Westbrook v. Fairchild

• Decision Date: 24 June 1992
• Court: California Court of Appeals Court of Appeals
• Parties: Robert Machris WESTBROOK, Plaintiff and Respondent, v. Peter F. FAIRCHILD, Defendant and Appellant. E007576.

Page 277

9 Cal.Rptr.2d 277

7 Cal.App.4th 889

Robert Machris WESTBROOK, Plaintiff and Respondent, v. Peter F. FAIRCHILD, Defendant and Appellant.

E007576.

Court of Appeal, Fourth District, Division 2, California.

June 24, 1992.

Certified for Partial Publication ^*

[7 Cal.App.4th 890] Schlecht, Shevlin & Shoenberger and Allen O. Perrier, Palm Springs, for defendant and appellant.

Grebow & Barish and Arthur Grebow, Los Angeles, for plaintiff and respondent.

OPINION

HOLLENHORST, Associate Justice.

I

This case concerns the propriety of a trial court award of prejudgment and postjudgment interest to plaintiff Robert Westbrook in an action arising out of an alleged breach of a contract to make a will.

At trial, four causes of action were submitted to the jury: (1) constructive fraud; (2) fraudulent misrepresentation; (3) breach of the implied covenant of good faith and fair dealing; and (4) bad faith breach of contract. The jury answered special interrogatories by finding that defendant Peter Fairchild had committed constructive fraud and had breached the implied covenant of good faith and fair dealing. The jury awarded plaintiff $500,000 in compensatory damages and $200,000 in punitive damages.

Following the trial, Mr. Fairchild filed motions for a new trial and for judgment notwithstanding the jury's verdict. The trial court granted both motions on grounds of (1) instructional error; (2) insufficiency of the evidence; and (3) excessive damages. Mr. Westbrook appealed.

In an opinion filed May 12, 1989, this court held that the trial court erred in granting the motions. This court examined the claims of instructional error and found none. We further found substantial evidence of Mr. Fairchild's breach of the implied covenant of good faith and fair dealing when Mr. Fairchild revoked a will he had made in favor of Mr. Westbrook, despite an agreement by Mr. Fairchild that he would make, and not revoke, such a will. We therefore reversed the granting of the motions and directed the trial court to reinstate the jury's verdict in favor of Mr. Westbrook.

Following remand, defendant Fairchild filed a motion for an order settling the form of the judgment. In that motion, he With regard to the jury's award of compensatory damages of $500,000, the relevant portion of the amended judgment states: "Plaintiff Robert Machris Westbrook have and recover from Defendant Peter F. Fairchild the sum of $500,000.00, together with compound interest thereon commencing December 31, 1969, at the rate of seven percent (7%) per annum until January 1, 1983, and thereafter at the rate of ten percent (10%) per annum until the full amount of the judgment plus interest and costs is paid." (Emphasis added.)

argued that the trial court should not award any prejudgment interest. Mr. Westbrook responded by seeking prejudgment compound interest. The trial court followed our instructions by reinstating the jury verdict. It also signed an amended judgment awarding compound interest.

With regard to the jury's award of punitive damages of $200,000, the relevant portion of the amended judgment states that Mr. Westbrook shall recover from Mr. Fairchild "punitive damages in the sum of $200,000.00 together with compound interest thereon at the rate of ten percent (10%) per annum from the date of the verdict (February 6, 1987) until paid." (Emphasis added.) The amended judgment was filed and entered on October 30, 1989.

Mr. Fairchild appeals the amended judgment. He argues that Mr. Westbrook was not entitled to prejudgment interest, and that the trial court erred in awarding such interest. He further argues that the trial court erred in granting compound interest from the date of the verdict until paid.

II

PREJUDGMENT INTEREST ^**

III

POSTJUDGMENT INTEREST--COMPOUNDING OF INTEREST FROM

THE DATE OF THE AMENDED JUDGMENT

Mr. Westbrook next contends that the trial court has discretion to award compound postjudgment interest in cases of fraud by a fiduciary. He relies on Baker v. Pratt, (1986) 176 Cal.App.3d 370, 222 Cal.Rptr. 253: "When a trustee wilfully converts trust property to his own use, he is liable for interest, even though it may not have been prayed for in the complaint. The circumstances of the case determine whether the interest awarded is simple or compound. In cases of mere negligence, no more than single [sic] interest is ever added to the loss or damage resulting therefrom, but if the trustee is guilty of some positive misconduct or wilful violation of duty, the court may award compound interest." (Id., at pp. 383-384, 222 Cal.Rptr. 253.)

As noted above, we find Baker inapplicable because the discussion preceding this quotation makes it clear that the appellate court held that the trial court's discretion to compound interest arises from Civil Code section 3288, which gives the trial court discretion when it is the trier of fact. The issue in both the trial court and the appellate court was prejudgment, not postjudgment, interest.

Here, the issue is whether the trial court had the discretionary power to award postjudgment interest of 10% compounded, when Civil Code section 3288 is inapplicable because the trial court is not the trier of fact.

We conclude that (1) The Constitution and statutes limit postjudgment interest to 10% simple interest; (2) there is no statutory authority to compound interest; (3) a contrary interpretation would nullify the legislative purpose underlying the judgment renewal statute; and (4) there is no general equitable power to disregard the constitutional and statutory limitations.

Article XV, section 1, subdivision (2) of the California Constitution, added June 8, 1976, provides that "The rate of interest upon a judgment rendered in any court of this state shall be set by the Legislature at At the time the Constitution was amended in 1976, 7 percent simple interest approximated market rates. Accordingly, the Legislature did not act to set a higher fixed rate, or a variable rate. By 1980, the market rate had risen to approximately 12%. Accordingly, the California Law Revision Commission recommended enactment of a statute that would increase the rate to 10%, the maximum allowable under the Constitutional provision. The Commission's comments are pertinent when considering the purpose of the provision: "Postjudgment interest serves two important functions--it compensates the judgment creditor for the loss of use of the money until the judgment is paid and it acts as an incentive for the judgment debtor to pay the judgment promptly. These functions are served when the rate of interest on judgments approximates the prevailing interest rate in the money market. The judgment creditor is compensated at a rate that would be obtainable were the judgment satisfied and the funds available for investment; the judgment debtor has no incentive to delay payment since it would not be advantageous to invest the money elsewhere." (Recommendation Relating to Interest Rate on Judgments, 15 Cal.Law Revision Com.Rep. 7 (1980) p. 11.) After discussing the possible alternatives, the Commission recommended setting the interest rate on judgments at the maximum rate of 10%, but reserving the right of the Legislature to change the rate prospectively. The Commission argued that a rate of 10% was accurate because it was unlikely that the market rate would drop below 10% in the future. This alternative was adopted as Code of Civil Procedure section 685.010. The market rates referred to are simple interest rates, and, by approximating those rates, we think that the Commission intended to recommend a simple interest rate of 10%.

                not more than 10 percent per annum.  Such rate may be variable and based upon interest rates charged by federal agencies or economic indicators, or both.  [p] In the absence of the setting of such rate by the Legislature, the rate of interest on any judgment rendered in any court of the state shall be 7 percent per annum.  [p] The provisions of this section shall supersede all provisions of this Constitution and laws enacted thereunder in conflict therewith."   This section is a limitation on the power of the Legislature to set postjudgment interest rates. 4  It sets a ceiling that the Legislature cannot exceed.  (Morris v. Department of Real Estate (1988) 203 Cal.App.3d 1109, 1112, 250 Cal.Rptr. 432.)
                

Code of Civil Procedure section 685.010, subdivision (a) states: "Interest accrues at the rate of 10 percent per annum on the principal amount of a money judgment remaining unsatisfied." There is no statutory authorization for a higher rate, and the general rule is that there is no compounding of interest in the absence of specific statutory authority. "Interest may not be computed on accrued interest unless by special statutory provision or by stipulation of the parties...." (Estate of Sharp (1971) 18 Cal.App.3d 565, 585, 95 Cal.Rptr. 816, citing State of California v. Day (1946) 76 Cal.App.2d 536, 554, 173 P.2d 399.) Day held that "The legal rate of interest in this state is seven per centum. (Cal. Const. art. XX, § 22.) The general rule is that interest may not be computed on accrued interest unless by special statutory provision, or by stipulation of the parties, and in the latter event the amount may not be fixed in conflict with statutory provisions." (Id. at p. 554, 173 P.2d 399; Lilli Ann Corp. v. City and County of San Francisco (1977) 70 Cal.App.3d 162, 198-199, 138 Cal.Rptr. 759.)

In Mendez v. Kurten (1985) 170 Cal.App.3d 481, 215 Cal.Rptr. 924, respondent argued that interest on interest could be given by combining awards under Code of Civil Procedure section 685.010 and Civil Code section 3291. The court held that The only exception to the rule that interest on interest (i.e. compound interest) may not be recovered is in situations in which interest is included in a judgment which then bears interest at the legal rate. (45 Am.Jur.2d, Interest and Usury, § 78, p. 71.) One common situation...