FIRST NAT. BANK IN STAUNTON v. McBride Chevrolet, Inc.

Citations: 642 N.E.2d 138; 267 Ill. App. 3d 367; 204 Ill. Dec. 676Docket: 4-94-0052

Court: Appellate Court of Illinois; October 14, 1994; Illinois; State Appellate Court

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First National Bank in Staunton initiated foreclosure proceedings against McBride Chevrolet, Inc. and its owners, John and Verda McBride, for loans secured by mortgages and personal guarantees. The McBrides filed counterclaims and affirmative defenses, asserting that the Bank's wrongful return of a check due to insufficient funds, despite a prior assurance from a Bank officer that the check would be held until a deposit could be made, caused their business's collapse and subsequent defaults. The trial court dismissed these counterclaims and struck the affirmative defenses based on the Illinois Credit Agreements Act, ruling that the Bank's promise to hold the check did not constitute a "credit agreement" under the Act. The court granted the Bank's motion for summary judgment regarding the loans and foreclosure. On appeal, the defendants argued that the trial court erred in dismissing their counterclaims and striking their defenses, maintaining that the facts of the case supported their claims against the Bank. The McBrides had operated their dealership under a General Motors agreement since 1969 and were aware that returning a check for insufficient funds could jeopardize their business relationship with General Motors Acceptance Corporation (GMAC). The Bank had previously allowed the McBrides to cover overdrafts, but in this instance, despite assurances, the Bank returned a check owed to GMAC on March 28, 1992, which the McBrides were prepared to cover.

GMAC terminated its relationship with the defendants after receiving a returned check, leading to the corporation's closure and inability to meet its payment obligations to the plaintiff. In response, the plaintiff filed a foreclosure complaint against the defendants regarding loans, property, and personal guarantees. The defendants counterclaimed for tortious interference, breach of fiduciary duty, breach of good faith and fair dealing, and fraud, later amending their claims to include estoppel and wrongful dishonor. They also moved to dismiss the plaintiff's actions, asserting that the plaintiff's dishonor of the check to GMAC contradicted established practices and representations made by Makler. 

The plaintiff moved to strike the defendants' affirmative defenses and dismiss the counterclaims, arguing that Makler's oral promise to extend credit was unenforceable under the Act due to its lack of written documentation. An affidavit from Makler confirmed the bank's midnight deadline for the check as March 28, 1992. The trial court ruled that the Act barred the defendants' claims since the promise to hold the check was considered a credit agreement, which was unenforceable without written form. Summary judgment was granted to the plaintiff on all counts. 

Defendants appealed, contending that the transaction did not constitute a credit agreement, as holding a check on insufficient funds did not imply lending or extending credit. The trial court did not directly address this argument but found that holding the check until March 30 effectively equated to a promise to cover it. The defendants argued they were unaware of the implications of the bank's midnight deadline and did not intend to seek credit from the plaintiff, thus claiming Makler's promise should not be interpreted as a credit agreement.

Determining whether a credit extension agreement exists under the Act hinges on the Bank's actions regarding a check drawn on insufficient funds. Holding the check until sufficient funds are deposited is comparable to covering the check, as both scenarios involve the Bank awaiting funds from the drawer. The defendants argue that holding a check does not constitute an extension of credit since the Bank is not advancing its own funds but is instead withholding payment. However, Makler's promise to delay returning the check until a deposit could be made effectively constituted an offer of credit, accepted by the defendants through their delay in deposit, thus establishing a credit agreement as defined by the Act.

The defendants argue that even if this arrangement is recognized as a credit agreement, the Act does not preclude their tort counterclaims, citing cases that permit fraud claims despite contract limitations imposed by the statute of frauds. Nonetheless, the Act broadly prohibits any debtor actions related to a credit agreement unless written, distinguishing it from the narrower language of the Frauds Act. The statute’s clear and unambiguous wording necessitates enforcement as written, barring any claims predicated on oral credit agreements. This interpretation, while potentially harsh on bank customers, reflects the legislature’s intent to limit recourse for oral agreements, leaving customers without legal remedy if a bank opts not to honor such agreements. The specific circumstances of this case, though atypical, fall under the broad language of the statute, underscoring the stringent limitations it imposes.

The transaction in question, conducted via telephone and lasting only two days, does not lend itself to a written agreement, although it falls under the Act's coverage. Defendants claim their counterclaim for tortious interference is valid, arguing it is unrelated to the disputed credit agreement; however, this claim relies solely on the plaintiff's failure to honor an agreement regarding the handling of a check, linking it to the credit agreement and thereby rendering it barred by the Act. The defendants contend that traditional exceptions to the statute of frauds apply, but the plaintiff asserts that the Act's language supersedes these exceptions. 

Promissory estoppel is dismissed as an exception to the statute of frauds, and while partial performance could theoretically take an oral agreement out of the statute's operation in equity, it does not apply in a legal action where defendants seek monetary damages. The defendants have not adequately pleaded partial performance in their case. Furthermore, while they argue that a series of writings could fulfill the Act's requirements, they have failed to provide sufficient facts or pleadings to support the existence of such documents, which is required to take the agreement outside the statute of frauds. The reliance on a Minnesota case is deemed inappropriate as the procedural context differs. Ultimately, the court affirms the judgment, concluding that the defendants have not presented enough evidence to support their claims.