Opinion ID: 2445246
Heading Depth: 1
Heading Rank: 1

Heading: usurious loan

Text: Initially, we note that while we review chancery cases de novo, we recognize the superior position of the chancellor to weigh issues of credibility and therefore we do not reverse unless the chancellor's findings are clearly erroneous. Taylor's Marine, Inc. v. Waco Mfg., 302 Ark. 521, 792 S.W.2d 286 (1990). In denying that the transactions amounted to a usurious loan, the appellees first contend that the documents were not usurious on their face. While it is true that, taken alone, the original warranty deed and option contract appear to be documents concerning only the sale of land, and no mention of a loan or obligation on the part of Mr. McElroy to repay the appellees is recited, these transactions call to mind an oft quoted maxim: The law shells the covering and extracts the kernel. Names amount to nothing when they fail to designate the facts. Sparks v. Robinson, 66 Ark. 460, 51 S.W. 460 (1899). In Sparks , we upheld the trial court's conclusion that an absolute bill of sale of a sewing machine, coupled with an absolute right of redemption, amounted to nothing more than a mortgage with a usurious rate of interest. Here, the chancellor found that the purported sale and option to repurchase were nothing more than a cloaking device to hide the true transactiona loan in the amount of $80,000 to be repaid in two years, with interest totalling $40,000. Such a transaction has been historically recognized as one of several simple devices to evade Arkansas usury laws. See G. Collins and V. Ham, The Usury Law of Arkansas: A Study in Evasion, 8 Ark.L.Rev. 399 (1954). The burden is upon the one asserting usury to show the transaction is usurious, and usury will not be presumed, imputed, or inferred where an opposite result can be fairly reached. Winkle v. Grand Nat'l Bank, 267 Ark. 123, 601 S.W.2d 559 (1980). The test, however, is not whether the lender intended to violate the usury laws, but whether the lender knowingly entered into a usurious contract intending to profit by the methods employed. See Id.; Davidson v. Commercial Credit Equip. Corp., 255 Ark. 127, 499 S.W.2d 68 (1973). Furthermore, it is unnecessary that both parties intend that an unlawful rate of interest be charged; if the lender alone charges or receives more than is lawful the contract is void. Superior Improvement Co. v. Mastic Corp., 270 Ark. 471, 604 S.W.2d 950 (1980) (decision under prior law). The chancellor was faced with conflicting testimony throughout the trial in this case. He obviously found Mr. McElroy's version of the events to be the more credible and, deferring to his advantage in observing the witnesses' demeanor and in considering the evidence presented in the record, we cannot conclude that his decision was clearly erroneous. Mr. McElroy testified that prior to contacting the appellees, he had approached a number of banks and individuals for a loan and had been rejected. He testified that he was in dire financial trouble and that the appellees were aware of his situation. Mr. McElroy contacted Mr. Grisham and initially requested a loan of $100,000. This request was rejected but, after further discussions, Mr. Grisham agreed to a loan of $80,000, of which $40,000 was to be repaid in one year and another $80,000 within the following year. This agreement later developed into a warranty deed combined with an option to purchase. Mr. McElroy admitted it was he who proposed the terms finally agreed upon, and we have said that a debtor may be estopped from asserting the defense of usury when the debtor created the infirmity in the contract in order to take advantage of the creditor. Ford Motor Credit Co. v. Hutcherson, 277 Ark. 102, 640 S.W.2d 96 (1982). Such was not the case here. Mr. McElroy stated that he was in financial straits and testified repeatedly that it was never his intention to relinquish his land, but simply to arrange a loan for temporary financial relief. Clearly, it was the appellees, not Mr. McElroy, who received an unfair advantage. Furthermore, there was testimony from Mr. McElroy's expert witness that the land was valued at $227,200, and, in fact, Mr. McElroy stated that he paid approximately $238,357 for it. This evidence reflects a gross disparity between what Mr. McElroy paid for it, and the appellees' purchase price of $80,000. There was also disagreement in the record as to the execution of the contract for sale. The appellees maintain that Mr. McElroy simply failed to exercise his option in time and that a lawful contract for deed was then executed after the allegedly usurious transaction was obsolete. Again, the trial court gave credence to Mr. McElroy's testimony that he began discussing the exercise of his option before the February 13, 1988, expiration date. The parties discussed Mr. McElroy selling a condominium to the appellees for $45,000, which could be rolled over to the option contract, but this plan was not carried out. When it became apparent that Mr. McElroy would be unable to make the $40,000 payment, as required by the option contract, the parties renegotiated and executed the contract for deed with new terms of payment. Although the document was signed on March 1, 1988, Mr. McElroy claims that its terms were decided prior to the expiration of the option contract and introduced into evidence a typewritten memo setting out such terms, which he claims to have signed on February 13, 1988. In deciding whether a certain transaction is usurious, all attendant circumstances must be taken into consideration. Sammons-Pennington Co. v. Norton, 241 Ark. 341, 408 S.W.2d 487 (1966). Mr. McElroy's obvious financial troubles, his expressed intent to keep the land, the substantial disparity between what Mr. McElroy paid for the property and the appellees' purchase price, and the appellees' immediate renegotiation of a contract for deed when it became apparent Mr. McElroy could not exercise his option, all point to the conclusion that none of the parties intended for the property to come into the hands of the appellees any more than was necessary to secure the loan and for the appellees to make a profit from such loan. Similar transactions have previously been scrutinized by this court and all were deemed usurious. See Tillar v. Cleveland, 47 Ark. 287, 1 S.W. 516 (1886); Sparks v. Robinson, 66 Ark. 460, 51 S.W. 460 (1899); Banks v. Walters, 95 Ark. 501, 130 S.W. 519 (1910); Ringer v. Virgin Timber Co., 213 F. 1001 (E.D.Ark.1914); Sleeper v. Sweetser, 247 Ark. 477, 446 S.W.2d 228 (1969). We have no trouble in reaching the same conclusion and uphold the chancellor's finding that all of the transactions constituted one scheme to loan money at a usurious rate of interest.