Illinois App. Court (1st Dist) Holds Paper Clip is Enough to ‘Affix’ Allonge to Note Under UCC

The Appellate Court of Illinois, First District, recently held that an allonge was “affixed” to a note for purposes of the Illinois Uniform Commercial Code (UCC) when it was attached via paper clip.

A copy of the opinion in Olive Portfolio Alpha, LLC v. 116 West Hubbard Street, LLC is available at:  Link to Opinion.

The plaintiff note owner (“assignee”) filed a mortgage foreclosure action against the defendant borrower seeking the foreclosure of a commercial property.

The borrower filed a motion to dismiss for alleged lack of standing.  The motion was denied in part and granted in part “as to failure to attached allonge between [lender] and [assignee].”  The trial court order further noted that “plaintiff presented to court original of amended and restated promissory note, February 27, 2013 Allonge and July 25, 2013 Allonge,” and “that July 25, 2013 Allonge does not have binder holes at top and neither allonge has staple holes or marks.”

The assignee subsequently filed an amended complaint, and the borrower filed an answer and affirmative defenses of (1) lack of standing because the assignee was allegedly a foreign LLC that does business in Illinois without being registered, (2) lack of standing because the allonge assigning the note to the assignee was not affixed to the note, and (3) the assignee was barred from charging late fees based on a flat fee.

The assignee filed its motion for summary judgment and motion for judgment of foreclosure and sale.  On the day the borrower’s response was due, the borrower filed a motion for extension of time to file a response, and a motion for additional discovery for discovery related to the relationship between the assignee and its servicer and the transaction through which the assignee acquired the note.

The borrower’s motions were set for hearing on the same date as the assignee’s motion.  At the hearing, the trial court granted the assignee’s motions, and denied the borrower’s motions.

The judicial sale was subsequently conducted and the assignee was the highest bidder.  The assignee filed a motion to approve the sale, which was set for hearing on Oct. 14, 2015.   On Oct. 7, 2015, the borrower’s counsel filed a motion to withdraw, which was also set for hearing on Oct. 14.

On Dec. 2, 2015, the trial granted the assignee’s motion and entered an order approving the sale, and granted the borrower’s counsel’s motion to withdraw, giving the borrower 21 days to seek new counsel.

On Dec. 23, 2015, the borrower’s new counsel appeared and filed a motion to reconsider the Dec. 2 orders, which motion was denied.

The borrower appealed, arguing: (1) the trial court erred in granting summary judgment because its affirmative defenses remained pending and the trial court abused its discretion in denying its motion for discovery and for additional time to respond, and (2) the trial court erred in simultaneously confirming the judicial sale and granting the borrower’s counsel’s motion to withdraw.

The Appellate Court first addressed the borrower’s argument that the trial court abused its discretion in denying the borrower’s motion for discovery.  In examining the issue, the Court addressed the reasons the discovery was sought.

First, the borrower argued it needed discovery on the relationship between the assignee and its loan servicer to establish its affirmative defenses of failure to register as a business in Illinois.

Specifically, the borrower sought oral testimony from an affiant for the assignee’s servicer who stated that the assignee was a single purpose entity that does not transact business in Illinois.  However, the Appellate Court noted that the borrower’s affidavits supporting the motion for discovery offered only a general belief and speculation as to what testimony would be disclosed rather than stating that “the material facts were known only to persons whose affidavits the affiant was unable to procure,” as required under the rule.

Moreover, the Appellate Court noted that the borrower “cited no authority that the holder of a mortgage is transacting business in Illinois, such that registration is required, in order to pursue a foreclosure action, nor that a loan servicer’s actions separate from its work in the subject mortgage can be imputed to the holder.”  Thus, the Appellate Court affirmed the trial court’s rulings denying additional discovery and granting summary judgment on the issue.

With respect to the discovery requests related to whether the assignee was the holder of the note, the Appellate Court noted that attaching the note to the amended complaint was prima facie evidence that it was the holder.  The Appellate Court further noted that the original note was presented in open court in the trial court which resolved the issue, and that no additional discovery was necessary.

Still, the Appellate Court reviewed the merits of the borrower’s contention that an allonge cannot be properly “affixed” by paper clip.  In deciding the issue, the Appellate Court first noted that no Illinois case had determined what “affixed” meant under the Illinois UCC, and the statute did not define the term.

After analyzing case law from other jurisdictions, the Appellate Court ultimately held that “[t]he statute does not limit the language of affix to only permanent forms of attaching.”  Thus, the Appellate Court held, using “a paper clip is sufficient to satisfy the requirement of affixing an allonge to an instrument under [the UCC].”  The Appellate Court therefore affirmed the ruling of the trial court.

With respect to the borrower’s contention that the trial court should have granted it additional time to respond to the motion for summary judgment, the Appellate Court disagreed, holding that the borrower “had a significant period of time to engage in discovery and respond to plaintiff’s motion for summary judgment, but failed to take timely action.”  Moreover, the Appellate Court noted that the borrower never asserted a material fact to preclude summary judgment.  The Appellate Court therefore affirmed the ruling of the trial court.

Finally, the borrower argued that the trial court erred by entering the order confirming the foreclosure sale without first giving the borrower 21 days to secure new counsel.  The Appellate Court disagreed, first noting that the borrower did not cite any authority indicating that the trial court was required to rule on motions in any specific order.

Moreover, the Appellate Court ruled that “even if the trial court erred in granting the motion to confirm the sale without allowing a 21-day continuance, [the borrower] [did] not set forth any claim of how it was prejudiced.”

Accordingly, the Appellate Court affirmed the rulings of the trial court in favor of the assignee and against the borrower.

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Jeffrey Karek practices in Maurice Wutscher's Commercial Litigation, Consumer Credit Litigation, and Appellate groups. He has substantial experience in defending consumer finance lawsuits in both state and federal trial courts, and on appeal. Such litigation includes allegations brought under TILA, HOEPA, RESPA, FDCPA, TCPA, FCRA, and state consumer protection statutes, including in the defense of putative class actions. Jeff received his Juris Doctor from the University of Michigan Law School, and graduated magna cum laude with a Bachelor of Business Administration degree from Western Michigan University.