Cole v. Davis

2016 IL App (1st) 152716No. 1-15-2716
Fifth Division
August 26, 2016
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
FIRST DISTRICT
______________________________________________________________________________
FRANKLIN A. COLE, as Trustee or )
Representative of the Franklin ) Appeal from the Circuit Court
A. Cole IRA-PEN, Bank One N.A. ) of Cook County.
Account No. 262093-1000, )
) No. 2014 L 050986
Plaintiff-Appellant, )
) The Honorable
v. ) Brigid Mary McGrath,
) Judge Presiding.
ALLISON S. DAVIS; GALLERY PARK )
PLACE, LLC; DAVIS GROUP V; )
DAVIS GROUP, LLC; ALL CHICAGO, )
LLC; NEW KENWOOD, LLC; and )
AMERICAN HOUSING, LLC, )
)
Defendants-Appellees. )
)
______________________________________________________________________________
JUSTICE GORDON delivered the judgment of the court, with opinion.
Justices Lampkin and Burke concurred in the judgment and opinion.
OPINION
¶1 The present interlocutory appeal arises out of defendants’ alleged default on a promissory
note. The parties entered into an agreement under the promissory note (the note) on
November 17, 2000, by which defendants agreed to pay plaintiff, by December 15, 2000, the
principal sum of $100,000 with interest accruing at the publicly announced prime rate of
Bank One, N.A. The note contains a confession of judgment clause, which authorizes any
No. 1-15-2716
attorney to confess judgment on behalf of defendants for the amount outstanding at any time
after the payment’s due date. After defendants allegedly failed to pay off the principal and
interest to plaintiff by the due date, plaintiff filed a confession of judgment suit on December
24, 2014.
¶2 On January 7, 2015, the trial court entered judgment in favor of plaintiff for $153,453.97
and costs of suit. Thereafter, defendants filed a motion to vacate and/or open the judgment,
arguing that the confession of judgment clause in the note was invalid because it contained a
variable interest rate. The trial court granted defendants’ motion. Plaintiff then filed a motion
to certify a question under Illinois Supreme Court Rule 308 (eff. Jan. 1, 2015), arguing that
Illinois courts have not addressed whether or not a confession of judgment clause is invalid
where it contains a definite principal and a variable interest rate. Plaintiff further argued that
section 3-112 of the Uniform Commercial Code (UCC) (810 ILCS 5/3-112 (West 2000))
expressly authorizes the use of a variable interest rate in instruments like the promissory note
in question. The trial court granted plaintiff’s motion, and we granted the appeal. For the
following reasons, we answer the certified question in the affirmative.
¶3 BACKGROUND
¶4 Plaintiff filed a complaint against defendants on December 24, 2014. The complaint
alleges that on or about November 17, 2000, defendants made and delivered the note to
plaintiff. The complaint attaches a copy of the note, which is dated November 17, 2000. The
note heading specifies that it is for $100,000 and designates the location as Chicago, Illinois.
The body of the note provides:
“For value received, the Undersigned, and each of them, jointly and severally,
promise to pay to the order of [plaintiff], Chicago, Illinois, the principal sum of
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$100,000. The principal sum shall bear interest at the rate of the publicly announced
prime rate of BANK ONE, N.A. (which is not intended to be the lowest or most
favorable rate at any one time) in effect from time to time (the ‘Prime Rate’), which
rate of interest shall increase or decrease in a total amount equal to the amount by
which the publicly announced Prime Rate of said bank is increased or decreased from
time to time. Each change in the interest rate hereon shall take effect on the effective
date of the change in the Prime Rate. Holder shall not be obligated to give notice of
any change in the Prime Rate. The Prime Rate shall be computed on the basis of a
year consisting of 360-days and shall be paid for the actual number of days elapsed
from the date principal or part thereof is drawn down, the Undersigned shall give
Holder 24 hours written notice of intention to draw on the principal sum. This note
may be prepaid at anytime without penalty. The Undersigned shall remit to Holder
the outstanding principal sum and interest on December 15, 2000.
Any amount of the principal hereof which is not paid when due whether at stated
maturity, by acceleration, or otherwise, shall bear interest payable on demand at an
interest rate equal at all times to two per cent (2%) [being 200 base points] above the
applicable rate in effect on this note at such maturity. All payments hereunder shall be
applied first to interest on the unpaid balance at the rate herein specified and then to
the principal.
All amounts outstanding under this note shall become immediately due and
payable, at the option of Holder hereof, without any demand or notice whatsoever, in
the event that the Undersigned or any of them be the subject of any assignment for the
benefit or creditors of, or the commencement of any bankruptcy, receivership,
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insolvency, reorganization, dissolution or liquidation proceedings by or against any of
them, or in the event that The Neighborhood Rejuvenation Partnership, L.P., an
Illinois limited partnership (‘the Fund’), has not received firm commitments from
investors of at least $17,000,000, and in respect of which there has been a closing, as
that term is defined in the agreement of limited partnership in respect of the Fund, or
is for any reason deprived of or surrenders its rights to build under existing authorities
or its tax and zoning status, or if Gallery Park Place LLC ceases to be a functional
part of and beneficiary of the Fund and its operations.
Advances of principal under this note will be made by Holder only upon 24 hours
notice to Holder at his place of business in Chicago, Illinois.
All advances made by the Holder and all payments made by the Undersigned on
account of the unpaid principal amount hereof, shall be recorded on the grid attached
hereto. The Undersigned and each of them agrees that in any section or proceeding
instituted to collect or enforce collection of this note, the amount endorsed on the
reverse side of the note at that time shall be prima-facie evidence of the unpaid
principal balance of this note. This note shall be governed by and construed under the
law of the State of Illinois in all respects.
The Undersigned and each of them irrevocably authorizes any attorney of any
court of record to appear for it in term time or vacation, at any time and from time to
time after payment is due hereof, whether by acceleration or otherwise, and confess
judgment, without process, in favor of holder hereof, for such sum as may appear to
be due and unpaid hereon, together with interest, costs, and reasonable attorneys’
fees, and to waive and release all errors which may intervene in such proceeding, and
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consents to immediate execution upon such judgment, hereby ratifying and
confirming all that said attorney may do by virtue hereof.”
The note contains defendants’ signatures.
¶5 The complaint further alleges that on June 12, 2001, by which date defendants had not
paid their debt under the note, the parties entered into a letter agreement amending the note.
The complaint attaches a copy of this letter agreement. The letter agreement is addressed to
Allison S. Davis, Esq., and is signed by plaintiff, the sender of the letter agreement. The letter
agreement is dated June 12, 2001. The body of the letter agreement provides:
“Reference is made to that certain promissory note dated November 17, 2000,
payable December 25, 2000 to Franklin A. Cole, IRA-PEN, Bank One N.A. Account
#262093-1000, a copy of which is attached hereto. (The Note).
Though by its term the Note was payable on December 15, 2000, and interest in
respect thereof has not been paid, the parties have from time to time agreed to extend
the due date and the date for payment of interest so that the Note is not now in
default.
In order to assure that payments of principal and interest are made in a timely and
manageable fashion the parties agree to amend the terms of The Note as follows:
(1) All accrued interest at the prime rate as charged from time to time by Bank
One (the ‘prime rate’) shall be paid as of May 31, 2001 on the date of the
execution of this letter. Thereafter accrued interest shall be paid on June 30, 2001
and at the end of each calendar quarter thereafter at the prime rate as defined in
such Note so long as the Note is not in default.
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(2) The principal balance of the Note shall be paid in 3 installments, $25,000
on or before September 30, 2001; $25,000 on or before November 30, 2001 and
the balance of such note, $50,000 on or before March 31, 2002.
(3) In all other respects the Note shall remain in full force and effect.
If this arrangement is in accordance with your understanding and satisfactory to
you, please sign and cause each of the parties noted below to sign this letter at which
time it will become a binding amendment to The Note.”
The letter agreement contains the signatures of plaintiff and defendants.
¶6 The complaint next alleges that defendants failed to pay their debt under the note
according to its amended terms and defaulted on it. It alleges that demand for payment was
made upon defendants, but they failed to pay. The complaint alleges that plaintiff was the
holder and owner of the note and that no part thereof had been paid except the principal sum
of $6999.97, and several interest payments aggregating $24,088.07, for which defendants had
been credited. The complaint alleges that a schedule of payments that were made and
amounts paid is attached to the complaint, although no schedule of payments is attached to
the complaint in the record.
¶7 The complaint alleges that defendants owe plaintiff the sum of $93,000.03, “with interest
at that certain rate of interest announced from time to time as its Prime Rate by Bank One
N.A. (and its successor bank, J.P. Morgan Chase N.A.) (the ‘Prime Rate’), and after
September 30, 2001, the Prime Rate plus 200 basis points (the ‘Interest Charge’) percent per
annum from September 30, 2001 to the present, on the principal outstanding and unpaid.”
The complaint prays that judgment be entered against defendants “in the sum of $93,000.03
with accrued interest of $59,859.02 computed at the Interest Charge to January 31, 2013, and
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thereafter until the date of entry of judgment at the per diem interest rate of $13.56 together
with attorneys’ fees for $500 and costs of suit.”
¶8 Following the complaint’s prayer for judgment is the confession of judgment, which is
attached to the complaint. The confession of judgment states that:
“[defendants], by Robert P. Groszek,[1] their attorney, waive service of process
and confess that there is due from [defendants] to [plaintiff] the following:
Principal $100,000.00 less amounts paid: $6,999.97
Balance: $93,000
Interest (to 5/5/14) $66,029.95
Per Diem ($13.56 to 12/9/14 219 days: $2,969.64
Attorneys’ Fee: $ 500.00
Total: $162,499.62”
¶9 The confession of judgment next provides that “[defendants] agree that judgment may be
entered against them for the total of the above and for costs, release and waive all rights as
authorized in the warrant of attorney.” The confession of judgment contains a signature from
John P. Bergin, 2 who is designated as the attorney for defendants.
¶ 10 On January 7, 2015, plaintiff filed “Documents in Support of Entry of Judgment.” This
filing included an affidavit of Cass D. Scholes of JPMorgan Chase Bank (successor to Bank
One, N.A.) with the calculation of amount due. In his affidavit, Scholes averred that he is
vice president of JPMorgan Chase Bank (the Bank), N.A, and manager of the loan
administration unit, which handled the calculation of interest due on various notes on behalf
of the Bank in its custodial or trustee capacity. Scholes confirmed that the Bank was the
custodian of the note at issue in the present case. Scholes averred that he performed the
1
Robert P. Groszek is not defendants’ present counsel. The record does not indicate if or when
defendants ever retained Groszek.
2
John P. Bergin is not defendants’ present counsel. The record does not indicate if or when
defendants ever retained Bergin.
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calculations of interest and principal due and that as of May 5, 2014, a total of $159,029.98
(the sum of the outstanding principal, $93,000.03, and accumulated interest of $66,029.95)
was due under the note. Scholes’ affidavit contains his signature and is notarized. A table
showing Scholes’ calculation of defendants’ debt under the note is attached to the January 7,
2015, filing.
¶ 11 On January 7, 2015, the trial court entered judgment on behalf of plaintiff for
$153,453.97 and costs of suit.
¶ 12 On January 20, 2015, defendants filed a motion to vacate and/or open the judgment by
confession entered on January 7, 2015. 3 In this motion, defendants argued that the judgment
for confession should be vacated and/or opened (1) because the power to confess judgment
was invalid, insofar as the variable interest rate required consultation of extrinsic evidence to
determine the extent of defendants’ liability, (2) because there was another action pending
between the same parties for the same cause in the same court, (3) because plaintiff waived
his right to a judgment by confession, and (4) because plaintiff’s authority to file this lawsuit
on behalf of the holder of the note was not established.
¶ 13 On February 18, 2015, plaintiff filed a response to defendants’ motion to vacate and/or
open the judgment. Plaintiff argued that the power to confess judgment is not invalid because
of the note’s variable interest rate. Plaintiff contended that Illinois courts have only held
3
Although not relevant to the present appeal, defendants’ motion claimed that plaintiff originally
filed a lawsuit against defendants on February 7, 2013, which plaintiff voluntarily dismissed on December
9, 2014, before filing the present lawsuit. Defendants’ motion attached documents from the first lawsuit,
including plaintiff’s complaint, defendants’ answer, plaintiff’s amended complaint, defendants’ response
to plaintiff’s motion for summary judgment, and defendants’ response to plaintiff’s motion to clarify the
designation of plaintiff. In his response to defendants’ motion to vacate, plaintiff agreed that he
voluntarily dismissed this first lawsuit on December 9, 2014. The grounds for dismissing the first lawsuit
appear to have been related to defendants’ contention that the plaintiff in the first lawsuit was improperly
designated. Although defendants raise issues in their appellee brief about whether or not plaintiff is
properly designated in the present lawsuit, such issues are not relevant to this appeal, which is solely
aimed at answering the question certified for review by the trial court.
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confessions of judgments invalid for indefinite principal amounts, not indefinite amounts of
interest. Furthermore, plaintiff argued that section 3-112 of the UCC allows interest in such
an instrument to be fixed or variable. Addressing defendants’ other arguments, plaintiff
countered that there was no other action pending between the parties, that plaintiff had not
waived his right to a judgment by confession, and that his authority to file this lawsuit was
self-evident from the verified complaint.
¶ 14 In their reply, defendants largely reiterated the same arguments that they made in their
motion but additionally introduced a written memorandum decision from a different circuit
court case in support of their argument that a variable interest rate invalidates a confession of
judgment clause. In that memorandum opinion, the judge found that a confession of
judgment clause containing a variable interest rate attainable from the Wall Street Journal
Prime Index was impermissible because it required extrinsic evidence to prove the amount
for which judgment was authorized.
¶ 15 On May 20, 2015, the trial court granted defendants’ motion and opened the January 7,
2015, judgment. The trial court opened the judgment on the basis that “the note contains a
variable interest rate requiring evidence de hors the record.”
¶ 16 On June 23, 2015, plaintiff filed a motion to certify a question of law under Illinois
Supreme Court Rule 308 (eff. Jan. 1, 2015). In his motion, plaintiff argued that prior Illinois
case law has not answered the question of whether a confession of judgment containing a
definite principal and variable interest rate can be valid. Plaintiff further argued that all
relevant Illinois case law precedes the adoption of section 3-112 of the UCC, which
condones the use of variable interest rates. As such, plaintiff contended that this issue of first
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impression warranted an interlocutory appeal under Rule 308. Defendants did not respond to
plaintiff’s motion.
¶ 17 On September 25, 2015, the trial court granted plaintiff’s motion for interlocutory appeal
under Rule 308. The trial court certified the following question to this court:
“Whether a confession of judgment under a note drafted under the Uniform
Commercial Code is valid where the note references a variable interest rate and has a
definite principal sum?”
On October 1, 2015, plaintiff filed a petition to this court for leave to appeal. This court
granted the appeal on November 5, 2015.
¶ 18 ANALYSIS
¶ 19 Illinois Supreme Court Rule 308 (eff. Jan. 1, 2015) provides a remedy of permissive
appeal from interlocutory orders where the trial court has deemed that they involve a
question of law as to which there is substantial ground for difference of opinion and where an
immediate appeal from the order may materially advance the ultimate termination of the
litigation. We apply a de novo standard of review to legal questions presented in an
interlocutory appeal brought pursuant to Rule 308. Simmons v. Homatas, 236 Ill. 2d 459, 466
(2010). De novo consideration means we perform the same analysis that a trial judge would
perform. Khan v. BDO Seidman, LLP, 408 Ill. App. 3d 564, 578 (2011). Additionally, we are
limited to the issues raised in the certified questions and will not go beyond those questions
to consider other matters. See Townsend v. Sears, Roebuck & Co., 227 Ill. 2d 147, 153
(2007) (“An interlocutory appeal pursuant to Supreme Court Rule 308 is ordinarily limited to
the question certified by the circuit court ***.”).
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¶ 20 As noted above, the trial court has certified the following question of law: “Whether a
confession of judgment under a note drafted under the Uniform Commercial Code is valid
where the note references a variable interest rate and has a definite principal sum?”
Defendants contend that the confession of judgment clause in the note is void under Illinois
case law interpreting section 2-1301(c) of the Code of Civil Procedure (Code) (735 ILCS
5/2-1301(c) (West 2000)), which authorizes confessions of judgment. Plaintiff argues that the
note’s confession of judgment clause is not inconsistent with Illinois case law and is
expressly condoned by section 3-112 of the UCC. We find that the certified question is an
issue of first impression in Illinois and that section 3-112 of the UCC dictates the outcome.
¶ 21 I. Illinois Law on Confessions of Judgment
¶ 22 The power to confess judgment derives from section 2-1301(c) of the Code (735 ILCS
5/2-1301(c) (West 2000)), which provides that “any person for a debt bona fide due may
confess judgment by himself or herself or attorney duly authorized, without process.” By its
terms, the statute does not apply to consumer transactions or to agreements that do not meet
certain jurisdictional requirements. 735 ILCS 5/2-1301(c) (West 2000). Neither party argues
that the note in question is part of a consumer transaction nor that the statute’s jurisdictional
requirements are not met. Despite the statute’s otherwise open-ended language, Illinois case
law views confessions of judgment “circumspectly” and has imposed other limitations on the
power to confess judgment. Grundy County National Bank v. Westfall, 49 Ill. 2d 498, 500-01
(1971). Accordingly, a review of relevant case law interpreting the power to confess
judgment is necessary to establish the precise parameters of the power.
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¶ 23 In Little v. Dyer, 138 Ill. 272, 281 (1891), the Illinois Supreme Court held that the
statutory right 4 to confess judgment does not extend to “uncertain and unliquidated” sums.
Little involved a lease of real estate. Little, 138 Ill. at 278-79. The confession of judgment
clause 5 in the lease warranted an attorney “to waive process and service thereof,” and “to
confess judgment from time to time for any rent which may be then due by the terms of this
lease, with costs, and to waive all errors and all right of appeal from any such judgment or
judgments.” (Emphasis and internal quotation marks omitted.) Little, 138 Ill. at 278.
Furthermore, the amount owed under the lease would include “so much additional rent” as
would accumulate from the lessor’s payment of water and gas bills and maintenance of the
premises. Little, 138 Ill. at 279. The supreme court found that the confession of judgment
clause was invalid because the amount owed under the lease could not be ascertained without
judicial inquiry. Little, 138 Ill. at 279-80.
¶ 24 Importantly, the Little court explained the rationale and policy behind limiting the scope
of confessions of judgment, and subsequent cases have not elaborated on the explanation
offered in Little. The Little court observed that a determination of the unliquidated debt owed
under the lease would require a judicial investigation and an evidentiary hearing to ascertain
and thus would directly contradict the characteristic of confessions of judgment that they be
“without process.” Little, 138 Ill. at 278. Furthermore, the court stressed that “[i]t would be
absurd to contend that such unrestricted power was given to the creditor or his attorney, and a
rule such as that would be in the highest degree productive of fraud, and subversive of
4
At the time of Little, the confession of judgment statute provided “ ‘any person, for a debt
bona fide due, may confess judgment by himself or attorney duly authorized, either in term time or
vacation, without process.’ ” Little, 138 Ill. at 277 (quoting Ill. Rev. Stat. 1891, ch. 110, ¶ 66).
5
Although we refer to clauses in instruments providing for confessions of judgment as
“confession of judgment clauses,” the case law alternatively refers to such clauses as “warrants of
attorney” or “cognovit clauses.”
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No. 1-15-2716
justice, and would be tantamount to making one of the parties in interest not only both
plaintiff and defendant, but court also,—and that, too, in his own cause.” (Emphasis omitted.)
Little, 138 Ill. at 279.
¶ 25 More recent cases have followed and refined the doctrine of Little. See Grundy, 49 Ill. 2d
at 501; see also State National Bank v. Epsteen, 59 Ill. App. 3d 233, 234-35 (1978). For
instance, in Grundy, our supreme court found a confession of judgment clause in a loan
guaranty agreement to be legally insufficient where the loan instrument guaranteed payment
from the defendant to the plaintiff (a bank) of “any and all indebtedness, liabilities and
obligations of every nature and kind of said Debtor to said Bank, and every balance and part
thereof, whether now owing or due, or which may hereafter, from time to time, be owing or
due, and howsoever heretofore or hereafter created or arising or evidenced to the extent of
[blank].” (Internal quotation marks omitted.) Grundy, 49 Ill. 2d at 501. The blank space was
not filled in at the time the defendant signed the agreement, but was later filled in by the bank
for the amount of $50,000. Grundy, 49 Ill. 2d at 500-01. The agreement contained a
confession of judgment clause authorizing any attorney to confess judgment in favor of the
defendant at any time. Grundy, 49 Ill. 2d at 501-02. After the bank successfully obtained a
confession of judgment in court for the $50,000, the defendant appealed, arguing that the
confession of judgment clause was void because the extent of liability could be determined
only by evidence outside of the instrument. Grundy, 49 Ill. 2d at 500. The court agreed,
finding that the instrument “[did] not state the amount which may be confessed nor permit its
ascertainment.” Grundy, 49 Ill. 2d at 502. Accordingly, the confession of judgment clause
was void because “[t]he extent of liability [could] be ascertained only by evidence dehors the
instrument granting the power to confess judgment.” Grundy, 49 Ill. 2d at 502.
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¶ 26 This court found Grundy distinguishable in Sears Bank & Trust Co. v. Scott, 29 Ill. App.
3d 1002, 1010 (1975). Scott involved a sales contract whereby the defendant contracted to
purchase an automobile from the plaintiff. Scott, 29 Ill. App. 3d at 1003. The contract stated
a fixed sum owed and specified that the defendant would pay off the sum in monthly
installments. Scott, 29 Ill. App. 3d at 1003. The contract authorized confession of judgment
for the amount of the fixed sum or for any lesser amount that a court might find due under
the contract. Scott, 29 Ill. App. 3d at 1003-04. The plaintiff obtained a confession of
judgment, and the defendant appealed, arguing that the judgment was impermissibly entered
for an uncertain and unliquidated amount. Scott, 29 Ill. App. 3d at 1004, 1010. However, this
court found that the confession of judgment was valid because “the instrument as written
established a definite sum owed and thus set a limit on the authority conferred.” Scott, 29 Ill.
App. 3d at 1010. Because the judgment entered was within the specified limitation, it was
valid. Scott, 29 Ill. App. 3d at 1010.
¶ 27 This court subsequently found Grundy controlling and Scott distinguishable in Epsteen.
Epsteen, 59 Ill. App. 3d at 235-36. Epsteen involved a “Limited Continuing Guaranty and
Security Agreement,” in which the defendant guaranteed prompt payment “of any and all
indebtedness not in excess of the aggregate principal sum of *** ($120,000.) and the interest
thereon, upon which [defendant] is now or hereafter may become obligated to you.” (Internal
quotation marks omitted.) Epsteen, 59 Ill. App. 3d at 234. The potential debt under the
instrument included “all indebtedness of whatsoever kind” that existed or might arise and
contained a confession of judgment clause. (Internal quotation marks omitted.) Epsteen, 59
Ill. App. 3d at 234. After the trial court entered judgment for $71,483.35 in favor of the
plaintiff, the defendant appealed, and this court vacated the judgment. Epsteen, 59 Ill. App.
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3d at 233-34. This court found the confession of judgment clause legally insufficient, citing
Grundy for the proposition that “[i]f the extent of liability can be established only by
evidence dehors the instrument granting the power, the power to confess judgment is invalid
and any judgment entered under the warrant is void.” Epsteen, 59 Ill. App. 3d at 235.
¶ 28 In Epsteen, this court distinguished Scott as follows:
“The instant instrument, unlike that in Scott, established no certain and liquidated
amount at the creation of the instrument. It is true that the instant argument [sic]
contains a ceiling amount of $120,000 of possible liability which may arise from
future dealings. However, even considering this ceiling amount, any certain
liquidated amount due and owing can be established only by resort to documents
dehors the instrument. Indeed, to establish any indebtedness whatsoever a
consideration of documents dehors the instrument is necessary.” Epsteen, 59 Ill. App.
3d at 236.
¶ 29 Finally, this court found Grundy and Epsteen distinguishable, and Scott analogous, in
Ninow v. Loughnane, 103 Ill. App. 3d 833, 838 (1981). In Ninow, the defendants and the
plaintiffs entered into an agreement for the defendants to purchase the plaintiffs’ corporation.
Ninow, 103 Ill. App. 3d at 835. The agreement contained a payment schedule for the
defendants to pay off a fixed principal sum at a fixed interest rate. Ninow, 103 Ill. App. 3d at
835. The agreement also had a renegotiation provision, which provided that the parties could
renegotiate the payment schedule in the event of default “upon good cause shown.” Ninow,
103 Ill. App. 3d at 836. The agreement contained a standard confession of judgment clause.
Ninow, 103 Ill. App. 3d at 837. When the defendants defaulted on the agreement, the
plaintiffs filed a complaint to confess judgment. Ninow, 103 Ill. App. 3d at 835-36. The trial
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No. 1-15-2716
court granted judgment by confession in the plaintiffs’ favor. Ninow, 103 Ill. App. 3d at 836.
On appeal, the defendants argued that the confession of judgment was void because the
confession of judgment clause and the renegotiation provisions were inconsistent and thus
rendered the extent of their liability unascertainable from the face of the instrument. Ninow,
103 Ill. App. 3d at 837-38.
¶ 30 This court found that the confession of judgment clause was valid. Ninow, 103 Ill. App.
3d at 839. This court distinguished Grundy and Epsteen on the grounds that the instruments
in Grundy and Epsteen did not “state a liquidated sum for which the signatory was liable at
the creation of the instrument. Rather, each set for a ceiling amount for which the signatory
could become liable, and for which judgment could be confessed.” Ninow, 103 Ill. App. 3d at
838. This court found that the agreement was similar to the instrument in Scott, insofar as the
agreement, like the agreement in Scott, “establishe[d] the total amount of defendants’
indebtedness to plaintiffs at the time of signature and further contain[ed] a schedule by which
such payments [were] to be made.” Ninow, 103 Ill. App. 3d at 838. Furthermore, this court
was not persuaded by the defendants’ arguments that the renegotiation provision rendered the
extent of their liability indefinite because pursuant to the renegotiation clause the “payment”
of the balance, and not the “amount” of the balance, was subject to renegotiation. Ninow, 103
Ill. App. 3d at 838-39.
¶ 31 Based on the foregoing case law, defendants argue that the confession of judgment clause
in the case at bar is legally insufficient. Specifically, defendants rely on the language from
Epsteen that “[if] the extent of the liability can be established only by evidence dehors the
instrument granting the power, the power to confess judgment is invalid and any judgment
entered under the warrant is void.” Epsteen, 59 Ill. App. 3d at 235. Because defendants’ debt
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No. 1-15-2716
under the note requires consultation of the prime rate of Bank One, N.A.—i.e., evidence
dehors the instrument granting the power—to determine the accrued interest, defendants
assert that the confession of judgment clause is necessarily invalid.
¶ 32 For his part, plaintiff argues that Illinois case law has never addressed the exact situation
presented by the confession of judgment clause in the present case. Plaintiff contends that the
case law has only held confession of judgment clauses to be invalid where the principal
amount owed was indefinite. Plaintiff argues that the above cases, by contrast, have never
addressed the present situation, in which the principal amount is fixed in the instrument but
the interest rate is variable. Accordingly, plaintiff concludes that case law to date is
distinguishable and that section 3-112 of the UCC is controlling (an argument we address
below).
¶ 33 First, the present case is distinguishable from Grundy and Epsteen. As this court observed
in Ninow, Grundy, and Epsteen are similar in that the instrument in both cases did not “state
a liquidated sum for which the signatory was liable at the creation of the instrument. Rather,
each set for a ceiling amount for which the signatory could become liable, and for which
judgment could be confessed.” (Emphasis added.) Ninow, 103 Ill. App. 3d at 838. By
contrast, the note in the present case clearly states a liquidated principal amount for which
defendants were liable at the creation of the instrument. The only uncertainty regarding the
amount owed stems from the amount of interest that would accrue on the fixed principal.
¶ 34 Furthermore, contrary to defendants’ assertion, the plain language of Epsteen does not
render the confession of judgment clause in the note legally insufficient. As noted, Epsteen
cited Grundy for the proposition that “[if] the extent of the liability can be established only by
evidence dehors the instrument granting the power, the power to confess judgment is invalid
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No. 1-15-2716
and any judgment entered under the warrant is void” (Emphasis added.) Epsteen, 59 Ill. App.
3d at 235. On appeal, defendants rely exclusively on this language. However, in both Grundy
and Epsteen, the instruments themselves provided no evidence of any liability whatsoever.
Thus, the extent of liability could be established only by extrinsic evidence. In the case at bar,
the extent of defendants’ liability is primarily evidenced by the note itself, but requires
extrinsic evidence for exact calculation of interest. In other words, the extent of defendants’
liability is not calculable only by evidence dehors the instrument. Accordingly, the above
language from Epsteen does not invalidate the note’s confession of judgment clause.
¶ 35 Second, the rationale and policy for restricting confessions of judgment does not apply in
the present case. As noted above, the Little court reasoned that a confession of judgment
clause that requires an evidentiary hearing and judicial inquiry would contravene the basic
characteristic of such clauses that they provide relief “without process.” Little, 138 Ill. at 278.
Calculation of the amount owed under the note in the present case does not require an
evidentiary hearing or judicial inquiry; plaintiff has demonstrated as much by attaching
documents—the accuracy of which defendants do not dispute—that transparently show the
simple calculation of the amount owed under the note. The Little court also expressed
concern that a limitless power to confess judgment would be conducive of fraud, “subversive
of justice,” and would allow a plaintiff to function as his own opponent and his own judge.
Little, 138 Ill. at 279. It is hard to imagine how the power to confess judgment in the present
case would be in any way conducive of fraud or subversive of justice. The note simply
documents a $100,000 loan that must be paid back at a publicly announced interest rate.
Transparent calculation of the amount owed under the note is attached to the complaint. It is
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again noteworthy that defendants do not dispute the existence of their debt to plaintiff or the
accuracy of plaintiff’s computation of their debt.
¶ 36 For the above reasons, we find that the note’s confession of judgment clause is not legally
insufficient. As noted, Illinois case law has not addressed the situation presented on this
appeal, where the principal owed is fixed in the instrument but the interest rate is variable.
Accordingly, we proceed to analyze the effect of section 3-112 on the dispute.
¶ 37 II. The Effect of Section 3-112 on Confessions of Judgment
¶ 38 In 1991, the Illinois legislature adopted updated sections of article 3 of the UCC. Pub.
Act 87-582 (eff. Jan. 1, 1992). Article 3 of the UCC governs “negotiable instruments.” 810
ILCS 5/3-102(a) (West 2000). Section 3-104(a) provides a definition of negotiable
instrument:
“Except as provided in subsections (c)[6] and (d),[7] ‘negotiable instrument’ means an
unconditional promise or order to pay a fixed amount of money, with or without
interest or other charges described in the promise or order, if it:
(1) is payable to bearer or to order at the time it is issued or first comes into
possession of a holder;
(2) is payable on demand or at a definite time; and
6
Subsection (c) provides: “An order that meets all of the requirements of subsection (a), except
paragraph (1), and otherwise falls within the definition of ‘check’ in subsection (f) is a negotiable
instrument and a check.” 810 ILCS 5/3-104(c) (West 2000). Subsection (c) does not apply here because
the note is not a check.
7
Subsection (d) provides: “A promise or order other than a check is not an instrument if, at the
time it is issued or first comes into possession of a holder, it contains a conspicuous statement, however
expressed, to the effect that the promise or order is not negotiable or is not an instrument governed by this
Article.” 810 ILCS 5/3-104(d) (West 2000). Subsection (d) does not apply here because the note contains
no such statement.
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No. 1-15-2716
(3) does not state any other undertaking or instruction by the person promising or
ordering payment to do any act in addition to the payment of money, but the
promise or order may contain (i) an undertaking or power to give, maintain, or
protect collateral to secure payment, (ii) an authorization or power to the holder
to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the
benefit of any law intended for the advantage or protection of any obligor.”
(Emphasis added.) 810 ILCS 5/3-104(a) (West 2000).
¶ 39 In turn, section 3-112(b) contains provisions on interest in negotiable instruments:
“Interest may be stated in an instrument as a fixed or variable amount of money or it
may be expressed as a fixed or variable rate or rates. The amount or rate of interest
may be stated or described in the instrument in any manner and may require reference
to information not contained in the instrument. If an instrument provides for interest,
but the amount of interest payable cannot be ascertained from the description, interest
is payable at the judgment rate in effect at the place of payment of the instrument and
at the time interest first accrues.” (Emphasis added.) 810 ILCS 5/3-112(b) (West
2000).
The official comment to section 3-112 of the UCC specifies that “[t]he purpose of subsection
(b) is to clarify the meaning of ‘interest’ in the introductory clause of Section 3-104(a). It is
not intended to validate a provision for interest in an instrument if that provision violates
other law.” Unif. Commercial Code § 3-112, 2 U.L.A. 82, Official Comment (2004). 8
8
The official comment to section 3-112 of the UCC was not adopted by the Illinois legislature,
and is thus not part of 810 ILCS 5/3-112 (West 2000). Nevertheless, the official comment is instructive to
an interpretation of section 3-112.
20
No. 1-15-2716
¶ 40 The note in question is a negotiable instrument, as defined in section 3-104. As noted, a
negotiable instrument is “an unconditional promise *** to pay a fixed amount of money,
with *** interest ***,” that “(1) is payable to bearer at the time it is issued ***; (2) is payable
on demand or at a definite time; and (3) does not state any other undertaking or instruction by
the person promising *** payment to do any act in addition to the payment of money.” 810
ILCS 5/3-104(a) (West 2000). Furthermore, section 3-104(a) explicitly allows for negotiable
instruments to contain confession of judgment clauses. 810 ILCS 5/3-104(a) (West 2000). In
the case at bar, payment of the note in question is not conditioned on anything, the note is for
a fixed sum ($100,000) with interest, the note was payable to plaintiff when it was issued, the
note was payable at a definite time (December 15, 2000), and the note permissibly contains a
confession of judgment clause. Accordingly, the note is a negotiable instrument. Defendants
have made no arguments to the contrary.
¶ 41 Since the subject note is a negotiable instrument, section 3-112 applies. Section 3-112(b)
explicitly allows for interest to be stated at a “variable rate or rates.” 810 ILCS 5/3-112(b)
(West 2000). Although the official comment makes clear that section 3-112(b) “is not
intended to validate a provision for interest in an instrument if that provision violates other
law” (Unif. Commercial Code § 3-112, 2 U.L.A. 82, Official Comment (2004)), we have
concluded that a variable interest rate in a confession of judgment clause where the principal
is fixed does not violate Illinois law. Accordingly, we answer the certified question in the
affirmative: A confession of judgment under a note drafted under the UCC is valid where the
note references a variable interest rate and has a definite principal sum.
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No. 1-15-2716
¶ 42 CONCLUSION
¶ 43 The certified question is an issue of first impression. We have found that a note
containing a confession of judgment clause with a fixed principal amount due and a variable
interest rate is not legally insufficient under Illinois case law interpreting the statutory right to
confess judgment. We have further concluded that section 3-112 of the UCC is applicable
and explicitly allows for negotiable instruments, like the note in question, to contain a fixed
principal and a variable interest rate.
¶ 44 Certified question answered.
22