Stickel v. Harris

Decision Date24 November 1987
Citation196 Cal.App.3d 575,242 Cal.Rptr. 88
CourtCalifornia Court of Appeals Court of Appeals
PartiesNancy STICKEL, Plaintiff and Respondent, v. Joseph M. HARRIS et al., Defendants and Appellants. A035933.
Wayne L. Bender, L. Joanne Sakai, Rosenblum, Parish & Bacigalupi, San Francisco, for defendants and appellants

Wayne H. Thomas, Palo Alto, for plaintiff and respondent.

POCHE, Associate Justice.

The issue presented is whether a loan bearing a 30 percent annual rate of interest obtained by a licensed real estate broker on behalf of himself and certain fellow partners and joint venturers is exempt from the interest limitations of the usury law.


In December of 1980 Nancy Stickel was approached by Robert Butticci, a licensed real estate broker, with a short-term investment proposal. Butticci told Stickel that he and his partners Joseph Atencio and Joseph Harris wanted her to invest in a joint venture project involving the purchase of real estate on Corbett Avenue upon which condominiums would be constructed. 1 As an inducement Butticci offered to pay first 25 percent and then 30 percent interest on any amount loaned, assuring Stickel that neither rate of return was usurious. Stickel eventually provided Butticci and Atencio with $74,000 for the project. The rate of interest was set at 30 percent for the duration of the loan, which was to be repaid by April 15, 1981. The loan was secured by deeds of trust on the property.

Butticci and Atencio made one interest payment to Stickel, in February of 1981. That same month they advised Stickel that they would be able to repay her loan ahead of schedule. They inquired whether Stickel would be interested in "rolling over" the loan so that they could acquire two lots on Burnett Avenue in San Francisco for a new construction project. Stickel advanced an additional $30,000, bringing the total amount of the loan to $104,000. A promissory note for this amount was executed on April 15, 1981, by Butticci, Atencio and Harris. The note specified that the obligation would bear "interest from April 15, 1981, until paid at the rate of 30% per cent [sic ] per annum, payable beginning May 15th, 1981, at a monthly rate of $2,600.00" for its term of six months. The loan was initially secured by the deeds of trust respecting the Corbett Avenue property; the Burnett Avenue lots were subsequently substituted as security for the note. This deed, which was also executed by Butticci, Atencio and Harris, 2 was subordinate to a Stickel agreed to the partners' request that the term of the loan be extended, first to November and then to December of 1981. In December of 1981 Stickel agreed to a further extension of the loan for an additional 12 months when the interest rate was increased to 32.5 percent.

deed of trust in favor of Mr. and Mrs. Chow.

The partners thereafter began experiencing severe financial difficulties. In April of 1982 the Chows declared a default and initiated proceedings to foreclose their security interest in the property. During the latter part of 1982 the interest payments to Ms. Stickel were drastically reduced. (See fn. 3, post.) On September 23, 1982, the Chows purchased the property at a trustee's sale. From May of 1981 through November of 1982 Stickel received interest payments totaling $36,266.68. 3

Ms. Stickel commenced this action against Harris and HEMI (hereinafter collectively referred to as defendants) for recovery of the principal and accumulated interest on the promissory note. 4 At the conclusion of a nonjury trial, the court entered judgment against defendants holding them jointly and severally liable for (among other things) the $104,000 principal of the note and interest accrued at the rate of 30 percent in the amount of $125,703.31. Thereupon ensued this timely appeal by defendants.


During the 1970s there was a widely perceived need in California for a greater infusion of investment capital into the field of real estate lending. (See Ballot Pamp., Proposed Amends. to Cal. Const. with arguments to votes, Special Statewide Elec. (Nov. 6, 1979), argument in favor of Prop. 2, pp. 12-13; Crutto, Conflict of Laws and Usury in California: The Impact on Flow of Mortgage Funds (1975) 9 U.S.F.L.Rev. 441, 463; Preble & Herskowitz, Recent Changes in California and Federal Usury Laws: New Opportunities for Real Estate and Commercial Loans? (1979) 13 Loyola L.A.L.Rev. 1, 1-3; Comment, The Usury Exemption: Should it Apply to Real Estate Brokers Making Loans? (1986) 26 Santa Clara L.Rev. 403, 406-407.) Responding to this need, the voters of California in November of 1979 adopted a ballot measure which made radical revisions in the state Constitution's usury provisions. One of those revisions was to exempt from all interest restrictions "any loans made or arranged by any person licensed as a real estate broker by the State of California and secured in whole or in part by liens on real property." (Cal. Const., art. XV, § 1.)

The Legislature sought to clarify the scope of the constitutional provision by adding section 1916.1 to the Civil Code in 1983. (Stats.1983, ch. 307, § 1, p. 899.) As amended in 1985 (Stats.1985, ch. 489, § 1, p. ----), that statute (which will hereinafter be cited as section 1916.1) currently provides:

"The restrictions upon rates of interest contained in Section 1 of Article XV of the California Constitution shall not apply to any loan or forbearance made or arranged by any person licensed as a real estate broker by the State of California, and secured, directly or collaterally, in whole or in part by liens on real property. For purposes of this section, a loan or forbearance is arranged by a person licensed as a real estate broker when the broker (1) acts for compensation or in expectation of compensation for soliciting, negotiating, or arranging the loan for another, (2) acts for compensation or in expectation of compensation for selling, buying, leasing, exchanging, or negotiating the sale, purchase, lease, or exchange of real property or a business for another and (A) arranges a loan to pay all or any portion of the purchase price of, or of an improvement to, that property or business or (B) arranges a forbearance, extension, or refinancing of any loan in connection with that sale, purchase, lease, exchange of, or an improvement to, real property or a business, or (3) arranges or negotiates for another a forbearance, extension, or refinancing of any loan secured by real property in connection with a past transaction in which the broker had acted for compensation or in expectation of compensation for selling, buying, leasing, exchanging, or negotiating the sale, purchase, lease, or exchange of real property or a business. The term 'made or arranged' includes any loan made by a person licensed as a real estate broker as a principal or as an agent for others, and whether or not the person is acting within the course and scope of such license." 5

There being no question that Butticci did not make the loan, the sole question is whether his involvement qualifies the loan as one "arranged by ... a real estate broker" for purposes of the exemption. The trial court, in a 22-page "Statement of Decision and Judgment" which is a model of clarity and precision and whose detailed treatment of the issues has been of considerable assistance, determined that it did. We agree.

There is no difficulty with the general proposition that when a broker is the recipient of a loan secured by real property owned by the broker, the transaction is not one for which a broker's license is required. So much is now settled for purposes of Business and Professions Code section 10131, the fundamental statute specifying activities--including loan solicitation-- which a broker's license is required. 6 The natural corollary of this proposition is that a license is necessary only if the broker engages in such activities as the agent of others. (See Stout v. Edmonds (1986) 180 Cal.App.3d 66, 69-70, 225 Cal.Rptr. 345; Froid v. Fox (1982) 132 Cal.App.3d 832, 839-840, 183 Cal.Rptr. 461; Robinson v. Murphy (1979) 96 Cal.App.3d 763, 767-768, 158 Cal.Rptr. 246.)

Given unmistakable parallels of language, it is both logical and appropriate for section 1916.1 to be construed in light of Business and Professions Code section 10131. (See Building Material & Construction Teamsters' Union v. Farrell (1986) 41 Cal.3d 651, 665, 224 Cal.Rptr. 688, 715 P.2d 648; B.W. v. Board of Medical Quality Assurance (1985) 169 Cal.App.3d 219, 231, 215 Cal.Rptr. 130.) It should therefore come as no surprise that courts construe section 1916.1 to mean that "a loan is arranged by a person licensed as a real estate broker only if two things occur. One is that the broker acts for another or others, not for himself. The other is that he receives or expects to receive compensation." (Green v. Future Two (1986) 179 Cal.App.3d 738, 742-743, 225 Cal.Rptr. 3; see Garcia v. Wetzel, supra, 159 Cal.App.3d 1093 at pp. 1096-1097, 206 Cal.Rptr. 251; Froid v. Fox, supra, 132 Cal.App.3d 832 at p. 839, 183 Cal.Rptr. 461.) 7 Stated conversely, "where the transaction is between borrower and lender, each acting on his own behalf, and there is no third party licensed real estate broker acting for compensation as intermediary, the loan is not 'arranged' by a broker within the meaning of the usury law." (Winnett v. Roberts, supra, 179 Cal.App.3d 909 at p. 921, 225 Cal.Rptr. 82.)

Precisely what constitutes "compensation" for purposes of section 1916.1 is a question of first impression. Within the context of other statutes, compensation is a concept which has received an extremely broad definition sufficient to encompass the receipt of just about any form of monetary or tangible benefit that is not self-bestowed. (See, e.g., Gillespie v. Rawlings (1957) 49 Cal.2d 359, 364-365, 317 P.2d 601; Martinez v. Southern Pacific Co. (1955) 45 Cal.2d 244,...

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