Stephans v. Herman

• Court: California Court of Appeals
• Writing for the Court: DRAPER
• Citation: Stephans v. Herman, 37 Cal.Rptr. 746, 225 Cal.App.2d 671 (Cal. App. 1964)
• Decision Date: 18 March 1964
• Parties: Talmach STEPHANS and Agatha Stephans, Plaintiffs and Respondents, v. Ralph F. HERMAN and Cora Belle Herman, Defendants, Cross-Defendants and Appellants, and Title Insurance and Trust Company, etc., Defendant, Cross-Complainant and Appellant. Civ. 21302.

Page 746

37 Cal.Rptr. 746

225 Cal.App.2d 671

Talmach STEPHANS and Agatha Stephans, Plaintiffs and Respondents, v. Ralph F. HERMAN and Cora Belle Herman, Defendants, Cross-Defendants and Appellants and Title Insurance and Trust Company, etc., Defendant, Cross-Complainant and Appellant.

Civ. 21302.

District Court of Appeal, First District, Division 3, California.

March 18, 1964.

Rehearing Denied April 17, 1964.

Hearing Denied May 13, 1964.

Paul G. Dobbins, San Francisco, for Ralph F. Herman and Cora Belle herman.

Landels, Ripley, Gregory & Diamond, San Francisco, for Title Insurance and Trust Co.

Kenneth L. Johnson, Everett H. Roan, San Francisco, for respondents Stephans.

DRAPER, Presiding Justice.

Plaintiffs loaned defendants Herman $9,000, and took back a promissory note, payable 90 days thereafter, for $11,500. The note was secured by four lots conveyed by deed of trust to defendant title company, as trustee. Two lots were sold under a prior deed of trust, and are not here in issue. The real estate broker who handled the transaction was in prison at time of trial. She and Mrs. Herman prepared a request for partial reconveyance. Bearing the forged signatures of plaintiffs, this request and a forged note were presented to the title company, which reconveyed lots 8 and 9 to the Hermans some 60 days after date of the note. The Hermans sold lot 8. Lot 9 was later sold under deed of trust securing a prior lien. Plaintiff learned of these events in July 1960, and filed this action on the note and for loss of security September 21, 1960.

At trial, plaintiffs waived their claim for the 'bonus' of $2500. They had judgment against the Hermans and the title company, jointly and severally, for $9,000, with interest at 10% from date of the note, plus $2500 attorney's fees. Title company, on its cross-complaint, was awarded a like amount against the Hermans. All defendants appeal.

The award of interest is erroneous. The 'bonus' of $2500 is conceded to be usurious. Thus plaintiffs could not claim or collect interest in any amount (Williams v. Reed, 48 Cal.2d 57, 68, 307 P.2d 353). Moreover, the note makes no provision for interest. Plaintiffs argue that the fraud of the Hermans warrants the award. But plaintiffs have shown no damage save loss of the security for their usurious note. Although the chicanery of the Hermans may well deserve punishment, to award interest as a punitive measure is but to compound the usurious act of plaintiffs.

The claim against the Hermans rests ultimately upon the note, and the fraudulent dissipation of the security is but incidental thereto. The claim against the title company was based wholly upon its negligence in permitting the fraudulent dissipation of the security. These separate theories of recovery are clearly conceded by plaintiffs' pleadings. Thus the joint and several judgment is erroneous.

Although the title company is liable only for the loss of security, we do not accept its contention that plaintiffs must exhaust every means of realizing upon their judgment against the Hermans before resorting to that against the title company. The decision relied upon by the company (Jeanese, Inc. v. Surety Title & Gty. Co., 176 Cal.App.2d 449, 1 Cal.Rptr. 752, 90 A.L.R.2d 495) does not sustain this argument. Save for the negligent reconveyance by the company, plaintiffs would have immediate recourse to lots 8 and 9 as security, and normally would be not only entitled, but required, to proceed first against that security (Roseleaf Corp. v. Chierighino, 59 Cal.2d 35, 38-39, 27 Cal.Rptr. 873, 378 P.2d 97). We find no reason to hold that the company's negligence compels plaintiff now to exhaust the general assets of the debtors, or to prove uncollectibility of the note, before resorting to the company liability which substitutes for the security.

The measure of damages for loss of security, properly resorted to by the trial court, is the fair market value of lots 8 and 9 as of the date of conversion, less prior liens and taxes, not, however, to exceed the amount due on the note. The trial court found the net security value to be $15,292.70. But it placed the fair market value at $25,000 for Lot 8 and $27,500 for Lot 9. The only expert evidence of value placed the figures at $22,000 and $20,000. The only evidence of higher value is found in the representations made by the somewhat discredited...