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06/19/89 Commercial Mortgage & v. Life Savings of America Et

June 19, 1989

COMMERCIAL MORTGAGE & FINANCE COMPANY, APPELLANT

v.

LIFE SAVINGS OF AMERICA ET AL. (J. DAVID OLSON ET AL., APPELLEES)



SUPREME COURT OF ILLINOIS

541 N.E.2d 661, 129 Ill. 2d 42, 133 Ill. Dec. 450 1989.IL.928

Appeal from the Appellate Court for the Second District; heard in that court on appeal from the Circuit Court of Winnebago County, the Hon. Galyn W. Moehring, Judge, presiding.

APPELLATE Judges:

JUSTICE MILLER delivered the opinion of the court:

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE MILLER

The plaintiff, Commercial Mortgage & Finance Company (Commercial Mortgage), filed a complaint in the circuit court of Winnebago County to foreclose a mortgage which secured a loan that it had made to the defendants, J. David Olson (Olson) and Mary Ann Olson. In their answer, the Olsons claimed, as an affirmative defense, that the loan in question was usurious. Following a bench trial, the circuit Judge ruled in favor of Commercial Mortgage and entered a decree of foreclosure. The Olsons appealed from the trial court's decision, and the appellate court, with one Justice Dissenting, reversed. (167 Ill. App. 3d 762.) We allowed Commercial Mortgage's petition for leave to appeal from the appellate court's judgment (107 Ill. 2d R. 315).

Since 1972, the Olsons have been the sole proprietors of a business located in Rockford, Illinois, known as The Bridal Shoppe. Prior to 1978, Commercial Mortgage extended several loans to the Olsons. It is uncontested that Commercial Mortgage made these loans with the understanding that they were personal in nature, and that the Olsons used the proceeds of these loans for personal, rather than business, purposes. The Olsons received the last of these undisputedly personal loans in December 1977 with the first installment payment due on February 1, 1978.

Unable to make the first payment on this loan, Olson unsuccessfully sought additional financing at various lending institutions. Olson then discussed, with Commercial Mortgage loan officer Glen Larson, the possibility of rewriting the December 1977 loan that he had received from Commercial Mortgage for a longer term. As a result of their Discussion, the Olsons obtained a loan on February 27, 1978, for approximately $28,785 at an interest rate of 19.13%. This loan was secured by a mortgage on the Olsons' residence. The loan documents included a note, a mortgage and a separate written declaration, each signed by the Olsons and each stating that the proceeds of the loan would be used for business purposes only. The Olsons received a check from Commercial Mortgage in the amount of $1,860 with the remainder of the loan proceeds used to pay off the December 1977 loan. None of the $1,860 was used by the Olsons in their business.

In October 1978, the Olsons fell behind in making the payments on the second loan and again discussed the possibility of refinancing the loan with Larson. On October 30, 1978, the Olsons obtained a loan in the amount of approximately $32,750 at an interest rate of 19.13%. Again, the loan documents contained statements signed by the Olsons to the effect that the loan proceeds were to be used for business purposes. The Olsons received no funds from this transaction. All of the proceeds of the loan went toward retiring the previous loan.

In October 1980, the Olsons again approached Commercial Mortgage about rewriting the loan. On this occasion, Olson discussed the matter with loan officer Ann Anderson. On October 2, 1980, the Olsons received a loan for $36,277 at an interest rate of 21%. Of this amount, $17,500 was the principal amount borrowed and $18,777 represented interest on the loan. As with the two previous loans, the Olsons signed a note, mortgage and separate statement each indicating that the loan was a business loan. The Olsons received a check for $746 from this transaction with the remaining proceeds used to pay off the loan of October 1978. None of the $746 was used in the Olsons' business.

In October 1986, after having made payments for six years totaling $18,143, the Olsons defaulted on the loan. At the time the default occurred, the Olsons owed $15,226 on the principal and $2,908 in interest on the October 1980 loan. Commercial Mortgage filed suit in the circuit court of Winnebago County on October 24, 1986, to foreclose the mortgage on the Olsons' residence. The Olsons answered the complaint by denying liability for any deficiency in the loan payments and by raising the affirmative defense of usury. In their prayer for relief, the Olsons requested that the court apply all of the payments previously made to the principal amount borrowed, declare that Commercial Mortgage was not entitled to any interest on the note and dismiss the complaint. The Olsons did not seek the return of any money paid in excess of the principal amount, nor did they claim the right to any statutory penalty or attorney fees under the usury statute.

On January 15, 1987, Commercial Mortgage filed a motion to dismiss the Olsons' affirmative defense, stating that the October 1980 loan was a business loan and therefore exempt under the usury statute. The Olsons responded by filing an affidavit stating that the loan in question was a personal loan. No ruling was made on the motion to dismiss, and the cause proceeded to trial on June 15, 1987.

At trial, the parties agreed that if the loan was a business loan, it was exempt from the statutory limitations on interest imposed by the Interest Act (Ill. Rev. Stat. 1979, ch. 74, par. 1 et seq.), but that, if the loan was personal, the 21% interest charged by Commercial Mortgage was in excess of the statutory maximum and the loan was usurious. Thus, the only question in dispute was whether the October 1980 loan was for personal or business purposes.

In support of its position that the loan was intended by the parties as a business loan, Commercial Mortgage introduced into evidence the documents for the February 1978, October 1978 and October 1980 loans, all signed by the Olsons and all stating that ...


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