Teachers Insurance v. LaSalle National Bank
Annotate this Case
Nos. 2--96--1423, 2--97--1115, 2--97--1116, 3--97--0299
consolidated
_________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
SECOND DISTRICT
_________________________________________________________________
TEACHERS INSURANCE AND ANNUITY ) Appeal from the Circuit Court
ASSOCIATION OF AMERICA, ) of Du Page County.
)
Plaintiff-Appellee, ) No. 95-CH-0829
)
v. )
)
)
LASALLE NATIONAL BANK, as )
Trustee under Trust Agreement )
dated September 4, 1984, and )
known as Trust No. 108920; )
200 PARK PLAZA ASSOCIATES; )
W/H PARTNERSHIP NO. 2; MATTHEW M. )
WALSH, JR.; DANIEL J. WALSH; )
JOHN W. HIGGINS; CHRISTOPHER NOON; )
WALSH, HIGGINS AND COMPANY; )
NON-RECORD CLAIMANTS; and UNKNOWN )
OWNERS, ) Honorable
) John W. Darrah,
Defendants-Appellants. ) Judge, Presiding.
_________________________________________________________________
JUSTICE DOYLE delivered the opinion of the court:
Defendants appeal from a summary judgment entered by the circuit
court of Du Page County against them and in favor of plaintiff, Teachers
Insurance and Annuity Association of America. The trial court ruled that
the Credit Agreements Act (Act) (815 ILCS 160/0.01 et seq. (West 1996))
barred defendants affirmative defenses and counterclaims in plaintiff s
action to foreclose a mortgage. Defendants raise the following issues
for review: whether the Act barred their affirmative defenses and
counterclaims; and whether applying the Act to bar their affirmative
defenses and counterclaims was unconstitutional.
Plaintiff held a mortgage on real property improved with a
commercial office building (the building) in Naperville known as 200 Park
Plaza (the property). The mortgage secured two notes with an aggregate
original indebtedness of $32,800,000 (collectively, the loan).
The First National Bank of Chicago was the original mortgagee.
Defendant LaSalle National Bank, as trustee of a land trust, was the
mortgagor. Defendant 200 Park Plaza Associates (200 PPA), a limited
partnership, was the sole beneficiary of the land trust. Defendant W/H
Partnership No. 2, a limited partnership, was the general partner of 200
PPA. The individual defendants are general partners of W/H Partnership
No. 2. Defendant Walsh, Higgins & Co. (Walsh, Higgins), a construction
and management company, constructed the building and managed the building
from the time it was completed until the resolution of this action.
In September 1994, the tenant that had leased the entire building
since it was opened in 1987 advised 200 PPA that it did not intend to
renew its lease when the lease expired on September 30, 1995. 200 PPA
immediately informed plaintiff of the tenant s decision and advised
plaintiff that the loss of the building s sole tenant necessitated a
restructuring of the loan.
Between October 1994 and June 1995, the parties engaged in periodic
discussions regarding restructuring the loan. The parties never executed
a written agreement to restructure the loan.
In each of their affirmative defenses and counterclaims, defendants
allege that during their discussions with plaintiff regarding a
restructuring of the loan, plaintiff indicated that it required certain
terms in order to agree to a restructuring. In an attempt to satisfy
these terms, defendants developed and presented to plaintiff a
recapitalization plan that included the following terms: (1) a capital
contribution of $1 million by 200 PPA; (2) third-party financing of
tenant improvements to the property; (3) an initial below-market interest
rate coupled with a retroactive rent credit; (4) graduated increases in
the interest rate during the life of the loan; and (5) a guaranteed look
back rate of return based on a retrospective review of the transaction
at the end of the loan term.
Defendants also allege that at various times during the
restructuring discussions between February 3, 1995, and June 29, 1995,
different spokespersons for plaintiff made statements to defendants
agents that led defendants to conclude that the proposed restructuring
plan was generally acceptable to plaintiff and that only details needed
to be worked out in order to finalize a restructuring agreement.
Defendants further allege that on June 29, 1995, a spokesperson for
plaintiff advised defendants that the proposed restructuring would not
work and that plaintiff expected defendants to fund improvements without
third-party financing. Plaintiff later added a requirement that
defendants contribute $8 million toward improvements on an unsecured
basis.
Defendants affirmative defenses and counterclaims allege that as
a result of plaintiff s refusal to comply with the restructuring plan as
it was proposed prior to June 29, 1995, defendants lost two large leases.
Defendants further allege that plaintiff misled defendants regarding its
intent to restructure the loan and therefore caused the loss of the
leases. Defendants posit that plaintiff was motivated to mislead them
by a desire to gain ownership of the property and that plaintiff has
engaged in similar conduct with respect to other properties for which it
was the lender.
On November 8, 1995, plaintiff filed a verified complaint against
defendants seeking a judgment of foreclosure and other relief, including
a judicial sale of the property. Plaintiff s complaint alleged that the
loan was in default and that as of October 31, 1995, outstanding
principal, accrued interest, and late charges on the loan totaled
$33,778,040.15. Defendants responded with a verified answer and
affirmative defenses. Plaintiff then moved for summary judgment. After
a hearing on the matter, the trial court entered an order that treated
plaintiff s motion for summary judgment as a motion to strike defendants
affirmative defenses on the ground that they were insufficient at law.
The order then granted the motion to strike but allowed defendants to
amend and refile their answer and affirmative defenses.
On July 11, 1996, defendants filed an amended answer, affirmative
defenses, and counterclaims. The affirmative defenses were based on
theories of breach of fiduciary duty, breach of contract, unclean hands,
fraud, constructive fraud, and estoppel. The counterclaims alleged
breach of fiduciary duty, breach of contract, fraud, constructive fraud,
and estoppel.
Plaintiff subsequently renewed its motion for summary judgment. In
support of its motion for summary judgment, plaintiff argued that the Act
barred each of defendants affirmative defenses.
On November 1, 1996, the trial court entered an order granting
plaintiff s renewed motion for summary judgment as to defendants
affirmative defenses. On November 12, 1996, plaintiff moved for summary
judgment on defendants counterclaims. Plaintiff argued that the
counterclaims were substantively identical to the affirmative defenses
and that the Act barred the counterclaims for the same reasons that it
barred the affirmative defenses.
On December 2, 1996, the trial court entered a judgment of
foreclosure and sale ordering the judicial sale of the property. On
December 6, 1996, defendants filed a notice of appeal from the judgment
of foreclosure and sale. The appeal was to this court and was docketed
as No. 2--96--1423.
On April 10, 1997, the trial court entered an order granting
plaintiff s motion for summary judgment as to defendants counterclaims.
Defendants subsequently appealed from that order. We consolidated the
appeal from the April 10 order with defendants first appeal under docket
No. 2--96--1423.
Defendants subsequently filed two additional related appeals in the
appellate court, third district. One of these appeals, the third appeal,
was from an agreed order confirming the sale of the property. The fourth
appeal was from an amended confirmation order. The third and fourth
appeals were later transferred to this court. We consolidated the third
and fourth appeals with the first and second appeals. The parties have
not filed additional briefs regarding the third and fourth appeals.
Thus, on appeal, the parties only really dispute whether the trial court
erred when it granted summary judgment in favor of plaintiff on the
ground that the Act barred defendants affirmative defenses and
counterclaims.
After the consolidation of the four appeals in this court, plaintiff
moved to dismiss the first, third, and fourth appeals (all the appeals
except the appeal from the summary judgment order regarding defendants
counterclaims). Defendants objected and the motion was taken with the
case.
We now address the motion to dismiss the first, third, and fourth
appeals. Plaintiff contends that the appeals should be dismissed because
they are moot. Plaintiff bases its contention on Supreme Court Rule
305(j) (155 Ill 2d R. 305(j)) and cases decided under Rule 305(j).
Plaintiff maintains that these authorities support the proposition that
an appeal is moot when a disinterested third party purchases property
that is the subject of the appeal and a stay of the underlying judgment
has not been perfected. Plaintiff argues that the appeals in question
here are moot because a disinterested third party has purchased the
property and a stay has not been perfected.
Defendants respond by noting that they have challenged the
constitutionality of the application of the Act to bar their affirmative
defenses. Defendants contend that if they prevail on their
constitutional challenges, then the Act, as applied, would be deemed void
ab initio and they would be entitled to reclaim the property. Defendants
argue that plaintiff s reliance on Rule 305(j) to extinguish their right
to an appeal hearing regarding their constitutional challenges would be
a denial of due process.
We agree with defendants. We recognize that, in general, courts
avoid determining whether a statute is unconstitutional if a case can be
decided on other grounds. See, e.g., First National Bank v. Kusper, 98 Ill. 2d 226, 236 (1983). We also recognize that Rule 305(j) and related
cases arguably render defendants appeal moot and therefore would make
it unnecessary for us to reach defendants constitutional arguments.
However, a determination that Rule 305(j) renders the appeals in
question moot also prevents the resolution of defendants constitutional
arguments. This is despite the fact that if defendants are correct as
to their constitutional arguments, Rule 305(j) would then operate to
improperly deprive defendants of their property. In view of this
possible deprivation of a fundamental right, we conclude that, under the
circumstances of this case, Rule 305(j) does not render the appeals
moot. See Boddie v. Connecticut, 401 U.S. 371, 379, 28 L. Ed. 2d 113,
120, 91 S. Ct. 780, 787 (1971) (generally valid statute may be
unconstitutionally invalid to extent it operates to deprive protected
rights). Accordingly, plaintiff s motion to dismiss the appeals in
question is denied.
We now turn to the merits of the appeals. The central issue in
these appeals is whether the trial court erred when it ruled that the Act
barred defendants affirmative defenses and counterclaims and granted
summary judgment on that basis to plaintiff.
We initially note that interpreting or construing a statute is a
matter of law for the court and therefore is appropriate for summary
judgment. Matsuda v. Cook County Employees & Officers Annuity &
Benefit Fund, 178 Ill. 2d 360, 364 (1997). Our review of a grant of
summary judgment is de novo. Maksimovic v. Tsogalis, 177 Ill. 2d 511,
514 (1997).
Our analysis of whether the Act barred defendants affirmative
defenses and counterclaims begins with a careful reading of the statute.
The Act defines a credit agreement as:
an agreement or commitment by a creditor to lend money or
extend credit or delay or forbear repayment of money not primarily
for personal, family or household purposes, and not in connection
with the issuance of credit cards. 815 ILCS 160/1(1) (West 1996).
Section 2 of the Act mandates that in order for a credit agreement
to be effective, the credit agreement must be in writing and must be
signed by the parties. Section 2 provides:
[a] debtor may not maintain an action on or in any way related to
a credit agreement unless the credit agreement is in writing,
expresses an agreement or commitment to lend money or extend credit
or delay or forbear repayment of money, sets forth the relevant
terms and conditions, and is signed by the creditor and the debtor.
815 ILCS 160/2 (West 1996).
Section 3 of the Act is captioned Actions not considered
agreements. Section 3 provides, in relevant part:
The following actions do not give rise to a claim, counter-claim,
or defense by a debtor that a new credit agreement is created,
unless the agreement satisfies the requirements of Section 2:
* * *
(3) the agreement by a creditor to modify or amend an existing
credit agreement or to otherwise take certain actions, such as
entering into a new credit agreement, forbearing from exercising
remedies in connection with an existing credit agreement, or
rescheduling or extending installments due under an existing credit
agreement. 815 ILCS 160/3 (West 1996).
Defendants first contend that the plain words of the Act show that
it did not bar their affirmative defenses and counterclaims. Defendants
acknowledge that section 2 of the Act bars an action on or in any way
related to an oral credit agreement. However, defendants argue that
section 2 does not bar their affirmative defenses and counterclaims
because affirmative defenses and counterclaims are not actions.
In defendants view, to the extent that the Act governs affirmative
defenses and counterclaims, it does so in section 3. However, defendants
read section 3 to bar only affirmative defenses and counterclaims based
on the creation of a new oral credit agreement. Defendants argue that
section 3 did not bar their affirmative defenses and counterclaims
because they were not based on a new credit agreement. Rather,
defendants maintain that their affirmative defenses and counterclaims
were based on plaintiff s breach of the terms of the loan (the written
credit agreement).
Although relatively few Illinois cases have construed the Act, those
that have done so have uniformly held that the language of the Act is
broad and was intended to extend beyond the existing Frauds Act (740 ILCS
80/0.01 et seq. (West 1996)) to bar traditional defenses or exceptions
to the Frauds Act such as equitable estoppel. See, e.g., McAloon v.
Northwest Bancorp, Inc., 274 Ill. App. 3d 758, 764-65 (1995), First
National Bank v. McBride Chevrolet, Inc. (McBride), 267 Ill. App. 3d 367
(1994) (Act bars all actions based on an oral credit agreement).
However, defendants contend that the Illinois cases that have construed
the Act are not controlling here because they have generally not
addressed fact patterns similar to the fact pattern in this case.
Defendants assert that the Illinois cases have generally addressed fact
patterns in which a borrower sues a lender. Defendants argue that where,
as here, a lender sues a borrower and the borrower responds with
counterclaims and affirmative defenses the Illinois cases simply are not
applicable.
Defendants cite and urge us to follow several foreign cases. See,
e.g., Resolution Trust Corp. v. Flanagan, 821 F. Supp. 572 (D. Minn.
1993) (credit agreement may be taken outside credit agreement act by
promissory estoppel); Norwest Bank Minnesota, N.A. v. Midwestern
Machinery Co., 481 N.W.2d 875 (Minn. App. 1992). Defendants maintain
that these cases construe statutes similar to the Act in fact patterns
similar to the fact pattern in this case and conclude that borrowers may
properly assert counterclaims and affirmative defenses based on oral
credit agreements, notwithstanding the statutes in question.
Defendants ignore several federal cases that have construed the Act
with respect to fact patterns similar to the fact pattern in this case.
For example, in Whirlpool Financial Corp. v. Sevaux, 96 F.3d 216 (7th Cir.
1996), a lender sued a borrower on a promissory note and the borrower
raised affirmative defenses and counterclaims. The affirmative defenses
and counterclaims were predicated on oral promises and assurances that
the lender would invest money in the borrower s financially troubled
corporation and that the investment would extinguish the note. The
seventh circuit affirmed the district court s summary judgment order in
favor of the lender based on a ruling that the Act barred the affirmative
defenses and counterclaims.
In Whirlpool, the borrower s affirmative defenses and counterclaims
were based on theories of fraud, estoppel, breach of fiduciary duty, and
breach of contract. Whirlpool, 96 F.3d at 220. The borrower asserted
that the Act applied only to actions and therefore did not apply to his
affirmative defenses and counterclaims because they were not actions
as used in the Act. Whirlpool, 96 F.3d at 225. The court held that the
borrower s counterclaims were actions and that section 2 of the Act
barred them because they were based on an alleged oral agreement.
Whirlpool, 96 F.3d at 225. The court next determined that the borrower s
affirmative defenses were based on the same oral agreement and that
section 3 of the Act therefore barred the affirmative defenses.
Whirlpool, 96 F.3d at 226. The court cited with approval McBride and
other Illinois cases. Whirlpool, 96 F.3d at 225-26.
In Westinghouse Electric Corp. v. McLean, 938 F. Supp. 487 (N.D.
Ill. 1996), a lender sued guarantors of notes that were in default. The
guarantors raised counterclaims and affirmative defenses based on
theories of fraud and breach of a duty of good faith and fair dealing.
The court granted the lender s motion for summary judgment based
primarily on a determination that the Act barred the counterclaims and
affirmative defenses. With respect to the good faith claim, the court
also determined that the lender did not exercise bad faith. Westinghouse
Electric Corp., 938 F. Supp. At 493-94. As to the applicability of the
Act, the court cited McBride for the proposition that the Act bars all
claims, whether sounding in contract or tort. McBride, 267 Ill. App.
3d at 490.
In General Electric Capital Corp. v. Donogh Homes, Inc., No. 93 C
5614 (N.D. Ill. December 15, 1993) (mem. op.), the federal court
construed the Act in a case brought by a lender against guarantors of
defaulted loans. The guarantors raised counterclaims and affirmative
defenses based on various theories that included promissory estoppel,
misrepresentation, and breach of a contractual duty of good faith and
fair dealing. The guarantors asserted that their claims arose out of the
written loans rather than the lender s alleged oral agreement to extend
and modify the loans. The court granted the lender s motions to dismiss
the counterclaims and strike the affirmative defenses after finding that
the guarantors arguments were based on the oral agreement and not the
written agreements. General Electric Capital Corp., mem. op. at 7.
We believe these federal cases correctly construe the Act and
correctly apply the Act to fact patterns similar to the fact pattern in
this case. Consequently, we will follow these cases and will not follow
the foreign cases cited by defendants.
In these cases, one of the critical determinations in deciding
whether the Act barred counterclaims and affirmative defenses was a
determination of whether the counterclaims and affirmative defenses in
question were based on an oral credit agreement. In this case,
defendants strenuously argue that their counterclaims and affirmative
defenses are not based on an oral credit agreement. However, a careful
reading of defendants counterclaims and affirmative defenses shows that
they are all based on an alleged oral agreement by plaintiff to
restructure the loan.
Defendants do not contend that the written credit agreement required
plaintiff to restructure the loan. Rather, all of defendants
counterclaims and affirmative defenses are based on plaintiff s alleged
conduct in reneging on its alleged agreement to restructure the loan.
This conduct plainly amounts to a purported agreement by plaintiff to
modify or amend the loan and therefore falls within section 3 of the
Act. 815 ILCS 160/3 (West 1996). Because the purported credit agreement
to modify or amend the loans is not written and signed by the parties,
section 3 bars any counterclaims or defenses based on it. Accordingly,
the trial court did not err when it ruled that the Act barred defendants
affirmative defenses and counterclaims.
Defendants argue at length that plaintiff breached a fiduciary duty
owed to defendants. Defendants contend that the fiduciary duty arose
from the written credit agreement and that the Act therefore did not bar
their affirmative defense or counterclaim that asserted breach of
fiduciary duty.
A mortgagor-mortgagee relationship does not create a fiduciary
relationship as a matter of law. Northern Trust Co. v. Halas, 257 Ill.
App. 3d 565, 572 (1993). Where the alleged fiduciary relationship does
not exist as a matter of law, the party claiming that a fiduciary
relationship exists must plead facts from which a fiduciary relationship
arises. Santa Claus Industries, Inc. v. First National Bank, 216 Ill.
App.3d 231, 238 (1991).
Defendants allegations do not support the existence of a fiduciary
relationship based on the written credit agreement. The factors that
defendants cite in their pleadings simply do not show that the parties
relationship went beyond the typical lender-borrower relationship. The
normal trust between contracting parties does not operate to turn a
formal, contractual relationship into a fiduciary relationship unless one
of the parties places great trust in and relies heavily on the judgment
of the other party. Carey Electric Contracting, Inc. v. First National
Bank, 74 Ill. App. 3d 233, 238 (1979). Defendants have not pointed to
anything in the written credit agreement that would support a finding
that defendants placed great trust in and relied on plaintiff as to any
of the terms in the written credit agreement.
On this record, defendants have not pleaded a sufficient factual
basis to support the existence of a fiduciary relationship between the
parties based on the written credit agreement. Therefore, defendants
argument that plaintiff breached a fiduciary duty arising from such a
relationship is without merit.
Defendants next contend that, under the circumstances of this case,
the trial court s application of the Act was unconstitutional. In their
appeal brief, defendants argue that such an application (1) abrogates
common law rights and remedies which were in existence at the time the
contract was formed; (2) impairs defendants contractual rights,
including the right to enforce [plaintiff s] implied covenant of good
faith and fair dealing; (3) constitutes special legislation; (4) effects
a denial of equal protection; and (5) violates the constitutional
proscription against dual purpose legislation.
Familiar standards guide us in examining the constitutionality of
a statute. A legislative enactment enjoys a heavy presumption of
constitutionality, and the challenging party has the burden of
establishing a statute s invalidity. In re Marriage of Lappe, 176 Ill. 2d 414, 422 (1997). We must resolve all reasonable doubts in favor of
upholding the validity of the statute. People v. Davis, 177 Ill. 2d 495,
501 (1997).
This court previously addressed constitutional challenges to the Act
in Nordstrom v. Wauconda National Bank, 282 Ill. App. 3d 142 (1996). In
that case, the plaintiff borrowers contended that applying the Act to bar
a promissory estoppel count of the complaint they brought against a
lender was unconstitutional because it violated their equal protection
and due process rights and constituted special legislation. We
determined that applying the Act to bar the promissory estoppel count was
not a violation of the plaintiffs equal protection rights and did not
constitute special legislation because the Act was rationally related to
its purpose of protecting not only the special interests of lending
institutions but also the depositors of such institutions. Nordstrom,
282 Ill. App. 3d at 146.
Here, defendants contend that the reasoning in Nordstrom does not
apply to the situation presented in this case where a borrower seeks to
assert defenses against a lender s foreclosure action involving alleged
fraudulent or inequitable conduct by the lender. Plaintiff responds that
the reasoning in Nordstrom does apply in this case because allowing
affirmative defenses based on an alleged oral credit agreement could
prevent lenders from collecting otherwise valid loans and severely impact
both lending institutions and their depositors.
We agree with plaintiff that applying the Act to bar defenses based
on an alleged oral credit agreement in this case would serve the same
purposes delineated in Nordstrom. Therefore, applying the Act to bar
defendants defenses in this case was not a violation of defendants
equal protection rights and was not unconstitutional special legislation
for the reasons given in Nordstrom. Accordingly, we need not further
address defendants contentions that the trial court s ruling violated
defendants equal protection rights or amounted to unconstitutional
special legislation.
We next address defendants contention that the trial court ruling
unconstitutionally abrogated common-law rights and remedies in existence
at the time the contract was formed. More specifically, defendants
assert that the trial court ruling left them without a remedy in
violation of the certain remedy provision in article I, section 12, of
the Illinois Constitution.
Article I, section 12, of the Illinois Constitution provides:
Every person shall find a certain remedy in the laws for all
injuries and wrongs which he receives to his person, privacy,
property or reputation. He shall obtain justice by law, freely,
completely, and promptly. Ill. Const. 1970, art. I, 12.
Our supreme court has repeatedly stated that the certain remedy
provision is merely an expression of philosophy and does not mandate that
a certain remedy be provided in any form for any alleged wrong. See,
e.g., McAlister v. Schick, 147 Ill. 2d 84, 98 (1992). Moreover, the
legislature has the inherent power to repeal or change the common law and
may do away with all or part of it. People v. Gersch, 135 Ill. 2d 384,
395 (1990). The legislature also has broad discretion to determine
whether a statute that restricts or alters an existing remedy is
reasonably necessary to promote the general welfare. Bilyk v. Chicago
Transit Authority, 125 Ill. 2d 230, 245 (1988).
Based on these principles, we conclude that the Act is well within
the legislature s powers. Accordingly, defendants certain remedy
argument fails.
Defendants also contend that applying the Act as the trial court did
in this case was an ex post facto violation because the written credit
agreement predated the Act. However, the Act was plainly in force at the
time the purported oral credit agreement was formed. Because the alleged
misconduct is based on the purported oral credit agreement, the Act
plainly applied. It is presumed that parties contract with knowledge of
the existing law. Braye v. Archer-Daniels-Midland Co., 175 Ill. 2d 201,
217 (1997). For these reasons, defendants ex post facto argument fails.
Defendants next contend that applying the Act to bar their defenses
unconstitutionally impaired existing contractual obligations arising from
the written credit agreement by denying their right to enforce
plaintiff s duty of good faith and fair dealing. Defendants do not
specify the exact conduct that allegedly amounted to a breach by
plaintiff of its duty of good faith and fair dealing. Based on their
general arguments, defendants presumably contend that plaintiff breached
its duty of good faith and fair dealing by abusing its discretion to
approve leases under the written credit agreement.
As a matter of law in Illinois, a duty of good faith and fair
dealing is implied in every contract. Saunders v. Michigan Avenue
National Bank, 278 Ill. App. 3d 307, 315 (1996). The duty requires a
party vested with contractual discretion to exercise that discretion
reasonably and not arbitrarily, capriciously, or in a manner inconsistent
with the reasonable expectations of the parties. Northern Trust Co. v.
VIII South Michigan Associates, 276 Ill. App. 3d 355, 367 (1995).
Under these principles, defendants might have a valid argument if
the only conduct they complained of was plaintiff s alleged abuse of
discretion in approving leases. However, plaintiff s alleged conduct
regarding leases is inextricably linked to plaintiff s alleged conduct
in reneging on its oral agreement to restructure the loan. It is
undisputed that the written credit agreement did not require plaintiff
to restructure the loan. Nonetheless, defendants state that the loss
of leases resulted from plaintiff s refusal to go forward with the
restructuring after plaintiff orally promised not to backtrack from a
proposed restructuring plan.
Because defendants own description of the alleged breach of a duty
of good faith and fair dealing shows that it is really based on the
purported oral credit agreement to restructure the loans, we conclude
that defendants are attempting to bootstrap the alleged breach of a duty
of good faith and fair dealing stemming from the written credit agreement
into an alleged breach of a duty of good faith and fair dealing arising
from the purported oral credit agreement. We decline to extend the
implied duty of good faith and fair dealing to the extent urged by
defendants. Accordingly, defendants argument that plaintiff breached
a duty of good faith and fair dealing fails.
Finally, defendants contend that the trial court s ruling violated
the constitutional proscription against dual purpose legislation that is
usually referred to as the single subject rule. The single subject rule
is stated in article IV, section 8(d), of the Illinois Constitution of
1970 which provides, in relevant part:
Bills, except bills for appropriations and for the
codification, revision or rearrangement of laws, shall be confined
to one subject. Ill. Const. 1970, art. IV, 8(d).
In defendants view, the trial court ruling violated the single
subject rule because it interpreted the Act not only as a means of
protecting lenders against spurious lender liability complaints based on
oral credit agreements but also as a vehicle that lenders could use to
strip borrowers of defenses that would otherwise be available to them in
actions against them on a written credit agreement. Defendants argue that
because the latter purpose bears no rational relationship to the former
purpose, the Act as applied by the trial court violates the single subject
rule.
Our supreme court recently set out the principles that guide us in
reviewing legislation to determine whether it violates the single subject
rule. The court stated:
The term subject, in this context, is to be liberally
construed and the subject may be as broad as the legislature
chooses. [Citation.] Nonetheless, the matters included in the
enactment must have a natural and logical connection. [Citations.]
The rule prohibits the inclusion of discordant provisions that by
no fair intendment can be considered as having any legitimate
relation to each other. [Citation.]
As the above principles elucidate, the single subject rule does
not impose an onerous restriction on the legislature s actions.
Rather, the rule leaves the legislature with wide latitude in
determining the content of bills. Johnson v. Edgar, 176 Ill. 2d 499, 515 (1997).
Under these principles, the Act as applied to this case clearly
satisfies the single subject rule. Even if we accepted, for the sake of
argument, defendants characterization of the two purposes of the Act,
it is obvious that the single subject of the Act is a writing requirement
for credit agreements. Accordingly, defendants argument that the trial
court s application of the Act violated the single subject rule is
unpersuasive.
In sum, we conclude that the trial court did not err when it granted
summary judgment in favor of plaintiff on the ground that the Act barred
defendants counterclaims and affirmative defenses. In addition,
defendants did not carry their burden of showing that the trial court s
application of the Act was unconstitutional.
Based on the foregoing, the judgment of the circuit court of Du Page
County is affirmed.
Affirmed.
BOWMAN and COLWELL, JJ., concur.
consolidated
_________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
SECOND DISTRICT
_________________________________________________________________
TEACHERS INSURANCE AND ANNUITY ) Appeal from the Circuit Court
ASSOCIATION OF AMERICA, ) of Du Page County.
)
Plaintiff-Appellee, ) No. 95-CH-0829
)
v. )
)
)
LASALLE NATIONAL BANK, as )
Trustee under Trust Agreement )
dated September 4, 1984, and )
known as Trust No. 108920; )
200 PARK PLAZA ASSOCIATES; )
W/H PARTNERSHIP NO. 2; MATTHEW M. )
WALSH, JR.; DANIEL J. WALSH; )
JOHN W. HIGGINS; CHRISTOPHER NOON; )
WALSH, HIGGINS AND COMPANY; )
NON-RECORD CLAIMANTS; and UNKNOWN )
OWNERS, ) Honorable
) John W. Darrah,
Defendants-Appellants. ) Judge, Presiding.
_________________________________________________________________
JUSTICE DOYLE delivered the opinion of the court:
Defendants appeal from a summary judgment entered by the circuit
court of Du Page County against them and in favor of plaintiff, Teachers
Insurance and Annuity Association of America. The trial court ruled that
the Credit Agreements Act (Act) (815 ILCS 160/0.01 et seq. (West 1996))
barred defendants affirmative defenses and counterclaims in plaintiff s
action to foreclose a mortgage. Defendants raise the following issues
for review: whether the Act barred their affirmative defenses and
counterclaims; and whether applying the Act to bar their affirmative
defenses and counterclaims was unconstitutional.
Plaintiff held a mortgage on real property improved with a
commercial office building (the building) in Naperville known as 200 Park
Plaza (the property). The mortgage secured two notes with an aggregate
original indebtedness of $32,800,000 (collectively, the loan).
The First National Bank of Chicago was the original mortgagee.
Defendant LaSalle National Bank, as trustee of a land trust, was the
mortgagor. Defendant 200 Park Plaza Associates (200 PPA), a limited
partnership, was the sole beneficiary of the land trust. Defendant W/H
Partnership No. 2, a limited partnership, was the general partner of 200
PPA. The individual defendants are general partners of W/H Partnership
No. 2. Defendant Walsh, Higgins & Co. (Walsh, Higgins), a construction
and management company, constructed the building and managed the building
from the time it was completed until the resolution of this action.
In September 1994, the tenant that had leased the entire building
since it was opened in 1987 advised 200 PPA that it did not intend to
renew its lease when the lease expired on September 30, 1995. 200 PPA
immediately informed plaintiff of the tenant s decision and advised
plaintiff that the loss of the building s sole tenant necessitated a
restructuring of the loan.
Between October 1994 and June 1995, the parties engaged in periodic
discussions regarding restructuring the loan. The parties never executed
a written agreement to restructure the loan.
In each of their affirmative defenses and counterclaims, defendants
allege that during their discussions with plaintiff regarding a
restructuring of the loan, plaintiff indicated that it required certain
terms in order to agree to a restructuring. In an attempt to satisfy
these terms, defendants developed and presented to plaintiff a
recapitalization plan that included the following terms: (1) a capital
contribution of $1 million by 200 PPA; (2) third-party financing of
tenant improvements to the property; (3) an initial below-market interest
rate coupled with a retroactive rent credit; (4) graduated increases in
the interest rate during the life of the loan; and (5) a guaranteed look
back rate of return based on a retrospective review of the transaction
at the end of the loan term.
Defendants also allege that at various times during the
restructuring discussions between February 3, 1995, and June 29, 1995,
different spokespersons for plaintiff made statements to defendants
agents that led defendants to conclude that the proposed restructuring
plan was generally acceptable to plaintiff and that only details needed
to be worked out in order to finalize a restructuring agreement.
Defendants further allege that on June 29, 1995, a spokesperson for
plaintiff advised defendants that the proposed restructuring would not
work and that plaintiff expected defendants to fund improvements without
third-party financing. Plaintiff later added a requirement that
defendants contribute $8 million toward improvements on an unsecured
basis.
Defendants affirmative defenses and counterclaims allege that as
a result of plaintiff s refusal to comply with the restructuring plan as
it was proposed prior to June 29, 1995, defendants lost two large leases.
Defendants further allege that plaintiff misled defendants regarding its
intent to restructure the loan and therefore caused the loss of the
leases. Defendants posit that plaintiff was motivated to mislead them
by a desire to gain ownership of the property and that plaintiff has
engaged in similar conduct with respect to other properties for which it
was the lender.
On November 8, 1995, plaintiff filed a verified complaint against
defendants seeking a judgment of foreclosure and other relief, including
a judicial sale of the property. Plaintiff s complaint alleged that the
loan was in default and that as of October 31, 1995, outstanding
principal, accrued interest, and late charges on the loan totaled
$33,778,040.15. Defendants responded with a verified answer and
affirmative defenses. Plaintiff then moved for summary judgment. After
a hearing on the matter, the trial court entered an order that treated
plaintiff s motion for summary judgment as a motion to strike defendants
affirmative defenses on the ground that they were insufficient at law.
The order then granted the motion to strike but allowed defendants to
amend and refile their answer and affirmative defenses.
On July 11, 1996, defendants filed an amended answer, affirmative
defenses, and counterclaims. The affirmative defenses were based on
theories of breach of fiduciary duty, breach of contract, unclean hands,
fraud, constructive fraud, and estoppel. The counterclaims alleged
breach of fiduciary duty, breach of contract, fraud, constructive fraud,
and estoppel.
Plaintiff subsequently renewed its motion for summary judgment. In
support of its motion for summary judgment, plaintiff argued that the Act
barred each of defendants affirmative defenses.
On November 1, 1996, the trial court entered an order granting
plaintiff s renewed motion for summary judgment as to defendants
affirmative defenses. On November 12, 1996, plaintiff moved for summary
judgment on defendants counterclaims. Plaintiff argued that the
counterclaims were substantively identical to the affirmative defenses
and that the Act barred the counterclaims for the same reasons that it
barred the affirmative defenses.
On December 2, 1996, the trial court entered a judgment of
foreclosure and sale ordering the judicial sale of the property. On
December 6, 1996, defendants filed a notice of appeal from the judgment
of foreclosure and sale. The appeal was to this court and was docketed
as No. 2--96--1423.
On April 10, 1997, the trial court entered an order granting
plaintiff s motion for summary judgment as to defendants counterclaims.
Defendants subsequently appealed from that order. We consolidated the
appeal from the April 10 order with defendants first appeal under docket
No. 2--96--1423.
Defendants subsequently filed two additional related appeals in the
appellate court, third district. One of these appeals, the third appeal,
was from an agreed order confirming the sale of the property. The fourth
appeal was from an amended confirmation order. The third and fourth
appeals were later transferred to this court. We consolidated the third
and fourth appeals with the first and second appeals. The parties have
not filed additional briefs regarding the third and fourth appeals.
Thus, on appeal, the parties only really dispute whether the trial court
erred when it granted summary judgment in favor of plaintiff on the
ground that the Act barred defendants affirmative defenses and
counterclaims.
After the consolidation of the four appeals in this court, plaintiff
moved to dismiss the first, third, and fourth appeals (all the appeals
except the appeal from the summary judgment order regarding defendants
counterclaims). Defendants objected and the motion was taken with the
case.
We now address the motion to dismiss the first, third, and fourth
appeals. Plaintiff contends that the appeals should be dismissed because
they are moot. Plaintiff bases its contention on Supreme Court Rule
305(j) (155 Ill 2d R. 305(j)) and cases decided under Rule 305(j).
Plaintiff maintains that these authorities support the proposition that
an appeal is moot when a disinterested third party purchases property
that is the subject of the appeal and a stay of the underlying judgment
has not been perfected. Plaintiff argues that the appeals in question
here are moot because a disinterested third party has purchased the
property and a stay has not been perfected.
Defendants respond by noting that they have challenged the
constitutionality of the application of the Act to bar their affirmative
defenses. Defendants contend that if they prevail on their
constitutional challenges, then the Act, as applied, would be deemed void
ab initio and they would be entitled to reclaim the property. Defendants
argue that plaintiff s reliance on Rule 305(j) to extinguish their right
to an appeal hearing regarding their constitutional challenges would be
a denial of due process.
We agree with defendants. We recognize that, in general, courts
avoid determining whether a statute is unconstitutional if a case can be
decided on other grounds. See, e.g., First National Bank v. Kusper, 98 Ill. 2d 226, 236 (1983). We also recognize that Rule 305(j) and related
cases arguably render defendants appeal moot and therefore would make
it unnecessary for us to reach defendants constitutional arguments.
However, a determination that Rule 305(j) renders the appeals in
question moot also prevents the resolution of defendants constitutional
arguments. This is despite the fact that if defendants are correct as
to their constitutional arguments, Rule 305(j) would then operate to
improperly deprive defendants of their property. In view of this
possible deprivation of a fundamental right, we conclude that, under the
circumstances of this case, Rule 305(j) does not render the appeals
moot. See Boddie v. Connecticut, 401 U.S. 371, 379, 28 L. Ed. 2d 113,
120, 91 S. Ct. 780, 787 (1971) (generally valid statute may be
unconstitutionally invalid to extent it operates to deprive protected
rights). Accordingly, plaintiff s motion to dismiss the appeals in
question is denied.
We now turn to the merits of the appeals. The central issue in
these appeals is whether the trial court erred when it ruled that the Act
barred defendants affirmative defenses and counterclaims and granted
summary judgment on that basis to plaintiff.
We initially note that interpreting or construing a statute is a
matter of law for the court and therefore is appropriate for summary
judgment. Matsuda v. Cook County Employees & Officers Annuity &
Benefit Fund, 178 Ill. 2d 360, 364 (1997). Our review of a grant of
summary judgment is de novo. Maksimovic v. Tsogalis, 177 Ill. 2d 511,
514 (1997).
Our analysis of whether the Act barred defendants affirmative
defenses and counterclaims begins with a careful reading of the statute.
The Act defines a credit agreement as:
an agreement or commitment by a creditor to lend money or
extend credit or delay or forbear repayment of money not primarily
for personal, family or household purposes, and not in connection
with the issuance of credit cards. 815 ILCS 160/1(1) (West 1996).
Section 2 of the Act mandates that in order for a credit agreement
to be effective, the credit agreement must be in writing and must be
signed by the parties. Section 2 provides:
[a] debtor may not maintain an action on or in any way related to
a credit agreement unless the credit agreement is in writing,
expresses an agreement or commitment to lend money or extend credit
or delay or forbear repayment of money, sets forth the relevant
terms and conditions, and is signed by the creditor and the debtor.
815 ILCS 160/2 (West 1996).
Section 3 of the Act is captioned Actions not considered
agreements. Section 3 provides, in relevant part:
The following actions do not give rise to a claim, counter-claim,
or defense by a debtor that a new credit agreement is created,
unless the agreement satisfies the requirements of Section 2:
* * *
(3) the agreement by a creditor to modify or amend an existing
credit agreement or to otherwise take certain actions, such as
entering into a new credit agreement, forbearing from exercising
remedies in connection with an existing credit agreement, or
rescheduling or extending installments due under an existing credit
agreement. 815 ILCS 160/3 (West 1996).
Defendants first contend that the plain words of the Act show that
it did not bar their affirmative defenses and counterclaims. Defendants
acknowledge that section 2 of the Act bars an action on or in any way
related to an oral credit agreement. However, defendants argue that
section 2 does not bar their affirmative defenses and counterclaims
because affirmative defenses and counterclaims are not actions.
In defendants view, to the extent that the Act governs affirmative
defenses and counterclaims, it does so in section 3. However, defendants
read section 3 to bar only affirmative defenses and counterclaims based
on the creation of a new oral credit agreement. Defendants argue that
section 3 did not bar their affirmative defenses and counterclaims
because they were not based on a new credit agreement. Rather,
defendants maintain that their affirmative defenses and counterclaims
were based on plaintiff s breach of the terms of the loan (the written
credit agreement).
Although relatively few Illinois cases have construed the Act, those
that have done so have uniformly held that the language of the Act is
broad and was intended to extend beyond the existing Frauds Act (740 ILCS
80/0.01 et seq. (West 1996)) to bar traditional defenses or exceptions
to the Frauds Act such as equitable estoppel. See, e.g., McAloon v.
Northwest Bancorp, Inc., 274 Ill. App. 3d 758, 764-65 (1995), First
National Bank v. McBride Chevrolet, Inc. (McBride), 267 Ill. App. 3d 367
(1994) (Act bars all actions based on an oral credit agreement).
However, defendants contend that the Illinois cases that have construed
the Act are not controlling here because they have generally not
addressed fact patterns similar to the fact pattern in this case.
Defendants assert that the Illinois cases have generally addressed fact
patterns in which a borrower sues a lender. Defendants argue that where,
as here, a lender sues a borrower and the borrower responds with
counterclaims and affirmative defenses the Illinois cases simply are not
applicable.
Defendants cite and urge us to follow several foreign cases. See,
e.g., Resolution Trust Corp. v. Flanagan, 821 F. Supp. 572 (D. Minn.
1993) (credit agreement may be taken outside credit agreement act by
promissory estoppel); Norwest Bank Minnesota, N.A. v. Midwestern
Machinery Co., 481 N.W.2d 875 (Minn. App. 1992). Defendants maintain
that these cases construe statutes similar to the Act in fact patterns
similar to the fact pattern in this case and conclude that borrowers may
properly assert counterclaims and affirmative defenses based on oral
credit agreements, notwithstanding the statutes in question.
Defendants ignore several federal cases that have construed the Act
with respect to fact patterns similar to the fact pattern in this case.
For example, in Whirlpool Financial Corp. v. Sevaux, 96 F.3d 216 (7th Cir.
1996), a lender sued a borrower on a promissory note and the borrower
raised affirmative defenses and counterclaims. The affirmative defenses
and counterclaims were predicated on oral promises and assurances that
the lender would invest money in the borrower s financially troubled
corporation and that the investment would extinguish the note. The
seventh circuit affirmed the district court s summary judgment order in
favor of the lender based on a ruling that the Act barred the affirmative
defenses and counterclaims.
In Whirlpool, the borrower s affirmative defenses and counterclaims
were based on theories of fraud, estoppel, breach of fiduciary duty, and
breach of contract. Whirlpool, 96 F.3d at 220. The borrower asserted
that the Act applied only to actions and therefore did not apply to his
affirmative defenses and counterclaims because they were not actions
as used in the Act. Whirlpool, 96 F.3d at 225. The court held that the
borrower s counterclaims were actions and that section 2 of the Act
barred them because they were based on an alleged oral agreement.
Whirlpool, 96 F.3d at 225. The court next determined that the borrower s
affirmative defenses were based on the same oral agreement and that
section 3 of the Act therefore barred the affirmative defenses.
Whirlpool, 96 F.3d at 226. The court cited with approval McBride and
other Illinois cases. Whirlpool, 96 F.3d at 225-26.
In Westinghouse Electric Corp. v. McLean, 938 F. Supp. 487 (N.D.
Ill. 1996), a lender sued guarantors of notes that were in default. The
guarantors raised counterclaims and affirmative defenses based on
theories of fraud and breach of a duty of good faith and fair dealing.
The court granted the lender s motion for summary judgment based
primarily on a determination that the Act barred the counterclaims and
affirmative defenses. With respect to the good faith claim, the court
also determined that the lender did not exercise bad faith. Westinghouse
Electric Corp., 938 F. Supp. At 493-94. As to the applicability of the
Act, the court cited McBride for the proposition that the Act bars all
claims, whether sounding in contract or tort. McBride, 267 Ill. App.
3d at 490.
In General Electric Capital Corp. v. Donogh Homes, Inc., No. 93 C
5614 (N.D. Ill. December 15, 1993) (mem. op.), the federal court
construed the Act in a case brought by a lender against guarantors of
defaulted loans. The guarantors raised counterclaims and affirmative
defenses based on various theories that included promissory estoppel,
misrepresentation, and breach of a contractual duty of good faith and
fair dealing. The guarantors asserted that their claims arose out of the
written loans rather than the lender s alleged oral agreement to extend
and modify the loans. The court granted the lender s motions to dismiss
the counterclaims and strike the affirmative defenses after finding that
the guarantors arguments were based on the oral agreement and not the
written agreements. General Electric Capital Corp., mem. op. at 7.
We believe these federal cases correctly construe the Act and
correctly apply the Act to fact patterns similar to the fact pattern in
this case. Consequently, we will follow these cases and will not follow
the foreign cases cited by defendants.
In these cases, one of the critical determinations in deciding
whether the Act barred counterclaims and affirmative defenses was a
determination of whether the counterclaims and affirmative defenses in
question were based on an oral credit agreement. In this case,
defendants strenuously argue that their counterclaims and affirmative
defenses are not based on an oral credit agreement. However, a careful
reading of defendants counterclaims and affirmative defenses shows that
they are all based on an alleged oral agreement by plaintiff to
restructure the loan.
Defendants do not contend that the written credit agreement required
plaintiff to restructure the loan. Rather, all of defendants
counterclaims and affirmative defenses are based on plaintiff s alleged
conduct in reneging on its alleged agreement to restructure the loan.
This conduct plainly amounts to a purported agreement by plaintiff to
modify or amend the loan and therefore falls within section 3 of the
Act. 815 ILCS 160/3 (West 1996). Because the purported credit agreement
to modify or amend the loans is not written and signed by the parties,
section 3 bars any counterclaims or defenses based on it. Accordingly,
the trial court did not err when it ruled that the Act barred defendants
affirmative defenses and counterclaims.
Defendants argue at length that plaintiff breached a fiduciary duty
owed to defendants. Defendants contend that the fiduciary duty arose
from the written credit agreement and that the Act therefore did not bar
their affirmative defense or counterclaim that asserted breach of
fiduciary duty.
A mortgagor-mortgagee relationship does not create a fiduciary
relationship as a matter of law. Northern Trust Co. v. Halas, 257 Ill.
App. 3d 565, 572 (1993). Where the alleged fiduciary relationship does
not exist as a matter of law, the party claiming that a fiduciary
relationship exists must plead facts from which a fiduciary relationship
arises. Santa Claus Industries, Inc. v. First National Bank, 216 Ill.
App.3d 231, 238 (1991).
Defendants allegations do not support the existence of a fiduciary
relationship based on the written credit agreement. The factors that
defendants cite in their pleadings simply do not show that the parties
relationship went beyond the typical lender-borrower relationship. The
normal trust between contracting parties does not operate to turn a
formal, contractual relationship into a fiduciary relationship unless one
of the parties places great trust in and relies heavily on the judgment
of the other party. Carey Electric Contracting, Inc. v. First National
Bank, 74 Ill. App. 3d 233, 238 (1979). Defendants have not pointed to
anything in the written credit agreement that would support a finding
that defendants placed great trust in and relied on plaintiff as to any
of the terms in the written credit agreement.
On this record, defendants have not pleaded a sufficient factual
basis to support the existence of a fiduciary relationship between the
parties based on the written credit agreement. Therefore, defendants
argument that plaintiff breached a fiduciary duty arising from such a
relationship is without merit.
Defendants next contend that, under the circumstances of this case,
the trial court s application of the Act was unconstitutional. In their
appeal brief, defendants argue that such an application (1) abrogates
common law rights and remedies which were in existence at the time the
contract was formed; (2) impairs defendants contractual rights,
including the right to enforce [plaintiff s] implied covenant of good
faith and fair dealing; (3) constitutes special legislation; (4) effects
a denial of equal protection; and (5) violates the constitutional
proscription against dual purpose legislation.
Familiar standards guide us in examining the constitutionality of
a statute. A legislative enactment enjoys a heavy presumption of
constitutionality, and the challenging party has the burden of
establishing a statute s invalidity. In re Marriage of Lappe, 176 Ill. 2d 414, 422 (1997). We must resolve all reasonable doubts in favor of
upholding the validity of the statute. People v. Davis, 177 Ill. 2d 495,
501 (1997).
This court previously addressed constitutional challenges to the Act
in Nordstrom v. Wauconda National Bank, 282 Ill. App. 3d 142 (1996). In
that case, the plaintiff borrowers contended that applying the Act to bar
a promissory estoppel count of the complaint they brought against a
lender was unconstitutional because it violated their equal protection
and due process rights and constituted special legislation. We
determined that applying the Act to bar the promissory estoppel count was
not a violation of the plaintiffs equal protection rights and did not
constitute special legislation because the Act was rationally related to
its purpose of protecting not only the special interests of lending
institutions but also the depositors of such institutions. Nordstrom,
282 Ill. App. 3d at 146.
Here, defendants contend that the reasoning in Nordstrom does not
apply to the situation presented in this case where a borrower seeks to
assert defenses against a lender s foreclosure action involving alleged
fraudulent or inequitable conduct by the lender. Plaintiff responds that
the reasoning in Nordstrom does apply in this case because allowing
affirmative defenses based on an alleged oral credit agreement could
prevent lenders from collecting otherwise valid loans and severely impact
both lending institutions and their depositors.
We agree with plaintiff that applying the Act to bar defenses based
on an alleged oral credit agreement in this case would serve the same
purposes delineated in Nordstrom. Therefore, applying the Act to bar
defendants defenses in this case was not a violation of defendants
equal protection rights and was not unconstitutional special legislation
for the reasons given in Nordstrom. Accordingly, we need not further
address defendants contentions that the trial court s ruling violated
defendants equal protection rights or amounted to unconstitutional
special legislation.
We next address defendants contention that the trial court ruling
unconstitutionally abrogated common-law rights and remedies in existence
at the time the contract was formed. More specifically, defendants
assert that the trial court ruling left them without a remedy in
violation of the certain remedy provision in article I, section 12, of
the Illinois Constitution.
Article I, section 12, of the Illinois Constitution provides:
Every person shall find a certain remedy in the laws for all
injuries and wrongs which he receives to his person, privacy,
property or reputation. He shall obtain justice by law, freely,
completely, and promptly. Ill. Const. 1970, art. I, 12.
Our supreme court has repeatedly stated that the certain remedy
provision is merely an expression of philosophy and does not mandate that
a certain remedy be provided in any form for any alleged wrong. See,
e.g., McAlister v. Schick, 147 Ill. 2d 84, 98 (1992). Moreover, the
legislature has the inherent power to repeal or change the common law and
may do away with all or part of it. People v. Gersch, 135 Ill. 2d 384,
395 (1990). The legislature also has broad discretion to determine
whether a statute that restricts or alters an existing remedy is
reasonably necessary to promote the general welfare. Bilyk v. Chicago
Transit Authority, 125 Ill. 2d 230, 245 (1988).
Based on these principles, we conclude that the Act is well within
the legislature s powers. Accordingly, defendants certain remedy
argument fails.
Defendants also contend that applying the Act as the trial court did
in this case was an ex post facto violation because the written credit
agreement predated the Act. However, the Act was plainly in force at the
time the purported oral credit agreement was formed. Because the alleged
misconduct is based on the purported oral credit agreement, the Act
plainly applied. It is presumed that parties contract with knowledge of
the existing law. Braye v. Archer-Daniels-Midland Co., 175 Ill. 2d 201,
217 (1997). For these reasons, defendants ex post facto argument fails.
Defendants next contend that applying the Act to bar their defenses
unconstitutionally impaired existing contractual obligations arising from
the written credit agreement by denying their right to enforce
plaintiff s duty of good faith and fair dealing. Defendants do not
specify the exact conduct that allegedly amounted to a breach by
plaintiff of its duty of good faith and fair dealing. Based on their
general arguments, defendants presumably contend that plaintiff breached
its duty of good faith and fair dealing by abusing its discretion to
approve leases under the written credit agreement.
As a matter of law in Illinois, a duty of good faith and fair
dealing is implied in every contract. Saunders v. Michigan Avenue
National Bank, 278 Ill. App. 3d 307, 315 (1996). The duty requires a
party vested with contractual discretion to exercise that discretion
reasonably and not arbitrarily, capriciously, or in a manner inconsistent
with the reasonable expectations of the parties. Northern Trust Co. v.
VIII South Michigan Associates, 276 Ill. App. 3d 355, 367 (1995).
Under these principles, defendants might have a valid argument if
the only conduct they complained of was plaintiff s alleged abuse of
discretion in approving leases. However, plaintiff s alleged conduct
regarding leases is inextricably linked to plaintiff s alleged conduct
in reneging on its oral agreement to restructure the loan. It is
undisputed that the written credit agreement did not require plaintiff
to restructure the loan. Nonetheless, defendants state that the loss
of leases resulted from plaintiff s refusal to go forward with the
restructuring after plaintiff orally promised not to backtrack from a
proposed restructuring plan.
Because defendants own description of the alleged breach of a duty
of good faith and fair dealing shows that it is really based on the
purported oral credit agreement to restructure the loans, we conclude
that defendants are attempting to bootstrap the alleged breach of a duty
of good faith and fair dealing stemming from the written credit agreement
into an alleged breach of a duty of good faith and fair dealing arising
from the purported oral credit agreement. We decline to extend the
implied duty of good faith and fair dealing to the extent urged by
defendants. Accordingly, defendants argument that plaintiff breached
a duty of good faith and fair dealing fails.
Finally, defendants contend that the trial court s ruling violated
the constitutional proscription against dual purpose legislation that is
usually referred to as the single subject rule. The single subject rule
is stated in article IV, section 8(d), of the Illinois Constitution of
1970 which provides, in relevant part:
Bills, except bills for appropriations and for the
codification, revision or rearrangement of laws, shall be confined
to one subject. Ill. Const. 1970, art. IV, 8(d).
In defendants view, the trial court ruling violated the single
subject rule because it interpreted the Act not only as a means of
protecting lenders against spurious lender liability complaints based on
oral credit agreements but also as a vehicle that lenders could use to
strip borrowers of defenses that would otherwise be available to them in
actions against them on a written credit agreement. Defendants argue that
because the latter purpose bears no rational relationship to the former
purpose, the Act as applied by the trial court violates the single subject
rule.
Our supreme court recently set out the principles that guide us in
reviewing legislation to determine whether it violates the single subject
rule. The court stated:
The term subject, in this context, is to be liberally
construed and the subject may be as broad as the legislature
chooses. [Citation.] Nonetheless, the matters included in the
enactment must have a natural and logical connection. [Citations.]
The rule prohibits the inclusion of discordant provisions that by
no fair intendment can be considered as having any legitimate
relation to each other. [Citation.]
As the above principles elucidate, the single subject rule does
not impose an onerous restriction on the legislature s actions.
Rather, the rule leaves the legislature with wide latitude in
determining the content of bills. Johnson v. Edgar, 176 Ill. 2d 499, 515 (1997).
Under these principles, the Act as applied to this case clearly
satisfies the single subject rule. Even if we accepted, for the sake of
argument, defendants characterization of the two purposes of the Act,
it is obvious that the single subject of the Act is a writing requirement
for credit agreements. Accordingly, defendants argument that the trial
court s application of the Act violated the single subject rule is
unpersuasive.
In sum, we conclude that the trial court did not err when it granted
summary judgment in favor of plaintiff on the ground that the Act barred
defendants counterclaims and affirmative defenses. In addition,
defendants did not carry their burden of showing that the trial court s
application of the Act was unconstitutional.
Based on the foregoing, the judgment of the circuit court of Du Page
County is affirmed.
Affirmed.
BOWMAN and COLWELL, JJ., concur.
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