Variable Interest Ag Loan and “Interest Assistance Agreement” Construed

November 15, 2010 | Erin Herbold

In this case, a farmer obtained a variable interest ag loan from a bank in 2000. The bank and farmer entered into a loan agreement, whereby the bank would lend $250,000 to the farmer at a discounted interest rate of 7.65% (4% less than the bank’s base rate). The parties also entered into a separate “interest assistance agreement” under which the Farm Services Agency agreed to reimburse the bank its 4% discount in exchange for the bank passing on the discount to the farmer.  The agreement also stipulated that the bank had to comply with federal regulations governing interest rates; including a regulation that the lender may charge a fixed or variable interest rate, but must not charge in excess of what the lender normally charges ag loan customers. The farmer and bank agreed to a variable rate loan. 

Eight years later, the farmer sued claiming that the bank was charging him a higher interest rate that its average ag loan rate. The bank sought summary judgment, stating that the farmer received the correct rate at a four percent discount throughout the loan term. The farmer filed a resistance to the bank’s request for summary judgment, but the trial court struck the farmer’s resistance motion as untimely, stating that the resistance should have been filed within 15 days of the bank’s motion. Ultimately, the trial court granted summary judgment on all counts to the bank.  The farmer appealed.

The appellate court found that the trial court appropriately dismissed the farmer’s resistance to the motion for summary judgment, because the farmer never officially received an extension of time from the court.  However, the appellate court did find that there was a “genuine” issue of fact concerning whether “reasonable minds could differ in how to resolve the factual issues.” In this case, there was plenty of evidence to give rise to a question of whether there was a breach of loan agreement and loan interest agreement. The court looked at the actual loan documents between the parties and the average interest rates charged by the bank to other ag loan customers. Further, the farmer testified that the bank president had told him he was overcharged interest and the interest had actually been reduced when the farmer challenged the bank. In essence, there was enough evidence to show that the bank was not consistently charging the base rate minus 4% as required by the interest assistance agreement to create a question in the minds of the trial court or jury. Thus, this case was remanded for a full trial. Klinge v. Luana Savings Bank, No. 0-628/09-1856 (Iowa Ct. App. Oct. 20, 2010).