Court Opinion

ID: 9647729
Source: CourtListenerOpinion
Date Created: 2023-08-23 13:48:41.741958+00
Date Added: 2024-06-11T18:11:52.578891
License: Public Domain

Frank Holt, Justice, in this foreclosure action brought by the appellee, the appellants interposed the defense of usury. The chancellor found the transaction between the parties was free of usury and, therefore, appellee was entitled to foreclosure. We must agree with appellants’ contention that the court erred in so finding. In December, 1973, the appellants signed a construction note and mortgage in the amount of $28,000, bearing 10% interest per annum, in favor of appellee for the purpose of financing the construction of a residence. Advances or “draws” totaling $22,180 were made from February, 1974, through September, 1974. Subsequently, appellants sought to cancel the note and mortgage in the local federal court on the basis of usury. Appellee answered and then brought this action in the state court alleging that, despite demand for payment, the balance of $22,180 was due plus interest in the amount of $2,715.81, which represents the legal rate of interest. Appellants defended on the basis that the note and mortgage were usurious since the monthly statements, following advances on the loan, showed that appellee had monthly which resulted in exceeding the legal rate of 10% per annum simple interest. Further, the monthly statements reflected that appellee charged a daily rate of interest which also resulted in exceeding the legal rate of interest. Admittedly, the note and mortgage are not usurious on their face. No payment was ever made on the indebtedness. Appellee is a Tennessee corporation which operates in Arkansas and Mississippi with corporate offices in Memphis. Its Arkansas manager, who negotiated the loan with appellants, testified there was never any intention to charge any interest on the loan in excess of the legal rate of interest. Appellant Lloyd Cagle responded by exhibits to his testimony which show that the appellee mailed computerized monthly statements to him from its Memphis office. These exhibits on their face show, according to the balance and interest due, that a usurious rate of interest was being charged. It appears from appellants’ computation that these exhibits reflect a compounding of interest which yields 10.4712% interest per annum. The exhibits further reflect that by the use of a daily interest factor based on a 360 day year times 365 produces an annual interest rate of 10.139% interest per annum. It appears that when both of these methods are used together it produces a simple interest rate of 10.6235296% per annum. Appellant Cagle testified that he “suspected” a usurious rate was being charged and complained to the Arkansas manager, who replied that he “had nothing to do” with computing the interest and “it all came out of Memphis.” The appellee’s manager testified that these computer print-outs were inaccurate and eventually he notified the Memphis office to discontinue them. It appears that this occurred about the time these parties were involved in litigation in federal court which, as stated, preceded briefly this state action. He admitted the print-outs computed the interest monthly and the computer was programmed to compound interest on all notes whether in Arkansas or Tennessee. He could not say whether the interest was computed on a monthly or daily basis. It appears undisputed that in a companion transaction the appellee collected a note secured by a mortgage from appellants based upon a computerized monthly statement as here. Appellee argues that the requisite intent to collect a usurious rate of interest is not shown since the note on its face recites a valid rate of interest, no payment was ever made and the computer print-outs were erroneous. We are not convinced by this argument. There is a “conclusive legal presumption that, in the absence of fraud or mutual mistake, the lender is presumed to know the consequences of its adding an illegally excessive charge.” First National Bank v. Thompson, 249 Ark. 972, 463 S.W. 2d 87 (1971). Here there is no evidence of fraud presented and although a mistake in the computer print-out is asserted, it is certainly not a mutual mistake of the parties. We have also said that mere errors in mathematical calculations are not necessarily forgiven, thereby removing the taint of usury. Ford Motor Credit Co. v. Catalini, 238 Ark. 561, 383 S.W. 2d 99 (1964); and First National Bank v. Thompson, supra. Here it is also argued that the lender merely made a mistake of fact as to the calculations of interest and since the action is not based on a usurious rate of interest, the note and mortgage should be enforced according to its provisions. We are not persuaded by this argument. Brooks v. Burgess, 228 Ark. 150, 306 S.W. 2d 104 (1957). There we reiterated: It is not necessary for both parties to intend that an unlawful rate of interest shall be charged, but if the lender alone charges or receives more than is lawful, the contract is void.’ Here the lender’s monthly statements showed a computation of interest above the legal rate of interest. It appears it was not until litigation ensued that the appellee sought to collect its loan free of usury. We are not convinced that appellee’s monthly statements were mere mathematical errors in calculations. It is significant that, in a companion transaction with the appellants, the appellee made a loan to them and collected the principal and interest on.monthly computerized statements as here. We must hold that the evidence is clear and convincing that the transaction was usurious. Reversed and remanded for entry of a decree cancelling the note and mortgage. We agree: Harris, C.J., and George Rose Smith and Byrd, JJ. Dissenting Opinion on Denial of Rehearing