Opinion
As Modified on Denial of Rehearing March 16, 1929
Hearing Granted by Supreme Court April 15, 1929
Appeals from Superior Court, Alameda County; J.D. Murphey, Judge.
Separate actions by George E. Duke and wife against Irving S. Levy and others. From the judgments, plaintiffs separately appeal. Affirmed in each case. COUNSEL
G.E. Duke, of Oakland, in pro. per.
Owen D. Richardson, of San Jose, for respondents Levy, Meyerfeld, Shaw, Federal Finance Co., and San Jose Abstract & Title Co.
OPINION
WARD, Justice pro tem.
The three cases involved herein were brought by G.E. Duke, as plaintiff, his wife, Margaret, joining as plaintiff in two of them, in which promissory notes were actually given by herself and husband, and executed by them jointly, the relief in all three cases being to adjudge certain promissory notes and trust deeds securing them void for usury, and general relief. The numbers of the cases in the lower court in which Duke and his wife were the actual makers of the notes involved were respectively 87,869 and 87,871, that in which third parties made the notes was numbered 87,870. Those numbers will be used for convenience herein. There were also three separate appeals taken from orders made subsequent to judgment, but these have been dismissed by stipulation, and need not be here considered. It is stipulated that the defendant Irving S. Levy is the real party in interest; that defendants Meyerfeld, Shaw, and Federal Finance Company are assignees without consideration and for collection; that the defendant San Jose Abstract & Title Company is merely the trustee in the several deeds of trust; that defendants Pitman and Saleneek were not served with process and did not appear.
Appellants contend that, because they received $2,000 and gave a note and trust deed for $2,500 (case 87,869), and received $3,500 and gave a note and trust deed for $5,000 (case 87,871), that they had "paid" in each case respectively $500 and $1,500, and therefore were entitled to have the sums trebled in the account stated by the court. The contention is also made that, because of the usurious exaction of these sums which they did not receive, the transaction should be declared void.
The latter contention will be discussed first. Whenever a legal and illegal transaction are combined, but are severable without confusion, the legal transaction may be upheld. The respective loans made in cash of $2,000 and $3,500 are easily ascertainable; they were legal loans of actual money and are recoverable as such. 2 Kent’s Commentaries, 467. That portion of the loan (in these several notes) above the amount of cash actually received by appellants, together with the rate of interest of 12 per cent., is illegal and void, as being in excess of the rate allowed by the Usury Act (St.1919, p. lxxxiii). A note given is not a payment of a debt; it is merely evidence of a debt, and this evidence may be rebutted in an equity action by proof of total failure of consideration. In that kind of an action, the excess over actual amounts received would be voidable. Considering these excess amounts, therefore, in this light, aside from the Usury Law, it would appear that they were only evidence of debt susceptible of refutation, and concerning only the immediate principals; the makers parting with nothing tangible, nothing with life and vitality, should the makers themselves attack them. It remained merely with the makers to attack the excess over amounts actually received, independent of the Usury Act.
Viewed from the standpoint of the Usury Act, these excess amounts of $500 in the one case, and $1,500 in the other, may not be considered as amounts "paid" for interest, because, in point of fact, they were never paid, and were always under the control of plaintiffs as to repudiation for lack of consideration. The case of Haines et al. v. Commercial Mortgage Co., 200 Cal. 609, 254 P. 956, 255 P. 805, 53 A.L.R. 725, is the last word upon the subject by our courts and is determinative of the issues and contentions noted above in this: "Even a casual reading of the statute itself shows that the legislative intent was not to declare the whole contract void, but only the portion thereof relating to interest. *** The contention that the principal debt is forfeited is wholly inconsistent with merely deferring the collection of the debt. *** No authority has been cited and none can be found holding the principal debt forfeited under such provision of a statute." In that case the note involved provided for a stipulated sum to be paid monthly, and segregated as to principal and interest. An item had been included in the principal sum of the note, and was in reality a bonus and usurious. The lower court trebled this in its account stated, but the court on appeal said: "The item of $1,020 simply becomes surplusage, and not only cannot be collected, but cannot be the basis of apportionment for either principal or interest, and the payments on account of principal will serve to reduce the net principal, and will not be construed as a payment of said charge of $1,020, either in whole or in part. To authorize the infliction of the penalty the interest must, of course, be paid." Coulter v. Collins, 71 Cal.App. 381, 235 P. 465, cited.
This disposes of the contentions in actions 87,869 and 87,871.
Case numbered 87,870 in the superior court shows that the plaintiff Duke borrowed $10,000 from certain of the defendants, as the second amended complaint avers; that he gave as security for the payment thereof a $10,000 note and a deed of trust upon Merced county property from the Pitman defendants, but running directly to defendant Meyerfeld, and not to himself, together with a trust deed and note for $8,500 from the defendant Saleneek, running not to himself, but to defendant Meyerfeld. Both of these notes bore 7 per cent. interest and no more.
The defendants Pitman, who were not served or brought into court at all, paid to the plaintiff as interest $358.25, and plaintiff, in turn, transmitted it to the lender. In this action plaintiff asks that this $358.25 be trebled, and the trial court properly refused either to allow or to treble it, upon the ground that plaintiff was a mere transmitter, and had not himself paid the money out of his own funds. This is a correct view. A transmitter is not permitted to obtain a refund as illegal interest, or to treble such interest. An action such as this will only lie on behalf of the actual payee.
It is to be noted from the second amended complaint that each of these two notes of $10,000 and $8,500, respectively, bore 7 per cent. interest, and that "as security for the payment of the said principal sum of $10,000 and interest specified and mentioned in the first promissory note executed" that Duke caused a deed of trust to be made by the Pitmans to the defendant Meyerfeld. Further on plaintiff alleged in his complaint "that, as security for the payment of the said principal sum of $10,000 and interest specified and mentioned in the promissory note" of the Pitmans, Duke caused a deed of trust to be made by defendant Saleneek. It appears from these allegations that the delivery of the two notes and the two deeds of trust was merely as security for the payment of the original $10,000 note and its 7 per cent. interest. After these allegations there is found another of a contradictory nature, to wit: "The difference between the said sum of $10,000 so received by plaintiff as aforesaid and the aggregate sum of $18,500 represented by the two promissory notes and two deeds of trust hereinafter alleged, to wit, the sum of $8,500, represents, was, and is a value and sum taken and charged by said defendants, and each of them, for the said loan of $10,000 made to plaintiff as hereinbefore alleged, in exclusion of the interest mentioned in said promissory notes, contrary to the p provisions *** of *** the Usury Law." Thereupon plaintiff asked that this $8,500 be trebled.
There is some evidence that plaintiff Duke was to split this $8,500, and receive $4,250 as his part of a bonus. However, the complaint is entirely silent as to any $4,250 portion of said $8,500 note and deed of trust being assigned or given as a bonus, and no further amendment of the complaint appears to have been made to make it conform to the evidence. The trial court confined itself in its findings to the allegations referred to herein of the second amended complaint and found "that, as security for the said principal sum of $10,000.00 and interest specified and mentioned in the first promissory note executed by the said" Pitmans, plaintiff caused a deed of trust to be made to lands in Merced county, and "that as additional security for said principal sum of $10,000 and interest specified and mentioned in said promissory note made" by said Pitmans, plaintiff caused defendant Saleneek to make a deed of trust for certain lands in Alameda county. It also made its decree that, considering both pieces as security for such principal sum and 7 per cent. interest of the first note, the Merced property be sold, and, if sufficient be not realized, that the Alameda piece be next sold. In the state of the pleadings, no other decision could have been given, as plaintiff had pleaded that the $8,500 was only "additional security, and by so alleging has foreclosed himself from afterwards claiming it as a ‘bonus.’ " However, even viewing the matter from the angle of the $4,250 of the $8,500 being a bonus, we come again to the interdiction of Haines v. Commercial Mortgage Co., supra, ruling. This $4,250 has not been paid in money. The $8,500 was only evidence of additional security. Under the ruling of the trial court that the second piece be sold to make up any deficiency after the first piece has been sold and applied to the $10,000 note, it will, we may safely say, never be paid. Plaintiff cannot, therefore, claim that it should be either allowed or trebled.
Appellants point out that these notes were given by persons other than the plaintiff, and argues that therefore they should be considered as a payment, thereby taking it out of the rule in the Haines Case. Again the complaint is antagonistic to this theory, and it was not amended to change the allegations that each of these notes was made by accommodation makers for the plaintiff; so, in fact, they had no greater significance than if he had made them himself.
It follows that the judgment of the trial court must be affirmed in each of the three cases.
In addition to the three appeals dismissed, there are three appeals pending from an order in each case vacating a stay. Whether or not plaintiff was entitled to a stay becomes immaterial, upon the affirmance of the appeal on the judgment, and hence it is unnecessary to discuss at length these appeals, except to say that, from an examination of the record and the briefs submitted thereon, the orders appealed from should be affirmed.
Judgments and orders appealed from affirmed.
We concur: TYLER, P.J.; KNIGHT, J.