Asset Exchange II, LLC v. First Choice Bank, Illinois Appellate Court

In this recent decision of the Illinois Appellate Court for the First District, the Court rejected a claim by a borrower that the 365/360 interest calculation method violated the Illinois Interest Act. According to the Court, Asset Exchange is a limited liability company owned by "two sophisticated businessmen." On December 14, 2007, Asset Exchange entered into a commercial loan agreement with the Defendant Bank whereby the Bank agreed to loan $1,250,000 to Asset Exchange. The interest rate was 8.25%, computed on a 365/360 basis. The loan states: "'the annual interest rate for this Note is computed on a 365/360 basis; that is by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding.'" Plaintiff claimed that, by using a year of less than 365 days, the Bank was wrongfully using a definition of "year" that was in violation of the Illinois Interest Act and thus charged and received more interest than was due. The Bank moved to dismiss on the ground that the Interest Act does not apply to commercial loans. The trial court agreed and the Appellate Court affirmed. The Appellate Court noted that prior Illinois decisions have held that the Interest Act does not apply to corporations. See Computer Sales Corp. v. Rousonelos Farms, Inc., 190 Ill. App. 3d 388, 392 (1989). The Appellate Court rejected the breach of contract claim because (a) the terms of the Note were unambiguous and (b) the Bank complied with the terms of the Note. Comment: this is a victory for Banks as the 365/360 interest calculation method is commonly used in commercial transactions. Edward X. Clinton, Jr.