Title: HANSON v BONNER
Citation: N/A
Docket Number: 82-008
State: Montana
Issuer: Montana Supreme Court
Date: February 24, 1983

N O . 8 2 - 0 8 I N THE SUPREME COURT OF THE STATE O F MONTANA 1 9 8 3 RENEE J. HANSON, P l a i n t i f f a n d ~ e s p o n d e n t , V S . ROBERT A . BONNER, J R . , ELEANOR K . BONNER, a n d ROBERT BONNER, D e f e n d a n t s a n d A p p e l l a n t s . A p p e a l f r o m : D i s t r i c t C o u r t o f t h e E l e v e n t h J u d i c i a l D i s t r i c t , I n a n d f o r t h e C o u n t y o f F l a t h e a d H o n o r a b l e R o b e r t M . H o l t e r , J u d g e p r e s i d i n g . C o u n s e l o f R e c o r d : F o r A p p e l l a n t s : Randy K. S c h w i c k e r t a r g u e d , W h i t e f i s h , Montana F o r R e s p o n d e n t : Murphy, R o b i n s o n , H e c k a t h o r n & P h i l l i p s , K a l i s p e l l , Montana I. J a m e s H e c k a t h o r n a r g u e d , K a l i s p e l l , Montana - S u b m i t t e d : December 2, 1982 D e c i d e d : February 2 4 , 1983 C l e r k M r . 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 t o 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 t o Robert A. Bonner, Jr. and Eleanor K. Bonner, husband and wife, of Oxford, Connecticut, payah1.e on or before the 1 2 t h day of June, 1982 (30 mnths) w i t h mnthly installments of $354.1.7 t o cover accrued. interest. A t 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, f r m Duane A. Ritney and Betty A. Ritney, sellers. On the s a m e day, the Hansons executed a quitcl-aim. deed t o the Bonners for the real property subject t o 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 s a m e Kalispell attorney i n the negotiations leading t o the promissory note and t o draw the instmments that resulted from the negotiation of the loan. After two Kalispe.11 banks refused t o handle the escrow of the executed quitclaim deed, the attorney agreed t o act as the escrow agent on behalf of both parties. O n February 4, 1980, the attornev wrote a letter t o both parties in which he reported that prior t o the closing on December 12, 1979, he had been concerned as t o whether the Ronners could legally charge interest a t the rate of 17 percemt wr annun, the amount represented by the p a m n t s set forth in the oriqinal. instrument. H e had checked with the local. bank and by s o m e misunderstandjng had been informed that 17 percent was the legal rate of interest a t t h time. G t e r investigation revealed t o the attorney that the actual top legal interest rate was 16 percent. H e suggested and the parties agreed t o redraft the i n s t n m e n t so that the promissory note, retaining the same date, would carry mnthly payrents of $333.00 p r mnth. This m u n t would be sufficient t o pay interest a t the rate of 16 percent on the $25,000 principal amount of the note with total indebtedness t o be paid on June 12, 1982. But the attorney, feeliq responsible, went further: "In regard t o the interest problem, I informed Fob of it and wondered i f he would agree on the Bonner's behalf t o lowering the interest rate from 17 percent t o 16 percent. He informed rn that the difference in interest pa-mats per mnth w i t h a reduction in the interest pavment would amount t o $20.84 a mnth or $250.08 per year and i f he had been i n f o m d of the m a x i m u m interest rate prior t o closing, would have either looked elsewhere for a better market or charged additional discount points a t closing t o make the investxent of appro,:im;ltely the same. I spoke with the Hansons about the mistake and explained how Rob f e l t about the matter and that I could understand his reasoning. I suggested that i f a l l parties agreed, the mnthly difference between the 17 percent and 16 percent interest rate, amounting t o $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 t o 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 t o charge had they known a t the tim of the closinq what they do now. I encouraged the parties t o get toqether w i t h one another and discuss the matter outside of m y presence because - I - f e l t responsible - - - for a l l the confusion. The Hansons were a t a l l t k s ready, willing and able t o forward the Bonners a check . i n the f u l l 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 f a i r t o expect either side t o resolve this on their m. I feel that the Ronners have a right t o e x p c t the s u m of $354.17 per month and that the Hansons should not be forced in the position of havincj t o pay +he sum of $354.17 p r mnth either by way of calling it a l l interest or hy calling a portion of it discount points, particularly a t this stage of the game. I therefore, wou1.d like t o take it upon myself t o offer t o make qood m y mistake by making myself responsible for paving the s ~ m of $20.84 per mnth t o 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 w e have said was redrawn t o reflect a 16 p r c e n t interest rate as far as the Bonners were concerned. The settlement statement reveals that a t 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 t o get the mnev t o lend i n the transaction, the Bonners were required t o cancel prermturely s o m e 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 a t the the and that Renee Hanson, i n 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 t o her account or taking monies out of the account without her knowledge. A t 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 t o own whatever interest in the real proWrty the Hansons owned. After filing the quitclaim deed of record, the Ronners rented the house back t o Renee Hanson for the s u m of $400 per month. She has continually resided i n the hme and the Bonners use the mnthlv rental payments from Renee t o mke the mnthly paymnts upon the contract for deed, t o pay insurance on the p r o ~ r t v and t o be reimbursed for bank charges for the Hansons' nonsuffjcient fund checks. O n 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 t o August 27, 1980, $177 for extra interest that would have been paid by the attorney theretofore, legal fees and anticipated legal fees. k n e e Hanson, now proceeding alone, the Hansons havinq divorced, brought action t o have the indebtedness determined according t o 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, l e f t a balance due t o the Ronners fran Hanson of $1,561.58, plus attorney fees in th._ sum of $1,500 in foreclosure proceedings. This appeal followed. W e hold f i r s t that the D i s t r i c t Court was correct i n deeming the transaction between the parties t o be a mortgage. In this case the assignment of contract for deed recited that the quite1 aim d ~ e d executed on the same day would be recorded without notice i f 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 t o be a mortqaqe, j n the circumstances related here. Section 71-1-107, PICA. W h e n a debt is sham t o exist between the parties, a deed absolute on its face d.elivered i n connection with the indebtedness w i l l be construed as a mortgage when it is shown that the i n s t m t was intended t o secure +he indehtedness. Bovsun v. Eoysun (1962), 140 Mont. 85, 368 P.2d 439. See Amsterdam 1 , u m b e r 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 t o the mortgagee. Miller v. Federal Land. Bank of Spokane (9th C i r . 1.978) , 587 F. 2d 415, cert.den. 441 U.S. 962, 99 S.Ct. 2407, 60 L.Fd.2d 1067. We turn now t o consider whether the agreement &tween the parties was usurious and what effect usury, i f it exists, miqht have upon the parties. A t the time of the transaction, under section 31-1-107, MCA, on amounts up t o $150,000, it was provided that parties may agree i n writing for the payrent of any r a t e of interest not more than 10 p r c e n t per annun or m o r e than 4 percentage points i n excess of the discount rate on 90-day commercial paper in effect a t the federal reserve bank in the Ninth Federal Reserve district, whichever is greater. The parties concede that a t the time of the transaction here, under those provisions, 16 p r c e n t was the top legal. rate of interest for a lorn of $25,000 evidenced by a note. The f i r s t note between the parties carwing an interest rate of 17 percent was obviously usurious. The parties recognized that and redrafted the instruments t o provide for a 16 percent rate. The lenders, however, had charged " p i n t s " , amounting t o $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 d e p s i t in order t o get the mney t o lend t o the Hansons is an W n s e properly allowable t o them under our holding i n 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 a n expense in obtaining the mney for the loan because "the penalty would be repaid shortly and the transaction was for the creditors benefit." The D i s t r i c t Court also concluded that the acceptance bv the Farmers of the payments from the attorney t o represent the lost one percent interest made the transaction usurious. There appears, however, t o be contrary authoritv that i f a third person, in order t o get sow benefit for himself, or for any personal reason, pays the 1-ender a. bonus as an inducement for a ].om t o be mad-e t o another, the brrower pavinff no amount of the bonus, the transaction is not a usurious one so far as the borrmer is concerned w i t h respect t o 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 w i t h respect t o the negotiations, and. the eventual i n s t m n t s that were dra.fted. It is obvious that the attorney made the mistake i n the f i r s t insLace of drafting a usurious instrum~nt calling for 17 percent interest. It is further obvious that his payments t o the Ronners were made t o assuaqe his co~science, and ~ r h a p s t o amid any later claims against him. It does not amear that the deduction of "points" from the principal occurred t o 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 t o be guided through the morass of usury laws by him i n drawing the instmmmts t o carry out the transaction. Moreover, intent is a necessary part of usurious transaction. There must exist an intent that the lender is t o take m o r e 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 i n computing interest or service charges w i l l not affect a loan with u s w 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 t o enforce the usury p a l t i e s where the underlying ins-nts were drawn up by an attomey representing both parties and. where it is obvious that the attomey failed t o comprehend the legal consequences ad~rantageous t o one party and disadvantageous t o the other of the persons that he represented. \& therefore hold under principles of equity that the penalties applying t o usury should not be imposed in this instance. The District Court relied in large part upon the subsequent letter w r i t t e n by Ronners' later counsel, making demands which i n themselves may have given r i s e t o 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 S o . 2 d 254. We note that i n Holt v . Rickett (Ga. App. 1977), 238 S . E . 2 d 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 i n 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 m u n t required of the promissory note i n the Light of the circumstances here. Neither party should benefit from the legal misapprehension of their c o m n 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 i n foreclosure. The indebtedness of Hanson shall be calculated on the amount actually received b y her frm the Pmnners, $24,187.50, with interest calculated at the rate of 6 percent per m u m . 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 c o m n lawyer. Since the promissory note provides for attorneys fees, each party, b y reciprocity, shall be entitled to recover attorneys fees i n this cause for whatever purposes qemrane to the dispute each party had to utilize counsel. Affirmed i n 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.