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12/29/89 First National Bank of v. Califf

December 29, 1989

FIRST NATIONAL BANK OF MOLINE, PLAINTIFF-APPELLANT

v.

CALIFF, HARPER, FOX AND DAILEY, DEFENDANT-APPELLEE



APPELLATE COURT OF ILLINOIS, THIRD DISTRICT

548 N.E.2d 1361, 193 Ill. App. 3d 83, 139 Ill. Dec. 647 1989.IL.2077

Appeal from the Circuit Court of Rock Island County; the Hon. Joseph F. Beatty, Judge, presiding.

APPELLATE Judges:

PRESIDING JUSTICE WOMBACHER delivered the opinion of the court. BARRY and SCOTT, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE WOMBACHER

Plaintiff First National Bank of Moline brought an action to recover money damages for the negligent preparation of a mortgage by its borrower's attorney. The trial court dismissed plaintiff's second amended complaint for failure to state a cause of action. Plaintiff appeals.

The record reveals the following information. In August 1982, Donald and Janet Cantrill, on behalf of their company Cantrill Development Corporation, found it necessary to secure a loan to keep their business afloat. The Cantrills approached the plaintiff, who agreed to lend them the money if the Small Business Administration would guarantee the loan.

The Cantrills hired attorney Robert Mensing of the defendant law firm Califf, Harper, Fox & Dailey, P.C., to assist with the procurement and execution of the loan. The SBA agreed to guarantee the loan if the Cantrills would give a second mortgage on their house as security for the loan. The SBA forwarded an authorization and loan agreement to the plaintiff. The plaintiff then forwarded the SBA documents and information to Mensing, asking him to fill out the forms and meet the requirements listed in the authorization loan agreement. Additionally, the cover letter sent by the plaintiff to Mensing indicated that should Mensing need any further assistance with the preparation of the forms, he should contact the plaintiff.

Mensing had the Cantrills sign the mortgage individually, when in actuality their home was in a land trust and they were the beneficial owners of the trust. It is unclear whether the mortgage went back to the plaintiff or was retained by Mensing until it was filed on December 28, 1982.

Subsequently the Cantrills gave a third mortgage on the property. Thereafter the Cantrills filed for bankruptcy, and plaintiff's mortgage was declared invalid because the land trustee had never pledged its interest. The plaintiff was classified as a general creditor and received no benefit.

The SBA made demand upon the plaintiff for reimbursement because of the plaintiff's failure to meet one of the loan requirements, that being the second mortgage on the Cantrill's house. The plaintiff settled with the SBA for $22,500.

The plaintiff brought suit against Mensing's employer, the defendant professional corporation, for Mensing's alleged negligence in preparing the mortgage. The trial court granted defendant's motion to dismiss plaintiff's second amended complaint, finding that the plaintiff had failed to state a cause of action. Plaintiff appeals.

The sole issue on appeal is whether a borrower's attorney owes a duty to a lending bank when preparing a Small Business Administration mortgage document necessary to obtain an SBA loan guarantee.

To state a legally sufficient claim for negligence, a plaintiff must allege the existence of a duty owed by the defendant to the plaintiff, a breach of that duty, and an injury proximately caused by that breach. (Curtis v. County of Cook (1983), 98 Ill. 2d 158, 162, 456 N.E.2d 116.) The determination of whether a duty exists is an issue of law to be determined by the court. (Kirk v. Michael Reese Hospital & Medical Center (1987), 117 Ill. 2d 507, 525, 513 N.E.2d 387.) To conclude that a duty exists, a court must find that the defendant and the plaintiff stood in such a relationship to one another that the law imposed upon the defendant ...


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