Strickler v. State Auto Finance Co.
| Decision Date | 19 May 1952 |
| Docket Number | No. 4-9791,4-9791 |
| Citation | 220 Ark. 565,249 S.W.2d 307 |
| Parties | STRICKLER v. STATE AUTO FINANCE CO. |
| Court | Arkansas Supreme Court |
S. L. White, Little Rock, for appellant.
R. C. Limerick, Jr., Little Rock, for appellee.
This is a suit by appellant, Mrs. Love Strickler, to cancel, on the ground of usury, a note and chattel mortgage which she executed in connection with a loan from appellee, State Auto Finance Company. The complaint charged that, in making the loan, appellee required the purchase of unnecessary and excessive insurance and that service fees charged or deducted from the loan were either altogether fictitious or exorbitant for any services actually rendered and that such charges were made for the sole purpose of concealing the real intent to charge a usurious and illegal rate of interest on the loan in contravention of Section 13 of Article 19 of the Arkansas Constitution.
In its answer appellee admitted making the loan, denied that it was usurious and specifically alleged that the charges made were authorized by Act 203 of 1951 and were not in excess of the maximum rates prescribed in said Act. A cross-complaint was also filed asking for judgment for the full amount of the note, less one payment made by appellant, and for foreclosure of the chattel mortgage given to secure the note.
The chancellor entered a decree for appellee finding that appellant had agreed to the interest, insurance, service, and other charges which bore a reasonable relation to the services rendered by appellee and were proper and not in excess of that allowed by Act 203 of 1951. Although the court also found that appellant failed to prove that appellee committed usury, it was further held that appellee should have required a 'decreasing balance' rather than a 'level rate' life insurance policy and that the difference of $3.60 in premiums between said policies should be credited against the balance due on the note. It was also held that appellee was not entitled to retain insurance commissions in the sum of $7.35 on the health and accident policy and $1.80 on the life insurance policy and that these amounts should also be credited to the balance due on the note. Thus the loan contract was purged of the insurance charges found to be excessive and judgment was rendered in favor of appellee for the unpaid balance of the loan in the sum of $317.25 and foreclosure of the chattel mortgage was ordered.
Appellant has been employed by the telephone company in Little Rock for twenty-three years. She obtained two loans from appellee and this suit involves the second loan. She first applied at appellee's Little Rock office for a $200 loan in March, 1951. On that visit appellant waited in the office while appellee's manager obtained a report by telephone from a credit company and the people from whom appellant purchased the household furniture which she mortgaged. The note and mortgage were prepared and executed, and appellant received the proceeds of the loan, within a period of approximately fifteen minutes.
On May 21, 1951 appellant, being in need of money to cover additional expenses resulting from an automobile accident, applied for the second loan involved here. Appellee's manager agreed to make the loan without further inquiry of references or investigation of security. At that time appellant had made two monthly payments on the first loan. Appellant signed a statement of the transaction prepared by the manager setting out the various items making up the second loan as follows:
(1) Amount required to pay balance of first loan ...................... $185.69
(2) Cash received by borrower on loan .................................. 104.11
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$289.80
(3) Life Insurance Premium: full term coverage of $360 for 12 months ..... 7.20
(4) Health & Accident Ins. Premium: $30 monthly indemnity ............... 21.00
(5) Interest ............................................................ 18.00
(6) Service Charge ...................................................... 24.00
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Total amount to be repaid ............................................. $360.00
Appellant executed her note for $360 payable in twelve monthly installments of $30 beginning June 17, 1951 with interest at 10% per annum from maturity until paid and providing that the entire unpaid balance would become due and payable at the option of the holder of the note upon failure to pay any installment when due. Appellant also executed a mortgage on her household furniture to secure payment of the note. Thus appellant secured $289.80 cash, out of which she was required to pay the balance of the previous loan, and to this sum was added total charges of $70.20 making up the total of the $360 note. Appellant testified that at the time of making the second loan she agreed to the various charges but that she did not need the insurance which she was required to take because her salary would be continued by the telephone company in case of sickness. She further stated that she was financially embarrassed at the time and thought she had to take out the insurance in order to get the loan. There was no inspection of the furniture mortgaged and apparently no inquiry as to insurance on the property.
The two insurance policies were issued by an Arkansas company in which 997 of its 1,000 shares of stock were owned by one man whose two children were also the boneficial owners of all the stock in the appellee corporation except two qualifying shares. Appellee's office manager is licensed as an insurance agent and the certificates of insurance issued to the borrower are either signed by him or another employee in the office at his instance. Appellee corporation retains 50% of all premiums on life insurance policies and 35% of all premiums on health and accident policies. The manageragent receives no part of the premium but is paid a salary just as any other employee of the corporation.
Appellee's manager stated that the company was making loans under Act 203 of 1951, Ark.Stats. §§ 67-1301 to 67-1337, Supp.1951, entitled 'Arkansas Installment Loan Law.' In an attempt to explain and justify the $24 service charge made pursuant to § 27(b) of the Act, he testified:
period, and then I have compiled the figures of the total loans made, the notes, and I have included in that figure approximately six thousand dollars in conditional sales contracts which we also purchased during that time, and I have some figures here that will show the exact cost in overhead to the State Auto Finance Company for making loans in one hundred dollars loans and per loan.
'
On further examination he testified that the only profit derived by the company in the transaction was from the interest and the commission on insurance premiums which it collected. He further stated there was no way of fixing a charge for investigation of a moral risk and that it would be foolish to set a definite charge for such investigation. In most instances the purchase of life and health insurance was required of the borrower and the expense of writing such insurance was included in the total overhead expenses charged to the loan.
Appellee's president testified that the company's plan of operation was worked out after conference with representatives of the State Banking Department and the...
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