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September 5, 1972
Honorable Perry B. Woodall
State Senator, 15th District
P.O. Box 507
Toppenish, Washington 98948
Cite as: AGLO 1972 No. 69 (not official)
By letter previously acknowledged you have requested the opinion of this office on the following question:
"Does Washington law preclude or limit the enforcement in Washington of a foreign loan made to a person who is not at the time a Washington resident, where the loan is in excess of $1,000, where it exceeds the interest rates prescribed under Washington's usury and small loan laws, and where it is a valid, enforceable loan under the laws of the foreign jurisdiction?"
We answer this question in the manner set forth at the conclusion of this opinion.
In the early case of Bank v. Doherty, 42 Wash. 317, 84 Pac. 872 (1906), the Washington court held a valid loan contract executed in Montana between residents of that state to be enforceable in Washington even though (a) the rate of interest charged would have rendered the loan usurious if it had been executed here, and (b) the loan was secured by a mortgage upon real estate situated in Washington. In thus concluding the court quoted with approval from LaSelle v. Woolery, 14 Wash. 70, 44 Pac. 115 (1896), as follows:
"'The settled rule is that the law of the place where the contract is made must govern in determining the character, construction and validity of such contract; while the law of the place where suit is instituted upon the contract governs as to "The nature, extent and form of the remedy."'"
[[Orig. Op. Page 2]]
Compare, Mirgon v. Sherk, 196 Wash. 690, 697, 84 P.2d 362 (1938), where enforcement was denied in the case of a loan from an Oregon lender to a Washington borrower, consummated in Washington but payable in Oregon, where the loan, although valid under Oregon law, was usurious under the laws of this state. Bank v. Doherty, supra, was noted and distinguished by the court in this later case as follows:
". . . The Doherty case is . . . distinguishable from the present one, in that there was merely a single isolated transaction, both the maker and payee were residents of the sister state, Montana, no corporation was involved, and the transaction was executed in that state."
A reading of both of these cases reveals that each was based upon a determination of "public policy" by the court with respect to the status of the particular loan in question in the absence of some statutory declaration of public policy to the contrary emanating from our legislature. On the basis of the facts set forth in your question, the loan there hypothesized is obviously more like that which was involved in Doherty than in Sherk ‑ and, accordingly, it seemingly would thus follow that the earlier of these two decisions would support the enforceability of this loan in the Washington courts unless the loan must now be said to be governed by a subsequently enacted statutory declaration of public policy against its enforcement.
By your question, you have stipulated that the loan sought to be enforced exceeds the interest rates set forth in our statutes governing usury (chapter 19.52 RCW) and our "small loan" act (chapter 31.08 RCW). Basically, the first of these two statutes establishes a maximum interest rate of 12 percent per annum (see, RCW 19.52.020) for all loans except those "small loans" which are governed by the second; as to these, RCW 31.08.160 provides that:
"(1) Every licensee hereunder may lend any sum of money not to exceed one thousand dollars in amount and may charge, contract for, and receive thereon charges at a rate not exceeding three percent per month on that part of the unpaid principal balance of any loan not in excess of three hundred dollars, one and one‑half percent per month on that part of the unpaid principal balance of any loan in excess of three hundred dollars and not in excess of five hundred dollars, and one percent per month on any remainder of such unpaid principal balance: . . ."
[[Orig. Op. Page 3]]
In order to determine the enforceability, within the above‑described analytical framework, of a foreign loan exceeding both of these statutory limitations we must now turn our attention to two separate acts of the 1967 legislature. First to be noted is RCW 19.52.034, codifying § 3, chapter 23, Laws of 1967, Ex. Sess., and adding the following new section to the statutes relating to usury:
"Whenever a loan or forbearance is made outside Washington state to a person then residing in this state the usury laws found in chapter 19.52 RCW, as now or hereafter amended, shall be applicable in all courts of this state to the same extent such usury laws would be applicable if the loan or forbearance was made in this state."
By its express terms this statutory provision is applicable to foreign loans only where the borrower was residing in this state at the time the loan was consummated ‑ and for this reason we must regard it as being inapplicable to the loan contemplated by your question. Accord, the well-established principle of statutory construction that express inclusion of one item in a statute constitutes an implied exclusion of all other similar items. Ramsay v. Dept. Lab. & Ind., 36 Wn.2d 410, 218 P.2d 765 (1950).
The second 1967 enactment to be noted is § 1, chapter 180, Laws of 1967 ‑ in form, an amendment to RCW 31.08.200 which is a part of the "small loan" act. Set forth in bill form for ease of analysis, this amendment reads as follows:
"No person except as authorized by this chapter shall directly or indirectly charge, contract for, or receive any interest, discount, or consideration greater than the lender would be permitted by law to charge if he were not a licensee hereunder upon the loan, use, or forbearance of money, goods, or things in action, or upon the loan, use, or sale of credit of the amount or value of one thousand dollars or less.
"The foregoing prohibition shall apply to any person who by any device, subterfuge, or pretense whatsoever shall charge, contract for, or receive greater interest, consideration, or charges than is authorized by this [[Orig. Op. Page 4]] chapter for any such loan, use or forbearance of money, goods, or things in action or for any such loan, use, or sale of credit.
"Interest rates for small loans as described in RCW 31.08.160 are hereby declared to be the maximum rates permissible under the public policy of the state of Washington. ((No)) With respect to any of the amount or value of one thousand dollars or less for which a greater rate of interest, consideration, or charges than is permitted by RCW 31.08.160 has been charged, contracted for, or received, ((wherever made, shall be enforced in this state, and every person in anywise participating therein in this state shall be subject to the provisions of this chapter: PROVIDED, That the foregoing shall not apply to loans legally made in any other state, territory, or country.)) the lender or his successor in interest shall not be entitled to collect or receive in this state: (1) any principal, interest, consideration or charges whatsoever if any part of the loan transaction occurred in this state; or (2) any interest, consideration or charges in excess of that stated in RCW 31.08.160 if no part of the loan transaction occurred in this state."
By the final sentence of this enactment it seems clear that the legislature has limited the enforceability in this state of a foreign loan bearing a greater rate of interest than permitted by RCW 31.08.160, supra, where the loan in question is in an amount or value of $1,000 or less. The issue which we must now resolve is whether, by virtue of the immediately preceding sentence of the amendment, a limitation upon enforceability in our courts must also now be said to exist with respect to foreign loans of more than $1,000 as posited by your question.
Repeated and isolated for ease of reference, this sentence reads as follows:
"Interest rates for small loans as described in RCW 31.08.160 are hereby declared to be the maximum rates permissible under the public policy of the state of Washington. . . ."
Read by itself, this provision is ambiguous; certain words of qualification needed to clarify its scope are missing. If the phrase "for such loans" had been added at [[Orig. Op. Page 5]] the end of the sentence its application only to those loans of $1,000 or less (i.e., "small loans") would be clear ‑ and, conversely, if the phrase "for any loans" had been added, instead, the application of this provision to loans of any amount would likewise be apparent. However, because neither of these clarifying phrases is to be found in the express language of the statute our task becomes that of determining the true intent of the legislature by application of certain principles of statutory construction.
The first such rule to be applied is that which commands us not to read a single phrase or sentence of a statute in isolation as above ‑ but rather to read it in context with the entire enactment in which it is contained. State ex rel. Kadow v. Bd. of Adjus., 77 Wn.2d 587, 464 P.2d 418 (1970), and cases cited therein. Here, the context in which the ambiguous sentence appears is a statute dealing in all other respects only with loans of $1,000 or less in value. Therefore, it would appear logical to conclude that the legislature was thinking only of such loans as those in expressing its new "declaration of policy" relative to the nonenforceability in this state of both in-state and out-of-state "small loans" bearing interest at a greater rate than permitted for "in-state" small loans made by licensees under the small loan act.
In fact, it would seem to us that if the legislature had truly intended that this new policy would apply to all loans and not merely to those of $1,000 or less, it would have manifested this intent by deleting the preexisting statement of maximum amount or value from what is now the concluding sentence of RCW 31.08.200 in the process of amending that sentence; however, it simply did not do so ‑ and it is not our prerogative to remove this language by interpretation. McKay v. Dept. of Labor and Industries, 180 Wash. 191, 39 P.2d 997 (1934).
Moreover, because this preexisting statement of maximum amount remains in the statute as amended, it follows that the maxim applied earlier in this opinion with respect to the scope of RCW 19.52.034, supra, is also applicable here. There we advised that the legislature's express inclusion of out-of-state loans to Washington residents within the purview of our state usury laws gave rise to an implied exclusion of out-of-state loans to nonresidents from these laws ‑ citing Ramsay v. Dept. of Lab. & Ind., supra. [[Orig. Op. Page 6]] Here, by the same token, the legislature, having expressly included only those out-of-state loans of $1,000 or less within the scope of its newly established restriction upon the in-state enforcement,1/ should thereby be taken to have impliedly excluded out-of-state loans in excess of such amount from this limitation.
Next, recalling the principles noted at the outset of this opinion, we must take note of the rule that statutes in derogation of the common law are to be strictly construed. See, e.g., Post v. Fischer, 191 Wash. 577, 71 P.2d 659 (1937). Under such a rule no case is to be brought within the ambit of a legislative enactment which does not clearly come under the terms of the statute. State v. Youngbluth, 60 Wash. 383, 111 Pac. 240 (1910).
Here, without the statute now under consideration, we have seen that an out-of-state loan such as posited by your question would, if valid under the laws of the jurisdiction where made, be enforceable in this state regardless of its usurious character under our local laws under the common-law rule stated and applied in Bank v. Doherty, supra. Therefore, we would expect the court to continue to follow this rule in the case of such a loan in the absence of a clear expression of legislative intent to the contrary.
Finally, we would expect that the court in considering this question might well also attach considerable significance to the internal reference within the subject first amendatory sentence itself to "Interest rates for small loans as described in RCW 31.08.160 . . ." This latter statute, as also above quoted, obviously relates only to loans of $1,000 or less and thus establishes no maximum interest rates whatsoever for loans which are in excess of that amount. Accordingly, if the sentence here being interpreted were to be read as meaning that all out-of-state loans regardless of amount are contrary to the public policy of this state (and hence unenforceable herein) if they bear a greater rate of interest than described in RCW 31.08.160, the result would, at best, be highly incongruous if not absurd ‑ in contravention of another well-established precept of statutory construction.2/ How could an out-of-state lender of (say) $5,000 [[Orig. Op. Page 7]] properly determine by a reference to RCW 31.08.160 the maximum rate of interest he might charge on his loan to make it enforceable in the state of Washington if (for example) his borrower were subsequently to move into this state and then fail to make payment? The answer seems clearly to be that such a lender could not make this determination ‑ because there is simply nothing in RCW 31.08.160 which purports to establish any rates of interest chargeable on loans in excess of $1,000.
Each of these several rules of statutory construction will be seen to lead to the same construction of the subject statute; namely, that RCW 31.08.200, supra, as amended, continues to apply in all respects only to loans of $1,000 or less and not to loans of any greater amounts or values. Accordingly, while some of the arguments based thereon might be more persuasive to the court than others, its ultimate answer to the question earlier posed would, in our opinion, be that this entire statute is limited in application only to those "small" loans.
This leads us, then, to a determination that this statute (RCW 31.08.200) is no more applicable to the out-of-state loan here described than is the earlier noted RCW 19.52.034, supra, which applies only where the borrower is a Washington resident. From this it follows that neither of these 1967 enactments limits or otherwise qualifies the enforceability of such a loan in the Washington courts ‑ thus leaving the enforceability of this loan to an application of those common-law principles which were enunciated by the court in Bank v. Doherty, supra, and Mirgon v. Sherk, supra. Absent any relevant factors distinguishing the loan in question from that which was before the court in Doherty, we would therefore regard this case as still being applicable to such a loan so as to permit its enforcement in this state even though it might be usurious under our own laws.
It is hoped that the foregoing will be of some assistance to you.
Very truly yours,
Thomas F. Carr
Assistant Attorney General
*** FOOTNOTES ***
1/Regardless, in this case, of the residence of the borrower.
2/See, e.g., State v. Asotin County, 79 Wash. 634, 140 Pac. 914 (1914); In re Horse Heaven Irrigation District, 11 Wn.2d 218, 118 P.2d 972 (1941); State v. Lake City Bowlers' Club, Inc., 26 Wn.2d 292, 173 P.2d 783 (1946); and Wilson v. Lund, 74 Wn.2d 945, 447 P.2d 718 (1968).