Appeal from the Circuit Court of Cook County; the Hon. Richard
L. Curry, Judge, presiding.
JUSTICE PINCHAM DELIVERED THE OPINION OF THE COURT:
Rehearing denied November 7, 1986.
This cause of action was filed by plaintiffs pursuant to the Federal Truth in Lending Act (15 U.S.C.A. sec. 1601 et seq. (West 1982)) (Act) to rescind a consumer credit transaction in which defendant Associates Finance, Inc. (Associates), acquired a security interest in plaintiffs' home. Plaintiffs also sought damages and attorney fees.
In March 1980, plaintiffs negotiated for a loan with defendant Robert E. Anderson (Anderson). Anderson also did business as, or was in some way connected with, defendant Robert Thomas & Associates (Thomas). It was agreed that plaintiffs would receive a $15,000 loan from Anderson to satisfy their default in their first mortgage-loan payments and to pay off their personal bills. In exchange, plaintiffs agreed to sign a promissory note and second mortgage "as directed" by Anderson. Plaintiffs also signed a deed in trust which conveyed their residential real estate to the Palatine National Bank as trustee.
On August 5, 1980, the credit transaction was consummated and plaintiffs received the balance of the $15,000 loan. They signed a third note and security agreement payable to the order of Thomas, which stated that the loan was for $16,200 instead of $15,000. The note and security agreement did not disclose the nature of the additional $1,200 or the annual percentage rate of the loan. Plaintiffs were not given any notice that they had the right to rescind the transaction pursuant to the Truth in Lending Act (15 U.S.C.A. sec. 1635 (West 1982)).
Defendant Associates Finance, Inc., is a financial-services company. In addition to lending money to consumers for personal use, Associates also has a business-loan program in which it makes loans to individuals for business purposes. The business-loan program requires that as security for a loan, Associates obtain a mortgage or assignment of the beneficial interest in a land trust. Business loans, including those purchased by Associates from others, must be documented with evidence that the proceeds of the loan will be used for business purposes.
On September 11, 1980, Associates purchased plaintiffs' note from Thomas, along with eight notes of other borrowers. The agreement between Associates and Thomas provided for the sale and assignment of all of the notes and security instruments and stated that "each contract complies with the Federal Consumer Credit Protection Act and regulations thereunder." After Associates purchased plaintiffs' note from Thomas, beginning September 1980, plaintiffs made monthly payments on the note to Associates.
In July 1983, plaintiffs mailed a notice of rescission to Associates and Thomas to cancel the loan transaction between plaintiffs and Thomas. Plaintiffs also filed a complaint in the circuit court of Cook County for rescission of the note and security agreement they had signed and for damages. The defendants were Associates, Thomas, Anderson, Palatine National Bank and First Arlington National Bank. Plaintiffs sought relief under the Truth in Lending Act.
Plaintiffs alleged in their complaint, inter alia, that (1) they did not know that the deed they had signed conveyed title to their residential real estate to Palatine National Bank; (2) Anderson, as beneficiary of the land trust, had directed the Palatine National Bank to convey plaintiffs' residential real estate to Anderson, who in turn executed another deed in trust which conveyed the real estate to the First Arlington National Bank as trustee; and (3) Anderson assigned the beneficial interest in the trust at the First Arlington National Bank to Associates as collateral security for plaintiffs' note and security agreement.
In response, Associates filed a motion to dismiss plaintiffs' complaint and a memorandum of law in support thereof. Associates contended that plaintiffs could not rescind the transaction because the loan was for a business purpose as shown by a business-purpose statement plaintiffs signed, that if the Truth in Lending Act was applicable, plaintiffs' claim for damages and attorney fees was barred by the Act's one-year statute of limitation, and that as a purchaser of plaintiffs' note, Associates was not liable to plaintiffs. Associates' memorandum of law included, as exhibits, a deed in trust from plaintiffs to the Palatine National Bank as trustee and the affidavit of Albert Vasil, vice-president of Associates, which explained the nature of his company's business. Vasil's affidavit stated that the purpose of the loan to plaintiffs was "solely for the purpose of carring [sic] on Sheldon Schecter's business * * * and that * * * the proceeds will be used for such purpose and for no other." Associates submitted an unnotarized business-purpose affidavit which, Associates alleged, plaintiffs had signed.
Plaintiffs' memorandum in opposition to Associates' motion to dismiss alleged that their loan from Thomas was not exempt from the disclosure requirements of the Act because plaintiffs never signed a business-purpose statement. Plaintiffs also submitted an affidavit which stated that the signatures on the business-purpose "affidavit" were forgeries. Associates' reply memorandum refuted these allegations.
The trial court granted Associates' motion to dismiss and stated:
"For a rescission to be applicable here, it seems that the court has to be able, from the face of the material before it, to be able to place Associates in the same issues as Robert Thomas & Associates. There is nothing in the papers that indicates that the transaction between Robert Thomas & Associates and the defendant, Associates Finance, was anything other than an arms' length deal. There is nothing here to indicate that Associates Finance and Anderson was merely a conduit to make the loans for Associates.
The right of rescission in cases such as this apply only if Associates has a duty to make a disclosure to these plaintiffs. And clearly, there is no duty running from Associates to the plaintiffs to make any disclosures because they are remote from the plaintiffs. From the face of the documents that Associates received from Robert Anderson or Robert Thomas & Associates, those documents tell Associates Finance that the loan is for a business purpose. Those papers in no way alert Associates Finance, the defendant here, that there was a transaction covered by the Truth in Lending Act from the face of the documents. And that is all that Associates Finance had to go on and all that they need to go on from the face of the document tendered to Associates Finance by Robert Thomas & Associates or Robert Anderson, whichever name they used. It was apparent that the Truth in Lending Act was not involved. The affidavit of the plaintiff tells the court that the business purpose statement is a forgery. That forgery is regrettable sequence in this ...