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Asset Exchange Ii, LLC, On Behalf of Themselves and All Those Similarly Situated v. First Choice Bank

July 12, 2011


Appeal from the Circuit Court of Cook County No. 09 CH 48598 Honorable James R. Epstein & Michael B. Hyman, Judges

The opinion of the court was delivered by: Justice Connors

JUSTICE CONNORS delivered the judgment of the court, with opinion.

Presiding Justice Cunningham and Justice Harris concurred in the judgment and opinion.


¶1 This appeal arises out of a putative class action filed by Asset Exchange II, LLC (plaintiff) against First Choice Bank (Bank), alleging that the Bank improperly charged plaintiff a higher interest rate than that which the parties had agreed upon when they signed a promissory note (Note). Plaintiff alleged seven causes of action against the Bank: (1) breach of contract, (2) breach of an oral loan preparation contract, (3) violation of the Illinois Interest Act (815 ILCS 205/0.01 et seq. (West 2010)), (4) breach of the duty of good faith and fair dealing, (5) breach of the Illinois Consumer Fraud and Deceptive Business Practices Act (805 ILCS 505/1 et seq. (West 2010)), (6) common-law fraud, and (7) a declaratory judgment. The Bank filed a motion to dismiss pursuant to sections 2--615 and 2--606 of the Illinois Code of Civil Procedure (735 ILCS 5/2--615, 2--606 (West 2010)). Following briefing, the court heard oral arguments on June 24, 2010*fn1 , and took the matter under advisement. On October 8, 2010, the trial court issued a written memorandum and opinion dismissing counts I, III, IV, VI, and VII of the plaintiff's complaint with prejudice. Counts II and V were dismissed without prejudice.

¶2 Of those four causes of action that were dismissed with prejudice, plaintiff appeals the dismissal of three, arguing: (1) the trial court misapplied the Illinois Interest Act to the Note, (2) the trial court erred in dismissing plaintiff's breach of contract claim, and (3) the trial court erred in dismissing plaintiff's common-law fraud claim. For the following reasons, we affirm the judgment of the trial court.


¶4 The facts of this case are not in dispute. Plaintiff Asset Exchange is a limited liability company owned by two "sophisticated businessmen." On December 14, 2007, plaintiff entered into a commercial loan agreement with the Bank, whereby the Bank agreed to loan plaintiff $1,250,000. The Note had a maturation date of December 12, 2008. In the heading section of the Note, it states: "Initial Rate: 8.25%." According to the "Payment" section of the Note, the annual interest rate was to be calculated on a 365/360 basis. Specifically, the "Payment" section, in bold writing, reads:

"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."

¶5 In the "Variable Interest Rate" section immediately following the "Payment" section, the Note states:

"The interest rate on this Note is subject to change from time to time based on changes in an index which is the Prime Rate as established by First Choice Bank (the 'Index'). The Index is not necessarily the lowest rate charged by Lender on its loans and is set by Lender in its sole discretion. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notifying Borrower. Lender will tell Borrower the current index rate upon Borrower's request. The interest rate change will not occur more often than each day. Borrower understands that Lender may make loans based on other rates as well. The Index currently is 7.250% per annum. The interest rate to be applied to the unpaid principal balance during this Note will be at a rate of 1.000 percentage point over the Index, resulting in an initial rate of 8.250% per annum. NOTICE: Under no circumstances will the interest rate on this note be more than the maximum rate allowed by applicable law." (Emphasis added.)

¶6 Just above the signatures of plaintiff's principals, the Note states, in bold type and all capital letters:

"Prior to signing this Note, Borrower read and understood all the provisions of this Note, including the variable interest rate provision. Borrower agrees to the terms of the Note."

¶7 On December 14, 2009, two years after signing the Note, plaintiff filed its putative seven-count class action lawsuit, alleging that the Bank surreptitiously slipped the 365/360 interest provision into the Note. Plaintiff asserted that because the Note referred to a "per annum" interest rate, Illinois law required interest on plaintiff's loan be calculated using the actual number of days in a calendar year, and not the 360-day year referred to in the Note.

¶8 The Bank moved to dismiss plaintiff's complaint based upon sections 2--606 and 2--615 of the Code. Section 2--606 states that if a claim is founded upon a written instrument, a copy of it must be attached to the pleading as an exhibit. 735 ILCS 5/2--606 (West 2010). The Bank argued that plaintiff failed to attach a valid copy of the Note to the complaint and failed to recite relevant provisions of the Note in their entirety. The Bank further argued that pursuant to section 2--615 of the Code, the allegations in plaintiff's complaint were insufficient to state a cause of action upon which relief could be granted.

¶9 The trial court, in a written memorandum opinion and order, found that the complaint should be dismissed for failure to comply with section 2--606 of the Code. However, the trial court noted that because plaintiff attached a signed copy of the Note to its response to the Bank's motion to dismiss, it would address the substance of the motion in the interest of judicial economy.

ΒΆ10 With respect to the Illinois Interest Act claim, plaintiff argued that by using a year of less than 365 or 366 days (as in 360 days) to compute and charge interest at the represented per annum rates in the Note, the Bank knowingly and unlawfully applied a definition of "year" that was in violation of the Illinois Interest Act and thus charged and received more interest than authorized by law. The ...

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