Before addressing this contention, we must first consider two counterarguments raised by plaintiff. The bank first notes that the gravamen of defendant's fraud count is the bank's assertion that it would disburse the SBA loan proceeds in the near future and argues that a promise of future conduct cannot constitute a material misrepresentation in support of an allegation of fraud. (Hofner v. Glenn Ingram & Co. (1985), 140 Ill. App. 3d 874, 883-84, 489 N.E.2d 311; Gross Valentino Printing Co. v. Clarke (1983), 120 Ill. App. 3d 907, 912, 458 N.E.2d 1027.) However, an exception to this general principle has been established where, as alleged here, the promise is made with no intention of performing the acts and is part of a preexisting fraudulent scheme. Parks v. City of Evanston (1985), 139 Ill. App. 3d 649, 653, 487 N.E.2d 1091; Donnelly v. Washington National Insurance Co. (1985), 136 Ill. App. 3d 78, 90, 482 N.E.2d 424, appeal denied (1985), 111 Ill. 2d 554; Concord Industries, Inc. v. Harvel Industries Corp. (1984), 122 Ill. App. 3d 845, 849, 462 N.E.2d 1252.
APPELLATE COURT OF ILLINOIS, SECOND DISTRICT
504 N.E.2d 1257, 152 Ill. App. 3d 923, 105 Ill. Dec. 739 1987.IL.32
Appeal from the Circuit Court of Kane County; the Hon. John L. Nickels, Judge, presiding.
JUSTICE NASH delivered the opinion of the court. LINDBERG, P.J., and WOODWARD, J., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE NASH
Defendants-counterplaintiffs, Winifred Kolodzik and St. Charles National Bank, as trustee (defendants), appeal from a judgment of foreclosure entered against their real estate in favor of plaintiff-counterdefendant, First National Bank of Elgin (plaintiff). Defendants also appeal from a directed finding in favor of plaintiff on their counterclaim sounding in fraud in the inducement. Defendants contend the trial court erred in (1) striking their jury demand, (2) denying defendants' motion to disqualify plaintiff's counsel, (3) finding for plaintiff on its complaint for foreclosure and entering a directed finding in favor of plaintiff as to defendants' counterclaim, and (4) making an arbitrary determination of attorney fees.
This litigation arose after defendant, Winifred Kolodzik, became sole stockholder and president of Hahn Truck Center (Hahn), a franchised dealer of International Harvester, upon the death of her husband, Edward Kolodzik, in January 1980. On August 26, 1980, Kenneth Kolodzik, defendant's son, applied for a $350,000 business loan to the corporation from plaintiff bank, a certified Small Business Administration lender. The SBA approved the loan on October 27, 1980, and plaintiff notified Hahn the loan would be disbursed 10 to 14 days from that date.
On November 14, 1980, plaintiff had not yet made the disbursement to Hahn and advised Mrs. Kolodzik that it could advance a portion of the loan proceeds to Hahn if she established interim collateral in the form of a first mortgage on her personal residence and an adjoining lot held in trust by defendant St. Charles National Bank in which she owned the beneficial interest. Upon execution of the mortgage documents by defendants, Hahn received $115,000 from plaintiff which it applied to operating expenses. In late January 1981, plaintiff advised Mrs. Kolodzik that an additional $90,000 had been deposited in Hahn's account and she issued various checks to its creditors, including International Harvester, based upon that information. However, plaintiff subsequently withdrew the $90,000 from Hahn's account before the checks had cleared and International Harvester revoked Hahn's dealership when its check was returned for insufficient funds. Hahn subsequently filed for bankruptcy.
On October 20, 1981, plaintiff filed a complaint for foreclosure of the mortgage against Mrs. Kolodzik and St. Charles National Bank. Defendant filed her answer on December 17, 1981, raising an affirmative defense of fraud in the inducement and pleading a counterclaim for damages and injunctive relief based upon plaintiff's alleged negligent delay in processing of the loan. A stay of all proceedings, entered in February 1982, was vacated on May 1, 1983, and defendant filed an amended counterclaim and jury demand on May 10, 1983. On June 13, 1983, the trial court granted plaintiff's motion to strike defendant's jury demand as untimely.
In February 1984, defendant's attorney learned that plaintiff's counsel, the firm of Brady, McQueen, Martin, Collins & Jensen, had been retained from 1972 through 1979 to handle business and personal matters of defendant and her late husband; defendant's attorney thereupon notified the firm of the possibility of a conflict of interest. Any conflict was disclaimed by the firm, which made its files available to defendants for review.
On June 18, 1985, defendant moved to disqualify plaintiff's counsel on conflict of interest grounds, supported by an affidavit stating that an examination of the firm's files revealed various Hahn corporate documents from 1971 through 1979 relating to the original purchase of Hahn Truck Center, purchase of the International Harvester dealership, maintenance of the corporate books, and negotiations of leases on the business property. An affidavit submitted by defendant stated she and her husband had disclosed confidential information regarding their assets to the firm in connection with the preparation of their wills. On June 28, 1985, the trial court denied the motion to disqualify plaintiff's counsel, finding there was no substantial relationship between the representation of defendant and Hahn Truck Center, Inc., by that law firm and its subsequent representation of plaintiff.
The matter went to a bench trial on plaintiff's complaint for foreclosure of its mortgage and defendants' amended counterclaim premised upon alleged false representations inducing defendant to enter into the mortgage for which defendants sought actual and punitive damages. In their answer to plaintiff's foreclosure complaint defendants also asserted fraud in the inducement as an affirmative defense. At the close of all evidence in the principal case, the trial court found that defendants failed to establish the defense of fraud in the inducement and entered judgment for plaintiff for foreclosure in the principal sum of $115,000 together with $88,636.35 as interest. The trial court also granted plaintiff's motion for a directed finding against defendants on their counterclaim. Thereafter, the court granted plaintiff's petition for attorney fees and costs, awarding plaintiff $22,500 in fees and $2,000 for costs. Defendants appeal.
At trial, plaintiff's only witness was Roger Navik, a commercial loan officer for plaintiff bank, who testified that a $115,000 business loan secured by a first mortgage on defendant's residential property was disbursed to Hahn Truck Center, Inc., on November 14, 1980, and was to be repaid on March 14, 1981. He stated that payment had not yet been made on the loan, that $88,636.35 in interest had accrued on the loan to date, and that the bank had incurred attorney fees and related costs in foreclosure of the mortgage. On the mortgage note, defendant had listed her address as the Hahn Truck Center, Inc., and had certified the loan would be used solely as working ...