NO. 82-08
I N THE SUPREME COURT OF THE STATE O F MONTANA
1983
RENEE J. HANSON,
Plaintiff and ~ e s p o n d e n t ,
VS.
ROBERT A . BONNER, J R . , ELEANOR K .
BONNER, a n d ROBERT BONNER,
Defendants and A p p e l l a n t s .
Appeal from: D i s t r i c t Court of the Eleventh Judicial D i s t r i c t ,
I n and f o r t h e County o f F l a t h e a d
H o n o r a b l e R o b e r t M. H o l t e r , J u d g e p r e s i d i n g .
Counsel o f Record:
For Appellants:
R a n d y K. Schwickert argued, Whitefish, Montana
For Respondent:
Murphy, R o b i n s o n , H e c k a t h o r n & P h i l l i p s , K a l i s p e l l ,
Montana
I. James H e c k a t h o r n a r g u e d , K a l i s p e l l , Montana
-
Submitted: December 2, 1982
Decided: February 2 4 , 1983
Clerk
Mr. J u s t i c e John C. Sheehy delivered the Opinion of the Court.
Eleanor K. and Iiohert A. Bonner, Jr. appeal from a iudqment in
the D i s t r i c t Court, Eleventh Judicial D i s t r i c t , Fl-athead County,
holding i n e f f e c t t h a t an assiqnwiit f o r deed should be construe6 a.s
a mrtgage upon default, subject t o the foreclosure laws of this
state, and further holding that the underlying indebtedness
transaction wa-s tainted with usury.
On December 1 2 , 1979, Jerome I. Hanson and Renee J. Hanson,
husband and wife, made, executed and delivered a promissory note f o r
$25,000 t o Robert A. Bonner, Jr. and Eleanor K. Bonner, husband and
wife, of Oxford, Connecticut, payah1.e on o r before the 1 2 t h day of
June, 1982 (30 m n t h s ) w i t h mnthly installments of $354.1.7 t o cover
accrued. interest.
A t the same t k , the Hansons made, executed and delivered t o
the Bonners an assignment of contract f o r deed a s colla.tera1 i n
which the Hansons assigned their interest a s buyers in a contract
f o r the purchase of r e a l p r o p r t y in Kalispell, Montana, f r m Duane
A. Ritney and Betty A. Ritney, sellers. On the same day, the
Hansons executed a quitcl-aim. deed t o the Bonners f o r the r e a l
property subject t o the contract f o r deed. The negotiations f o r the
loan w e r e carried on by Robert Bonner, the son of Robert- A. Bonner,
Jr. and Eleanor I<. Bonner. Both Hm-sons and Bonners u t i l i z e d the
services of the s m Kalispell attorney i n the negotiations leading
a e
t o the promissory note and t o draw the instmments t h a t resulted
from the negotiation of the loan. After two Kalispe.11 banks refused
to handle the escrow of the executed quitclaim deed, the attorney
agreed t o a c t a s the escrow agent on behalf of both parties.
On February 4 , 1980, the attornev wrote a l e t t e r t o both
p a r t i e s in which he reported t h a t p r i o r t o the closing on December
12, 1979, he had been concerned a s t o whether the Ronners could
legally charge i n t e r e s t a t the r a t e of 17 percemt wr annun, the
amount represented by the p a m n t s set forth i n the oriqinal.
instrument. H e had checked with t h e local. bank and by s m
o e
misunderstandjng had been informed t h a t 17 percent was the legal
r a t e of i n t e r e s t a t t h time. G t e r investigation revealed t o the
attorney t h a t the actual top legal i n t e r e s t r a t e was 1 6 percent. He
suggested and the p a r t i e s agreed t o r e d r a f t the i n s t n m e n t so t h a t
the promissory note, retaining the same date, would carry m n t h l y
payrents of $333.00 p r mnth. This m u n t would be s u f f i c i e n t t o
pay i n t e r e s t a t the r a t e of 16 percent on the $25,000 principal
amount of the note with t o t a l indebtedness t o be paid on June 12,
1982. But the attorney, feeliq responsible, went further:
"In regard t o the i n t e r e s t problem, I informed
Fob of it and wondered i f he would agree on the
Bonner's behalf t o lowering the i n t e r e s t r a t e
from 17 percent t o 16 percent. H e informed rn
t h a t the difference i n i n t e r e s t pa-mats per
m n t h w i t h a reduction in the i n t e r e s t pavment
would amount t o $20.84 a m n t h o r $250.08 per
year and i f he had been i n f o m d of the maximum
interest r a t e p r i o r t o closing, would have
e i t h e r looked elsewhere f o r a better market o r
charged additional discount points a t closing t o
make the investxent of appro,:im;ltely the same.
I spoke with the Hansons about t h e mistake and
explained how Rob f e l t about the matter and t h a t
I could understand h i s reasoning. I suggested
t h a t i f a l l p a r t i e s agreed, the m n t h l y
difference between the 17 percent and 16 percent
i n t e r e s t r a t e , amounting t o $20.84 could s t i l l
be paid each m n t h by the Hansons. My reasoning
was t h a t the Hansons intended on paying the sum
of $354.17 per m n t h anyway and the Bonners had
intended t o receive t h a t figure thus, no one
would be changing t h e i r position. I figure t h a t
+he $20.84 amount would be considered additional
discount points which the p a r t i e s would have
intended t o charge had they known a t the tim of
the closinq what they do now. I encouraged the
p a r t i e s t o g e t toqether w i t h one another and
discuss the matter outside of m presence y
because - - responsible - - -
I felt f o r a l l the
confusion. The Hansons w e r e a t a l l t k s ready,
willing and able t o forward the Bonners a check
. n the f u l l amount of $354.17 on J ? ~ ~ u a r1 2 ,
i y
1980, however, I requested t h a t they hold onto
it untj.1 we had properly s e t t l e d the matter.
"Upon further introspection on my p a r t , I now
don't think i t ' s f a i r t o expect e i t h e r side t o
resolve t h i s on their m. I f e e l t h a t the
Ronners have a r i g h t t o e x p c t t h e s m of u
$354.17 per month and t h a t t h e Hansons should
not be forced in the position of havincj t o pay
+he sum of $354.17 p r m n t h e i t h e r by way of
c a l l i n g it a l l i n t e r e s t o r hy c a l l i n g a portion
of it discount points, p a r t i c u l a r l y a t this
stage of the game. I therefore, wou1.d l i k e t o
take it upon myself t o o f f e r t o make qood m y
mistake by making myself responsible f o r paving
the s ~ mof $20.84 per m n t h t o t h e Bonners
during the term of the promissory note and/or
should default occur thereon, u n t i l the
toll-ateral has made the, Bonners whole again."
I n accordance with h i s l e t t e r , the attorney forwarded h i s check
f o r $250.08 which represents 12 months paywnts of $20.84 per mnth.
me promissory note a s w have said was redrawn t o r e f l e c t a 16
e
p r c e n t i n t e r e s t r a t e a s f a r a s the Bonners w e r e concerned.
The settlement statement reveals t h a t a t the comncement of
the loan, the Benners had d-iscounted 3 "points" o r $812.50 so t h a t
the actual sum received a s principal. by the Hansons from the Bonners
was $24,1.87.50.
I t a l s o appears from the evidence t h a t in order t o g e t the
mnev t o lend i n t h e transaction, the Bonners were required t o
cancel prermturely s m c e r t i f i c a t e s of deposit.
o e Recause of t h e i r
early withdrawal of the funds, they were penalized a t o t a l sum of
$827.50.
The evidence reveals t h a t the Hansons w e r e having naarital
problems a t the the and t h a t Renee Hanson, i n making payments
coming due under the promissory note, presented checks which w e r e
refused by the bank f o r i n s u f f i c i e n t funds. I t appears t h a t her
husband was e i t h e r not making deposits t o her account or taking
monies out of the account without her knowledge. A t any r a t e , three
payrents w e r e made on the note in the regular manner and then t h e
subsequent two paywnts represented by checks were not paid.
Because of the defaults in t h e payments, the Ehnners required. of t h e
escrow holder (the attorney) the quitclaim deed which was
surrendered and which they then f i l e d of record in Flathead County,
claiming thereafter t o own whatever i n t e r e s t in the r e a l proWrty
the Hansons owned.
After f i l i n g the quitclaim deed of record, the Ronners rented
the house back t o Renee Hanson f o r the s m of $400 per month.
u She
has continually resided i n the hme and the Bonners use the m n t h l v
r e n t a l payments from Renee t o mke the m n t h l y paymnts upon the
contract f o r deed, t o pay insurance on the p r o ~ r t vand t o be
reimbursed f o r bank charges f o r t h e Hansons' nonsuffjcient fund
checks.
On July 16, 1.980, the Bonners, acting thsrouqh t h e i r present
attorney of record, and not the counsel t h a t both p a r t i e s had relied
upon theretofore, wrote the Hansons a proposal f o r her repurchase of
the property upon payment of $25,000, principal and note, $750,
prepam-nt penalty of 3 percent, $1,841, i n t e r e s t on the promissory
note t o August 27, 1980, $177 f o r extra i n t e r e s t t h a t would have
been paid by the attorney theretofore, legal fees and anticipated
legal fees.
knee Hanson, now proceeding alone, the Hansons havinq
divorced, brought action to have the indebtedness determined
according t o the penalty s t a t u t e s f o r usurious i n t e r e s t . lpplving
section 31-1-108, MCA, the D i s t r i c t Court determined t h a t double t h e
amount of i n t e r e s t charged and other charges, l e f t a balance due t o
the Ronners fran Hanson of $1,561.58, plus attorney fees i n th._ sum
of $1,500 in foreclosure proceedings. This appeal followed.
W hold f i r s t t h a t the D i s t r i c t Court was correct i n deeming
e
the transaction between the p a r t i e s t o be a mortgage. In t h i s case
the assignment of contract f o r deed recited t h a t the quite1 aim d ~ e d
executed on the same day would be recorded without notice i f the
Hansons defaulted. There can be no question t h a t the delivery of
'the quitclaim deed was made as securi.ty f o r the performance the
Hansons of the promissory note. Eh7ery t r a n s f e r of an interest in
property, other than in t r u s t , made only a s a security f o r the
prformance of another a c t is deemed t o be a mortqaqe, j the
n
circumstances related here. Section 71-1-107, PICA. When a debt is
sham t o e x i s t between the parties, a deed absolute on its face
d.elivered i n connection with the indebtedness w i l l be construed a s a
mortgage when it is shown t h a t the i n s t m t was intended t o secure
+he indehtedness. Bovsun v. Eoysun (1962), 140 Mont. 85, 368 P.2d
439. See Amsterdam 1,umber Co., Inc. v. Dyksterhouse (1978), 179
Mnt. 133, 586 P.2d 705. Under our s t a t u t e s there is but one action
f o r the recovery of debt o r f o r the e n f o r c ~ ~ n m t any r i q h t secured
of
by mortgage upon r e a l e s t a t e which action must he i n accordance with
+be foreclosure provisions of the Montana statutes. Section
71-1-224, Pk3. Montam, j.s a " l i e n s t a t e " and a mortgage of i t s e l f
dces not convey any t i t l e of the mortgaged lands t o the mortgagee.
Miller v. Federal Land. Bank of Spokane (9th C i r . 1.978) , 587 F. 2d
415, cert.den. 4 4 1 U.S. 962, 99 S.Ct. 2407, 60 L.Fd.2d 1067.
We turn now t o consider whether the agreement &tween t h e
p a r t i e s was usurious and what e f f e c t usury, i f it e x i s t s , miqht have
upon the parties.
A t the time of the transaction, under section 31-1-107, MCA, on
amounts up t o $150,000, it was provided t h a t p a r t i e s may agree i n
writing f o r the payrent of any r a t e of i n t e r e s t not more than 1 0
p r c e n t per annun o r more than 4 percentage points i n excess of t h e
discount r a t e on 90-day commercial paper in e f f e c t a t the federal
reserve bank in the Ninth Federal Reserve d i s t r i c t , whichever i s
greater. The p a r t i e s concede t h a t a t the time of the transaction
here, under those provisions, 16 p r c e n t was the top legal. r a t e of
interest f o r a lorn of $25,000 evidenced by a note.
The f i r s t note between the p a r t i e s carwing an i n t e r e s t r a t e of
17 percent was obviously usurious. The p a r t i e s recognized t h a t and
redrafted the instruments t o provide f o r a 16 percent r a t e . The
lenders, however, had charged " p i n t s " , amounting t o $81.2.50 so t h a t
the Hansons received less than the $25,000 principal on. which the
interest was ca.lculated. The net e f f e c t , a.s ca.lculated by the
D i s t r i c t Court, was approximately 16 1-/2 percent i n t e r e s t based. on
the amount the Hansons actually received. The Bonners o f f s e t this
effect by claiming that their penalty loss of $827.50 for
precancelling t h e i r c e r t i f i c a t e s of d e p s i t i n order t o g e t the
mney t o lend t o the Hansons is an W n s e properly allowable t o
them under our holding i n Rowden v. Gabel (1937), 105 Mont. 477, 76
P.2d 334.
The D i s t r i c t Court concluded t h a t the points here charged could
not be considered a s an expense in obtaining the mney f o r the loan
because "the penalty would be repaid shortly and the transaction was
f o r the creditors benefit."
The D i s t r i c t Court a l s o concluded t h a t the acceptance bv the
Farmers of t h e payments from the attorney t o represent the l o s t one
percent i n t e r e s t made the transaction usurious. There appears,
however, t o be contrary authoritv t h a t i f a t h i r d person, i n order
t o get s o w benefit f o r himself, o r f o r any personal reason, pays
the 1-ender a. bonus a s an inducement f o r a ].om t o be mad-e t o
another, the b r r o w e r pavinff no amount of the bonus, the transaction
is not a usurious one so f a r a s the borrmer is concerned w i t h
respect t o the t h i r d party payment. See 45 Am.Jur.2d 159 I n t e r e s t
- Usury, S 202.
and
Regardless of these opposing contentions, the overriding f a c t o r
f o r us is the representation by both p a r t i e s bv the same attorney
w i t h respect t o the negotiations, and. the eventual i n s t m n t s that
were dra.fted. I t i s obvious t h a t the attorney made the mistake i n
the f i r s t i n s L a c e of drafting a usurious i n s t r u m ~ n tc a l l i n g f o r 17
percent i n t e r e s t . It is further obvious t h a t h i s payments t o the
Ronners were made t o assuaqe h i s c o ~ s c i e n c e , and ~ r h a p st o a m i d
any l a t e r claims against him. I t does not a m e a r t h a t the deduction
of "points" from the principal occurred t o the attomey a s having
the possibilj-ty of a usurious e f f e c t upon t h e transaction. On the
whole case, it is quite apparent t h a t both p a r t i e s r e l i e d on the
services of the attomey, and expected t o be guided through the
morass of usury laws by him i n drawing the instmmmts t o carry out
the transaction.
Moreover, i n t e n t is a necessary p a r t of usurious transaction.
There must e x i s t an i n t e n t t h a t the lender is t o take more than t h e
legal r a t e of i n t e r e s t f o r the sum loaned. 45 Am.LJur.2d 129
I n t e r e s t - -Usury
and 1 S. 1-60. I t appears further t h a t "the courts
agree t h a t the mistake of an attorney o r scrjvener i n computing
i n t e r e s t o r service charges w i l l not a f f e c t a loan with u s w in t h e
~ h s e n c e of a showing of usurious i n t e n t on the p a r t of the
principals. " 45 Am. Jur. 2d 134 I n t e r e s t and Usury, S 165. I t \uould
obviously be inequitable f o r this Court t o enforce the usury
p a l t i e s where t h e underlying ins-nts w e r e drawn up by an
attomey representing both p a r t i e s and. where it is obvious t h a t the
attomey f a i l e d t o comprehend the legal consequences ad~rantageoust o
one party and disadvantageous t o the other of t h e persons t h a t he
represented. \& therefore hold under principles of equity t h a t t h e
penalties applying t o usury should not be imposed i n t h i s instance.
The D i s t r i c t Court relied in large p a r t upon the subsequent
letter w r i t t e n by Ronners' l a t e r counsel, making demands which i n
themselves may have given r i s e t o a usurious transaction. However,
nothing came of that l e t t e r . A f r u i t l e s s demand f o r unl.awful
interest after default does not make the mrtgage ag-ree-t
usurious, where the agrem-nt properly interpreted does not rqzire
a usurious result. McTigue v. American Savings and Loan
Association (Fl. App. 1977), 344 So.2d 254.
We note that in Holt v. Rickett (Ga. App. 1977), 238 S.E.2d
706, it was held that a borrower whose attorney had prepared a note
providing for usurious interest was estopped from asserting the
defense of usury when suit was cammenced on the note.
Although we are declininq to enforce usury penalties i this
n
case upon equitable principles, we are mindful that the
circumstances here otherwj-sesuggest usury. Since we are proceeding
in equity, it would indeed be inequitable to require that the
Hansons pay interest at the m u n t required of the promissory note
i the Light of the circumstances here.
n Neither party should
benefit from the legal misapprehension of their c o m n lawyer. It
appears inequitable that Bonners lose virtually all of the principle
of the loan because of the lawyer's misconception. We are returning
this matter for further proceedings and foreclosure before the
District Court, but we are requiring that any sums due the Bonners
be calculated at the lawful rate of interest, 6 percent, (section
31-1-106, FCA) because of the non-enforceability of the interest
rate stated in the note.
We therefore remand this cause to the District Court for
further proceedings i foreclosure.
n The indebtedness of Hanson
shall be calculated on the amount actually received by her f r m the
Pmnners, $24,187.50, with interest calculated at the rate of 6
percent per m u m . She shall be atitled to credit for the excess
of her rental paywmts not necessary to carry out her obligations
under the contract for deed. She shall be credited with the payment
made by the c o m n lawyer. Since the promissory note provides for
attorneys fees, each party, by reciprocity, shall be entitled to
recover attorneys fees i this cause for whatever purposes qemrane
n
to the dispute each party had to utilize counsel.
Affirmed i part, and reversed in part.
n Costs of appeal to
respondent.
\
1 I , ,5',iu.i,
Justice d
L'
Justices
Hon. James B. Wheelis,
District Judge, sitting
for Hon. Frank B.
Morrison, Jr.
Chief Justice Frank I. Haswell, Justice Fred J. Weber,
and the Honorable James B. Wheelis, District Judge,
concur in part and dissent in part and will file separate
opinions later.