Court Opinion

ID: 9773071
Source: CourtListenerOpinion
Date Created: 2023-08-29 17:35:59.270973+00
Date Added: 2024-06-11T07:31:49.331265
License: Public Domain

John F. Stroud, Justice, dissenting. I agree with the majority opinion that there was not substantial evidence to support the finding of the trial court that the parties agreed to purge the account of the late charge, but I respectfully dissent from that opinion because I believe the late charge was not interest and, therefore, not usury. A monthly charge of 1.5% per month is clearly usurious under the Arkansas law if it is interest, but it just as clearly is not usurious if it is not interest. Labels are not to me controlling with one exception — if both parties to a transaction call or acquiesce to the charge being labeled as “interest,” they should not be able to subsequently deny the charge as “interest.” In all other cases, the facts should be examined to determine the true nature of the charge. Charges made by a lender to a borrower are traditionally interest charges, but the same is not necessarily true in the case of sales on an open account. In Redbarn Chemicals v. Bradshaw, 254 Ark. 557, 494 S.W. 2d 720 (1973), an open account was rightly voided as being usurious when the seller added a 1% per month “interest” charge. This charge was only added after the account was in arrears for more than two years in an amount of over $10,000, and was in addition to the service charge: According to the proof, monthly computerized statements, including a service charge, had been sent by Redbarn for a full year before the excess charge was imposed. The only testimony in this case was that the charges were true late charges added only to delinquent accounts. Mr. Clovis Reid, the regional credit manager of appellee, said Weyerhaeuser did not want to extend credit and that credit was not approved if the buyer did not appear able to pay in full within 30 days. He said appellee added the penalty to encourage prompt payment and that when an account was delinquent for 30 days, collection efforts were begun. This is substantiated in the case of appellant as written demand was made on him by the collection agency for full payment when the account was delinquent, even though the penalty had been paid current. He also testified that his regional office lost money on collections, employing four people during 1978 at a cost of $148,000 attempting to collect $400,000 in delinquent accounts, but that only $57,000 was collected. These figures are hardly consistent with an intent to extend credit and charge interest. If appellant had wished to dispute any of the facts reflected by the testimony of appellee’s employees, he should have presented testimony. Appellant cannot complain now that he did not testify nor call a single witness. This court has held many times that a late charge is in the nature of a penalty and does not render a transaction usurious, even when provided for in the instrument evidencing it. Phipps-Reynolds Company v. McIlroy Bank & Trust Company, 197 Ark. 621, 124 S.W. 2d 222 (1939); Harris v. Guaranty Financial Corp., 244 Ark. 218, 424 S.W. 2d 355 (1968). The rationale of this tenet was explained in Carney v. Matthewson, 86 Ark. 25, 109 S.W. 1024 (1908): The true test is: Has the debtor the absolute right to discharge and satisfy the contract at maturity by paying the principal debt and lawful interest? If he has, the contract is not vitiated by providing for the payment of an additional sum. In this case, appellant not only could have avoided the penalty by timely paying for the merchandise, but he could have received a 2% discount for payment within 5 days. In Hayes v. First National Bank, 256 Ark. 328, 507 S.W. 2d 701 (1974), a penalty of 5% or $5 was added to any late monthly payment, and the court held the charge to not be usurious. The majority attempts to distinguish the case by saying the charge was not recurring but was just a one time charge. If the borrower quit paying as appellant did in this case, the charge would be one time, but that one time would occur 12 times a year. See also Harris v. Guaranty Financial Corp., supra, where a contract was held not usurious even though a 5% late charge was assessed on the monthly payments after default. Appellant has alleged a usurious contract and the burden is upon one asserting usury to show that the transaction is usurious. Nineteen Corp. v. Guaranty Financial Corp., 246 Ark. 400, 483 S.W. 2d 685 (1969); Brown v. Central Ark. Prod. Credit Assn., 256 Ark. 804, 510 S.W. 2d 571 (1974). As appellant introduced no testimony in the trial court, the testimony of the employees of appellee stands unrebutted. Because of the highly penal nature of our usury law, the plainest principles of justice require that it be clearly shown that the transaction is usurious. Ark. Real Estate Co. v. Buhler, 247 Ark. 582, 447 S.W. 2d 126 (1969). The wrongful act of usury will never be imputed to the parties, and it will not be inferred when the opposite conclusion can be reasonably and fairly reached. Briggs v. Steele, 91 Ark. 458, 121 S.W. 754 (1909). The judgment of the trial court sitting as a jury need only be supported by substantial evidence. Holland v. C. T. Doan Buick Co., 228 Ark. 340, 307 S.W. 2d 538 (1957); Fields v. Sugar, 251 Ark. 1062, 476 S.W. 2d 814 (1972). I believe there was substantial evidence to support the judgment of the trial court and I would affirm the decision. Fogleman, C.J., joins in this dissent.