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05/03/89 John Petkus Et Al., v. St. Charles Savings and

May 3, 1989

JOHN PETKUS ET AL., PLAINTIFFS-APPELLANTS

v.

ST. CHARLES SAVINGS AND LOAN ASSOCIATION, DEFENDANT-APPELLEE



APPELLATE COURT OF ILLINOIS, SECOND DISTRICT

538 N.E.2d 766, 182 Ill. App. 3d 327, 131 Ill. Dec. 391 1989.IL.655

Appeal from the Circuit Court of Kane County; the Hon. Barry E. Puklin, Judge, presiding.

APPELLATE Judges:

JUSTICE McLAREN delivered the opinion of the court. UNVERZAGT, P.J., and DUNN, J., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE MCLAREN

Plaintiffs, John and Anne Petkus (the Petkuses), brought an action for damages arising from a dispute over a mortgage debt. Defendant, St. Charles Savings and Loan Association (the Association), counterclaimed for attorney fees. Following a bench trial in the circuit court of Kane County, judgment was entered against plaintiffs on their complaint and in favor of defendant on the counterclaim for attorney fees. Plaintiffs appeal the judgment for attorney fees contending that the attorney-fees provision of the mortgage agreement was extinguished when the mortgage was released, or, alternatively, that the attorney-fees provision does not apply to a breach of contract and fraud action such as this. We affirm.

On May 26, 1972, the Association loaned $300,000 to John and Anne Petkus. The loan was secured by a mortgage on real estate located in Kane County. As of March 2, 1984, the balance due on the debt was $212,415.81. On that date, William Gust, president of the Association, orally agreed to an $11,000 discount on the payoff amount if the Petkuses would pay the loan off by March 15, 1984. According to Gust, the discount was given on the condition that the payoff be funded by the Petkuses' own personal funds and not from a sale of the secured property.

On March 15, 1984, the Petkuses advised the Association that they had sold the secured property, and they tendered a check for the discounted balance of the loan, $201,415.81, to the Association in full payment of the loan. The Association advised the Petkuses that the discount had been given on the condition that the building would not be sold, and, since the building had been sold, the discount was no longer available. The mortgage would not be released unless an additional $11,000 was paid. The sale of the secured property could not be completed unless the mortgage was released, so the Petkuses wrote the Association a second check for the $11,000 difference. Thereafter, the Association issued a release of the mortgage and cancelled the note. The Petkuses subsequently stopped payment on the $11,000 check. When the Association's written demand for payment was not answered, the Association filed a lawsuit against the Petkuses to collect the $11,000.

Meanwhile, the Petkuses had a certificate of deposit account with the Association in the amount of $30,000. When the CD matured, the Association exercised its right of setoff and withheld $11,000 from the CD account. It then apparently considered the Petkuses loan paid in full and voluntarily dismissed the lawsuit.

The Petkuses then filed suit against the Association. Their four-count complaint alleged breach of oral contract, breach of certificate-of-deposit contract, violation of the Consumer Fraud and Deceptive Business Practices Act (Ill. Rev. Stat. 1985, ch. 121 1/2, par. 261 et seq.), and common-law fraud. The Petkuses alleged that there were no conditions on the oral discount agreement concerning the source of the payoff funds and that the Association had intentionally breached the discount agreement. The Association counterclaimed for attorney fees pursuant to a clause in the "Mortgagor's Supplemental Agreement" which made the mortgagors responsible for all attorney fees incurred by the Association in connection with any dispute as to the debt.

A bench trial was held, and judgment was entered against plaintiffs on all four counts of their complaint. Judgment was entered in favor of defendant on the counterclaim for attorney fees in the amount of $8,217.20. The Petkuses filed a timely notice of appeal. The appeal is limited to the judgment entered in favor of the Association for attorney fees.

The Petkuses contend that because the Association released the mortgage lien and cancelled the note, or alternatively when the setoff occurred and the debt was fully paid, all contract rights under the mortgage agreement were extinguished including the Association's right to attorney fees. Alternatively, the Petkuses argue that the attorney-fees provision of the mortgage agreement was intended to apply to attorney fees resulting from a loan default and not to fees resulting from defense of a breach of contract or fraud action such as this.

At the time that the parties entered into the loan agreement, they executed a promissory note, a mortgage, and a document entitled "Mortgagor's Supplemental Agreement." Paragraph G of the supplemental agreement provides:

"That the Mortgagee may employ counsel for advice or other legal service at the Mortgagee's discretion in connection with any dispute as to the debt hereby secured or the lien of this Instrument, or any litigation to which the Mortgagee may be made a party on account of this lien or which may affect the title to the property securing the indebtedness hereby secured or which may affect said debt or lien and any reasonable attorney's fees so incurred shall be added to and be a part of the debt hereby secured. Any costs and expenses reasonably incurred in the foreclosure of this mortgage and sale of the property securing the same and in connection with any other dispute, or litigation affecting said debt or lien, including reasonably estimated amounts to conclude the transaction, shall be added to and be a part of the debt hereby secured. All such amounts shall be payable by the Mortgagor to ...


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