Opinion ID: 2136057
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Heading: Construction of section 535.4, The Code.

Text: The common law has never forbidden the exaction of usury as a matter of general law, and at the present time any rate of interest agreed upon by the parties is legal in the absence of statute. 45 Am. Jur.2d, Interest and Usury, section 4. However, most states have enacted statutes regulating the matter of interest, which generally have been construed to define usury as consisting of four essential elements: (1) a loan or forbearance, either express or implied, of money or of something circulating as such; (2) an understanding between the parties that the principal shall be repayable absolutely; (3) the exaction of a greater profit than is allowed by law; and (4) an intention to violate the law. Id. at section 111. Specifically, the first element indicates the kind of conduct or transaction commonly regulated by usury statutes. It is plaintiffs' belief section 535.4 applies not only to the loan or forbearance of money but also explicitly pertains to any credit sales transaction, whether the customer utilizes a revolving charge account or a retail installment contract. Plaintiffs focus on the specific reference in section 535.4 to contracts for the sale of goods, viz., or upon contract founded upon any sale or loan of real or personal property. Younkers argues the precise contention raised by plaintiffs was expressly rejected by this court over 100 years ago in Gilmore & Smith v. Ferguson & Cassell, 28 Iowa 220 (1869), which involved a contract to buy 196 sheep valued at $588. That amount was to be paid within one to four years. But the buyer was also required to pay one and a half pounds of wool per head annually until he paid the sale price. After the third year, the buyer refused to deliver the annual amount of wool and the seller instituted the lawsuit. The trial court held the contract violated the usury statute then in force, which was virtually the same as the present enactment and read as follows: No person shall, directly or indirectly, receive in money, goods or things in action, or in any other manner, any greater sum or value, for the loan of money, or upon contract founded upon any bargain, sale or loan of wares, merchandise, goods, clothing, lands and tenements, than is prescribed by this act. This court, however, could not accept the trial court's reasoning, stating that one may sell his property for a much higher price on credit than he would for cash. Because of the emphasis placed on the Gilmore decision by Younkers, the opinion is quoted at length: Upon the contract itself (aside from any evidence tending to show usury), there can be no serious claim made that it is usurious. Nor would the proof that the pound and a half of wool was worth, at the time of delivery each year, more than legal interest upon the value of the sheep, make the contract usurious; for, since its value was uncertain and might be less than legal interest, the fact that it was more would not make it usurious; and this, although the pound and a half of wool for each sheep may have been stipulated for as interest, as the jury have found. That is to say, one man may rightfully sell his property to another for a certain sum in money down; or he may ask and receive a much larger sum on condition it is not paid for till a future day, and the fact that the increased price payable at a future day was more than the legal interest on the cash price, would not make the contract usurious. In other words, the owner of property may sell it for such price as he can get, either in cash down or payable at a future day, and although the price payable at the future day may be twice or thrice as much as the down price or as many per cent per month more than it, yet this will not make it usurious. The reason is, that such contracts are not within the statute against usury. Of course, if such contracts are resorted to as a cover for usury to evade the usury lawsthey will be held usurious. But the jury did not so find in this case.    Some question is made by appellee's counsel upon the phraseology of our statute, as being different from the original statute of Anne and of the other States from which the decisions above are cited. But since the jury found that the price agreed by the contract to be paid was the actual value of the sheep, and since the contract is not, upon its face, usurious, and the jury have failed to find that the contract was a device to evade the usury laws, or as a cover for usury, it becomes immaterial to examine the difference, even if there is any legal effect, between our statute and those referred to, for in either view the contract upon the findings cannot be held usurious. Id. at 223-224. In the case before us the trial court gave this appraisal of Gilmore: The effect of the Gilmore case on chapter 535.4 is to amend the language of the statute so as to state it as if the language of the court in the Gilmore case was plainly written into the usury statute. Accordingly, the court concluded the time-price doctrine was judicially, if not legislatively, recognized as part of our usury law. But see, Hill v. Rolfsema, 226 Iowa 486, 284 N.W. 376; First National Bank of Marshalltown v. Owen, 23 Iowa 185 (Buyer agreed to pay seller not only purchase price but in addition two pounds of wool per head for two years; the court held the value of the wool was necessarily fluctuating, and could not, at the making of the contract, be well estimated. We concede that a contract of like terms might be shown to be usurious. But it is not necessarily so. Emphasis supplied); Casady v. Scallen, 15 Iowa 93, 95 (There is no necessary usury in such a contract.) See also Conrad v. Gibbon, 29 Iowa 120. Wef of our decisions have dealt with the problem presently under consideration, i. e., the viability of the time-price doctrine in Iowa. Certainly none has any conclusive precedential value. In Royal Zenith Corporation v. Citizens Publications, Inc., 179 N.W.2d 340 (Iowa 1970), a printing press was purchased for a time-price under the terms of a conditional sale contract. Yet, neither the time-price doctrine nor the usury statute was mentioned by the parties or the court. And the finance charge included in the time-price of an automobile, as provided by the legislature in chapter 322, The Code, is authorized notwithstanding the provisions of any other existing law   . On the other hand, in In re Estate of Zimmerman, 160 N.W.2d 502 (Iowa 1968), a grain elevator sought to recover an amount owed for feed, grain and grinding. Included in the amount was a service charge of one percent per month. This court affirmed the trial court's ruling disallowing the service charge, but providing for an interest rate within the limitations of sections 535.2 and 535.4, The Code. Clearly, it is within the legislature's power to apply the usury statutes to credit sales, thereby negating the time-price doctrine. See 45 Am.Jur.2d, Interest & Usury, section 123 which provides: Although there are decisions to the contrary, necessitated in some jurisdictions by applicable statutes, it is the established general rule,    that an owner of property, whether real or personal, may offer to sell at a designated price for cash or at a higher price on credit, and that a credit sale at an advanced price will not constitute usury, however great the difference between the two prices, so long as it appears that the price charged is in fact fixed for the purchase of goods on credit with no intention or purpose of defeating the usury laws. The following observations cast considerable doubt on the assertion by Younkers and the trial court that the Gilmore opinion amends our usury statute to include the time-price doctrine:    The cases cited in support of this construction were from jurisdictions where the wording of the usury statute was not the same as the Iowa statute, but the court considered the difference immaterial. The court also thought the value of the wool could not make the contract usurious because that value was uncertain and could be more or less than the legal interest. In view of the unusual features of the case, the failure of the majority opinion to discuss the difference in the wording of the Iowa statute as compared with other states, and the persuasive dissenting opinion, this case cannot be taken as final authority for the proposition that an excess of the credit price over the cash price cannot constitute usury in Iowa. The Iowa Usury Statute and Sales on Credit, 1 Drake L.Rev. 63, 65-66. In discussing the Gilmore case, it was noted:    Although no usury was found in the    [Gilmore] case because the extra charge was paid in wool which had an unpredictable value, the inescapable conclusion would seem to be that if, as in a usual credit sale, the added payment had been in money, the credit sale would have been held to be usurious. Note, Usury Statutes: Their Applicability to the Credit Sale Followed by an Assignment to a Lending Agency, 43 Iowa L.Rev. 87, 93. It would appear the latter comment reveals the limited import of the Gilmore decision. Also, both First National Bank and Casady, supra, suggest contracts for the sale of personal property could be usurious. Attention is also directed to this statement in Callanan v. Shaw, 24 Iowa 441, 452-453 (1868), where the court said: The language of section 1791 of the Revision, which provides the penalty for violations of the law regulating interest, can, by no reasonable construction, be applied to contracts for the loan of money or property only; it applies to any contract of purchase or sale of property wherever an unlawful rate of interest is provided for, as well as to contracts for loans. It is interesting to note that the author of the opinion in Callanan wrote the dissent in Gilmore. The time-price doctrine generally accepted by nearly all state courts was recognized as the established rule in Hogg v. Ruffner, 66 U.S. (1 Black) 115, 17 L.Ed. 38. In Hogg the defendant executed nineteen promissory notes in payment of a parcel of land he had contracted to buy. When sued in an Indiana federal court on several of the notes, the defendant raised the defense that the contract was usurious and therefore unenforceable. The applicable Indiana statute declared that the rate of interest upon the loan or for the forbearance of any money, etc., shall be at the rate of six percent. The defendant's argument that the difference between the cash price and the credit price under the contract constituted interest and as such was usurious was sustained by the lower court. The United States Supreme Court, however, held the contract was not usurious and reversed the decision. To constitute usury, there must either be a loan and a taking of usurious interest, or the taking of more than legal interest for the forbearance of a debt or sum of money due.       [I]t is manifest that if A propose to sell to B a tract of land for $10,000 in cash, or for $20,000 payable in ten annual installments, and if B prefers to pay the larger sum to gain time, the contract cannot be called usurious. A vendor may prefer $100 in hand to double the sum in expectancy, and a purchaser may prefer the greater price with the longer credit.    Such a contract has none of the characteristics of usury; it is not for the loan of money, or forbearance of a debt. Id. at 118-119, 17 L.Ed. at 39. Thus, the Court reasoned that, as a sale of property on credit was neither a loan nor forbearance of money, the sales transaction was not within the scope of the Indiana usury statute, even though the credit price exceeded the cash price by a greater percentage than the legal rate. The Montana court has expressed the view that, perhaps the best summary statement of the time price doctrine is found in the following statement from 6 Williston, Contracts, § 1685, (Rev.Ed. 1938): `The statute of Anne applied only to a loan or forbearance of money, and in the construction of this statute it was held that where property was sold, even though the contract provided in terms for the payment of a fixed price payable in the future with interest at a greater rate than that allowed by the statute, the transaction was, nevertheless, not usurious since everything the buyer promised must be deemed consideration for the sale of property, not interest on a loan or forbearance of money. In the United States like statutes have been similarly construed, so that where property is sold the parties may agree that the price, if paid after a certain time, shall be a sum greater by more than legal interest than the price payable at an earlier day; and though the difference between an agreed price for cash and that for credit is in terms stated in the form of interest at greater than the legal rate, the contract is not usurious.' Cecil v. Allied Stores Corporation, Mont., 513 P.2d 704, 708 (1973). The foregoing statement is repeated in substance in 14 Williston on Contracts, Third Ed., section 1685. In the present case the trial court relied on the foregoing doctrine in determining the two customer credit plans under attack were time-price sales and hence were not within the usury statutes. The majority of jurisdictions that have considered the matter have concluded that a bona fide sale of goods on time is not subject to the usury statutes even though the differential between the credit price and the cash price exceeds the maximum interest rate permitted under the usury laws. Recent examples of such decisions are collected in Cecil v. Allied Stores Corporation, 513 P.2d at 708. However, those cases which include State v. J. C. Penney Co., 48 Wis.2d 125, 179 N.W.2d 641; Rollinger v. J. C. Penney Company, 192 N.W.2d 699 (S.D.1971); Kass v. Garfinckel, Brooks Bros., Miller & R., Inc., 299 A.2d 542 (D.C.App.1973), and Standard Oil Company (Indiana) v. Williams, 288 N.E.2d 170 (Ind.App.1972), were decided under statutes which did not expressly refer to credit sales. The decisions of various state courts have continually referred to the time-price doctrine as an exception to the usury statutes. It would seem the proper interpretation of the rule as enunciated in Hogg is simply that a sale of goods or property is not usurious for it is not a loan or forbearance of money as required by their usury statutes. Plaintiffs have included in their brief and argument a compiled list of the general usury statutes in the various states and jurisdictions in the United States. Massachusetts, Maine, New Hampshire and Wyoming have no general usury statutes as such. Massachusetts (Ann.Laws of Mass. Ch. 107 § 3, § 78, § 90, § 96, § 104) allows any rate of interest on an agreement, but regulates interest pursuant to its small loan statutes and licenses small loan companies. Maine (9 M.R.S.A. § 3081) also has a small loan act and licenses small loan companies. New Hampshire (N.H.R.S.A. 336:1, 399-A:3, 4) allows an interest rate in any amount if expressed in writing and regulates interest on small loans. Wyoming (§ 13-477 W.S.) allows, by agreement of the parties, any rate of interest. The usury statutes of virtually all other states require proof of a loan or forbearance, either expressed or implied, of money to establish a usurious transaction and as indicated do not expressly refer to credit sales; consequently, the judiciary of those states readily acknowledged the court's conclusion in Hogg. The only jurisdictions which now expressly cover the sale of property in the usury law are Iowa, Alaska and the Virgin Islands. No usury cases from either Alaska or the Virgin Islands have been brought to our attention. The Iowa statute is more explicit than most. It provides, in addition to the usual provisions regarding a loan of money, that no more than the prescribed sum or value shall be received upon contract founded upon any sale or loan of real or personal property. 1 Drake L.Rev. 63. This statute does not differentiate between the seller of property and the lender of money, a distinction upon which the time-price doctrine rests. For this reason all the cases mentioned and cited, although helpful, are not exactly in point even though some concern credit plans substantially identical to those offered by Younkers. In order to construe code section 535.4 as the Gilmore court did its predecessor it would be necessary that the words, or upon contract founded upon any sale or loan of real or personal property be stricken from the present statute. Thus amended the statute would read: Illegal rateprohibited usury. No person shall, directly or indirectly, receive in money or in any other thing, or in any manner, any greater sum or value for the loan of money than is in this chapter prescribed. The rationale of the Gilmore decision has not been considered by this court in any later case involving the sale or loan of property so far as we have been able to find. In our view the opinion fails to employ the familiar fundamental rules of statutory construction set out in Janson v. Fulton, 162 N.W.2d 438, 442-443 (Iowa 1968); Davenport Water Co. v. Iowa State Commerce Com'n, 190 N.W.2d 583, 594-595 (Iowa 1971); In re Estate of DeVries, 203 N.W.2d 308, 310 (Iowa 1972), and should not be adhered to. As stated, the trial court here relied on Gilmore decided in 1869 in determining Younkers' revolving charge account and retail installment contract were a part of the time-price exemption to the usury law. In reaching this conclusion it felt bound by that decision and its acceptance throughout more than 100 years by the legislature. Perhaps the trial court had in mind the statement once made in a case arising in Johnson County where the author of the opinion said, If our decisions are to be overruled we prefer to do it ourselves. Nevertheless, the effect of the trial court's reliance on Gilmore is to also amend the statute, not by deleting a portion thereof, but by adding the phrase (or one similar), provided however such limitation shall not apply to any contract for sale of property on credit. Such process is subject to the same shortcomingit fails to recognize the fundamental rules of statutory construction. As pointed out, there are some striking differences between the revolving charge account transaction and the retail installment contract. Still, code section 535.4 expressly includes contracts founded upon any sale or loan of real or personal property. This plainly means the statute governs contracts for the sale of property whether such contract embodies the characteristics of a revolving charge account transaction or an installment contract. The trial court erred in holding otherwise. Insofar as the pronouncements in Gilmore are inconsistent with the foregoing determination, that case is overruled.