Ryder Truck Rental, Inc. v. Kramer

563 S.W.2d 451, 263 Ark. 169, 1978 Ark. LEXIS 1968

• Court: Supreme Court of Arkansas
• Decided: March 27, 1978
• Docket: 77-263
• Status: Published

Opinions

George Howard, Jr., Justice.

We are to determine whether the trial court’s holding was proper which granted a summary judgment resulting in the cancellation of an installment note on the grounds that the note was usurious.

THE FACTS

On April 13, 1973, appellee, J. B. Kramer, signed an installment note, as president of J. B. Kramer Grocery Company, Inc., and in his individual capacity as guarantor, promising to pay to the order of appellant, Ryder Truck Rental, Inc., the sum of One Hundred Seventy-one Thousand and no/100 Dollars ($171,000.00). The note provided that interest would be computed in the following manner: “Prime rate of interest established by the First National Bank of Boston plus One and Three-Fourths Per Cent (1 3/4%). Such rate to be adjusted quarterly as of the last day of each calendar quarter. The initial rate of interest payable hereunder shall be Eight and One-Fourth Per Cent (8 1/4%).” The note also provided that appellee, James Kramer, as guarantor, would repay the note with interest at the highest rate permitted by law until fully paid.

Under the terms of the note, Two Thousand Eight Hundred Fifty and no/100 Dollars ($2,850.00) principal together with accrued interest was to be paid on the 1 st day of May, 1973, and Two Thousand Eight Hundred Fifty and no/100 Dolars ($2,850.00) together with accrued interest was to be paid on the 1st day of each succeeding month until the entire amount of principal and interest were paid.

Appellee paid to appellant two separate installments in the sum of Eighty-five Thousand and no/100 Dollars ($85,-000.00) and, consequently, left a remaining unpaid balance on the note in the sum of Eighty-six Thousand and no/100 Dollars ($86,000.00), plus interest. On October 19, 1976, appellant instituted its action against appellee¹ in the Circuit Court of Independence County after appellee had ignored and refused the demands for payment made by appellant. Pursuant to appellee’s motion for summary judgment, upon its affirmative defense of usury, a judgment was entered by the trial court cancelling the indebtedness.

HOLDING OF THE TRIAL COURT

The trial court held that there was no material issue of fact involved and that a summary judgment should be granted in favor of appellee inasmuch as the note was usurious and void.

APPELLANT’S CONTENTION FOR REVERSAL

The lower court committed error in granting summary judgment in that genuine fact issues existed.

THE DECISION

Ark. Stat. Ann. § 29-211 (Repl. 1962 and Supp. 1977) relating to summary judgment proceedings in the circuit, chancery and probate courts, in relevant part, is as follows:

“. . . The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. ...”

The primary purpose of summary judgment procedure is to determine whether there are any triable issues of fact requiring a formal trial on the merits. The procedure provides a speedy method of determining whether there are any disputed and material issues of fact. The remedy of summary judgment is essentially one in the interest of justice and its object is to obtain judgment immediately and avoid delays which may result in injustice. If the trial court concludes, after reviewing the record, that there are no questions of fact, the court applies the law in accordance with admitted facts as disclosed by the affidavits, if any, and other submitted pleadings and grants the summary judgment if the party is otherwise entitled thereto as a matter of law. Universal Life Ins. Co. v. Howlett, 240 Ark. 458, 400 S.W. 2d 294; Jones v. Comer, 237 Ark. 500, 374 S.W. 2d 465. In reviewing the record, the trial court must view it in the light most favorable to the party resisting the motion with all doubts and inferences being resolved against the moving party.

In considering the entire record submitted in this cause, we cannot conclude or hold that the trial court committed reversible error. We are satisfied and persuaded that the trial court was correct in holding that appellee was entitled to a judgment as a matter of law.

In reviewing the installment note in question which provides, in material part, that the “Prime rate of interest established by the First National Bank of Boston plus One and Three-Fourths Per Cent (1 3/4%)” along with the admissions made by appellant in response to request for admissions submitted by appellee, there is not a material fact in dispute.

Appellant admitted in its response to defendant’s request for admissions that the following schedule represented the prime rate of interest established by First National Bank of Boston for the designated periods:

PERIOD INTEREST TOTAL INTEREST From To RATE CHARGED

8/13/73 8/21/73 9.25 plus 1 3/4 11.00

8/21/73 8/28/73 9.50 plus 1 3/4 11.25

8/28/73 9/14/73 9.75 plus 1 3/4 11.50

9/14/73 10/23/73 10.00 plus 1 3/4 11.75

10/23/73 12/10/73 9.75 plus 1 3/4 11.50

12/10/73 12/31/73 10.00 plus 1 3/4 11.75

12/31/73 2/1/74 9.75 plus 1 3/4 11.50

2/1/74 2/11/74 9.50 plus 1 3/4 11.25

2/11/74 2/20/74 9.25 plus 1 3/4 11.00

2/20/74 2/26/74 9.00 plus 1 3/4 10.75

2/26/74 3/22/74 8.75 plus 1 3/4 10.50

3/22/74 3/28/74 9.00 plus 1 3/4 10.75

3/28/74 4/3/74 9.25 plus 13/4 11.00

4/3/74 4/8/74 9.50 plus 1 3/4 11.25

4/8/74 4/11/74 9.75 plus 1 3/4 11.50

4/11/74 4/19/74 10.00 plus 1 3/4 11.75

4/19/74 4/24/74 10.25 plus 1 3/4 12.00

4/24/74 5/1/74 10.50 plus 1 3/4 12.25

5/1/74 5/6/74 10.75 plus 1 3/4 12.50

5/6/74 5/10/74 11.00 plus 1 3/4 12.75

5/10/74 5/17/74 11.25 plus 1 3/4 13.00

5/17/74 6/26/74 11.50 plus 1 3/4 13.25

6/26/74 7/5/74 11.75 plus 1 3/4 13.50

6/5/74 9/30/74 12.00 plus 1 3/4 13.75

9/30/74 10/21/74 11.75 plus 1 3.4 13.50

10/21/74 10/29/74 11.50 plus 1 3/4 13.25

10/29/74 11/18/74 11.00 plus 1 3/4 12.75

11/18/74 1/13/75 10.50 plus 1 3/4 12.25

1/13/75 1/20/75 10.25 plus 1 3/4 12.00

1/20/74 1/27/75 10.00 plus 1 3/4 11.75

1/27/75 2/4/75 9.50 plus 1 3/4 11.25

2/5/75 2/10/75 9.25 plus 1 3/4 11.00

According to the agreement of the parties, one and three-fourths percent (1 3/4%) was to be added to the aforementioned prime rate of interest.

It is readily apparent that between the date of the execution of the installment note and the trial of this cause, the interest rate far exceeded the 10% per annum permissible under the Arkansas Constitution, Article 19, Section 13, which provides, in material part, as follows:

“All contracts for a greater rate of interest than ten percent per annum shall be void, as to principal and interest, ...”

Indeed, the installment note involved in this action calls for a variable rate of interest to be determined by a future contingency in which appellee had no control. See: Foster v. Universal C.I.T. Corp., 231 Ark. 230, 330 S.W. 2d 288 (1959); Sosebee v. Boswell, 242 Ark. 396, 414 S.W. 2d 380 (1967).

In Sosebee v. Boswell, supra, we said, inter alia:

“. . . When the lender stipulates for the absolute repayment of principal and interest at the highest legal rate, and for a further profit payable upon a contingency not under the control of the borrower, the contract is usurious. Furthermore, even the chance ... of the lender’s receiving excessive profit under the transaction or arrangement is more than the lender is legally entitled to require. *** A fortiori is the contract usurious when the contingency under which the excessive interest is payable is under the control of the lender.”

Appellant argues that it is a question of fact as to whether it intended to profit beyond an amount equal to ten percent (10%) of the principal shown on the note. Moreover, appellant insists that provisions of the note which state that appellee guarantees payment of the note with “interest at the highest rate permitted by law” supports its position and also establishes an ambiguity on the face of the note, thus raising a material issue of fact concerning the intent on the part of appellant to impose an illegal rate of interest.²

Appellant’s argument is not persuasive. It is readily apparent on the face of the note that there is nothing which limits the interest payable to the maximum allowable under Arkansas law. Moreover, during a substantial part of the life of the indebtedness, the prime rate of interest of the First National Bank of Boston plus one and three-fourths percent (1 3/4%) has exceeded the maximum allowable interest under Arkansas law.

In Wilson v. Whitworth, 197 Ark. 675, 125 S.W. 2d 112, we said:

“It is not necessary for both parties to intend that an unlawful rate of interest be charged, but if the lender alone charges or receives more than is lawful, the contract is void.” (Emphasis added)

See also: Cagle v. Boyle Mtg. Co., 261 Ark. 437.

It is obvious that appellant made a mistake of the law, that of thinking that its method of charging interest, and the consequences that flowed therefrom was lawful under Arkansas law. If the Arkansas Constitution means what it says that all contracts for a greater rate of interest than ten percent (10%) are void, and this Court is to carry out this mandate, as every judge of this Court has a sworn duty to do, every lender who misjudges the law and collects excessive interest charges cannot purge his conduct by alleging in court that the debtor must prove that the lender intended to profit in excess of ten percent (10%), when, as here, it is clear from the face of the documents involved that the lender has charged more than the lawful interest rate.

Finally, the remaining question to be dealt with is whether the finding that the installment note sued upon is void for usury inures to the benefit of appellee who signed in his individual capacity as a guarantor.³ We are persuaded that a guarantor may take advantage of usury in the obligation guaranteed. In other words, if the debt which the guarantor has guaranteed is declared void and a nullity, the guarantee is also void, especially when, as here, the principal obligation and the guaranty thereof are parts of one entire transaction so that there is a matter of fact only one contract. Roe v. Kiser, 62 Ark. 92.

Nor are we persuaded or convinced that appellee is precluded from asserting usury on the theory that there exists a disclaimer in that the guarantee stated that appellee guarantees payment of the note with “interest at the highest, rate permitted by law.” It must be remembered that the quoted provision appears only in connection with the guaranty agreement and does not appear in the principal obligation between the maker and appellant. As asserted by the appellee, the principal obligation having been rendered illegal and void, there is nothing for the appellee to guarantee.

Affirmed.

Harris, C.J., and Holt and Hickman, JJ., concur in results. George Rose Smith, J., concurs with written opinion. Fogleman, J., dissents.

¹

J. B. Kramer Grocery Company, Inc. was not made a party to the action.

2 The installment note executed by appellee was prepared by appellant. See: Foster v. Universal C.I.T. Corp., supra, where we said the contract must be strictly construed against the party preparing it.

3 Ura Faye Kramer also executed the note in her individual capacity as guarantor, but was not made a party defendant to this action having been released from her individual guarantee in July, 1973. Whether the release of Ura Faye Kramer affected appellee’s standing as a guarantor is not an issue in this case.