This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (1998).






Ronald Olson, et al.,





Michael R. Froslee, et al.,



Filed August 1, 2000

Reversed and remanded

Amundson, Judge


Ottertail County District Court

File No. C4-98-1928


Robert W. Bigwood, Pemberton, Sorlie, Rufer & Kershner, P.L.L.P., 110 North Mill Street, P.O. Box 866, Fergus Falls, MN 56538 (for appellants)


Schan  E. Sorkness, 114 East Washington, Fergus Falls, MN 56537 (for respondents)


            Considered and decided by Amundson, Presiding Judge, Crippen, Judge, and Anderson, Judge.

U N P U B L I S H E D   O P I N I O N


Appellants purchased a business from respondents and later brought an action pursuant to Minn. Stat. § 334.011 (1998), claiming the interest rate they were charged was usurious.  The district court granted summary judgment in favor of respondents, finding that the usury statute did not apply and that, even if applicable, respondents were subject to the good faith exception.  Appellants contend that they were entitled to summary judgment as a matter of law and that the court should have imposed the statutory penalty of voiding the requirement that they pay interest.  We reverse and remand.


On July 1, 1995, appellants Randy Christenson and Ronald Olson purchased Mike Froslee Blacktopping and Sealcoating (Froslee’s blacktopping business) from respondents Mike Froslee and Virginia Froslee for $72,700.  The assets purchased included a covenant not to compete and good will (which included customer and supplier lists, existing bids and contracts, and files).  Appellants signed and delivered a promissory note to respondents for the full purchase price.  The interest rate on the note was ten percent per year.

That same day, respondents leased certain trucks, vehicles, trailers, and equipment (Froslee’s equipment) to Central Lakes Blacktopping and Sealcoating, Inc. (Central Lakes Inc.) for a period beginning July 1, 1995, and ending June 30, 2000.  The lease contained a purchase option exercisable upon expiration of the lease.  Appellants are the sole shareholders of Central Lakes Inc., which operated using its own equipment, and then Froslee’s equipment as well.

Appellants made all scheduled payments on the note through December 1, 1997.  These payments were made by a Central Lakes, Inc. check, and included principal and interest on the note, as well as the rental payment due on the lease.

Appellants brought this suit alleging the promissory note charged a usurious interest rate as defined in Minn. Stat. § 334.011 (1998).  Respondents moved for summary judgment and the district court complied.  In rendering its decision, the district court found that the equipment lease was worth $152,300, and therefore, the combined amount of the lease and the note was in excess of $100,000 so as to make Minn. Stat. § 334.011 inapplicable. The district court further found that regardless of any patent usury claim, the statute’s good faith exception operated as a prophylactic for any liability by respondent.  Lastly, the court found that because a corporation was incurring the debt, the claim of usury lacked application.  This appeal followed.


Appellants challenge the district court’s application of the law to stipulated facts and granting summary judgment in favor of respondents.  The application of law to stipulated facts is a question of law, which this court reviews de novo.  Morton Bldgs., Inc. v. Commissioner of Revenue, 488 N.W.2d 254, 257 (Minn. 1992).


Appellants argue that district court erred in concluding that they could not establish a claim of usury.  To establish a usury claim, a party must prove four elements:

1)        a loan of money or forbearance of debt,

2)        an agreement between the parties to the loan or forbearance, that the principal shall be repayable absolutely,

3)        the exaction of a greater amount of interest or profit than is allowed by law, and

4)        the presence of an intention to evade the law at the inception of the transaction.

Citizen’s Nat’l Bank of Willmar v. Taylor, 368 N.W.2d 913, 918 (Minn. 1985).

It is undisputed that a loan or forbearance existed, but the usury statute only applies to loans of less than $100,000.  Minn. Stat. § 334.011, subd. 1 (1998).  The loan here can only be construed to have been less than $100,000 if the lease did not constitute part of the loan or forbearance.  Accordingly, the necessary inquiry is whether the lease should be considered a part of the loan amount.

The district court concluded that the note and the lease constituted one transaction and, therefore, should be evaluated together.  Supporting this conclusion, it noted that: (1) the note and lease were executed simultaneously; (2) the equipment covered in the lease was the same equipment previously used by Froslee’s blacktopping business; (3) the same parties were involved (either as individuals or as shareholders in a corporation); (4) the termination dates of the note and the lease were simultaneous; (5) respondents intended to sell their business evidenced by their covenant not to compete; and (6) appellants intended to acquire all aspects of the business.

The note and lease were obviously intended to complement one another and, in a practical sense, constitute one transaction.  However, the court erred in disregarding the significance of the execution of the lease in corporate form, as opposed to the sale of the business to appellants as individuals.  The fact that the note and lease were designed to function together is irrelevant.  The parties could have combined all asset transfers in one sale.  That they chose not to, and the fact that appellants had only the option to purchase Froslee’s equipment upon the expiration of the lease, makes clear that the lease and the note were not married in one transaction, but rather, were two symbiotic but distinct transactions.

As to the second element, a conclusion that the parties agreed that the loan (including the lease) was to be repaid is without support.  The obligation to pay for Froslee’s equipment at the end of the lease was not mandatory.  As noted, the lease itself did not constitute a purchase of Froslee’s equipment, but contained only an option to buy Froslee’s equipment at the contract’s end.  Although appellants’ intent at the moment of execution may have been to purchase Froslee’s equipment at the lease’s end, they were not compelled to do so.  Accordingly, inclusion of the lease as part of the loan or forbearance was inappropriate.  See Rathbun v. W.T. Grant Co., 300 Minn. 223, 235-36, 219 N.W.2d 641, 650 (1974) (assessing a transaction in terms of the obligations apparent “at the time of the purchase.”).

Regarding the third element, it is undisputed that the rate of interest was usurious if the lease did not constitute a part of the “loan or forbearance.”  Because the lease was separate, the rate of interest was usurious.

Finally, as an alternative basis for summary judgment, the district court found that respondents lacked the requisite usurious intent because they acted in good faith.  Intent, in such a case, means the intent to take or receive more than the law permits regardless of whether the taker knows it is a violation of the usury law.  Cemstone Prods. Co. v. Gersbach, 187 Minn. 416, 419, 245 N.W. 624, 625 (1932).  “[I]f a lender intentionally charges an interest rate that is in fact usurious, it is presumed that he intends the natural consequences of his act—a usury violation.”  Taylor, 368 N.W.2d at 919; see also Trapp v. Hancuh, 530 N.W.2d 879, 885 (Minn. App. 1995) (“If a lender intends to charge an interest rate that is greater than legal rate, the ‘intent’ element is presumed met.”).  The complainant need not prove the lender knew that it was charging a usurious rate—only that the lender intended to enter into the transaction.  In Re Sunde, 149 B.R. 552, 555 (Bankr. D. Minn. 1992).  There is no question that respondents were aware of the interest rate they were charging in this transaction.

But “where a transaction is entered into in good faith, with no purpose to evade the usury laws, it will be upheld.”  Wetsel v. Guaranteed Mortgage Co., 195 Minn. 509, 512, 263 N.W. 605, 606 (1935).  Respondents argue for application of this exception because all the parties agreed upon the interest rate.  But, the fact that the interest rate was agreed on by appellants is irrelevant unless there is evidence that the debtors knew the interest rate would subject the lenders to a usury violation.  See Sunde, 149 B.R. at 558 (finding estoppel defense to usury inapplicable when debtor did not enter into the transaction with full knowledge of his legal rights and the intent to forgo them).  Here there is no evidence that appellants knew that the interest rate they were to be charged would be usurious.

Respondents also argue in favor of the good-faith exception because they used safe harbor and consulted an attorney about the sale of the business, and had that attorney draft the sale documents.  “[A] finding of good faith is limited to situations where the lender has taken reasonable precautionary actions prior to the making of the loan in order to comply with the usury law.”  Trapp, 530 N.W.2d at 886.  This exception, however, operates only when the proposed transaction is submitted to qualified third parties for review.  Sunde, 149 B.R. at 556.  The fact that respondents merely consulted an attorney is not enough.  No exception exists without evidence of a specific effort to confirm that the loan, in all its sundry detail, complied with applicable laws.  See, e.g., Wetsel, 195 Minn. at 511-12, 263 N.W. at 606 (mortgage company acted with good faith when it relied on advice from certified public accountants and reputable counsel); Washington Fed. Sav. & Loan Ass’n. v. Baker, 374 N.W.2d 786, 788 (Minn. App. 1985), review denied (Minn. Dec. 13, 1985) (bank had good-faith belief that it met the requirements of a HUD insured loan).  Respondents allege that they consulted their attorney, but presented no evidence of the extent of the consultation.  The use of a qualified third party in creating loan documents does not satisfy the requirements of the good-faith exception if that party merely acts as scrivener.  Sunde, 149 B. R. at 556 n.2.  As respondents presented no evidence that their attorney reviewed the loan for compliance with legal requirements, much less the specific requirements of usury law, the district court erred in finding that, as a matter of law, respondents acted in good faith.


Appellants also contest the district court’s finding that the lease and note constituted a corporate transaction, which would preclude the usury claim here.  See Minn. Stat. § 334.021 (1998) (“No corporation shall hereafter interpose the defense of usury in any action.”); see also Trapp, 530 N.W.2d at 884 (“A corporation may not assert usury as a defense.”).  In doing so, the district court disregarded the fact that, despite entering into the lease using the corporate mechanism, the parties individually purchased the business and signed the note themselves, thereby assuming liability as individuals.  Therefore, any protection of corporate status would not have been available to them had the note gone unpaid.  In any event, the corporation’s involvement in the lease is irrelevant to the claim because of the bifurcated nature of the transaction.   Accordingly, the district court erred in granting summary judgment for respondents.  We reverse and remand with instructions that the district court shall award summary judgment for appellants.

Reversed and remanded.