APPELLATE COURT OF ILLINOIS, SECOND DISTRICT
521 N.E.2d 587, 167 Ill. App. 3d 674, 118 Ill. Dec. 305 1988.IL.440
Appeal from the Circuit Court of Du Page County; the Hon. S. Bruce Scidmore, Judge, presiding.
JUSTICE INGLIS delivered the opinion of the court. LINDBERG, P.J., and WOODWARD, J., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE INGLIS
Plaintiffs, State Bank of Geneva, a banking corporation of the State of Illinois (bank), and State Bank of Geneva, a banking corporation of the State of Illinois, as trustee under the provisions of a trust agreement dated January 7, 1981, and known as trust No. 140 -- 437, brought a foreclosure action on property used as collateral to secure a $42,000 note. Defendants, Judith Sorenson and Dusan Zivo, executed the note with the bank. The note was secured by real estate belonging to Sorenson. The trial court exercised its equitable powers and reduced the amount of possible recovery from $42,000 to $10,000. Plaintiffs appeal. We reverse and remand this case to the trial court with directions.
In December 1980, Zivo contacted bank officer Robert Cox and requested a $10,000 business loan. Zivo had a loan history with the bank dating back to 1972 and was responsible for a pre-existing debt of approximately $30,000. Zivo's pre-existing debt was secured by three automobiles. Because Zivo was unable to produce sufficient new collateral to secure his subsequent loan request, his application was rejected. Pursuant to Zivo's request, Sorenson, who was at that time Zivo's fiancee, agreed to use her house as collateral for the new loan. Zivo then reapplied for the loan pledging Sorenson's house as collateral.
Cox presented Zivo's request to the loan committee and suggested that the bank issue a note for $42,000 representing Zivo's preexisting debt plus a fresh cash disbursement of $10,000. Under Cox' proposal, Zivo's pre-existing debt would be cancelled and the three automobiles held as collateral would be returned. The bank would then have "a $42,000.00 junior mortgage through [a] land trust on the $42,000.00 note" with Sorenson's property as the collateral. The bank approved the loan as proposed by Cox.
Sorenson subsequently executed two documents dated January 7, 1981, placing her property in a land trust with the bank as trustee. Sorenson further executed a third document, also dated January 7, 1981, captioned "Collateral Assignment Under Land Trust." That document provided that Sorenson, as owner of 100% beneficial interest under the trust agreement, assign that interest "as security for the prompt payment when due of any and all obligations, indebtedness and liability of the undersigned & Dusan Zivo to the Bank whether such obligations, indebtedness or liability is now existing or hereinafter created." Following the creation and assignment of the trust agreement, Sorenson and Zivo executed a "Note And Security Agreement" dated January 16, 1981. The face of that document provided, in pertinent part:
"No. 18213 GENEVA, ILLINOIS Jan. 16, 1981 Amount $42,000, for value received, the undersigned Debtors, jointly and severally, promise to pay to the order of STATE BANK OF GENEVA . . . at its office in GENEVA, ILLINOIS, the principal sum of Forty-two thousand and no/100 -- Dollars
To secure payment of this note to Bank, other existing and future indebtedness and obligations of Debtors, or any of them, Debtors hereby pledge and grant to Bank a security interest in the following property:
Assignment of Beneficial Interest in Land Trust, Trust No. 140 -- 437, dated 1-7-81 State Bank of Geneva, Trustee . . ..
2. Other charges, if any,
3. Prepaid Finance Charge, $840.00
Required Deposit Balance,
Total Prepaid Finance Charge
and Required Deposit Balance
4. Amount Financed (Sum of 1 & 2