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First Savings & Loan Ass'n v. Kern

OPINION FILED DECEMBER 27, 1977.

FIRST SAVINGS & LOAN ASSOCIATION OF BUREAU COUNTY, PLAINTIFF-APPELLEE AND CROSS-APPELLANT,

v.

ROBERT H. KERN ET AL., DEFENDANTS-APPELLANTS AND CROSS-APPELLEES.



APPEAL from the Circuit Court of Bureau County; the Hon. C. HOWARD WAMPLER, Judge, presiding.

MR. JUSTICE SCOTT DELIVERED THE OPINION OF THE COURT:

This is an appeal from the circuit court of Bureau County which entered a judgment of foreclosure for the plaintiff, First Savings & Loan Association of Bureau County, and against the defendants, Robert H. Kern and Loretta H. Kern, on two mortgages executed by the defendants in favor of the plaintiff. Both the plaintiff and the defendants have filed cross appeals, the subject of which we will disclose as we determine the issues raised in this appeal.

On March 26, 1971, the defendants borrowed the sum of $27,300 from the plaintiff and in addition to executing a note to the plaintiff they secured their loan by executing and delivering to the plaintiff a mortgage on their residence.

On July 16, 1971, the defendants borrowed the sum of $75,000 from the plaintiff. They again executed a note and secured their loan by executing and delivering a mortgage to the plaintiff on property used for a garage and car sales.

At the time each of these loans was consummated the plaintiff furnished the defendants with a "Truth in Lending Statement." Each of these statements provided that in addition to the interest called for in the notes a late charge of 5% of the monthly payment would be charged to the defendants on each account if said account was delinquent 14 days.

Both of the loans to the defendants became delinquent and on March 5, 1976, the plaintiff instituted foreclosure proceedings. In the complaint for foreclosure it was alleged that the balance due on the residential property was $24,493.99 and on the garage property the balance due was $58,101.27. During the foreclosure hearing the plaintiff amended the complaint for foreclosure by interlineation in that it raised the amount due on the residential property to $38,487.74 and the garage property to the sum of $115,883.78.

The amounts claimed in the foreclosure complaint prior to its being amended were computed upon the books and records of the plaintiff plus a late charge of 5% of the delinquent installment payments. The increased amounts which were claimed by the plaintiff were predicated upon a penalty interest provision in each of the notes. As to the note pertaining to the residence, the penalty interest was to be in the amount of 8%, and as to the note pertaining to the garage the penalty interest was to be in the amount of 10%.

In its decree of foreclosure entered on January 4, 1977, the trial court found a balance due on the residential loan to be in the sum of $25,629.16 and allowed attorney fees of $1,921.45. As to the garage loan, the sum of $116,883.73 was found to be due plus attorney fees of $5,146.51.

The complaint for foreclosure contained one count which requested reformation of one of the two mortgages executed by the defendants. The reformation was sought because of a misdescription of the real property involved. The trial court allowed reformation and no appeal is taken from that decision.

In this appeal the defendants contend that the calculation of the trial court as to the amount due and owing on the garage or business property loan was erroneous and if such amount was in fact erroneous the attorney fees allowed by the trial court for the foreclosure of this amount should be reduced. The plaintiff in this appeal quarrels not with the trial court's calculation of the balance due on the business loan but cross-appeals and contends that the trial court should have permitted a larger recovery as the balance due and owing on the residence loan.

In attempting to compute the amount due and owing on each of the mortgages the plaintiff attempted to invoke the provisions of a statutory enactment of the Illinois Savings and Loan Act, to-wit, section 4-16(b) (Ill. Rev. Stat. 1971, ch. 32, par. 776(b)), which provides:

"The association's by-laws may provide for a charge or penalty for the non-payment when due, of agreed payments on capital accounts, and of installments, interests, or premiums on loans; but no such charge or penalty shall exceed the sum of two cents (2¢ ) per dollar of the amount payable in any one month, and no such charge or penalty shall be either compounded or cumulated. However, if a loan has been predicated on a membership entitling the borrowing member to a vote of one share, no such charge or penalty shall exceed the sum of five cents (5¢ ) per month per dollar of the amount payable, or in lieu thereof such further interest charge as may be provided in the loan contract."

In examining the record we find that the defendants were members of the plaintiff savings and loan association. Introduced into evidence were the applications for membership by each of the defendants and we further note that neither defendant ever denied that they were members. Mere membership standing alone, however, is not sufficient to invoke or activate the specific penalty provisions for nonpayment of a loan as provided for in section 4-16(b) (Ill. Rev. Stat. 1971, ch. 32, par. 776(b)). A further requisite which must be met before such penalties can be assessed against a borrower is a provision in its bylaws which authorizes the imposition of the penalties as set forth in section 4-16(b) (Ill. Rev. Stat. 1971, ch. 32, par. 776(b)). The plaintiff admitted that it did not have in effect a provision in its bylaws as required by statute. Such a provision being absent in the plaintiff's bylaws, the plaintiff contends that the proper method of calculating the amount due on the residence loan is the amount of unpaid principal on this loan plus primary interest to be paid as set forth in the note, to-wit, 7 3/4%, plus additional interest in the amount of 8% which is provided for on the face of the note in the event of default and ...


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