Title: MONT NAT BANK BOZEMAN v KOLOKO
Citation: N/A
Docket Number: 12694
State: Montana
Issuer: Montana Supreme Court
Date: May 23, 1975

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 : U Y 2 3 t r n Filed : MAY 2 3 19% M r . J u s t i c e Gene B. Daly d e l i v e r e d t h e Opinion of t h e Court. T h i s is a n appeal from a p a r t i a l summary judgment e n t e r e d i n t h e d i s t r i c t c o u r t , G a l l a t i n County, a g a i n s t p l a i n t i f f Montana National Bank of Bozeman and i n f a v o r of defendants William and C l a r e Kolokotrones, awarding t h e amount of $12,870 i n damages, t h a t being double t h e v a l u e of t h e add-on i n t e r e s t on t h e promis- s o r y n o t e i n d i s p u t e . P l a i n t i f f Bank a p p e a l s from t h e judgment and contends t h a t a s a m a t t e r of law t h e r e was no usury. The f a c t s are n o t i n d i s p u t e . I n e a r l y 1970, t h e Kolo- kotrones went t o t h e Bank f o r a l o a n t o buy a s e l f - p r o p e l l e d auger and t r u c k . They signed an i n t e r i m i n s t a l l m e n t promissory n o t e on A p r i l 4 , 1970. On A p r i l 27, 1970, Kolokotrones signed t h e f i n a l i n s t a l l - ment promissory n o t e . Under t h e t e r m s of t h a t n o t e t h e y borrowed $33,000 a t a 6.5% add-on i n t e r e s t r a t e . Thus, t h e add-on i n t e r e s t was $6,435. Therefore, t h e n o t e r e f l e c t e d $39,435 a t m a t u r i t y . T h i s would r e f l e c t a r e a l i n t e r e s t r a t e of 11.75% b u t is a n ex- c e p t i o n t o t h e s t a t u t e i f p r o p e r l y a p p l i e d . The n o t e c a l l e d f o r 36 i n s t a l l m e n t s , t h e f i r s t t o be $500 due June 2 5 , 1970, and 35 monthly i n s t a l l m e n t s t h e r e a f t e r a t $1,112.42, t h e f i n a l m a t u r i t y being on o r b e f o r e June 2 5 , 1973, a t e r m of t h r e e y e a r s . The n o t e contained a p r o v i s i o n t h a t p a s t due p r i n c i p a l and i n t e r e s t would bear i n t e r e s t a t t h e r a t e of 10% per annum u n t i l f u l l y p a i d . Kolokotrones had t r o u b l e making payments on t h e n o t e and it became d e l i n q u e n t t o t h e p o i n t of s e r i o u s n e s s . They made t h e i n i t i a l $500 payment on o r about J u l y 2 2 , 1970 and t h e r e a f t e r were c r e d i t e d w i t h four payments a t p e r i o d i c t i m e s . Because of t h e i r r e g u l a r payment r e c o r d , t h e p a r t i e s agreed on a v o l u n t a r y repos- s e s s i o n o f t h e t r u c k and auger by t h e Bank. The Bank k e p t t h e equipment f o r s e v e r a l months and t h e n s o l d it under t h e p r o v i s i o n s 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 p a y m e n t s 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 $ 5 0 0 . 0 0 $ 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 , 6 2 3 . 8 1 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 p a r t i e s moved f o r summary judgment. The Bank moved f o r summary judgment on t h e e n t i r e case a f t e r f i l i n g a second amended r e p l y t o defendants' counterclaim. Kolokotrones moved f o r p a r t i a l summary judgment on t h e i r counterclaim. The d i s t r i c t c o u r t granted Kolokotrones' motion and denied t h e Bank's motion. Judgment was entered i n favor of defendants i n t h e amount of $12,870. From t h i s judgment p l a i n t i f f Bank appeals. The Bank argues it was not g u i l t y of usury and t h e d i s t r i c t c o u r t e r r e d i n s o finding. More s p e c i f i c a l l y , it argues t h a t t h e note, i f performed according t o i t s t e r m s , would n o t r e s u l t i n producing t o t h e Bank a g r e a t e r r a t e of i n t e r e s t than is allowed by law; t h a t i n f a c t t h e r e was n o t an exaction of a g r e a t e r amount than allowed by law; t h a t t h e r e was no mutuality of i n t e n t t o g i v e and t o t a k e usury; and, t h a t t h e demand made upon Kolokotrones i n accord with t h e computation schedule attached t h e r e t o d i d n o t can- s t i t u t e usury. This Court cannot agree with t h e Bank's argument. Montana's usury s t a t u t e , s e c t i o n 47-125, R.C.M. 1947, provides t h a t p a r t i e s may agree f o r t h e payment of any r a t e of i n t e r e s t not exceeding t h e r a t e of 10% per annum. The note i t s e l f s t a t e s t h a t t h e annual percentage r a t e of t h e note is 11.75%. The only exception t o t h i s usury s t a t u t e a f f e c t i n g banks is s e c t i o n 5-527, R.C.M. 1947, which provides t h a t a bank can col- lect its i n t e r e s t i n advance. That s t a t u t e s t a t e s : "5-527. (6014.52) I n t e r e s t not t o exceed lawful rate--permissible charge on i n s t a l l m e n t loans. N o bank s h a l l demand o r r e c e i v e f o r loans o r d i s - counts, a r a t e of i n t e r e s t exceeding t h a t allowed by law, excepting t h a t it s h a l l be lawful f o r any bank t o r e c e i v e i n t e r e s t i n advance according t o t h e ordinary usages of banking i n s t i t u t i o n s . On loans t o be repaid i n one o r more deferred i n s t a l l - ments a bank may charge n o t t o exceed t h e follow- ing schedule: O n s o much of t h e p r i n c i p a l balance a s does n o t exceed t h r e e hundred d o l l a r s ($300), eleven d o l l a r s ($11) per one hundred d o l l a r s ($100) p e r year; i f t h e p r i n c i p a l balance exceeds t h r e e hundred d o l l a r s ($300), b u t is l e s s than one thousand d o l l a r s ($1,000) , n i n e d o l l a r s ($9) per one hundred d o l l a r s ($100) per year on t h a t p o r t i o n over t h r e e hundred d o l l a r s ($300); i f t h e p r i n c i p a l balance exceeds one thousand d o l l a r s ($1,000) , seven d o l l a r s ($7) per one hundred d o l l a r s ($100) per year on t h a t portion over one thousand d o l l a r s ($1,000). Such charges s h a l l be computed on t h e p r i n c i p a l bal- ance on c o n t r a c t s payable i n successive monthly payments s u b s t a n t i a l l y equal i n amount from t h e d a t e of t h e c o n t r a c t u n t i l t h e maturity of t h e f i n a l i n s t a l l m e n t , notwithstanding t h a t t h e t o t a l balance thereof i s required t o be paid i n i n s t a l l m e n t s . A minimum charge of twenty d o l l a r s ($20) may be made with r e s p e c t t o any i n s t a l l - ment loan made by a bank. When an i n s t a l l m e n t loan c o n t r a c t provides f o r payment other than i n equal successive monthly i n s t a l l m e n t s t h e charge may be a t a r a t e which w i l l provide t h e same y i e l d a s is permitted monthly payment c o n t r a c t s having due regard f o r t h e schedule of payments i n t h e c o n t r a c t . " Thus, t h e maximum i n t e r e s t i n t e r n s of add-on o r discount i n t e r e s t t h a t can be l e g a l l y taken under Montana l a w on $33,000 is $7,008, computed t h i s way: $11.00 per $100.00 per year on t h e 1st .......... $300.00 f o r 3 y e a r s ($33.00 x 3) $ 99.00 $9.00 per $100.00 per year on t h e next $700.00 f o r 3 y e a r s ($63.00 x 3) .......... 189.00 $7.00 per $100 per year on t h e next ..... $32,000.00 f o r 3 years (2,240.00 x 3) 6,720.00 ............ Total Allowance Discount I n t e r e s t $ 7 m 8 . 0 0 The Bank, however, demanded $7,561.91, a d i f f e r e n c e of $553.91. The Bank's demand on t h e Kolokotrones was t h e r e f o r e usurious. Here we have a note which o r i g i n a l l y s t a r t e d o u t using t h e p r i n c i p l e of add-on i n t e r e s t , which would have been l e g a l under s e c t i o n 5-527, R.C.M. 1947, but t h e Bank then switched t o using a s t r a i g h t a p p l i c a t i o n of t h e 11.75% per annum i n t e r e s t r a t e . That made t h e note usurious. The Bank contends t h a t one of t h e t e r m s of t h e note was a 10% penalty on t h e p a s t due p r i n c i p a l and i n t e r e s t , and such penalty could not be considered i n t e r m s of usury a s t h e Kolo- kotrones had it within t h e i r power t o prevent t h e penalty, there- f o r e it was n o t p a r t of t h e i n t e r e s t r a t e of t h e note. Fur- t h e r , t h a t t h e Bank's demand r e p r e s e n t s a l e s s e r amount t h a n t h e Bank would have been e n t i t l e d t o had it used t h e 10% p e n a l t y . Kolokotrones argue t h a t t h e Bank's argument i s i r r e l e v a n t t o t h e i n s t a n t c a s e , f o r t h e Bank abandoned t h e 10% p e n a l t y , and s o s t a t e d i n a letter t o Kolokotrones' a t t o r n e y , d a t e d October 7, 1972. This Court f i n d s t h e abandonment of t h e p e n a l t y charge by t h e Bank d i s p o s i t i v e of t h a t i s s u e . The Bank a l s o contends t h e r e was n o t t h e necessary i n t e n t f o r t h e Bank t o be g u i l t y of usury. This Court i n Bowden v. Gabel, 105 Mont. 477, 487, 76 P.2d 334, s t a t e d : "Defendant contends t h a t t h e r e q u i s i t e i n t e n t was n o t shown h e r e t o e s t a b l i s h usury. This c o n t e n t i o n cannot be s u s t a i n e d , f o r it i s w e l l s e t t l e d t h a t t h e v o l u n t a r y t a k i n g of more t h a n t h e l e g a l r a t e of i n t e r e s t c o n s t i t u t e s usury. The o n l y i n t e n t neces- s a r y is t h e i n t e n t t o t a k e more i n t e r e s t t h a n t h e law p e r m i t s , Usurious i n t e n t is implied i f e x c e s s i v e i n t e r e s t is i n t e n t i o n a l l y taken. I t is of no conse- auence t h a t t h e r e w a s no s p e c i f i c i n t e n t knowingly t o v i o l a t e t h e law." ( ~ r n ~ h a s i s o u r s . ) It f o l l o w s t h a t t h e Bank had t h e necessary i n t e n t , by i n t e n d i n g t o t a k e from Kolokotrones more than t h e l e g a l amount o f i n t e r e s t . The Bank a l s o argues t h e demand f o r $7,561.91 was n o t a binding c o n t r a c t between it and Kolokotrones; t h a t t h e Court must look t o t h e o r i g i n a l n o t e t o determine i f t h e n o t e was u s u r i o u s . F u r t h e r , because t h e i n s t a l l m e n t n o t e of A p r i l 27, 1970, on its f a c e was w i t h i n t h e p r o v i s i o n s of t h e bankers' exception t o t h e usury law, s e c t i o n 5-527, R.C.M. 1947, t h e judgment i n t h e d i s - t r i c t c o u r t was e n t e r e d erroneously. However, t h e n o t e on which t h e Bank brought t h i s a c t i o n i s a n anomaly i n i t s e l f . I t is n o t an i n s t a l l m e n t n o t e , b u t was t h e o n l y n o t e form t h e Bank had a t t h e t i m e . It d i d n o t e x p l a i n t h e i n s t a l l m e n t payments. The Bank construed t h e t e r m s of t h e n o t e , i n making its demand on t h e Kolokotrones, a s a s t r a i g h t loan of $33,000 a t 11.75% i n t e r e s t per annum, and t h a t is t h e c o n t r a c t it now seeks t o enforce. The t e r m s of t h e note a r e not c l e a r on its face, but, when read i n l i g h t of t h e Bank's letters t o Kolokotrones, t h e i n t e n t of t h e p a r t i e s becomes c l e a r . The terms of t h e note a r e usurious. The Bank next contends t h e Kolokotrones were awarded an i n c o r r e c t amount of money; t h a t they should have been award- ed twice t h e amount of t h e d i f f e r e n c e between t h e i n t e r e s t charged and t h e maximum allowed by s e c t i o n 5-527, R.C.M. 1947. W e f i n d t h a t s t a t u t e speaks f o r i t s e l f . Section 47-126, R.C.M. 1947, s p e c i f i c a l l y s t a t e s t h a t t h e r e s h a l l be a " f o r f e i t u r e of a sum double t h e amount of i n t e r e s t which t h e note, b i l l , o r o t h e r evidence of debt c a r r i e s , o r which has been agreed t o be paid thereon." The amount of i n t e r e s t appearing on t h e f a c e of t h e note was $6,435. Twice t h a t amount i s $12,870. That is t h e amount t o which t h e Kolokotrones a r e e n t i t l e d , and t h a t is t h e award of t h e d i s t r i c t court. F i n a l l y , t h e Bank argues t h e r e was no w r i t t e n demand made by t h e Kolokotrones f o r the r e t u r n of t h e usurious i n t e r e s t as required by s e c t i o n 47-126, R.C.M. 1947, which provides: "The taking, receiving, reserving, o r charging a r a t e of i n t e r e s t g r e a t e r than i s allowed by t h e preceding s e c t i o n s h a l l be deemed a f o r - f e i t u r e of a sum double t h e amount of i n t e r e s t which t h e note, b i l l , o r o t h e r evidence of debt c a r r i e s , o r which has been agreed t o be paid thereon. "When a g r e a t e r r a t e of i n t e r e s t has been paid, t h e person by whom it has been paid, h i s h e i r s , assigns, executors, o r administrators, may re- cover from t h e person, firm o r corporation taking, receiving, reserving, o r charging same a sum double t h e amount of i n t e r e s t s o paid; provided, t h a t such a c t i o n s h a l l be brought within two years a f t e r t h e payment of s a i d i n t e r e s t ; and provided, t h a t before any s u i t may be brought t o recover such usurious i n t e r e s t , t h e p a r t y bring- inq s u i t must make w r i t t e n demand f o r r e t u r n of s a i d i n t e r e s t so paid. " (Emphasis added. ) Both p a r t i e s r e l y on t h e language of Bowden v. Gabel, 105 Mont. 477, 76 P.2d 334, t o s u s t a i n t h e i r p o s i t i o n concern- i n g t h e n o t i c e requirement contained i n t h e second paragraph of s e c t i o n 47-126. Bowden does r e c i t e t h a t t h e r e a r e two d i f f e r e n t s i t u a t i o n s contemplated by t h e s t a t u t e and c i t e s Miller v. Oklahoma S t a t e Bank, 53 Okl. 616, 157 P. 767, f o r t h e proposition t h a t demand is not required t o obtain r e l i e f under t h e f i r s t paragraph of s e c t i o n 7727 [now s e c t i o n 47-1261. M i l l e r does r e l y on a North Dakota case which i n d i c a t e s t h a t t h e f i r s t paragraph rests i n c o n t r a c t when t h e i n t e r e s t has been charged, and t h e second paragraph d e a l s with a circumstance where t h e i n t e r e s t has been paid. In Bowden t h e r e p r e s e n t a t i v e of a machine company brought s u i t a g a i n s t the usurer and t h e f a c t s t h e r e do not harmonize with t h e i n s t a n t case, nor was our problem here de- cided t h e r e . A l l t h e s e c i t a t i o n s d e a l f o r t h e most p a r t with s u i t s a g a i n s t t h e usurer. The s t a t u t e is c l e a r on t h i s p o i n t and r e q u i r e s a p a r t y bringing s u i t t o make a demand f o r r e t u r n of t h e i n t e r e s t . Case law says it a p p l i e s t o t h e second paragraph of s e c t i o n 47-126, R.C.M. 1947,only. Here, Kolokotrones d i d not bring t h e s u i t f o r recovery. The Bank sued them, and they responded with kh-'r ?aFonses. I f be within t h e i r counterclaim could i n any way be construed t o / the contem- p l a t i o n of t h e second paragraph of s e c t i o n 47-126, a s has been argued, then it would have t o be s a i d t h a t demand would i n any case be an i d l e a c t a s a condition t o f i l i n g an answer and de- fenses. This would not be required under s e c t i o n 49-124, R.C.M. 1947. The p a r t i a l summary judgment granted by t h e d i s t r i c t c o u r t is affirmed and t h e cause remanded t o t h e d i s t r i c t c o u r t f o r f u r t h e r proceedings. J u s t i c e We concur: - - ----------------------------- - &ief Justice Ju tices r