lender's use of the 365/360 method to calculate interest did not violate
Illinois statutory law, despite allegations by the borrower of purported
ambiguities in the Note.
A copy of the opinion is available at:
The lender extended a line of credit to Hubbard Street Lofts, LLC
("Hubbard Street") in the amount of $6,400,000. Hubbard Street claimed
that the lender orally agreed to draft a loan document reflecting an
interest rate of 8% per year. The Note drafted by the lender reflected an
8% interest rate to be "computed on a 365/360 basis."
Hubbard Street filed a 7-count class action against the lender, alleging
usury in supposed violation of the Illinois Interest Act, as well as
several other statutory and common law violations. The allegations hinged
on the lender's use of the 365/360 method to calculate interest, as well
as the lender's alleged oral representation regarding the interest rate.
The lender moved to dismiss the complaint, arguing that the Illinois
Interest Act did not apply, and that the Credit Agreements Act barred
Hubbard Street's allegations regarding an alleged oral representation.
The lower court agreed, and dismissed all counts of Hubbard Street's
complaint with prejudice. Hubbard Street appealed.
As you may recall, the Illinois Interest Act provides that where a
contract does not specify a period of time for calculating interest,
"interest shall be calculated...as if 'per annum' or 'by the year' had
been added to the rate." 815 ILCS 205/9 (West 2010).
Although the Note provided for the 365/360 method to be used for interest
rate calculations, other portions of the Note did not reference a specific
period of time for those calculations. Therefore, Hubbard Street argued
that the Illinois Interest Act should apply to those portions of the Note,
thus purportedly contradicting the provisions regarding the 365/360 method
and rendering the Note ambiguous.
The Court noted it had recently considered a case with substantially
similar facts and allegations. In that case, the Court held that section 9
of the Illinois Interest Act "did not require a time period to be inserted
with each and every mention of an interest rate." Asset Exchange II, LLC
v. First Choice Bank, 2011 IL. App. (1st) 103718 ("Asset Exchange").
Consequently, the Asset Exchange Court found the Note in question to be
Because "Illinois courts have held that section 9 of the [Illinois]
Interest Act...only applies when no time period for calculation of
interest appears anywhere in the instrument in question," the Court held
that Hubbard Street's counts related to the Illinois Interest Act were
Next, the Court held that Illinois Credit Agreement Act operated to bar
all actions based on oral credit agreements. See First National Bank in
Stanton v. McBridge Chevrolet, Inc., 267 Ill. App. 3d 367, 372, 643 N.E.
2d 138 (1994). Therefore, because the alleged agreement for an 8% annual
interest rate was not in writing, the Court held that Hubbard Street's
allegations related to the alleged oral agreement were barred by the
Credit Agreement Act.
Accordingly, the Court affirmed the judgment of the lower court dismissing
all count's of the plaintiff's complaint with prejudice.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
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