Opinion
FRIIS-HANSE A
5-6-1959
Delbert HEALD and Clyda Belle Heald, Plaintiffs and Respondents, v. M.ndrew Friis-Hansen, Mary Friis-Hansen and Lily Friis-Hansen, individually and as co-partners doing business under the firm name and style of M. Friis-Hansen & Co., and M. Friis-Hansen & Co., Defendants and Appellants. * Civ. 6004.
Stanton M. Levy and L. Nelson Hayhurst, Fresno, for appellants. Lester N. Gonser, Fresno, for respondents.
Delbert HEALD and Clyda Belle Heald, Plaintiffs and Respondents,
v.
M. FRIIS-HANSEN, Andrew Friis-Hansen, Mary Friis-Hansen and Lily Friis-Hansen, individually and as co-partners doing business under the firm name and style of M. Friis-Hansen & Co., and M. Friis-Hansen & Co., Defendants and Appellants. *
May 6, 1959.
Hearing Granted July 1, 1959.
Stanton M. Levy and L. Nelson Hayhurst, Fresno, for appellants.
Lester N. Gonser, Fresno, for respondents.
MUSSELL, Justice.
This is an appeal by the defendants from a judgment in favor of plaintiffs in an action to recover treble the amount of interest collected by the defendants on alleged usurious transactions and to impose a trust on property conveyed to defendants by plaintiffs. Promissory Note No. 1.
On November 3, 1955, defendants loaned plaintiffs the sum of $4,819.50 and plaintiffs executed and delivered their promissory note therefor, which provided for interest at the rate of 10 per cent per annum and was secured by a deed of trust. In addition to said note plaintiffs executed and delivered to defendants a grant deed conveying to the defendants an undivided one-half interest in and to certain oil, gas and minerals in and under certain lands situate in Madera county, California. The said deed and deed of trust were recorded by the Security Title Company at Medera, California. On January 21, 1957, plaintiffs paid to defendants Friis-Hansen as interest on the above loan the sum of $568.38, in addition to the payment of the principal. The trial court found on conflicting evidence that the said grant deed was executed and delivered as a condition to the making of said loan and that the deed was executed and delivered as a bonus and additional interest for the making of said loan. The court further found that at the time of the delivery of said grant deed the one-half interest in and to the said oil, gas and minerals was and now is of a value of not less than $10, which said monetary value, coupled with the interest paid by plaintiffs to said defendants in the sum of $568.38 amounted to a charge and collection of interest in excess of 10 per cent per annum, but less than 12 per cent per annum on said loan. Promissory Note No. 2.
On March 10, 1952, defendants loaned plaintiffs the sum of $15,000, which was evidenced by a promissory note of that date. The note provided for payment of the principal sum on or before one year after date and also provided for payment of interest annually at the rate of 12 per cent, and if not so paid to become a part of the principal and thereafter bear like interest. This note was prepared by the Home Title Company pursuant to written escrow instructions signed by plaintiffs to provide therein for payment of interest at the rate of 12 per cent per annum. The note (exhibit 1c) indicates that the interest rate of 12 per cent was originally typed in the note and that subsequently the 12 per cent figure was changed to 10 per cent in writing. There is no direct testimony in the record showing when or by whom this change was made. The trial court found in this connection that the note provided for the payment of interest on the principal sum at the rate of 12 per cent per annum. The court further found that on February 15, 1957, plaintiffs paid to defendants the sum of $1,000, which was applied toward the payment of interest and that on April 1, 1957, plaintiffs paid to defendants the principal sum of said loan in the sum of $15,000 and the further sum of $8,310.25, which last mentioned sum was charged and received by the defendants as interest on said loan. The court specifically found that the payment of interest in the total sums of $1,000 and $8,310.25, to wit, the sum of $9,310.25, as charged and received by defendants from plaintiffs by reason of the loan of $15,000 exceeded 12 per cent per annum interest upon the said loan for the period of forbearance. Plaintiff Heald testified that $750 was paid on this note by check on March 21, 1952, payable to one Paul Vincent; that said sum represented the commission due Vincent on a real estate deal and that Hansen told him to pay Vincent and he (Hansen) would count it on the bonus of the note. Hansen testified that the $750 was paid as an inducement to buy a ranch; that this money was paid after the note had been executed and was in no way conditional to the making of the note; that subsequently he (Hansen) gave Heald back a check for $300 in connection with a lease on real property. There was no finding by the trial court that the $750 was given as a bonus on the $15,000 loan and it was not taken into account in the computation of interest by Hansen. Promissory Note No. 3.
On January 9, 1953, plaintiffs obtained a further loan from defendants of the sum of $5,000, evidenced by promissory note executed on that date, payable on or before March 10, 1954, and as originally prepared, provided for interest at the rate of 12 per cent per annum and if not paid to be added to the principal and thereafter to bear like interest. This note also appears to have been altered in changing the rate of interest to 10 per cent. On April 1, 1957, plaintiffs paid to defendants the principal sum of said loan in the amount of $5,000 and also paid the sum of $2,494.38, which was charged and received by defendants as interest on said loan. The court specifically found that this payment of interest exceeded 10 per cent interest upon the loan of $5,000 for the period of forbearance but did not exceed 12 per cent. Promissory Note No. 4.
On June 19, 1953, plaintiffs obtained a further loan from defendants in the principal sum of $5,000. This loan was likewise evidenced by a promissory note. However, the note was for the principal sum of $7,000. It was payable on or before one year after date and provided for the payment of interest at the rate of 12 per cent per annum. (This figure was also changed to 10 per cent in writing, written in above the figure 12.) The note provided that should interest not be so paid it would be added to and become a part of the principal and thereafter to bear like interest. On April 1, 1957, plaintiffs paid the principal sum of this note and also paid the sum of $2,180.88, which was charged and received by defendants as interest upon said loan of $5,000. In this connection the court specifically found that the payment of the said sum of $2,180.88 exceeded 10 per cent per annum interest upon said loan for the period of forbearance, but did not exceed 12 per cent.
The record shows that plaintiffs received $5,000 on this loan and the note called for the payment of $7,000 principal. In this connection both plaintiff Heald and defendant M. Friis-Hansen testified that there was interest due to said defendants at that time. Heald testified that about that time he owed about $1,800 interest and that he wanted to bring the interest up to date; that Hansen would not agree to accept the interest and kept the note; that he did not receive credit for the $2,000 on interest or principal on any of his preceding notes. Hansen testified that he had an understanding with Heald that they were going to figure up the interest and that they felt it would amount to approximately $2,000; that it was never 'figured out' because they were going to make an oil deal and the 'interests were not to be collected by us, they were going to be converted into oil rights he had in Oklahoma'.
The trial court concluded that each of the loans were usurious from their inception; that the loan of $15,000 is violative of Deering's General Laws, Act 3757, West's Ann.Civ.Code, §§ 1916-1 to 1916-5, and that interest paid thereon should be trebled; that plaintiffs were entitled to have the one-half interest in the oil, gas and mineral rights reconveyed to them. Judgment was entered in favor of plaintiffs and defendants appeal therefrom, claiming that the notes were not usurious.
California Constitution, Article 20, section 22, provides in part that: 'The rate of interest upon the loan or forbearance of any money, goods or things in action, or on accounts after demand or judgment rendered in any court of the State, shall be 7 percent per annum but it shall be competent for the parties to any loan or forbearance of any money, goods or things in action to contract in writing for a rate of interest not exceeding 10 percent per annum. 'No person, association, copartnership or corporation shall by charging any fee, bonus, commission, discount or other compensation receive from a borrower more than 10 percent per annum upon any loan or forbearance of any money, goods or things in action.'
Civil Code, section 1916-2, provides as follows: 'No person, company, association or corporation shall directly or indirectly take or receive in money, goods or things in action, or in any other manner whatsoever, any greater sum or any greater value for the loan or forbearance of money, goods or things in action than at the rate of twelve dollars upon one hundred dollars for one year; and in the computation of interest upon any bond note, or other instrument or agreement, interest shall not be compounded, nor shall the interest thereon be construed to bear interest unless an agreement to that effect is clearly expressed in writing and signed by the party to be charged therewith. Any agreement or contract of any nature in conflict with the provisions of this section shall be null and void as to any agreement or stipulation therein contained to pay interest and no action at law to recover interest in any sum shall be maintained and the debt cannot be declared due until the full period of time it was contracted for has elapsed.'
The adoption of the constitutional amendment in 1934 did not repeal all of the provisions of the usury law above quoted and its provisions, including the penalties are still in effect where not inconsistent with the constitutional amendment. Brown v. Cardoza, 67 Cal.App.2d 187, 191, 153 P.2d 767. And in French v. Mortgage Guarantee Co., 16 Cal.2d 26, 34, 104 P.2d 655, 130 A.L.R. 67, it is held that no change in the usury law other than a reduction of the maximum rate of interest which a lender may receive for a loan or forbearance of money was thereby effected.
In Haines v. Commercial Mortgage Co., 200 Cal. 609, 615-616, 254 P. 956, 958, 255 P. 805, 53 A.L.R. 725 the court said: 'If there is anything that is made clear and plain by the act, it is that the maximum rate of twelve per cent per annum on the amount loaned is the full measure of all profit to the lender in connection therewith and this, too, without even the right in such case to compound the interest in any computation thereon. Of course, it is competent for the parties to contract in writing for compound interest where in so doing the said maximum rate of 12 per cent without such compounding would not be exceeded.'
In Sharp v. Mortgage Security Corp., 215 Cal. 287, 290-291, 9 P.2d 819, 820, it is said: 'It is also elementary that the contract must in its inception require a payment of usury or it will not be held a violation of the statute and it may not be judged after some default of the borrower, which default alone authorizes penalties or forfeitures which, if exacted in the beginning, would have been a violation of the statute. (Citations.)' 'The cases above cited are also authority for the proposition that a debtor cannot bring his creditor to the penalties of the usury law by his voluntary default in respect to the obligation involved, where no violation of law is present at the inception of the contract.'
In Brocke v. Naseath, 134 Cal.App.2d 23, 25, 285 P.2d 291, 51 A.L.R.2d 1083, it is held that under the Usury Act the recovery to which a borrower-plaintiff is entitled is an amount equal to three times the amount by which the sum actually collected exceeds the loan actually made; that the act disallows the lender any amount over and above the loan made and fees properly charged, and hence when he collects a further sum, he is liable in treble the amount thereof notwithstanding his forbearance beyond the maturity date of the note.
In Weiss v. Brandt, 137 Cal.App.2d 710, 719, 290 P.2d 626, it is held that until a debtor has made payments of interest in excess of that permitted by the usury statute he cannot maintain an action against a creditor under that statute.
In Pacific Finance Corp. v. Crane, 131 Cal.App.2d 399, 406, 280 P.2d 502, it appeared that an error was made in drawing the note involved and that the error was corrected before the trust deed was recorded and before any interest was due or paid. We there held that under Article 20, section 22, of the Constitution a bonus is not illegal unless it results in exacting more than 10 per cent interest from the borrower; that if all payments had been made on the note as corrected, as they became due, the legal limit of 10 per cent interest would not have been exceeded; and that the contract did not on its face all for usurious interest.
From an examination of the loans involved it appears that interest on each of them was calculated, collected and received on the basis of 10 per cent per annum. Notes two, three and four also provided for compound interest at the same rate. Promissory note number one is not made a part of the record herein and we are not able to determine its due date. However, it is agreed by the parties that plaintiffs paid $568.38 interest on this loan on January 21, 1957, calculated at an interest rate of 10 per cent per annum. However, there is substantial evidence to support the finding of the trial court that the grant deed of the one-half interest in said oil, gas and mineral rights was executed and delivered as a condition to the making of said loan and that said rights were of a value of not less than $10. It appears, therefore, that interest was charged in excess of the 10 per cent permitted by the Constitution, Article 20, section 22, and that the trial court was correct in awarding plaintiffs the interest collected on this loan in the sum of $568.38.
Note number two, dated March 10, 1952, for $15,000 was payable one year from date and the interest thereon for that year was charged, calculated and received by defendants at the rate of 10 per cent per annum. This charge was not in violation of the constitutional provision and was permissible. If plaintiffs had paid the note when due, the legal rate of interest thereon would not have been exceeded. When plaintiffs paid the note on April 1, 1957, the interest had been compounded at the rate of 10 per cent each year on the balance due. This was permissible under the statute since interest charged and collected did not exceed 10 per cent in any one year. It is true that at the time the note was finally paid interest on the principal of $15,000 amounted to more than 10 per cent per annum. However, the constitutional provision was not thereby violated. It follows that the court erred in awarding plaintiffs treble the sum of $9,310.25 interest paid on said note.
Note number three, dated January 9, 1953, and payable on or before March 10, 1954, was for a period of one year and approximately two months. The record shows that interest on this note was charged and received at the rate of 10 per cent for the first year in the sum of $500 and on January 9, 1954, this $500 was added to the principal and interest charged thereon at the rate of 10 per cent before the due date of the note. This amounted to a charge of interest in excess of 10 per cent for the full term of the loan and the transaction was usurious.
As was said in Sharp v. Mortgage Security Corp., supra, 215 Cal. 287, 290, 9 P.2d 819, 820: 'The case of Easton v. Butterfield Live Stock Co., 48 Idaho 153, 279 P. 716, 718, is an instructive case citing a great many authorities, and the rule is there stated 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.''
We conclude that the trial court was correct in awarding plaintiffs the sum of $2,494.38 collected as interest on note number three.
Note number four. This note, dated June 19, 1953, for $7,000 was payable one year from that date and the interest charged and collected by defendants thereon for that year was at the rate of 10 per cent per annum, which was not in violation of the constitutional provision. Interest after the first year was charged at the rate of 10 per cent, compounded annually. While the note was for $7,000, defendants charged and collected on the principal sum of $5,000, which was the amount loaned to the plaintiffs. The award to plaintiffs of the sum of $2,180.80 interest on this note was likewise error.
The trial court gave judgment to plaintiffs for the sum of $33,192.39, plus interest at 7 per cent, and costs. This judgment was based on the sum of interest paid on note number one, three times the interest paid on note number two, and the interest paid on notes three and four. Since we concluded that plaintiffs were entitled to recover the sum of $568.38 on note number one, no interest on note number two, $2,494.35 interest on note number three, and no interest on note number four, or a total of $3,062.73, the judgment is modified by reducing the amount thereof to the sum of $3,062.73. As so modified the judgment is affirmed. Each party to pay his own costs.
GRIFFIN, P. J., and SHEPARD, J., concur. --------------- * Opinion vacated 345 P.2d 457.