## Facts

- Thomas P. Davis and Cathy M. Davis refinanced personal debts with a $288,000 adjustable-rate mortgage loan secured by their Illinois home.
- The closing occurred at a title company office; the Davises signed a package of loan documents that included a prepayment-penalty addendum.
- The Davises later claimed they were told at closing that two sets of documents were identical and reflected a two-year prepayment-penalty term.
- The executed loan documents included a prepayment-penalty rider imposing a sixty-month (five-year) penalty period; the Davises could not produce any signed two-year addendum.
- The lender later assigned the loan to Countrywide Home Loans, Inc.
- When the Davises sought payoff information less than three years after origination, Countrywide advised a prepayment penalty of roughly $12,000 under the five-year rider.
- The Davises paid off the loan in February 2002 and were assessed the prepayment charge.
- The Davises sued the lender and assignee for fraudulent inducement/common-law fraud, breach of contract, and violations of the Illinois Interest Act and the Illinois Consumer Fraud and Deceptive Business Practices Act.
- The district court granted summary judgment for defendants on all claims, and the Davises appealed.

## Issues

1. Whether borrowers can establish fraud or fraudulent inducement based on alleged oral statements when the signed, integrated loan documents clearly impose a five-year prepayment penalty and no signed two-year addendum exists.
2. Whether enforcing the five-year prepayment rider can constitute breach of contract where that rider is part of the executed loan documents.
3. Whether the prepayment penalty and its disclosure violated the Illinois Interest Act or the Illinois Consumer Fraud and Deceptive Business Practices Act.
4. Whether the district court abused its discretion by denying additional discovery under Rule 56(f) and by declining to treat alleged oral statements as creating a triable issue.

## Decision

- The Seventh Circuit affirmed summary judgment for the lender and assignee on all counts.
- The court held the Davises failed to present evidence sufficient for fraud, including proof of justifiable reliance, given the unambiguous written terms and the opportunity to review and rescind.
- The court held the contract claim failed because the executed, integrated documents imposed a five-year prepayment penalty; enforcing those terms was not a breach.
- The court rejected the Illinois statutory claims because the five-year penalty was adequately disclosed in the loan paperwork and the Davises received a right-to-cancel notice but did not rescind.
- The court found no abuse of discretion in denying Rule 56(f) relief where plaintiffs did not timely obtain affidavits or deposition testimony from key third-party witnesses and did not show additional discovery would likely defeat summary judgment.

## Legal Principles

- A party’s reliance on oral assurances is not justifiable when contradicted by clear, signed, integrated written contract terms.
- Speculation that an alternative agreement was signed does not create a genuine dispute of material fact absent competent evidence of the executed document.
- When a written loan instrument unambiguously includes a prepayment-penalty provision, enforcing that provision generally cannot support a breach-of-contract claim premised on a different alleged term.
- Consumer-fraud and related statutory theories fail where the challenged term is disclosed in the operative documents and the borrower had a meaningful opportunity to review and rescind but did not act.
- Rule 56(f) continuances require a concrete showing that additional discovery is likely to produce evidence creating a triable issue; unexplained failure to pursue obvious witness testimony weighs against relief.

## Conclusion

The Seventh Circuit enforced the five-year prepayment-penalty rider contained in the signed loan documents and held that alleged contrary oral statements could not support fraud, contract, or Illinois statutory claims where borrowers failed to read the documents, could not produce a signed two-year rider, and did not show that further discovery would change the summary-judgment record.


Davis v. G.N. Mortg. Corp., 396 F.3d 869 (7th Cir. 2005)