### No. 12694 

### INTHE SUPREME COURT OF THE STATE OF MONTANA 1975

MONTANA NATIONAL BANK OF BOZEMAN, Plaintiffand Appellant,

WILLIAM J. KOLOKOTRONES et al,

## , Defendants and Respondents.

Appeal from: District Court of the Eighteenth JudicialDistrict, HonorableW. W. Lessley, Judge presiding. Counsel of Record: ForAppellant: 

### 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:

## UY23trn Filed:

## MAY23

## 19%Mr. Justice Gene B. Daly delivered the Opinion of the Court.

This 

### is an appeal from a partial summary judgment entered inthe district court, Gallatin County, against plaintiff Montana National Bank of Bozeman and infavor of defendants William and ClareKolokotrones, awarding the amount of $12,870 indamages, that being double thevalue of the add-on interest on the promissory note indispute. Plaintiff Bank appeals from thejudgment and contends that as a matter of law there was no usury. The facts

### are not indispute. In early 1970, the Kolokotrones went to theBank for a loan tobuy a self-propelled auger and truck. They signed an interim installment promissory note

on April 4, 1970. On April 27, 1970, Kolokotrones signed the final installment promissory note. Under the termsof that note they borrowed $33,000 ata 6.5%add-on interest rate. Thus, the add-on interest

was $6,435. Therefore, the note reflected $39,435 atmaturity. This would reflect a real interest rate of 11.75%but is an exception tothe statuteif properly applied. The note called for 36 installments, the firsttobe $500 due June 25, 1970, and 35 monthly installments thereafter at $1,112.42, the finalmaturity being on orbefore June 25, 1973, a termof three years. The note contained a provision that past due principal and interest would bear interest atthe rateof 10% per annum until fully paid. Kolokotrones had trouble making payments on the note and it became delinquent tothepoint of seriousness. They made the initial $500 payment on or about July 22, 1970 and thereafter were credited with four payments atperiodic times. Because of the irregular payment record, the parties agreed on a voluntary repossession of the truck and auger by the Bank. The Bank kept the equipment for several months and then sold it under theprovisions

### of the security agreement in May 1972, for a total of $25,800. Immediately after the sale the Bank'sAssistant 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: 

### "WilliamJ. Kolokotrones 

### Box 952,

### Three

### Forks,Montana 59752 

### Account 

### No. 1-2958-25 

### Date

### ofNote

## -April 27,1970,

### APR 11.75% Schedule

### ofpayments 

### and 

### interest Date 

### Amount 

### Interest Paid 

### on Current

### Bal Paid 

### on Princ. 

### Paid Paid 

### Accrued Interest 

### of Interest 

### Principal Balance



## .................................................................. $33,000.00 $ 

### 500.00 $ 

### 913.55 500.00 413.55 0 0 

### 33,000.00 420.00 764.83 420.00 758.38 00 33,000.00 1,129.35 573.63 1,129.35 202.66 00 33,000.00 1,800.00 2,623.81 1,800.00 1,026.47 0 0 33,000.00 424.84 393.04 424.84 994,87 00 33,000.00 15,000.00 (sale)2,252.01 3,246.88 0 0 $11,753.12 21,246.88

9,800.00 

### (sale) 41.04 41.04 0 0 9,858.96 11,487.92" The .totalinterest 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 fairestand simplestmanner would be to charge a straight 11.75% interest on the note and abandon the 10% interest rate on the past due amounts.Both partiesmoved for summary judgment. The Bank moved for summary judgment on the entire case after filing a second amended reply todefendants' counterclaim. Kolokotrones moved for partial summary judgment on their counterclaim. The district court granted Kolokotrones' motion and denied the Bank's motion. Judgment was entered infavor of defendants inthe amount of $12,870. From thisjudgment plaintiff Bank appeals. The Bank argues it was not guiltyof usury and the district court erred insofinding. More specifically, it argues that the note, if performed according toits terms, would not result in producing tothe Bank a greater rateof interestthan is allowed by law; that infact there was not an exaction of a greater amount than allowed by law; that there was no mutuality of intent togive and totake usury; and, that the demand made upon Kolokotrones in accord with the computation schedule attached thereto did not canstituteusury. This Court cannot agree with the Bank's argument. Montana's usury statute, section 47-125, R.C.M. 1947, provides thatparties may agree for the payment of any rate of interestnot exceeding the rate of 10%per annum. The note itself states that the annual percentage rateof the note is 11.75%. The only exception tothisusury statute affecting banks is section 5-527, R.C.M. 1947, which provides that a bank can collect its interest inadvance. That statute states: "5-527. (6014.52) Interest not toexceed lawful rate--permissible charge on installment loans. No bank shalldemand or receive for loans or discounts, a rate of interest exceeding that allowed by law, excepting that it shall be lawful for any bank toreceive interestinadvance according to the ordinary usages of banking institutions. On loans tobe repaid inone ormore deferred installments a bank may charge not toexceed the following schedule: On somuch of the principal balance asdoes not exceed three hundred dollars ($300), eleven dollars ($11) per one hundred dollars ($100) per year; if the principal balance exceeds threehundred dollars ($300), but 

### is less than one thousand dollars ($1,000)

## , nine dollars ($9) per one hundred dollars ($100) per year on that portion over three hundred dollars ($300); if the principal balance exceeds one thousand dollars ($1,000)

## , seven dollars ($7) per one hundred dollars ($100) per year on that portion over one thousand dollars ($1,000). Such charges shallbe computed on the principal balance on contracts payable in successive monthly payments substantially equal in amount from the date of the contract until the maturity of the final installment, notwithstanding that the total balance thereof 

### isrequired to be paid in installments. A minimum charge of twenty dollars ($20)may be made with respect to any installment loan made by a bank. When an installment loan contract provides for payment other than in equal successive monthly installments the charge may be ata rate which willprovide the same yield as is permitted monthly payment contracts having due regard for the schedule of payments inthe contract." Thus, the maximum interest interns of add-on or discount interest that can be legally taken under Montana 

### lawon $33,000 is $7,008, computed thisway: $11.00 per $100.00 per year on the 1st



# .......... $300.00 for 3years ($33.00 x 3) $ 99.00 $9.00 per $100.00 per year on the next $700.00 for 3 years ($63.00 

### x 3)

# .......... 189.00 $7.00 per $100 per year on the next



# ..... $32,000.00 for 3 years (2,240.00 x 3) 6,720.00



# ............ Total Allowance Discount Interest $7m8.00 The Bank, however, demanded $7,561.91, a difference of $553.91. The Bank's demand on the Kolokotrones was therefore usurious. Here we have a note which originally started out using the principle of add-on interest, which would have been legal under section 5-527, R.C.M. 1947, but the Bank then switched to using a straight application of the 11.75%per annum interest rate. That made the note usurious. The Bank contends that one of the terms of the note was

a 10% penalty on the past due principal and interest, and such penalty could not be considered in

### terms of usury asthe Kolokotrones had it within their power toprevent the penalty, there-fore it was not part of the interest rate of the note. Further, that theBank's demand represents a lesser amount than theBank would have been entitled tohad it used the 10%penalty. Kolokotrones argue that the Bank's argument is irrelevant tothe instant case, for the Bank abandoned the 10%penalty, and so stated ina letter toKolokotrones' attorney, dated October 7, 1972.This Court finds the abandonment of thepenalty charge by the Bank dispositiveof that issue. The Bank alsocontends therewas not the necessary intent for theBank tobe guilty of usury. This Court inBowden v. Gabel, 105Mont. 477, 487, 76 P.2d 334, stated: "Defendant contends that the requisite intent was not shown here to establishusury. This contention cannot be sustained, for it 

### iswell settled that the voluntary taking of more than the legal rate of interestconstitutes usury. The only intent necessary is the intent totakemore interest than the law permits, Usurious intent is implied if excessive interest is intentionally taken. It is of no conseauence that therewas no specific intentknowingly toviolate the law." (~rn~hasis ours.) It follows that the Bank had the necessary intent, by intending totake from Kolokotrones more than the legal amount of interest. The Bank also argues the demand for $7,561.91 was not a binding contract between it and Kolokotrones; that the Court must look totheoriginal note todetermine if the note was usurious. Further, because the installment note of April 27, 1970, on its facewas within the provisions of the bankers' exception tothe usury law, section 5-527, R.C.M. 1947, the judgment inthedistrict court was entered erroneously. However, thenote on which the Bank brought thisaction is an anomaly in itself. It is not an installment note, but was the only note form the Bank had atthe time. It did not explain theinstallmentpayments. The Bank construed the terms of the note, inmaking itsdemand on the Kolokotrones, as a straightloan of $33,000 at 11.75%interestper annum, and that 

### is the contract 

### it now seeks toenforce. The terms of the note are not clear on 

### its face, but, when read in light of the Bank's 

### letters toKolokotrones, the intent of the parties becomes clear. The terms of the note areusurious. The Bank next contends the Kolokotrones were awarded

an incorrect amount of money; that they should have been awarded twice the amount of the differencebetween the interest charged and the maximum allowed by section 5-527, R.C.M. 1947. We find that statute speaks for itself. Section 47-126, R.C.M. 1947, specifically statesthat there shall be a "forfeitureof

a sum double the amount of interest which the note, bill, or other evidence of debt carries, or which has been agreed tobe paid thereon." The amount of interest appearing on the faceof the note was $6,435. Twice that amount is $12,870. That is the amount towhich the Kolokotrones areentitled, and that is the award of the district court. Finally, the Bank argues there was no written demand made by the Kolokotrones for the return of the usurious interest



### as required by section 47-126, R.C.M. 1947, which provides: "The taking, receiving, reserving, or charging a rateof interest greater than isallowed by the preceding section shall be deemed a forfeiture of a sum double the amount of interest which the note, bill, or other evidenceof debt carries, or which has been agreed tobe paid thereon. "When a greater rateof interest has been paid, theperson by whom it has been paid, his heirs, assigns, executors, or administrators, may recover from the person, firmor corporation taking, receiving, reserving, or charging same a sum double the amount of interest sopaid; provided, that such action shallbe brought within two years after the payment of said interest; and provided, that before any suitmay be brought torecover such usurious interest, the party bringinq suitmust make written demand for return of said interest so paid. " (Emphasis added.)Both parties rely on the language of Bowden v. Gabel, 105Mont. 477, 76 P.2d 334, to sustain their position concerning the notice requirement contained in the second paragraph of section 47-126. Bowden does recite that there are two different situations contemplated by the statuteand cites Miller v. Oklahoma State Bank, 53 Okl. 616, 157 P. 767, for the proposition that demand is not required toobtain relief under the firstparagraph of section 7727 [now section 47-1261. Miller does rely on a North Dakota case which indicates that the first paragraph rests in contract when the interest has been charged, and the second paragraph deals with a circumstance where the interest has been paid. In Bowden the representative of a machine company brought suitagainst the usurer and the facts there do not harmonize with the instant case, nor was our problem here decided there. Allthese citationsdeal for the most part with suitsagainst the usurer. The statute is clear on thispoint and requires a party bringing suittomake a demand for return of the interest. Case law says it applies to the second paragraph of section 47-126, R.C.M. 1947,only. Here, Kolokotrones did not bring the suit for recovery. The Bank sued them, and they responded with kh-'r ?aFonses. If be within their counterclaim could inany way be construed to

### / the contemplation of the second paragraph of section 47-126, as has been argued, then it would have tobe said that demand would in any

case be an idleact asa condition to filing an answer and defenses. This would not be required under section 49-124, R.C.M. 1947. The partial summary judgment granted by the district court is affirmed and the cause remanded to the district court for further proceedings.

Justice

### We concur:



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### &ief Justice

Ju tices 

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