Court Opinion

ID: 9474767
Source: CourtListenerOpinion
Date Created: 2023-08-05 05:08:17.484959+00
Date Added: 2024-06-11T17:44:19.435797
License: Public Domain

OPINION OF THE COURT
GARTH, Circuit Judge:
This appeal requires us to review Virgin Islands statutes, one of which prescribes the legal rate of interest, the other of which proscribes usury. We hold that the defense of usury was properly asserted by Tonn, the defendant/appellant here.
I.
On March 20, 1978, appellant Bernard Tonn purchased sliding glass doors and windows from appellee Foreign Commerce, Inc. for a total purchase price of $1,640.20. When Tonn failed to pay the balance of the purchase price within the ten-day period provided by the purchase agreement, his account was assessed a IV2 percent monthly service charge on the outstanding balance. Over a four-year period, Tonn made only sporadic payments totaling $800 on this debt. As of March 28, 1982, Tonn’s debt, including principal and the assessed monthly “service charges,” totaled $2,172.76.
On March 28, 1982, Foreign Commerce instituted an action for debt against Tonn in the Virgin Islands Territorial Court. In his answer and counterclaim, Tonn alleged that the monthly IV2 service charge violated the Virgin Islands’ usury laws. 11 V.I.C. §§ 951 et seq. On September 30, 1983, the Territorial Court held that Tonn could not rely on the usury defense. Accordingly, on January 5, 1984, the court entered judgment against Tonn for the full amount of the debt.
Tonn appealed the Territorial Court judgment to the District Court of the Virgin Islands. On December 28, 1984, 600 F.Supp. 133, that court affirmed the Territorial Court’s order. We reverse.
II.
The sole issue before us is whether the IV2 percent monthly “service charge”1 applied to Tonn’s outstanding debt by Foreign Commerce violated the Virgin Islands usury statutes.
Those statutes provide in pertinent part:
§ 951 Legal rate of interest (a) The rate of interest shall be nine (9%) per centum per annum on—
(1) all monies which have become due;
(2) money received to the use of another and retained beyond a reasonable time without the owner’s consent, either express or implied:
(3) money due upon the settlement of matured accounts from the day the balance is ascertained; and
(4) money due or to become due where there is a contract and no rate is specified.
*22311 V.I.C. § 951(a).
§ 952. Usury
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 or use of money, or upon contract founded upon any bargain, sale or loan of wares, merchandise, goods, chattels, lands and tenements, than prescribed in this chapter.
11 V.I.C. § 952.
The district court, relying on an overwhelming majority of state precedents, noted that “a bona fide sale of consumer goods on credit does not constitute a loan within the meaning of the usury statute.” (Foreign Commerce App. at 14). Thus, according to the district court, a finance charge in excess of the highest lawful interest rate allowed is permissible if the underlying transaction is in fact a sale of consumer goods and not a loan. See e.g., Daniel v. First National Bank of Birmingham, 227 F.2d 353, 356 (5th Cir.1955). According to the district court:
The finance or service charge is generally defined as a charge for the privilege of purchasing on credit, expressed as a time price differential. It is designed to compensate sellers for additional risks and loss of interest which would ordinarily accrue upon immediate cash payment.
(Foreign Commerce App. at 14).
Usury, on the other hand, is most commonly defined as the exaction of a greater sum for the use of money than the highest rate of interest allowed by law. Evans v. National Bank of Savannah, 251 U.S. 108 (1919).
A service charge imposed on a consumer because of his failure to pay for the purchase of consumer goods within the time specified is not, according to the district court, a charge “for the use of money.” Implicit in the district court’s discussion was a distinction drawn between an installment sale and a loan. Therefore, the district court concluded, service charges of the type involved here which are in excess of the statutory interest rate are not usurious.
However, on appeal, Tonn argues that a plain reading of 11 V.I.C. § 952 discloses that the legislature of the Virgin Islands clearly has stated that the imposition of any type of charge representing an amount greater than 9% per annum on any outstanding principal balance is impermissible as violative of section 952. This is so, claims Tonn, even though other state legislatures and courts have declared the law to be otherwise.
Of particular relevance to this action, 11 V.I.C. § 952 provides: “No person shall, directly or indirectly, receive in money ... any greater sum ... upon contract founded upon any ... sale ... of ... goods ... than prescribed in this chapter [9% per annum].” Thus, pursuant to the plain language of this provision, Tonn argues that contracts for the purchase of consumer goods fall within the ambit of the Virgin Islands’ usury laws and that therefore charges in excess of 9% are prohibited.
In State ex rel. Turner v. Younker Brothers, Inc., 210 N.W.2d 550 (Iowa 1973), the Supreme Court of Iowa, applying a state usury law substantively identical to 11 V.I.C. § 952, held that a revolving credit plan providing for a IV2 percent monthly compounded finance charge violated that state’s usury laws.2 In so concluding, the Iowa court noted that the overwhelming state and federal precedent holding that credit sales were not subject to usury laws was based on the principle that “a sale of goods or property ... is not a loan or forbearance of money as required by their usury statutes.” 210 N.W.2d at 558. (emphasis added).
The Iowa court distinguished those cases based on the clear language of the Iowa usury statute, language which, the court noted, was similar to the Virgin Islands *224usury statute. That statute “does not differentiate between the seller of property and the lender of money, a distinction upon which the time-price doctrine rests.” Id. at 559. Since the Iowa usury statute “expressly includes contracts founded upon any sale or loan of real or personal property,” the court held, “[tjhis 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.” Id.
The Iowa Supreme Court rejected the retail seller’s characterization of its finance charge as a “service charge” designed to recover its reasonable costs of extending credit. The court concluded that since the amount of the service charge was based solely on the balance due and owing, it obviously bore no relationship to the level of alleged service expenses incident to the operation of its credit plans. As the court put it:
[I ]f the alleged “service charge” ... assessed were in fact a true charge only for the servicing of the account, one would expect such charges to be approximately the same regardless of the balance remaining.
Id. at 561.3 Thus, the court held that the Younker Brothers “finance charge” was in effect interest in excess of the maximum rate allowed by Iowa's usury laws.
Our examination of the case law in other jurisdictions upon which the district court relied, holding that service charges reflecting the time price differential for the extension of credit are not interest on a loan or the forbearance of money and therefore not subject to those states’ usury laws, reveals that those decisions were based solely on the language of the particular jurisdiction’s usury statutes. Those statutes, unlike section 952 of the Virgin Islands Code, however, do not subject contracts for the sale of personal property to the interest limits of those jurisdictions’ usury laws. However, where, as here, the usury statute expressly so provides, Younker Brothers is persuasive. Indeed, if a word-by-word comparison of the Iowa and Virgin Islands statutes is undertaken, it is evident that, with minor grammatical exceptions, the substance of the two statutes is identical.
In light of the plain language of 11 V.I.C. § 952, the district court’s application of the standard time price doctrine to installment sales is misplaced. In the absence of any indication to the contrary, either in the cases or the legislative history of the Virgin Islands, the statutory command of 11 V.I.C. § 952 compels us to reverse the district court’s judgment.4
Accordingly, we hold that the charge imposed by Foreign Commerce is indeed interest in excess of the lawful rate prescribed by the Virgin Islands usury laws, and therefore cannot be enforced.5
*225III.
Since we have found that the interest charged Tonn by Foreign Commerce is usurious under 11 V.I.C. § 952, Tonn is entitled to a forfeiture of the entire interest on his debt pursuant to 11 V.I.C. § 954. As that section states, “the court ... shall render judgment for the amount due on the sum loaned or the debt contracted, without interest, against the defendant [Tonn], and for the costs of the action, against the plaintiff [Foreign Commerce], whether such action is contested or not.”6
Tonn, however, is not entitled to collect double the amount of interest charged by Foreign Commerce. Section 953 provides for double damages, but only where the creditor has received the improperly charged interest in the first instance.7 Here, Tonn has failed to pay any interest at all. Indeed, Tonn has yet to pay the principal amount due on his debt. Under these circumstances, while Tonn is relieved from paying interest, he is not entitled to double interest damages.
IV.
We will vacate the district court’s order of December 28, 1984 which affirmed the Territorial Court’s order of January 5, 1984 awarding Foreign Commerce $2,676.27 together with its costs including an attorney’s fee in the amount of $500.00. We will remand this case to the district court with the direction that judgment be entered for Foreign Commerce in the amount of the principle due Foreign Commerce, or $840.20. The district court, pursuant to the command of 11 V.I.C. § 954, shall assess the costs of the action in favor of Tonn. Each party will bear its own costs on this appeal.

. The district court concluded that a l-'/2% monthly service charge was equivalent to an 18% annual rate. Tonn contends that the annual service charge rate was 19-‘/2%. It is obvious and undisputed that either rate is in excess of the 9% rate established by the Virgin Islands usury statute. 11 V.I.C. § 951(a).

. The Iowa usury law provided:
"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, or upon contract founded upon any sale or loan of real or personal property, than is in this chapter prescribed.”
I.C.A. § 535.4.

. As in Younker Brothers, the service charge assessed against Tonn did not remain the same regardless of the amount of the outstanding balance. Rather, the "service charge” was based solely on the outstanding balance and thus varied over time.

. Even assuming, as does the dissent, that § 952 was patterned after Iowa’s usury statute, a fact which the legislative history does not establish, our interpretation comports with the interpretation given Iowa’s statute in 1973 by the Iowa Supreme Court in Younker Brothers: the plain language of both the Iowa and Virgin Islands statutes proscribe interest in excess of the established maximum rate regardless of whether a transaction is a retail sale or a loan. According to Younker Brothers, prior to 1973 no conclusive precedential value could be accorded to Gilmore & Smith v. Ferguson & Cassell, 28 Iowa 220 (1869), or other cases obstensibly addressing the issue which Younker Brothers decided. Younker Brothers, 210 N.W.2d 556-57. Thus, by following the Younker Brothers analysis, we have not deviated from the instruction of Berkeley v. West Indies Enterprises, Inc., 480 F.2d 1088 (3d Cir.1973).
We note also, as does the dissent, that although Alaska has a statute similar to those of the Virgin Islands and Iowa, that state’s highest court has yet to confront the issue of its usury statute’s applicability to retail credit sales. Dissent at 10. Given the Iowa court’s interpretation in Younker Brothers, and our holding today, we are constrained to predict that Alaska would favor a similar construction.

. In holding that the service charge imposed on Tonn is usurious under the Virgin Islands usury statutes, we are not unmindful that our decision *225is contrary to the many statutes providing that installment sales are not ordinarily considered loans subject to usury laws. However, our decision is compelled by the plain language of the Virgin Islands statute, and, therefore we must leave it to the legislature of the Virgin Islands in the exercise of its prerogative to alleviate any financial dislocations caused by our interpretation of 11 V.I.C. § 952. To that end, we have directed the Clerk to forward a copy of this opinion to the Governor’s Counsel, the Attorney General and the majority and minority leaders of the Virgin Islands Legislature.

. 11 V.I.C. § 954 provides:
§ 954. Forfeiture of Interest If it is ascertained in any action brought on any contract, that a rate of interest has been contracted for greater than is authorized by this chapter, whether directly or indirectly, in money, property, or other valuable thing, or that any gift or donation of money, property, or other valuable thing has been made or promised to be made to a lender or creditor, or to any person for him, the design of which is to obtain for money loaned or for debts due or to become due, a rate of interest greater than that specified by the provisions of this chapter, the same shall be usurious and shall work a forfeiture of the entire interest on the debt. The court before which such action is prosecuted shall render judgment for the amount due on the sum loaned or the debt contracted, without interest, against the defendant, and for the costs of the action, against the plaintiff, whether such action is contested or not.

. 11 V.I.C. § 953 provides:
§ 953. Usury; borrower’s right to collect double damage
If usurious interest, as defined by sections 951 and 952 of this title, shall be received or collected, the person or persons paying the same, or their legal representatives, may by an action brought within two years after such payment, receive from the person, firm, or corporation, having received the same, double the amount of the interest so received or collected.