Court Opinion

ID: 9844188
Source: CourtListenerOpinion
Date Created: 2023-09-24 02:58:39.897283+00
Date Added: 2024-06-11T09:15:29.506825
License: Public Domain

McFADDEN, Chief Justice
(dissenting)-
The majority opinion equates the facts in the instant case with those in Eagle Rock Corp. v. Idamont Hotel Co., 59 Idaho 413, 85 P.2d 242 (1938), and concludes that the facts are practically indistinguishable from this case. I disagree with this conclusion.
In the instant case the trial court specifically found
“IV
“At the time the note was executed, defendant, by means of check No. 12699 made payable to plaintiff, Leonard L. Bethke, and endorsed by Leonard L. Bethke, received from the proceeds of the loan the sum of $1,200.00. This amount was designated by defendant as a service fee and was deducted from the principal amount prior to any service being performed by defendant.
“V
“The Court finds that the separate service fee would have been received by defendant association whether services had been performed or not and that this fee was a part of company policy at the time the loan was made to plaintiffs.
“VI
“Defendant, by and through its agents, did in fact make numerous inspections of the property in American Falls during *417the process of construction and did obtain seventeen lien waivers from materialmen, laborers and contractors and made disbursements of loan funds to laborers, materialmen and contractors for the benefit of plantiffs. That these inspections, obtaining lien waivers and disbursements of funds were made by the Pocatello office of defendant corporation.
“VII
“The $1,200.00 service fee was not justified as a service fee and, therefore, was additional interest.”
However, in Eagle Rock Corp. v. Idamont Hotel Co., supra, the court stated at 59 Idaho 422, 85 P.2d 245:
“It is thus urged by appellants that the sum of $1855, deductions and exactions, constitute a disguise attempted to be used to shield the transaction from usury. Of this amount $795 was charged to commissions. The court found:
“ ‘That in disbursing the funds representing the proceeds of the loan made by the mortgagee to the mortgagor, $397.50 was paid to the Eastern Idaho Loan & Trust Company as a commission, and $397.50 was paid to D. W. Stowell as a commission, and said payments were made at the request of the Hotel Company, and no portion of said sums were received by the mortgagee or any employee thereof,’
“The record does not disclose that any objection was ever made to the deduction or payment of these commissions until the time of the suit to foreclose. * * * There is nothing in the record to indicate anything other than that the commission was properly charged against appellants and credited and paid to the Eastern Idaho Loan & Trust Company and D. W. Stowell. There is evidence that the item of $1,060 was a charge made to cover a 2 per cent membership of the stock of the Mountain States Building & Loan Association, and that such was shown in the statement rendered to the Idamont Hotel Company at the time. Appellants do not urge, nor is there any evidence tending to show, that they did not receive stock in the Mountain States Building & Loan Association to the amount of the membership fee paid. On the other hand the mortgage discloses that 530 shares of stock of the Mountain States Building & Loan Association was pledged as collateral security for the mortgage. It does not appear from the record that the $1,855 were improper deductions for the purposes named nor that the amounts must be considered as additional payments of interest over and above the amount contracted for by the mortgage.” 59 Idaho at 422 — 424, 85 P.2d at 245. (Emphasis added.)
It is my conclusion that there is significant distinction between the instant case and the Eagle Rock Corp. v. Idamont Hotel Co. case in that here the trial court found $1,200 of the principal amount to be interest, whereas in the Eagle Rock Corp. case the Supreme Court determined “that the $1855 were not improper deductions * * In the Eagle Rock Corp. case the $1855 was not deducted from the base amount of $53,000.00 to determine the amount of interest that could properly be computed. Here, however, the $1,200.00 should first be deducted from the $12,000.00 face amount of the note, in order to determine the principal sum for the computation of interest, which the appellants assert to be usurious.
It is my conclusion that the method of computation employed in the Eagle Rock Corp. case is incorrect if it is to be construed as the basis to compute the allowable interest on the face amount of the loan without recognizing that withheld “service fees” may or may not properly be chargeable to the borrower. It is well settled that bonuses, commissions, or service fees paid to a lender are not to be considered as additional interest if the services performed by the lender are for the borrower’s benefit and are reasonable *418and are justified. Altherr v. Wilshire Mortgage Corp., 104 Ariz. 59, 448 P.2d 859 (1968); Peoples Nat’l Bank of Wash. v. National Bank of Commerce of Seattle, 69 Wash.2d 682, 420 P.2d 208 (1966); Charlotte Guyer & Assoc. v. Franklin Factors, 211 Cal.App.2d 690, 27 Cal.Rptr. 575 (1963); Sinclair v. Mack Trucks, Inc., 355 S.W.2d 563 (Tex.Civ.App.1962); In re Lico Mfg. Co., 201 F.Supp. 899 (D.C.Conn.1961). Where, however, a “service fee” or commission is not related to services performed, the extra charge has been considered as hidden interest. Industrial Bank of Washington, Inc. v. Page, 102 U.S.App.D.C. 33, 249 F.2d 938 (1957); Rosen v. Columbia Sav. & Loan Ass’n, 29 Misc.2d 329, 213 N.Y.S.2d 765 (1961) ; Williams v. Garrett, 208 Okl. 53, 254 P.2d 369 (1953); Smith v. Eason, 223 Ark. 747, 268 S.W.2d 389 (1954). See also D. & M. Development Co. v. Sherwood and Roberts, Inc., 93 Idaho 200, 457 P.2d 439 (1969), discussing a “committment fee.”
The law seems well established that the face amount of a loan is not to be used in computing interest on the issue of applicability of usury laws when less than the face amount was actually loaned. One of the earliest cases reaching this result ■was Smith v. Parsons, 55 Minn. 520, 57 N.W. 311 (1893), in which the lender deducted a bonus from the face amount of .a loan. In holding that the loan was usurious, the court stated that
“If [the bonus is] payable at the time of advancing the loan, it is for the purpose of determining what rate of interest the agreement reserves to the borrower; to be deducted as of that date from the amount of loan nominally agreed on, and the computation of interest made on the remainder. * * * [I]f it will result in reserving to the lender a rate greater than the rate permitted by law on the amount to be actually retained by the borrower, it is usury.” (Emphasis added.) 57 N.W. at 311-312.
As for the method of computing the maximum legal interest, the court said:
“It is a mode of computation which defendants cannot complain of, to deduct the bonuses from the principal $20,000 as of the date of November 4, 1884, and calculate the interest on the remainder, $18,500, at the rate of 10 per cent, from that date to the maturity of the notes; add the $930 to that, and to their sum add the principal retained by the borrower, $18,500, aggregating $26,553, and compare that with what by the terms of the notes and mortgage the borrower was to repay to the lender, $20,000 principal, and $7,000 interest. The usurious character of the transaction is apparent.” 57 N.W. at 312.
Similarly in Taylor v. Budd, 217 Cal. 262, 18 P.2d 333 (1933), the lender loaned $11,000 but withheld $110 interest in advance. In examining the transaction for usury the court stated:
“Second, a note must be tested for usury with reference to the actual sum given by the lender to the borrower, and not by the mere face of the note; and where, as here, the first month’s interest has been collected in advance, ‘the principal sum loaned will be held to be the amount of the loan less the interest or commission deducted in advance.’ [citing cases] Plaintiffs here received from the lender at the time of the loan $11,000, less $110, the first month’s interest, or $10,890, upon which they continually paid interest at the rate of 12 per cent, on $11,000, which was plainly usurious.” 18 P.2d at 334. (Emphasis added.)
Another case in point is Ayvas v. Green, 57 So.2d 30 (Fla. 1952), in which the lender loaned $2,700 at 6 per cent interest, but withheld certain charges which reduced the actual sum loaned to $2,285.82. In holding the loan usurious, the court pointed out that
*419“The maximum interest that could have been charged on a loan of $2,285.82 * * * at the lawful rate of 10 per cent would be $228.58 per annum, or $685.74 for the three-year period. Thus, by reserving a ‘bonus’ of $414.18 ($2700 minus $2285.82) and adding thereto interest at 6 per cent per annum for a three-year period on the principal amount of $2700, the lender has sought to ‘reserve, charge or take’ interest in the amount of $900.18, which is more than 10 per cent per annum [on $2285.82].” 57 So.2d at 33-34.
There are several other cases reaching the same result. Holcombe v. O’Sullivan, 93 A.2d 96 (D.C.Mun.App.1952) ; Mindlin v. Davis, 74 So.2d 789 (Fla. 1954) ; Castleberry v. Weil, 142 Ark. 627, 219 S.W. 739 (1920) ; Penziner v. West Am. Fin. Co., 133 Cal.App.2d 578, 24 P.2d 501 (Cal.App. 1933).
If the Eagle Rock case is considered as using the face amount of the loan (without first deducting any amount determined to be interest), it would be contrary to the rule followed in the other states. Moreover, it should again be noted that in the Eagle Rock case the court there found the controversial items did not constitute interest, thus that portion of the opinion devoted to computing the maximum legal interest would be dicta. This latter portion of the Eagle Rock case should be recognized for what it is.
I am of the opinion that this instant action should be reversed and remanded to the trial court for reconsideration by it of findings of fact, conclusions of law and decree. In particular, the findings of fact are inconsistent when the trial court recognized in Finding VI that the respondent did perform services which inured to the benefit of the appellant, but did not make any determination of the value of such services, only finding that $1200 service fee was to be considered' as “additional interest;”