Koos v. First National Bank of Peoria

• Decision Date: 17 May 1974
• Docket Number: No. 73-1694.,73-1694.
• Parties: Elmo E. KOOS, Sr. and Caroline M. Koos, Plaintiffs-Appellants, v. FIRST NATIONAL BANK OF PEORIA, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

496 F.2d 1162 (1974)

Elmo E. KOOS, Sr. and Caroline M. Koos, Plaintiffs-Appellants, v. FIRST NATIONAL BANK OF PEORIA, Defendant-Appellee.

No. 73-1694.

United States Court of Appeals, Seventh Circuit.

Heard February 11, 1974.

Decided May 17, 1974.

John F. Sloan, Peoria, Ill., for plaintiffs-appellants.

Carroll Baymiller, Peoria, Ill., for defendant-appellee.

Before SWYGERT, Chief Judge, KILEY, Senior Circuit Judge, and CUMMINGS, Circuit Judge.

CUMMINGS, Circuit Judge.

The two named plaintiffs filed a class action complaining that the defendant bank was charging usurious interest. The gravamen of the complaint was that defendant was charging them in excess of the 8 per cent rate of interest permissible under the Illinois Usury Law. Ill. Rev.Stats.1973, ch. 74, § 4. The National Bank Act provides for the recovery of twice the amount of interest illegally charged, but contains a two-year statute of limitations.¹ Illegality is to be determined under state law, subject to an exception in the Act not relied on by defendant. 12 U.S.C. §§ 85 and 86. The plaintiffs' theory is that since the 8% interest charged on their loan was calculated for a 360-day period, the amount of interest charged in a full year was more than 8%. The complaint admits that the loan rate paid by plaintiffs was reduced below 8% effective January 1, 1971.

Plaintiffs' loan was obtained on June 1, 1970, and was for $56,100. Their note was secured by the pledge of four savings and loan certificates for withdrawal of capital accounts totaling $18,000 and by the assignments of the cash surrender values under two life insurance policies totaling $40,650.

The district court granted defendant's motion to dismiss the action with prejudice. 358 F.Supp. 890. The dismissal was largedly based upon the exception in the Illinois usury statute, which provides in pertinent part:

"It is lawful to charge, contract for, and receive any rate or amount of interest or compensation with respect to the following transactions:

* * * * * *

"(b) Advances of money, repayable on demand, to an amount not less than $5,000, which are made upon warehouse receipts, bills of lading, certificates of stock, certificates of deposit, bills of exchange, bonds or other negotiable instruments pledged as collateral security for such repayment, if evidenced by a writing; * * *." (Ill. Rev.Stats.1973, ch. 74, § 4.)

As the court below pointed out:

"The statute is quite apparently designed to protect only relatively small, personal, non-business borrowers from high interest rates, and this exception speaks in very general terms as to various types of relatively liquid collateral security pledged for repayment of a loan over $5,000. While the collateral in the present case may not exactly be the ordinary certificates of stock or certificates of deposit in all respects and in a purely technical sense, any variance is not significant in view of the apparent purpose of the statute. There is simply no justification for a blindly technical reading of this exception in view of the general language used." 358 F.Supp. 892.

We agree with this construction of the statute. As the plaintiffs admitted at the oral argument, on default the bank would obtain their entire savings and loan deposits and the cash surrender value of the life insurance policies. Surely this satisfies the purpose of the exception. It was not unreasonable to consider the savings and loan certificates as "certificates of stock" within Section 4(b). Cf. Tcherepnin v. Knight, 389 U.S. 332, 339, 88 S.Ct. 548, 19 L.Ed.2d 564. Since the cash surrender value of the insurance policies was withdrawable at any time by the policy-holder, the district court was also justified in considering the policies to be equivalent to "certificates of deposit" within the meaning of the exception. Although plaintiffs argue to the contrary, the phrase "or other negotiable instruments" in Section 4(b) cannot mean that all the forms of collateral enumerated in the exception must be negotiable. For example, "certificates of stock" were normally not negotiable instruments before the enactment of the Uniform Commercial Code in 1961. Ill. Rev.Stats.1973, ch. 26, § 8-105. But the relevant language of the Section 4(b) exception has been essentially unchanged since 1929. Also, the absence of a comma before the phrase relied upon ties it to "bonds."

Because we hold the exception is applicable, we do not decide whether the district court properly held that the computation of interest on the basis of a 360-day year was here subject to the doctrine de minimis non curat lex and therefore not usurious. We do note that the Ninth Circuit recently held that interest computed on the basis of a 360-day year violated the Oregon usury law. American Timber & Trading Co. v. First National Bank of Oregon, 488 F. 2d 469 (9th Cir. 1973). The issue, in a related context, of using a 360-day year in computing interest in Illinois is presently pending in the Circuit Court of Cook County. See Perlman v. First National Bank of Chicago, 15 Ill.App.3d 784, 305 N.E.2d 236 (1st Dist. 1973); see also Comment, "Legal Aspects of the Use of `Ordinary Simple Interest,'" 40 U.Chi.L.Rev. 141 (1973).

The district court also held that the action was not maintainable as a class action because the plaintiffs' claims were "possibly excepted" from the usury provisions and were therefore "atypical" (358 F.Supp. 891). Rule 23(a)(3) of the Federal Rules of Civil Procedure requires that the claims of the named plaintiffs be "typical of the claims * * * of the class." Where it is predictable that a major focus of the litigation will be on an arguable defense unique to the named plaintiff or a small subclass, then the named plaintiff is not a proper class representative. Cf. Muller v. Curtis Publishing Co., 57 F. R.D. 532 (E.D.Pa.1973), where a...