## Facts

- Dominic and Antoinette Passarelli sought a $10,000 loan through Equitable Mortgage & Investment Corporation, a broker that placed loan paper with finance companies at a discount.
- A promissory note provided for repayment of $16,260 over 60 months (monthly installments of $271), was secured by a trust deed, and contained a confession-of-judgment clause.
- The note’s terms reflected an interest charge above the Illinois legal maximum; the usurious character of the transaction was essentially undisputed.
- Before the Passarellis executed the note and before they received loan proceeds, Winter & Hirsch, Inc. issued an $11,000 check to Equitable marked as relating to the Passarelli transaction.
- About ten days later, the Passarellis received the $10,000 proceeds and executed the note.
- Payments under the note were to be made at the office of an attorney associated with Winter, connecting Winter to collection and servicing.
- After default, Winter sued on the note and obtained a judgment by confession; the trial court treated Winter as a holder in due course and rejected the usury defense.
- While the case was pending, Illinois amended its usury statute to change available penalties or remedies; the amendment was effective before trial.

## Issues

1. Whether Winter qualified as a holder in due course under the UCC so as to take the note free of the borrowers’ usury defense.
2. Whether the amended Illinois usury statute’s penalty provisions applied to a case tried after the amendment’s effective date, even though the loan occurred earlier.

## Decision

- The appellate court reversed the judgment by confession and remanded with directions to enter judgment for the Passarellis and for further proceedings consistent with its opinion.
- The court held the loan was usurious and Winter was not a holder in due course, so Winter took the note subject to the usury defense.
- The court held the amended usury statute’s penalty provisions applied because they were remedial and in effect at the time of trial.

## Legal Principles

- A finance company that advances funds for a specifically identified borrower and transaction before the instrument is executed may be treated as a participant in originating the loan rather than a remote purchaser, undermining holder-in-due-course status.
- Holder-in-due-course protection is unavailable where the transferee has notice, or reason to know, of defenses or illegality; irregularities on the instrument and transaction structure that would prompt inquiry by a reasonable commercial actor can constitute notice.
- A significant spread between the amount advanced and the amount payable, combined with timing showing pre-execution funding and other irregularities, can support a finding of notice of usury sufficient to defeat holder-in-due-course status.
- Statutory amendments that modify penalties or remedies, without creating a new cause of action or changing substantive obligations, are treated as remedial and may apply to trials occurring after the amendment’s effective date.

## Conclusion

The court set aside the confessed judgment, concluding the assignee’s pre-execution funding and transaction irregularities defeated holder-in-due-course status, leaving it subject to the borrowers’ usury defense, and it applied amended usury penalties as remedial law in effect at trial.


Winter & Hirsch, Inc. v. Passarelli, 259 N.E.2d 312 (Ill. App. Ct. 1970)