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Cole v. Davis

Court of Appeals of Illinois, First District, Fifth Division

August 26, 2016

FRANKLIN A. COLE, as Trustee or Representative of the Franklin A. Cole IRA-PEN, Bank One N.A. Account No. 262093-1000, Plaintiff-Appellant,

         Appeal from the Circuit Court of Cook County. No. 2014 L 050986, The Honorable Brigid Mary McGrath, Judge Presiding.

          JUSTICE GORDON delivered the judgment of the court, with opinion. Justices Lampkin and Burke concurred in the judgment and opinion.



         ¶ 1 The present interlocutory appeal arises out of defendants' alleged default on a promissory note. The parties entered into an agreement under the promissory note (the note) on November 17, 2000, by which defendants agreed to pay plaintiff, by December 15, 2000, the principal sum of $100, 000 with interest accruing at the publicly announced prime rate of Bank One, N.A. The note contains a confession of judgment clause, which authorizes any attorney to confess judgment on behalf of defendants for the amount outstanding at any time after the payment's due date. After defendants allegedly failed to pay off the principal and interest to plaintiff by the due date, plaintiff filed a confession of judgment suit on December 24, 2014.

         ¶ 2 On January 7, 2015, the trial court entered judgment in favor of plaintiff for $153, 453.97 and costs of suit. Thereafter, defendants filed a motion to vacate and/or open the judgment, arguing that the confession of judgment clause in the note was invalid because it contained a variable interest rate. The trial court granted defendants' motion. Plaintiff then filed a motion to certify a question under Illinois Supreme Court Rule 308 (eff. Jan. 1, 2015), arguing that Illinois courts have not addressed whether or not a confession of judgment clause is invalid where it contains a definite principal and a variable interest rate. Plaintiff further argued that section 3-112 of the Uniform Commercial Code (UCC) (810 ILCS 5/3-112 (West 2000)) expressly authorizes the use of a variable interest rate in instruments like the promissory note in question. The trial court granted plaintiff's motion, and we granted the appeal. For the following reasons, we answer the certified question in the affirmative.

         ¶ 3 BACKGROUND

         ¶ 4 Plaintiff filed a complaint against defendants on December 24, 2014. The complaint alleges that on or about November 17, 2000, defendants made and delivered the note to plaintiff. The complaint attaches a copy of the note, which is dated November 17, 2000. The note heading specifies that it is for $100, 000 and designates the location as Chicago, Illinois. The body of the note provides:

"For value received, the Undersigned, and each of them, jointly and severally, promise to pay to the order of [plaintiff], Chicago, Illinois, the principal sum of $100, 000. The principal sum shall bear interest at the rate of the publicly announced prime rate of BANK ONE, N.A. (which is not intended to be the lowest or most favorable rate at any one time) in effect from time to time (the 'Prime Rate'), which rate of interest shall increase or decrease in a total amount equal to the amount by which the publicly announced Prime Rate of said bank is increased or decreased from time to time. Each change in the interest rate hereon shall take effect on the effective date of the change in the Prime Rate. Holder shall not be obligated to give notice of any change in the Prime Rate. The Prime Rate shall be computed on the basis of a year consisting of 360-days and shall be paid for the actual number of days elapsed from the date principal or part thereof is drawn down, the Undersigned shall give Holder 24 hours written notice of intention to draw on the principal sum. This note may be prepaid at anytime without penalty. The Undersigned shall remit to Holder the outstanding principal sum and interest on December 15, 2000.
Any amount of the principal hereof which is not paid when due whether at stated maturity, by acceleration, or otherwise, shall bear interest payable on demand at an interest rate equal at all times to two per cent (2%) [being 200 base points] above the applicable rate in effect on this note at such maturity. All payments hereunder shall be applied first to interest on the unpaid balance at the rate herein specified and then to the principal.
All amounts outstanding under this note shall become immediately due and payable, at the option of Holder hereof, without any demand or notice whatsoever, in the event that the Undersigned or any of them be the subject of any assignment for the benefit or creditors of, or the commencement of any bankruptcy, receivership, insolvency, reorganization, dissolution or liquidation proceedings by or against any of them, or in the event that The Neighborhood Rejuvenation Partnership, L.P., an Illinois limited partnership ('the Fund'), has not received firm commitments from investors of at least $17, 000, 000, and in respect of which there has been a closing, as that term is defined in the agreement of limited partnership in respect of the Fund, or is for any reason deprived of or surrenders its rights to build under existing authorities or its tax and zoning status, or if Gallery Park Place LLC ceases to be a functional part of and beneficiary of the Fund and its operations.
Advances of principal under this note will be made by Holder only upon 24 hours notice to Holder at his place of business in Chicago, Illinois.
All advances made by the Holder and all payments made by the Undersigned on account of the unpaid principal amount hereof, shall be recorded on the grid attached hereto. The Undersigned and each of them agrees that in any section or proceeding instituted to collect or enforce collection of this note, the amount endorsed on the reverse side of the note at that time shall be prima-facie evidence of the unpaid principal balance of this note. This note shall be governed by and construed under the law of the State of Illinois in all respects.
The Undersigned and each of them irrevocably authorizes any attorney of any court of record to appear for it in term time or vacation, at any time and from time to time after payment is due hereof, whether by acceleration or otherwise, and confess judgment, without process, in favor of holder hereof, for such sum as may appear to be due and unpaid hereon, together with interest, costs, and reasonable attorneys' fees, and to waive and release all errors which may intervene in such proceeding, and consents to immediate execution upon such judgment, hereby ratifying and confirming all that said attorney may do by virtue hereof."

         The note contains defendants' signatures.

         ¶ 5 The complaint further alleges that on June 12, 2001, by which date defendants had not paid their debt under the note, the parties entered into a letter agreement amending the note. The complaint attaches a copy of this letter agreement. The letter agreement is addressed to Allison S. Davis, Esq., and is signed by plaintiff, the sender of the letter agreement. The letter agreement is dated June 12, 2001. The body of the letter agreement provides:

"Reference is made to that certain promissory note dated November 17, 2000, payable December 25, 2000 to Franklin A. Cole, IRA-PEN, Bank One N.A. Account #262093-1000, a copy of which is attached hereto. (The Note).
Though by its term the Note was payable on December 15, 2000, and interest in respect thereof has not been paid, the parties have from time to time agreed to extend the due date and the date for payment of interest so that the Note is not now in default.
In order to assure that payments of principal and interest are made in a timely and manageable fashion the parties agree to amend the terms of The Note as follows:
(1) All accrued interest at the prime rate as charged from time to time by Bank One (the 'prime rate') shall be paid as of May 31, 2001 on the date of the execution of this letter. Thereafter accrued interest shall be paid on June 30, 2001 and at the end of each calendar quarter thereafter at the prime rate as defined in such Note so long as the Note is not in default.
(2)The principal balance of the Note shall be paid in 3 installments, $25, 000 on or before September 30, 2001; $25, 000 on or before November 30, 2001 and the balance of such note, $50, 000 on or before March 31, 2002.
(3)In all other respects the Note shall remain in full force and effect. If this arrangement is in accordance with your understanding and satisfactory to you, please sign and cause each of the parties noted below to sign this letter at which time it will become a binding amendment to The Note."

         The letter agreement contains the signatures of plaintiff and defendants.

         ¶ 6 The complaint next alleges that defendants failed to pay their debt under the note according to its amended terms and defaulted on it. It alleges that demand for payment was made upon defendants, but they failed to pay. The complaint alleges that plaintiff was the holder and owner of the note and that no part thereof had been paid except the principal sum of $6999.97, and several interest payments aggregating $24, 088.07, for which defendants had been credited. The complaint alleges that a schedule of payments that were made and amounts paid is attached to the complaint, although no schedule of payments is attached to the complaint in the record.

         ¶ 7 The complaint alleges that defendants owe plaintiff the sum of $93, 000.03, "with interest at that certain rate of interest announced from time to time as its Prime Rate by Bank One N.A. (and its successor bank, J.P. Morgan Chase N.A.) (the 'Prime Rate'), and after September 30, 2001, the Prime Rate plus 200 basis points (the 'Interest Charge') percent per annum from September 30, 2001 to the present, on the principal outstanding and unpaid." The complaint prays that judgment be entered against defendants "in the sum of $93, 000.03 with accrued interest of $59, 859.02 computed at the Interest Charge to January 31, 2013, and thereafter until the date of entry of judgment at the per diem interest rate of $13.56 together with attorneys' fees for $500 and costs of suit."

         ¶ 8 Following the complaint's prayer for judgment is the confession of judgment, which is attached to the complaint. The confession of judgment states that:

"[defendants], by Robert P. Groszek, [1] their attorney, waive service of process and confess that there is due from [defendants] ...

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