NO. 82-08 IN THE SUPREME COURT OF THE STATE OF MONTANA 1983

RENEE J. HANSON, Plaintiff and ~espondent,

VS. ROBERT A. BONNER, JR., ELEANOR K. BONNER, and ROBERT BONNER, Defendants and Appellants.

Appeal from: District Court of the Eleventh Judicial District, In and for the County of Flathead Honorable Robert M. Holter, Judge presiding. Counsel of Record: For Appellants: Randy K. Schwickert argued, Whitefish, Montana For Respondent: Murphy, Robinson, Heckathorn & Phillips, Kalispell,

Montana I. James Heckathorn argued, Kalispell, Montana



### - Submitted: 

### December 2, 1982 Decided: 

### February 24, 

### 1983

Clerk

### Mr. Justice John C. Sheehy delivered the Opinion 

### of the Court.

Eleanor K. and Iiohert A. Bonner, 

### Jr. appeal from a iudqment 

### in the District Court, Eleventh Judicial District, Fl-athead County, holding ineffectthatan assiqnwiit fordeed shouldbe construe6a.s

a mrtgage upon default, subject to 

### the foreclosure laws of 

### this state, and further holding that the underlying indebtedness transaction wa-staintedwith usury. On December 12, 1979, Jerome I. Hanson and Renee J. Hanson, husband andwife, made, executed and delivered a promissory note for $25,000 toRobert A. Bonner, Jr. and Eleanor K. Bonner, husband and wife, of Oxford, Connecticut, payah1.e on or before 

### the 12thday of June, 1982 (30mnths)

### withmnthly installments of $354.1.7 tocover accrued. 

### interest. Atthe same tk,the Hansons made, executed and delivered 

### to 

### the Bonners 

### an assignment of contract for deed as colla.tera1 in which 

### the Hansons assigned 

### their 

### interest as buyers in a contract for the purchase of realproprty 

### in Kalispell, Montana, frmDuane A. Ritney and Betty A. Ritney, 

### sellers. On the 

### same day, the Hansons executed a quitcl-aim. deed to 

### the Bonners for the real property subjecttothe contract fordeed. The negotiations forthe loan were carried on by Robert Bonner, the son of Robert-A. Bonner, 

### Jr. and Eleanor 

### I<. Bonner. Both Hm-sons and Bonners utilized the services of the 

### same Kalispell attorney inthe negotiations leading to the promissory note and to draw the instmments that resulted from thenegotiation of 

### the loan. After 

### two Kalispe.11banks refused 

### to handle the escrow of the executed quitclaim deed, the attorney agreed toactasthe escrow agent on behalf of both parties. On 

### February 4, 1980, the attornev wrote a letter to both parties in which he reported that prior to the closing on December 12, 1979, he had been concerned as to whether the Ronners couldlegally charge interest at the rate of 17 percemt 

### wr annun, the amount represented by 

### the pamnts set forth in the oriqinal. instrument. He had checked with the local. bank and by 

### some misunderstandjng had been informed that 17 percent was 

### the legal rate of interest at

### thtime. Gter investigation revealed tothe attorney thatthe actualtop legal interestratewas 16percent. He suggested and the parties agreed to redraft the 

### instnment so that the promissory note, retaining the 

### same date, would 

### carry mnthly payrents of $333.00 

### prmnth. This muntwould be sufficient to pay interest at 

### the rate of 16 percent on the $25,000 principal amount of 

### the note with total indebtedness tobe paid on June 12, 1982. But the attorney, feeliq responsible, went further: "In regard to 

### the interest problem, I informed Fob of 

### it and wondered if he would agree on the Bonner's behalf to lowering the interest rate from 17 percent to 16 percent. He informed 

### rn that 

### the difference in interest pa-mats per mnth 

### with a reduction 

### in the interestpavment would amount to $20.84 a mnth or $250.08 

### per year and if he had been infomdof 

### the

### maximum interest rate prior to closing, would have either looked elsewhere for a 

### better market or charged additionaldiscount points atclosingto make 

### the investxent of appro,:im;ltely the 

### same. I spoke with the Hansons about the mistake and explained how Rob feltabout thematter and that I could understand his reasoning. I suggested that if all parties agreed, the mnthly differencebetween the 17percent and 16percent interest rate, amounting to $20.84 could 

### still 

### be paid eachmnthby theHansons. My reasoning was that 

### the Hansons intended on paying the sum of $354.17 

### per mnth anyway and the Bonners had intended to receive that figure thus, no one would be changing theirposition. I figure that +he$20.84 amount would be considered additional discount points which the parties would have intended tocharge had they 

### knownat

### the 

### tim of the closinqwhat they do now. I encouraged the parties to get toqether 

### with one another and discuss the matter outside of my presence because 

### - I 

### - felt responsible 

### --- for all the confusion. The Hansons

### were atall

### tksready, willing and able toforward the Bonners a check 

### .in the full amount of $354.17 on J?~~uary 12, 1980, however, I requested that they hold onto 

### it untj.1 

### we had properly settled 

### the 

### matter."Upon further introspection on 

### my part, I now don't think 

### it's fair to expect either side to resolve this on 

### their m. I feel that the Ronners have a right to expct the 

### sum of $354.17 

### per month and that the Hansons should not 

### be forced 

### in the position of havincj topay 

### +he sum of $354.17 

### prmnth either by 

### way of calling 

### it allinterest orhy calling 

### a portion of 

### it discount points, particularly at 

### this stage of the game. I therefore, wou1.d like to take 

### it upon myself to offer to make qood my mistake by making myself responsible forpaving the 

### s~m of $20.84 

### per mnth to the Bonners during the 

### term of the promissory note and/or should default 

### occur thereon, until the toll-ateral has made the, Bonners whole again." 

### In accordance with his letter, the attorney forwarded hischeck for $250.08 which represents 12months paywnts of $20.84 

### per mnth.



### me promissory note as 

### we have said was redrawn to reflect a 16 prcent interestrateasfarastheBonners

### wereconcerned. The settlement statement reveals that at the comncement of 

### the loan, the Benners had d-iscounted 3 "points" or $812.50 so that the actual sumreceived asprincipal. by 

### the Hansons from the Bonners

was $24,1.87.50. It also appears from the evidence that in order to get the

mnev to lend in the transaction, the Bonners were required to cancel prermturely 

### some certificates of deposit. Recause of their early withdrawal of the funds, 

### they were penalized a total sum of $827.50. The evidence reveals that the Hansons 

### were having naarital problems at the 

### the and that Renee Hanson, in making payments coming due under the promissory note, presented checks which 

### were refused by the bank for insufficient funds. It appears that her husband was either not making deposits to her account 

### or taking monies outof the accountwithouther knowledge. At

### any rate, three payrents were made on the note in the regular manner and then the subsequent two paywnts represented by checks 

### were not paid. Because of 

### the defaults

### in thepayments, the Ehnners required. of theescrow holder (the attorney) the quitclaim deed which was surrendered and which they then filedof record in Flathead County, claiming thereafter to 

### own whatever interest 

### in 

### the real proWrty theHansons owned. After filing the quitclaim deed of record, the Ronners rented the house back toRenee Hanson for the 

### sum of $400 per month. She has continually resided inthe hme and the Bonners use themnthlv rental payments from Renee to mke the mnthly paymnts upon the contract for deed, to pay insurance on the pro~rtv and to be reimbursed for bank charges for the Hansons' nonsuffjcient fund checks. On July 16, 1.980, the Bonners, acting thsrouqh their present attorneyof record, and not the counsel thatboth parties had relied upon theretofore, wrote theHansons a proposal forher repurchase of the property upon payment of $25,000, principal and note, $750, prepam-nt penalty of 3 percent, $1,841, interest on the promissory note to August 27, 1980, $177 for extra interest that 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 to the penalty statutes for usurious interest. lpplving section 31-1-108, MCA, theDistrictCourt determined thatdouble the amount of interest charged and other charges, left

### a balance due to the Ronners franHanson of $1,561.58, plus attorney fees in th._

### sum of $1,500 in foreclosure proceedings. This appeal followed. We hold first that the DistrictCourt was correct in deeming the transaction between the parties tobe a mortgage. In thiscase the assignment of contract fordeed recited that the quite1aim d~ed executed on the same day would be recorded without notice if the Hansons defaulted. There can be no question that the delivery of'the quitclaim deed was made as securi.ty for the performance the Hansons of the promissory note. Eh7ery transfer of 

### an interest in property, other than in trust, made only as a security for the prformance of another act 

### is deemed to be a mortqaqe, jn the circumstances related here. Section 71-1-107, PICA. When a debt 

### is sham to exist between the 

### parties, a deed absolute on 

### its face d.eliveredinconnection with 

### the indebtedness

### willbe construed as

### a mortgage when 

### it is shown that the instmt was intended to

### 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 statutes

### there isbut one action forthe recovery of debt orfor 

### the enforc~~nmt of anyriqht secured by mortgage upon realestatewhich actionmust he inaccordance with 

### +be foreclosure provisions of the Montana statutes. Section 71-1-224, Pk3. Montam,j.s a "lien state" and a mortgage of itself dces not convey any 

### title of the mortgaged lands tothemortgagee. Miller v. Federal Land. 

### Bank of Spokane (9th Cir. 1.978)

## , 587 F.

### 2d 415, cert.den. 441U.S. 962, 99 S.Ct. 2407, 60 L.Fd.2d 1067. 

### We turn now to consider whether the agreement &tween the partieswas usurious andwhat effectusury, if 

### it exists, miqht have upon the parties. At

### the time of thetransaction, under section 31-1-107, MCA, on amounts up to $150,000, 

### it was provided that parties

### may agree in writing for the payrent of 

### any rate of interest not more 

### than 10 prcent per 

### annun or

### more than 4 percentage points inexcessof the discount rate on 90-day commercial paper 

### in effect at the federal

reserve 

### bank in the Ninth Federal Reserve district, whichever is greater. The parties concede that atthe time of the transaction here, under those provisions, 16prcent was the top legal. rateof 

### interest fora lornof $25,000 evidenced

### by a note.The firstnote between the parties carwing

### an interest rateof 17 percent was obviouslyusurious. The parties recognized that and redrafted the instruments to provide for a 16 percent rate. The lenders, however, had charged "pints", amounting to$81.2.50 sothat the Hansons received 

### less than 

### the $25,000 principal on. which the 

### interest was ca.lculated. The net effect, a.s ca.lculated by the District Court, was approximately 16 1-/2 percent interest based. on the amount the Hansons actually received. The Bonners offset this effect by claiming that their penalty loss of $827.50 for precancelling their certificates of depsit in order to get the mney to lend to 

### the Hansons 

### is an Wnseproperly allowable to themunder our holding inRowden 

### v. Gabel (1937), 105Mont. 477, 76 P.2d 334. The DistrictCourt concluded that the points here charged could not be considered as

### an expense in obtaining the mney forthe loan because "thepenaltywould be repaid shortly and the transaction was forthe creditorsbenefit." The District Court also concluded that 

### the acceptance bv the Farmers of thepayments from the attorney torepresent the lostone percent interest made the transaction usurious. There appears, however, tobe contrary authoritv that if a third person, inorder to get sow benefit for himself, or for any personal reason, pays the 1-ender a. bonus as 

### an inducement for 

### a ].om to be mad-e to another, the brrowerpavinffno amount of 

### the bonus, the transaction 

### is not a usurious one so far as the borrmer 

### is concerned 

### with respect to

### the third party payment. See 45 Am.Jur.2d 159 Interest and Usury, 

### S 202. 

### - Regardless of 

### these opposing contentions, the overriding factor for us 

### is the representation by both parties bv the same attorney with respect tothe negotiations, and. the eventual instmnts

### that

were dra.fted. It 

### is obvious that 

### the attorneymade the mistake in

### the firstinsLaceof drafting a usurious instrum~nt calling for 17 percent interest. It 

### is further obvious that his payments to the Ronners 

### were made to assuaqe his co~science,and ~rhaps to amid any 

### laterclaims against him. It

### does not amearthatthe 

### deduction of "points" from the principal occurred to the 

### attomey as having the possibilj-ty of a usurious effect upon the transaction. On

### the whole case, it is 

### quite apparent that both parties relied on the services of 

### the attomey, and expected to be 

### guided through the morass of usury laws by him 

### indrawing the instmmmts tocarryout the transaction. Moreover, intent is a necessary part of usurious transaction. There must existan intent that the 

### lender is totake

### more than the legal rate of interest for the sum loaned. 45 Am.LJur.2d 129 Interest - 

### and -1 

### Usury 

### S. 1-60. It 

### appears further 

### that "the courts agree that the mistake of an 

### attorney or scrjvener in computing interestor service chargeswillnot affecta loan withuswin 

### the ~hsenceof a showing of usurious intent on the 

### part of the principals.

### " 45 Am.

### Jur.2d 134 Interest and Usury, 

### S 165. It

### \uould obviously be 

### inequitable for this Court to enforce the usury palties where the underlying ins-nts 

### were drawn up 

### by an attomey representing both parties and. 

### where it 

### is

### obvious that the 

### attomey failedtocomprehendthe legal consequences ad~rantageous to

one party and disadvantageous to the other of the persons that he represented. \& 

### therefore hold under principles of equity that the penalties applying tousury should not be 

### imposed in this instance. The District Court relied in 

### large part upon the subsequent letter 

### written 

### by Ronners' 

### later counsel, making demands which in themselves may have given risetoa usurious transaction. However, nothing came of that 

### letter. A 

### fruitless demand for unl.awful interest after default does not make the mrtgage ag-ree-t usurious, where the 

### agrem-ntproperly 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 aborrowerwhose attorneyhad prepared a 

### note providing for usurious interest was estopped from asserting the defenseof usurywhen suitwas cammenced on thenote. Although we are declininq to enforce usury penalties 

### in this

case upon equitable principles, we are mindful that the circumstances here otherwj-sesuggestusury. Sincewe areproceeding in equity, it would indeed be inequitable to require that the Hansons 

### pay interest at the muntrequired of the promissory note 

### in the Light of the circumstances here. Neither party should benefit from the legal misapprehension of their comnlawyer. It appears inequitablethatBonners losevirtually all of the principle of the loanbecause 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 inthenote. We therefore remand this cause to the District Court for further proceedings 

### in foreclosure. The indebtedness of Hanson shallbe calculated on the amount actually receivedby her frmthe Pmnners, $24,187.50, with interest calculated at the rate of 6 percent per mum. 

### She shall be atitled to credit for the excess of 

### her rental paywmts not necessary to carry out her obligations under the contract fordeed. She shallbe 

### credited with the payment made by 

### the comnlawyer. Since the promissory note provides for attorneys fees, each party, by reciprocity, shall be entitled to recover attorneys fees 

### in this cause for whatever purposes qemrane to the dispute eachparty had toutilize counsel.

### Affirmed in 

### part, and reversed in part. 

### Costs 

### of appeal 

### to respondent. \ 

# 1 I , 

# ,5',iu.i, Justice 

## d

L'



### Justices

Hon. JamesB. 

### Wheelis, DistrictJudge, sitting for Hon. FrankB. 

### 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.