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Hodge v. Lemand Mortgage Co.

OPINION FILED JULY 16, 1981.

ANTHONY L. HODGE ET AL., PLAINTIFFS-APPELLEES,

v.

LEMAND MORTGAGE COMPANY, DEFENDANT-APPELLANT.



APPEAL from the Circuit Court of Rock Island County; the Hon. ROBERT W. CASTENDYCK, Judge, presiding.

MR. JUSTICE ALLOY DELIVERED THE OPINION OF THE COURT:

Lemand Mortgage Company appeals from the judgment of the Circuit Court of Rock Island County awarding plaintiffs Anthony Hodge, Elmer Hodge, and Gary Hodge $6,900 in their suit for a refund of loan processing fees paid to Lemand. Appeal is also taken from the court's denial of Lemand's counterclaim against the Hodges, seeking a commission on a loan obtained from another lender allegedly in violation of the contract between the parties herein. At the center of the case are two contracts between Lemand and the Hodges, both of which cover the Hodges' applications for mortgage financing on two construction projects they wished to build. The trial court concluded that Lemand did not process the applications and obtain satisfactory commitments within the 45 days given it in the contracts. Lemand, on this appeal, argues that the 45-day limit did not begin to run, since the Hodges failed to provide the necessary documentation to process the loan applications. The court also found that the Hodges did not violate their agreement to grant Lemand the exclusive right to obtain a commitment for permanent financing on one project when they obtained interim financing from another lender. Lemand, on appeal, argues that there was a breach of the agreement with the Hodges' action in obtaining interim financing elsewhere.

The facts in the record reveal that the Hodges operate a business known as Hodge Construction Company. The company constructs apartment buildings and other commercial buildings ranging in costs from $200,000 to $600,000. In the spring of 1980, the Hodges were introduced to persons at Lemand Mortgage Company through their commercial real estate agent, Jeff Erinberg. Erinberg provided Anthony Hodge with a copy of a letter from Lemand, dated November 7, 1980, in which Lemand listed their documentation requirements for mortgage loan applications. The Hodges were interested in obtaining permanent mortgage financing on two construction projects they had planned. The copy of the letter from Lemand stated that they would need the following: an executed application, a current MAI appraisal, title insurance, a complete set of plans, tax returns of the mortgagors, a new financial statement, a survey, the appropriate corporate resolutions, a zoning compliance letter, indebtedness information, and contractors' bids.

Thereafter, on March 11 and 12, 1980, Lemand and the Hodges entered into two contracts, entitled "Exclusive Application for Mortgage Financing." One of the loan application contracts covered a 12-plex apartment building in Rock Island, specifying that the application was for a first mortgage, permanent financing in the amount of $340,000, with interest at 13 3/8%, and a 25/15 term. The other loan application contract covered a proposed office building in Rock Island, specifying a first mortgage, permanent financing in the amount of $350,000, with interest at 13 1/2%, on a 12/15 term. Each loan application contract contained the following provision:

"The UNDERSIGNED hereby grant you the exclusive authorization for a period of 45 days after receipt of all documents, forms, requested services, and other information to be made a part of this exclusive application, to obtain a commitment from an investor and issue a mortgage covering the hereinafter described property in the principal sum of [$340,000 and $350,000, respectively] or 75% of an approved MAI appraisor, whichever is less. The undersigned agrees to execute all documents and submit any additional data required by you or by your investor within 15 days of written request, except for the MAI appraisal."

The contracts also contained the following provision:

"In the event that the undersigned makes application or accepts a commitment from any other source during the effective period of this exclusive agreement, a commission in the amount of Two (2) Percent of the loan shall be deemed reasonable and proper to have been earned by herein-named Financial Agent, and shall be due and payable immediately."

The loan application contracts were executed by the Hodges and accepted by Lemand on March 11 and March 12, 1980. On March 12, 1980, the Hodges also gave Lemand a check for $6,900, covering the loan processing fees on the two loans. The following contract provision with respect to the 1% fee is found in each contract.

"A loan processing fee of [$3400 and $3500 respectively] is enclosed with this application. The undersigned acknowledges that if a commitment is issued on the terms required or any modification acceptable to the undersigned, this deposit shall be immediately earned by the lender and credit to lender's fees. In the event the herein-named financial agent or the investor fails to tender a commitment within the stated period, this loan processing fee is to be fully refunded, less all costs arising from this application, without interest, to the undersigned. * * *."

At trial, the Hodges testified that they supplied everything requested of them by Lemand during the first meetings with Lemand personnel on March 11 and 12, when the contracts were signed and the fee paid. Anthony Hodge testified that all documents and submissions to be supplied by the Hodges were supplied to Lemand during the first meetings in mid-March. He further testified that during those meetings Dan Andreola, president of Lemand Mortgage Company, informed them that he would take care of getting the MAI appraisal that was needed, because he had friends in the business who could obtain the appraisal at lesser costs. This assumption by Lemand of the obligation to obtain the appraisal was corroborated by the testimony of plaintiff Gary Hodge. Anthony Hodge testified that subsequent to the execution of the contracts he made numerous calls to Andreola, inquiring about the progress on the loans for the projects. He testified that Andreola repeatedly told him that they were working on it, that there were no problems, and that it would only be a matter of days, maybe a couple of weeks. Andreola, in his testimony at trial, denied that he had initially agreed, on behalf of Lemand, to obtain the necessary appraisal.

Then, on May 1, 1980, Lemand sent a letter advising the Hodges that their applications had been approved, subject to appraisals being completed and other conditions to be set forth in a commitment that was to follow.

Further discussions concerning the loan applications occurred at a meeting between the parties and their attorneys on May 30, 1980, more than 45 days after the execution of the loan application contracts. Attending the meeting that day were Andreola, and the attorney for Lemand, as well as the three Hodges and their attorney. At the meeting, the parties went over two alleged commitments offered by Lemand to the Hodges. The first commitment, covering the proposed office building, was in the amount of $340,000, at 14 1/2%, with interest rate adjustment every three years. The original application by the Hodges for the office building specified $350,000, at 13 1/2% amortized over 25 years, with a 15-year balloon. In addition to the changes in these specifics, the proffered commitment contained a prepayment penalty clause not specified in the original loan application contract. Other additions and charges were also made part of the proffered commitment even though not specified in the loan application contract. As to the second loan, covering the apartment complex, the proffered commitment specified $300,000, interest at 14 1/2%, with interest adjustment every three years. The original loan application contract specified $340,000, with fixed interest set at 13 3/8%. Other additions and conditions not part of the original contract were also included in this commitment as well. At the meeting there was considerable discussion and disagreement concerning the commitments Lemand put forth. The Hodges expressed their doubts as to the ability of the Lemand Mortgage Company to furnish financing for the loan applications.

As a result of the meeting and their discussions, Lemand, through Dan Andreola, agreed to furnish the Hodges' banker, Blackhawk State Bank, with the MAI appraisal and with a solid indication that Lemand had a viable commitment. The submissions to Blackhawk State Bank by Lemand were to be made before June 6, 1980. The Hodges indicated that if Lemand could perform by submitting those before June 6, 1980, then they were willing to renew negotiations. Lemand indicated that if they could not produce a satisfactory appraisal and convince Blackhawk Bank that it was a good commitment, then Lemand would return the money that was taken as a down payment, less expenses incurred. June 6 was the crucial date for keeping the negotiations open.

Neither the appraisal nor the submission with regard to the evidence of a viable commitment was made by Lemand to Blackhawk State Bank by June 6 or at any time thereafter. Subsequent thereto, on June 12, 1980, the attorney for the Hodges informed ...


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