Kreisler & Kreisler Llc v. Nat'l City Bank

• Decision Date: 16 November 2011
• Docket Number: No. 11–1772.,11–1772.
• Citation: 657 F.3d 729
• Court: U.S. Court of Appeals — Eighth Circuit
• Parties: KREISLER & KREISLER, LLC, Plaintiff–Appellant,v.NATIONAL CITY BANK; PNC Bank Corp., as successor in interest of National City Bank, Defendants–Appellees.

657 F.3d 729

KREISLER & KREISLER, LLC, Plaintiff–Appellant,

v.NATIONAL CITY BANK; PNC Bank Corp., as successor in interest of National City Bank, Defendants–Appellees.

No. 11–1772.

United States Court of Appeals, Eighth Circuit.

Submitted: Sept. 22, 2011.Filed: Oct. 6, 2011.Rehearing Denied Nov. 16, 2011.

Thomas R. Ysursa, argued, Belleville, IL, Bernard J. Ysursa, Sr., Belleville, IL, C. Pat Ducey, Troy, IL, on the brief, for appellant.James Walter Erwin, argued, St. Louis, MO, Mike W. Bartolacci, St. Louis, MO, Anthony J. O'Malley and Marcel C. Duhamel, Cleveland, OH, for appellee.Before LOKEN, BEAM, and MURPHY, Circuit Judges.MURPHY, Circuit Judge.

Kreisler & Kreisler, LLC (Kreisler) brought a class action against National City Bank and PNC Bank Corporation as its successor in interest (the Bank), alleging that the Bank breached its contract by charging interest in excess of the rate specified in the promissory note. The district court ¹ granted the Bank's motion to dismiss after concluding that the relevant provisions are clear, do not conflict with one another, and adequately disclose the interest to be charged. We affirm.

I.

Kreisler secured a commercial loan for $48,407 from National City Bank, which later merged with PNC. Kreisler's promissory note obligated it to pay “the principal amount ... together with the interest on the unpaid principal balance from 4–9–09 until paid in full.” The two provisions of the note discussing the interest rate, which are the subject of the dispute, provide:

[Payment]

The annual interest rate for the 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.

[Variable Interest Rate]

The interest rate on this Note is subject to change from time to time based on changes in an index which is the Lender's Prime Rate. “Prime Rate” means the fluctuating rate per annum which is publicly announced from time to time by Lender as being its “prime rate”.... 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.

In May 2010 Kreisler brought this class action against the Bank on behalf of other commercial borrowers with similar promissory notes, alleging that the Bank breached the loan agreement by using less than 12 calendar months to calculate the annual interest rate and thereby charging 101.389% of the agreed upon interest rate. The district court granted the Bank's motion to dismiss for failure to state a claim. Kreisler appeals.

II.

We review a district court's dismissal of an action for failure to state a claim de novo, taking all facts alleged in the complaint as true. Koehler v. Brody, 483 F.3d 590, 596 (8th Cir.2007). The parties agree that the promissory note is governed by Illinois law. Accordingly, we must give effect to the parties' intent, which is best discerned from the contract's language. Va. Sur. Co. v. N. Ins. Co. of N.Y., 224 Ill.2d 550, 310 Ill.Dec. 338, 866 N.E.2d 149, 153 (2007). Because words derive their meaning from context, a contract must be construed “by viewing each part in light of the others.” Bd. of Trade of the City of Chicago v. Dow Jones & Co., 98 Ill.2d 109, 74 Ill.Dec. 582, 456 N.E.2d 84, 90 (1983). If the words in a contract are unambiguous, we “must afford them their plain, ordinary, and popular meaning.” Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill.2d 90, 180 Ill.Dec. 691, 607 N.E.2d 1204, 1212 (1992) (emphasis omitted). Whether a contract is ambiguous is a question of law. Quake Constr. Inc. v. Am. Airlines, Inc., 141 Ill.2d 281, 152 Ill.Dec. 308, 565 N.E.2d 990, 994 (1990). If the language is susceptible to more than one meaning, then resolution of the ambiguity as to the parties' intent is a question of fact and the court should not grant a motion to dismiss. Id.

Interest is generally calculated by multiplying the principal by the interest rate by the fraction of the year during which the money earns interest, or stated as a formula, interest = principal x rate x time. David Thorndike, Thorndike Encyclopedia of Banking and Financial Tables 11–1.1 (4th ed. 2001) (Thorndike). Banks have developed three approaches for establishing the time factor to address the impossibility of calculating equal daily and equal monthly interest charges throughout the year. In re Oil Spill by the “Amoco Cadiz” off the Coast of Fr. on Mar. 16, 1978, No. 92–3282, 1993 WL 360955, at *1 (7th Cir. Sept. 14, 1993). These are “the 365/365 method (exact day interest), the 360/360 method (ordinary interest) and the 365/360 method (bank interest).” Id. The most common method in commercial loans is to use the actual number of days the loan has been outstanding in a year divided by a 360 day year. Id. at *4; Thorndike 11–1.2. Because the numerator and denominator do not match as they do in the other methods, the 365/360 method increases the effective interest rate by .01389 in a non leap year. Thorndike 10–1.1.

Kreisler contests the Bank's use of the 365/360 method and the increase in the effective interest rate it causes. Kreisler argues that the 365/360 term in the payment provision conflicts with the term “per annum” in the variable interest rate provision and that description of the “annual interest rate” in the payment provision is too indefinite and uncertain to be enforced because it does not calculate a rate or purport to calculate an interest amount. Kreisler contends that interest should have been calculated based on the terms in the variable interest rate provision alone, interpreting the term “per annum” to require use of the 365/365 method. It does not, however, argue that the contract language is ambiguous. The district court concluded that the language was clear, the provisions did not conflict, the contract sufficiently disclosed how interest would be charged, and the Bank complied with its terms. We agree.

Recently, the Appellate Court of Illinois considered a breach of contract claim in which commercial borrowers had signed a promissory note with identical language in the payment provision to the one in our case, followed by similar language in the variable interest rate provision with the exception that this note specified that the initial rate was “8.250% per...