MONT NAT BANK BOZEMAN v KOLOKO

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No. 12694 IN THE SUPREME COURT OF THE STATE OF MONTANA 1975 MONTANA NATIONAL BANK OF BOZEMAN, Plaintiff and Appellant, WILLIAM J. KOLOKOTRONES et al, , Defendants and Respondents. Appeal from: District Court of the Eighteenth Judicial District, Honorable W. W. Lessley, Judge presiding. Counsel of Record: For Appellant : Towe, Neely and Ball, Billings, Montana Gerald J, Neely argued, Billings, Montana For Respondents: Patrick F. Hooks argued, Townsend, Montana Submitted: January 16, 1975 Decided : Filed : MAY 2 3 19% UY23trn Mr. J u s t i c e Gene B. Daly d e l i v e r e d t h e O p i n i o n of t h e C o u r t . T h i s i s a n a p p e a l from a p a r t i a l summary judgment e n t e r e d i n t h e d i s t r i c t c o u r t , G a l l a t i n County, a g a i n s t p l a i n t i f f Montana N a t i o n a l Bank of Bozeman and i n f a v o r o f d e f e n d a n t s W i l l i a m and C l a r e K o l o k o t r o n e s , a w a r d i n g t h e amount o f $12,870 i n damages, t h a t b e i n g d o u b l e t h e v a l u e o f t h e add-on i n t e r e s t on t h e p r o m i s sory note i n dispute. P l a i n t i f f Bank a p p e a l s from t h e judgment and c o n t e n d s t h a t a s a m a t t e r o f l a w t h e r e was no u s u r y . The f a c t s are n o t i n d i s p u t e . I n e a r l y 1 9 7 0 , t h e Kolo- k o t r o n e s went t o t h e Bank f o r a l o a n t o buy a s e l f - p r o p e l l e d and t r u c k . auger They s i g n e d a n i n t e r i m i n s t a l l m e n t p r o m i s s o r y n o t e o n A p r i l 4 , 1970. On A p r i l 2 7 , 1 9 7 0 , K o l o k o t r o n e s s i g n e d t h e f i n a l i n s t a l l ment p r o m i s s o r y n o t e . Under t h e t e r m s o f t h a t n o t e t h e y borrowed $33,000 a t a 6.5% add-on i n t e r e s t r a t e . was $6,435. Thus, t h e add-on i n t e r e s t T h e r e f o r e , t h e n o t e r e f l e c t e d $39,435 a t m a t u r i t y . T h i s would r e f l e c t a r e a l i n t e r e s t r a t e o f 11.75% b u t i s a n exception t o t h e s t a t u t e i f properly applied. The n o t e c a l l e d f o r 36 i n s t a l l m e n t s , t h e f i r s t t o b e $500 d u e J u n e 2 5 , 1 9 7 0 , and 35 monthly i n s t a l l m e n t s t h e r e a f t e r a t $1,112.42, t h e f i n a l m a t u r i t y b e i n g on o r b e f o r e J u n e 2 5 , 1 9 7 3 , a t e r m of t h r e e y e a r s . The n o t e c o n t a i n e d a p r o v i s i o n t h a t p a s t d u e p r i n c i p a l and i n t e r e s t would b e a r i n t e r e s t a t t h e r a t e o f 1 0 % p e r annum u n t i l f u l l y p a i d . K o l o k o t r o n e s had t r o u b l e making payments o n t h e n o t e and it became d e l i n q u e n t t o t h e p o i n t o f s e r i o u s n e s s . They made t h e i n i t i a l $500 payment o n o r a b o u t J u l y 2 2 , 1970 and t h e r e a f t e r were c r e d i t e d w i t h f o u r payments a t p e r i o d i c t i m e s . Because o f t h e i r r e g u l a r payment r e c o r d , t h e p a r t i e s a g r e e d on a v o l u n t a r y r e p o s s e s s i o n o f t h e t r u c k a n d a u g e r by t h e Bank. The Bank k e p t t h e e q u i p m e n t f o r s e v e r a l months and t h e n s o l d it u n d e r t h e p r o v i s i o n s of the security agreement in May 1972, for a total of $25,800. Immediately after the sale the Bank's Assistant Vice President and loan officer, who dealt with the Kolokotrones during the entire proceeding, wrote the Kolokotrones a letter on May 12, 1972, demanding payment of the sum of $11,487.92, plus the Bank's costs of sale in the amount of $113.56. Attached to the Bank's letter was the schedule of payments and interest. This schedule reflected the Bank's allocation of payments received, including the proceeds of sale, to principal and interest, and supported the demand for the balance. This was the schedule: "William J. Kolokotrones Box 952, Three Forks, Montana 59752 Account No. 1-2958-25 Date of Note - April 27, 1970, APR 11.75% Schedule of payments and interest Interest Paid on Amou nt Current Bal Paid on Paid Accrued Interest of Interest Principal Date Paid .................................................................. $ 500.00 $ 913.55 500.00 420.00 764.83 420.00 1,129.35 573.63 1,129.35 1,800.00 2,623.81 1,800.00 424.84 393.04 424.84 15,000.00 (sale)2,252.01 3,246.88 41.04 9,800.00 (sale) 41.04 413.55 758.38 202.66 1,026.47 994,87 00 00 00 00 00 00 00 $ 1,753.12 1 9,858.96 Princ. Balance $33,000.00 33,000.00 33,000.00 33,000.00 33,000.00 33,000.00 21,246.88 11,487.92" The .total interest to be paid was $7,561.91 or $1,126.91 more than the amount of interest stated on the face of the April 27 note. The Bnk, in explaining the difference between the terms of the April 27 note and the terms of the schedule under which the Bank was attempting to collect, stated that the loan officer approached a senior officer of the Bank desiring his opinion on the fairest way of collecting the note. The senior bank officer agreed the fairest and simplest manner would be to charge a straight 11.75% interest on the note and abandon the 10% interest rate on the past due amounts. Both p a r t i e s moved f o r summary judgment. The Bank moved f o r summary judgment o n t h e e n t i r e c a s e a f t e r f i l i n g a second amended r e p l y t o d e f e n d a n t s ' c o u n t e r c l a i m . K o l o k o t r o n e s moved f o r p a r t i a l summary judgment on t h e i r c o u n t e r c l a i m . The d i s t r i c t c o u r t g r a n t e d K o l o k o t r o n e s ' motion and d e n i e d t h e B a n k ' s m o t i o n . Judgment was e n t e r e d i n f a v o r of d e f e n d a n t s i n t h e amount o f $12,870. From t h i s judgment p l a i n t i f f Bank a p p e a l s . The Bank a r g u e s i t was n o t g u i l t y of u s u r y and t h e d i s t r i c t court erred i n so finding. More s p e c i f i c a l l y , it a r g u e s t h a t t h e n o t e , i f performed a c c o r d i n g t o i t s t e r m s , would n o t r e s u l t i n p r o d u c i n g t o t h e Bank a g r e a t e r r a t e of i n t e r e s t t h a n i s a l l o w e d by law; t h a t i n f a c t t h e r e was n o t a n e x a c t i o n of a g r e a t e r amount t h a n a l l o w e d by law; t h a t t h e r e was no m u t u a l i t y o f i n t e n t t o g i v e and t o t a k e u s u r y ; a n d , t h a t t h e demand made upon K o l o k o t r o n e s i n a c c o r d w i t h t h e c o m p u t a t i o n s c h e d u l e a t t a c h e d t h e r e t o d i d n o t cans t i t u t e usury. T h i s C o u r t c a n n o t a g r e e w i t h t h e B a n k ' s argument. u s u r y s t a t u t e , s e c t i o n 47-125, R.C.M. Montana's 1947, p r o v i d e s t h a t p a r t i e s may a g r e e f o r t h e payment of any r a t e of i n t e r e s t n o t e x c e e d i n g t h e r a t e o f 1 0 % p e r annum. The n o t e i t s e l f s t a t e s t h a t t h e a n n u a l p e r c e n t a g e r a t e of t h e n o t e i s 1 1 . 7 5 % . The o n l y e x c e p t i o n t o t h i s u s u r y s t a t u t e a f f e c t i n g banks i s s e c t i o n 5-527, R.C.M. 1947, which p r o v i d e s t h a t a bank c a n c o l - l e c t i t s i n t e r e s t i n advance. That s t a t u t e s t a t e s : "5-527. (6014.52) I n t e r e s t n o t t o exceed l a w f u l r a t e - - p e r m i s s i b l e c h a r g e on i n s t a l l m e n t l o a n s . N bank s h a l l demand o r r e c e i v e f o r l o a n s o r d i s o c o u n t s , a r a t e of i n t e r e s t e x c e e d i n g t h a t a l l o w e d by l a w , e x c e p t i n g t h a t it s h a l l be l a w f u l f o r any bank t o r e c e i v e i n t e r e s t i n a d v a n c e a c c o r d i n g t o t h e o r d i n a r y u s a g e s o f banking i n s t i t u t i o n s . On l o a n s t o be r e p a i d i n o n e o r more d e f e r r e d i n s t a l l ments a bank may c h a r g e n o t t o e x c e e d t h e f o l l o w i n g s c h e d u l e : On s o much o f t h e p r i n c i p a l b a l a n c e a s d o e s n o t exceed t h r e e hundred d o l l a r s ( $ 3 0 0 ) , e l e v e n d o l l a r s ( $ 1 1 ) p e r o n e hundred d o l l a r s ($100) p e r year; i f t h e p r i n c i p a l balance exceeds t h r e e hundred d o l l a r s ( $ 3 0 0 ) , b u t i s l e s s t h a n one thousand d o l l a r s ($1,000) , n i n e d o l l a r s ( $ 9 ) p e r one hundred d o l l a r s ($100) p e r y e a r on t h a t p o r t i o n o v e r t h r e e hundred d o l l a r s ( $ 3 0 0 ) ; i f t h e p r i n c i p a l b a l a n c e e x c e e d s o n e thousand d o l l a r s ($1,000) , s e v e n d o l l a r s ( $ 7 ) p e r one hundred d o l l a r s ($100) p e r y e a r on t h a t p o r t i o n o v e r o n e thousand d o l l a r s ( $ 1 , 0 0 0 ) . Such c h a r g e s s h a l l be computed on t h e p r i n c i p a l b a l a n c e on c o n t r a c t s p a y a b l e i n s u c c e s s i v e monthly payments s u b s t a n t i a l l y e q u a l i n amount from t h e d a t e of t h e c o n t r a c t u n t i l t h e m a t u r i t y of t h e f i n a l installment, notwithstanding t h a t t h e t o t a l b a l a n c e t h e r e o f i s r e q u i r e d t o be p a i d i n i n s t a l l m e n t s . A minimum c h a r g e of twenty d o l l a r s ( $ 2 0 ) may be made w i t h r e s p e c t t o any i n s t a l l ment l o a n made by a bank. When a n i n s t a l l m e n t l o a n c o n t r a c t p r o v i d e s f o r payment o t h e r t h a n i n e q u a l s u c c e s s i v e monthly i n s t a l l m e n t s t h e c h a r g e may be a t a r a t e which w i l l p r o v i d e t h e same y i e l d a s i s p e r m i t t e d monthly payment c o n t r a c t s having due r e g a r d f o r t h e s c h e d u l e o f payments i n the contract." Thus, t h e maximum i n t e r e s t i n t e r n s of add-on o r d i s c o u n t i n t e r e s t t h a t can be l e g a l l y t a k e n under Montana l a w on $33,000 i s $ 7 , 0 0 8 , computed t h i s way: $11.00 p e r $100.00 p e r y e a r on t h e 1st $300.00 f o r 3 y e a r s ($33.00 x 3 ) 99.00 $9.00 p e r $100.00 p e r y e a r on t h e n e x t $700.00 f o r 3 y e a r s ($63.00 x 3) 189.00 ..........$ .......... $7.00 p e r $100 p e r y e a r on t h e n e x t $32,000.00 f o r 3 y e a r s (2,240.00 x 3 ) T o t a l Allowance Discount ..... 6,720.00 I n t e r e s t ............$ 7 m 8 . 0 0 The Bank, however, demanded $7,561.91, a d i f f e r e n c e of $553.91. The Bank's demand on t h e K o l o k o t r o n e s was t h e r e f o r e u s u r i o u s . Here we have a n o t e which o r i g i n a l l y s t a r t e d o u t u s i n g t h e p r i n c i p l e of add-on i n t e r e s t , which would have been l e g a l under s e c t i o n 5-527, R.C.M. 1947, b u t t h e Bank t h e n s w i t c h e d t o u s i n g a s t r a i g h t a p p l i c a t i o n of t h e 11.75% p e r annum i n t e r e s t rate. T h a t made t h e n o t e u s u r i o u s . The Bank c o n t e n d s t h a t one o f t h e t e r m s of t h e n o t e was a 1 0 % p e n a l t y on t h e p a s t due p r i n c i p a l and i n t e r e s t , and s u c h p e n a l t y c o u l d n o t be c o n s i d e r e d i n t e r m s of u s u r y a s t h e Kolok o t r o n e s had i t w i t h i n t h e i r power t o p r e v e n t t h e p e n a l t y , t h e r e - f o r e i t was n o t p a r t o f t h e i n t e r e s t r a t e o f t h e n o t e . Fur- t h e r , t h a t t h e B a n k ' s demand r e p r e s e n t s a l e s s e r amount t h a n t h e Bank would h a v e been e n t i t l e d t o had i t u s e d t h e 1 0 % p e n a l t y . Kolokotrones a r g u e t h a t t h e Bank's argument i s i r r e l e v a n t t o t h e i n s t a n t c a s e , f o r t h e Bank abandoned t h e 1 0 % p e n a l t y , and s o s t a t e d i n a letter t o Kolokotrones' a t t o r n e y , d a t e d October 7 , 1972. T h i s C o u r t f i n d s t h e abandonment o f t h e p e n a l t y c h a r g e by t h e Bank d i s p o s i t i v e o f t h a t i s s u e . The Bank a l s o c o n t e n d s t h e r e was n o t t h e n e c e s s a r y i n t e n t f o r t h e Bank t o be g u i l t y o f u s u r y . T h i s C o u r t i n Bowden v . G a b e l , 1 0 5 Mont. 477, 487, 76 P.2d 334, s t a t e d : " D e f e n d a n t c o n t e n d s t h a t t h e r e q u i s i t e i n t e n t was n o t shown h e r e t o e s t a b l i s h u s u r y . This contention c a n n o t be s u s t a i n e d , f o r i t i s w e l l s e t t l e d t h a t t h e v o l u n t a r y t a k i n g o f more t h a n t h e l e g a l r a t e o f i n t e r e s t c o n s t i t u t e s u s u r y . The o n l y i n t e n t n e c e s s a r y i s t h e i n t e n t t o t a k e more i n t e r e s t t h a n t h e l a w permits, Usurious i n t e n t i s implied i f excessive I t i s o f no c o n s e i n t e r e s t is i n t e n t i o n a l l y taken. a u e n c e t h a t t h e r e w a s no s p e c i f i c i n t e n t knowingly t o v i o l a t e t h e law." ( ~ r n ~ h a so u r s . ) is I t f o l l o w s t h a t t h e Bank had t h e n e c e s s a r y i n t e n t , by i n t e n d i n g t o t a k e from K o l o k o t r o n e s more t h a n t h e l e g a l amount o f i n t e r e s t . The Bank a l s o a r g u e s t h e demand f o r $ 7 , 5 6 1 . 9 1 was n o t a b i n d i n g c o n t r a c t between it a n d K o l o k o t r o n e s ; t h a t t h e C o u r t must l o o k t o t h e o r i g i n a l n o t e t o d e t e r m i n e i f t h e n o t e was u s u r i o u s . F u r t h e r , b e c a u s e t h e i n s t a l l m e n t n o t e o f A p r i l 27, 1 9 7 0 , o n i t s f a c e was w i t h i n t h e p r o v i s i o n s o f t h e b a n k e r s ' e x c e p t i o n t o t h e u s u r y l a w , s e c t i o n 5-527, R.C.M. 1 9 4 7 , t h e judgment i n t h e d i s - t r i c t c o u r t was e n t e r e d e r r o n e o u s l y . However, t h e n o t e o n which t h e Bank b r o u g h t t h i s a c t i o n i s a n anomaly i n i t s e l f . I t i s n o t a n i n s t a l l m e n t n o t e , b u t was t h e o n l y n o t e form t h e Bank had a t t h e t i m e . t h e i n s t a l l m e n t payments. It did not explain The Bank c o n s t r u e d t h e t e r m s o f t h e n o t e , i n making i t s demand on t h e K o l o k o t r o n e s , a s a s t r a i g h t l o a n of $33,000 a t 11.75% i n t e r e s t p e r annum, and t h a t i s t h e c o n t r a c t it now s e e k s t o e n f o r c e . The t e r m s of t h e n o t e a r e n o t c l e a r on i t s f a c e , b u t , when r e a d i n l i g h t of t h e Bank's l e t t e r s t o K o l o k o t r o n e s , t h e i n t e n t of t h e p a r t i e s becomes clear. The t e r m s of t h e n o t e a r e u s u r i o u s . The Bank n e x t c o n t e n d s t h e K o l o k o t r o n e s were awarded a n i n c o r r e c t amount of money; t h a t t h e y s h o u l d have been awarded t w i c e t h e amount of t h e d i f f e r e n c e between t h e i n t e r e s t c h a r g e d and t h e maximum a l l o w e d by s e c t i o n 5-527, W e f i n d t h a t s t a t u t e speaks f o r i t s e l f . R.C.M. S e c t i o n 47-126, 1947. R.C.M. 1947, s p e c i f i c a l l y s t a t e s t h a t t h e r e s h a l l be a " f o r f e i t u r e o f a sum d o u b l e t h e amount of i n t e r e s t which t h e n o t e , b i l l , o r o t h e r e v i d e n c e of d e b t c a r r i e s , o r which h a s been a g r e e d t o be paid thereon." The amount of i n t e r e s t a p p e a r i n g on t h e f a c e o f t h e n o t e was $6,435. Twice t h a t amount i s $12,870. That i s t h e amount t o which t h e Kolokotrones a r e e n t i t l e d , and t h a t i s t h e award of t h e d i s t r i c t c o u r t . F i n a l l y , t h e Bank a r g u e s t h e r e was no w r i t t e n demand made by t h e Kolokotrones f o r t h e r e t u r n o f t h e u s u r i o u s i n t e r e s t a s r e q u i r e d by s e c t i o n 47-126, R.C.M. 1947, which p r o v i d e s : "The t a k i n g , r e c e i v i n g , r e s e r v i n g , o r c h a r g i n g a r a t e of i n t e r e s t g r e a t e r t h a n i s a l l o w e d by t h e p r e c e d i n g s e c t i o n s h a l l be deemed a f o r f e i t u r e of a sum d o u b l e t h e amount of i n t e r e s t which t h e n o t e , b i l l , o r o t h e r e v i d e n c e o f d e b t c a r r i e s , o r which h a s been a g r e e d t o be p a i d thereon. "When a g r e a t e r r a t e o f i n t e r e s t h a s been p a i d , t h e p e r s o n by whom i t h a s been p a i d , h i s h e i r s , a s s i g n s , e x e c u t o r s , o r a d m i n i s t r a t o r s , may r e c o v e r from t h e p e r s o n , f i r m o r c o r p o r a t i o n t a k i n g , r e c e i v i n g , r e s e r v i n g , o r c h a r g i n g same a sum d o u b l e t h e amount of i n t e r e s t s o p a i d ; p r o v i d e d , t h a t s u c h a c t i o n s h a l l be b r o u g h t w i t h i n two y e a r s a f t e r t h e payment of s a i d i n t e r e s t ; and p r o v i d e d , t h a t b e f o r e any s u i t may be b r o u g h t t o recover such usurious i n t e r e s t , t h e p a r t y bringi n q s u i t must make w r i t t e n demand f o r r e t u r n of s a i d i n t e r e s t s o p a i d . " (Emphasis added. ) Both p a r t i e s r e l y on t h e l a n g u a g e o f Bowden v . Gabel, 105 Mont. 477, 76 P.2d 334, t o s u s t a i n t h e i r p o s i t i o n c o n c e r n i n g t h e n o t i c e r e q u i r e m e n t c o n t a i n e d i n t h e second p a r a g r a p h of s e c t i o n 47-126. Bowden d o e s r e c i t e t h a t t h e r e a r e two d i f f e r e n t s i t u a t i o n s c o n t e m p l a t e d by t h e s t a t u t e and c i t e s Miller v. Oklahoma S t a t e Bank, 53 Okl. 616, 157 P. 767, f o r t h e p r o p o s i t i o n t h a t demand i s n o t r e q u i r e d t o o b t a i n r e l i e f under t h e f i r s t p a r a g r a p h o f s e c t i o n 7727 [now s e c t i o n 47-1261. Miller d o e s r e l y on a North Dakota c a s e which i n d i c a t e s t h a t t h e f i r s t p a r a g r a p h rests i n c o n t r a c t when t h e i n t e r e s t h a s been c h a r g e d , and t h e second p a r a g r a p h d e a l s w i t h a c i r c u m s t a n c e where t h e i n t e r e s t h a s been p a i d . I n Bowden t h e r e p r e s e n t a t i v e o f a machine company b r o u g h t s u i t a g a i n s t t h e u s u r e r and t h e f a c t s t h e r e do n o t harmonize w i t h t h e i n s t a n t c a s e , n o r was o u r problem h e r e d e cided there. A l l t h e s e c i t a t i o n s d e a l f o r t h e most p a r t w i t h s u i t s against the usurer. The s t a t u t e i s c l e a r on t h i s p o i n t and r e q u i r e s a p a r t y b r i n g i n g s u i t t o make a demand f o r r e t u r n o f t h e interest. Case law s a y s i t a p p l i e s t o t h e second p a r a g r a p h of s e c t i o n 47-126, R.C.M. 1947,only. Here, Kolokotrones d i d n o t b r i n g t h e s u i t f o r r e c o v e r y . ?aFonses. If be w i t h i n t h e i r c o u n t e r c l a i m c o u l d i n any way be c o n s t r u e d t o / t h e contem- The Bank sued them, and t h e y responded w i t h kh-'r p l a t i o n of t h e second p a r a g r a p h of s e c t i o n 47-126, a s h a s been a r g u e d , t h e n i t would have t o be s a i d t h a t demand would i n any c a s e be a n i d l e a c t a s a c o n d i t i o n t o f i l i n g a n answer and defenses. T h i s would n o t be r e q u i r e d under s e c t i o n 49-124, R.C.M. 1947. The p a r t i a l summary judgment g r a n t e d by t h e d i s t r i c t c o u r t i s a f f i r m e d and t h e c a u s e remanded t o t h e d i s t r i c t c o u r t f o r f u r t h e r proceedings. Justice We concur: ----------------------------&ief r Justice Ju tices -

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