American Chartered Bank v. Cameron. 2014 IL App (1st) 132231-U, an unpublished First District case, glaringly illustrates the difficulty of defeating a lender’s breach of guaranty claim when the defenses are based on the lender’s oral promises. The case also sheds light on the nature of the borrower-lender relationship and the contours of the unclean hands defense in the context of a breach of contract action.
The defendant guaranteed a commercial loan made to a business that defendant invested in. After the borrower defaulted, the plaintiff sued the corporate borrower and guarantor defendant and won summary judgment of nearly $150K. The guarantor appealed arguing the guaranty wasn’t enforceable.
Held: summary judgment for the bank affirmed. Defendant’s defenses are defeated by the Illinois Credit Agreements Act 815 ILCs 160/1, et seq. (ICAA) and the express language of the guaranty.
The Court rejected the guarantor’s defense based on the clear guaranty language that specified the bank didn’t have to first proceed against the loan collateral (the bank could immediately go after the guarantor). The guaranty also had a non-reliance clause: the guarantor waived his reliance on verbal statements by the bank’s agents.
The ICAA also trumped the defenses. The ICAA prevents a debtor (here, the guarantor) from suing or defending a suit under a “credit agreement” unless it’s in writing and signed by both creditor and debtor” 815 ILCS 160/2.
The ICAA defines a “credit agreement” as an agreement to lend money, extend credit or to delay or forbear repayment of money that is not for consumer (personal, family or household) purposes and that doesn’t involve credit cards. 815 ILCS 160/1(1). ICAA Section 3(3) negates any claims based on a creditor’s promise to modify, amend or forbear from enforcing a credit agreement. 815 ILCS 160/3
Illinois courts construe the ICAA broadly and describe it as a strengthened Statute of Frauds (740 ILCS 80/0.01 et seq.) that bars all actions at all related to a credit agreement. The ICAA case law makes clear that the statute prevents a borrower from alleging he relied on any oral statements of a lender.
Here, the guarantor’s claim that the bank agent made verbal misstatements to induce the execution of the guaranty was clearly governed and defeated by the ICAA. The court also found the ICAA negated the defendant’s argument that the bank officer orally modified the guaranty terms.(¶¶ 33-35).
The defendant’s “unclean hands” defense also failed. This defense, which posits that a litigant can’t take advantage of his own wrongful conduct, was premised on the claim that the bank breached a fiduciary duty to inform the defendant of the bank’s intention to enforce the guaranty if there was a loan default. The Court rejected this defense for two reasons: first, the lender-borrower relationship is not a fiduciary one as a matter of law. Additionally, unclean hands defense only applies in equity cases: it doesn’t affect legal (actions at law) claims. (¶¶ 38-40)
The other argument raised and rejected by the guarantor was that since he successfully opened a confessed judgment in favor of the bank, this was tantamount to a summary judgment-defeating fact question claimed that since the trial court found that he satisfied the standard for opening a confessed judgment under Rule 276, this was tantamount to a summary judgment-defeating fact question.
Cameron illustrates the expansive applicability of the ICAA and how that statute will bar almost all claims and defenses related to a promise to lend money. The case also clarifies that the unclean hands defense will only apply in an equitable case (e.g. an injunction, declaratory judgment suit, etc.); not in a garden-variety breach of contract claim for money damages. Procedurally, the case’s lesson is that opening a confessed judgment involves different evidentiary standards than does showing a fact question sufficient to defeat a summary judgment motion.