Southland Mobile Home Corp. v. Webster

George Rosé Smith, Justice. In 1973 one of the appellants, Southland, sold a mobile home to the appellees, the unpaid balance of the purchase price to be paid in monthly installments.. The transaction was financed by the other appellant, Westinghouse Credit Corporation. According to the proof offered by both sides, the interest rate was slightly more than 10% per annum and was therefore usurious. After the purchasers had made 39 of the 72 monthly payments they brought this suit to cancel their remaining obligation. The chancellor granted that relief. For reversal the appellants argue that the usurious charge was the result of a good faith mistake on their part. This argument presents a mixed question of law and fact. The combined contract of sale and security agreement was dated June 26, 1973. It recited $3,916.35 as the balance to be financed and $1,328.85 as the finance charge. The total of $5,245.20 was to be paid in 72 monthly installments of $72.85 each. The interest rate was recited as 10.00%. A pivotal point of dispute is whether the first monthly installment was due in 30 days (on July 26) or in 45 days (on August 10). The interest charge is usurious either way, but the excess is substantially greater if the first payment was due on the earlier date. We find the preponderance of the evidence to be clearly contrary to the chancellor’s conclusion that the later date was what the parties intended. The written contract’s adoption of the earlier date is absolutely free from ambiguity. The contract is dated June 26. We copy the only pertinent language in the contract, with the blanks filled in or not filled in as we have shown: Buyer promises and agrees to pay the Total of Payments as follows: 72 equal successive monthly installments of $ 72.85 each on the _ day of each month commencing* _, 19_ and each month thereafter, or payable otherwise as follows:__ *If no date is inserted in blank, the first installment is payable one month from the date of contract. Therefore, since the blank following the asterisk was not filled in, the first monthly payment was due on July 26, 1973. Mrs. Webster, who handled the negotiations for herself and her husband, testified that she was told that the first payment would be due in the following month and that she was not told that it would be due in 45 days. Whoever handled the sale for Southland did not testify. Consequently, on the basis of what happened between the parties on the day of the sale, it is undisputed that the intended date was July 26. The appellants’ argument to the contrary is based largely on their own unilateral actions. Southland, in calculating the Finance charge and the amount of the monthly payments, had acquired and was using what is referred to as a Wang computer. In the use of this machine the operator would insert a printed form supplied by Westinghouse, the Finance company. The operator would then feed into the machine the necessary data, such as the purchase price, the down payment, the charge for insurance, and the number of payments. The computer would then calculate the Finance charge and the amount of the monthly payment and would type all the Figures in the appropriate blank spaces. The later 45-day payment date (August 10) comes into the picture because, even though the contract as filled in speciFied the earlier date, the computer was programmed to use the 45-day interval in every case. When two copies of the signed contract were received by Westinghouse at its office in Memphis, a coupon book showing the date of the monthly payments was prepared and sent to the purchasers. The Westinghouse employee who handled the transaction in question testified that, even though the contract was filled in to indicate a 30-day interval, she used the 45-day interval in preparing the coupon book because she knew that Southland used a Wang computer that was set to make its calculations on a 45-day basis. The proof indicates that the Websters, upon receiving the coupon book, actually used the 10th of each month as the due date. The parties’ intentions are to be determined as of the time the contract was made. Walden v. Fallis, 171 Ark. 11, 283 S.W. 2d 17, 45 A.L.R. 1396 (1926). That is also the date as of which the determination of usury is to be made. Brown v. Central Ark. Production Credit Assn., 256 Ark. 804, 510 S.W. 2d 571 (1974). On that date the Websters signed a contract, prepared by the seller, specifying the 26th of each month as the payment date. No 45-day interval for the first payment was mentioned. Thus the clear preponderance of the evidence establishes the earlier date as the correct one. The appellants argue, nevertheless, that the fault lay not with them but with the Wang computer. Preliminarily, we should say that it was stipulated that if the author of the Thorndike Encyclopedia of Banking and Financial Tables were called as a witness by the purchasers, he would testify that the contract was usurious by $21.34 if the July 26 date was used and by $5.25 if the August 10 date was used. It was also stipulated that if a certain bookkeeper were called as a witness by the defendants, she would testify that the contract was usurious by 19 cents if the August 10 date was used (and presumably by a greater amount if the July 26 date was used). Both witnesses used a daily interest rate in making their calculations. Of course, there are other ways of computing interest. See, for example, Skelton Motor Co. v. Brown, 231 Ark. 801, 332 S.W. 2d 607 (1960). Marvin Poole, the owner of Southland, testified that he had been selling mobile homes since 1955. Before 1973 he had calculated monthly payments by means of a chart supplied by Westinghouse. That chart, however, gave the figures only for full months; so Poole made no charge for extra days. He decided to use a Wang computer, because it could make the necessary calculations for intervening days. After acquiring the Wang computer, Poole had it make two sample computations, one with a 30-day initial interval and the other with a 45-day initial interval. Poole submitted the computations to a law firm for its opinion as to whether the computations were usurious. Both computations involved 96 monthly payments. As we understand the law firm’s response, the 30-day computation, using a monthly payment of $131.13, fell short of 10% interest by a total of 14 cents over the life of the loan, and the 45-day computation, using a monthly payment of $131.67, fell short by 40 cents. Hence the firm approved the machine. We infer that the Wang computer was designed to arrive at a monthly payment that would be on the safe side to the nearest possible penny. In other words, the margin of error for a 96-month contract would be only 96 cents. Thus the 19-cent error found by the bookkeeper is not quite so demonstrably insignificant when it is borne in mind that on a 72-month contract the Wang computer was apparently designed to come within 72 cents of the top lawful limit. Working within such close tolerances might be said to involve a calculated risk. (No doubt, of course, the computer was made to be used principally in states where an excessive interest charge does not invalidate the contract, as it does in Arkansas.) The appellants, in insisting that they simply made a good faith mathematical error, cite cases such as Sammons-Pennington Co. v. Norton, 241 Ark. 341, 408 S.W. 2d 487 (1966), and Cox v. Darragh Co., 227 Ark. 399, 299 S.W. 2d 193 (1957). In both of those particular cases, however, the initial calculation was attempted by a person who was not skilled in the computation of interest. We found that an honest mistake had been made in a good faith effort to charge only lawful interest. By contrast, we have not been as ready to overlook a mathematical error when responsibility for the calculation of interest had been assumed by a finance company. Ford Motor Credit Co. v. Catalani, 238 Ark. 561, 383 S.W. 2d 99, 11 A.L.R. 3d 1494 (1964). See also our finding of usury in Cagle v. Boyle Mortgage Co., 261 Ark. 437, 549 S.W. 2d 474 (1977), where the excessive charges appeared upon computerized monthly statements. We have often said, in upholding contracts assailed as usurious, that for a charge to constitute usury the lender must have intended to take more than the maximum rate of interest. Brown v. Central Ark. Production Credit Assn., supra. That statement, needless to say, cannot be taken literally in every situation. A lender can no more purge a loan of usury by saying that he did not intend to charge more than 10% interest than a borrower can contaminate his debt by saying that he meant to pay more than 10%. Our decisions have never implied that usury does not exist unless the parties, upon concluding their agreement, have shaken hands and congratulated each other upon having arrived at a contract calling for only 12% interest. In the case at bar Southland’s owner had been selling mobile homes for nearly 20 years. Westinghouse is a finance company that participated in the transaction from the outset by furnishing its forms, by paying Southland for its commercial paper, and by preparing the purchasers’ coupon book. In the circumstances Westinghouse was not a stranger to the transaction. See Hare v. General Contract Purchase Corp., 220 Ark. 601, 249 S.W. 2d 973 (1952). Here there was a mistake, but as we said in Holland v. C. T. Doan Buick Co., 228 Ark. 340, 307 S.W. 2d 538 (1957), “it was not a mistake made by erroneous figuring; it was not a matter of declaring one sum due when actually another amount was intended. The amount was arrived at because the wrong formula was used.” We are firmly of the view that in this case the excessive charges, admittedly usurious, cannot be condoned on the theory that a good faith error was made by persons who should in equity be freed from responsibility for the consequences of their own action. Affirmed. Fogleman, J., not participating. Byrd and Holt, JJ., concur. Harris, C.J., and Hickman, J., dissent.