The Illinois Credit Agreements Act, 815 ILCS 160/1, et seq. (the “ICAA”) and its requirement that credit agreements be in writing and signed by both creditor and debtor, recently doomed a borrower’s counterclaim in a multi-million dollar loan default case.
The plaintiff in Contractors Lien Services, Inc. v. The Kedzie Project, LLC, 2015 IL App (1st) 130617-U, sued to foreclose on a commercial real estate loan and sued various guarantors along with the corporate borrower.
The borrower counterclaimed, arguing that a “side letter agreement” (“SLA”) signed by an officer of the lender established the parties’ intent for the lender to release additional funds to the borrower – funds the borrower claims would have gotten it current or “in balance” under the loan. The trial court disagreed and entered a $14M-plus judgment for the lender plaintiff. The corporate borrower and two guarantors appealed.
The ICAA provides that a debtor cannot maintain an action based on a “credit agreement” unless it’s (1) in writing, (2) expresses an agreement or commitment to lend money or extend credit or (2)(a) delay or forbear repayment of money and (3) is signed by the creditor and the debtor. 815 ILCS 160/2
An ICAA “credit agreement” expansively denotes “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.” So, the ICAA does not apply to consumer transactions. It only governs business/commercial arrangements.
The ICAA covers and excludes claims that are premised on unwritten agreements that are even tangentially related to a credit agreement as defined by the ICAA.
The borrower argued that the court should construe the SLA with the underlying loan as a single transaction: an Illinois contract axiom provides that where two instruments are signed as part of the same transaction, they will be read and considered together as one instrument.
The court rejected this single transaction argument. It found the SLA was separate and unrelated to the loan documents. The SLA post-dated the loan documents as evidenced by the fact that the SLA specifically referenced the loan. Conversely, the loan made no mention of the SLA (since it didn’t exist when the loan documents were signed).
All these facts militated against the court finding the SLA was part-and-parcel of the underlying loan transaction.
Another key factor in the court’s analysis was the defendants admitting that the SLA post-dated the loan (and so was a separate and distinct writing). The court viewed this as a judicial admission – defined under the law as “deliberate, clear, unequivocal statement by a party about a concrete fact within that party’s knowledge.”
Here, since the SLA was not part of the loan modification, it stood or fell on whether it met the requirements of the ICAA. It did not since it wasn’t signed by both lender and borrower. The ICAA dictates that both creditor and debtor sign a credit agreement. Here, since the debtor didn’t sign the SLA (it was only signed by lender’s agent), the SLA agreement was unenforceable. As a consequence, the lender’s summary judgment on the counterclaim was proper.
This case and others like it show that a commercially sophisticated borrower – be it a business entity or an individual – will likely be shown no mercy by a court. This is especially true where there is no fraud, duress or unequal bargaining power underlying a given loan transaction.
Contractor’s Lien Services also illustrates in stark relief that ICAA statutory signature requirement will be enforced to the letter. Since the borrower didn’t sign the SLA (which would have arguably cured the subject default), the borrower couldn’t rely on it and the lender’s multi-million dollar judgment was validated on appeal.