Janisse v. Winston Inv. Co.

• Decision Date: 22 October 1957
• Citation: 154 Cal.App.2d 580,317 P.2d 48,67 A.L.R.2d 225
• Court: California Court of Appeals Court of Appeals
• Parties: , 67 A.L.R.2d 225 Joseph B. JANISSE and Viola Janisse, Plaintiffs and Respondents, v. WINSTON INVESTMENT COMPANY, a corporation, Adolph P. Schmidt, Walter J. Schmidt, Defendants and Appellants. Civ. 17385.

Page 48

317 P.2d 48

154 Cal.App.2d 580, 67 A.L.R.2d 225

Joseph B. JANISSE and Viola Janisse, Plaintiffs and Respondents, v. WINSTON INVESTMENT COMPANY, a corporation, Adolph P. Schmidt, Walter J. Schmidt, Defendants and Appellants.

Civ. 17385.

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

Oct. 22, 1957.

Paul G. Dobbins, San Francisco, for appellants.

Clarke Weigand, Oakland, for respondents.

PETERS, Presiding Justice.

Plaintiffs brought this action for an accounting and other relief, alleging that a promissory note signed by them was usurious. Defendants claimed to be bona fide purchasers of the note. The trial court found that the transaction was usurious and that defendants knew that it was, and entered its judgment reducing the principal of the note by the amount of the interest paid and by treble the amount of interest paid during the year preceding the filing of this action. Defendants appeal, contending that plaintiffs are estopped from urging the usury, that evidence was improperly admitted, and that the trial court erred in finding the transaction to be usurious.

ARTICLE XX, §§ 22, OF THE STATE CONSTITUTION¹, adopted in 1934, fixes the maximum rate of interest that may be charged on loans of the type here involved at 10 per cent per annum. The Usury Act (2 Deering's Gen.Laws, Act No. 3757, West's Ann.Civ.Code, § 1916-1 et seq.) in section 2, provides that if excessive interest is provided for in a transaction, the entire interest provision is void, while section 3 provides that the person paying excessive interest may recover treble the amount of the interest paid during the year preceding the filing of the action.

In the present case plaintiffs executed a promissory note to one Gudmundsen for $4,700 but received, less charges, but $3,055. The note provided for 6 per cent interest. Defendants are the assignees of the note and claimed to be bona fide purchasers of it for value. If the transaction was one in which defendants purchased, in good faith, a $4,700 note at a discount for $3,055 it would, of course, not be a usurious transaction. But if the payee was, in fact, a dummy, and if, in fact, the form of the transaction was a sham and subterfuge to cover up the fact that defendants actually loaned the money to plaintiffs, as found by the trial court, then the 'discount' was in fact interest and the transaction obviously usurious.

In determining whether the findings are supported, the usual appellate rules prevail. If there is any substantial evidence or any reasonable inference from the evidence to support the findings, the appellate court cannot substitute its judgment for that of the trial court. Brocke v. Naseath, 134 Cal.App.2d 23, 285 P.2d 291, 51 A.L.R.2d 1083; Murphy v. Ablow, 123 Cal.App.2d 853, 268 P.2d 80. It is a question of fact to whether a particular transaction is or is not usurious. Middlekauf v. Vinson, 106 Cal.App.2d 204, 234 P.2d 742. Where the form of the transaction makes it appear to be non-usurious, it is for the trier of the fact to determine whether the intent of the contracting parties was that disclosed by the form adopted, or whether such form was a mere sham and subterfuge to cover up a usurious transaction. Martyn v. Leslie, 137 Cal.App.2d 41, 290 P.2d 58; Anderson v. Lee, 103 Cal.App.2d 24, 228 P.2d 613. The trial court may look beyond the form of the transaction and ascertain its substance. Batchelor v. Mandigo, 95 Cal.App.2d 816, 213 P.2d 762.

It was found that on October 29, 1952, the defendants orally agreed to lend to the plaintiffs $3,055; that Augusta Kent, a licensed real estate broker, made the arrangements between the parties; that Mrs. Kent acted as a broker in the transaction 'for and with full knowledge and approval and consent of defendants'; that the note was made payable to one Gudmundsen and was secured by a deed of trust on the home of plaintiffs; that the note and deed of trust were dated November 7, 1952, and on that date were 'assigned' to defendants; that the note was for $4,700 payable at the rate of $47.50 a month, which payment included interest at 6 per cent; that such payments were to continue until December 15, 1957, when the total balance still owing became due and payable; that defendants paid for the 'assignment' the sum of $3,055, from which a commission of $275 was deducted and paid to Mrs. Kent; that other expenses were deducted so that plaintiffs received but $2,765.50 for their $4,700 note; that Gudmundsen was knowingly used as a dummy in the transaction 'solely for the purpose of concealing the usurious nature of the transaction' and 'in accordance with previous understanding and arrangement between defendants and Augusta T. Kent'; that defendants knew at the time 'they purported to purchase the note and at the time said note was executed that no consideration had been or would be given for said note by the said payee * * * and intended to collect usurious interest upon the loan to plaintiffs'; that up to April of 1955 plaintiffs paid to defendants $1,377, all of which should be credited to principal; that plaintiffs are entitled to other credits as provided in the statute; that the balance owing defendants is $614.12, without interest.

The court also found that when defendants purported to purchase the note they knew that no such note or deed of trust was in existence; that they knew such documents had not yet been executed and knew that Mrs. Kent would thereafter have such a note executed payable to a dummy; 'that defendants did not purchase the note * * * in good faith, but did so with full knowledge that it was executed as evidence of the agreement that they had previously made to loan plaintiffs $3055.00 in consideration of the repayment of $4700.00 and interest.'

Based on these findings the court adjudged that plaintiffs owed defendants a balance of $614.12; that such balance could be repaid at the rate of $47.50 per month, without interest; that defendants were enjoined from accelerating the note or foreclosing the deed of trust as long as the payments are made.

The evidence, and the reasonable inferences therefrom, overwhemingly support the findings. The defendants are the directors and sole owners of the Winston Investment Company, and are licensed real estate brokers engaged in the purchase of first and second deeds of trust. In 1950 or 1951 Mrs. Kent, also a real estate broker, became acquainted with defendants, and until sometime in 1954 dealt with them in the purported sale and purchase of some 24 notes and deeds of trust. Mrs. Kent subsequently was convicted of grand theft. She testified that in her dealings with defendants she did not act as their agent and did not receive any salary or commissions directly from defendants. She, in fact, received her commissions by deductions from the loans made to the borrowers. One of the defendants testified that he terminated his relationship with Mrs. Kent in 1954 because of her improper activities in connection with another loan transaction.

In October of 1952 plaintiffs, who already had a first loan on their home, desired to borrow money to enter a business deal with B. Scott Gudmundsen. The latter had heard of Mrs. Kent and of the fact that she loaned money on second mortgages, and sent plaintiffs to her. Plaintiffs told her that they wanted to borrow $3,500, with their home as security. Mrs. Kent then telephoned defendants, told them someone had been in who 'wanted a loan,' and asked defendants to come to Oakland to see the home offered as security. She told defendants that there was a first deed of trust on the property, but did not tell them that there was a second deed of trust because 'there wasn't one until we made it.' On October 28th or 29th defendants came to Oakland, met Mrs. Kent, and went with her to plaintiffs' home. Mrs. Kent introduced one of defendants to Mrs. Janisse and told her that they 'had come to see the house about the loan.' Mrs. Janisse showed them about the house. The defendant asked her all about the first loan on the property, but made no mention about, and asked no questions concerning, any second note or second lien. In response to a query from Mrs. Janisse as to whether they would get the loan, Mrs. Kent and this defendant both said that 'they thought we would.'

Mrs. Kent testified that after this visit the defendants decided 'how much they would let her have'; that she then called Mrs. Janisse and told her 'they would make the loan,' and gave her the details; that Walter Schmidt decided that the note must be for $4,700 with the actual loan around $3,000; that Gudmundsen's name was put on the note instead of Schmidt's because 'to sell the note it had to be made to a third party.' In describing defendants' methods of operation Mrs. Kent testified that defendants always 'looked at all the property before they could say how much money they could loan on it.'

The defendants denied some of the testimony of Mrs. Kent and of Mrs. Janisse, claiming that the transaction was simply one in which Mrs. Kent had a $4,700 note of plaintiffs that she wanted to sell, and that defendants bought it at a discount. The credibility of defendants and of the other witnesses was for the trial court. That court has, in effect, found that defendants did not tell the truth about the nature of the transaction. That finding is overwhelmingly supported.

The evidence shows that after defendants and Mrs. Kent left plaintiffs' house they went to the...