Court Opinion

ID: 9572379
Source: CourtListenerOpinion
Date Created: 2023-08-21 20:41:15.133939+00
Date Added: 2024-06-11T12:32:41.692889
License: Public Domain

MOSK, J.
I dissent.
The people of California have made it emphatically clear that they reject exaction of usurious rates of interest as an acceptable commercial practice. They first adopted an initiative measure by popular vote in 1918 (Deering's Ann. Uncod. Measures 1919-1 (1973 ed.) p. 35; 10 West's Ann. Civ. Code (1954 ed.) foll. § 1916 at p. 123) and in 1934 felt deeply enough committed on the subject to write the prohibition against usury into the state Constitution. (Former Cal. Const., art. XX, § 22.) In 1976 the electorate twice rejected efforts to raise interest rates (Prop. 12, June 8, 1976; Prop. 5, Nov. 2, 1976) and reenacted the constitutional usury provision as present article XV (Prop. 14, June 8, 1976).
In response to this unmistakable legislative intent of the people, courts have been alert to pierce the veil of any plan designed to evade the Usury Law. (Milana v. Credit Discount Co. (1945) 27 Cal.2d 335, 340 [163 P.2d 869, 165 A.L.R. 621].) As we have often noted, substance not form must dictate the treatment that a transaction is to be accorded under the Usury Law. (Glaire v. La Lanne-Paris Health Spa, Inc. (1974) 12 Cal.3d 915, 927 [117 Cal.Rptr. 541, 528 P.2d 357].) A conscious attempt to evade the Usury Law is not necessary; usury may be found where there has been nothing more than knowing receipt of sums above the legal rate of interest. (Burr v. Capital Reserve Corp. (1969) 71 Cal.2d 983, 989 [80 Cal.Rptr. 345, 458 P.2d 185].)
*55Pursuant to the foregoing general rules, the Court of Appeal reviewed the evidence and held the instant transaction, despite its subtle form, to be a usurious loan. Since I agree with that court’s conclusion, I adopt as my dissent the opinion of Justice Dunn, concurred in by Justices Kingsley and Jefferson. The opinion, excepting only its additional discussion of constitutionality, follows:
Florentine Boemer and other named plaintiffs1 commenced a class action in usury against The Colwell Company. The second amended complaint alleged that the class represented by plaintiffs consisted of all persons who were obligated to defendant in purported credit sales which were, in fact, loans providing for the payment of interest at rates in violation of the Usury Law. Pursuant to stipulation of the parties the cause was bifurcated, and liability to be tried first. Trial of the liability issues was by the court, without a jury. Judgment was entered in favor of defendant, and against plaintiffs. Plaintiffs appeal from the judgment.
The evidence, all of which was uncontradicted, showed: defendant, The Colwell Company, is a mortgage banking firm; it has an installment contract department, which was formed in 1961 for the purpose of purchasing contracts for the construction of home improvements and vacation homes; defendant’s legal counsel concluded that such transactions involved the purchase of contracts created through credit sales, and therefore were governed by the Unruh Act (Civ. Code, § 1801 et seq.); accordingly, defendant developed forms for use in the purchase of such contracts in an effort to comply with the requirements of the Unruh Act; such forms included a credit application, a lien contract and deed of trust, and a credit sale disclosure statement; although defendant in some cases actively sought contracts to purchase, most of its business was generated by builders contacting defendant and asking if it were interested in purchasing their contracts; if defendant were satisfied regarding a builder’s qualifications, it supplied him with the forms enumerated above; defendant also indicated to the builder the rate of the finance charge to be inserted in the lien contract in order to make it acceptable for purchase by defendant; after a builder entered into a contract for the construction of a vacation home for a landowner, the builder submitted to defendant the construction contract, the plans and specifications for the home, the owner’s credit application, the lien contract and deed of trust, and the disclosure statement; the application, *56the contracts and the statement were executed by builder and owner before being submitted to defendant; defendant investigated the owner’s credit, made a “desk appraisal” of the value of his real property, and ordered a preliminary title report on the property; if these factors were acceptable, defendant informed the owner that his construction loan had been approved; defendant then purchased the contract from the builder, paying him the cash price of the construction less a charge for defendant’s payment of labor and material through its voucher system; under this system, defendant issued a “voucher book” to the builder who, in turn, issued individual vouchers to suppliers and subcontractors for labor and material furnished; the vouchers were submitted to defendant for payment, and were paid after defendant was satisfied that the labor and material in question had been furnished; defendant also recorded the lien contract and deed of trust; this document stated that the “buyer” (owner) purchased from the “seller” (builder) “goods and services” consisting of the construction of a described vacation home; it set forth the cash price, the finance charge and the deferred price (i.e., the sum of the cash price and the finance charge), and specified the number of monthly installments and the amount of each installment necessary for payment of the deferred price; another portion of the document was in the form of a trust deed, with the owner’s land serving as security for his payment of the deferred price; the reverse side of the document contained an assignment of the lien contract and trust deed by the builder to defendant.
The evidence also showed: FWF Construction Company agreed to construct a vacation home for plaintifi" Boerner and her husband on their real property; Nordic Mountain Homes agreed to construct a vacation home for the other named plaintiffs (hereinafter referred to as the Wards) on real property which they jointly owned; the plaintiffs were told by the respective builders that construction of the homes was contingent upon the obtaining of financing; in each case the builder arranged to have the construction financed by defendant in accordance with the procedure described above; the cash price of the Boerner home was $9,875; the lien contract and deed of trust executed by the Boemers fixed the finance charge at $10,378.60, for a deferred price of $20,253.60, payable in 180 monthly installments of $112.52 each; the credit sale disclosure statement stated that the annual percentage rate of the finance charge was 12.45 percent; the cash price of the Ward home was $15,100; the lien contract and deed of trust executed by the Wards fixed the finance charge at $16,874.40, for a deferred price of $31,974.40, payable in 180 monthly installments of $177.08 each; according to the credit *57disclosure statement furnished to the Wards, the finance charge represented an annual percentage rate of 11.6 percent; plaintiffs’ respective hen contracts were assigned to defendant and were recorded; thereafter, and pursuant to such contracts, plaintiff Boerner paid defendant $2,010.48;2 plaintiffs Ward paid $9,916.48.
The trial court found, as facts: a bona fide sale transaction occurred between plaintiffs and their respective builders; the contracts between plaintiffs and the builders were credit sales and not parts of loan transactions clothed in the form of credit sales; the respective assignments of the builders’ rights to defendant were assignments of rights under credit sales, and were not loans by defendant to plaintiffs in the form of assignments.
The basic Usury Law is set forth in article XX, section 22 (now art. XV, § 1, 1 2), of the California Constitution: “No person, association, copartnership or corporation shall by charging any fee, bonus, commission, discount or other compensation receive from a borrower more than 10 per cent per annum upon any loan or forbearance of any money, goods or things in action.” To constitute usury there must be a borrowing and lending or forbearance of money. (1 Witkin, Summary of Cal. Law (8th ed.) Contracts, § 388, p. 324.) Hence, where a seller offers property at a designated price for cash or at a much greater price on credit, the credit sale will not constitute usury, however great the difference between the cash price and the credit price. (Wilson v. J. E. French Co. (1931) 214 Cal. 188, 189 [4 P.2d 537]; Verbeck v. Clymer (1927) 202 Cal. 557, 563-564 [261 P. 1017]; Lamb v. Herndon (1929) 97 Cal.App. 193, 200 [275 P. 503].) Whether a particular transaction is a sale or a usurious loan is a question of fact; and the trier of fact, in making such determination, must look to the substance of the transaction rather than to its form, and consider all the circumstances surrounding the transaction. (West Pico Furniture Co. v. Pacific Finance Loans (1970) 2 Cal.3d 594, 603 [86 Cal.Rptr. 793, 469 P.2d 665]; Burr v. Capital Reserve Corp. (1969) 71 Cal.2d 983, 989 [80 Cal.Rptr. 345, 458 P.2d 185]; Thomas v. Hunt Mfg. *58Corp. (1954) 42 Cal.2d 734, 740 [269 P.2d 12]; Baruch Inv. Co. v. Huntoon (1967) 257 Cal.App.2d 485, 492 [65 Cal.Rptr. 131].) As pointed out in Milana v. Credit Discount Co. (1945) 27 Cal.2d 335, 340 [163 P.2d 869, 165 A.L.R. 621]: “The courts have been alert to pierce the veil of any plan designed to evade the usury law and in doing so to disregard the form and consider the substance.” Where the form of the transaction makes it appear to be nonusurious, it is for the trier of fact to determine whether the intent of the contracting parties was that disclosed by the form adopted, or whether such form was a mere subterfuge to conceal a usurious transaction. (Forte v. Nolfi (1972) 25 Cal.App.3d 656, 678 [102 Cal.Rptr. 455]; Janisse v. Winston Investment Co. (1957) 154 Cal.App.2d 580, 582 [317 P.2d 48, 67 A.L.R.2d 225].) Thus, intent is material in determining the nature of the transaction; but once the true nature is shown, the intent with which the act was performed is immaterial. (Wood v. Angeles Mesa Land Co. (1932) 120 Cal.App. 313, 324 [7 P.2d 748].) In other words, a conscious attempt to evade the Usury Law is not necessaiy. (Burr v. Capital Reserve Corp., supra, 71 Cal.2d at p. 989.)
The distinction between a sale and a loan is defined as follows in Milana v. Credit Discount Co., supra, 27 Cal.2d at pages 339-340: “A sale is the transfer of the property in a thing for a price in money. The transfer of the property in the thing sold for a price is the essence of the transaction. The transfer is that of the general or absolute interest in property as distinguished from a special property interest. A loan, on the other hand, is the delivery of a sum of money to another under a contract to return at some future time an equivalent amount with or without an additional sum agreed upon for its use; and if such be the intent of the parties the transaction will be deemed a loan regardless of its form. ... [H In a sale the delivery of the absolute property in a thing and the receipt of a price therefor consummate the transaction. In a loan the initial transaction creates a debit and credit relationship which is not terminated until replacement of the sum borrowed with agreed interest.”
All of the facts in this case indicate that the transactions were loans, not credit sales. Thus: the builders informed plaintiffs that construction of the vacation homes was contingent upon plaintiffs’ obtaining financing; the builders did not offer to finance the construction, or to extend credit to plaintiffs; they agreed to build the homes only if plaintiffs could provide the necessary funds; to this end, the builders put plaintiffs in contact with defendant; plaintiffs applied for credit to defendant, not to the builders, and it was defendant who passed upon plaintiffs’ credit and determined whether or not to finance the construction on their behalf; *59defendant supplied the builders with the forms to be used in entering into credit sales of materials and labor to plaintiffs;3 defendant dictated the finance charge which the builders must levy if defendant were to purchase the contracts; defendant had no property or services to sell; its sole function was to furnish the money, without which the builders would not commence the construction called for by the contracts; upon assignment of the contracts to defendant, the builders looked to defendant for payment of the cost of construction; by the assignment, plaintiffs became bound to pay defendant the cash price of the construction, plus the finance charge.
These facts indicate that, as between plaintiffs and defendant, the transactions, in substance, created an obligation on defendant’s part to pay the cash price to the builders on plaintiffs’ behalf, and an obligation on plaintiffs’ part to pay an equivalent sum to defendant, plus the finance charge. Therefore, the transactions were loans. A similar conclusion was reached in National Bank of Commerce of Seattle v. Thomsen (1972) 80 Wn.2d 406 [495 P.2d 332], wherein the court stated (at p. 338): “It is correct that one who sells goods or services on credit is not a lender of money. But a third party who pays the seller on behalf of the purchaser is, insofar as his relations with the purchaser are concerned, a lender of money. In a case such as this, where the purchase is financed from the beginning, there is never a true conditional sale. The sale is complete as far as the vendor is concerned. He does not extend credit to the purchaser; rather, he is paid in full at the time of purchase. The ‘conditional sale contract’ is then but a security device to protect the party who finances the purchase.” (Italics in original.) (See also Hare v. General Contract Purchase Corp. (1952) 220 Ark. 601 [249 S.W.2d 973, 977-978]; Annot. (1967) 14 A.L.R.3d pp. 1151-1153, § 21.)
It is true that where a finding of either a loan or a sale can be inferred from the facts, an appellate court may not substitute its judgment for that of the trial court. (West Pico Furniture Co. v. Pacific Finance Loans, supra, 2 Cal.3d at p. 604; Baruch Inv. Co. v. Huntoon, supra, 257 Cal.App.2d at p. 492.) However, the evidence in this case is subject to only one reasonable inference, viz.: the transactions in question were *60loans, not credit sales. It follows that the “finance charge” is interest. Since that interest in each of transactions exceeds 10 percent per annum, it is usurious.
For the reasons stated in the foregoing opinion of the Court of Appeal, I would reverse the judgment.
Bird, C. J., and Newman, J., concurred.
Appellants’ petition for a rehearing was denied May 24, 1978. Mosk, J., was of the opinion that the petition should be granted.

In addition to Boerner, the named plaintiffs were: James Ward, Lora Lee Ward, Perry Babcock, Clara Babcock, James Brewster, Marilynn Brewster, Robert Bench and Ann Bench.

After the FWF Construction Company assigned to defendant the Boerner lien contract and deed of trust, defendant discovered that the cash price designated in the contract included a sum of money to be used for a purpose other than construction of the home. Defendant therefore reassigned the Boerner contract to FWF, and did not hold such contract at the time of trial.
Defendant filed a cross-complaint against FWF to recover $7,864.52, representing the cash price of the home less the sum paid by Boerner on the contract. Judgment for this sum was entered in favor of defendant and against FWF on the cross-complaint. No appeal was taken from that judgment.

Defendant originally developed the forms used in this case in the belief that contracts for the construction of vacation homes on a credit basis constituted credit sales governed by the Unruh Act (Civ. Code, § 1801 et seq.). However, in 1969 the Legislature enacted Civil Code section 1801.4, which provides that a contract to construct a residential dwelling is not within the act. (Stats. 1969, ch. 554, § 1.) Since the transactions in this case occurred in 1971, defendant could not reasonably have believed they constituted credit sales governed by the Unruh Act.