George Rose Smith, Justice.
This is a foreclosure suit brought by the appellee Blaylock Investment Company to enforce a deed of trust securing a loan made by Blaylock to the three appellants, Dr. and Mrs.. Sosebee and Valley View Developers, Inc. The chancellor rejected the borrowers ’ plea of usury and entered a decree of foreclosure. Inasmuch as we find that the testimony of Blaylock’s own witnesses, establishes a clear-cut case of usury we need discuss only that issue.
For several years, before the loan was made in 1965 the Sosebees, acting through the Valley View corporation, had been attempting to develop a residential addition to North Little Rock. The venture was in serious financial trouble, with materialmen and other creditors pressing their claims. The Sosebees applied to Blaylock Investment 'Company, a loan broker, for a loan of $118,-000, of which $78,700 was to be used to pay creditors and the remaining $39,300 (which was never actually advanced) to develop and sell 51 lots in the subdivision. Blaylock refused to lend any money to Sosebee for construction purposes, because it believed him to be an incompetent builder. It did agree to finance the development and sale of the 51 lots, which it considered to have a value of about $223,000. The parties expected all the lots to be sold during the three-year life of the loan.
William G-. Cooksey, Blaylock’s Arkansas manager, testified that the company did not think the interest upon a subdivision loan such as this one to be a great enough return for the risk involved. Moreover, Blaylock itself did not make long-term investments in such loans: “All of our loans wind up with institutional investors.” Hence, before closing the Sosebee loan, Blaylock sought (a) an institutional investor and (b) an opportunity to make for itself a profit in addition to whatever interest might be involved.
Both objectives were accomplished. Blaylock obtained a firm written commitment from Standard Life & Accident Insurance Company by which Standard agreed to purchase the $118,000 loan. Standard was to receive a 1% commitment fee from the borrowers, and Blaylock was to receive a 1% service charge from them —both items, admittedly being chargeable as interest. The loan, bearing interest at 6% per annum, was payable over a period of three years in three equal principal installments.
Blaylock also procured from the Sosebees a side contract (called an Escrow Agreement) by which Blay-lock expected to increase its profit. The pivotal question in the case is whether that additional profit must be treated as interest. If so, the loan was usurious; otherwise not.
The Escrow Agreement was in the form of a letter, addressed to Blaylock, which the Sosebees and Valley View were required to sign. The agreement is so hard to summarize accurately that we quote its essential provisions:
“In consideration of your . . . procuring for the undersigned the sum of $118,000.00 in development financing and your undertaking to provide permanent FHA and/or VA financing for residences to be constructed upon the captioned lots, which undertaking shall include your finding the necessary funds, processing the applications for FHA and/or VA loan, and when approved by The FHA and/or VA and your investors the closing of such mortgage loans, the undersigned [do] hereby agree ... to place in escrow with you at the time each lot . . . is released from the blanket $118,000.00 mortgage covering such lot, the sum of $150.00 for each such lot. If the builder of a residence upon the respective lot closes his permanent FHA and/or VA financing upon said lot through your company, after approval of the property and borrower by the investor and the FHA and/or VA, the said sum of $150.00 shall be refunded to the undersigned when such respective loan is closed. It is understood and agreed that you shall make such mortgage loan after approval of the borrower and the property for such loan by the FHA and/or VA and your investor, at yonr then going discount rate, but not to exceed the discount and other charges, then in force and charged by Federal National Mortgage Association in the purchase of such mortgage notes.
“As to the monies, escrowed attributable to any lot, if permanent financing relating to such is not closed through your company within three (3) years from date hereof, such monies, are to be forfeited to you as liquidated damages, processing fees, and refund of legal charges and expenses incurred and to be incurred by you. This forfeiture to be complete without notice or the necessity of demand by you; upon failure of the events hereinabove set forth to occur within the time limit set forth. The said forfeited liquidated damages to be applied and disbursed by you without accounting to the undersigned in any manner ... in your "uncontrolled discretion, it being agreed, however, that upon the happening of either event the undersigned shall have no further or additional liability arising out of this agreement. The closing of a loan through the facilities of another lender, except for short term construction loans, shall be cause for immediate forfeiture of the fee applicable to a given lot without regard to the time element specified above.
“Should, on any date prior to maturity, the development loan be prepaid in a lump sum payment then the undersigned [do] hereby agree ... to place in escrow with you at the time the mortgage is retired in full the sum of $150.00 for each individual lot covered by the mortgage on the date of prepayment. The final disposition of these escrowed funds shall be made in exact accord with the provisions applicable to releases, covering individual lots.”
This Escrow Agreement is to be tested by two well-settled principles: First, any profit exacted by the lender must be treated as interest if it depends upon a con-tingeney not within the control of the debtor. As we said in Hollan v. American Bank of Com. & Tr. Co., 159 Ark. 141, 252 S. W. 359 (1923): “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 [our italics] 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.”
Secondly, the moneylender cannot impose upon the borrower charges that in fact constitute the lender’s overhead expenses or costs of doing business. Such outlays are fundamentally for the lender’s benefit and cannot, by whatever device, be shouldered off upon the borrower. On this point our recent decisions are unequivocal. Strickler v. State Auto Finance Co., 220 Ark. 565, 249 S. W. 2d 307 (1952) ; Winston v. Personal Finance Co., 220 Ark. 580, 249 S. W. 2d 315 (1952).
The Escrow Agreement manifestly flouts both principles. These borrowers had not even a semblance of control over the contingency that would avoid the forfeiture of each $150 deposit. On this point the appellees make this assertion in their brief.
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George Rose Smith, Justice.
This is a foreclosure suit brought by the appellee Blaylock Investment Company to enforce a deed of trust securing a loan made by Blaylock to the three appellants, Dr. and Mrs.. Sosebee and Valley View Developers, Inc. The chancellor rejected the borrowers ’ plea of usury and entered a decree of foreclosure. Inasmuch as we find that the testimony of Blaylock’s own witnesses, establishes a clear-cut case of usury we need discuss only that issue.
For several years, before the loan was made in 1965 the Sosebees, acting through the Valley View corporation, had been attempting to develop a residential addition to North Little Rock. The venture was in serious financial trouble, with materialmen and other creditors pressing their claims. The Sosebees applied to Blaylock Investment 'Company, a loan broker, for a loan of $118,-000, of which $78,700 was to be used to pay creditors and the remaining $39,300 (which was never actually advanced) to develop and sell 51 lots in the subdivision. Blaylock refused to lend any money to Sosebee for construction purposes, because it believed him to be an incompetent builder. It did agree to finance the development and sale of the 51 lots, which it considered to have a value of about $223,000. The parties expected all the lots to be sold during the three-year life of the loan.
William G-. Cooksey, Blaylock’s Arkansas manager, testified that the company did not think the interest upon a subdivision loan such as this one to be a great enough return for the risk involved. Moreover, Blaylock itself did not make long-term investments in such loans: “All of our loans wind up with institutional investors.” Hence, before closing the Sosebee loan, Blaylock sought (a) an institutional investor and (b) an opportunity to make for itself a profit in addition to whatever interest might be involved.
Both objectives were accomplished. Blaylock obtained a firm written commitment from Standard Life & Accident Insurance Company by which Standard agreed to purchase the $118,000 loan. Standard was to receive a 1% commitment fee from the borrowers, and Blaylock was to receive a 1% service charge from them —both items, admittedly being chargeable as interest. The loan, bearing interest at 6% per annum, was payable over a period of three years in three equal principal installments.
Blaylock also procured from the Sosebees a side contract (called an Escrow Agreement) by which Blay-lock expected to increase its profit. The pivotal question in the case is whether that additional profit must be treated as interest. If so, the loan was usurious; otherwise not.
The Escrow Agreement was in the form of a letter, addressed to Blaylock, which the Sosebees and Valley View were required to sign. The agreement is so hard to summarize accurately that we quote its essential provisions:
“In consideration of your . . . procuring for the undersigned the sum of $118,000.00 in development financing and your undertaking to provide permanent FHA and/or VA financing for residences to be constructed upon the captioned lots, which undertaking shall include your finding the necessary funds, processing the applications for FHA and/or VA loan, and when approved by The FHA and/or VA and your investors the closing of such mortgage loans, the undersigned [do] hereby agree ... to place in escrow with you at the time each lot . . . is released from the blanket $118,000.00 mortgage covering such lot, the sum of $150.00 for each such lot. If the builder of a residence upon the respective lot closes his permanent FHA and/or VA financing upon said lot through your company, after approval of the property and borrower by the investor and the FHA and/or VA, the said sum of $150.00 shall be refunded to the undersigned when such respective loan is closed. It is understood and agreed that you shall make such mortgage loan after approval of the borrower and the property for such loan by the FHA and/or VA and your investor, at yonr then going discount rate, but not to exceed the discount and other charges, then in force and charged by Federal National Mortgage Association in the purchase of such mortgage notes.
“As to the monies, escrowed attributable to any lot, if permanent financing relating to such is not closed through your company within three (3) years from date hereof, such monies, are to be forfeited to you as liquidated damages, processing fees, and refund of legal charges and expenses incurred and to be incurred by you. This forfeiture to be complete without notice or the necessity of demand by you; upon failure of the events hereinabove set forth to occur within the time limit set forth. The said forfeited liquidated damages to be applied and disbursed by you without accounting to the undersigned in any manner ... in your "uncontrolled discretion, it being agreed, however, that upon the happening of either event the undersigned shall have no further or additional liability arising out of this agreement. The closing of a loan through the facilities of another lender, except for short term construction loans, shall be cause for immediate forfeiture of the fee applicable to a given lot without regard to the time element specified above.
“Should, on any date prior to maturity, the development loan be prepaid in a lump sum payment then the undersigned [do] hereby agree ... to place in escrow with you at the time the mortgage is retired in full the sum of $150.00 for each individual lot covered by the mortgage on the date of prepayment. The final disposition of these escrowed funds shall be made in exact accord with the provisions applicable to releases, covering individual lots.”
This Escrow Agreement is to be tested by two well-settled principles: First, any profit exacted by the lender must be treated as interest if it depends upon a con-tingeney not within the control of the debtor. As we said in Hollan v. American Bank of Com. & Tr. Co., 159 Ark. 141, 252 S. W. 359 (1923): “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 [our italics] 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.”
Secondly, the moneylender cannot impose upon the borrower charges that in fact constitute the lender’s overhead expenses or costs of doing business. Such outlays are fundamentally for the lender’s benefit and cannot, by whatever device, be shouldered off upon the borrower. On this point our recent decisions are unequivocal. Strickler v. State Auto Finance Co., 220 Ark. 565, 249 S. W. 2d 307 (1952) ; Winston v. Personal Finance Co., 220 Ark. 580, 249 S. W. 2d 315 (1952).
The Escrow Agreement manifestly flouts both principles. These borrowers had not even a semblance of control over the contingency that would avoid the forfeiture of each $150 deposit. On this point the appellees make this assertion in their brief. “It should be pointed out here that all Sosebee had to do to avoid forfeiture of the $150 per lot was to send the customers to Blay-lock and have Blaylock make them a loan.” The short answer to this twofold suggestion is that both possibilities were patently beyond Sosebee’s control. Sosebee’s responsibility to the moneylenders was that of selling lots. It did not lie within his power to compel the purchaser of a lot to apply to Blaylock for a loan.
Again, even if the purchaser did elect to seek a Blaylock loan Sosebee had no voice in the lender’s decision to approve or disapprove the application. In the first paragraph we have quoted from the Escrow Agreement it is stated no fewer than three times that each loan must he approved by Blaylock’s investor. At the oral argument counsel for the appellees insisted that Blaylock was contractually bound to make a loan to any purchaser whose credit rating was acceptable. True, but all that assertion really means is that Blaylock promised to do business as usual, making only such loans as any other similar lending agency would have been equally glad to make. It is significant that Blaylock offered ho discount, financial advantage, or other inducement for its supposedly valuable promise to provide long-term financing for those who bought lots in Valley View Subdivision.
The Escrow Agreement likewise runs counter to the rule that the lender’s overhead expenses cannot be foisted off on the borrower as something other than interest on the loan. The contract, quoted above, declares that the escrow deposits are to be forfeited as “liquidated damages, processing fees, and refund of legal charges and expenses incurred and to be incurred” by Blaylock. Blaylock’s manager, Cooksey, came up with this lame explanation: “The $150.00 is a fee that we have determined from past experience that would cover our expense and justify us. committing ourselves for a period of three years. . . We, of course, have to maintain our office and our staff. We have to contact banks for verification of applicants’ deposits, many cases the employers.” In short, Blaylock had overhead expenses that stemmed not from Sosebee’s duty to sell lots but from its. own business of lending money.
Especially pertinent to the issue of usury is the third paragraph that we have quoted from the agreement. Here Blaylock guaranteed to itself its profit of $150 a lot even if the loan made by its investor should be prepaid in full before any lots were sold and thus before Blaylock had incurred any risk or any expense. If tlie prepayment were accomplished by a refinancing of the debt, the new mortgagee, according to the appel-lees’ reasoning, could have legally exacted from Sosebee precisely the same Escrow Agreement that Blaylock required. In that event Sosebee would have been unconditionally bound to pay $150 a lot to one lender or the other, and often to both, since it would not be possible for both lenders to finance the improvement of a particular lot. Similarly, if all the lots were bought by a single purchaser who paid cash for the property, thus liquidating the Sosebee loan, Blaylock would pocket $150 a lot without having lifted a finger to earn it.
The appellees argue in their brief that the transaction was shielded from usury by the forfeiture’s being contingent. They say: “Forfeiture was contingent on non-compliance [on Sosebee’s part]. The presence of a contingency eliminates any aspect of usury. Dunbar v. State Building & Loan, 171 Ark. 232, 284 S. W. 2d [1926].” This statement is much too broad. In the first place, the insertion of the contingency itself may be a' cloak for usury, as in Doyle v. American Loan Co., 185 Ark. 233, 46 S. W. 2d 803 (1932). Secondly, the Dunbar case, relied on by these appellees, involved a loan made by a bona fide building and loan association. "We distinguished such transactions, in O’Brien v. Atlas Finance Co., 225 Ark. 176, 264 S. W. 2d 839 (1954), where we bottomed our decision upon an observation that applies equally well to the Escrow Agreement now before us: “If this transaction is not usurious, then any transaction can be dressed up so as not to. constitute usury although it would be clear that it was merely a scheme to evade the usury laws.”
The decree must be reversed and the cause dismissed.
Habéis, O. J., and Fogleman, J., dissent.