Opinion
G055128
07-23-2018
HOWARD C. WIMER, Plaintiff and Appellant, v. LEO L. BESERRA, Defendant and Respondent. LEO L. BESERRA, Plaintiff and Respondent, v. HOWARD C. WIMER, Defendant and Appellant.
Berokim & Duel and Kousha Berokim for Plaintiff, Defendant and Appellant Howard C. Wimer. Robert J. Krup for Plaintiff, Defendant and Respondent Leo L. Beserra.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2015-00785037 ) OPINION (Super. Ct. No. 30-2015-00786984) Appeal from a judgment of the Superior Court of Orange County, David R. Chaffee, Judge. Affirmed. Berokim & Duel and Kousha Berokim for Plaintiff, Defendant and Appellant Howard C. Wimer. Robert J. Krup for Plaintiff, Defendant and Respondent Leo L. Beserra.
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In 2007, Howard C. Wimer, borrowed $100,000 from Leo L. Beserra. Wimer drafted the promissory note and agreed to pay 12 percent interest on the loan. In 2015, Wimer sought declaratory relief against Beserra and asked the court to declare the promissory note void due to the usurious interest rate. Beserra filed a complaint for breach and reformation of the promissory note. The court reformed the contract to revise the interest rate on the loan to 10 percent, awarded a money judgment to Beserra for the balance owing under the reformed note, and awarded him attorney fees. Wimer seeks to vacate the judgment and requests a new trial. We affirm the judgment.
FACTS
At the outset, we note that our ability to ascertain the facts is limited because there is no reporter's transcript on appeal.
On January 2, 2007, Wimer borrowed $100,000 from Beserra. The loan was evidenced by a written promissory note drafted by Wimer (the Note). The Note included a 12 percent annual interest rate and provided that all monthly payments would be applied to interest with the principal paid as a balloon payment at the end of three years. At the end of the three-year period, the parties could choose to renew the Note.
The Note also included a provision stating that the Note would be "governed and enforced in accordance with the laws of the State of California." Wimer signed the Note in California and sent it to Beserra in Colorado where he signed and accepted the Note. At the time the Note was executed, both parties believed that the 12 percent interest rate was legal and did not know that it was usurious under California law.
In 2014, Wimer (and his wife), and Beserra (and his brother) exchanged a series of e-mails about the Note and the 12 percent interest rate. Wimer and his wife attempted to renegotiate the 12 percent interest rate and claimed it was usurious. In a letter to Wimer and his wife, Beserra stated, "[P]lease be advised that I have not agreed to modify the existing 07 contract in which I loaned [Wimer] $100,000.00 at the annual interest rate of 12%, the legally applicable consumer rate in Colorado where we entered into the contract."
In April 2015, Wimer filed a complaint against Beserra and alleged causes of action for usury, cancellation of the Note, cancellation of a life insurance policy assigned to Beserra as security, and declaratory relief. Among other things, Wimer asked the court to declare the Note void because of the usurious interest rate and that the payments made by Wimer should be credited to the principal amount of the loan. Beserra filed a separate complaint against Wimer on May 12, 2015 and an amended complaint on August 10, 2016. Beserra alleged causes of action for breach of contract and reformation of the Note to provide for the application of Colorado usury laws.
We presume Wimer's request to declare the Note "void" was not intended to request a declaration that the original principal amount of the loan be forgiven. Otherwise there would be no need to request that payments made be credited to the principal amount of the loan.
The court consolidated the two actions and conducted a bench trial. The court's March 29, 2017 statement of decision provides in relevant part that: (1) The parties agreed California law applies to the Note; (2) Wimer drafted the Note; (3) Wimer volunteered to pay 12 percent interest; (4) Beserra accepted the 12 percent interest; (5) Beserra did not know the 12 percent interest rate was usurious under California law; (6) Neither Wimer nor Beserra intended to violate California usury law; (7) The parties intended the Note to be a legal transaction; (8) The parties were mutually mistaken that the 12 percent interest rate was legal; and (9) Both parties intended to comply with the usury statutes.
Based on the above findings, the court reformed the Note to provide for a 10 percent interest rate and entered judgment in favor of Beserra for the balance due under the reformed Note. The court also found in favor of Beserra on Wimer's complaint.
DISCUSSION
Portions of the following discussion will appear to replicate statements made in the court's statement of decision, in Beserra's trial brief, and in Beserra's respondent's brief on appeal. This is because these statements exactly replicate, without attribution, language of a six-year old unpublished opinion, which I also authored, raising substantially similar issues under circumstances similar to this case. Our use of the same language here does not reflect a plagiarism of the court's rationale or Beserra's brief. Rather it reflects a belief in the correctness of the author's rationale in a previous case.
Wimer argues the court erred in reforming the Note because Beserra intended to receive usurious interest. The California Constitution, article XV, section 1, permits parties to contract in writing for a loan or forbearance of money "for use primarily for personal, family, or household purposes, at a rate not exceeding 10 percent per annum." "'[T]he intent sufficient to support the judgment [of usury] does not require a conscious attempt, with knowledge of the law, to evade it. The conscious and voluntary taking of more than the legal rate of interest constitutes usury and the only intent necessary on the part of the lender is to take the amount of interest which he receives; if that amount is more than the law allows, the offense is complete.'" (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 798.)
But courts have struggled with the potential conflict between the usury law and the legal maxim that no person should take advantage of his or her own wrong. (Buck v. Dahlgren (1972) 23 Cal.App.3d 779, 787-788.) In Buck, for example, a fraudulent borrower was estopped from recovering the usurious interest he had paid. (Id. at p. 788.)
"Trial courts have broad equitable power to fashion any appropriate remedies." (Shapiro v. Sutherland (1998) 64 Cal.App.4th 1534, 1552.) "Equitable relief is by its nature flexible" (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 390) and "does not wait upon precedent which exactly squares with the facts in controversy" (Times-Mirror Co. v. Superior Court (1935) 3 Cal.2d 309, 331).
Here, the court exercised its equitable power under Civil Code section 3399 to reform the Note to provide for interest at the legal rate of 10 percent per year. Section 3399 provides: "When, through fraud or a mutual mistake of the parties, or a mistake of one party, which the other at the time knew or suspected, a written contract does not truly express the intention of the parties, it may be revised on the application of a party aggrieved, so as to express that intention, so far as it can be done without prejudice to rights acquired by third persons, in good faith and for value."
All statutory references are to the Civil Code. --------
A "[m]istake of law constitutes a mistake . . . only when it arises from: [¶] 1. A misapprehension of the law by all parties, all supposing that they knew and understood it, and all making substantially the same mistake as to the law; or, [¶] 2. A misapprehension of the law by one party, of which the others are aware at the time of contracting, but which they do not rectify." (§ 1578.)
Three other statutes, contained in the article of the Civil Code that includes section 3399, guide our analysis. "For the purpose of revising a contract, it must be presumed that all the parties thereto intended to make an equitable and conscientious agreement." (§ 3400.) "In revising a written instrument, the Court may inquire what the instrument was intended to mean, and what were intended to be its legal consequences, and is not confined to the inquiry what the language of the instrument was intended to be." (§ 3401.) "A contract may be first revised and then specifically enforced." (§ 3402.)
The "remedy of reformation is equitable in nature and not restricted to the exact situations stated in section 3399." (Jones v. First American Title Ins. Co. (2003) 107 Cal.App.4th 381, 388.) "Each case must be judged on its own facts." (Id. at p. 389.) Reformation has a "broad reach" (id. at p. 388), and its essential purpose "is to reflect the intent of the parties" (id. at p. 389).
The "intention of the parties is a factual matter to be determined by the trial court, and our review of the judgment is limited to the question [of] whether it is supported by substantial evidence." (Campbell v. Republic Indemnity Co. (1957) 149 Cal.App.2d 476, 480.) A trial court's ruling on a claim for reformation of contract is reviewed for an abuse of discretion. (Jones v. First American Title Ins. Co., supra, 107 Cal.App.4th at p. 390.)
The court found the 12 percent interest rate in the Note resulted from the parties' mutual mistake. Because there is no reporter's transcript on appeal, we presume the court's findings are supported by the evidence. (In re Estate of Fain (1999) 75 Cal.App.4th 973, 992.) Thus, we conclude substantial evidence supports the court's findings. Wimer drafted the Note and volunteered to pay 12 percent interest. Beserra accepted the 12 percent interest. At that time, neither party knew that a 12 percent interest rate was usurious. Indeed, in a December 2014 letter to Wimer and his wife, Beserra stated his belief that the 12 percent interest rate was legal in Colorado, which he mistakenly believed was the applicable law. Wimer also made payments on the Note for several years and did not try to renegotiate its terms to reflect a lower interest rate until 2014. The court concluded both parties intended that the Note would constitute a legal transaction and were mutually mistaken that the 12 percent interest rate was legal.
But Wimer argues that because the parties agreed to the 12 percent interest rate, reformation is not available to change their agreement. He posits: "Reformation is very limited and specific. For example, if a lender did not intend to receive as much interest as is provided in the note or agreement, and the provision that created the excessive interest was the result of a draftsman's error, an oversight, or a miscalculation, the lender will not be held liable for usury." Relying on Strauss v. Bruce (1934) 139 Cal.App. 62 (Strauss) and First American Title Ins. & Trust Co. v. Cook (1970) 12 Cal.App.3d 592 (First American), Wimer suggests that a usurious contract can be reformed only when the lender did not actually agree to the usurious interest rate. Both Strauss and First American involved usurious provisions that were inadvertently included in the contracts by third party scriveners. (Strauss, supra, 139 Cal.App. at p. 64; First American, supra, 12 Cal.App.3d at pp. 595-596.) However, Wimer cites no authority, nor has our research uncovered any, which holds that reformation is limited to circumstances wherein the lender did not intend to receive the interest offered by the borrower. Mitigating against this assertion is the adaptable nature of equitable relief. The equitable remedy of reformation has a broad reach that is flexible enough to encompass varying factual situations. (Jones, supra, 107 Cal.App.4th at p. 388.) Section 3399, by its terms, applies when "a written contract does not truly express the intention of the parties." (Italics added.) "[T]his language refers to a single intention which is entertained by both parties." (Shupe v. Nelson (1967) 254 Cal.App.2d 693, 700.)
A misunderstanding about the legal effect of a contract may constitute a mistake of law within the meaning of section 3399. (Stafford v. California C.P. Growers (1938) 11 Cal.2d 212, 219.) Section 3401 makes clear a court may inquire into the intended "legal consequences" of a contract. Under section 3400, parties are presumed to make an "equitable and conscientious agreement." We can presume, then, that both Wimer and Beserra intended the Note to bear interest. Reformation has even been granted "'to prevent the fraudulent use of a paper for a purpose not contemplated at the time it was made, . . . where there was no mistake or fraud in its execution,'" where to do otherwise "'would be to uphold and sanction fraud and bad faith.'" (Stafford, at p. 219.)
The court properly reformed the Note based on the parties' mutual mistake, which resulted in a usurious contract that did not truly express the mutual intention of the parties—i.e., their intention that the loan would indeed bear interest. Thus, we reject Wimer's contention that the equitable remedy of reformation is unavailable. The court did not abuse its discretion by reforming the Note to provide for a legal interest rate.
Because we affirm the court's resolution of the reformation issue, we need not address Wimer's argument that the court erred in concluding he is estopped from asserting usury. Wimer successfully argued the Note contained a usurious interest rate under California law. To that extent, he was not estopped. The remedy chosen by the court, however, was to reform the contract to provide a legal rate of interest, rather than to prohibit the recovery of any interest at all. That resolution also makes it unnecessary to address Wimer's argument that Beserra is subject to usury penalties because the Note did not contain a usury savings clause. The Note, as reformed, is not usurious.
Finally, to address Wimer's argument that the court erred in finding that Beserra did not have the requisite intent to violate the usury laws and that Beserra should have been subject to usury penalties, would require the review of all the evidence—a review made impossible here by the absence of a reporter's transcript. In its statement of decision, the court found that "[t]here was no direct or indirect intent by either Wimer or Beserra to violate California usury law" and that "[b]oth parties intended to comply with usury statutes." We must presume substantial evidence supports that finding. Further, trial courts have "wide discretion in determining whether treble damages under the Usury Act should be awarded" where "the borrower was the moving force in the usurious loan." (Buck, supra, 23 Cal.App.3d at p. 788.) We have no basis to infer the court abused in discretion in denying usury penalties.
DISPOSITION
The judgment is affirmed. Beserra is entitled to costs on appeal.
IKOLA, J. WE CONCUR: FYBEL, ACTING P. J. THOMPSON, J.