White v. Seitzman
Decision Date | 18 November 1964 |
Citation | 230 Cal.App.2d 756,41 Cal.Rptr. 359 |
Court | California Court of Appeals |
Parties | , 16 A.L.R.3d 500 Earl L. WHITE, Zeeco, Inc., Vesto, Inc., and Landco, Inc., Plaintiffs and Appellants, Cross-Defendants-Respondents v. Albert I. SEITZMAN, Arthur L. Seitzman, Albert I. Seitzman and Arthur L. Seitzman, a co-partnership, Defendants and Respondents, Cross-Complainants-Appellants. Civ. 28285. |
Powers, Himrod & Pepys and Walter R. Powers, Los Angeles, for plaintiffs and appellants.
Sheldon R. Caplow, Beverly Hills, for defendants and respondents.
This case involves an appeal by plaintiffs to recover treble damages for interest under the usury law of California, Deerings General Laws, Act 3757 West's Ann.Civ.Code § 1916-1 et seq. Two promissory notes were involved, each secured by deeds of real property. The court found that the transactions relating to these notes and trust deeds were in fact loans of money from defendants to plaintiffs, and not sales of trust deeds as contended by defendants. The court further found that the transactions were usurious, which fact was known or should have been known to all parties involved. The trial court, however, gave judgment for the defendants on the basis of the legal maxim that 'No one can take advantage of his own wrong.' (Civil Code, § 3517.) Plaintiffs were therefore denied both the recovery of interest paid and an award of penalties.
This case also involves a cross-appeal on written guarantees executed by the plaintiff Earl L. White for the benefit of the defendants, imposing primary liability on said plaintiff in the event of default on the two promissory notes. The trial court held that, by virtue of a foreclosure sale, defendants had received payment in full of all sums due them on the notes and that they should recover nothing under the guarantees.
The facts of the case, as found by the trial court, are substantially as follows: The three corporate plaintiffs, Zeeco, Inc., Vesto, Inc., and Landco, Inc., were agents and instrumentalities of plaintiff Earl L. White, and were used by him solely as vehicles to transact his business affairs. Defendants were aware of these relationships. The plaintiff Earl L. White had also created, operated and maintained, fifty-five various corporations and twenty-six trusts. Included in his operations was the practice of using one bank account for all of his corporations. The only person who determined what particular organization would get any credit for moneys received was the plaintiff Earl L. White. In this way he was the sole person who determined what corporation, if any, owed any money to the other corporations.
The plaintiffs entered into two written escrow agreements with the defendant Albert Construction Co. at the Gary Escrow Service, Inc. The agreements, dated September 24 and September 4, 1959, provided that Albert Construction Co. deposit in escrow the two sums of $21,250.00 and $10,800.00 to be paid to plaintiff Zeeco, Inc. and plaintiff Earl L. White, respectively, for an assignment of notes in the principal amounts of $25,000.00 and $12,000.00. The notes were executed by the other corporate plaintiffs, Vesto, Inc., and Landco, Inc., in favor of the plaintiff payees--Zeeco and White. The notes were made payable on or before October 1, 1960, bearing interest at the rate of 10 per cent per annum on the principal amount on the face of the note. The notes were secured by deeds of trust on real property. Plaintiff Earl L. White also signed guarantees imposing personal liability on himself in event of default on the notes.
The trial court found that the notes and deeds of trust were a sham and subterfuge for the purpose of borrowing money and that plaintiff Earl L. White and the corporate plaintiffs knew that the transactions, as evidenced by the notes and deeds of trust, and the agreements of the parties with respect thereto, were contrary to law, and if they did not know it, they were presumed to know it under the law. The transfer of the note and deed of trust at a 10 per cent discount, the note being payable within slightly more than one year, was the first consideration given for the note, and was therefore a loan at a rate of interest in excess of the legal maximum.
The court further held that the defendants knew, or should have known, that the transactions were loans at a usurious rate of interest and not purchases of notes and deeds of trust and that they entered into same in bad faith. The court found that defendants never asked to see the notes and deeds of trust they proposed to acquire and did not see said notes and deeds of trust until same were delivered to them through the escrows at the close of escrows.
Defendants caused the Gary Escrow Service, Inc., named trustee in the deeds of trust, to sell the property covered by the deeds of trust for the full amount of the note, plus accrued interest thereon, plus trustee's fees and expenses. Defendants received the sums of $7,166.67 and $3,500.00 in excess of moneys actually advanced to plaintiffs on the two notes.
However, the court found that, prior to the execution of the notes and deeds of trust and the assignments thereof, plaintiff Earl L. White and the corporate plaintiffs had made efforts to secure money from financial institutions on the real properties involved in this action, and other property, and in all instances were denied money. Plaintiff Earl L. White needed funds and the only way he could secure them was by creating deeds of trust, for which no consideration was given, for the purpose of borrowing money thereon.
Plaintiffs had been engaging in similar transactions over a period of fifteen years. During this span of time they had handled a thousand or more trust deeds through their offices and plaintiff Earl L. White directed the terms and conditions of the trust deeds. The greater portion, if not all, of the trust deeds were transferred and sold at 10 per cent discount with 10 per cent interest. A number of the trust deeds carried the personal guarantee of Earl L. White. As a result of these transactions plaintiffs realized in excess of one million dollars.
Defendants contend that the purported assignments of the notes and trust deeds were bona fide sales and not loans of money. However, the trial court made specific findings that 'The notes and trust deeds which are the subject of the first and second causes of action are a sham and subterfuge for the purpose of borrowing money,' and 'The transactions sued on in both causes of action were loans of money and not sales of notes and deeds of trust.'
The rule is fundamental that '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.' (Janisse v. Winston Investment Co., (1957) 154 Cal.App.2d 580, 582 317 P.2d 48, 50, 67 A.L.R.2d 225; cf. Brocke v. Naseath (1955) 134 Cal.App.2d 23, 285 P.2d 291, 51 A.L.R.2d 1083; Murphy v. Ablow (1954) 123 Cal.App.2d 853, 268 P.2d 80.)
Here the trial court refused to believe that a $25,000 trust deed note would be sold by the holder thereof two weeks after date of issuance for $21,250 at a loss of $3,700. It also refused to believe that sales were involved when the trust deeds to be sold had not been recorded when the transactions were entered into but were in fact recorded on or after the dates the escrows for their 'sales' were opened. Thus, the findings of the trial court are supported by substantial evidence.
Again, defendants question the findings of the trial court that the transactions were usurious. In order to find usury, the interest at 10 per cent had to be computed on the face value of the notes and not the reduced value. There was substantial evidence showing that the Gary Escrow Service, trustees under the deeds of trust, so computed the interest. Furthermore, it was stipulated by the parties, and the trial court expressly found, that respondents instituted foreclosure proceedings with respect to both trust deeds and in both instances the properties were sold by the trustee for the full amount of the principal of the notes plus accrued interest, plus advances made by respondents on prior encumbrances, and trustee's fees and foreclosure costs. Defendants have not shown sufficient cause for overturning these findings.
The instant case requires us to resolve a conflict between the policy inherent in the Usury Act which, by subjecting an usurious lender to a penalty of treble the amount of interest collected, is designed to discourage such lenders, and the policy set forth in section 3517 of the Civil Code: 'No one can take advantage of his own wrong.' The plaintiffs contend that the former policy is controlling and that they should be granted the full penalty provided for in the Usury Act; defendants, of course, rely on the maxim of jurisprudence, above quoted.
In answering the plaintiff's contention, the trial court found that plaintiffs not only knowingly initiated and consented to the usurious transaction but that plaintiff White had been the guiding hand in the transactions and had originated the scheme or device to evade the usury law. Thus to reward him with treble damages by invoking the provisions of the very law which he sought so furtively to evade would make a mockery of the law. It was designed to penalize sharp operators taking advantage of unwary and necessitous borrowers. The law was not designed to promote deliberate fraud on itself. The trial court held that such a recovery by plaintiffs would be contrary to the public policy of this state.
We conclude that, insofar as recovery of treble damages is concerned, the trial court correctly gave priority to the maxim that no man should profit by his own wrong. However, we think that, for reasons set forth below, plaintiffs should not be...
To continue reading
Request your trial-
Fox v. Peck Iron and Metal Co., Inc.
...are primarily designed to penalize sharp operators taking advantage of unwary and necessitous borrowers. See White v. Seitzman, 230 Cal.App.2d 756, 761, 41 Cal.Rptr. 359 (1964). While Scrap may have been a necessitous borrower, no one can truly claim that Mr. Williams could be classed with ......
-
Del Mar v. Caspe
...of "unwary and necessitous borrowers." (Buck v. Dahlgren (1972) 23 Cal.App.3d 779, 787, 100 Cal.Rptr. 462; White v. Seitzman (1964) 230 Cal.App.2d 756, 761, 41 Cal.Rptr. 359; Wooton v. Coerber (1963) 213 Cal.App.2d 142, 148, 28 Cal.Rptr. 635.)5 In 4 Miller & Star, California Real Estate (2d......
-
Domarad v. Fisher & Burke, Inc.
...710, 719, 290 P.2d 626; Golden States Lanes v. Fox, 232 Cal.App.2d 135, 139, 42 Cal.Rptr. 568; see White v. Seitzman, 230 Cal.App.2d 756, 764--765, 41 Cal.Rptr. 359, 16 A.L.R.3d 500.) Here the uncontradicted testimony was that Argonaut received only $3,380 under the arrangement for a 2 perc......
-
Eiberger v. West
...his attorney had supervised and controlled the transaction and that appellee had placed her trust in them. Cf. White v. Seitzman, 230 Cal.App.2d 756, 761, 41 Cal.Rptr. 359 (1964). Appellant may not now take advantage of the state of affairs for which he is responsible. See Holt v. Rickett, ......
-
California Lenders Must Be Diligent Not to Get Burned Twice: a Reminder of the Consequences of the Full Credit Bid Rule in Light of the California Wildfires
...(2009).5. People Ex Rel Dept. of Transportation v. Redwood Baseline, Ltd., 84 Cal. App. 3d 662, 676 (1978).6. White v. Seitzman, 230 Cal. App. 2d 756, 765 (1964).7. Alliance Mortgage Co., 10 Cal. 4th at 1246; Track Mortgage Grp., Inc. v. Crusader Ins. Co., 98 Cal. App. 4th 857, 866 (2002).8......