Contracts – Usury – Dual Contracts Designed to Evade Usury Prohibitions

Plaintiff applied to the defendant finance company for a loan of $100. The lender agreed to advance this amount and accordingly required the plaintiff to execute a note in the sum of $114.04 payable in one year and secured by a chattel mortgage on an automobile, but insisted in addition that plaintiff purchase an investment certificate in the amount of the note, issued by the defendant company and bearing percent interest, which certificate was to be paid for in twelve monthly instalments. Contending that the interest thus exacted was usurious, the plaintiff brought suit for cancellation of the note and mortgage. On appeal from a judgment that the loan was not usurious, held, affirmed with a caveat. The sale of the investment certificate was essentially a part of the loan transaction, so that monthly instalments on the certificate were in effect repayment of the loan and the totality of the arrangement was usurious. But prior holdings to the contrary which had become a rule of property could not be overruled retrospectively, and the judgment in the principal case was therefore affirmed with a caveat that a similar course of dealing would henceforth be considered a single transaction and subject to the constitutional mandate against usury. O’Brien v. Atlas Finance Co., (Ark. 1954) 264 S.W. (2d) 839.