Bealkowski v. Powers

• Decision Date: 25 June 1941
• Docket Number: Gen. No. 41635.
• Citation: 310 Ill.App. 662,35 N.E.2d 386
• Parties: BEALKOWSKI v. POWERS ET AL.
• Court: United States Appellate Court of Illinois

310 Ill.App. 662

35 N.E.2d 386

BEALKOWSKI

v.POWERS ET AL.

Gen. No. 41635.

Appellate Court of Illinois, First District, Third Division.

June 25, 1941.

Appeal from Municipal Court of Chicago; J. F. McCarthy, Judge.

Action by Gust Bealkowski against John Powers and another on a judgment note. From a judgment sustaining judgment by confession, the defendants appeal.

Reversed and rendered.

Frank L. DeLay, of Chicago, for appellants.

Bettin Stalling, of Chicago, and Gordon K. MacIntosh, Dudley J. Scholten, and Clarence M. Condon, all of Washington, D. C., for Home Owners Loan Corporation, amicus curiae.

HEBEL, Justice.

This is an appeal by the defendants from a judgment, entered upon a trial by the court without a jury, confirming and sustaining a judgment by confession. The judgment note, upon which judgment was confessed, was given by defendants to plaintiff, dated November 13, 1934, due in five years, with interest at the rate of 5% per annum. Judgment was for the sum of $375.50, consisting of $250 principal, $62.50 interest, and $45 attorney's fees.

The defense offered was that the note was taken in contravention of plaintiff's agreement with the Home Owners' Loan Corporation (consent to take bonds), whereby he had agreed to accept in full of his claim against defendants, amounting to $2,332, the sum of $1,585, and not to require of defendants any instrument evidencing any portion of the aforesaid obligation, or the payment of any money or any other additional consideration. The defendants contend that the note was given without consideration, is contrary to public policy, and void.

Plaintiff's theory was that the note was taken at the suggestion of the Home Owners' Loan Corporation; that he did not know and was not informed of the contents of the consent to take bonds; and that it is not a bar to his action. The defendant's theory was that the defense as outlined is a valid defense, that it was sustained by the evidence, and that the court should have found for the defendants. They allege that it was error for the court to find that the note was a valid obligation and ask that this court reverse the judgment, with a finding that the note sued on is void and of no effect. The plaintiff in this action did not file an appearance in this court so that we are without the suggestions that might have been offered by plaintiff as to his grounds for affirming the court's entry of the judgment appealed from.

The facts as they appear here are that the defendants, John Powers and wife, were the owners of a home in Chicago. Gust Bealkowski, held defendants' 6 per cent note for $2,200, secured by a first mortgage on their home. The note in question had matured on May 6, 1933, and defendants were in default of principal and two years' interest, a total of $2,332. The plaintiff was unable to extend the indebtedness, and was threatening foreclosure. The defendants made application to the Home Owners' Loan Corporation, hereinafter called HOLC, for a loan to take up plaintiff's claim.

The plaintiff knew of defendants' application and went to the HOLC office and talked to some unidentified person, and from the evidence it appears that he was told that if the HOLC made the loan he would receive approximately $1,600. Plaintiff testified that he told this person that he could not take that much of a loss, and that this person said to him that “If Mr. Powers is any kind of a man, you go to him, and he will sign a judgment note”. The plaintiff then went to debtor's home, and on a second visit secured the $250 note here sued on. Subsequently, he went to the HOLC office, signed a “Mortgagee's Consent to Take Bonds,” received $1,585 in bonds and cash, and surrendered his note and mortgage.

In 1933, by the Home Owners' Loan Act, the federal government adopted the policy of aiding distressed home owners. The Home Owners' Loan Corporation was formed and started operation. It is contended by defendants that many decisions have reiterated that in the dealings of the HOLC with home owners and creditors, the public policy of the United States extends over and controls the transactions. Title 12 of the Act (12 U.S.C.A. § 1463(k), authorized the corporation to make and put in operation all necessary rules. One rule so adopted (sec. 4-d (1) of Ch. VI of the Manual of Rules and Regulations of the Home Owners Loan Corporation, effective October 10, 1934), provides, in substance, that the corporation will not refund any indebtedness where the mortgagor is required to pay any assumed loss of the mortgagee. It is contended that the refunding operations were entirely voluntary and required the consent of the mortgagee; that a form was adopted, entitled mortgagee's consent to take bonds, and it was necessary that mortgagee sign this before refunding could be consummated; and that such a consent was signed by the plaintiff. After enumerating the amount of defendants' indebtedness, the consent states: “* * * the undersigned hereby offers and consents, if said refunding can be consummated, to accept in full settlement of the indebtedness above set forth, the aggregate sum of $1,585.00, in bonds, par value, of the Home Owners' Loan Corporation, in accrued interest thereon, and in cash necessary for adjustment not exceeding $25, and thereupon to discharge all claims of the undersigned against said property.”

The first point contended for on this appeal is that a note taken in contravention of the agreement with Home Owners' Loan Corporation is void as against public policy. The question of the validity of notes given by home owners to make up all or a part of the loss of mortgagees who signed consents to take bonds, has been passed upon by appeal courts. It is suggested that appeal courts have passed upon the question and have uniformly held that a note taken in contravention of the consent to take bonds is void as against public policy. It appears from an opinion filed in the case of Johnson v. Matthews, 301 Ill.App. 295, 22 N.E.2d 772, 773, that: “The defense interposed is that the note was taken in contravention of plaintiff's agreement with the Home Owners Loan Corporation, whereby she had agreed to accept in full of her claim against the defendant, amounting to $5,044.08, the sum of $1,000, and not to accept additional consideration. The affidavit also avers that plaintiff represented no notes were given in any connection with the obligation; furtherthat the note was in fact given without consideration, contrary to public policy; and that nothing was therefore due.”

The court in further discussing the questions involved in that litigation, said: “A note executed and delivered under the circumstances indicated by the affidavit of merits in this case is void as against public policy. Jessewich v. Abbene, 154 Misc. 768, 277 N.Y.S. 599;Chicago Title & Trust Co. v. Szymanski, 289 Ill.App. 600, 7 N.E.2d 608;Meek v. Wilson, 283 Mich. 679, 278 N.W. 731.”

It appears from the record in this case that plaintiff attempted to avoid the effect of signing the consent to take bonds by saying that at his first visit to the HOLC office, some person there told him that “if Mr. Powers is any kind of a man, you go to him, and he will sign a judgment note”. The court did not consider that any official of the HOLC would make such a suggestion. The HOLC had adopted a rule that it would not refund any indebtedness where the mortgagor was required to pay any assumed loss of the mortgagee. This was known to the general public, as shown by the testimony of the witnesses. It was contemplated that in many cases the indebtedness would be scaled down. In McAllister v. Drapeau, 14 Cal.2d 102, 92...