Interest rate charged by bank upheld by Court of Appeals

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The Indiana Court of Appeals relied on a similar case out of Ohio to find that a bank did not exceed the agreed-upon interest rate of commercial borrowers by applying a 365/360 interest calculation method as some borrowers claimed in a class action.

Lake City Bank filed a commercial foreclosure action against certain borrowers. John M. Abbott LLC was the lead plaintiff in a counterclaim seeking certification as a class and alleging that Lake City Bank had breached the terms of promissory notes pertaining to the interest rate. The promissory note John Abbott on behalf of the LLC says, “The annual interest rate for this Note is computed on a 365/360 basis; that is, by applying the ration 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.”  The note also includes information with regard to the variable interest rate.

The trial court granted the bank’s motion for summary judgment.

In John M. Abbott, LLC, Class Representative and All Others Similarly Situated v. Lake City Bank, 02A05-1402-PL-53, the judges noted it seems that the Abbott LLC challenged the 365/360 method of calculating payments, claiming this method conflicts with the interest rate term “per annum” and results in a higher effective interest rate than the initial rate specified in the note. But this method has been consistently upheld in federal courts and other jurisdictions, Judge Terry Crone pointed out.

Abbott LLC claimed the bank’s note is intrinsically ambiguous and challenges the use of the term “annual interest rate” instead of “annual interest payments” or “annual interest amount” immediately proceeding the statement concerning the use of the 365/360 method.

The COA found the Ohio Supreme Court decision, JNT Props., LLC v. KeyBank Nat’l Ass’n, 981 N.E.2d 804, 806 (Ohio 2012), to be persuasive. Just as the Ohio court held, the Indiana judges found that the explanatory phrase that immediately follows the disputed clause negates any confusion that otherwise might have been caused by the inclusion of the term “annual interest rate” instead of “annual interest amount” when specifying the method of calculating payments.

“As in KeyBank, the Note makes it clear that the term being defined (the 365/360 method) is the method of computing regular interest payments, not the annual interest rate. As for the interest rate, the ‘VARIABLE INTEREST RATE’ paragraph clearly states that the interest rate will be tied to the ‘Five Year Treasury Bill’ index.

There is also no designated evidence to indicate that John Abbott did not understand what he was signing or that he sought clarification before doing so, the judges noted.


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