*1 123 Reynolds’ tape recording Reynolds’ impeach statement to testimony.
A was held hearing on the voluntariness of state- Nobody ment and the voluntary. court concluded that was Reynolds asked what the is no statement was. There re- Denno quirement hearing that must involve the details of statement, only voluntariness, its with ample opportu- nity for the defense to the burden test of the State. See Denno, supra; Jackson People, Silliman Colo. 114 (1945). 162 P. 2d found Bushong trial court properly rights of his warned and that the statement he made to Reynolds was admissible. The trial granted court Bus- hong’s attorney a full opportunity Reynolds’ to impeach testimony and a continuance to obtain the would not tape materially have aided the say defense. We cannot the trial findings clearly court’s were erroneous.
Affirmed.
Harris, C.J., not participating. J.
Byrd, dissents. Roger
William WINKLE et ux v. GRAND BANK NATIONAL 78-296 Opinion
Substituted on Rehearing delivered April
Appellant, pro se. Hargraves, Robert S. appellee-cross appellant. A. Fogleman, Chief Justice. This action was com- John menced appellee cross-appellant Grand National against appellants Bank promissory two notes executed them on They November 1975. were: a short term ninety-day note in the principal $15,000, amount of with interest at ten percent, maturity eight renewable at with an percent reduction principal, and a note for the sum of with ten percent interest to be ten paid over years in twenty one hundred equal Appellee’s installments. notes, trust, loan clerk prepared the deed of security agreement and a financing using statement proceeds total two notes as total amount excluding financed and any charges for credit life insurance. *5 in preparation
Several errors were made the of the agreement deed security documents. The of trust and the only by promissory the clerk referred to one prepared loan $37,000 drawn, incorrectly note for and were therefore a fact at time. the parties closing, overlooked both the At appel- both promissory life insurance on requested lants credit funds, advance of but required notes. an additional This documents, new officer, of appellee’s preparing loan instead the the These tried corrections on face of notes. to make Roger of were Winkle. The amount initialed corrections note, body the of the installment monthly payments the in to however, changed adjustment not to the correspond was was discrepancy made the credit insurance until the for life day. The appellee’s at the of the business discovered close body due in the of installment total amount recited as executed, the notes were not corrected. Soon after was appellants payment showing payments received a book pre- to amount which had been increased cover the mium credit of the part principal. for the life insurance as year Appellant approximately made these for one payments book, coupon than the in amount shown in the rather in the amount indicated payments lower installment note. promis- on both subsequently
The Winkles defaulted and, 5,1977, brought to sory May this suit notes the bank bank, having collect the balance due on them. The discov- documents, in sought ered the errors reformation judgment as due on these instruments well as balance security Ap- both and of the instruments. *6 $22,000 had they twice the interest on the note. Appel- bank lee was awarded balance due on a renewal of the $15,000 $22,000 note, remaining note and the principal premium. less interest and credit life rely Appellants points five upon reversal:
I THE CHANCELLOR ERRED IN NOT FINDING THE ENTIRE LOAN TRANSACTION USURIOUS BY $15,000 EXCLUDING THE DEMAND NOTE.
II THAT THE CHANCELLOR ERRED IN NOT $22,000 VOIDING THE INSTALLMENT NOTE.
III THE CHANCELLOR ERRED IN FINDING THAT A MUTUAL MISTAKE OF ERROR TOOK PLACE IN THE PREPARATION OF A DEED OF TRUST.
IV THE CHANCELLOR ERRED IN EXEMPTING THIS LOAN TRANSACTION FROM THE PROTECTION OF THE TRUTH IN LENDING LAW AS TO THE RIGHT OF RESCISSION.
V THE CHANCELLOR ERRED IN SUSTAINING DEMURRER FOR DAMAGES.
Appellee cross-appeals alleging error points: on three
I THE CHANCELLOR ERRED IN CONCLUDING THAT THE ACCRUAL OF INTEREST USING THE 78’s” RENDERED
THE “RULE OF USURIOUS. NOTE PROMISSORY
II IN CONCLUDING ERRED THE CHANCELLOR ‘‘ s’’UNDER 78’ OF THE RULE OF THAT THE USE NOTE OF THE PROMISSORY THE WORDING USURIOUS. RENDERED THE NOTE III D DIN G THAT IN FIN CHANCELLOR ERRE THE THE CREDIT ON EARNED THE COMMISSION THE RENDERED PREMIUM INSURANCE LIFE USURIOUS. NOTE then consider and arguments appellants’
We will first treat cross-appeal. on points three appellee’s
I brief, only the argue that not pro in their se Appellants, transaction, note, was $15,000 the whole promissory but trial that credit prove did not at appellee because usurious and, therefore, a note was issued on that life insurance actually hid- premium credit insurance was charge for a life $15,000 note also contend that Appellants den interest. on its face. 1976 is usurious April as renewed bank, that this issue protesting while Appellee brief, stated post-trial in appellants’ for the first time raised of an at trial because policy not introduced that the that the foundation oversight of counsel. The record reveals evidence, but introduction into policy’s had been laid for the $22,000 were introduced on the policy copies two attorney misplaced the document had appellee’s instead and validity of the attorney that the Because the felt question. trial, never oversight was at at was not issue policy brief post-trial to its Appellee policy attached corrected. elapsed than one month though more as an exhibit. Even filing the chancel- brief filing of this between law, obviously con- findings lor’s of fact and the chancellor appellants. without from policy objection sidered original on the face figures typed chancellor found changed, had elected to take the note been when Winkles insurance, premium credit life to include the amount changes by Roger $51.75 and the had been initialed Winkle. Appellants complain appellee failed to produce this policy response subpoena they to a duces tecum which had caused to be served upon appellee three months before the trial which was held on October subpoena 1977. This called for appellee bring all regarding documents $22,000 execution of the promissory notes for hearing be held on June Although 1977. parties both *8 portions record, abstract of the it is not to clear us whether hearing nature, was held or its if held. It must have been one of preliminary several hearings mentioned in appellants’ case, statement of the one of which was held on June 1977. There is no indication that the case had been set for on trial either date. We find no indication that the subpoena required production of policy, or other at documents trial.
Appellee’s attorney claims to have been misled into the belief that appellants raising any were not issue as to the credit life insurance until the question was raised in post- trial brief filed appellants. A stipulation was entered into trial, October which a week actual prior although on which appears may that have been the date this set, originally trial was because the parties agreed stipulation that the Winkles were entitled to a continuance. That stipulation included the following paragraphs:
2. usury That allegation defendants’ is evi- computerized denced statement mailed to them by Systematics, Incorporated, computa- which reflects tion of year earned interest for the calendar 1976. 3. That said defendants specifically any waived other allegations usury as to the of making time involved, any payment demands for
$15,000 insurance. reflect the credit for provided that the payments contend
Appellants also Allen, usurious, Mike an out that pointing made the note Winkles, by the testified a witness called as accountant as premium life the credit insurance he included $15,000 note at on the the interest allowable and calculated that, considering information state- and found percent 10 1976, there was an year by for the ments issued the bank that the year. recognized He overcharge of cent for that one pur- were for information by out the bank sent statements taxpayer for verification mainly by used to be poses interest as to the amount of Service Internal Revenue untold that there are year. testified He also paid for Monthly Expanded interest. computing for formulas 133 Company by Publishing Financial were published Tables exhibit, so party exhibited. Neither abstracted this we can- (or the interest calculations on this note its renew- show als), according days to these tables. The note was due 90 13, from its date. paid It was a renewal note dated April through 1976. Interest was paid up the date this renewal. 20, again The renewal on August note was renewed at 1976 which time paid interest was in full and a reduction made of the principal balance. This note then renewed on De- 17, 1976, cember again when in paid interest was full and there was a principal. $600 reduction It is well known may that different methods of produce interest calculation more, may vary results that as much cent as one for a one year period, rounding sometimes off of odd cents.
Appellants argue April 13 usury renewal shows on its face because the interest figured showed that was days 99 while the due date indicated in the right lower hand side of July 3,1976, days the note was 81 from the date note. The days. note was renewed for 99 A renewal of this place note took days after its date and there is no indica- tion that the at that time was excessive. The self-contradictory not, dates themselves, do and of make the note usurious.
The chancellor
found that appellee was entitled to
judgment against
under
appellants
the terms of the
note for the amount
17,1976.
of its last
renewal
December
agree.
We
Appellants had the burden of proving usury by
clear, satisfactory
convincing
evidence. First American
Co.,
National Bank McClure
v.
Construction
792,
265 Ark.
550;
Buhler,
581 S.W. 2d
Arkansas
Real Estate Co.
v.
Ark.
Appellants $22,000 argue also note was usuri- ous account of premiums credit life charged, but we will question treat that when we consider the cross-appeal.
II in not the chancellor erred contend that Appellants $22,000 appellee’s of fraudulent note because voiding instrument, relying on Ark. alteration this and material 1961). 85-3-407 (Add. pro- Ann. 85-3-407 Section § Stat. vides: — Any an is (1) alteration of instrument
Alteration. any thereto changes party which the contract material change in any including any such respect, or parties; or relations of the (a) number instrument, by incomplete completing (b) an authorized; otherwise than as or to it writing signed, by adding as or (c) any removing of it. part hold-
(2) against any person subsequent other than a As iner due course
(a) alteration the holder which is both fraudu- any discharges whose contract party lent and material or is party pre- assents thereby changed unless defense; asserting cluded from any and the discharges party no other alteration (b) according original its may enforced instrument according to the tenor, incomplete as to instruments authority given. discharged are unless altera-
Clearly appellants material, changes contract of a is both fraudulent and tion of that party and was made without the assent thereto party changes made in the seeking discharged. The to be request for credit life were the result of Winkles’ note assent as evidenced and were reflected with their insurance initialling changes. of these sub- by Roger Winkle’s monthly payments the amount correction in sequent conforming payments merely purpose for the agreement of the parties. the actual and the trial court that agree appellants We with errors, and corrections rendered discrepancies various effect on the valid- non-negotiable, but this fact had no *11 ity of the note between the parties, though even none directly Carolyn errors were attributable to the Winkles. Winkles, who Phillips, handled the transaction with the tes- tified that she had monthly calculated amount of the and had payments explained pay- to the Winkles that their $329.97, amount, ments on the note would be the correct which was the amount shown in the book coupon sent them two weeks later. Mrs. Winkle pro- said that she called and tested at this time and that Mrs. said credit would be Phillips given if any there was error. Mrs. Phillips said that she could any not recall the Winkles voicing objection. Even though Mrs. Winkle said she mentioned every the amount they time made a payment, the Winkles payments by made these year check for a noting without a protest on them. The name of the unincorporated business of the Winkles changed correspond with the name as it was shown on a form previously filled out the Winkles. say We cannot that there was a preponderance of the evidence any to show alteration of the deed of changed trust that the contract. The $39,596.40 contract was for to be 120 equal install- ments. The bank simply corrected the error in the amount of the monthly payments to accomplish agreement. this See Teratron Trust, General Institutional Investors 18 Wash. App. 569 P. 2d (1977); Anderson, Uniform Commercial Code (2d § 3-407:14 ed.) 1971.
Ill Appellants assert that the chancellor erred in reforming the deed of trust because mutual mistake in its prepara- tion. There were two errors in the instrument: the recitation promissory there was one $37,000 note in the amount of and the statement promissory payable equal monthly $290.74. installments of The chancellor found that the deed of trust was executed by the Winkles as partial security $22,000 note; for the that a mutual mistake and error took place in preparation; its and that the deed of trust should be reformed to describe accurately the note it secured.
According to testimony trial, at the reference to one $37,000 promissory note rather than the installment loan resulted from a loan clerk’s error in preparation officer, Carolyn Phillips, loan Appellee’s trust.
the deed of improp- clerk when the loan occurred the error testified that secured, to be of the loan amount the total erly used note. The second of the installment the amount rather than *12 life insur- requested credit appellants when error occurred was increased. on the note repaid to be the amount ance and in the $290.74 recited monthly of installment original The in the increase to reflect this changed of trust was deed the note. amount of the terms relates about disagreement real only
The
they
pay
were to
testified that
15,000
note.
Winkles
$
im-
their business
until
only on
principal.
they
payments
could make
so
proved
clear
must be
of reformation
right
Proof to establish
Killins,
Ark.
Williams
decisive.
and
Bank, and Planters
v. Merchants
753;
Goodrum
however,
is,
requirement
no
There
IV exempting erred in argue that the chancellor Appellants in Lend- the federal Truth requirements the loan from 1603(1) of that Act Act, 1601,etseq. Section § ing 15U.S.C. states: following: to the apply does not subchapter
This involving extensions transactions (1) Credit or to purposes, or commercial business credit for instru- agencies or governmental government mentalities, organizations. or to ‘ even ‘primarily, the loan found that The chancellor overwhelmingly, purposes” for business and that the bank did within the provisions therefore not come of the Truth brief, Lending Act. In the statement of their opening appel- loan, say refinancing lants that the net proceeds after loans, outstanding of all their personal, both business and purchases were to be used for Mrs. Winkles’ business. Phillips pay testified that the Winkles for the applied loan to by off two loans First National Bank of Hot Springs required which appellee, approximately two loans $34,000. One of loans First National Bank was Small Business Administration The Grand National loan. $5,397.67. proceeds, loans totaled The balance the loan loans, $3,989.45, and payment after of these amounted to into Winkle deposited purchase Fabric account inventory. Winkle Mrs. testified that the loan from First *13 had inventory National Bank been used to purchase fixtures, building for operation rental and for of the business and that the of proceeds both used loans were for business purposes. Although Mrs. Winkle testified that the re- loans loans, tired at Grand National had been she ad- personal mitted that proceeds deposited had been in the business bank proceeds account of part and that of those loans may have been used business. The fact that may Winkles have drawn checks per- on this account for purposes sonal change does not at the nature of the loan the time was made. The evidence establishes that the proceeds of the loan were applied primarily to retire busi- purchase ness inventory. debts The chancellor’s find- ing loan was exempt supported by a clear pre- ponderance evidence.
V Appellants contend that the chancellor erred in sustain ing appellee’s to demurrer their claim for punitive actual and damages. A party seeking damages has of prov the burden claim; ing the proof if no is presented to the trial court that damages cents, would enable it to fix in dollars and the court damages. cannot award v. Mason 260 Russenberger, 561, 542 745; Samuels, S.W. 2d Tolbert Appellants any S.W. 2d 715. failed establish proof upon which a judgment damages based, for actual could have been damages. any to recover right they had established
even if in the absence damages awárded punitive Nor can Samuels, view of supra. In our damages. actual Tolbert any right however, case, they have established any damages. recover APPEAL
CROSS II I & chancel- error in the appellee alleges cross-appeal On the “Rule of using findings that of interest accrual lor’s wording the rule under and the use of 78ths” usurious, violating Art. note rendered question is The of Arkansas. § 13 of Constitution note, accord- paid face or if this not usurious its whether through terms, transaction can a usurious ing its become formula, of 78ths. the Rule of a mathematical use accruing accounting method The of 78ths is an Rule when an install- refunding unearned interest interest and of the inter- maturity. approximates It ment note is before of an on the basis system developed using est accrued payments are year equal for one where installment contract year one con- is made on a monthly. made calculation outstanding as the payments by using tract the number of (1 + 2 3+ 4 + payments + numerator and total number 12) as denominator + + 11 + or 78 *14 5 + + 7 + + 9 to the interest added multiplied by the total a fraction then Thus, per- 15.38 to the interest accrued. indicate year installment paid to on a one cent of total interest be scheduled, contract, would be paid if as installments were of in the first month 1/78 having considered as accrued term longer For a during the twelfth month. percent 1.28 using note, byat to used would be arrived the fraction by appellee reveal A of tests exhibited same method. series calculated as at which the interest point that the cross-over application from accruing first simple interest exceeds So, if the life of loan. of near one-third of the Rule 78ths is during the first one-third voluntarily the loan paid a borrower term, than would have pay of he would interest more calculation, simple but straight interest been earned on thereafter, would be prepayment interest on paid the total nearly more to that calculated on the conventional equal to rea- simple developed interest method. The formula sonably outstanding to earnings principal. relate interest Lefler, testimony of George Executive Vice Presi- Bank, dent of Grand National the Rule of 78ths as described loan, calculating do with but having nothing to interest on a only rather of a loan the accrual applying prepayment as testimony of interest Lefler’s and the chancellor’s income. findings purpose of fact described the rule’s as the accelera- during tion of of payment interest earlier months of the term of installment in those where the an note cases interest term added for the entire has been to the balance of the note. ‘‘
This note that: on of this provided prepayment Credit in computed shall be accordance with ‘Rule of 78ths’, being penalty Appellee there no prepayments.” for bank, an method taxpayer, accrual contends that because provision legal this in the note it no but had alternative accrue and in report interest income with the accordance 78ths, Rule referring (a); Reg. § Treas. 1-451-1 Rev. 72-562,1972-2 231; 72-100,1972-1 Rul. D.B. Rev. Rul. C.B. 122. 72-562, An contained example in Rev. Rul. states supra, that if the Rule 78ths is in a as the specified contract rebate, method determining on prepayment interest that installment contract must be with accrued accordance the Rule of 78ths.
Appellants year-end as borrowers received statements appellee reflecting from the bank amount had accrued year. its books as interest income for that The statement 1977, read, January, received records appellants “Our $2,717.97 you indicate have interest in Account 1976 on account is the 00418009.” The number number loan. The installment bank contends that these state- ments are necessarily informational do not reflect the actually debtor, amount of are paid by but rather year. prepared to reflect the total on a note for tax accrual *15 percent chancellor found that at 10 annum per interest $2,496.98 on this loan would have been therefore 139-A by the collected reflected interest by the bank sent
statement the bank and that per annum percent of 10 in excess bank an- percent per 10 in excess of to collect intended applies as the Rule 78ths not consider num. We do in this question prepayment no being there prepayment, case. by the courts adhered to rules are fundamental
Certain usury present: if is determining whether the usury alleged, the test is 1. When rate of interest than pay greater promised borrower into a knowingly entered and the lender permits the law by the methods intending profit contract usurious Chandler, Plan, v. Inc. Credit employed. Commercial 1009; 966, 2d Contract 218 Ark. 239 S.W. General 918; Duke, 938, 2d Blalock v. 223 Ark. 270 S.W. Corp. 327; Blalock, 75, 2d v. v. 226 Ark. 288 S.W. Brown Ass’n., 256 Ark. Production Credit Central Arkansas 164, 458 571; 804, 510 v. 249 Ark. Bryan, S.W. 2d Ragge Booth, 245 403; v. Peoples 2d Loan & Inv. Co. S.W. 146, 472; 2d v. Ark. 431 S.W. Davidson Commercial 127, 499 2d 68. 255 Ark. S.W. Equipment Corp., Credit usury to asserting show upon 2. The burden is one Hamilton, v. the transaction is usurious. Wallace Co., 406, 363; v. 227 Darragh 2d 238 Ark. 382 S.W. Cox 193; 399, v. Bank & Key 2d Worthen Ark. S.W. 299 496; 725, v. Co., 543 2d Poole 260 Ark. S.W. Trust 764, 273; v. Bates, 2d Central Ark. 520 S.W. Brown Ass’n., v. Knox supra; Production Credit Arkansas 530, 875; Stores, Inc., 2d 479 S.W. Goodyear 246 Ark. Guaranty Corp., v. Financial Corp. Nineteen remand, 832, 400, 438 685; 250 Ark. appeal 2d after S.W. 728; Development Geyer 2d v. First Arkansas 467 S.W. 301; 694, Peoples 2d 245 Ark. 434 S.W. Corp., Finance 2d Booth, 245 Ark. Inv. Loan & Co. J & M McKee, Farms, 263 Ark. 472; McCoy Inc. v. nature of highly penal 409. Because S.W. require law, justice usury principles the plainest our usurious. the transaction is clearly that it be shown that Buhler, Co. Arkansas Real Estate 2d 126. S.W.
139-B 3. In determining whether a contract is it usurious must be viewed as of the time it into was entered presumed must be performed according that it will be Duke, Corp. supra; its terms. See General v. Contract Sears, Co., 464, v. Sloan 308 Roebuck & 228 Ark. S.W. 802; Guaranty 2d v. 244 Ark. Corp., Harris Financial 218, 424 355; S.W. 2d v. Foster C.I. T. Corp., Universal 230, 288, 1260; 231 Ark. 330 S.W. 2d A.L.R. 2d 75 Co., 568, Sager v. American Investment 170 Ark. 280 654; Hart, 534, 113 213; S.W. Eldred v. 87 Ark. S.W. 55 331, Usury, 12; Am. Jur. Hayes § v. First National 328, 701; Memphis, Bank 256 Ark. 2d Ass’n., Brown v. Central Arkansas Production Credit Farms, McKee, supra; McCoy v. supra. Inc. J&M 4. The actual test of a transaction alleged to be usurious is whether the total amount the borrower will required pay greater is than the total amount he required could be pay to retire indebted- ness with percent interest at 10 per annum for the term thereof. Hachmeister, v. McDougall 28, 184 Ark. 1088; S.W. 2d v. Davidson Commercial Credit Equip- ment Corp., supra. Usury
5.
presumed,
will not be
imputed or inferred
where an opposite result
Hayes
can be reached.
v. First
Bank, supra;
National
v.
Davidson
Commercial Credit
Equipment Corp., supra; Peoples Loan & Investment
Booth,
v.
Co.
supra; Universal C.I.T.
v.
Corp.
Credit
Hudgens,
658;
Ark.
356 S.W. 2d
Brittian
McKim,
Fretz,
435;
S.W.
Brown
139-C
were informa
by the bank
sent
year-end
statements
the amount
to the
debtors
bank’s
only, reporting
tional
loan;
on a
the bank
annual accrued
bank’s
these
with
accordance
demanding payments
expecting
agree
not affect or alter the
did
The statements
statements.
*17
fact that the bank accrued
the
and the
parties
ment between
of interest
an amount
accounting purposes
for tax and
the debtors’
year did not affect
any
in
greater
percent
than
period
for a
$329.97
month
obligation
pay
per
to
contractual
by the
re
received
borrowers
reports
120 months.1 The
of
required
the
amount of interest
bank
flected the
Revenue
its
the Internal
report
books
accrue
were not
requirements and
in accordance with IRS
Service
under the note.
obligations
of
interest
appellants’
statements
agreement provided
the
for use
The mere fact that
by
voluntary
the bor
prepayment
in
Rule of 78ths
case
no
rower,
though
agreement stated that there was
even
make the note usurious. If the
penalty, did not
prepayment
maturity, they would
the note to run until
permitted
Winkles
interest,
if
per
than 10
annum in
paid
percent
not have
more
not have
They
when due.
could
each installment was
They only
obli
compelled
any prepayments.
been
make
due,
they
the installments as
came
gated
pay
themselves to
them,
contract,
against
enforced
as it could have been
so
in the
usury.
voluntary prepayment
was not affected with
A
render
given by
an
the contract does not
option
exercise of
receives,
in
though
usurious even
the creditor
contract
the maxi
aggregate,
a sum more than the
Hart,
legal
mum
rate of interest. Eldred
in
payment
213.
cannot
advance
by making
S.W.
A debtor
one.
due date convert a valid loan into a usurious
Green
its
Homes, Inc.,
It
finding on the loan the bank statement interest accrued that the bank’s percent charged $481.18 more than 10 that the bank had in 1975of showed finding spite year in of his chancellor made this in the on the 1975. payments finding on the note in 1975. that the Winkles made no
139-D III It certainly not is at all clear how the credit life insurance gone only became an issue at the trial. If the case had to trial on the pleadings, might appellants be understandable. But failed to the stipulation parties, abstract entered into of which set pertinent portion has been out earlier this opinion. The stipulation simply statements referred to stated the interest on the two notes during year 1976 Furthermore, according to the expert rule of 78ths. wit- by appellees ness called made his including calculations credit life premium insurance as principal.
We agree likewise finding chancellor erred in that the credit life insurance rendered this transaction usuri- found, fact, ous. The trial court as matter and it denied, Roger change Winkle initialled a in both the *18 $15,000 and the to *19 insured, any of the insurance pay
the death of to amount outstanding of the note satisfy needed to balance beneficiary secondary to the or estate involved judicial to take appropriate insured. It was court at. the statute this. Ark. St Ann. requires notice because Roger contingent was the (2) (Repl. 1966). 66-3808 Winkle § George beneficiary Lefler testified that policy. named if were cancelled. required policy would a rebate in the of the errors loan Phillips Mrs. testified some computations had been made papers were made because and this life insurance requested before the Winkles credit actually necessary. The recomputation made a 139-F prepared Roger for the signature Winkle statement that he did not want credit life insurance. Winkle Janie signed a statement that she desired credit life insurance. Just place above the signed, where Mrs. Winkle following “THE appears: LIFE, PURCHASE OF CREDIT AC- CIDENT AND DISABILITY INSURANCE IS NOT REQUIRED FOR CREDIT.” Mrs. said that the Phillips policies credit life automatically are accepted by the insur- but, ance company, if not accepted, premium whole refunded to the customer.
Appellants allege do not any contend that there was fraud, or compulsion duress in connection with the credit life insurance. They agreed purchase to the insurance and knew the amount of the premium at the time. opening In their they statement say:
*** signed by The loan was the Winkles. Winkles agreed purchase credit life insurance on Janie Winkle and were informed that no insurance could be written until checking with insurance company as to whether a physical required. would be A disclosure what the premium placed would be was agreement the box for purchase application insurance. A blank for credit life was filled in Janie regarding age, Winkle physical *** general condition and just information. usury basic tenets in cases material to this case unchanged. remain Some of them are:
1. All reasonable expenses incident to a loan which the borrower agrees pay or which are out lender for his benefit are properly a part the loan proceeds or the amount loaned. v. Guaranty Harris Corp., supra; Lyttle Financial v. Mathews Investment Co., 849, Ark. 47; Fretz, 103 S.W. 2d Brown v. Harris, supra; Sidway v. 1002; 66 Ark. 50 S.W. 1107; Shattuck Byford, 35 S.W. Lock GMAC, hart 350.
2. premiums paid Insurance a third are party *20 charges agrees them proper pay when borrower charged not an policy, pre- receives is excessive 139-G Win the insurance. benefit of
mium, receives and 580, Co., S.W. 220 Ark. v. Finance Personal 249 ston 389; 2d 747, Eason, 268S.W. 223 Ark. 315; v. 2d Smith Acceptance Corp., 1018, 227 Ark. v. Murdock Griffin Corp. v. 242; Credit C.I.T. 2d Universal 303 S.W. 858; v. Lackey, 101, 305 2d Whiddon S.W. 228 Ark. Corp., 824, 301 S.W. 227 Ark. Credit C.I.T. Universal supra; Bryan, supra; Ragge v. Bates, 567; v. 2d Poole Co., 248 Chevrolet-Cadillac v. Bob Sullivan Troxel 1152, 2d 667. 455 S.W. Ark. premiums fall into the same life insurance
3. Credit Lowrey premiums. category v. Gen as other insurance 736; Corp., 685, 2d S.W. eral Contract supra. Lackey, Corp. v. T. C.I. Credit Universal obligations withholding 4. for The of sums to meet premiums acquiescence insurance with the bor- usurious, unless rower does the render the transaction subterfuge. Wilson, v. insurance is a Hartzo Bryan, supra. Ragge 956; 2d Ark. premiums approved We have the inclusion of credit life original part indebtedness, even where the lender as a agent percent commission as for the insurance received a company. Bates, In 520S.W. Poole we said: upon is based for reversal
The contention premium premium. was life insurance the credit $55.94, appellees placed in- with an this insurance agency; appellees, however, received 35% surance premium commission, this as a life insurance the credit moneys being under the to the other in addition amount premium in the total i.e., included contract, monthly payments. determining prior amount Accordingly, received the commission on monthly payments, and it appellees in the called for appellees not entitled appellant’s were that contention premium portion con- that to receive interest payments stituting under commission, since interest, instru- full called 10% the contract usurious. is therefore ment
139-H *** agree [W]e not here in- do that commission though, pointed volved, annotation, a fac- as out in the particular considered, to tor makes this contract place, In usurious. the first this is a case where purchaser compelled purchase was to insurance before appellees purchase i.e., car; would finance the of the it charge purpose allowing was not a made for the them appears appellant Rather, more quested interest. re- place, In this insurance. there is no next charge contention that the insurance In was excessive. charge words, other it was transaction. The bona fide paid appellant for insurance was and received the bene- requested. illegal, fit The rebate itself was not nor is any appellant reason, there since asked for the insur- exactly requested, why ance received what he such illegal. all, should be After there could be no difference appellant purchasing through appel- in the insurance purchasing company lees, and it from some across the showing elsewhere, i.e., street or there is no premium long would have been less. So as there is no compulsion upon fraud, element of nor or duress lender, borrower take the insurance from the we see why agent no reason the automobile is not as entitled to represent company, accordingly the insurance re- anyone commission, ceive a words, as In else. other no charge profit is involved. unlawful The facts this case take it outside the reach of those cases in which it has been held that credit life insurance premiums paid or commissions a to lender for insurance are premium to be considered as interest. The company bank to the credit life insurance in advance. The contractually bank was bound to furnish credit life insur- compelled purchase ance. The borrower was not credit life insurance before the bank would make the loan. The fraudulently borrower was not induced to take the insur- Appellants requested ance. the insurance. There is no evi- any parties acting dence to even hint that were not good Appellants faith. received the benefit of the insurance. premium charged There is no contention that the insurance except was excessive for the issue as to the amount of the coverage, showing and there is no that the insurance could
139-1 The Winkles had premium. purchased at lesser
have been policy previous loans. credit life insurance carried 5,1975, date of the loan. issued effective November Ann. application Stat. upon then turns The issue 1966). (1) (Repl. § 66-3806 *22 66-3806(1) § Ark. Stat. Ann.
The chancellor found that could “the amount which maximum was violated because something in would be policy been under the paid have ever $25,000.” does not That statement neighborhood the of ‘‘ which The provides: of the statute demonstrate a violation original the life insurance shall exceed amount of credit of indebted original amount of indebtedness.” amount —note and the policy the face amount of ness was $39,596.40. had not been de If the word “indebtedness” (1) might part, which 66-3806 is a § fined in the same act of conclusively, but not chan argued persuasively, The word “indebted applied properly. cellor statute however, 66-3804(5), ness,” §Ann. as defined Ark. Stat. to by a debtor a creditor payable “the total amount includes a transaction.” The in connection with loan other credit of on the effective date payable by total amount Winkles transaction, if the note policy to the bank on this credit $39,596.40. terms, By the according to its paid had been note, the order promised pay “to to terms of Winkles Bank), at office in (herein Grand National Bank called its of Arkansas, Thirty-four of Thousand Hot sum Springs, Dollars,2 in 120 Hundred-Eight and 80.100 install Eight 20,1975, on the beginning $329.97 December ments] until ...” date each month thereafter full same reversed on appeal is affirmed on direct The decree for the is remanded to trial court cross-appeal. The cause entry consistent with proceedings of a decree and for further opinion. this J., concurs.
George Smith, Rose J., concurs in the result. Hickman, preparation upper was one of the in the of the note and in 2This errors $39,596.40. correctly left-hand comer the amount is stated as
139-J J., dissents. Purtle,
George Smith, Justice, agree concurring. I Rose valid, lawful because an otherwise simply of 78ths is Rule provision rendered usurious note is not promissory privilege for the pay premium the debtor to requiring That in advance of its due date. principal debt paying law, undis- presented upon one of in this case purely issue is majority by applying But the this puted opinion, facts. properly law certain that are question presumptions fact, astray so far that I only questions goes applicable straight. the record compelled am to make this effort to set than, Constitution, years written more a hundred Our than ago, that contracts for more interest are provides 10% void and interest. Constitution of Art. as case, penalty early 13. That is so severe that in an § *23 fact, solely an turning upon issue of we held debtor clearly showing question had the burden of that the note in Flood, 162, v. 56 was usurious. Leonhard 68 Ark. S.W. 781 (1900). There we said: law visits on lender who
Our a contracts for usuri- interest, small, ous however a forfeiture of his entire loan and the interests thereon. It follows from the principles justice that a plainest such defense should clearly be shown before the forfeiture is declared. For reason, where, usury this inferred from the will be opposite circumstances conclusion can be rea- sonably fairly and reached. convincing usury
Thus the rule of clear and evidence in born, is, though it had and downs. That ups cases was has its that a specifically prepon- in some later cases we have said derance of the evidence is all that is needed to sustain a plea v. 2d 225 usury. Tankersley, Ark. 90 S.W. Tisdale 192 (1936); v. Stroupe, Co. Dickinson-Reed-Randerson (1925). actually Thus we have two so, with quarrel lines of Even I have no inconsistent cases. place, which I take convincing proper the clear and rule its in which the debtor seeks to contradict to be the situation signs if the debtor a obligation. terms of his written Thus 139-K to interest, fairly required be note, may he bearing
$500 10% only testimony that he received and decisive by clear show $450. usury regard with corollary against presumptions questions application of fact have no reasonable
questions be misun- of the cannot Here the intent Constitution of law. more than Any by a lender to extort attempt derstood: 10% that he unequivocally condemned strongly interest is so interest. as well as his usurious forfeits his entire taking position, as there is no basis whatever for Thus do, seems to that excessive interest present majority opinion law, zealously protected to be is somehow a favorite of the by the courts. duty to
By
large,
discharged
up-
this court has
its
hold,
case,
early
that it
hold the Constitution. We did
in an
usury
credit
that was in
price
was not
for a seller to fix a
Hancock,
legal
interest.
price plus
excess
cash
Ford
decision,
(1880). Regardless
timony really charge he did mean to more than that not warning they that at their familiarize peril lenders must
139-L with Burgess, Brooks themselves the law. (1957). Many might 2d 104 other S.W. cases be cited to
confirm steadfastly we position have adhered to since the Hare case, says. it Constitution means what that passing our constitu-
Finally, may be observed fundamentally or neces- is ceiling on interest rates tional may have wrote the Constitution sarily bad. The men who high that might today, believe believed in and inflationary a means which only are but also are rates not long ago as Biblical since as oppressed poor the rich have today ceiling fire our constitutional is under times. That ceiling any defect in not much from inherent results so equally low fact that the other states have no but from the people change interest rates. Until the upon limitation however, Constitution, duty to enforce it. plain our is Justice, dissenting. compelled John I. I am to Purtle, agree in this case. I the concurring opinion dissent with convincing rule that clear proper and evidence is required before a contract will be I upon grounds usury. voided agree that this rule has had its and ups Today downs. it is agree down. I further that we two have at least lines of incon- sistent cases in matters to pertaining usury. opin- After this ion, you can add another line. There is question no that both the majority concurring correctly and opinion state the rules they However, and laws as pertain usury. from that point on, disagreement I am in considerable majority. with the charges originally applied the term
“Usury” was in excess Any repaid amount money. use of for the made goes term back usury. This considered borrowed was that were returned Israelites After the times. at least Biblical charge Canaanites allowed to they were captivity, from Nehemiah, However, them. ruling means of usury as a B.C., forbade in 444 governor of Jerusalem prophet Historically, Nehemiah 5:7-11. usury (interest). charging of of interest charging taught churches various commercial nevertheless, merchants sinful; successful practice. continued entrepreneurs which in 1363 in London passed An ordinance *25 a law England passed In 1545 usury (interest). outlawed 139-M usury the rate of and allowed at the 1363 ordinance
repealing by in 1551 a statute repealed was This 1545 law 10%. by the word of usury prohibited to be declared specifically viii, Law, Holdsworth, vol. History English God. W. (1926). at 100-112 it, by strong in Arkansas Usury, opposed as we know is and the General as declared constitution public policy However, has not been considered Assembly. interest by law Usury or interest is controlled against public policy. fact, every country in the world. In in practically to the Constitution of 1874. prior controlled in Arkansas Stats, 112, Ark., 80, (1937). § ch. at 469 Rev. study prior
It
me to
our
cases
impossible
is
usury
what constitutes
in Ar
a clear definition of
ascertain
where
lender
For
we have held a contract
example,
kansas.
allowed
law
to receive more than the amount
attempted
Building
Savings
is usurious.
&
from
borrower
Home
Shotwell,
750, 38
(1931).
2d
v.
183 Ark.
S.W.
552
Association
lender, by
of fact or error in
We have also held if the
mistake
interest,
calculation,
illegal
an
rate of
contracts to receive
Linton,
370, 35
contract
not void.
v.
62 Ark.
S.W.
Garvin
reserved
(1896).
430
In
excessive interest was
Garvin
only,
through
of fact on the
of the lender
part
mistake
again, we held
excess was held not to be recoverable. Once
through
of fact
that reservation of excessive interest
mistake
on the
did not render the contract usurious
part
lender
387,
(1905).
v.
To
McClay,
in Aldrich
75 Ark.
We have held a contract to 10% absolutely to principal annum renders a contract void as per Eason, and interest. S.W. Smith
139-N case, (1954). very early bearing one held a note In we given money interest cover to be fur- supplies 10% though even nished did render contract usurious a of part there was failure to furnish a which was supplies given as consideration for the v. contract. Lanier Union Co., 39, 64 Ark. 40 466 Mortgage, Banking & Trust S.W. (1897). In the v. case of First Bank Memphis National of 972, 463 2d
Thompson, (1971), 249 Ark. S.W. 87 we held that an resulting error in mathematical from mis calculations take be forgiven of law could not and could not remove effect, usury. taint of To the same we have held an in error forgiven calculation was not in one be where the error wrong volved the interest rate. Ford Motor Credit Co. Catalani, 561, 383 However, 238 Ark. 2d (1964). S.W. 99 see Davidson Equipment Corp., Commercial Credit 127, (1973), S.W. 2d 499 68 where we held an error in cal culating mortgage forgiveable interest on a as an act good done in faith. held in We there was no usury. Davidson It and, seems to me that we one”; are back to “square we should make a new as we beginning attempted to do Hare v. General Contract Purchase Corp., (1952). S.W. I agree cannot with majority concurring either the opinion in relating matters to the Rule of majority 78ths. The seems to believe that the Rule of 78ths is limited to prepay- ment penalties. opinion states the Rule 78ths is an accounting accruing method of refunding interest and of unearned by prepayment. I do not understand the fact, Rule of simple. 78ths to be so majority clearly In states a pursuant 10% note paid to Rule of 78ths would bear month, contract, interest for first on one-year at the rate per Actually, annum. 15.38% Rule of requires 78ths payment excess of about first third of the 10% life Thus, years loan. 30-year first of a loan would bear interest at a rate considerably greater than per annum. 10%
What does the say usury? constitution have to about Although not set majority out verbatim in either the or con-
139-0
curring opinion, § Art. Constitution Arkansas 1874, states: greater for a of interest than shall
All contracts rate 10% void, interest and the General be as to law; when Assembly prohibit the same but no shall agreed upon, per rate of interest is rate shall 6% *27 annum. any proving time the Rule of spend
There is no need when plain 78ths violates the words constitution 10-year as we year to the first of a loan such applied rule is in before have the case us.
In the
have
we
allowed the interest to be calculated
past
contract; and, if overall the interest did not
over the life of the
10%,
did
the pro-
held such
not violate
exceed
we
contract
Hachmeister,
against usury.
184 Ark.
hibition
McDougall
hand,
other
we have held
(1931).
139-P 78ths, larger Rule of rate of the Using percentage annual stages of the are collected in the earlier amounts of interest more than the annual simply loan. The Rule of 78ths collects third of the contract and collects less during rate the first The net amount of the contract. during the last two-thirds borrower, schedule, exactly the if paid by same.
An example collecting of the two methods of interest is $22,- present charged illustrated case. Interest on the year 000 note for the calendar using digits the sum of method, $2,717.97. Had the interest on the same note annum, figured per been at simple interest would have 10% $2,496.98, amounted to the exact amount found the chan- cellor to have been collected the lender. case, in this prepayment no and certainly there were
If required were appellants pay a rate in not, there was excess of per year annum for the Considering 10% 1976. this fact, we should *28 clearly state that we will consider the interest charged over the life of the contract to be the controlling Failing this, factor. to do we should issue a caveat that all contracts employing the Rule of 78ths will be declared void as usurious that are entered into after the date of this opinion.
It is obvious the rate of always interest has been consid- ered a matter public concern. The wisdom of such a policy was never clearer than it is at this time. With interest running at the rate of and still climbing, present 20% the situation compels one ponder society whether our can continue to exist past. as has in the In past decisions we have made being reference Arkansas a capital starved We state. have also made reference to interest driving industry rates from state, the depriving jobs, citizens of preventing consumers from purchasing necessary goods supplies, relating and factors to be considered in matters of the rate of interest. All preceding these weighed by factors are matters to be the people of if change Arkansas and when a in the rate of Meanwhile, is authorized. this Court should hold that all contracts violation of the plain words of the con- stitution are usurious.
Appellants argued the note should have cancelled been 139-Q appellee’s
because of
fraudulent and material alterations to
so,
doing
they
In
rely upon
instrument.
Ark. Stat. Ann.
(
One of the loans was for The bank added $14,626.61 $2969.74 as insurance premium and as interest $39,596.40. brought which total note to The bank re- ceived of the insurance as a commission for premium 35% selling the insurance. This commission was never to the paid 1966) insurance company. (Repl. § Stat. Ann. 66-3806 original states that credit life insurance shall not exceed the my amount of the In opinion, original indebtedness. $22,000. Therefore, amount of the indebtedness was insur- amount, covering ance total which would have been ($39,596.40), over the life of the contract does not represent original the amount of the indebtedness. At no time would fact, the appellants have ever owed this amount. In the most they any could have owed at one time was plus premium insurance and accrued interest. rate, all,
anyAt if policy, insurance issued at was not issued until after sometime the loan was made. The bank and the insurance company required Mrs. Winkle to obtain a they physical examination before would insure her. Obvi- ously, if had prior furnishing she died of this informa- *29 tion, there would have no proceeds payable been because no issued, policy policy, existed. fact if merely backdated is the entire contraption pre- to claim mium was earned. Co.,
In Auto Finance 220 Ark. Strickler State (1952), charges 2d we the imposition held on insurance in addition to the premiums policies 10% lender on the borrower was usurious. See also Jones Jones, (1957). S.W.
139-R For the above I reasons grant would not a rehearing this case and would uphold the original opinion handed down on November 1979. notes foreclosure they general but filed a coun- pellants’ answer was a denial thereto, alleging appellee terclaim and an amendment that Lending had in Act and the loan was violated Truth They also to actual sought punitive usurious. recover and damages, willfully, alleging that officer had bank’s maliciously, intentionally and them the transac- misled tion. The chancellor that: the to bor- found Winkles desired outstanding and obligations row funds sufficient to refinance business, provide capital for their Winkle additional Center; Fabric the loan Handbag primarily and because (even overwhelmingly) for the bank was purposes, business with the Truth required comply provisions Act; the to de- Lending instruments should reformed agreement parties; scribe the intentions Because appellee installment note usurious. and, therefore, subject regulation, national bank federal was in the amount of judgment appellants rendered for
Notes
notes promissory herein. by the pleadings made any demands believing attorney cerainly justified were Appellee and its not an issue life insurance was question of credit that brief post-trial in their asserted appellants until no policy because charge masked interest was a $51.75 ever issued. Na- Lefler, Vice-President Grand George Executive policy was insurance that a credit life tional Bank testified 15,000 issued, $ advanced added to the the premium Lefler amount financed. charged on the total by an was issued life insurance that the credit also testified to the policy issued and the company insurance independent the time of still in effect at file and in the loan Winkles was Vice-President Carolyn Phillips, Assistant Mrs. trial. the Winkles’ Bank, that took testified she National Grand time, claims, At she for credit life insurance. application to be examination physical a form for gave she Mrs. Winkle or her doc- by Mrs. Winkle directly the insurer returned com- of the insurance that the habit Phillips tor. stated Mrs. forms was examination physical it received pany when bank, presumed silence was notify not to did from the Phillips not hear part. on their Mrs. acceptance presumed policy the Winkles’ and she company insurance that she altered Phillips testified accepted. Mrs. also
notes include credit life insurance premiums. The chancery holding court’s on the question of usury entirely was based upon the fact that the insurance policy $39,596.40 was for when the amount borrowed was $25,000. approximately that, The court found since there awas violation of Ark. Stat. Ann. (1) (Repl. 1966), § 66-3806 the percent lender’s 35 commission on the amount of the policy in excess of the amount borrowed would render the 10 percent note usurious. The note did reflect an advance $2,969.79 Lefler, for credit life insurance. George Executive Bank, Vice-President of Grand National testified that the premium insurance was to World Service Life Insur- ance Company, an independent company, insurance the for 10-year loan, entire life of the but that the bank reserved a 33 percent percent. testimony commission of to 35 His is not contradicted. The policy issued by World Life In- Service Worth, Texas, surance Company of Ft. was made an exhibit to testimony. Lefler’s Its effective date was November 1975. It for decreasing was term life insurance on Janie Winkle. Roger Winkle was contingent beneficiary. ini- tial $39,596.40, amount of insurance was the face amount of note, the which was arrived at adding the insurance premium $14,626.61 and a 10 percent charge finance to the $22,000; amount of but the amount insurance $329.97, decreased each month the amount of the 139-E ac- payment the whether monthly payment, scheduled actually was not policy It is true that tually made not. report the physician’s bank until officer of the by an issued to delivered had been condition physical Mrs. on Winkle’s Winkle, date was but the effective by Roger bank Carolyn Phillips, an assistant testimony of changed. The that, bank, company if refuses of the vice-president to customer. is refunded premium the entire policy, had, to loan prior that she Winkle testified Mrs. it had been issued credit life insurance closing, requested they closing told loan the date her husband. On in- on Mrs. Winkle wanted the insurance they that officer thought that she and her husband Winkle said stead. Mrs. involved, but that loan change would be only that a name to take a probably have said that she would officer then application, filled out an Mrs. Winkle examination. physical only about her health. general questions which contained go on the “was to back in later knew at the time that she She credit life insurance.” response trial court in their conceded Appellants only issue with rehearing appellee’s motion excess credit life insurance was whether reference and, so, they were ex- charged, if whether were premiums interest, was not in validity policy cess but they objection had no also stated that Appellants issue. customary taking judicial it is the the trial court’s notice that companies, in the event of of all credit life insurance practice