Cagle v. Boyle Mortg. Co., 76-272

• Decision Date: 14 February 1977
• Docket Number: No. 76-272,76-272
• Citation: 261 Ark. 437,549 S.W.2d 474
• Parties: Lloyd CAGLE et ux., Appellants, v. BOYLE MORTGAGE COMPANY, Appellee.
• Court: Arkansas Supreme Court

Page 474

549 S.W.2d 474

261 Ark. 437

Lloyd CAGLE et ux., Appellants, v. BOYLE MORTGAGE COMPANY, Appellee.

No. 76-272.

Supreme Court of Arkansas, In Banc.

Feb. 14, 1977.

Rehearing Denied April 11, 1977.

R. David Lewis, Little Rock, for appellants.

Spitzberg, Mitchell & Hays, Little Rock, for appellee.

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 compounded the interest 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. Catalani, 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

FOGLEMAN, Justice, dissenting.

I am unable to understand how the court could reverse the chancellor's finding that the obligation of appellants to appellee was free of usury. This was a finding of fact. Appellants had the burden of demonstrating error in the holding of the trial court. Hendrix v. Hendrix, 256 Ark. 289, 506 S.W.2d 848; Holt v. Holt, 253 Ark. 456, 486 S.W.2d 688; Poindexter v. Cole, 239 Ark. 471, 389 S.W.2d 869. In this case, this was a very heavy burden, indeed.

The sole point for reversal was that the court erred in finding that the note and mortgage executed by appellants were free of usury. Admittedly, they are not usurious on their face, and no payment was ever made on them, or the indebtedness they represented and secured. The only basis for contending that the transaction was usurious was the fact that certain computer printouts showed interest which had apparently been so calculated as to be in excess of the legal rate and in excess of the rate stated in the note and mortgage. The court has seen fit to reverse the trial court's holding on the basis that this was not the result of a mere mathematical error, and, by some means, in spite of the chancellor's finding, holds that the evidence to show usury was clear and convincing, an action so rare as to almost be novel, and which should be taken with considerable reluctance.

What we said in Brown v. Central Arkansas Production Credit Association, 256 Ark. 804, 510 S.W.2d 571, applies in this case, i. e.:

The note was not usurious upon its face, so the burden of proving usury rested upon appellants. Hayes v. First National Bank of Memphis, 256 Ark. 328, 507 S.W.2d 701; Peoples Loan and Investment Company v. Booth, 245 Ark. 146, 431 S.W.2d 472. The issue must be determined as of the date of the contract involved and not by subsequent events. United-Bilt Homes, Inc. v. Teague, 245 Ark. 132, 432 S.W.2d 1. In order for a charge to constitute usury, there must have been an intention on the part of the lender to take or receive more than the maximum legal rate of interest. Ragge v. Bryan, 249 Ark. 164, 458 S.W.2d 403. In an effort to meet this burden, Henry Brown testified that he was charged $2,019 interest when he made the $6,000 payment. In determining whether this charge was usurious, all attendant circumstances germane to the transaction should be taken into consideration. Textron, Inc. v. Whitener, 249 Ark. 57, 458 S.W.2d 367; Ragge v. Bryan, supra. Assuming, without deciding, that appellee's application of the $6,000 payment could have rendered the transaction usurious, it would have been error for the chancellor to have excluded evidence as to the status of Brown's indebtedness to appellee at the time the note was executed and the loan approved and appellee's reasons for applying the payment as it did. See Nineteen Corporation v. Guaranty Financial Corp., 246 Ark. 400, 438 S.W.2d 685.

We likewise disagree with appellant's contention that the chancery court erred in its holding that the note and mortgage should not be cancelled for usury. The intention to charge a usurious rate of interest will never be presumed imputed or inferred where an opposite result can be reached. Hayes v. First National Bank of Memphis, 256 Ark. 328, 507 S.W.2d 701. To constitute usury, there must have been an intention on the part of the lender to take or receive more than the legal rate. Ragge v. Bryan, 249 Ark. 164, 458 S.W.2d 403. When the questioned instrument is not usurious on its face, this intent must be clearly shown. Arkansas Real Estate Company v. Buhler, 247 Ark. 582, 447 S.W.2d 126. The evidence in this case falls far short of showing such an intention. * * *

Since there was nothing suggestive of an excessive interest charge in the agreement, appellant bore the burden in the trial court of proving usury by clear, satisfactory, and convincing evidence, not a mere preponderance. Arkansas Real Estate Co. v. Buhler, 247 Ark. 582, 447 S.W.2d 126;...