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 in effect that an assiqnwiit for deed should be construe6 a.s 

a mrtgage upon default, subject to the foreclosure laws of this 

state, and further holding that the underlying indebtedness 

transaction wa-s tainted with usury. 

On December 12, 1979, Jerome I. Hanson and Renee J. Hanson, 

husband and wife, made, executed and delivered a promissory note for 

$25,000 to Robert A. Bonner, Jr. and Eleanor K. Bonner, husband and 

wife, of Oxford, Connecticut, payah1.e on or before the 12th day of 

June, 1982 (30 mnths) with mnthly installments of $354.1.7 to cover 

accrued. interest. 

At the 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 real proprty in Kalispell, Montana, frm Duane 

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 subject to the contract for deed. The negotiations for the 

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 in the negotiations leading 

to the promissory note and to draw the instmments that 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 to act as the 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 could 
legally 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 th time. Gter investigation revealed to the 

attorney that the actual top legal interest rate was 16 percent. 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 pr mnth. This munt would be sufficient to 

pay interest at the rate of 16 percent on the $25,000 principal 

amount of the note with total indebtedness to be 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 interest pavment 

would amount to $20.84 a mnth or $250.08 per 

year and if he had been infomd of the maximum 

interest rate prior to closing, would have 

either looked elsewhere for a better market or 

charged additional discount points at closing to 

make the investxent of appro,:im;ltely the same. 

I spoke with the Hansons about the mistake and 

explained how Rob felt about the matter and that 

I could understand his reasoning. I suggested 

that if all parties agreed, the mnthly 

difference between the 17 percent and 16 percent 

interest rate, amounting to $20.84 could still 

be paid each mnth by the Hansons. 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 their position. I figure that 

+he $20.84 amount would be considered additional 

discount points which the parties would have 

intended to charge had they known at the tim of 

the closinq what 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 at all tks ready, 

willing and able to forward 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 to pay 

+he sum of $354.17 pr mnth either by way of 

calling it all interest or hy 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 for paving 

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 his check 

for $250.08 which represents 12 months paywnts of $20.84 per mnth. 

me promissory note as we have said was redrawn to reflect a 16 

prcent interest rate as far as the Bonners were concerned. 

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 sum received as principal. 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 out of the account without her 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 the payments, the Ehnners required. of the 
escrow holder (the attorney) the quitclaim deed which was 

surrendered and which they then filed of record in Flathead County, 

claiming thereafter to own whatever interest in the real proWrty 

the Hansons owned. 

After filing the quitclaim deed of record, the Ronners rented 

the house back to Renee Hanson for the sum of $400 per month. She 

has continually resided in the hme and the Bonners use the mnthlv 

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 

attorney of record, and not the counsel that both parties had relied 

upon theretofore, wrote the Hansons a proposal for her 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, the District Court determined that double the 

amount of interest charged and other charges, left a balance due to 

the Ronners fran Hanson of $1,561.58, plus attorney fees in th._ sum 

of $1,500 in foreclosure proceedings. This appeal followed. 

We hold first that the District Court was correct in deeming 

the transaction between the parties to be a mortgage. In this case 

the assignment of contract for deed recited that the quite1 aim 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.elivered in connection with the indebtedness will be 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 is but one action 

for the recovery of debt or for the enforc~~nmt of any riqht secured 

by mortgage upon real estate which action must he in accordance 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 to the mortgagee. 

Miller v. Federal Land. Bank of Spokane (9th Cir. 1.978) , 587 F. 2d 

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

We turn now to consider whether the agreement &tween the 

parties was usurious and what effect usury, if it exists, miqht have 

upon the parties. 

At the time of the transaction, 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 in excess of 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 at the time of the transaction 

here, under those provisions, 16 prcent was the top legal. rate of 

interest for a lorn of $25,000 evidenced by a note. 
The first note between the parties carwing an interest rate of 

17 percent was obviously usurious. 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 so that 

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 Wnse properly allowable to 

them under our holding in Rowden v. Gabel (1937), 105 Mont. 477, 76 

P.2d 334. 

The District Court concluded that the points here charged could 

not be considered as an expense in obtaining the mney for the loan 

because "the penalty would be repaid shortly and the transaction was 

for the creditors benefit." 

The District Court also concluded that the acceptance bv the 

Farmers of the payments from the attorney to represent the lost one 

percent interest made the transaction usurious. There appears, 

however, to be contrary authoritv that if a third person, in order 

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 brrower pavinff no 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 to the negotiations, and. the eventual instmnts that 

were dra.fted. It is obvious that the attorney made the mistake in 
the first insLace of 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 later claims against him. It does not amear that the 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 in drawing the instmmmts to carry out 

the transaction. 

Moreover, intent is a necessary part of usurious transaction. 

There must exist an intent that the lender is to take 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 

interest or service charges will not affect a loan with usw in the 

~hsence of 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 failed to comprehend the 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 to usury 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 rise to a 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-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 in this 

case upon equitable principles, we are mindful that the 

circumstances here otherwj-se suggest usury. Since we are proceeding 

in equity, it would indeed be inequitable to require that the 

Hansons pay interest at the munt required of the promissory note 

in the Light of the circumstances here. Neither party should 

benefit from the legal misapprehension of their comn 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 in foreclosure. The indebtedness of Hanson 

shall be calculated on the amount actually received by her frm the 

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 for deed. She shall be credited with the payment 

made by the comn lawyer. 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 each party had to utilize counsel. 
Affirmed in part, and reversed in part. 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.