Court Opinion

ID: 9766838
Source: CourtListenerOpinion
Date Created: 2023-08-29 05:00:23.14169+00
Date Added: 2024-06-11T07:30:26.607757
License: Public Domain

Steele Hays, Justice, dissenting. On appeal, we review chancery cases de novo reversing the chancellor only when the findings of fact are found to be clearly erroneous or clearly against the preponderance of the evidence. And since the question of the preponderance of evidence turns to a large extent on the credibility of the witnesses, we should give deference to the chancellor. Milligan v. General Oil Co., 293 Ark. 401, 738 S.W.2d 404 (1987); Jackson v. Farm and Commercial Properties, 284 Ark. 130, 680 S.W.2d 105 (1984); Pirtle v. Opco, Inc., 269 Ark. 862, 601 S.W.2d 265 (1980); Hackworth v. First National Bank of Crossett, 265 Ark. 668, 580 S.W.2d 465 (1979). The majority disregards this well settled principle of law, and therefore I must respectfully dissent. The only element in this case which even remotely taints the transaction as usurious seems to be the closeness in time in which the payment of the commitment fee and the closing of the loan occurred. The commitment fee constituted a totally separate transaction which was not paid out of the proceeds of the loan as in Ark. S & L Assn. v. Mack Trucks of Ark., 263 Ark. 264, 566 S.W.2d 128 (1978). Testimony indicated that Harry Don Denton, chief lending officer at Madison Guaranty, discussed the requirement of the commitment fee prior to the closing of the loan and in fact sent a letter to William Henslee on June 19th detailing the terms of the commitment fee arrangement. The chancellor, in the superior position to judge the credibility of the witnesses, found that Henslee did know about the requirement of the payment of a commitment fee and that he was under no obligation to close the loan so soon after the payment of this fee. The commitment fee was not paid out of the proceeds of the loan, nor was the commitment fee arrangement recited in the note which so obviously ties the loan and the fee together as in First Nat’l Mtg. Co. v. Arkmo Lbr. & Supp. Co., 277 Ark. 298, 641 S.W.2d 27 (1982). Here the transactions were separate and distinct. In Mack Trucks, citing Sosebee v. Boswell, 242 Ark. 396, 414 S.W.2d 380 (1967), we discussed the principles which determine when additional charges, namely, a service charge/ commitment fee, constituted interest. The first principle was that any profit extracted by the lender which depended upon a contingency not within the control of the debtor constituted interest. The second principle stated that the moneylender could not impose upon the borrower charges that in fact constitute the lender’s overhead expenses or costs of doing business or else such charges were deemed to be interest. In discussing this second principle, the costs of doing business, the court focused on whether the lender, Arkansas Savings and Loan, as a matter of course charged a one percent commitment fee on all of its loans — construction, long term and residential loans. In finding that the one percent commitment fee applied across the board to various Arkansas S&L’s loans the court stated “this is no more than the collection from the borrower of a part of the lender’s overhead or expense of doing business.” Therefore, in Mack Trucks the court determined that a commitment fee paid out of the proceeds of the loan, by a lender who, regardless of the type of loan, charges the one percent commitment fee, constituted interest, and when added to the stipulated interest fee of the loan, the loan was usurious. Subsequently, in First National Mortgage Co. v. Arkmo Lumber & Supply Co., 277 Ark. 298, 641 S.W.2d 31 (1982), this court held that a commitment fee not charged separately at the outset but recited in the note inextricably tied the note and the commitment fee together, and thus the commitment fee could be considered interest and when added to the loan interest rate, the loan was usurious. The majority opinion said: We have held that a commitment fee, assessed by the lender for its readiness to have the total amount of a construction loan available when needed, is in fact part of the lender’s cost of doing business and must be treated as interest if charged to the borrower. The majority apparently equates Madison Guaranty’s assessment of a commitment fee for agreeing to grant the loan at a later date on certain terms and conditions as passing on the cost of doing business. If this is indeed its position, then it seems that the majority believes that a commitment fee per se should be considered as interest because it inevitably passes on the lender’s cost of doing business. However, the majority opinion only hints at this reasoning. The facts of this case certainly distinguish it from both Mack Trucks and Arkmo in that the commitment fee was not paid from the proceeds of the loan, nor was the recitation of the commitment fee inextricably bound up with the note, and Madison Guaranty did not charge this one percent commitment fee as a matter of course on all its loans. Therefore, the only possible taint of usuriousness would be the proximity of the time between the closing of the loan and the payment of the commitment fee. The closeness was not the intention of the bank, but rather at the insistence of the customer. The majority states that the June 19th letter to Henslee “on its face demonstrates that payment of the commitment fee would be contemporaneous with Madison’s act of closing.” This letter on its face only states that prior to the closing of the loan, this commitment fee must be paid and once the fee is paid, instructions for the closing will be given. I can find no basis for the majority’s deduction that this letter anticipated a contemporaneous payment of the commitment fee and the closing of the loan. In fact, the chancellor found that the closing so close in time to the payment of the commitment fee was for Henslee’s benefit and the testimony of Mr. Denton that “it was my understanding that the loan would be funded some date in the future,. . . but I certainly did not anticipate that it would be funded the next day,” was deemed credible by the chancellor. Despite citing language from Arkmo the majority shys away from stating that a commitment fee per se constitutes interest because it is simply the lender passing off its costs of doing business to the borrower. In fact, the majority opinion states that because of the closeness in time, the bank undertook no business risk, and thus had no risk to pass onto the borrower. Yet, the majority ignores the reason for the closeness as well as the chancellor’s determinations as to credibility. The majority leaves open the possibility that under the right circumstances — keeping the commitment fee and the loan separate as in this case — but without such closeness in time, that a commitment fee may be charged by a lender without constituting interest. However, what would be an appropriate length of time so as not to be deemed too close? Today’s holding is an invitation for a case in which an arbitrary distinction will have to be drawn as to what exactly is too close in time. Purtle, J., joins this dissent.