Appeal from the Circuit Court of Cook County; the Hon. Arthur
L. Dunne, Judge, presiding.
PRESIDING JUSTICE MCNAMARA DELIVERED THE OPINION OF THE COURT:
Plaintiff Catherine Saskill brought this action against defendants 4-B Acceptance, Joseph Buttitta and Jack Buttitta, alleging that a loan made by defendants to plaintiff at a usurious rate of interest violated the Illinois Interest Act. (Ill. Rev. Stat. 1979, ch. 74, par. 1 et seq., now codified at ch. 17, par. 6401 et seq.) Jack Buttitta was dismissed as a defendant prior to trial. After a trial without a jury, the trial court satisfied the indebtedness of plaintiff due under the loan and entered judgment for $127,242.10 plus fees and costs. The trial court subsequently reduced the amount of the judgment from $127,242.10 to $75,000. Defendants appeal.
Plaintiff was the beneficial owner of residential property which was sold pursuant to a mortgage foreclosure. When plaintiff spoke to Jack Buttitta about a loan of $90,000 to redeem her property, he referred plaintiff to attorney Arthur Newell, who had done legal work for the Buttitta family businesses. Plaintiff met Newell in May 1979 and signed a letter authorizing Newell, as her attorney, to review the documents relating to her property. Plaintiff next heard from Newell a few days before June 5, the expiration date of the redemption period, and was instructed to bring $5,000 to his office on June 4.
At Newell's office, plaintiff met Joseph Buttitta, an attorney, insurance broker and sole proprietor of 4-B Acceptance, a company which provides financing for 4-B Auto Brokers, a business owned by his brother Jack. Newell informed plaintiff that Buttitta had agreed to lend her $100,000 which, along with her $5,000, would enable her to redeem her property. Plaintiff signed a loan disbursement prepared by Newell which distributed loan proceeds as follows:
"Redemption to Cook County Sheriff $ 90,079.28 1st Installment of 78 taxes 2,510.42 Casualty Insurance 550.00 Title Charges and Recording 496.25 Escrow for Taxes 2,400.00 Interest through 6/30/79 915.83 Chicago Title & Trust fees 145.00 Miscellaneous Fees 2,000.00 Services of K. Anderson 100.00 Loan Charges 4,948.22 Miscellaneous Personal Payouts 10,000.00 Returned to C. Saskill 855.00 ____________ TOTAL $115,000.00."
Thus, in exchange for $100,000 Buttitta received a note for $115,000 at 11% interest, the then authorized maximum legal rate of interest on residential loans, a check for $4,900 for loan charges and two other checks for taxes and interest. Plaintiff contributed $4,145 to the transaction.
In July, plaintiff requested from Newell copies of all the transaction documents as well as an explanation as to what happened to her $5,000. In September, plaintiff picked up copies of the transaction papers from Newell. Plaintiff told Newell that she would begin making loan payments when her cash contribution was returned. The money was not returned. Plaintiff thereafter filed the present suit alleging that defendant's extraction of miscellaneous fees, loan charges, miscellaneous personal payouts as well as plaintiff's contribution of $4,145 constituted interest in addition to the maximum legal rate of interest charged in the note and therefore rendered the loan usurious.
At trial, plaintiff established that the terms of the loan were never discussed with her before the June 4 meeting. Testimony was conflicting, however, as to the extent of Buttitta's input regarding the loan terms. Buttitta denied discussing the terms of the loan with Newell prior to June 4, and testified that he was only told by Newell to bring $100,000 on June 4 to invest. At Newell's office, Buttitta reviewed the disbursement statement and relied on Newell's figures. He asked only about the $10,000 miscellaneous personal payouts and why he was lending $100,000 and receiving in return a note for $115,000. Newell replied that he should leave the transaction to Newell. Buttitta sat back, heard Newell explain the disbursement statement to plaintiff, and then accepted the terms of the agreement. Upon returning to his office, Buttitta asked his bookkeeper to examine the note because it "didn't look good," but later attempted to collect on it.
In contrast, Newell testified that he had discussed the terms of the loan with Buttitta prior to June 4, and that a charge of 15 to 20 percentage points had been mentioned. Ultimately, Buttitta wanted 15 points in addition to the 11% interest rate. The amounts designated as loan charges and miscellaneous payouts were part of the 15 points discussed. The sum of $10,000, or 10 points, designated as miscellaneous personal payouts, was included in the principal sum on the note so that this amount would be included in the interest calculation over the 25-year period. Newell did this to protect against fluctuating interest rates and to "sweeten the pot" in order to induce Buttitta to make the loan. Newell stated that he did not know then that percentage points are treated as interest in interest rate computations.
The trial court found that plaintiff had demonstrated by clear and convincing evidence that defendants received exactly what they sought, that is, 11% interest plus 15 percentage points carried over the 25-year period of the note, plus $5,000 in cash as loan charges. Accordingly, the court entered judgment for plaintiff and awarded damages pursuant to section 6 of the Interest Act.
On appeal, defendants contend that section 6, the usury penalty provision, is inapplicable to the present loan transaction, that the trial court improperly construed section 6 to determine the amount of damages, and that section 6 is unconstitutional.
We first address defendants' contention that the present loan transaction is exempt from the penalty provisions of section 6. Pursuant to section 6, an obligor is entitled to recover statutory damages "[i]f any person or corporation knowingly contracts for or receives, directly or indirectly, by any device, subterfuge or other means, unlawful interest, discount or charges for or in connection with any loan of money * * *." It further provides, however, that "[a] bona fide error in connection with the loan shall not be a violation under this section if the lender corrects the error within reasonable time." Ill. Rev. Stat. 1979, ch. 74, par. 6.
Defendants admit that the interest charged in the transaction is excessive. They assert, however, that it was not intentionally excessive, but rather that it was the result of bona fide errors made by defendants and Newell. Specifically, they argue that the usurious interest rate resulted in part from Newell's bona fide error regarding the treatment of percentage points as interest, and in part from bona fide errors made in the transaction documents regarding the amount of principal.
• 1 Whether a loan is usurious depends on whether the party intended to charge unlawful interest. (Dobie v. Livengood (1957), 12 Ill. App.2d 343, 139 N.E.2d 599.) This question of fact is determined by the nature and substance of the transaction rather than its form, to insure against evasion of the statute by a party's ingenious schemes or devices. (Chicago Title & Trust Co. v. Jensen (1933), 271 Ill. App. 419.) Because the trial judge sitting as trier of fact is in a superior position to hear and weigh the evidence and determine the credibility of the witnesses, the findings of the trial ...