This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (1996).




Kristen Anderson, et al.,



Scandinavian US Swim & Fitness, Inc., an Ohio corporation, et al.,


Filed October 27, 1998

Reversed and remanded

Randall, Judge

Hennepin County District Court

File No. 97-011093

Susan Ford Bedor, William H. Crowder, Crowder & Bedor, 555 West Seventh Street, Suite 201, St. Paul, MN 55102 (for appellant)

Richard L. Leighton, Hessian & McKasy, P.A., 4700 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402; and

William Klein, pro hac vice, Young, Rosen, Dolgin, & Finkel, Ltd., 33 North LaSalle Street, Suite 2000, Chicago, IL 60602 (for respondent)

Considered and decided by Huspeni, Presiding Judge, Randall, Judge, and Foley, Judge.*



Appellants argue that the district court erred when it dismissed Count II of their complaint under Minn. R. Civ. P. 12.02(e) for failure to state a claim on which relief may be granted. Appellants claim that respondents' health club membership contract is usurious and governed by the Consumer Credit Sales Act. We reverse and remand.


On or about July 24, 1995, appellant Kristen Anderson entered into a Retail Installment Contract with Bally Total Fitness, a service mark of respondent Scandinavian U.S. Swim & Fitness, Inc. (Scandinavian), to purchase a health club membership. Under the terms of the contract, the health club membership sold for a cash price of $329 (membership fee of $419 less credit or discount of $90). A sales tax of $21.39 was added to the purchase price and $20 was received as a down payment, leaving a balance of $330.39 to be financed. This amount was to be paid in monthly installments over 18 months with an annual percentage rate of 12.65% for a finance charge of $34.11. The total amount to be paid under this financing arrangement was $364.50. The first payment was due 31 days after the contracted was executed.

Appellant Dennis Wenzel was introduced to Scandinavian's health club in 1993 when he registered to win a "Free Membership" by filling out application cards at several area laundromats. Shortly after doing so, Wenzel received a call from a Scandinavian employee at the Eagan health club who told him, "You are a lucky man; you won. Come in and sign up." Wenzel then went to the Eagan club to claim his "Free Membership." When he arrived, Wenzel was told that only the first $100 of the initiation fee was "free." This was approximately the same discount given Anderson. Wenzel entered into a similar Retail Installment Sales Contract as Anderson. Several weeks later, Wenzel received another telephone call from a Scandinavian employee, informing him that he "won" a "free membership." Wenzel declined the second "free membership."

Scandinavian's contract contains a paragraph entitled OBLIGATIONS ABSOLUTE that states,

Other than in the event of permitted cancellations described below, Buyer shall not be relieved of the obligation to make any payment in accordance with this contract and no deduction or allowance from any payment shall be made by reason of the absence or withdrawal of Member from any health club or by reason of Member's failure to use any health club.

The contract provided three contingencies, which, if proven to Scandinavian's satisfaction, would allow the member to cancel the contract. These included: (1) death or disability of the member, (2) the permanent relocation of member's residence more than 25 driving miles from either the club of enrollment or any other club that the member is entitled to use under the membership plan, and (3) the permanent closure of the club of enrollment if the member lives more than 25 miles from any other club that he or she is entitled to use under the membership plan.

Under each contingency, the member is required to return the contract, the member's membership card, and any other documents evidencing member's membership. The contract provides that the "cancellation will be effective only when [Scandinavian] receive[s] all of these items." If the cancellation is approved by Scandinavian, the member is to receive a pro rata refund of the membership fee paid that is allocable after the date of death or disability.


In reviewing an action dismissed for failure to state a claim upon which relief may be granted, this court's review is limited to whether the complaint sets forth a legally sufficient claim for relief. Elzie v. Commissioner of Pub. Safety, 298 N.W.2d 29, 32 (Minn. 1980). A claim will prevail against a motion to dismiss if it is possible on any evidence that might be produced consistent with complainant's theory to grant the relief demanded. Northern States Power Co. v. Franklin, 265 Minn. 391, 395, 122 N.W.2d 26, 29 (1963). All assumptions, conclusions, and inferences must favor the party against whom the dismissal is sought. Id. at 396, 122 N.W.2d at 30. When considering questions of law, a reviewing court is not bound by and need not give deference to a district court's determination. Frost-Benco Elec. Ass'n v. Minnesota Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn. 1984).

Minnesota's general usury statute provides,

The interest for any legal indebtedness shall be at the rate of $6 upon $200 for a year, unless a different rate is contracted for in writing. No person shall directly or indirectly take or receive in money, goods, or things in action, or in any other way, any greater sum, or any greater value, for the loan or forbearance of money, goods, or things in action, than $8 on $100 for one year.

Minn. Stat. § 334.01, subd. 1 (1996). To establish usury, four elements must be proven:

(1) a loan of money or forbearance of debt,

(2) an agreement between the parties 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.

Miller v. Colortyme, Inc., 518 N.W.2d 544, 549 (Minn. 1994) (quoting Citizen's Nat'l Bank v. Taylor, 368 N.W.2d 913, 918 (Minn. 1985)).

The sole issue presented in this appeal is whether the district court properly concluded that appellants failed to satisfy the second element of usury in this case. Finding this issue to be dispositive, the district court did not address the remaining elements of usury. Those issues are therefore not properly before this court. See Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988) (reviewing court will not consider issues presented to but not passed on by district court).[1]

The district court dismissed Count II of the complaint, ruling that "pursuant to the contract the principal is not absolutely repayable because any number of contingencies could arise which would negate the obligation." Appellants argue that this element has been satisfied and the district court's decision should be reversed. Scandinavian contends the contract is not usurious because there is no certainty that it would receive the principal due under the contract. Scandinavian insists that appellants could avoid paying the principal if: (1) they relocated; (2) died or became substantially disabled; or (3) the club to which they belonged to closed. Based on this, Scandinavian claims that the parties did not enter into an agreement whereby the principal was repayable absolutely. Appellants, on the other hand, contend that the absolute payment element of usury requires that at the time the contract is entered into, the obligation and date for payment to begin is absolute and certain.

It has been long recognized in Minnesota that a seller may have one price for cash and another for credit and the fact that the price for credit exceeds the cash price by a greater percentage than the usury laws permit does not make the contract usurious. Schauman v. Solmica Midwest, Inc., 283 Minn. 437, 439, 168 N.W.2d 667, 670 (1969). Thus, bona fide installment sales do not fall within the purview of the usury statute. Rathbun v. W.T. Grant Co., 300 Minn. 223, 231, 219 N.W.2d 641, 647 (1974). This is commonly known as the "time-price" doctrine, which is

based on the theory that the prohibition against usury is limited to (1) loans of money or personal property repayable in kind, and (2) forbearances to require payment on a loan or debt then due.

St. Paul Bank for Coops. v. Ohman, 402 N.W.2d 235, 238 (Minn. App. 1987).

A time-price transaction is outside this limitation because it is merely a sale of goods and not a loan of money, and there is no forbearance or loan because the debt is based on a future price and not on an amount then due.

Id. The court further distinguished a time-price transaction from a deferred payment transaction, holding:

"This type of transaction is not to be confused with that where the parties definitely agree upon a binding sale price, payable in whole or in part by deferred payments for the reason that such a contract creates a debt for the unpaid purchase price, or part thereof, and the granting of time to pay is a forbearance to collect such existing debt, which it conceded everywhere is subject to the usury law."

Id. (quoting Dunn v. Midland Loan Finance Corp., 206 Minn. 550, 555, 289 N.W. 411, 414 (1939) (alteration in original)). Finding that a transaction falls within the time-price doctrine requires "'the absence of a contract binding the seller to sell at the so-called cash price.'" Id. (quoting Schauman, 283 Minn. at 444, 168 N.W.2d at 672).

In Rathbun, the Minnesota Supreme Court held that a merchandiser's retail installment credit coupon book contract plan did not qualify as an exception to the time-price doctrine and was usurious. Rathbun, 300 Minn. at 232-37, 219 N.W.2d at 648-50. The case involved a coupon plan in which books of coupons were purchased on cash or credit and could be used to purchase items of merchandise and services in defendant's stores. Id. at 226, 219 N.W.2d at 644. Plaintiffs purchased the books on credit and entered into an add-on agreement under which a purchaser could obtain additional coupons before paying in full for the original coupons. Id. Finance charges commenced when the add-on agreement was executed. Id. Under the contract, the customer could at any time return unused coupons and receive a full credit refund for the face amount thereof plus a complete finance charge refund on the unused coupons. Id. The defendant argued that the absolute payment element of usury was lacking because the customer had the right to return unused coupons for full credit. Id. The supreme court rejected the defendant's argument, holding:

Until the customer takes some positive action to return the coupons, the absolute obligation to repay continues. The customer has a right to totally avoid the obligation of repayment or to reduce the obligation by the return of unused coupons. However, this does not alter the fact that the agreement signed at the time of the purchase of the coupon book requires repayment. We agree with the finding of the trial court that the documents in question require absolute repayment of the principal.

Id. In Miller, 518 N.W.2d.2d at 549-50, the supreme court held that rent-to-own contracts can be usurious. The court noted that

rent-to-own customers may not have an absolute obligation to repay a principal amount, but their situation is analogous to that of ordinary buyers on credit in that they must either forfeit possession of a good or continue paying for it.

Id. at 549.

Scandinavian, relying on Ordway v. Price, 156 Minn. 160, 194 N.W. 321 (1923), argues, and the district court agreed, that the contract is not usurious because there are three contingencies under which members are no longer obligated to pay the principal. In Ordway, plaintiff loaned the Blue Nose Mines Company $3,500. Id. at 160, 194 N.W. at 321. The mine company promised to repay the money plus interest after the company made the first clean-up and it obtained authority from the State of California to issue its capital stock. Id. at 160-61, 194 N.W. 321. The supreme court stated that

[t]o constitute usury an agreement to repay the principal sum at all events is essential. If it be payable only on some contingency, the transaction is not usurious.

Id. at 162, 194 N.W. at 322. The court held the agreement was not usurious, noting that "[i]n any event the payment * * * is contingent on something occurring which may never occur, and usury cannot be predicated on such an agreement." Id. at 163, 194 N.W. at 322.

Scandinavian also relies on Andrews v. Andrews, 170 Minn. 175, 212 N.W. 408 (1927). In that case, repayment of the principal of a loan obtained to purchase a hotel, in lieu of any interest money, was to be taken from the profits or annual earnings of the hotel. Id. at 177-78, 212 N.W. at 409. The supreme court stated:

It is also a rule of general application that, when the payment of full legal interest is subject to a contingency which puts the lender's lawful profit in hazard, the interest so contingently payable need not be limited to the legal rate, provided the parties contract in good faith and without intention to avoid the usury statute.

Id. The court noted that the principal amount was repayable only if the hotel produced a profit and held that because it was dependent on this contingency, the note was not usurious. Id.

We have a concern with Scandinavian's analysis of the holdings in Ordway and Andrews. In both Ordway and Andrews, the obligation to pay the principal was dependent on some contingency taking place. Without the contingency taking place, no obligation to pay the principal accrued. As the Minnesota Supreme Court stated in Midland Loan Finance Co. v. Lorentz, 209 Minn. 278, 287, 296 N.W. 911, 915, (1941), this element means that "the principal sum is payable absolutely and without any contingency." See Van Asperen v. Darling Olds, Inc.[cedilla]254 Minn. 62, 69, 93 N.W.2d 690, 695 (1958) (holding this element required that "'the sum loaned must be absolutely, not contingently, repayable'" (quoting In re Bibbey, 9 F.2d 944, 945 (D. Minn. 1925))). The element of absolute payment simply requires that payment of the principal is not dependent on any contingencies and that the terms and time for payment be definite and certain. That is, the payment of the principal cannot be contingent on any event that must occur before payment is required.

Here, the parties agreed to a definite and certain amount to be paid. The time when payment of the principal is to begin is certain and absolute and not dependent on any outside contingency taking place. Similarly, unlike the contract in Rathbun, cancellation of the present contract is permitted only if specific circumstances take place and only after the member takes some "positive action" to cancel the contract. Without any one of the three contingencies and more importantly, without any "positive action" by the member to cancel the contract, the obligation to pay the principal remains in effect and absolute. Contrary to Scandinavians' assertions, the plain language of the contract makes clear that any cancellation is subject to its approval and is not automatic. Cancellation requires some "positive action" from both the member and Scandinavian. Although we do not pass on whether the remaining elements of usury have been satisfied, we conclude, at least, that the low threshold for a plaintiff to get over a rule 12 motion, has been met on these facts, Thus, the district court should not have dismissed appellants' claim for failure to state a claim on which relief may be granted. We reverse and remand on that issue, while again repeating that we infer no judgment on the merits of appellants' claim.

Next, appellants claim that Scandinavian's contract is governed by the Consumer Credit Sales Act (CCSA), Minn. Stat. §§ 325G.15-.16 (1996), and as such, the first two elements of usury are satisfied by operation of the statute. Appellants argue that as a contract governed by the CCSA, the transactions constitute a forbearance of a debt that is repayable absolutely and these two elements of usury have been satisfied.

The CCSA applies to the sale of goods or services where

(a) credit is granted by a seller who regularly engages as a seller in credit transactions of the same kind;

(b) the buyer is a natural person; and

(c) the goods or services are purchased primarily for a personal, family or household purpose, and not for commercial, agricultural, or business purpose.

Minn. Stat. § 325G.15, subd. 2 (1996). Appellants argue that transactions that fall within the CCSA satisfy, by operation of the statute, the first two elements of usury. We disagree.

In Miller, the Minnesota Supreme Court was asked to consider whether rent-to-own contracts were subject to the CCSA and the usury laws. The supreme court noted that rent-to-own consumers technically do not incur any debt because they pay in advance for each rental period and that rent-to-own consumers technically have no absolute obligation to repay a principal amount. Miller, 518 N.W.2d at 549. However, the court rejected defendants' claim that the first two common law elements can work to defeat plaintiff's usury claim "where the legislature has defined rent-to-own transactions as 'consumer credit sales' for all purposes." Id. In holding that rent-to-own contracts can be usurious, the supreme court stated that

The purpose of the usury law is to protect consumers by limiting the amount of interest which can be charged on a credit sale or loan. The first two common law elements of usury serve merely to clarify what transactions are subject to interest rate limitations. By defining rent-to-own transactions in the CCSA as "consumer credit sales" for all purposes, the legislature has established that consumers who enter into rent-to-own transactions are to benefit from the same protections as consumers who purchase goods through ordinary installment sales, even though rent-to-own consumers do not actually incur any debt and do not have any obligation to repay a principal amount. Consequently, the first two common law elements of usury are met by operation of statute.


Miller is distinguishable from the present case. In Miller, the central issue was whether rent-to-own transactions, which do not technically satisfy the common law elements of usury, are covered by the usury laws by operation of the CCSA. In so doing, the court observed that the first two common law elements are present to help clarify what transactions are covered by the usury laws. Miller, 518 N.W.2d at 549. As the court noted, the CCSA specifically addresses rent-to-own transactions and provides that they are consumer credit sales. Id. Because rent-to-own transactions are specifically defined in the CCSA as consumer credit sales, they are subject to the protections against usury even though they do not technically satisfy the common law elements of usury. Id. The decision in Miller merely holds that certain transactions that may not satisfy the common law elements of usury may be afforded protection against usury by operation of the CCSA. Consequently, we conclude that although Scandinavian's contracts may be covered by the CCSA, application of the statute in this

case does not compel the conclusion that the first two common law elements of usury have been satisfied.

Reversed and remanded.

[*]Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.

[1]Respondents contend that the district court's decision can be upheld on a number of alternative grounds. However, these issues were never passed on by the district court and given the procedural posture of this case, it is premature for this court to address these issues without a more developed record, including a ruling by the district court.