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Slevin Container Corp. v. Provident Fed.

OPINION FILED JULY 28, 1981.

SLEVIN CONTAINER CORP., PLAINTIFF-APPELLANT,

v.

PROVIDENT FEDERAL SAVINGS AND LOAN ASSOCIATION OF PEORIA, DEFENDANT-APPELLEE.



APPEAL from the Circuit Court of Peoria County; the Hon. CHARLES M. WILSON, Judge, presiding.

MR. JUSTICE STOUDER DELIVERED THE OPINION OF THE COURT:

This action was commenced by the plaintiff, Slevin Container Corp., in the circuit court of Peoria County against Provident Federal Savings and Loan Association of Peoria, defendant, seeking a declaratory judgment that the defendant be required to release the lien of its mortgage without the payment of a prepayment penalty. The plaintiff's motion for summary judgment was decided in favor of the defendant and the plaintiff has appealed.

In 1975 Slevin Container Corp. (Slevin) borrowed from Provident Federal Savings & Loan Association of Peoria (Provident) $468,000 and executed and delivered in return therefor a promissory note which provided, in part:

(a) "The undersigned (Slevin) reserve the right to prepay this note in whole or in part at any time, but the Association (Provident) may require payment of not more than six (6) months advance interest on that part of the aggregate amount of all prepayments on the note in one year, which exceeds twenty percent (20%) of the original principal amount of the loan.

(b) [I]n the event the undersigned's interest in said real estate is transferred without the consent of the Association, the Association may increase the interest rate to eight percent (8%) per annum or declare the entire unpaid balance of this note due, or both, by giving the undersigned written notice."

On June 14, 1980, Slevin's attorney notified Provident in writing that Slevin had sold its interest in the real estate. That letter acknowledged Provident's option of declaring the entire balance due and payable or increasing the mortgage interest to 8 percent. If Provident did not wish to exercise either option, the monthly payments on the mortgage would be made until the same was fully paid and satisfied. In response to the certified letter of June 14, 1980, Provident's attorneys responded:

"[T]he Association has made the following decisions in regard to the due-on-sale clause and the prepayment penalty:

1. In regard to the due-on-sale clause, Provident Federal will indeed exercise its option to declare the entire balance due on said mortgage in light of the fact that the property is now sold.

2. In regard to the prepayment penalty, it appears from the terms of the note that the obligation, if paid off at this time, would be subject to the prepayment penalty and, therefore, it will be added to the balance due."

Slevin tendered and Provident accepted the principal due but declined to release the mortgage until the penalty was paid, resulting in this declaratory judgment action.

In holding the penalty to be due, the trial court's theory was that the due-on-sale clause represented an unreasonable restraint on alienation and was therefore void. It followed, according to the trial court, that payment of the principal under a void requirement was a voluntary prepayment of the obligation.

On this appeal, the appellant argues the due-on-sale clause is considered to be a reasonable restraint on alienation and that the payment of the principal was not a voluntary prepayment by the obligor.

On this appeal both parties agree the due-on-sale clause is valid and constitutes a reasonable restraint on alienation of property. Baker v. Loves Park Savings & Loan Association (1975), 61 Ill.2d 119, 333 N.E.2d 1, approves of such a provision in a different context than that in the instant case but the language is broad enough so that the parties concede the clause is valid and no issue arises on this appeal concerning the invalidity of the provision. See Kratovil, A New Dilemma for Thrift Institutions: Judicial Emasculation of the Due-On-Sale Clause, 12 J. Mar. J. Prac. & Proc. 299 (1979).

We view this appeal from the vantage point of concluding the basic premise of the trial court was erroneous. At least for the reasons given by the trial court the payment by the ...


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