLANTS,

v.

ADVANCE MORTGAGE CORPORATION ET AL., DEFENDANTS-APPELLEES.



APPEAL from the Circuit Court of Cook County; the Hon. DANIEL A. COVELLI, Judge, presiding.

MR. PRESIDING JUSTICE DIERINGER DELIVERED THE OPINION OF THE COURT:

On October 10, 1973, M. Stuart Goodman and his wife and other named plaintiffs, who were mortgage borrowers, filed their amended complaint on behalf of themselves and all others similarly situated in the Circuit Court of Cook County asking for "restitution, accounting, injunction and other relief" against the Advance Mortgage Corporation and 11 other named mortgage lenders to recover certain interest and release fees which were alleged to be improperly charged when certain mortgage loans were prepaid in full.

The trial court granted the defendants' motion to dismiss "for want of equity" and denied the plaintiffs' motion to file a second amended complaint. No determination was made by the trial court as to whether this action was properly filed as a class action.

The issue on review is whether the amended complaint states a cause of action in equity for unjust enrichment.

The plaintiffs all borrowed principal sums of money from the defendants secured by real estate mortgages. The plaintiffs all signed notes typical of the one used by the First Federal Savings and Loan Association of Berwyn, which states in pertinent part:

"Said principal and interest shall be paid in monthly installments of [amount] on the first day of each month, commencing with [date] until this note is fully paid. Said monthly payments shall be first applied to interest and the balance to principal. Interest for each month shall be added to the unpaid balance on the first day of each month at the rate of one-twelfth (1/12) of the annual interest rate and shall be calculated upon the unpaid balance due as of the last day of the preceding month."

The note was secured by a mortgage which contained the following language:

"To secure the payment of a certain indebtedness from the Mortgagor to the Mortgagee evidenced by a note made by the Mortgagor in favor of the Mortgagee, bearing even date herewith in the sum of which note, together with interest thereon as provided by said note, is payable in monthly installments of [amount] on the first day of each month, commencing with [date] until the entire sum is paid."

In each case the loan evidenced by the note and secured by the mortgage was prepaid in full during the middle of a month in which the interest for the entire month had already been paid. No interest was refunded to the borrowers at the time of their prepayment. In addition a release fee was charged to the borrowers at the time a release deed was delivered to the borrowers.

The plaintiffs first contend the defendants were unjustly enriched with respect to the interest collected from the date of prepayment until the end of the month in which prepayment occurred. They rely on language in the notes which provides that interest is to be paid until the note is "fully paid." Thus they make a distinction between a "payment clause" (interest shall be paid * * * until this note is fully paid), and a "computation clause" (interest for each month shall be added to the unpaid balance on the first day of each month at the rate of one-twelfth (1/12th) of the annual interest rate and shall be calculated upon the unpaid balance due as of the last day of the preceding month).

The plaintiffs acknowledge that the law permits the interest to be collected in advance but argue the defendants have not earned the prepaid monthly interest when the loan is fully paid prior to the end of the month. The plaintiffs conclude the defendants have been unlawfully collecting and retaining "unearned" interest.

The defendants contend they have a right to enforce their contractual agreements specifically authorized by the Illinois Legislature. Section 5-4 of the Illinois Savings and Loan Act (Ill. Rev. Stat. 1971, ch. 32, § 794) provides in part:

"(a) Direct Reduction of Principal: Such plan shall provide for regular payments which will completely amortize the indebtedness, including principal, interest, or interest and premium, advances, and other charges authorized by this Act, with payments to be made in such amount or amounts and at such time or times as may be agreed upon. If the loan is to be repaid on the monthly direct reduction of principal plan, the balance shall be determined monthly, and interest or interest and premium may be charged on the preceding monthly balance at one-twelfth of the annual rate, and added to such balance, together with any advances made by the association; and from such total indebtedness, payments made by the borrower shall be deducted, and such payments shall be applied first to interest or interest and premium."

• 1, 2 The provision for payment of interest on the first day of the month was part of the original loan agreement between the parties and constituted part of the consideration received by the mortgagees for granting the loans to the plaintiffs. The contract is unambiguous as written and does not support the attempt to label certain language as being a "payment clause" or a "computation" clause. The contract clearly provides that interest is to ...


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