No. 91-070 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

L. E. SCARR a/k/a , , ROBERT SCARR, 

Plaintiff and Appellant, 

v. oc'; --ti ig91 

JAMES W. BOYER 

and JOANN BOYER, CLERK 2.2 OF SUPREME -5ki-!A COSRT 

STATE OF MONTANA 

Defendants and Respondents. 

APPEAL FROM: District Court of the Thirteenth Judicial District, 

In and for the County of Yellowstone, 

The Honorable William J. Speare, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

J. Reuss, Wright, Tolliver & GuthaLs, 

Billings, Montana 

For Respondents: 

James P. Healow, Sweeney & Healow, 

Billings, Montana 

Filed: 

Submitted on Briefs: June 13, 1991 

Decided: October 8, 1991 

<."% j 

Clerk 
Justice Terry N. Trieweiler delivered the opinion of the Court. 

L.E. Scarr sued James and JoAnn Boyer to recover $70,000 due 

under a promissory note. The Boyers filed a counterclaim alleging 

usury. Both parties moved for summary judgment. The ~istrict 

Court for the ~hirteenth Judicial ~istrict in Yellowstone County 

granted summary judgment for Scarr on the note itself and granted 

summary judgment for the Boyers on their counterclaim for usury. 

Scarr appeals from the order of the District Court. We affirm. 

The issues are: 

1. Did the District Court err in applying the usury penalty 

to a contractual provision for post-default interest? 

2. Did the District Court err in applying the usury penalty 

to a contract in which the creditor did not intend to circumvent 

the usury statute? 

In August 1983, Scarr sold subdivided land in Billings to Rim 

Creek Investors, a partnership that included defendant James Boyer. 

Scarr was given a mortgage on the property in the amount of 

$412,500. The partnership agreed to make annual interest payments. 

The balance of all remaining principal and interest was due on 

December 5, 1988. A dispute about foreclosure arose as the date 

of the balloon payment approached. By that time $375,000 of 

principal remained due. James Boyer and another partner went to 

Scarrts residence in Washington and negotiated a compromise 

agreement. 
Under the terms of this compromise, Scarr forgave $175,000 of 

principal in exchange for a $50,000 cash payment from the 

partnership and promissory notes from the individual partners for 

the remaining $150,000 of principal. The District Court treated 

this compromise agreement as a novation that cancelled the earlier 

mortgage, and neither party appeals from that determination. 

The Boyers' individual share of the new principal debt was 

$70,000. They executed a note for that amount and agreed to pay 

interest at the rate of 10 percent prior to any default. The note 

provided that in the event of default, the interest rate would 

increase to 18 percent. 

None of the partners made the first semi-annual interest 

payment when it was due on April 25, 1989. Scarr told the 

partnership he would accelerate the notes if he did not receive the 

first semi-annual interest payment by May 15, 1989. On May 11, 

1989, the partnership tendered a check drawn on the partnership 

account for approximately one-half of the total amount of all the 

semi-annual interest due from all of the partners. Scarr returned 

this check and said he preferred to have payment from the partners 

as individuals. 

On May 19, 1989, Scarr accelerated the notes and filed suit 

against the individual partners. His complaint against the Boyers 

demanded all of the principal, plus 10 percent interest up to 

April 25, 1989, and 18 percent interest from that date forward. 

Specifically, Scarr demanded interest of $37.3687 for every day 
that elapsed after April 25, 1989. In their counterclaim the 

Boyers alleged that the post-default interest rate of 18 percent 

was usurious. 

Both parties moved for summary judgment. The District Court 

granted summary judgment for Scarr on the note itself, but also 

granted summary judgment for the Boyers on their counterclaim. The 

penalty for usury is twice the amount of the usurious interest 

charges. Section 31-1-108, MCA. Five hundred and fourteen days 

elapsed between April 25, 1989, and the date during pre-trial 

proceedings when Scarr finally abandoned his claim to 18 percent 

interest. Pursuant to the statute, the District Court doubled the 

usurious post-default interest sought by Scarr and subtracted it 

from the $70,000 principal and $4,737.46 in non-usurious 

pre-default interest. Thus, the court reduced Scarrls recovery by 

$38,415.02. He appeals. 

I 

Did the District Court err in applying the usury penalty to 

a contractual provision for post-default interest? 

In Montana, interest is "the compensation allowed by law or 

fixed by the parties for the use or forbearance or detention of 

money." Section 31-1-104, MCA. Non-regulated lenders cannot 

charge more than six percentage points above the New York prime 

rate as reported in the Wall Street Journal three business days 

before the transaction in question. Section 31-1-107, MCA. 
Usury is "[t]he taking, receiving, resewing, or chargingw of 

an interest rate greater than the limit set by § 31-1-107, MCA. 

Section 31-1-108, MCA. The New York prime rate was 10.5 percent 

three days before the Boyers signed their promissory note. Thus, 

the maximum allowable interest rate applicable to the Boyer note 

was 16.5 percent. 

However, Scarr argues that we should not apply the usury 

statute to the 18 percent post-default interest rate because it is 

merely a late-payment penalty that the Boyers could have avoided 

by paying on time. He cites the cases collected in 28 A. L.R. 3d 449 

for the proposition that post-default interest is not subject to 

usury statutes. In Metro Hauling, Inc. v. Daffem (1986) , 44 Wash. App. 

719, 722, 723 P.2d 32, 33, for example, the court said: 

[A] provision in a note by which the debtor agrees to 

pay, after maturity, interest at a rate higher than that 

allowed by law, does not render the transaction usurious 

provided the parties acted in good faith and did not 

intend to evade the usury law. The debtor has it within 

his power to avoid the additional interest charge by 

prompt payment of his obligation, and therefore, the 

contingency upon which the excessive interest comes into 

existence is not solely within the lender's control. 

[Citation omitted.] 

Scarr assures us that this is by far the majority rule. But in 

Washington, the usury statutes apply to "every loan or forbearance 

of money. l1 Wash. Rev. Code 5 19.52.010. Montana, by contrast, 

makes its usury statutes applicable to "detentiorzs" of money as weff 

as loans and forbearances. Section 31-1-104, MCA. We find this 

difference significant. 
In Parksv. Lubbock (1899), 92 Tex. 635, 51 S.W. 322, the court 

construed a statute that was virtually identical to Montana's 

present statutory definition of interest. The court held that: 

The detention of money arises in a case when a debt has 

become due, and the debtor withholds its payment, without 

a new contract giving him a right to do so. . . . [Tlhe 

conclusion is not to be resisted that there was a purpose 

in adding the word 'Idetention1l to the accepted definition 

of and that this purpose was to meet the case 

when the debtor should detain the money owed beyond the 

stipulated period of forbearance, and so to provide that 

a promise to pay an additional sum fir such detentioiz ~Izould be deemed 

interest, and not merely damages by way of a penalty to 

secure a prompt performance of the contract. [Emphasis 

added. ) 

Parks, 51 S.W. at 323. The court concluded that the post-default 

interest at issue in that case was subject to the usury statutes. 

The Supreme Court of South Dakota reached the same conclusion 

in Ulvildsz v, Sorken (193l), 58 S.D. 466, 237 N.W. 565. The statutory 

definition of interest in South Dakota, like the statutes in Texas 

and Montana, covered the "detention of money." The court cited 

Parks with approval and added that: 

~equiring the maker of a note to pay a higher rate of 

interest after maturity for the use of money is likely 

to be as oppressive as when required to pay a higher rate 

during the term of the loan. It may not be within the 

power of the borrower promptly to meet his obligations 

at maturity. If a borrower is to be protected from the 

extortion of an excessive rate for the use of money, 

there is no apparent reason why it should be limited to 

the term of the loan. 
We agree. Usury statutes protect borrowers who lack real 

bargaining power against overreaching by creditors. Daffem, 723 

P.2d at 34. The occurrence of a default in no way affects this 

public policy in favor of protecting the debtor. Indeed, it is 

after default that the debtor has the greatest need for protection; 

a debtor who cannot retire a debt compounded by legal interest 

certainly lacks the resources to pay usurious interest. 

For these reasons we adopt the reasoning of the Texas and 

South Dakota courts and hold that Montana's statutory definition 

of interest includes post-default interest. Scarr charged the 

Boyers post-default interest in excess of Montana's statutory 

limit. This was usury. We conclude that the District Court was 

correct in applying the usury penalty. 

I I 

Did the District Court err in applying the usury penalty to 

a contract in which the creditor did not intend to circumvent the 

usury statute? 

Scarr argues that it would be inequitable to penalize him for 

usury because he did not intend to violate the usury statute. He 

admits that it was his idea to charge 18 percent, but asserts that 

he only wanted to charge as much interest as the law would allow. 

He says he did not know what the usury limit was in Montana and 

that not even the partnership or its attorney realized that the 

post-default interest provision was usurious. 
We disagree. The only intent required for usury is the intent 

to charge a particular rate of interest that is usurious in fact. 

Montana National Bank of Bozeman v. Kolokotrones (197 5) , 167 Mont . 92 , 53 5 

P.2d 1017. The creditor need not know that the particular interest 

rate is usurious and illegal. Thus, whether Scarr intended to 

violate the law is irrelevant. It is enough that he intended to 

charge 18 percent. We hold that the District Court was correct in 

penalizing Scarr for usury despite his assertions that he did not 

intend to violate the law. 

Affirmed. 

We concur: 
October 8, 1991 

I hereby certify that the following order was sent by United States mail, prepaid, to the 

following named: 

J. Reuss, Esq. 

WRIGHT, TOLLIVER & GUTHALS 

P.O. Box 1977 

Billings, MT 59103 

James P. Healow, Esq. 

SWEENEY & HEALOW 

1250-15th St. W., Suite 202 

Billings, MT 59102 

ED SMITH 

CLERK OF THE SUPREME COURT 

STATE 9F MONTANA - 1 

BY: 

Deputy