Bethke v. Idaho Sav. & Loan Ass'n

Decision Date11 December 1969
Docket NumberNo. 10345,10345
Citation93 Idaho 410,462 P.2d 503
PartiesLeonard L. BETHKE and Deon Bethke, Plaintiffs-Appellants, v. IDAHO SAVINGS & LOAN ASSOCIATION, a corporation, Defendant-Respondent.
CourtIdaho Supreme Court

Whittier & McDougall, and John R. Black, Pocatello, for appellants.

J. Dennis Faucher, Boise, Terrell, Green, Service & Gasser, Pocatello, for respondent.

McQUADE, Justice.

Leonard Bethke and Deon Bethke, plaintiffs-appellants, commenced this action on December 27, 1965, charging that the respondent Idaho Savings and Loan Association charged interest in excess of the then legal rate of 8% per annum 1 on a note which appellants executed in favor of respondent on February 12, 1962. The note was for a face amount of $12,000, payable over a period of 240 months by monthly installments of $92.31, the first payment to be made on or before June 15, 1962. It carried a stated interest rate of 6.9%, and the total interest charged over the twenty year term of the note was to be $10,154.40 (which, curiously enough, was $3.44 less than the amount called for by the respondent's amortization statement). In addition to this nominal interest, respondent charged the appellants $51.73 additional interest on a 'construction loan account,' and the respondent withheld $1,200 from the $12,000 of the loan as a 'service' fee. This 10% service charge was withheld prior to the performance of any services (although a number of services of a supervisory sort were, in fact, later rendered), and it was the respondent's policy to deduct such amount automatically without regard to whether services actually would be performed or not.

The trial court found, as a factual matter, that the $1,200 service fee was not actually a legitimate service fee, but was prepaid interest, because 'the same was deducted prior to and regardless of whether any services were, in fact, performed.' 2 The lower court also concluded, however, that, under the law of Idaho as announced in Eagle Rock Corp. v. Idamount Hotel Company 3 the total interest charged over the entire term of the loan was not usurious. The appellants attack this determination urging that the Eagle Rock Corp. case is distinguishable from this one, or that the formula used therein to determine the 'margin' over the nominal interest on the loan within which 'hidden' interest charges might be incurred without running afoul of the usury laws is incorrect.

On its pertinent facts, Eagle Rock Corp. v. Idamont Hotel Company is practically indistinguishable from this case. It involved a note and mortgage which provided for 120 equal payments of $653.42 per month over a ten year period. The face amount of the loan was $53,000 and the nominal interest was 8%, 2% less than 10% which was then the maximum rate of interest chargeable. The borrowers in that case actually received $51,145, however, the lenders withheld $1,855 as 'commissions and membership fees.' It was alleged that this $1,855 was an advanced interest payment and that it brought the total interest over the 10% maximum and that the loan was therefore usurious. This Court held, however, that it was not usuary. The following reasoning was used to reach that conclusion:

'The rule which this court has announced and followed with respect to the manner of determining whether usurious interest has been charged or collected is stated in Easton v. Butterfield Live Stock Co., 48 Idaho 153, 279 P. 716, as follows:

'In determining whether usurious interest has been charged or collected under a particular contract it is not permissible to consider only a portion of the term. The test is, Did the lender under his contract charge or receive a profit on his investment in excess of the maximum rate for the full period of the loan? If he has, there is usury; otherwise, not.' (See annotation of cases 82 A.L.R., page 1214.)

'* * * There appears to be no question that the interest on $53,000 payable as the note and mortgage herein provided and figured at the rate of 8 per cent per annum was correctly computed and amounted to $24,210.40 for the full term of 120 months. Under the law existing at the time the contract was made the parties might lawfully have contracted for the payment of interest not to exceed the sum of 10 per cent per annum. * * * Simple computation discloses that interest at 10 per cent rather than at 8 per cent would increase the total amount of interest for the same term by the amount of one-fourth of $24,210.40, or by $6,052.60, which latter amount may be used as a yardstick or margin to determine whether the interest was usurious or exceeded the sum of 10 per cent per annum.' 4

This, then, is the 'Eagle Rock formula'; the difference between the maximum allowable interest rate and the nominal interest rate, as a numerator, over the nominal interest rate, as the denominator, times the amount of money properly chargeable as interest over the entire term of the note, the product equaling the amount of money which could be charged as extra, 'hidden' interest without breach of the usuary law. In the present case the equation would be as follows:

                (8% - 6.9%)     1.1%  $10,154.40  =  $1,618.82
                -----------  =  ----
                   6.9%         6.9%
                

This resulting margin of additional allowable interest is substantially more than the deducted sum of $1,200 plus $51.73 which was charged over the amount of the stated interest in this case. The holding in the Eagle Rock Corp. case and the figures used by this Court in that case should therefore, control the result in this case and the lower court's judgment should be upheld. The appellants argue compellingly, however, that the 'Eagle Rock formula' is an inadequate basis for decision and offer their own formula in its stated. We disagree with that contention.

The appellants urge us to adopt a formula which is, they argue, a more accurate device for computing effective interest rates. It is, they say, the formula which is generally used in accepted accounting practice. While it is true the laws should strive for precision, the appellants' argument ignores two important considerations are the legislative purpose behind the laws of which we must be acutely aware in the performance of our function as the final interpreters of the law of this state, they which we construe and the beneficial policies underlying the doctrine of stare decisis.

Although at this date it hardly seems necessary to further elaborate on the doctrine of stare decisis, we will discuss it briefly in order that the principles which underlay our decision today may be clear. The late Professor Henry M. Hart set out a concise catalogue of the considerations which are thought to support a general practice of adherence to prior holdings:

'1 In furtherance of private ordering--

'(a) The desirability of enabling people to plan their affairs at the stage of primary private activity with the maximum attainable confidence that if they comply with the law as it has theretofore been announced, or can fairly be expected to be announced thereafter, they will not become entangled in litigation.

'(b) The desirability of providing private counsel so far as possible with stable bases of reasoning. * * *

'(c) The desirability of encouraging the remedial processes of private settlement by minimizing the incentives of the parties to try to secure from a different judge a different decision than has been given by the same or other judges in the past.

'2. In furtherance of fair and efficient adjudication--

'(a) The desirability, from the point of view of the litigants, of expediting litigation and minimizing its costs by sparing them the necessity of relitigating every relevant proposition in every case.

'(b) The need, from the point of view of the judicial system, of facilitating the dispatch of business-indeed, the sheer impossibility of reexamining de novo every relevant proposition in every case.

'(c) The need of discouraging a rush of litigation whenever there is a change of personnel on the bench.

'(d) The desirability, from the point of view of fairness to the litigants, of securing a reasonable uniformity of decision throughout the judicial system, both at any given time and from one time to another.

'(e) The desirability of promoting genuine impersonality of decision by minimizing the elements of personal discretion and of facilitating the operation of the check of professional criticism.

'(f) The propriety of according respect to the conclusions of predecessor judges.

'(g) The injustice of disappointing expectations fairly generated at the stage of primary private activity.

'3. In furtherance of public confidence in the judiciary--

'(a) The desirability of maximizing the acceptability of decisions, and the importance to this end of popular and professional confidence in (1) the impersonality of decisions and (2) their reasoned foundation, as manifested both by the respect accorded to them by successor judges and by their staying power.

'(b) The necessity, considering the amorphous nature of the limits upon judicial power and the usual absence of an effective political check at the ballot box, that judges be subject to the discipline and the restraint of an obligation to build upon the prior law in a fashion which can withstand the test of professional criticism.' 5

In the course of our decisions we have consistently attempted to serve these important purposes. 6 And, recognizing the necessity of a stable environment for private planning, we have been particularly concerned not to unsettle the law relating to matters of property and commercial transactions. Thus we said in the case of Scott v. Gossett:

'The former decision of this court, having been acted upon by the people, who have adjusted the business matters of the county, funded old indebtedness, and created new, should not be disturbed at this late day. No good would be accomplish by overruling that decision, but much evil and confusion would result therefrom. Whether that...

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