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June 30, 1997


Appeal from the Circuit Court of Lake County. No. 90--L--224. Honorable Michael J. Sullivan, Judge, Presiding.

Released for Publication July 30, 1997.

The Honorable Justice Thomas delivered the opinion of the court. Rathje and Hutchinson, JJ., concur.

The opinion of the court was delivered by: Thomas

JUSTICE THOMAS delivered the opinion of the court:

The plaintiff, First Midwest Bank (the Bank), filed this lawsuit against the defendants, Lee A. Sparks and Thomas P. Stepanich, to recover for sums loaned to Sparks. In connection with the transaction, Stepanich cosigned the loan documents on behalf of Sparks. Stepanich filed a counterclaim against the Bank and two of the Bank's employees, Thomas Schwartz and Paul Bouchard, alleging common-law fraud and violations of the Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS 505/1 et seq. (West 1994)). He also sought rescission of the loan document. Following a jury trial on the Bank's claim, the trial court entered judgment in favor of the Bank and against Stepanich in the amount of $81,215, which included attorney fees and costs. The trial court granted Stepanich's motion for a bench trial on his counterclaims of consumer fraud and rescission. After hearing the evidence on those claims, the trial court entered judgment in favor of the Bank. Stepanich appeals.


The record shows that Schwartz was the president of the First Midwest Bank in Waukegan on August 1, 1989. On that day, Sparks, a licensed attorney, came to the Bank and asked to borrow $48,000. Schwartz informed Sparks that he was not in a position to make the loan on an unsecured basis. Sparks mentioned the possibility of having Stepanich cosign. Stepanich was also a licensed attorney practicing in the area. Schwartz indicated that he was familiar with Stepanich's financial condition ana that he would accept him as a cosigner.

Later that day, Sparks informed Schwartz that Stepanich would be a cosigner. As Schwartz prepared the note, Stepanich and Sparks sat together in a conference room. When Schwartz presented the note, Stepanich complained to Sparks that the amount of $48,000 listed in the note was not what he had agreed upon. Stepanich and Sparks then agreed on the amount of $27,516.21, and Schwartz then left the room to prepare a note for that amount.

At the time of the August 1, 1989, loan, Sparks had other loans with the Bank either through the Waukegan or Zion branch. On February 27, 1987, through the Waukegan branch, Schwartz loaned Sparks $32,000. By February 1989, the principal had been reduced to under $15,000 and the loan was renewed for another three months.

On April 1, 1989, Bouchard, vice-president of the Zion branch of the Bank, made a $36,838.09 loan to Sparks, which was disbursed to him early in May 1989. Part of the reason for the loan was that Sparks was overdrawn for 21 days on an account by $27,068.96. The loan was secured by a third mortgage on Sparks' home. The Bank did not do an appraisal of the home before approving the loan even though typical lending guidelines provided that an appraisal be done. Bouchard did not see a current financial statement or a tax return of Sparks before making the loan and did not know Sparks' income. Sparks apparently had a financial statement dated February 27, 1987, which listed his income as $84,000 and his net worth at $364,000, but Bouchard did not recall seeing that statement.

On May 8, 1989, the Bank loaned Sparks $29,214.27, for 30 days, to cover a real estate transaction that Sparks was involved with in the State of Wisconsin. The loan was made with Schwartz' approval.

On May 15, 1989, the Bank made another loan to Sparks of $48,029.91, due 30 days from the date of the loan. This loan was apparently made through Bouchard. Bouchard acknowledged that he could not rely on the intended payoff source of this loan which was to be certain CDs held by Isabel M. Graf, over which Sparks had the power of attorney. Bouchard stated that Sparks gave him copies of the CDs belonging to Graf, which were on deposit at the Bank in the amount of $104,000. Bouchard told Sparks that the Bank could not make the loan without additional collateral. The Bank finally agreed to loan Sparks the money after Sparks got Bill McCullough to guarantee it. Bouchard noted that he was unaware of the May 8, 1989, loan through the Zion branch when he made the loan on May 15, 1989.

Thereafter, Sparks did not pay any of his loans on time. On June 30, 1989, Sparks wrote a check from his checking account to the Bank against the April 1, 1989, and May 15, 1989, loans. Because of insufficient funds in Sparks' checking account, the check did not clear. Because Sparks had deposited nearly $80,000 in his checking account during June, he did have some funds available to pay down his loans. So, at Sparks' request, $38,084.79 was used to completely pay off the April 1, 1989, loan, and $20,292.10 was used to pay down the May 15, 1989, loan.

On July 21, 1989, Bouchard wrote a letter to Paula Wix, the vice-president of the loan review function of the Bank, requesting that she rerate Sparks' loans as problem loans. He stated in the letter that "through recent broken promises, it is apparent Sparks has financial problems which has [sic] not allowed him to payoff [sic] our note having a balance of $27,737.81." Bouchard further stated in the letter that he was working with Schwartz to resolve the problem, since Sparks had loans at the Waukegan office. Bouchard testified, however, that he did not recall having a conversation with Schwartz even though his letter might have indicated that he did. Schwartz was not copied on the letter but did receive a faxed copy on August 4, 1989.

Wix reviewed Sparks' loans at the Bank. As of July 27, 1989, he had a total of five loans with the Bank, three in Zion and two in Waukegan, and all of the loans were delinquent. She noted that because a loan was delinquent did not mean that it was a bad loan or that it was in default. She explained that she undertook a review of Sparks' accounts after reviewing trial balances. At that time, she happened to notice that there were loans on the Waukegan trial balance and the Zion trial balance with similar names. After further investigation, she found that the loans were made to the same person, Sparks. She noted that it was possible that one branch might not know what the other branch is doing from time to time. After she received Bouchard's letter to rerate the loans, she talked to Schwartz on the phone about the loans made through the Waukegan branch. She testified that she did not recall discussing any of the loans made through the Zion branch with Schwartz. Schwartz told her that he was quite confident in his borrower and that the loans would be repaid. After she talked with Schwartz and concluded her review, Wix reaffirmed Sparks' Waukegan branch loans at a rating of 4, which was an average loan rating.

Stepanich testified that, aside from Billy McCullough, Sparks was his best friend. Stepanich also noted that Schwartz was a close friend of his and he trusted Schwartz. Stepanich stated that he did not know anything about Sparks' financial condition other than he always seemed to have plenty of money. On the day Sparks asked him to cosign, Sparks told Stepanich that as a result of giving a check to someone who cashed it prematurely he needed some more money. He further stated that if he had known Sparks' financial condition at the time of the August 1, 1989, loan he would not have agreed to cosign. He acknowledged that he never inquired of Schwartz about Sparks' financial condition and that he understood that the Bank would not lend Sparks the money unless he cosigned.

Stepanich further testified that when the note became due around September 30, 1989, Schwartz informed Stepanich that they were unable to collect from Sparks and since Stepanich had cosigned he was liable to make payment on the note. According to Stepanich, Schwartz told him that "it looks like [Sparks] has some real problems." Stepanich then asked, "Why didn't you tell me that before if you knew about it." Schwartz replied, "Well, I thought you would ask Sparks about it."

Schwartz testified that when he made the August 1, 1989, loan he had no reason to believe that Sparks did not have the ability to repay the loan. He stated that he did not know that the Zion branch of the Bank had made the April 1, 1989, and May 15, 1989, loans to Sparks. He further stated that he did not remember ever talking to Bouchard about Sparks having financial ...

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