*1 Raymond T. A. L. Boswell, et al Corporation Investment Trustee 2d 380 W. 5-4142 April delivered Opinion May 29, [Hehearing 1967.] denied Young & Rostech; M. Wil- Smith, O. Yotmg By liams, Friday Bowen; By George & Jr., Pihe ap- pellant. Smith, appellee.
Griffin George Rose Smith, Justice. This is a foreclosure suit brought by the appellee Blaylock Investment Com- securing made pany of trust deed enforce *2 appellants, Sosebee Blaylock Dr. Mrs.. three reject- Developers, Valley chancellor The Inc. View ’ plea of usury a decree and entered borrowers of ed the testimony of we find foreclosure. Inasmuch as witnesses, Blaylock’s clear-cut case own a establishes only issue. we need discuss in 1965 years, loan was made before For several corpora- acting through Valley View Sosebees, attempting develop residential addi- a had tion, to fi- in serious was to North The venture Little Rock. tion creditors with and other trouble, nancial pressing materialmen applied Blaylock to their claims. The Sosebees 'Company, $118,- a a loan Investment broker, loan $78,700 of which was to be used creditors to remaining actually (which ad- never $39,300 vanced) develop to and sell 51 subdivision. lots Blaylock con- to refused lend purposes, be an in- him struction because believed it develop- agree competent It builder. did to finance the ment considered to lots, sale which expected parties all a value about $223,000. The during three-year be sold loan. lots life manager, Cooksey, Blaylock’s William G-. Arkansas company testified that not think the interest did enough great a subdivision a such as this loan one Blaylock return for itself risk Moreover, involved. long-term “All not make loans: did investments in such up of our loans wind with institutional investors.” sought closing Blaylock Hence, before loan, the Sosebee opportunity (a) (b) an institutional investor and profit for itself whatever interest make addition to a might involved. accomplished. objectives Blaylock ob-
Both Life firm tained a written commitment from Standard Company by Standard & Insurance which Accident purchase agreed towas $118,000 Standard loan. borrowers, and receive 1% from commitment fee charge Blaylock from them was to receive 1% service items, being chargeable admittedly interest. as —both pay- bearing annum, interest at loan, equal principal period years able three over three installments. procured from side also the Sosebees (called Blay- Agreement) which an Escrow expected profit. pivotal question
lock its increase profit must be whether that additional case as If usurious; interest. other- treated so, *3 wise not. Agreement letter,
The Escrow form of a the Blaylock, Valley addressed to which the Sosebees sign. agreement View were so hard The accurately quote its essential we summarize provisions: your procuring
“In . . un- consideration of . for the dersigned development sum the of $118,000.00 financ- ing your provide undertaking permanent FHA financing VA for residences to be constructed and/or upon captioned undertaking lots, which shall include your finding necessary processing appli- funds, approved by cations FHA loan, VA and when and/or your closing The FHA VA and of investors the and/or mortgage undersigned such hereby agree loans, [do] place you ... in escrow with at the . . time each lot . is released mortgage from the $118,000.00 blanket cover- ing such lot, sum of for each If $150.00 such lot. upon respective builder of a residence lot closes permanent his financing upon FHA VA said lot and/or through your company, approval property after of and borrower the investor and the FHA VA, and/or said sum of $150.00 shall be to the under- refunded signed respective such when loan is closed. It is under- agreed you stood and mortgage shall make such approval loan after property of borrower and your investor, VA FHA loan for such and/or going to exceed yonr rate, but then discount charged by charges, in force and discount other purchase Mortgage in the Association National Federal mortgage notes. of such monies, any lot, attributable to
“As to the escrowed relating permanent financing closed is not if through your to such (3) years company from date within three monies, liqui- you as such are to be forfeited hereof, legal damages, processing fees, dated and refund expenses by you. charges and be incurred incurred complete nec- notice or This without forfeiture to upon essity by you; of the events demand failure set forth to limit set hereinabove occur within the time ap- damages forth. plied said forfeited accounting by you disbursed without your undersigned "uncontrolled manner ... hap- being agreed, discretion, however, pening undersigned have no event shall either agree- liability arising further additional out closing through an- the facilities ment. except lender, loans, other short term construction appli- shall be for immediate forfeiture of the fee cause *4 given regard cable lot time element to a without specified above. prior maturity, any devel-
“Should, the on date opment prepaid lump sum [do] undersigned place hereby agree escrow the ... you mortgage the at full with time is retired the the by sum of the for each individual lot covered $150.00 disposi- mortgage prepayment. final date of exact ac- tion of escrowed made in these shall be funds releases, covering provisions applicable with the cord individual lots.” Agreement well- tested two
This Escrow is profit principles: lend- settled exacted First, upon depends con- er must be as if it treated 400
tingeney not of the debtor. we said within the control As Bank & Co., in Hollan American 159 Ark. Tr. Com. (1923): stipulates S. W. 359 the lender “When repayment principal and interest absolute highest legal profit payable rate, and a further upon contingency not under the control of the borrow er, Furthermore, the contract is usurious. even lender’s, [our italics] receiving chance excessive profit arrangement under the transaction more is * * * legally require. than the is entitled to contingen A is usurious when the fortiori cy payable under which un the excessive interest der control of the lender.” moneylender impose
Secondly,
upon
cannot
charges
in fact constitute the lender’s
expenses
doing
overhead
business.
costs
out
Such
lays
fundamentally for
are
can
lender’s benefit and
not, whatever
be shouldered off
bor
device,
point
unequivo
rower. On
our
this
recent decisions are
cal. Strickler v. State
Co.,
Auto
Finance
; Winston
(1952)
W.
v. Personal Finance
(1952).
Ark. 580,
The Escrow flouts both ciples. These borrowers had not even a semblance of contingency control over the that would avoid for- deposit. point appellees feiture of each $150 On pointed make this assertion in their brief. “It should be here out that all to avoid forfeiture had do Blay- $150 lot was to send the customers to lock and short make them loan.” The suggestion possibili- answer to this twofold is that both beyond patently ties control. Sosebee’s Sosebee’s responsibility selling moneylenders to was that of *5 power pur- compel It lots. not lie did within to his apply Blaylock chaser of lot to loan. to purchaser Again, if even seek elect to did Blaylock loan deci- had no in the voice lender’s disapprove application. approve In sion to Agree- paragraph quoted from the Escrow first have we no than each ment stated fewer that three times approved Blaylock’s loan must he At investor. argument appellees oral counsel for the insisted that Blaylock any contractually to amake loan to bound purchaser rating acceptable. credit True, whose but really Blaylock prom- all that assertion means is that making only ised do business as usual, such loans as any lending agency equal- other similar have ly glad significant Blaylock It make. that offered advantage, ho discount, financial or other inducement supposedly promise provide long-term for its financing valuable bought Valley
for those Sub- who lots View division. Agreement
The Escrow runs counter to the likewise expenses that lender’s rule cannot foist- overhead something off on the borrower as ed other than quoted on the contract, above, loan. The declares deposits “liquidated escrow are forfeited as be and damages, processing charges legal refund fees, expenses Blaylock. incurred and to be incurred” Blaylock’s manager, Cooksey, up came with this lame explanation: “The $150.00 is a fee that we have deter- past experience mined from that would cover our ex- pense justify committing period us. for a ourselves years. of three . of We, . our course, maintain have office and our staff. contact banks for veri- We have applicants’ deposits, many employ- fication of cases the Blaylock expenses In ers.” short, had overhead duty stemmed not from to sell but from Sosebee’s lots lending money. its. own business
Especially pertinent usury is the issue of agree- paragraph quoted third we from Blaylock profit guaranteed ment. Here to itself its even $150 made should lot its investor prepaid any in full and thus before lots sold any expense. before had incurred risk
402
refinancing
accomplished by
prepayment
a
were
If tlie
appel-
according
mortgagee,
new
the debt,
legally
reasoning,
from Sosebee
exacted
have
could
lees’
Blaylock
Agreement
re-
precisely
Escrow
that
the same
uncondi-
quired.
would
that event Sosebee
In
tionally
a
bound to
lot
one
$150
possible
be
it would not
since
both,
and often to
other,
par-
improvement of a
finance
for both lenders to
by
bought
a
Similarly,
all
the lots
ticular lot.
property,
single purchaser
paid
thus
cash for
who
pocket
liquidating
$150
loan,
the Sosebee
finger
having
it.
to earn
lifted
lot without
appellees argue
transac
brief
The
their
being
usury
tion was
forfeiture’s
shielded from
contingent
They
contingent.
non-compliance
say:
“Forfeiture
presence
part].
[on
aof
Sosebee’s
usury.
any aspect
contingency
v.
Dunbar
eliminates
Building
2d
284 S.
Loan,
&
W.
State
[1926].”
In
broad.
the first
This
much
statement is
too
may
place,
contingency
a'
the insertion of
itself
Doyle
usury,
185
Co.,
Loan
cloak for
as in
American
v.
(1932). Secondly,
Dunbar
Ark. 233,
Habéis,
Fogleman,
dissenting.
appeal
JohN A.
This
Justice,
Foglemaet]
from a
that the
of the chancellor
trans-
decision
comes
usury.
action did
in order to
must,
constitute
We
say
findings
clearly against
reverse,
that his
of fact were
*7
preponderance of the evidence,
or that the evidence
light
appellee,
viewed
favorable to
shows
most
that the
I
was usurious as a matter of law.
transaction
agree
prevails.
do not
that either situation
abrogated
This court has not
the rule that the bur
proof
upon
party
pleads usury
den of
who
show
clearly that
the transaction was
v.
usurious. Wallace
238
Hamilton,
Ark.
382
406,
Mack,
v.
363 ;
S. W. 2d
Smith
Phillipe,
105 Ark.
151
653,
W. 431 ;
S.
v.
Ark.
Jones
135
578, 206 S.
Briant
40 ;W.
Carl Lee Bros., 158 Ark.
v.
usury against pay
62,
There
no
hidden
unitemized
in this case.
dealings
open
All
and above board. Dr. Sosebee
1
am
unmindful
Co. v.
Dickinson-Reed-Randerson
Stroupe,
277,
Tankersley,
520 ;
169 Ark.
275 S. W.
Tisdale v.
192
Maness,
70,
225 ;
465,
Ark.
90 S. W. 2d
and Tisdale v.
380,
preponderance
92
2d
S. W.
wherein
was held that a fair
necessary.
the evidence was all that was
Later cases have restated
convincing
the “clear and
rule”. All three of these
affirmed
easeja
trial
two,
court and in each
first
evidence that seems to
clearly
have shown
presented.
there was
third
might actually
applied
preponderance”
have
the “mere
rule
cited
hut
authority.
no
exactly
reluct
what
transaction was. However
knew
may
agreement,
ant he
to make the
dealings.
A collateral contract
not overreached in
contemporaneously
into
lender entered
money
lending
borrowing
with
contract for
agreement is
lawful and made
itself
where the collateral
good
for loan of
not invalidate
faith,
does
might gain
although
some
as
the lender
usurious,
might
advantage
to exact
from
more
the effect
legal rate
from a
than would accrue
Hogan
*“* * advan- took that Simms if it found Even a tage to drive Johnsons the necessities than purchased less bargain, land at hard and necessarily follow its true does not value, it if hand, other but on transaction was usurious, conveyance testimony of the showed that merely inadequate price grossly a land at a disguise a transaction, to usurious scheme through equity of the form look court of should it to be substance and declare transaction vo'id.” always
Unquestionably scrutinized this court has might suspicious covers constitute transactions true determine in order to conceal interest usurious Ark. Wilson, 205 v. Hartz nature transaction. most reluctant court has S. W. 2d 956. This 965, 171 in chancellors in volving cases decisions these to overturn good lender acted whether determinations point usury as for was a cloak faith the transaction Corp., Acceptance Ark. v. Murdock out in ed Griffin 2d 242. 303 S. 1018, W. payment requiring A for services rendered contract exclusively money not usurious. for advanced Ayers & v. 185 Ark. 49 W. 2d 1956. Ellis, S. Graves A for of the of a commission of 1%% notes, given against which amount bank invoices company money in hank to mill at advanced 10% compen terest credit account held its keeping sation for the account trouble services this, company render the manner for mill and not to Murphy, 31, 102 83 Ark. loan usurious. Citizens Bank v. W. 697. S. mortgage given mer cover *9 filling
was a lease of
station, bulk sales station
a
equipment
$7,500.00
worth
lender for
to
per month.
$1.00
The transaction was held not usurious
agreement
par-
corrupt
in the absence of a
between the
ties making the lease a
or cloak
which
device
pay.
intended to exact and
borrower to
agreement
An
between a
factor
cotton
cotton
planters by which the former was
loan substantial
to
per
money
sums
at
annum the latter to
to
enable
crop
them to make a cotton
were to
latter
ship at least 200 bales of cotton which
to
factor was
pay
to sell or
undertake
to
$1.25
bale
damages
each
bale less
number
than the
was held not to
Black
transaction usurious.
make
Hayes,
burn v.
59 Ark.
an ar-
366, 27 W.
Such
240.
rangement
to
valid even
a conten
held
was
where
being
was
at
tion
made that
not
the cotton
sold
highest
price.
market
v.
Perkins &
McCraw,
Scott
Webber
901.
same re
177 S. W.
133,
agreement required
when
bank to
sult
reached
ship
bale for each
advanced. Allen-West
$10.00.
one*
Peoples
Co. v.
Ark.
1041.
Bank, 74
84 S. W.
Comm.
agreement requiring
An
rice farmer
that straitened
salary
about
his lender
for assistance and advice
cultivating
harvesting
crop
money
a rice
for which
good
was loaned
faith and valid. Cain
was held
Stacy,
55,
Appellee in a is trustee deed of trust to secure the Blaylock appellants of an indebtedness to Corporation, mortgage Investment a firm bankers, approached by appellants. Dr. As behalf of mortgage Blaylock money really banker, is not lender. procedure approach Its normal investor on a is to an institutional
proposed loan for commitment from purchase investor the Blaylock the loan at future some date. loans borrower on agreed upon terms the commitment in order expedite the In deal. this a firm case commitment was obtained from Standard Life and Insurance Accident Company purchase May loan on or before 1966. purpose Blaylock making type of loan promote at all was in order its usual business—that handling just individual residences, loans on as purpose of the cotton factors in the above cited cases promote selling their usual business cotton. any at made subdivision loan they get going rate least opportunity get They sought the home loans. owner advantageous agreement insuring obtained an soli by appellants guaranteeing citation on behalf their *10 prospective purchasers an entree lot themselves for placing of the home loans.2 to in- individual In order 2 Blayloek placed also these loans with institutional investors and doing collecting received a fee from them for the and book keeping, amounting per to from one-fourth to one-half of one cent performance, provided they damages, sure just They require as the cotton factors did not the did. payment of a lot amount was and until sold the this liquidated damages appellants returned he were Blaylock actually permanent "financing the handled particular Blay- for a residence constructed lot. on the undertaking provide financing was FHA lock’s or YA by finding appli necessary processing funds, the closing approved by and cations FHA and YA. loans going Such at rate, loans were he discount charges charged to exceed discount and rates purchase Mortgage Federal National Association only requirement of notes. The that property requirements meet the FHA ob or VA the investor whose funds by Blaylock. requires tained This a service which is knowledge money some care market skill of the definitely an ad available investors. It would vantage purchasers, to lot would most of whom slightest obtaining type idea of fi about this nancing. knowledge It should matter common economy there times that are our such when type guar loans of difficult obtain. A this become naturally pro financing anteed source purchaser mote of lots,3 would be and each sale Blaylock’s undertaking. only informed of of 51 lot If purchasers through Blaylock, obtained their loans possibly, transaction could not construction, under payment by appellants the loan result in under both agreement collateral amount of an excess of 10% annum on the loan. only question
I submit that the court fact agreement below or not was whether the collateral good into faith. No contends it entered one They paid fee on the loan. would also receive placed. of the loan time property appellee 3 For some reason five on other had houses unsuccessfully for sale which he “could not close” and on which money president tried Blaylock. Blaylock’s said to borrow from vice government had been market loans' as to insured in a state of turmoil for about six months. *11 illegal. said pre- see can be I how it of itself do in and hot clearly against finding that ponderance is the*chancellor’s I submit also of the evidence. of the
agreement
usurious because
considered
be
cgnnot
apparent
than
that more
that it is not
fact
obvious
paid
in-
loan
as
of
of
amount
damages,
under the
on the note
terest
majority’s
agree with
In
I do not
contract.
this
sqme
application
decisions.
of
of our earlier
holding in Dunbar v. State
I contend
Building
through net dues payments. monthly amount earned on her If loaned immediately monthly out continuously, inter- payments might compounded est her have many benefit tingency times. This hazard or con- element of any usury
in
from
eliminated
agreement.”
mine]
[Emphasis
contingency
certainly
there
con
was
not
under
slight
trol
the borrower. This
not
in the
rule is
altered
by
holding Doyle
in
est
v. American Loan Co., 185
Ark.
contrary,
233,
I cannot that the decision O ’Brien v. Atlas Company, Finance 176, 839, Ark. 264 S. W. limited legal, agreements building fide collateral bona loan unconscion Such associations. limitation ably, discriminatory. probably unconstitutionally, actually paying loan
There his monthly by paying an investment certifi installments interest. No such transaction issued cate compar much This is is involved here. transaction more practice building association than able to companies. finance of certain the investment certificate agree application v I of Hollan Neither can with the & Trust American Bonk Comm. majority.'The language quoted S. W. there opinion excerpt from in and all is textbook its from except The last sentence last sentence dictum. contrary correctly applied, part but the earlier Building only & cases, earlier to Dunbar v. State but case, *13 Association, 2, Loan 284 S. W. Ark. 232, holding years I the actual decided three later. submit that Dimbar Hollan case with that of the is consistent an, con bank Hollan was automobile dealer. The case. thirty payable bearing that tended a note 8% days of a because after rendered date was not usurious contemplated brokerage charged, since it was 1% maturity not sold borrower had would extended if the enough held that the clear ears note. The court preponderance against bank’s evidence was payment court contention. brokerage said that The having contingency, upon was not based a. that the time made. It added loan taken out when the was option or control within not wholly borrower but that renewals extensions grace optional of its and a with the matter supersede language not should favor. of a textwriter Valley Dr. our decisions of own court. go purchaser any certainly could not View force Blaylock certainly an excellent have been would but there hand, On other opportunity by them.' for solicitation any could Blaylock who down could turn not requirements. security meet reasonable credit by the subject contingency, control not then, was appellants some did lender, and it seems me it. control over explained president Blaylock how
The vice amount lot selected. It is an $150.00 amount experience past determined from which would cover their expense committing themselves to obtain or maintain accept permanent institutional investors who tight money loans, residential even markets, over a process period years applications by loan Blaylock of three applicants unsuccessful which would not compensated. something This otherwise different expense charge from a service on a overhead actually as was made the situation in Strickler v. State Auto Finance S. W. 307 and 2d Co., Winston Personal Finance 249 W. 315. did not include its overhead expense arriving connected with this loan at the $150 figure, require appellant nor does it seek to bear that burden. say
How can we ais clear even fair there preponderance of evidence that the conclusion reached reasonably chancellor is one that could not reached? upon
Possible
based
collateral
contract not
brought
consummated and
which suit
a defense to
an action for
amount of
loaned
*14
mortgage securing
for
and
foreclosure of
Mitchell
it.
the
Day,
104 S. W. 2d
This is another
198.
why
reason
chancellor
as this
affirmed,
the
should be
strikingly
case case,
similar.
Mitchell
the lender
In the
agreed
upon
security
to loan $2,000.00
at 8%
mortgage on
land,
certain
would deed him
another
of land.
$983.63,
tract
Lender advanced
but
refused to
make
advances because of
further
defects
mortgaged property
borrower’s title to
and returned
property.
deed to
Thereafter,
the other
bor-
brought
perform,
rower’s ultimate
to
suit
refusal
mortgage.
appellee
on the
and to
Here,
note
foreclose the
only,
judgment
actually
seeks
to have
amounts
sought
recovery
advanced and no
the collateral
agreement. The contract
consummated in
was never
here
Appellant wholly
holding.
failed
the sense
the above
required payment
performance bond
furnish
protect
contractors
the work
worded
of certain
develop-
priority
necessary
lender’s
insure
parties
accomplished.
knew
of the
All
ment
lots
appellants
necessary
development
in order
Only
sold
able to
the loan.
retire
three.lots
deposits
only
debt,
acceleration of
three
before
so
against
damages
Thus the contract
were made.
of the
I
no definition
not consummated. While
find
the facts
cases,
Arkansas
‘‘consummate”
word
clearly
in mind
that court had
indicate
the Mitchell case
sup-
Dictionary
given
in Black’s Law
the definition
ported by
listed under
defini-
most
authorities
It is:
Phrases.
tion in
Words
bring
by completing
intended;
what was
“To finish
carry
bring-
carry
point
degree;
or
utmost
perfect;
completion;
achieve.”
fulfill;
finish;
carry
its
it to
ultimate
To consummate
contract is to
completion.
City
York, Misc.
New
Schulman v.
Since do propriety I of the will not discuss debt, of acceleration length. say that both the sufficient to failure It is protecting performance bond furnish development insuring priority lender’s constituting security property as.
security
the failure to
interest when
instrument and
evidentiary support.
adequate
due have
I
trial court.
affirm
of the
the decree
joins J.,
I am
C.
authorized to
Harris,
state
this dissent.
Notes
by payee
be furnished
with
10%
chandise
by agreement
annum,
usurious
rendered
p'ayee
charge
for the
commission
10%
price
year
year
first
on
the second
paid by
jobbers
him
and wholesalers on merchandise
good
by.
furnished
securing
the maker
faith
him, made
profit
goods
and not
evade
Briggs
laws.
754.
Steel,
W.
Company,
In Leavitt v.
Marathon Oil
1077,