Court Opinion

ID: 9660974
Source: CourtListenerOpinion
Date Created: 2023-08-23 22:25:25.245075+00
Date Added: 2024-06-11T18:14:23.809652
License: Public Domain

Ed. F. McFaddin, Associate Justice, dissenting. The Chancery Court held that the contract was tainted with both fraud and usury. In the opinion of February 19, 1962, the Majority rested its affirmance on the sole ground of fraud. My concurrence to that opinion stated: “My study of this case convinced me that the transaction was clearly usurious, and I rest my affirmance on that ground. As to the fraud matter, I express no opinion. ’ ’ On rehearing, the Universal C. I. T. insisted that since the contract was set aside on the sole ground of fraud, then this Court should eliminate the strict rules that govern in usury cases; and the opinion on rehearing agrees with the petition for rehearing. Thus, the Majority is now definitely holding that the transaction was not tainted with usury; and from such holding against usury I vigorously dissent because I am still of the opinion that the Chancellor1 was correct in his finding that usury was established. I submit that the facts surrounding the original transaction established usury. On May 21, 1959, Mr. Hudgens and his daughter drove their 1951 Dodge car to the “West Memphis Auto Sales” and traded it for a 1955 Ford, which was priced at $1,095.00. The Hudgens were allowed $245.00 for their Dodge, leaving a balance due by them of $850.00. To this balance there was to be added the cost of insurance and the interest charges; and the payments were to be “about $50.00 per month.” That the above was the original transaction is thoroughly established and must be conceded by the Majority, because if this had not been the original transaction there could have been neither fraud nor usury. Mr. Harris, who represented the West Memphis Auto Sales, told the Hudgens that ther was no one at the place of business that afternoon (May 21st) to type up the contract; and so the Hudgens signed the contract in blank, leaving it to West Memphis Auto Sales to fill in the contract. The Hudgens left their Dodge car and went away in the Ford. Later, the Hudgens learned that the blank contract had been dated May 22, 1959, and filled in as follows: Price of the Ford Car $1,395.00 Less Value of the Dodge Car 245.00 Unpaid Balance of Cash Price 1,150.00 Cost of Insurance 142.90 Interest Charge 133.42 Total Due $1,426.32 The last mentioned amount was payable in twenty-four monthly installments of $59.43 each. The price of the Ford car was increased on the contract from the agreed price of $1,095.00 to $1,395.00; so instead of owing a balance of $850.00, as the Hudgens testified, the contract showed they owed a balance of $1,150.00; and the amount of interest that they were to pay was $133.42. That interest figure speaks volumes.! The evidence thus unquestionably shows that West Memphis Auto Sales intended that the Hudgens were to pay the definite sum of $133.42 as interest, and this is conceded by the Majority Opinion to be usury on an $850.00 obligation. The intention to collect a definite sum of money, which is in excess of 10°/o, is usury. Commercial Credit Plan v. Chandler, 218 Ark. 966, 239 S. W. 2d 1009. So I submit with all the power at my command that when it was shown that the original balance due was $850.00 and the interest to he collected on that amount was $133.42, then usury was clearly established in the interest charge. The Lower Court found there was usury and should not be reversed on that issue. The Majority Opinion on rehearing contains this paragraph, which is a correct statement of the law: “Where a lender induces the borrower to sign a note in blank and later fills in the principal in a sum greater than the amount actually lent it has been held (correctly, we think) that these facts support a finding of usury. Cortner v. Bennett, 230 Miss. 369, 92 So. 2d 559; Autocredit of Fort Worth v. Pritchett, Tex. Civ. App., 223 S. W. 2d 951; contra, Chambers v. Gilbert, 68 Minn. 183, 70 N. W. 1077.” After recognizing the above quotation as a correct rule of law, the Majority Opinion seeks to differentiate the present case from the quoted rule on the theory that the West Memphis Auto Sales transferred this contract to the Universal C. I. T. and that it was the Universal C. I. T. that exercised the “forbearance” and did not receive the extra $300.00 for doing so. The transaction and the determination of the amount of interest to be charged is not to be determined after a transfer, but is to bé tested by what West Memphis Auto Sales intended at the time. General Contract Corp. v. Duke, 223 Ark. 938, 270 S. W. 2d 918. The West Memphis Auto Sales filled out this contract and transferred it to the Universal C. I. T. and received a check for $943.00 and also a potential subsequent recovery called a “reserve” of $207.00, which would be $1,150.00 as the total amount that the West Memphis Auto Sales was to receive. This was $300.00 more than the West Memphis Auto Sales should have received, and that $300.00 is usury in itself. The Majority Opinion on Rehearing says: “It will be seen that the fundamental characteristic of usury is the exaction of an excessive charge for the loan or forbearance of money. In the case at bar if the dealer had intended to keep the contract himself and had inserted an increased principal amount as a device for obtaining a higher return as compensation for his extension of credit, then a finding of usury might well be justified. ’ ’ In effect, that is what the West Memphis Auto Sales did. It raised the price of the car $300.00 and was to get $300.00 extra for the credit transaction, and that $300.00 was usurious. In Foster v. Universal C. I. T. Corporation, 231 Ark. 230, 330 S. W. 2d 288, we said: ‘ ‘ The appellant shows that the contract at its inception had in it the seeds of usury, because it allowed the appellee under the circumstances that came into existence in this case to retain some of the appellant’s money without promptly crediting such amounts on the maturing payments due on the contract.” The same reasoning applies here. This contract had the seeds of usury sown in it because it allowed the West Memphis Auto Sales to get more than 10% for the forbearance of the real debt of $850.00. Merely because the West Memphis Auto Sales later sold the paper to the Universal C. I. T. doesn’t alter the fact that the West Memphis Auto Sales deliberately set about to have the Hudgens pay more interest than they should have paid; so the transaction was usurious in its inception, and the Chancery Court should be affirmed in its holding to that effect. We are certainly opening the door to ruin all of our usury holdings by letting fraud by the seller be a defense against usury. That is letting one wrong be a defense against another wrong. The effect of the present holding will be that a seller may persuade a trusting buyer to sign the blank contract, and may thereafter raise the price and transfer the contract to a finance company and thereby both the seller and the finance company will avoid the extreme penalties of usury. As I see it, the vice in the Majority holding is the failure to recognize— as did the Chancellor — that usury was present in the original transaction.   In his opinion, the Chancellor said concerning the usury: “The Chancellor finds that though there is a conflict in the testimony the preponderance of the evidence is to the effect that the execution of the .Conditional Sales Contract in blank by the defendants was obtained by false representation by the agents and employees of West Memphis Auto Sales and that the agreed purchase price of the automobile was $1,095.00 rather than the sum of $1,395.00 as reflected by the sales contract. Therefore, the finance charge shown by the contract of $133.42 exceeded 10% interest on the amount which should have been shown in the sales contract, and was therefore usurious. In the recent case of Foster v. Universal C.I.T. Credit Corporation, 231 Ark. 230, 330 S.W. 2d 288, opinion delivered Nov. 16, 1959, wherein the Supreme Court found that though a contract was not usurious on its face the seeds of usury had been sown' in the contract and became usurious upon the occurrence of a contingency which made the sales contract usurious. In this instance the inclusion of an amount greater than the purchase price agreed upon resulting in a greater rate of Interest than 10% on the balance due would have been such a contingency as would make the transaction usurious and therefore void.”