365-360 Method Case in California

In Chern v. Bank of America (1976) 15 Cal.3d 866, after quoting an interest rate in its initial dealings with potential borrowers, the defendant bank quoted a higher actual rate based on use of the 365/360 method when ultimately closing a loan with a customer. (Id. at p. 874.) The plaintiff borrower brought an action against the bank on behalf of herself and a class of similarly situated persons seeking damages on two theories, to wit, breach of contract and the making of false or misleading statements with respect to interest rate calculation ( 17500). (Chern, supra, at pp. 869-871, 873.) The plaintiff also sought injunctive relief under section 17500. (Chern, supra, at pp. 870-871, 875.) In affirming a defense summary judgment on the plaintiff's claim for damages for breach of contract, the Supreme Court stated such claim was defeated by the plaintiff's knowledge at the time she entered into the loan contract that the interest rate was based on the 365/360 method. (Id. at p. 873.) Rejecting the plaintiff's contention that she should be permitted to represent the class on its breach of contract claim despite her own inability to prevail on the merits, the Supreme Court also upheld dismissal of the class action claim for breach of contract for want of a proper representative. (Id. at p. 874.)