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: 

Pa trick F. Hooks argued, Townsend, Montana 

Submitted: January 16, 1975 

Decided : 

UY23trn 

Filed : MAY 2 3 19% 
Mr. Justice Gene B. Daly delivered the Opinion of the Court. 

This is an appeal from a partial summary judgment entered 

in the district court, Gallatin County, against plaintiff Montana 

National Bank of Bozeman and in favor of defendants William and 

Clare Kolokotrones, awarding the amount of $12,870 in damages, 

that being double the value of the add-on interest on the promissory note in dispute. Plaintiff Bank appeals from the judgment 

and contends that as a matter of law there was no usury. 

The facts are not in dispute. In early 1970, the Kolokotrones went to the Bank for a loan to buy 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 terms of that note they borrowed 

$33,000 at a 6.5% add-on interest rate. Thus, the add-on interest 

was $6,435. Therefore, the note reflected $39,435 at maturity. 

This would reflect a real interest rate of 11.75% but is an exception to the statute if properly applied. 

The note called for 36 installments, the first to be $500 

due June 25, 1970, and 35 monthly installments thereafter at 

$1,112.42, the final maturity being on or before June 25, 1973, a 

term of three years. The note contained a provision that past 

due principal and interest would bear interest at the rate of 10% 

per annum until fully paid. 

Kolokotrones had trouble making payments on the note and 

it became delinquent to the point of seriousness. They made the 

initial $500 payment on or about July 22, 1970 and thereafter were 

credited with four payments at periodic 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 the provisions 
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 

Date Amou n t 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 $1 1,753.12 21,246.88 

9,800.00 (sale) 41.04 41.04 0 0 9,858.96 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 parties moved for summary judgment. The Bank moved 

for summary judgment on the entire case after filing a second 

amended reply to defendants' 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 in favor of defendants in the amount of 

$12,870. From this judgment plaintiff Bank appeals. 

The Bank argues it was not guilty of usury and the district 

court erred in so finding. More specifically, it argues that the 

note, if performed according to its terms, would not result in 

producing to the Bank a greater rate of interest than is allowed 

by law; that in fact there was not an exaction of a greater amount 

than allowed by law; that there was no mutuality of intent to give 

and to take usury; and, that the demand made upon Kolokotrones in 

accord with the computation schedule attached thereto did not canstitute usury. 

This Court cannot agree with the Bank's argument. Montana's 

usury statute, section 47-125, R.C.M. 1947, provides that parties 

may agree for the payment of any rate of interest not exceeding 

the rate of 10% per annum. The note itself states that the annual 

percentage rate of the note is 11.75%. 

The only exception to this usury statute affecting banks 

is section 5-527, R.C.M. 1947, which provides that a bank can collect its interest in advance. That statute states: 

"5-527. (6014.52) Interest not to exceed lawful 

rate--permissible charge on installment loans. 

No bank shall demand or receive for loans or discounts, a rate of interest exceeding that allowed 

by law, excepting that it shall be lawful for any 

bank to receive interest in advance according to 

the ordinary usages of banking institutions. On 

loans to be repaid in one or more deferred installments a bank may charge not to exceed the following schedule: On so much of the principal balance 

as does not exceed three hundred dollars ($300), 

eleven dollars ($11) per one hundred dollars ($100) 

per year; if the principal balance exceeds three 
hundred 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 shall be 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 is required 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 at a rate which will provide the same 

yield as is permitted monthly payment contracts 

having due regard for the schedule of payments 

in the contract." 

Thus, the maximum interest in terns of add-on or discount 

interest that can be legally taken under Montana law on $33,000 

is $7,008, computed this way: 

$11.00 per $100.00 per year on the 1st 

$300.00 for 3 years ($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 as the Kolokotrones had it within their power to prevent the penalty, there- 
fore it was not part of the interest rate of the note. Further, that the Bank's demand represents a lesser amount than 

the Bank would have been entitled to had it used the 10% penalty. 

Kolokotrones argue that the Bank's argument is irrelevant 

to the instant case, for the Bank abandoned the 10% penalty, and 

so stated in a letter to Kolokotrones' attorney, dated October 

7, 1972. 

This Court finds the abandonment of the penalty charge 

by the Bank dispositive of that issue. 

The Bank also contends there was not the necessary intent 

for the Bank to be guilty of usury. This Court in Bowden v. Gabel, 

105 Mont. 477, 487, 76 P.2d 334, stated: 

"Defendant contends that the requisite intent was 

not shown here to establish usury. This contention 

cannot be sustained, for it is well settled that the 

voluntary taking of more than the legal rate of 

interest constitutes usury. The only intent necessary is the intent to take more interest than the law 

permits, Usurious intent is implied if excessive 

interest is intentionally taken. It is of no conseauence that there was no specific intent knowingly 

to violate the law." (~rn~hasis ours.) 

It follows that the Bank had the necessary intent, by intending 

to take 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 to the original note to determine if the note was usurious. 

Further, because the installment note of April 27, 1970, on its 

face was within the provisions of the bankers' exception to the 

usury law, section 5-527, R.C.M. 1947, the judgment in the district court was entered erroneously. 

However, the note on which the Bank brought this action 

is an anomaly in itself. It is not an installment note, but was 

the only note form the Bank had at the time. It did not explain 

the installment payments. The Bank construed the terms of the 

note, in making its demand on the Kolokotrones, as a straight 
loan of $33,000 at 11.75% interest per annum, and that is the 

contract it now seeks to enforce. The terms of the note are 

not clear on its face, but, when read in light of the Bank's 

letters to Kolokotrones, the intent of the parties becomes 

clear. The terms of the note are usurious. 

The Bank next contends the Kolokotrones were awarded 

an incorrect amount of money; that they should have been awarded twice the amount of the difference between 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 states that there shall be a "forfeiture of 

a sum double the amount of interest which the note, bill, or 

other evidence of debt carries, or which has been agreed to be 

paid thereon." The amount of interest appearing on the face of 

the note was $6,435. Twice that amount is $12,870. That is the 

amount to which the Kolokotrones are entitled, 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 rate of interest greater than is allowed by 

the preceding section shall be deemed a forfeiture of a sum double the amount of interest 

which the note, bill, or other evidence of debt 

carries, or which has been agreed to be paid 

thereon. 

"When a greater rate of interest has been paid, 

the person by whom it has been paid, his heirs, 

assigns, executors, or administrators, may recover from the person, firm or corporation 

taking, receiving, reserving, or charging same 

a sum double the amount of interest so paid; 

provided, that such action shall be brought 

within two years after the payment of said interest; 

and provided, that before any suit may be brought 

to recover such usurious interest, the party bringinq suit must make written demand for return of 

said interest so paid. " (Emphasis added. ) 
Both parties rely on the language of Bowden v. Gabel, 

105 Mont. 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 statute and cites 

Miller v. Oklahoma State Bank, 53 Okl. 616, 157 P. 767, for the 

proposition that demand is not required to obtain relief under 

the first paragraph 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 suit against the usurer and the facts there do 

not harmonize with the instant case, nor was our problem here decided there. All these citations deal for the most part with 

suits against the usurer. The statute is clear on this point and 

requires a party bringing suit to make 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 in any way be construed to / the contemplation of the second paragraph of section 47-126, as has been 

argued, then it would have to be said that demand would in any 

case be an idle act as a 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 r