Court Opinion

ID: 8902247
Source: CourtListenerOpinion
Date Created: 2022-11-27 01:18:33.903131+00
Date Added: 2024-06-11T17:07:56.881882
License: Public Domain

HENLEY, Circuit Judge,
dissenting.
I respectfully disagree. While Philco could have established a floor plan which expressly provided for a 1.4% rate to be charged as a means of recovering unwaived interest previously accrued during the “free period,” it did not do so in this case. Phil-co’s agreement with Romine simply provided that “a 1.4% monthly renewal service charge is to be billed at the end of the free period.” Interest could not be billed to Romine nor was it owed by him until the “free period” had expired. I think it fair to interpret this to mean that the “free period” was truly free in that no interest covering that time span was chargeable to Romine under the contract. The terms of the floor plan make no mention of retroactive charges, but instead refer to a “renewal” charge which suggests a prospective intent.
As recognized in the majority opinion, the issue presented here concerning the appropriate method for computing interest where there is a “free period” such as that in Philco’s “free floor plan” has not been squarely addressed by the courts of Arkansas. However, in this case, the question has been considered by two experienced Arkansas judges, and their determination is worthy of special weight. Luke v. American Family Mut. Ins. Co., 476 F.2d 1015, 1019 and n. 6 (8th Cir. 1972), aff’d en banc, 476 F.2d 1023 (1973).
The public policy of Arkansas against usury is a strong one, and it has been repeatedly recognized by the federal courts in this circuit applying Arkansas law. McAdoo v. Union Nat’l Bank of Little Rock, Ark., 535 F.2d 1050 (8th Cir. 1976); Stephens Security Bank v. Eppivic Corp., 411 F.Supp. 61 (W.D.Ark.1976), aff’d, 553 F.2d 102 (8th Cir. 1977); First Nat’l Bank in Mena v. Nowlin, 374 F.Supp. 1037, 1038 (E.D.Ark.1974), aff’d, 509 F.2d 872 (8th Cir. 1975); National Surety Corp. v. Inland Properties, Inc., 286 F.Supp. 173 (E.D.Ark. 1968), aff’d, 416 F.2d 457 (8th Cir. 1969).
The Constitution of Arkansas, art. 19, § 13, provides that the maximum rate of *899interest that may be charged legally in the state is 10% per annum, simple interest, and that obligations calling for the payment of interest in excess of that rate are void both as to principal and interest. There are numerous statutes implementing this constitutional provision, Ark.Stat.Ann. 68-602 et seq., and the Supreme Court of Arkansas “has been zealous in guarding against any attempt to evade our constitutional provisions relative to usury.” Huchingson v. Republic Finance Co., 236 Ark. 832,370 S.W.2d 185 (1963).
Not long ago the Supreme Court of Arkansas held in Redbarn Chemicals v. Bradshaw, 254 Ark. 557, 494 S.W.2d 720 (1973), that where a usurious rate was charged on one month’s account for failure to make timely payment, the contract was usurious even though the total interest billed was less than 10% for the calendar year involved. The holding of the district court in this case is certainly consistent with the rationale of Bradshaw, although Bradshaw, of course, does not require a finding of usury here.
Philco should not be penalized for implanting an incentive in its dealer financing arrangements. At the same time, Philco should be required to make financing arrangements that manifestly pass Arkansas constitutional muster.
Giving due weight to the findings of the district court in light of the strong public policy of Arkansas against usury and of the tenor of the case law applying that policy, I would hold permissible the district court’s conclusion that the “free period” of the Philco floor plan was excludable for purposes of interest computation, and the 1.4% interest rate thus usurious.