Asset Exchange II. LLC v. First Choice Bank
2011 IL App (1st) 103718
| Ill. App. Ct. | 2011Background
- Asset Exchange II, LLC and First Choice Bank entered a commercial loan in 2007 for $1,250,000 with an initial rate of 8.25% and a payment provision computing interest on a 365/360 basis.
- The Note provides interest computed on a 360-day year, using a ratio of annual rate over a year of 360 days, multiplied by the outstanding principal and actual days outstanding.
- The Note permits a rate adjustment based on an index (Prime Rate) with a margin of 1.00% over the Index; the index was stated as 7.25% initially.
- In 2009, Asset Exchange filed a seven-count suit alleging, among other things, that the 365/360 method and related terms violated the Illinois Interest Act and breached the contract, among others.
- The trial court dismissed counts I, III, IV, VI, and VII with prejudice and dismissed counts II and V without prejudice; the appellate court affirmed, upholding dismissal.
- Illinois law exempted loans to corporations from the Illinois Interest Act, and the court concluded the 365/360 method was not a violation even if the Act applied; the contract was unambiguous, and no valid fraud claim was stated.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the Illinois Interest Act apply to corporate loans and the 365/360 calculation? | Act applies; 360-day year violates per annum. | Act exempts corporate loans; even if applicable, 365/360 is permitted. | Act does not apply to corporate loans; 365/360 not unlawful. |
| Was there a breach of contract given the Note's terms? | Terms ambiguous; Bank breached by improper calculation. | Terms unambiguous; Bank complied with contract. | No breach; contract unambiguous and complied with. |
| Does the complaint state a claim for common-law fraud? | Misrepresentations induced signing and deceived plaintiff. | Terms non-ambiguous; sophisticated parties could read and understand. | Fraud claim properly dismissed. |
Key Cases Cited
- RBS Citizens National Ass’n v. RTG-Oak Lawn, LLC, 407 Ill. App. 3d 183 (Ill. App. Ct. 2011) (interpreted 360/365-360 method; distinction between computation vs. charge)