Opinion ID: 1174727
Heading Depth: 2
Heading Rank: 1

Heading: Actus Reus

Text: The trial court properly concluded that a variable interest rate loan agreement is not unlawful when the amount of interest charged pursuant to the agreement does not exceed the amount which might have been charged had the agreement provided for a flat rate of 10 percent per annum, the maximum permissible rate under article XV, section 1 of the California Constitution. The usury laws are obviously penal in nature, providing for forfeitures and treble damages. (49 Cal.Jur.2d, pp. 675-676, 682-684.) Because of the laws' penal nature, both an actus reus and a mens rea should be essential to establish a violation of the law. Mere bad intentions without excessive interest charges should not permit a borrower to recover a forfeiture or treble damages. Variable interest rate agreements may inure to the benefit of either the borrower or lender. They provide a valuable means for both borrowers and lenders to adjust interest rates to the changing conditions of the economy to suit their needs. ( Ante, pp. 377-378.) There is nothing immoral or illegal about such agreements when application of the variable rate provisions can and does result in interest charges less than the interest charges which would have resulted by application of the maximum lawful rate to the amounts borrowed. It is manifestly unjust to hold, as the majority would permit, that a lender must forfeit interest or pay treble damages when he, in fact, charged less than he could have lawfully charged. The majority states that a rule that interest should be averaged over the full term of the loan ... in the present context ... would prove unworkable. ( Ante, pp. 376-377.) The majority points out that plaintiffs' margin account contemplates a credit arrangement of variable interest, of indefinite duration, and fluctuating balance. However, this furnishes no basis for refusing to uphold the trial court's approach of looking to the realities. The test is not averaging interest rates; it is determining whether the maximum lawful interest charge was exceeded by the interest charge made under the variable agreement. This is a simple matter. Computing maximum lawful interest charges when the balance due is fluctuating is hardly complex. The interest charge is computed for each change. The other part of the comparison  the interest actually charged  must be determined in any event to establish damages. I am satisfied that before a variable interest rate  which could produce a lawful interest charge  may be declared unlawful, not only must mens rea be shown but also actus reus. That is, the interest charged pursuant to the agreement must exceed the amount of interest that could have been lawfully charged under a fixed rate agreement. Apart from Arneill Ranch v. Petit (1976) 64 Cal. App.3d 277 [134 Cal. Rptr. 456], I am aware of no case  and the majority has cited none  holding that a lender could be labelled a usurer, when the interest charged in accordance with a variable contract provision was less than the maximum interest permitted to be charged under the usury laws. Rather the cases involve situations where the interest charged pursuant to the agreement was excess interest. (See, e.g., Thomassen v. Carr (1967) 250 Cal. App.2d 341, 346-348 [58 Cal. Rptr. 297].) In such cases the proper rule  as pointed out by the majority  determines whether a variable interest agreement is usurious by asking if the agreement was consummated in good faith without intent to avoid the usury laws. ( Ante, p. 377.) But this does not mean that we will inquire into good faith when the interest charged was below that permissible. To allow a borrower to avoid his obligation to pay interest when the interest charged pursuant to the variable rate is less than the lawful rate is to give a person who suffered no wrong a windfall. I would disapprove Arneill Ranch insofar as it permits such windfall.