Southland Mobile Home Corp. v. Webster

Citations: 1978 Ark. LEXIS 1956; 263 Ark. 100; 563 S.W.2d 430Docket: 77-267

Court: Supreme Court of Arkansas; March 20, 1978; Arkansas; State Supreme Court

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In 1973, Southland sold a mobile home to the Websters, with financing provided by Westinghouse Credit Corporation. The sale agreement stipulated an interest rate slightly above 10% per annum, which was deemed usurious. After making 39 out of 72 monthly payments, the Websters sought to cancel the remaining obligation, which the chancellor granted. The appellants contended that the usurious charge stemmed from a good faith mistake. 

The contract, dated June 26, 1973, specified a financed amount of $3,916.35 and a finance charge of $1,328.85, leading to total payments of $5,245.20 in 72 installments of $72.85. A critical issue was whether the first payment was due 30 days after the contract date (July 26) or 45 days later (August 10). The evidence favored the earlier date, as the contract language clearly indicated that if no date was filled in, the first payment was due one month from the contract date. 

Mrs. Webster testified that she was informed the first payment would be due the following month, supporting the interpretation of a July 26 due date. Despite the contract's terms, Southland's use of a Wang computer, which calculated payments based on a 45-day interval, led to a discrepancy when Westinghouse prepared a coupon book reflecting the later date. The Westinghouse employee confirmed she adhered to the computer's programming rather than the contract. Ultimately, the Websters followed the 10th of each month as the payment date after receiving the coupon book.

Parties' intentions regarding a contract are assessed at the time of its execution, which also applies to determining usury. The Websters signed a contract specifying monthly payments due on the 26th, with no mention of a 45-day interval for the first payment, establishing that date as the correct one. Appellants argue that any error was due to a computer used for calculations. Stipulated testimony from experts indicated that the contract was usurious by varying amounts depending on the payment date used. A witness noted that the Wang computer calculated payments accurately but operated within narrow margins, with a potential 19-cent error noted by a bookkeeper. The Wang computer was designed to ensure compliance with interest limits, presenting a calculated risk in a jurisdiction where excessive interest invalidates contracts. The appellants liken their situation to cases of honest mistakes made by unskilled individuals, but past rulings have been less lenient when finance companies are responsible for interest calculations, highlighting a difference in expectations based on the party's expertise.

In Cagle v. Boyle Mortgage Co., the court found usury due to excessive charges appearing on computerized monthly statements. The court clarified that for a charge to be classified as usurious, the lender must have intended to exceed the maximum interest rate, but this intention cannot be the sole determinant in every scenario. A lender cannot evade usury claims by claiming they did not intend to exceed 10% interest, nor can a borrower assert a claim by stating they intended to pay more than that. The case involved Southland, a long-established mobile home seller, and Westinghouse, a finance company actively involved in the transaction by providing forms, funding, and preparing customer documentation. The court noted that while a mistake occurred, it was not due to miscalculation but rather the application of an incorrect formula. Consequently, the excessive charges, acknowledged as usurious, could not be excused based on a claim of good faith error by responsible parties. The decision was affirmed, with dissenting opinions from two justices.