Calimpco, Inc. v. Warden

• Decision Date: 15 November 1950
• Docket Number: No. 14356,14356
• Citation: 100 Cal.App.2d 429,224 P.2d 421
• Court: California Court of Appeals Court of Appeals
• Parties: CALIMPCO, Inc. et al. v. WARDEN et al.

Page 421

224 P.2d 421

100 Cal.App.2d 429

CALIMPCO, Inc. et al. v. WARDEN et al.

No. 14356.

District Court of Appeal, First District, Division 1, California.

Nov. 15, 1950.

Rehearing Denied Dec. 15, 1950.

Hearing Denied Jan. 11, 1951.

Hoffman, Davis & Martin, San Francisco, for plaintiff-appellants Calimpco, Inc., C. R. Tisher and F. H. Kappeler.

John F. O'Sullivan, Frank J. Perry, San Francisco, for defendants-appellants Frank G. Norman and F. G. Norman & Sons.

Fitzgerald, Abbott & Beardsley, Oakland, for defendants-appellants Warden Bros., Carl Warden, and remainder of defendants-appellants.

BRAY, Justice.

In an action to recover the statutory penalty for usury, tried without a jury, plaintiffs recovered judgment in specific amounts against each defendant, excepting defendants Luther Warda, Louis Mazzera, doing business as G. Mazzera Building Materials Co., and Arco Building Co. Judgment for costs against plaintiffs was given in favor of these last mentioned defendants. Plaintiffs appealed from the judgment in favor of said defendants, and also from that portion of the judgment denying plaintiffs, as against all the other defendants, the amounts sued for in excess of the amounts awarded. All these defendants appealed from the judgments awarded plaintiffs as against them, respectively. Subsequently the appeals of Frank G. Norman and F. G. Norman & Sons were dismissed.

Questions Presented.

The main question presented by the defendants' appeals is the basic one of whether the contract in dispute was usurious. In addition, certain defendants raise other questions peculiar to them which will be considered later. Plaintiffs' appeal is based on the finding that the contract was usurious, and raises the contention that the amounts awarded them because of the usury were not sufficient. Plaintiffs' appeal is on the judgment roll alone. Defendants' appeals are on the complete record. At oral argument it was stipulated that plaintiffs' appeal might be considered on the record. Inasmuch as the defendants' appeals deal with the fundamental question of usury, they will be considered first.

Facts.

This action was brought on the theory that with intent to violate the Constitution ¹ and the Usury Law of California, ² defendants, by an agreement dated September 27, 1943, demanded of plaintiffs, for forbearance of their claims, a greater value than 10% per annum, the maximum permitted by law. Taking the evidence, and the reasonable inferences therefrom, most strongly in favor of plaintiffs, as we are required to do, the facts are as here set forth.

Plaintiffs were engaged in a joint adventure constructing 153 houses in Contra Costa County as a Defense Housing Project under Title VI of the National Housing Act, 12 U.S.C.A. § 1736 et seq. The title to the property upon which the houses were constructed stood in the names of plaintiffs. All 153 lots were subject to first deeds of trust to San Jose Building & Loan Association (later known as Pioneer Investors Savings & Loan Association) in the sum of approximately $589,600 (averaging about $3,850 per house). Defendants had furnished building supplies and materials to plaintiffs and on September 27, plaintiffs owed defendants $63,420.91, for which amounts mechanics' liens were of record as liens second to the deeds of trust. Defendants also had instituted various actions for the enforcement of the liens and the recovery of the amounts due them. The market value as of this date was variously estimated from $4250 to $4750 per house. The total value of the lots and improvements (at their highest estimate) was $726,750. Deducting the $589,600 deed of trust indebtedness and the mechanics' lien indebtedness of $63,420.91, totaling $654,020.91, it appears that the equity or the amount which the plaintiffs could then expect to realize if the houses were all sold at their highest estimate would be $73,729.09. The president of Calimpco, Inc., testified that the actual cost of the land and houses was $641,000. Thus there was due against the property practically as much as it and the houses had actually cost. Of course, if the lower estimates of value are accepted, the margin between the market value and the indebtedness entirely disappears. It is evident that at this time, if plaintiffs were to come out whole on the project, it was necessary that defendants withhold foreclosure of their liens. Some of the houses were uncompleted and the amount of money in the construction loan account of the building and loan association was not sufficient either to pay the liens or to complete construction. More money was needed. (Later, $9300 was advanced by the building and loan association to complete construction.) The houses were not selling readily. Most of them were occupied by renters. The aggregate rentals approximated $90,000 per year. The annual loan payments were approximately $55,000.

In the months of August and September a creditors' committee had been formed by defendants and meetings were held with plaintiffs. There was various testimony that at one of the creditors' meetings with plaintiffs an agreement had been submitted which was supposed to be satisfactory to all concerned, when Tisher, one of the plaintiffs, refused to sign on the ground that it did not contain a release of personal liability. The plaintiffs then withdrew to another room to discuss the matter, and when they came out offered the twenty lots (and possibly the water deposit, hereinafter mentioned) as consideration for a release of personal liability. Tisher desired this because he wished to do further construction work and could not have his financial standing impaired. There was some conflict as to whether a release of personal liability had been previously discussed, or an offer of twenty lots 'bonus' made. There was testimony by Mooser, president of Calimpco, and Shaffer, secretary, that the creditors had not asked for the twenty lot bonus. There was also testimony to the effect that defendants at first refused to accept plaintiffs' proposition. Finally, however, the agreement dated September 27 was signed by all parties.

This agreement, entered into between plaintiffs as first parties, Carl Warden, S. C. Forsey and Frank Norman as second parties ³ and defendants as third parties, referred to the fact that certain difficulties had arisen regarding the finishing of certain of the houses and that third parties were creditors and lienholders. It stated that all parties desired defendants' claims to be paid in full together with interest at 4% per annum, that the equities of first parties be preserved insofar as they could be preserved without prejudice to defendants' rights, and that the houses be completed. It then provided that plaintiffs would convey to a certain title company title to all the property and a $12,000 deposit with the water company, subject to a prior assignment to the building and loan association. (This deposit was repayable without interest over a ten year period, from water payments made from time to time to the water company by householders.) The second parties were to have full power to sell or lease, or if necessary refinance all the houses on such terms as they might determine, except that the selling prices and rentals could not be less than those set forth on an annexed schedule (most of the houses $4750 or $4700, 7 houses $4500). The receipts from sales and rentals were to be used to pay the building and loan association, the expenses of the trustees, and defendants' claims plus 4% per annum; the balance, if any, then to be paid plaintiffs. Defendants agreed to release their liens and 'In addition thereto, * * * they do hereby release first parties and each of them from any personal liability or any deficiency and agree to look solely to the properties herein described for the payment of their claims.' The title company was to convey to purchasers title to the respective lots when paid for.

Now comes the portion of the agreement upon which the claim of usury is based. When all indebtedness had been paid, 'The Title Company shall thereupon reconvey said lots which are unsold to first parties as their interest may appear, save as to twenty (20) lots which are referred to in paragraph 13 hereof.

'13. As additional consideration for second and third parties entering into this agreement, first parties agree that at the termination of this agreement or when all lots have been sold save for twenty (20) lots in number, they will deed, or cause Title Company to deed, to such person, firm or corporation as may be designated by second parties, twenty (20) lots from those above described. Said twenty (20) lots shall be owned by and held for the benefit of third parties in proportion to their respective claims. No part of any selling price of said twenty (20) lots, nor of any rentals received thereon after such conveyance, shall belong to first parties, nor shall such selling price, if said lots are thereafter sold, or rentals received after such conveyance, be applicable in payment of the claims of third parties, it being understood that the entire profit or gain from said twenty (20) lots shall be the sole property of their parties.' A contemporaneous agreement was entered into by which plaintiffs agreed that in the event of bankruptcy, the release of personal liability shall become void.

Pursuant to the agreement, the plaintiffs conveyed their title to the title company and the trustees proceeded to manage the disposition of the houses. The houses were sold at prices for the most part in excess of the minimum set forth in the agreement, the deeds of trust were paid off, the expenses of the trustees paid, and on July 16, 1946, the claims of defendants were paid in full plus interest at the rate of 4% per annum.

Until nearly the end of 1944 from twenty to twenty-five houses only were sold, and of them, as to one house only did the down payment cover the difference between the...