Barbara Ann Pakay v. Tabatha Davis
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SUPREME COURT OF ARKANSAS
No.
06-360
Opinion Delivered October 12, 2006
BARBARA ANN PAKAY
APPELLANT,
VS.
TABATHA DAVIS
APPELLEE,
AN APPEAL FROM THE POPE
COUNTY CIRCUIT COURT
NO. CV 2005-159
DENNIS SUTTERFIELD, CIRCUIT
JUDGE
REVERSED AND REMANDED.
TOM GLAZE, Associate Justice
On April 6, 2005, Appellant Barbara Pakay filed suit against Appellee Tabatha Davis.
Barbara alleged that she had entered into a contract for deed with Tabatha, and the 8%
interest rate she was charged was usurious under Article 19, Section 13 of the Arkansas
Constitution, also known as Amendment 60. Amendment 60 established that Arkansas’
maximum lawful rate of interest on any contract shall not exceed five percent (5%) per
annum above the Federal Reserve Discount Rate at the time of the contract. Tabatha
answered, contending that the interest rate in the parties’ contract was not usurious. Barbara
later amended her complaint to also assert her claim against Tabatha’s husband, Bryan Davis.
Tabatha and Bryan both moved to dismiss the amended complaint, alleging that Bryan was
not a party to the contract. On July 6, 2005, the circuit court dismissed Barbara’s claim
against Bryan.
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On September 12, 2005, Tabatha filed a motion for summary judgment in which she
submitted that, because the Federal Reserve Discount Rate had been abolished effective
January 9, 2003, prior to Barbara and Tabatha’s contract, there was no longer a way to
calculate what constitutes usury under the Arkansas Constitution.
In reply, Barbara
contended that, as a matter of law, the Federal Reserve Board replaced the Federal Reserve
Discount Rate with the “primary credit rate.” Having decided that legal issue, Barbara
submitted that because the primary credit rate was 2.00% at the time of the parties’ contract,
the maximum interest rate permissible under Arkansas law was limited to 7.00% (no more
than 5% per annum above the primary credit rate). Accordingly, Barbara asserted that the
8% interest rate charged by Tabatha was usurious.
The circuit court granted Tabatha’s motion for summary judgment. From that order,
Barbara timely appeals two issues: (1) the trial court erred in dismissing Bryan from the
lawsuit and (2) the trial court erred in granting Tabatha summary judgment. We reverse the
circuit court on both points.
We begin with Barbara’s second point on appeal, wherein she seeks to clarify what
standard, if any, should be used to determine what is usurious under Amendment 60 to the
Arkansas Constitution now that the Federal Reserve Discount Rate no longer exists. As
noted earlier, the circuit court granted Tabatha’s motion for summary judgment, finding that,
absent the Federal Reserve Discount Rate, there is no longer a standard in Amendment 60
to limit interest rates and determine what constitutes usury.
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Summary judgment is appropriate when there are no genuine issues of material fact,
and the moving party is entitled to judgment as a matter of law. Hanks v. Sneed, ___ Ark.
___, ___ S.W.3d ___ (May 18, 2006); Fegans v. Norris, 351 Ark. 200, 89 S.W.3d 919
(2002). Once the moving party has established a prima facie entitlement to summary
judgment, the opposing party must meet proof with proof and demonstrate the existence of
a material issue of fact. Hanks, supra. On appellate review, this court determines if
summary judgment was appropriate based on whether the evidentiary items presented by the
moving party in support of the motion leave a material fact unanswered. Id. This court
views the evidence in a light most favorable to the party against whom the motion was filed,
resolving all doubts and inferences against the moving party. Id. Our review focuses not
only on the pleadings, but also on the affidavits and other documents filed by the parties. Id.
While Barbara and Tabatha appear to agree on most of the essential facts, it is the law
that is in dispute in this case. Both parties admit that they willingly entered into a contract
for deed, wherein Tabatha charged Barbara $79,000 for real property. Moreover, the parties
also admit that Barbara was charged 8% interest on that land for a period of 300 months. On
appeal, however, Barbara contends that, because there is no longer a Federal Reserve
Discount Rate to calculate the maximum lawful rates of interest as provided by Amendment
60, the Federal Reserve Board’s “primary credit rate” is the gauge by which we determine
what is usury under our Constitution. In reply, Tabatha submits that, because the contract
for deed was entered into after the abolition of the Federal Reserve Discount Rate,
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Amendment 60 no longer provides a maximum interest rate. At the summary judgment
hearing, the circuit court reasoned:
I’m gonna grant the motion for summary judgment. . . . Article 19, Section 13
of the Arkansas Constitution establishes the maximum lawful rate of interest
at “5% above the Federal Discount Rate at the time of the contract.” But the
Federal Discount Rate was abolished prior to the date of this contract. And
I’m aware of the Attorney General’s opinion cited that the Attorney General
basically said that the Supreme Court would look for some way to save the
Constitutional Amendment by trying to adopt - - there’s more than one new
discount rate that substitutes for this Federal Discount Rate.
But the Federal Discount Rate cited in Article 19, Section 13 of the
Constitution - - it’s capitalized. It specifically refers to the Federal Discount
Rate. It says it “means the Federal Reserve Discount Rate,” and it’s
capitalized, “on a ninety-day commercial paper in effect in a Federal Reserve
District.” Well, that Federal Discount Rate has been abolished. . . .
Now, the Supreme Court may well want to do that but, I think based on what
I’m seeing here, I cannot rewrite the Constitution of this State. And I’m not
going to. . . . Now, they could have done this a lot of ways when they passed
this amendment. They could have said the Federal Discount Rate and any
other similar rate hereafter adopted, but they wanted to hang their hat on this
hook. And the hook isn’t on the wall anymore. So you can’t hang the hat
there anymore.
****
I’m just interpreting that amendment to say that that Discount Rate no longer
exists. It is just not applicable to this case and I don’t guess any other case.
We reverse the circuit court’s order of summary judgment.
Article 19, section 13, of the Arkansas Constitution (Amendment 60) provides in
relevant part as follows:
(a) General Loans:
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(i) The maximum lawful rate of interest on any contract entered
into after the effective date hereof shall not exceed five percent
(5%) per annum above the Federal Reserve Discount Rate at the
time of the contract.
(ii) All such contracts having a rate of interest in excess of the
maximum lawful rate shall be void as to the unpaid interest. A
person who has paid interest in excess of the maximum lawful
rate may recover, within the time provided by law, twice the
amount of interest paid. It is unlawful for any person to
knowingly charge a rate of interest in excess of the maximum
lawful rate in effect at the time of the contract, and any person
who does so shall be subject to such punishment as may be
provided by law.
****
(c)(ii) “Federal Reserve Discount Rate” means the Federal
Reserve Discount Rate on ninety-day commercial paper in effect
in the Federal Reserve Bank in the Federal Reserve District in
which Arkansas is located.
Ark. Const. art. 19, § 13 (emphasis added).
Admittedly, the plain language of Article 19, section 13 of our Constitution
(Amendment 60) provides that the maximum rate of interest charged shall not exceed five
percent (5%) per annum above the Federal Reserve Discount Rate. However, as of January
9, 2003, the Federal Reserve Board abolished the Federal Reserve Discount Rate. See 12
CFR § 201.4 (2003). At the same time, however, the Board adopted the primary credit rate,
the secondary credit rate, and the seasonal credit rate. Id.
In construing provisions of the Arkansas constitution, we endeavor to effectuate as
nearly as possible the intent of the people (as it may be ascertained from the language of the
provision) in passing the measure, and, if necessary, as a means of attaining that end, a
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liberal interpretation will be warranted. See Raney v. Raulston, 238 Ark. 875, 878, 385
S.W.2d 651, 653 (1965) (emphasis added)(citing Walton v. Arkansas Construction
Commission, 190 Ark. 775, 80 S.W.2d 927 (1935)). Without question, when the people of
this State adopted Amendment 60, their intent was to implement limits on interest rates, not
eliminate such limits. Amendment 60's plain language illustrates that intent by establishing
an objective gauge in order to determine what is usurious under the law. While the Federal
Reserve Board abolished the Federal Reserve Discount Rate, it merely substituted a different,
but similar, measurement in its place. In this respect, the primary discount rate offers, much
like the Federal Reserve Discount Rate offered, a means by which rates of interest can be
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limited.1 Thus, while the Federal Reserve Discount Rate has been abolished by the Federal
Reserve Board, the Board adopted a gauge that can apply in its place.
1
The Federal Reserve Board’s website explains the various types of credit rates
available:
The discount rate is the interest rate charged to commercial banks and other
depository institutions on loans they receive from their regional Federal
Reserve Bank's lending facility--the discount window. The Federal Reserve
Banks offer three discount window programs to depository institutions:
primary credit, secondary credit, and seasonal credit, each with its own
interest rate. All discount window loans are fully secured.
Under the primary credit program, loans are extended for a very short term
(usually overnight) to depository institutions in generally sound financial
condition. Depository institutions that are not eligible for primary credit
may apply for secondary credit to meet short-term liquidity needs or to
resolve severe financial difficulties. Seasonal credit is extended to relatively
small depository institutions that have recurring intra-year fluctuations in
funding needs, such as banks in agricultural or seasonal resort communities.
The discount rate charged for primary credit (the primary credit rate) is set
above the usual level of short-term market interest rates. (Because primary
credit is the Federal Reserve's main discount window program, the Federal
Reserve at times uses the term "discount rate" to mean the primary credit
rate.) The discount rate on secondary credit is above the rate on primary
credit. The discount rate for seasonal credit is an average of selected market
rates. Discount rates are established by each Reserve Bank's board of
directors, subject to the review and determination of the Board of
Governors of the Federal Reserve System. The discount rates for the three
lending programs are the same across all Reserve Banks except on days
around a change in the rate.
The Federal Reserve Board,
<http://www.federalreserve.gov/monetarypolicy/discountrate.htm> (Oct. 9, 2006). See
also 12 CFR § 201.4 (2003). Thus, it is clear to us that the primary credit rate, in
comparison with the secondary credit and seasonal credit rate, is most like the former
Federal Reserve Discount Rate.
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Under our standard of review of constitutional provisions, as a means of attaining the
clear intent of the people, a liberal interpretation is warranted. Raney v. Raulston, supra. In
order to comply with the intent of the people, our obligation is to apply some standard,
regardless of its name or title given by the Federal Reserve Board. Thus, we conclude that
under our standard of review for such a constitutional provision, the circuit court erred in
concluding there is no longer a standard to gauge usury under the law.2 The primary credit
rate should be applied in the place of the Federal Reserve Discount Rate. This conclusion
requires the circuit court on remand to determine what the primary credit rate was on the date
that Barbara and Tabatha entered their contract.3 See Bank of America v. C.D. Smith Motor
Co., 353 Ark. 228, 250, 160 S.W.3d 425, 438 (2003).
2
In 2002, the State’s attorney general issued an opinion, published on this exact
issue, reasoning that the primary credit rate would effectively replace the Federal Reserve
Discount Rate in Amendment 60. In reaching this decision, the attorney general
evaluated other instances in our case law where strict compliance with a constitutional
amendment was impossible. White v. Hankins, 276 Ark. 562, 637 S.W.2d 603 (1982);
Drennan v. Bennett, 230 Ark. 330, 322 S.W.2d 585 (1959). The attorney general’s
opinion noted that, in those instances where strict compliance with a constitutional
amendment was impossible, our supreme court has always looked at the intent and
purpose of the amendment rather than the literal language. However, the attorney
general’s opinion assumes that there can no longer be strict compliance with Amendment
60. In other words, the attorney general’s opinion suggests that there has been a
substantive change in the existing constitutional provision. Yet, with respect to
Amendment 60, there has not been a substantive change, as there is still a gauge in place
by which courts can determine what is usurious under the law.
3
As mentioned earlier, Barbara contends that the primary credit rate was 2.00% on
the day the parties entered the contract. Yet, the record is void of proof of that
contention.
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Barbara’s next argument is that the circuit court should not have dismissed Bryan
from the lawsuit. We review a trial court’s decision on a motion to dismiss by treating the
facts alleged in the complaint as true and by viewing them in the light most favorable to the
plaintiff. Hanks v. Sneed, supra. In viewing the facts in the light most favorable to the
plaintiff, the facts should be liberally construed in the plaintiff’s favor. Id. Our rules require
fact pleading, and a complaint must state facts, not mere conclusions, in order to entitle the
pleader to relief. Id.
Barbara’s amended complaint alleged that Tabatha and Bryan were husband and wife
and owned the real property in question. Barbara also alleged that Tabatha and Bryan were
both jointly and severally responsible for Tabatha’s actions. However, Bryan strongly argued
he was not a party to the contract dispute. As previously mentioned above, the circuit court
dismissed Bryan from the lawsuit. Based on the facts as alleged in Barbara’s amended
complaint, we conclude that the circuit court erred.
A case that is instructive on this point is Griffin v. Flemister, 252 Ark. 907, 481
S.W.2d 718 (1972). In that case, the Flemisters, sellers of real property, sought an action for
specific performance against the Griffins, potential buyers of real property. Leading up to
the lawsuit, Mrs. Griffin, with her husband’s authority, offered $72,000 for the home, but that
offer was rejected by the Flemisters. Later, without Mr. Griffin’s authority, Mrs. Griffin
made the Flemisters a counteroffer for $80,000. The $80,000 offer was accepted, but Mr.
Griffin, after finding out about his wife’s $80,000 offer, declared that he did not want to be
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bound by that offer. In concluding that Mr. Griffin was bound to the contract with the
Flemisters, we stated the following:
“The husband is not an agent for the wife solely by reason of the marital
relationship. But slight evidence of actual authority is sufficient proof of the
agency of the husband for the wife in matters of domestic nature.” 41 C.J.S.
Husband and Wife § 70 p. 549. Agency may be established by circumstantial
evidence. Williams v. O'Dwyer & Ahern Company, 127 Ark. 530, 192 S.W.
899; Sidle v. Kaufman, 345 Pa. 549, 29 A.2d 77, 81. In the Sidle case, the
court said: “The relationship of agency cannot be inferred from mere
relationship or family ties unattended by conditions, acts, or conduct clearly
implying an agency . . . ; but such relation is competent evidence when
considered with other circumstances as tending to establish the facts of agency
and where there has been other competent evidence tending to the same end.”
And, it is said in Restatement of Agency, § 22: “Neither husband nor wife by
virtue of the relationship has power to act as agent for the other. The
relationship is of such a nature, however, that circumstances which in the case
of strangers would not indicate the creation of authority or apparent authority
may indicate it in the case of husband and wife.”
Griffin v. Flemister, 252 Ark. at 910, 481 S.W.2d at 720 (quoting Cooper v. Cooper, 225
Ark. 626, 284 S.W.2d 617 (1956)). The Griffiin court continued as follows:
With further regard to agency, in the early case of Johnson v. Arkansas
Foundry Co., 173 Ark. 1181, 292 S.W. 373 (omitted from Arkansas Reports
because ‘of no value as a precedent’), this court stated:
“As we have said, the only question in the case is a question of
agency, a question of fact, and Ruby Johnson testifies that she
was the agent; and this court has said:
‘The existence of an agency cannot be shown by proving the
acts and declarations of the agent, but the agent may himself
testify in regard to his agency and the extent of his authority.’”
De Camp v. Graupner, 157 Ark. 578, 249 S.W. 6.
This court has held many times that, while you cannot prove
agency or the extent of an agent’s authority by the declarations
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or the acts of an agent, you can prove agency by the agent
himself.
Griffin v. Flemister, 252 Ark. at 910-911, 481 S.W.2d at 721. Based on the above-quoted
analysis, the Griffin court concluded that Mr. Griffin was bound to the contract entered into
by his wife. The facts supported a finding that Mrs. Griffin was acting as her husband’s
agent.
In the instant case, assessing the allegations in the amended complaint, the circuit
court should not have dismissed Bryan from the suit because, under agency principles, Bryan
could be bound to the contract entered into by his wife. Of course, to establish an agency
relationship, the circuit court would have to examine the evidence. However, by dismissing
Bryan from the action, such dismissal left no room for the examination of all relevant
evidence on this agency issue. In short, only the facts of the case can reveal whether Tabatha
was acting as an agent on behalf of her and Bryan; however, if she was, Bryan would surely
be bound to the terms of the contract.
We note that Tabatha relies on Gardner v. Bullard, 241 Ark. 75, 406 S.W.2d 368
(1966), but that case is factually distinguishable. In that case, twenty men signed their names
on a petition opposing a drainage district. However, their wives did not sign the petition, and
we concluded on appeal that the wives were not parties to the petition. Id. The Gardner
case, unlike the one now before us, did not involve a contract, whereby a husband or wife
may act as an agent on the behalf of the other. See Griffin v. Flemister, supra. More so, the
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signing of a petition does not lend itself to agency principles like negotiating a contract. We
find no merit in Tabatha’s argument, and reverse the circuit court on this point.4
Reversed and remanded.
4
Tabatha also asserts that Amendment 60 is unconstitutional, arguing that, under
the 14 Amendment to the U.S. Constitution, Amendment 60 is void for vagueness and
that it violates her substantive due process rights. However, the circuit court did not
make a specific ruling on any of her constitutional arguments, likely because it ruled in
her favor when it granted her motion for summary judgment. Absent a specific ruling on
the constitutional claims, we are precluded from addressing them on appeal. See Smith v.
Smith, 363 Ark. 456, ___ S.W.3d ___ (Oct. 13, 2005).
th
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