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Nat'l Republic Bk. of Chicago v. Proctor

OPINION FILED NOVEMBER 8, 1978.

NATIONAL REPUBLIC BANK OF CHICAGO, PLAINTIFF AND COUNTERDEFENDANT-APPELLEE,

v.

MICHAEL PROCTOR, DEFENDANT AND COUNTERPLAINTIFF-APPELLANT.



APPEAL from the Circuit Court of Cook County; the Hon. DONALD E. JOYCE, Judge, presiding.

MR. JUSTICE BROWN DELIVERED THE OPINION OF THE COURT:

Plaintiff filed a small claim action against defendant to recover the balance due on an installment note and security agreement, after the secured property was repossessed and sold or disposed. Defendant filed an answer and counterclaim. Plaintiff filed a motion to strike the counterclaim. The trial court entered an order striking the counterclaim, finding that there is no just reason for delaying enforcement or appeal. Defendant appeals from that order.

On September 15, 1976, defendant borrowed $2,080.99 from the plaintiff and executed a "Note and Security Agreement," which agreement gave plaintiff a security interest in a 1975 Ford Mustang automobile.

Plaintiff repossessed the vehicle and sold it or otherwise disposed of it. On March 30, 1977, plaintiff filed a complaint for a deficiency balance of $567.86 and for attorney's fees of $82.50. The agreement was attached to the complaint as an exhibit.

On April 28, 1977, defendant filed an answer and a two count counterclaim. Defendant's answer admitted that the parties entered into a loan contract on September 15, 1976; denied that there was an account stated in the sum of $642.22; and denied that plaintiff was entitled to attorney's fees. Defendant's answer admits the allegations of the complaint that plaintiff made frequent demand for the sum of $2,327.22 (the amount financed plus the finance charge) which demands were refused, and that plaintiff gave defendant a rebate of $74.36 as interest on the loan, since the answer did not deny these allegations. Ill. Rev. Stat. 1975, ch. 110, par. 40(2).

Count I of the counterclaim alleged that plaintiff failed to properly make the disclosures on the contract required by certain provisions of the Truth in Lending Act (15 U.S.C. § 1601 et seq. (1976)) and Regulation Z (12 C.F.R. § 226.1 et seq. (1978)) promulgated thereunder by the Board of Governors of the Federal Reserve System in accordance with 15 U.S.C. § 1604 (1976), including section 106(b) of the Act (15 U.S.C. § 1605(b) (1976)) and section 226.4(a)(5) of Regulation Z (12 C.F.R. § 226.4(a)(5) (1978)). Count I prayed for judgment against the plaintiff in the amount of $654.44 for the double-finance charge penalty set forth in section 130(a)(1) of the Act. 15 U.S.C. § 1640 (a)(1) (1976).

Count II of the counterclaim alleged that plaintiff repossessed the vehicle described in the contract; that defendant demands that plaintiff prove that it has complied with the requirements set forth in section 9-504(3) of the Uniform Commercial Code (Ill. Rev. Stat. 1975, ch. 26, par. 9-504(3)); and that defendant claims the benefit of the penalty set forth in section 9-507(1) of the Code (Ill. Rev. Stat. 1975, ch. 26, par. 9-507(1)) in the amount of $527.22.

Plaintiff filed a motion to strike the counterclaim. In response to count I, plaintiff alleged that it fully complied with the required disclosures as per the agreement. In response to count II, plaintiff alleged that count II does not state a cause of action and is insufficient in law and moved to strike count II pursuant to section 45 of the Civil Practice Act (Ill. Rev. Stat. 1975, ch. 110, par. 45).

On May 10, 1977, the trial court entered an order striking the counterclaim. The defendant now appeals, and raises the following contentions: (1) that count I of his counterclaim should not have been stricken since he did not give "specific affirmative written indication" and "specific dated and separately signed affirmative written indication" of his desire for credit life and disability insurance after he had received written disclosure of the cost of that insurance; (2) that count I of his counterclaim should not have been stricken since the agreement failed to "clearly and conspicuously" inform him that he was not required to purchase credit insurance and that his refusal to purchase credit insurance would not be a factor in obtaining credit from plaintiff; and (3) that count II of his counterclaim should not have been stricken since it states a cause of action.

As regards defendant's first two contentions, it is undisputed that the "Note and Security Agreement" does not include the credit insurance premiums within the finance charge, and therefore the agreement had to comply with the disclosure provisions of section 106(b) of the Truth in Lending Act (15 U.S.C. § 1605 (b) (1976)) and section 226.4(a)(5) of Regulation Z (12 C.F.R. § 226.4(a)(5) (1978)). Section 121(a) of the Act (15 U.S.C. § 1631 (a) (1976)) and section 226.6(a) of Regulation Z (12 C.F.R. § 226.6(a) (1978)) are related to and amplify those disclosure provisions.

Section 106(b) of the Act (15 U.S.C. § 1605(b) (1976)) provides as follows:

"Charges or premiums for credit life, accident, or health insurance written in connection with any consumer credit transaction shall be included in the finance charge unless

(1) the coverage of the debtor by the insurance is not a factor in the approval by the creditor of the extension of credit, and this fact is clearly disclosed in writing to the person applying for or obtaining the extension of credit; and

(2) in order to obtain the insurance in connection with the extension of credit, the person to whom the credit is extended must give specific affirmative written indication of his desire to do so ...


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