Belleville Nat. Bank v. Rose

• Citation: 74 Ill.Dec. 779,119 Ill.App.3d 56,456 N.E.2d 281
• Decision Date: 04 November 1983
• Docket Number: No. 83-23,83-23
• Parties: , 74 Ill.Dec. 779 BELLEVILLE NATIONAL BANK, Plaintiff-Appellee, v. Marvin L. ROSE and Virginia R. Rose, et al., Defendants-Appellants.
• Court: United States Appellate Court of Illinois

Page 281

456 N.E.2d 281

119 Ill.App.3d 56, 74 Ill.Dec. 779

BELLEVILLE NATIONAL BANK, Plaintiff-Appellee, v. Marvin L. ROSE and Virginia R. Rose, et al., Defendants-Appellants.

No. 83-23.

Appellate Court of Illinois,

Fifth District.

Nov. 4, 1983.

Gundlach, Lee, Eggmann, Boyle & Roessler, Carl W. Lee, Belleville, for defendants-appellants.

Preston K. Johnson, Sr., Preston K. Johnson, Jr., Belleville, and John Michael Clear, John I. Alber, St. Louis, Mo., for plaintiff-appellee; Johnson & Johnson, Belleville, and Bryan, Cave, McPheeters & McRoberts, St. Louis, Mo., of counsel.

HARRISON, Presiding Justice:

On March 14, 1978, defendants Marvin and Virginia Rose signed a promissory note for $810,000, payable to plaintiff Belleville National Bank. The first line of the note stated that the debt was payable, "On Demand, and if no demand be made, then payable Five (5) Years after date * * *." At the same time, a second note was signed, purportedly to facilitate intermediate draws on additional loan funds without additional documentation. There was never a question that only one debt was owed. The second note read as follows:

"FOR VALUE RECEIVED, We hereby promise to pay to BELLEVILLE NATIONAL SAVINGS BANK, Belleville, Illinois, or order, on demand or if no demand be made, then due and payable Five (5) Years from the date thereof, the sum of EIGHT HUNDRED TEN THOUSAND ($810,000) DOLLARS, together with interest at the rate of Nine (9%) Per Cent per annum, payable quarterly."

Defendants signed two additional notes for another single loan on November 20, 1978. The form of the notes was identical to those issued previously, though the amount of the loan was $60,000 and the interest rate nine and one-half percent. Defendants secured both loans for the purpose of purchasing and developing a tract of land known as "Rosewood," and this tract was pledged as collateral. Defendants claim they did not read any of the documents before signing. On July 23, 1979, plaintiff notified defendants that the interest rate on the unpaid balance of the loans would be increased. At a meeting with the president of the Belleville National Bank, at which defendant Marvin Rose was accompanied by counsel, Mr. Rose requested that the interest rate not be increased, but this request was not acceded to by the bank. Defendants subsequently made payments at the higher rate of interest. On November 21, 1979, plaintiff notified defendants that the notes would be called unless they were refinanced. On December 31, 1979, defendants signed a new note for $705,000, payable "[o]n demand and if no demand be made, then payable March 14, 1983," with interest that would fluctuate in accord with the prime rate.

Plaintiff called the note on July 10, 1981. Alleging that plaintiff had misrepresented the terms of the original notes by falsely telling defendants that the notes were for fixed five year terms at fixed interest rates, thus securing the loans by fraud, defendants filed an action against plaintiff in the circuit court of St. Clair County on September 30, 1981. Plaintiff simultaneously answered defendants' petition and instituted the instant litigation by filing its own separate foreclosure action on October 23, 1981. Plaintiff's motion for summary judgment was granted on October 28, 1982, and final judgment was entered on December 8, 1982. From this judgment, defendants appeal. In granting plaintiff's motion, the trial court concluded the defense of fraud offered by defendants was deficient as a matter of law, since the rule in Illinois is that "a party who signs a written agreement and has had the opportunity to review it, may not subsequently claim that he was fraudulently induced to enter into the agreement based on misrepresentations as to its terms." The court further stated that, under Illinois law, a party who is fraudulently induced to enter a contract waives the right to assert a claim of fraud when that party subsequently learns of the fraud and agrees to modify the agreement, and that defendants' refinancing of the original loans constituted such a waiver. On appeal, defendants challenge these conclusions and further argue that plaintiff, by failing to deny the affirmative defense of fraud set forth in defendants' answer, admitted the truth of the defense for purposes of summary judgment pursuant to section 2-610 of the Code of Civil Procedure (Ill.Rev.Stat.1981, ch. 110, par. 2-610(b)).

We first consider defendants' contention that the court erred in ruling that the defense of fraud was deficient as a matter of law. For the sake of clarity, we must distinguish two categories of fraud traditionally employed in actions upon written instruments. Fraud in the execution of an instrument is practiced "where the instrument is misread to the party signing it, or where there is a surreptitious substitution of one paper for another, or where by some other trick or device a party is made to sign an instrument which he did not intend to execute." (Turzynski v. Libert (1970), 122 Ill.App.2d 352, 358, 259 N.E.2d 295, 298 (quoting Papke v. The G.H. Hammond Company (1901), 192 Ill. 631, 635, 61 N.E. 910).) Fraud in the inducement, on the other hand, exists where "the party fully understands what he is signing, and is aware of the nature and character of the instrument executed by him, but is deceived by fraudulent representations as to the facts outside the instrument itself." (192 Ill. 631, 635, 61 N.E. 910.) While defendants' brief repeatedly asserts that both types of fraud may avoid a written agreement, and indeed seeks to characterize the instant case as one involving "fraud in the execution," defendants' counsel specifically stated at oral argument that the fraud alleged in the present action is properly characterized as "fraud in the inducement." We set forth this distinction to demonstrate, first, that we are aware of it, and second, that confusion may have been engendered by its application in the case at bar. For the reasons discussed below, we do not believe that the label assigned to the alleged fraud is itself dispositive of the action.

The defense of fraud is, in most situations, unavailable to avoid the effect of the written agreement where the complaining party could have discovered the fraud by reading the instrument, and was in fact afforded a full opportunity to do so. This elementary principle of contract law was aptly stated in Leon v. Max E. Miller and Sons, Inc. (1974), 23 Ill.App.3d 694, 699-700, 320 N.E.2d 256, 260:

"One is under a duty to learn, or know, the contents of a written contract before he signs it, and is under a duty to determine the obligations which he undertakes by the execution of a written agreement. [Citation omitted.] And the law is that a party who signs an instrument relying upon representations as to its contents when he has had an opportunity to ascertain the truth by reading the instrument and has not availed himself of the opportunity, cannot be heard to say that he was deceived by misrepresentations."

We note parenthetically the statement in appellant's brief that fraud in the execution may avoid a contract even though the defrauded party had a full opportunity to read the written agreement is, to our mind, a contradiction in terms, since fraud in the...