Alerts

THE ILLINOIS CREDIT AGREEMENT ACT – A Commercial lender's old friend

August 19, 2022

Practice AreasFinancial Services

In the last 20 years, we have seen the mortgage foreclosure crisis spawn additional government regulation aimed at protecting consumers’ rights in their dealings with lending institutions. Nevertheless, certain protections afforded Illinois consumers has not bled into the commercial world as evidenced by the survival of the Illinois Credit Agreement Act (ICAA or the Credit Agreement Act). ICAA prohibits commercial borrowers from maintaining a cause of action, or defense, against a lender related to a credit agreement unless the agreement is in writing, expresses agreement to lend money, sets forth relevant terms/conditions and is signed by both the lender and the borrower[i]. ICCA was enacted more than 30 years ago but remains a powerful tool for lenders to combat any claim or defense by a commercial borrower that does not strictly comply with the Credit Agreement Act’s required four elements.

Essentially, ICAA is the strongest and broadest form of the statute of frauds. It equips commercial creditors with a shield and sword against meritless actions and defenses related to borrower allegations of fraud, estoppel, misrepresentation and waiver. However, lenders should note that the Credit Agreement Act only offers protection to creditors that are engaged in the business of lending money or extending credit[ii]. In addition, the strict standard or protection of the Credit Agreement Act only applies to commercial loans. “Credit Agreement” is defined by the act as “an agreement … to lend money…not primarily for personal, family or household purposes and not in connection with the issuance of credit cards[iii].”

ICAA was enacted to combat lender liability claims filed by debtors primarily as negotiating ploys[iv]. In Westinghouse, the borrower and guarantors (defendants) of a commercial loan claimed fraud and economic duress in defense of an action to collect on a commercial construction loan[v]. More specifically, defendants’ alleged that the creditor plaintiff orally promised to forego collection of the note when it became due in three years[vi]. The court held that even if a representative of the lender had promised to forgive the debt, that promise could not be enforced by the court pursuant to the Credit Agreement Act, because it was not in writing.

More good news: the scope of ICAA is broad and multiple Illinois court decisions have strictly enforced ICAA to the detriment of commercial borrowers. There is no limitation as to the type of actions by a debtor, which are barred by the Credit Agreements Act, so long as the action is in any way related to a credit agreement[vii]. The Act has a more stringent signature requirement than the general statute of frauds, which requires only the signature of “the party to be charged” or his agent[viii]. The Credit Agreement Act clearly requires both creditor and borrower sign the agreement[ix]. Moreover, as the Avanti and McAloon cases held, it is not enough if only the lender signs the agreement for the borrower to rely on the same; the borrower must sign as well. In the Avanti case, the lender’s representative signed an amended summary of terms and conditions agreement detailing a commercial loan but the borrower did not countersign the same. The appellate court upheld the trial court’s decision to grant the lender’s motion to dismiss the case because the alleged agreement did not satisfy the signature requirement of section 2, because the borrower did not sign. In McAloon, a developers’ written proposal for loan request was not determined a “credit agreement” within meaning of Credit Agreements Act, in spite of the lender’s director’s initials on the proposal, where developers themselves did not sign proposal as required by the Act[x].  

Further, in our electronic age, borrowers have tried, and failed, to expand the definition of a credit agreement to include emails between attorneys. In the Van Pelt case, emails exchanged between attorneys for mortgagee, mortgagor and commercial guarantors with regard to a proposed settlement agreement were insufficient to satisfy the signed writing requirement of the Credit Agreements Act[xi]. The court held that the emails did not contain the relevant terms of the agreement, recite the names of all parties to be bound and did not specify the legal instruments to be rendered inoperable by the agreement or provide any deadlines for the parties to fulfill their obligations under the agreement[xii]

As precedent has shown since the ‘90s, financial institutions, lenders and creditors can rely on the Credit Agreement Act when faced with a commercial debtor’s frivolous claims of fraud, estoppel, misrepresentation and waiver. While avoiding negative public perception of borrower claims is a separate issue, creditors can take solace in knowing that the burden and liability related to a commercial credit agreement will not be borne unless in writing and signed by all parties.

Please know that the Banking group at Chuhak & Tecson will offer sound counsel to help navigate circumstances related to existing and potential borrowers who may cry foul when things do not go their way.


[i] See 815 ILCS 160/2
[ii] See 815 ILCS 160/1(2)
[iii] See 815 ILCS 160/1(1)
[iv] See Westinghouse Elec. Corp. v. McLean, N.D. Ill. 1996, 938 F. Supp. 487
[v] Id
[vi] Id
[vii] See Avanti Medical Group, LLC v. BMO Harris Bank, N.A., App. 2 Dist. 2014, 389 Ill. Dec. 46, 25 N.E. 3d 691
[viii] See McAloon v. Northwest Bancorp, Inc., 274 Ill. App.3d 758, 763, 211 Ill. Dec. 281, 654 N.E.2d 1091 (1995)
[ix] See 815 ILCS 160/2
[x] McAloon, App. 2 Dist. 1995, 211 Ill.Dec. 281, 274 Ill.App. 3d 758, 654 N.E. 2d 1091
[xi] Van Pelt Const. Co., Inc. v. BMO Harris Bank, N.A., 2014 IL App (1st) 121661, 8 N.E.3d 554, 380 Ill.Dec. 384
[xii] Id

For additional information contact Edmond M. Burke (312 855 4352), principal.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.