APPEAL from the Circuit Court of Cook County; the Hon. CHARLES
R. BARRETT, Judge, presiding.
MR. JUSTICE MCNAMARA DELIVERED THE OPINION OF THE COURT:
This suit was brought against the defendant, a stock broker, on behalf of the named plaintiffs, stock margin account customers of defendant, and on behalf of a class. It was an action to recover interest and penalty pursuant to the Interest Act (Ill. Rev. Stat. 1967, ch. 74, par. 4), for interest charged in excess of the amount permitted by the Interest Act, as it applies to stock margin accounts with a debit balance of less than $5,000. After considering affidavits filed by defendant, defendant's answers to plaintiffs' interrogatories, and argument by counsel, the trial court granted defendant's motion for summary judgment, and plaintiffs appeal. The affidavits and answers to interrogatories disclose the following facts.
Margin account customers such as plaintiffs are permitted to purchase securities without making payment in full. Such customers pay a certain portion of the purchase price which during the period in question was set at 80% by Federal regulations. The customers pledge collateral to the broker to secure the remainder. The broker pays the full price for the security and customarily makes a charge to the customer for the loan.
Defendant's charge for the loan of the unpaid 20% of the purchase price was designated as "interest" on its bills to customers. This amount exceeded 7% per annum between August 12, 1966 and April 19, 1968, and exceeded 8% per annum between April 19, 1968 and the time of the suit on the outstanding balance on margin accounts of less than $10,000.
Defendant is a limited partnership organized under the laws of the State of New York and dealing in the security brokerage business. It is a member of all principal security exchanges. Its principal offices are located in New York, but it has three branch offices in the City of Chicago.
During the period in question defendant made a yearly profit of $85,000 from its one thousand to fifteen hundred Illinois margin account customers. A form agreement was signed by each of these customers establishing the margin account relationship. That agreement provided in part:
"8. This agreement and its enforcement and performance shall inure to the benefit of yourselves, your successors and assigns, shall be binding upon my personal representatives, shall apply to all such accounts now or hereafter open or reopened, shall be governed by the laws of the State of New York, and shall be subject to all applicable Federal and state statutes and regulations thereunder; * * *."
All purchases for margin account customers of securities on the New York and American exchanges were made in New York, as were most purchases of over-the-counter securities. Principal responsibility for the supervision of margin accounts was in the New York office; central books and records regarding such accounts also were located in New York. Defendant borrowed money from six Illinois banks, but principal borrowings to cover margin accounts were made in New York. Margin customers' collateral was also kept in New York. Monthly customer statements, although verified in Illinois, were mailed directly from New York.
Defendant had both Illinois and Chicago broker's licenses, and, contrary to its written agreement with customers, received payments in Illinois on its margin accounts.
At the time in question, the Illinois Interest Act (Ill. Rev. Stat. 1967, ch. 74, par. 4), provided in part:
"In all written contracts it shall be lawful for the parties to stipulate or agree that 7% per annum, or any less sum of interest, shall be taken and paid upon every $100 of money loaned or in any manner due and owing from any person to any other person or corporation in the state, and after that rate for a greater or less sum, or for a longer or shorter time, except as herein provided."
The Act went on to exempt certain transactions from the interest limitations. And in 1969 the Act was amended, explicitly exempting from its application interest charged upon margin accounts; however, this subsequent amendment was not in effect during the instant period.
Defendant's motion for summary judgment was based upon five separate and independent grounds: (1) that the transactions were governed by the laws of the State of New York, under which they clearly were not usurious; (2) that even if Illinois law did govern, the transactions were essentially a lending credit and, therefore, not within the purview of the Illinois Interest Act; (3) that even if the Illinois Interest Act did govern, the transactions were business loans, and, therefore, not usurious; (4) that the right to recover for usury could not be the subject of a class action; and (5) that plaintiff's complaint failed to state a cause of action upon which relief could be granted.
• 1 The trial judge found for defendant on all five grounds and allowed its motion for summary judgment. We believe that the transactions in question were governed by the laws of the State of New York, and that the court correctly awarded summary judgment on that basis. We therefore find it ...