[Cite as JNT Properties, L.L.C. v. Keybank Natl. Assn., 2011-Ohio-3260.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 95822
JNT PROPERTIES, LLC
PLAINTIFF-APPELLEE
vs.
KEYBANK, NATIONAL ASSOCIATION
DEFENDANT-APPELLANT
JUDGMENT:
REVERSED AND REMANDED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-681873
BEFORE: Kilbane, A.J., Stewart, J., and Boyle, J.
RELEASED AND JOURNALIZED: June 30, 2011
ATTORNEYS FOR APPELLANT
Steven M. Weiss
55 Public Square, Suite 1009
Cleveland, Ohio 44113
Mark R. Koberna
Mark E. Owens
Rick D. Sonkin
Sonkin & Koberna, Co., L.P.A.
3401 Enterprise Parkway, Suite 400
Cleveland, Ohio 44122
Ingrid L. Moll
William H. Narwold
Motley Rice L.L.C.
One Corporate Center
20 Church Street, 17th Floor
Hartford, CT 06103
ATTORNEYS FOR APPELLEE
Hugh M. Stanley, Jr.
Benjamin C. Sasse
Thomas R. Simmons
Tucker, Ellis & West
1150 Huntington Building
925 Euclid Avenue
Cleveland, Ohio 44115
MARY EILEEN KILBANE, A.J.:
{¶ 1} Plaintiff-appellant, JNT Properties, LLC (JNT), appeals the trial
court’s decision granting summary judgment in favor of defendant-appellee,
KeyBank National Association (KeyBank). Finding merit to the appeal, we
reverse and remand.
{¶ 2} In January 2009, JNT filed a class action against KeyBank. In
its first amended class action complaint, JNT alleges that it obtained a loan
from KeyBank in the principal amount of $375,350, and pursuant to the
promissory note (“Note”), JNT agreed to repay the principal together with
interest at the rate of 8.93 percent per annum. JNT alleges that KeyBank
has breached the promissory note between JNT and other class members
when KeyBank assessed interest based on a calculation known as the
“365/360 method.”1
1InRepublic of France v. Amoco Transport Co. (C.A.7, 1993), 4 F.3d 997, the
Seventh Circuit Court of Appeals summarized the 360/365 method as follows:
“Because the Gregorian calendar makes it impossible to have
both equal daily interest charges and equal monthly interest
charges throughout the year, banks have developed three
methods of computing interest. These are the 365/365 method
(exact day interest), the 360/360 method (ordinary interest) and
the 365/360 method (bank interest). * * * [Under the 365/360
method,] the bank first divides the annual interest rate by 360
to produce a daily interest factor. It then applies that factor
{¶ 3} The Note provides in pertinent part:
“PROMISSORY NOTE
(Variable Rate)
Principal Amount: $370,350.00 Initial Interest Rate: 8.93%
PAYMENT. * * *[JNT] will pay this loan in accordance
with the following payment schedule:
One interest only payment on July 1, 2007, with interest
calculated on the unpaid principal balance at an interest
rate of 8.93%; followed by consecutive monthly principal
and interest payments in the initial amount $3,315.48 each,
beginning August 1, 2007, with interest calculated on the
unpaid principal balance at an initial interest rate of
8.93%; and 1 final principal and interest payment in the
estimated amount of $3,315.48. * * * The interest rate will
be adjusted on July 1, 2012, July 1, 2017 and July 1, 2022 to
reflect the current Index defined below plus 325 basis
points. The monthly payment [JNT] shall pay to
[KeyBank] will be adjusted on July 1, 2012, July 1, 2017
and July 1, 2022, to a monthly payment of principal and
interest, based on the above-referenced adjusted interest
rate[.]
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.
VARIABLE INTEREST RATE. The interest rate on this
Note is subject to change on July 1, 2012, July 1, 2017 and
to each of the 365 or 366 days in the year, even though the
borrower has paid the nominal ‘annual’ interest due after 360
days. Thus this method generates five or six extra days of
interest for the bank each year, increasing the effective
interest rate for the calendar year by 1/72.” (Citations
omitted.)
July 1, 2022 based on changes in an Index which is the
Federal Home Loan Bank of Seattle Five (5) Year
Intermediate/Long Term Advances Fixed Rate published
daily by the Federal Home Loan Bank of Seattle[.] * * *
The Index is currently at 5.68% per annum. The initial
interest rate to be applied to the unpaid principal balance
of this Note will be at a rate of 325 basis points (3.25%)
over the index, resulting in an initial rate of 8.93% per
annum.”
{¶ 4} JNT further alleges that KeyBank’s improper use of the 365/360
method created an interest rate of 9.05 percent per annum, rather than the
8.93 percent per annum listed on the Note. JNT’s complaint raises a claim
for breach of contract, seeks class treatment, requests declaratory and
injunctive relief requiring KeyBank to cease using the 365/360 method of
computing annual interest, and prays for damages, costs, attorney’s fees, and
other relief.
{¶ 5} In response to JNT’s complaint, KeyBank filed a motion to
dismiss, which JNT opposed. The trial court denied KeyBank’s motion and
KeyBank appealed to this court. This court dismissed the appeal for lack of
a final appealable order in December 2009. See JNT Properties, LLC v. Key
Bank Natl. Assoc., Cuyahoga App. No. 94045.
{¶ 6} On remand, KeyBank answered JNT’s complaint and asserted a
counterclaim for reformation. Following discovery focused on the intentions
of the parties to the Note, KeyBank moved for summary judgment. KeyBank
argued the only reasonable interpretation of the interest calculation provision
is that the interest payments would be calculated from the annual interest
rate (8.93%) disclosed in the Note using the 365/360 method. JNT opposed,
arguing that because the “initial rate of 8.93% per annum” is unambiguous,
KeyBank cannot use the unintelligible 365/360 formula in the Note to charge
JNT more than 8.93 percent interest per year.2
{¶ 7} In September 2010, the trial court granted KeyBank’s motion for
summary judgment, finding that:
“[T]he contract [Note] is clear that [KeyBank] intended to
use the 365/360 method to calculate interest. There is no
evidence that [JNT] either didn’t consent to the 365/360
method or intended the use of some other method.
The fact that the words used to describe the formula for
calculating the interest rate (‘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’) do not correctly describe the
365/360 calculation does not change the parties’ agreement
that ‘the annual interest rate for this note is computed on
a 365/360 basis.’
As JNT notes at Page 6 of its opposition brief, ‘when a
single portion of a lengthy contract is unintelligible, but
yet severable from the remainder, a court may strike that
portion itself without affecting the enforceability of the
remainder.’ In this case the unintelligible verbal formula
may be ignored, but the reference to the 365/360 method
[for computing interest] – accepted shorthand for a
commonly used formula – [will be] retained and enforced.”
2Both parties agree that the term “per annum” means “per year.”
{¶ 8} It is from this order that JNT appeals, raising one assignment of
error, in which it argues that the trial court erred when it granted summary
judgment in favor of KeyBank.
Standard of Review
{¶ 9} Appellate review of summary judgment is de novo. Grafton v. Ohio Edison
Co., 77 Ohio St.3d 102, 105, 1996-Ohio-336, 671 N.E.2d 241; Zemcik v. LaPine Truck Sales
& Equip. Co. (1998), 124 Ohio App.3d 581, 585, 706 N.E.2d 860. The Ohio Supreme Court
set forth the appropriate test in Zivich v. Mentor Soccer Club, 82 Ohio St.3d 367, 369-370,
1998-Ohio-389, 696 N.E.2d 201, as follows:
“Pursuant to Civ.R. 56, summary judgment is appropriate when (1) there is no
genuine issue of material fact, (2) the moving party is entitled to judgment as
a matter of law, and (3) reasonable minds can come to but one conclusion and
that conclusion is adverse to the nonmoving party, said party being entitled to
have the evidence construed most strongly in his favor. Horton v. Harwick
Chem. Corp. (1995), 73 Ohio St.3d 679, 653 N.E.2d 1196, paragraph three of
the syllabus. The party moving for summary judgment bears the burden of
showing that there is no genuine issue of material fact and that it is entitled to
judgment as a matter of law. Dresher v. Burt (1996), 75 Ohio St.3d 280,
292-293, 662 N.E.2d 264, 273-274.”
{¶ 10} Once the moving party satisfies its burden, the nonmoving party “may not rest
upon the mere allegations or denials of the party’s pleadings, but the party’s response, by
affidavit or as otherwise provided in this rule, must set forth specific facts showing that there
is a genuine issue for trial.” Civ.R. 56(E); Mootispaw v. Eckstein, 76 Ohio St.3d 383, 385,
1996-Ohio-389, 667 N.E.2d 1197. Doubts must be resolved in favor of the nonmoving party.
Murphy v. Reynoldsburg, 65 Ohio St.3d 356, 358-359, 1992-Ohio-95, 604 N.E.2d 138.
The Contract
{¶ 11} “A contract is generally defined as a promise, or a set of promises,
actionable upon breach. Essential elements of a contract include an offer,
acceptance, contractual capacity, consideration (the bargained for legal
benefit and/or detriment), a manifestation of mutual assent and legality of
object and of consideration.’ Perlmuter Printing Co. v. Strome, Inc.
(N.D.Ohio 1976), 436 F.Supp. 409, 414. A meeting of the minds as to the
essential terms of the contract is a requirement to enforcing the contract.
Episcopal Retirement Homes, Inc. v. Ohio Dept. of Indus. Relations (1991), 61
Ohio St.3d 366, 369, 575 N.E.2d 134.” Kostelnik v. Helper, 96 Ohio St.3d 1,
2002-Ohio-2985, 770 N.E.2d 58, ¶16.
{¶ 12} When confronted with issues of contractual interpretation, the
role of the court is to give effect to the intent of the parties to the agreement.
Westfield Ins. Co. v. Galatis, 100 Ohio St.3d 216, 2003-Ohio-5849, 797 N.E.2d 1256, ¶11.
As the Ohio Supreme Court in Westfield stated:
“We examine the insurance contract as a whole and
presume that the intent of the parties is reflected in the
language used in the policy. We look to the plain and
ordinary meaning of the language used in the policy
unless another meaning is clearly apparent from the
contents of the policy. When the language of a written
contract is clear, a court may look no further than the
writing itself to find the intent of the parties. As a matter
of law, a contract is unambiguous if it can be given a
definite legal meaning.
On the other hand, where a contract is ambiguous, a court
may consider extrinsic evidence to ascertain the parties’
intent. A court, however, is not permitted to alter a
lawful contract by imputing an intent contrary to that
expressed by the parties.
It is generally the role of the finder of fact to resolve
ambiguity. However, where the written contract is
standardized and between parties of unequal bargaining
power, an ambiguity in the writing will be interpreted
strictly against the drafter and in favor of the nondrafting
party.”3 (Citations omitted.) Id. at ¶11-13.
{¶ 13} In the instant case, JNT argues the parties intended that the
interest on the loan would be 8.9 percent per year and KeyBank breached this
agreement by using the 365/360 method and charging 9.05 percent interest
per year instead. JNT relies primarily on Ely Ents., Inc. v. FirstMerit Bank,
N.A., Cuyahoga App. No. 93345, 2010-Ohio-80, appeal not allowed, 125 Ohio
St.3d 1415, 2010-Ohio-1893, 925 N.E.2d 1003, to support its position that the
plain language of the Note requires KeyBank to charge interest at an initial
rate of 8.93 percent per year.
3“A contract is ambiguous if its terms cannot be clearly determined from a
reading of the entire contract or if its terms are susceptible to more than one
reasonable interpretation.” Militiev v. McGee, Cuyahoga App. No. 94779,
2010-Ohio-6481, ¶30, citing United States Fidelity & Guar. Co. v. St. Elizabeth Med.
Ctr. (1998), 129 Ohio App.3d 45, 716 N.E.2d 1201.
{¶ 14} In Ely, a commercial borrower (Ely) brought a breach of contract
class action against FirstMerit, alleging that “FirstMerit breached the
promissory note between the parties when it assessed interest based on a
calculation known as the ‘365/360’ method, which created an effective interest
rate of 11.153% per annum.” Id. at ¶2. FirstMerit filed a motion to dismiss,
which the trial court granted.
{¶ 15} Ely appealed, arguing the 365/360 interest rate computation
method used by FirstMerit imposed a per annum that was greater than the
11.000% provided in the promissory note. FirstMerit argued the parties
agreed to alter the meaning of the term “per annum” by agreeing to the
365/360 calculation method. This court found that the “term ‘per annum’ is
ordinarily defined as ‘by the year’” and “[t]he computation of interest
provision [in the promissory note] did not indicate an actual calculated
interest rate. The calculation [used by FirstMerit contained] the ‘annual
interest rate’ as part of the equation, and [did] not change the stated interest
rate on the note. * * * [T]he calculation allegedly was applied to impose a
greater interest rate than the stated rate of 11.000% per annum.” Id. at ¶10
and 13. Therefore, we concluded that FirstMerit was not entitled to a Civ.R.
12(B)(6) dismissal because “to the extent the calculation and the monthly
payment amount [were] inconsistent with the more specific terms of principal
and stated interest rate, the promissory note is ambiguous.” Id. at ¶17.
{¶ 16} In reaching our decision, this court relied in part on Hamilton v.
Ohio Sav. Bank, 70 Ohio St.3d 137, 1994-Ohio-526, 637 N.E.2d 887. In
Hamilton, mortgagors challenged the mortgagee bank’s use of a 365/360
method for calculating interest. The mortgagors sought to terminate the
bank’s alleged practice of overcharging interest. The Ohio Supreme Court
reviewed inconsistencies among the documents and determined that the
record was contradictory as to what was disclosed between the parties. The
court concluded there were genuine issues of material fact precluding
summary judgment. Id. at 140.4 We noted that “[a]lthough Hamilton dealt
with certain disclosure issues not presented herein, the case did contain
allegations of overcharging interest through the use of a 365/360 method of
calculating interest, and the action was allowed to proceed as a class action.”
Ely at ¶16.
{¶ 17} The matter before us presents a situation similar to Ely and
Hamilton. Here, the interest computation provision used by KeyBank does
not indicate an actual stated interest rate. Rather, the formula provides that
“[t]he annual interest rate * * * is computed * * * by applying the ratio of the
annual interest rate over a year of 360 days, multiplied by the outstanding
4 Ina later appeal, the Ohio Supreme Court held that the action was to
proceed as a class action and that the entire class be certified with respect to all
claims. Hamilton v. Ohio Sav. Bank, 82 Ohio St.3d 67, 1998-Ohio-365, 694 N.E.2d
442.
principal balance, multiplied by the actual number of days the principal
balance is outstanding.”
{¶ 18} KeyBank argues the “initial interest rate” of 8.93 percent was to
be used as a starting point to calculate a daily interest factor by dividing 8.93
by 360, which would then be multiplied by the number of days in the year
that the principal is outstanding (366 days in leap years and 365 days in all
other years). KeyBank further argues the parties intended that the yearly
interest rate would be computed on a 365/360 basis. To support its argument,
KeyBank relies on correspondence that indicated the initial interest rate was set by adding 3.25
percent to the Federal Home Loan Bank of Seattle Five Year Intermediate/Long
Term Advances Fixed Rate and an affidavit of a senior vice president who asserted that
KeyBank’s intent was that the 365/360 method would be applied to the initial rate 8.93 percent
to calculate interest, which would “result[ ] in a slightly higher yield to KeyBank” than if
another method was used. 5
{¶ 19} However,“where the written contract is standardized and
between parties of unequal bargaining power, an ambiguity in the writing
will be interpreted strictly against the drafter and in favor of the nondrafting
5 KeyBank provided this court with Kreisler & Kreisler, LLC v. Natl. City
Bank (E.D. Mo. 2011), Case No. 4:10CV956 CDP and RBS Citizens, Natl. Assn. v.
RTG-Oak Lawn, LLC (C.A.1, 2011), 407 Ill.App.3d 183, 943 N.E.2d 198, as
supplemental authority to support its position. We find these cases easily
distinguishable. Both cases are based on Illinois law and the interest provision at
party.” Westfield at ¶13. In its decision denying KeyBank’s motion to
dismiss, the trial court described the formula as unintelligible, stating “how
can a calculation that is supposed to result in an ‘annual interest rate’ start
with the ‘annual interest rate’ if it isn’t both divided and multiplied by the
same number?” We agree.
{¶ 20} Here, the calculation used by KeyBank in the instant case
imposes a greater interest rate than the stated interest rate of 8.93 percent
per annum. When the trial court granted summary judgment in favor of
KeyBank, it severed the “unintelligible verbal formula,” but retained
KeyBank’s reference to the 365/360 method. The court rewrote the
calculation to state that “[t]he annual interest rate for this Note is computed
on a 365/360 basis[.]” The court further stated that this method is “accepted
shorthand for a commonly used formula,” but never defined the formula.
{¶ 21} “Summary judgment may not be granted when reasonable minds
could come to differing conclusions.” Hamilton at 140. Thus, just as in Ely, we
find that the 365/360 formula used to calculate interest in the instant case
cannot be read “as clearly evidencing an intent of the parties to alter the
ordinary meaning of the term ‘per annum,’ or as creating an ‘annual interest
rate’ other than the stated rate” of 8.93 percent. Id. at ¶11.
issue in RBS is different than the instant case.
{¶ 22} Since we cannot conclude that there is no genuine issue of material fact, the
trial court’s decision granting summary judgment in favor of KeyBank is
reversed.
{¶ 23} The sole assignment of error is sustained.
{¶ 24} Accordingly, judgment is reversed and the case is remanded for
further proceedings consistent with this opinion.
It is ordered that appellant recover from appellee costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court to carry this judgment into
execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the
Rules of Appellate Procedure.
MARY EILEEN KILBANE, ADMINISTRATIVE JUDGE
MARY J. BOYLE, J., CONCURS;
MELODY J. STEWART, J., CONCURS IN JUDGMENT ONLY