Opinion
As Modified on Denial of Rehearing Sept. 18, 1930
Hearing Granted by Supreme Court Oct. 16, 1930.
Appeal from Superior Court, City and County of San Francisco; Ruben S. Schmidt, Judge.
Action by Charles Martin against Mary Kuchler and others. Judgment for defendants, and plaintiff appeals.
Affirmed.
COUNSEL
Joseph A. Brown, of San Francisco, for appellant.
Arthur H. Barendt, of San Francisco, for respondents.
OPINION
BURROUGHS, Justice pro tem.
On May 24, 1924, the plaintiff borrowed of the defendant Mary Kuchler the sum of $10,000, and, as evidence thereof, executed a promissory note bearing date May 12, 1924, payable one year after date, with interest thereon at the rate of 12 per cent. per annum, said interest payable monthly in advance. The note was secured by a deed of trust. Plaintiff paid the interest in advance as provided in said note, each and every month to and including January 12, 1928. When the interest was tendered for the January-February, 1928, payment, plaintiff informed the defendant that the note was usurious, and defendant thereupon refused to receive any further interest.
The plaintiff thereupon commenced this action to have it declared that the transaction was in violation of the Usury Act (St.1919, p. lxxxiii), and that the plaintiff be permitted to offset the $10,000 note by a decree that he recover all of the interest paid by him during the first two and one-half years, amounting to the sum of $3,200; that he also recover the last year’s interest in the sum of $1,200 and treble the amount thereof as a penalty, said sum amounting to $3,600. The total sum claimed by him aggregates $6,800, and he further asks that he be released from his obligation upon paying to the defendant $3,200, and that the trust property securing the debt be then reconveyed to him. The court refused plaintiff any relief upon his claim of usury and entered judgment in favor of the defendant. Plaintiff appeals from the judgment. In addition to the foregoing facts it appears from the evidence that at the time of the execution of the note neither plaintiff nor defendant Kuchler knew that the note was usurious, nor does it appear when plaintiff ascertained that fact, but the defendant was first informed thereof by the plaintiff about the time of the tender by him of the January-February, 1928, installment of interest, and defendant then refused to accept any interest. It appears that there was never any prior dispute over the interest between the parties. Plaintiff paid it and defendant accepted it. Thereafter the defendant Mary Kuchler alleged in her answer that she had offered to accept $8,200 in full payment of the debt, and that she also had offered to execute a reconveyance and cancel the note for $10,000 and accept a new note for the same amount at 6 per cent. per annum in monthly installments of $500 each, but that plaintiff insisted that defendant cancel her claim for $10,000 upon payment to her of the sum of $3,200. The defendant also offers to do whatever the court deems to be equitable.
Was the defendant guilty of usury? The act above referred to provides that legal interest is 7 per cent. per annum and further provides: "But it shall be competent for parties to contract for the payment and receipt of a rate of interest not exceeding twelve dollars on the one hundred dollars for one year and not exceeding that rate for a greater or less sum or for a longer or shorter time, in which case such rate exceeding seven dollars on one hundred dollars shall be clearly expressed in writing. *** 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." Sections 1, 2.
It is further provided in section 3 of said act that "Every person, company, association or corporation, who for any loan or forbearance of money, goods or things in action shall have paid or delivered any greater sum or value than is allowed to be received under the preceding sections, one and two, may either in person or his or its personal representative, recover in an action at law against the person, company, association or corporation who shall have taken or received the same, or his or its personal representative, treble the amount of the money so paid or value delivered in violation of said sections, providing such action shall be brought within one year after such payment or delivery."
In construing this provision of the act it is said in Haines v. Commercial Mortgage Co., 200 Cal. 609, at page 625, 254 P. 956, 255 P. 805, 807, 53 A.L.R. 725: "This means, also, that at the maximum rate no interest may be lawfully collected in advance." In Curtis v. Thaxter, 204 Cal. 439, 268 P. 630, it is held that a note bearing interest at 12 per cent. per annum, interest payable quarterly, and if not so paid to be added to the principal and thereafter bear like interest as the principal sum, is usurious.
In the case at bar the note in question fixes the rate of interest at 12 per cent. per annum, payable monthly in advance. From the date of the execution thereof on January 12, 1924, to and including January 12, 1928, the plaintiff paid, and the defendant accepted, in advance, $100 per month. On its face the contract violates the Usury Act; however, the defendant claims that an unlawful intent is a necessary element of usury. If such intent is necessary, then there can be no question but that the Usury Law has no application here. It is earnestly contended by counsel for the defendant that there was an entire absence of intent on the part of either the plaintiff or defendant to commit usury. That all payments of interest were voluntarily made by the plaintiff, and that defendant did not "exact" payment of interest in advance. The court found that neither plaintiff nor defendant intended or believed or knew at the time the note and deed of trust were executed, nor up to about January, 1928, that said note was usurious or in violation of the Usury Act because of the insertion therein of the provision that the interest was payable monthly in advance. This finding was based upon a stipulation stated by Mr. Barendt as follows: "The issues are, an absolute want of intent on the part of Mary Kuchler, the defendant here, to exact, in any way any usury, an ignorance on her part, that there was any usury, an ignorance which we have gone so far as to allege was also entertained by the plaintiff until sometime in January of this year." (1928.) To which Mr. Brown agreed, subject to an objection as to its materiality.
Bearing in mind that this is an action in equity, the court should not reach a conclusion that the note was usurious unless compelled to by strict mandate of law. To do so would result in the plaintiff’s using a trap of his own making, to ensnare his creditor, with the result that the latter would be called upon to settle a loan of $10,000 for the sum of $3,200. The element of intent as essential to usury, so far as we have been able to find, has never been directly passed upon by the courts of this state. In 27 Ruling Case Law, § 22, p. 221, under the head of "Necessity of Intent," it is said: "It is generally agreed as a matter of principle that to constitute usury there must exist an intent to exact more than the legal maximum for the use of money." In 39 Cyc. 919, under the title of "Usury," it is said: "To constitute the offense of usury there must be an intent to do something which is in violation of the statute. In accordance with sound reason and by the clear weight of authority it is sufficient if this unlawful intent is entertained by the lender alone, against whom the usury acts are aimed, and the fact that the borrower does not know that he is paying usurious interest is immaterial."
Following the text last cited, the excerpt from Lamb et al. v. Herndon et al., 97 Cal.App. 193, 197, 275 P. 503, 505, is a concise statement of the necessity of an unlawful intent in cases of usury. "The case appears to have been tried upon the theory that under the pleadings the court had the right, not only to consider the written agreements, but also extraneous facts and circumstances, including prior negotiations, for the purpose of determining whether or not the transaction was or was not usurious. A corrupt intent is one of the necessary elements of usury (Webb on Usury, 372; Tyler on Usury, 238), and to enable it to determine whether or not the intent existed the court had the right to admit in evidence all the surrounding circumstances and especially the negotiations that preceded the transaction. For as was said by the court in the case of Douglass v. Boulevard Co. et al., 91 Conn. 601, 100 A. 1067: ‘Every circumstance surrounding or connected with the transaction is material, if in any manner it will reveal the intention of the parties.’ Lowenstein & Son v. British-American Mfg. Co. (D.C.) 300 F. 853." Other authorities hold that: "In determining whether a transaction is usurious or not, the intent with which the act is done, must be considered as an important and essential ingredient to constitute the offense." See Encyclopedia of U.S. Supreme Court Reports, Usury, vol. 11, p. 842; Bank of United States v. Waggener et al., 9 Pet., page 378, at page 399, 9 L.Ed. 163, where it is said: "*** For if neither party intend it, but act bona fide and innocently, the law will not infer a corrupt agreement." The rule has often been stated with great positiveness that equity will not relieve against a mistake of law, but such relief has nevertheless been given. 21 Cor.Jur., pp. 93 et seq.; Cooper v. Phibbs, L.R. 2 H.L. 149, 170, 22 E.R.C. 149; Webb v. Alexandria, 33 Grat. (74 Va.) 168, 176; Remington v. Higgins, 54 Cal. 620.
Appellant avers, in answer to respondents’ claim that "an unlawful intent" is a necessary ingredient of usury, that when the contract itself shows on its face its unlawful nature— as in the case at bar— that interest was collected monthly in advance, no further proof need be made. Appellant’s contention is, we think, answered by the fact that such presumption is a disputable one. Section 1963, Code Civ.Proc.
Further, it is held that all of the circumstances surrounding the transaction, as well as the written instruments themselves, are competent evidence on the question of intent. In 27 Ruling Case Law, pp. 212, 213, it is said: "On an issue of usury, where a sum of money apparently in excess of the legal rate of interest was retained by the lender, it is competent for a witness to testify that part of the money was received in payment of an independent claim, and not reserved as interest on the loan." Another reason convincing us that a corrupt intent is a necessary element of our Usury Law is that by virtue of the act itself the offenses therein denounced are made crimes punishable by fine or imprisonment or both. In view of the foregoing facts and authorities, we are of the opinion that, as the defendant had no unlawful intent to make or accept a usurious rate of interest, she cannot be subjected to the penalty provided by the statute. To give to the Usury Act the construction claimed for it by appellant would make it, in the hands of the dishonest and unscrupulous, a weapon of offense against the lender rather than one of defense for the borrower.
Appellant contends that the court erred in allowing the defendant interest on the note from January 14, 1928, the day to which interest had been paid, to June 18, 1928, the day of the judgment and until the final payment of the money at the rate of 7 per cent. per annum. This is an action in equity, and the court is vested with plenary power to adjust all of the differences of the parties arising from this action. The court having held the note to be nonusurious, the plaintiff is entitled to recover the excess paid to defendant over the maximum interest fixed by the Usury Act. This sum amounts to $70. However, the court having allowed defendant but 7 per cent. interest from January 14, 1928, to the date of judgment instead of 12 per cent. per annum, the amount so allowed is less than the amount due at 12 per cent. to which defendant is entitled. There being no appeal by the defendant, the plaintiff cannot complain because the judgment awards him a greater sum than that to which he is entitled. It being held that the Usury Act is not applicable, the other questions presented by appellant become immaterial.
The judgment is affirmed.
We concur: NOURSE, P.J.; STURTEVANT, J.