Court Opinion

ID: 9738462
Source: CourtListenerOpinion
Date Created: 2023-08-26 19:53:44.264288+00
Date Added: 2024-06-11T07:24:06.240449
License: Public Domain

ASHBURN, J.
I concur in the judgment because the evidence discloses room for the trial judge’s conclusion that the instant transaction was not usurious. But I would add a few observations designed to define the exact legal basis upon which his judgment may be sustained.
The record reflects all the indicia of an usurious loan. Defendant Coerber rejected a joint venture or partnership and the parties on October 17, 1957, entered into a deal which involved Coerber’s1 advancing upon plaintiffs’ promissory note for $17,050, the $15,500 necessary to enable them to complete the purchase of 480 acres of land which they had an option to buy for $115 an acre, assuming a first trust deed of some $37,000; plaintiffs had $500 invested and were unable to complete or advance any further money upon the down payment of $15,500; the note, signed by plaintiffs, was to be in the principal sum of $17,050, secured by a second trust deed upon the land to be acquired and payable in full on January 2, 1958; in addition, defendant was to receive a $2,500 note of a third person which was secured by a second trust deed upon certain other land. Also a grant deed cover*155ing the property to be acquired and running in favor of the Coerbers was to be placed in escrow with instructions to deliver same to defendants if the $17,050 note was not paid by January 2, 1958.
The papers and money were passed through escrow but plaintiffs were unable to meet the note at maturity; defendant was in position to require a recording of the grant deed and thus to acquire title in himself. Foreseeing this, plaintiffs obtained from defendant an extension of time until March 2, 1958, upon condition that the $2,500 trust deed and note be delivered to him on January 2, 1958, and that he also receive 2 per cent of the gross sales price of the property when resold.
On February 28, 1958, plaintiffs were still unable to perform and so they procured from defendant an extension of time to April 2, 1958, upon condition that $5,000 be paid upon the $17,050 note by March 4, 1958. This payment was made and the loan thus reduced to $12,050.
By April 2d a resale of the property for $97,876 was practically assured and $10,000 had been paid into the escrow for defendants’ benefit, but the remaining $2,050 was not there (due to physical delays in transmission of the money) and defendant did not accept it when advised that it would be in escrow on the following morning nor after he knew that this had been accomplished. He then demanded “a bigger share of the profits” and it was agreed that he should have an assignment of two trust deeds totaling $3,775 face value as consideration for his not demanding immediate recording of the grant deed which the escrow holder still had in its possession. For some reason this did not work out and six other trust deeds for $925 each were substituted by mutual agreement and the resale escrow was closed.
Defendant received for use of his original loan of $15,500 the payment of $5,000 in cash, payment of the balance of the note in full, which included a $1,550 bonus, a second trust deed and note for $2,500, assignment of six notes for $925 each, and an additional cash payment of $182.50. Plaintiffs claim to have thus paid defendant for use of his money the sum of $9,011.50 in excess of the legal rate of 10 per cent. For present purposes the figure may be accepted as correct.
All parties to this action clearly considered and treated the $15,500 advanced by defendant as a loan, and it is patent that the amount actually received by defendant greatly ex*156ceeded the legal rate of interest if the transaction be treated merely as a loan. But it had in it one element, not heretofore mentioned, which justified the trial judge in treating it as a contingent and hazardous venture such as to remove the loan feature from the operation of the usury law.
Restatement of the Law of Contracts, section 527, at page 1024, and comment (a) thereon, are as follows: “A promise, made as the consideration for a loan or for extending the maturity of a pecuniary debt, to give the creditor a greater profit than the highest permissible rate of interest upon the occurrence of a condition, is not usurious if the repayment promised on failure of the condition to occur is materially less than the amount of the loan or debt with the highest permissible interest, unless a transaction is given this form as a colorable device to obtain a greater profit than is permissible. In that case it is usurious.
“Comment: a. Usury laws do not forbid the taking of business chances in the employment of money. A creditor who takes the chance of losing all or part of the sum to which he would be entitled if he bargained for the return of his money with the highest permissible rate of interest is allowed to contract for greater profit. On the other hand it is not permissible to use this form of contract as a device for obtaining usurious profit. If the probability of the occurrence of the contingency on which diminished payment is promised is remote, or if the diminution should the contingency occur is slight as compared with the possible profit to be obtained if the contingency does not occur, the transaction is presumably usurious.”
6 Williston on Contracts (rev. ed.), section 1692, page 4786: “It is not usury to advance money which is to be repayable only on a contingene;'', even though the sum that will be repaid if the contingency happens exceeds the amount loaned with legal interest, if the transaction is genuine and not used as a mere cover to carry out a usurious intent.”
55 Am. Jur., section 32, page 347: “To constitute usury it is essential that the sum loaned shall be repayable absolutely; if it is payable only upon some contingency, then the transaction is not usurious, although to satisfy this requisite it is not necessary that the borrower assume personal liability for the loan. However, the rule that if the principal sum is repayable only upon some contingency, then the transaction is not usurious, is not applicable where the contingency se-, lected is so improbable as to convince the court or the jury *157that there was no real hazard and that the repayment of the loan was made subject to an improbable contingency merely to escape the statute against usury. Where such is the case, the transaction will he treated as usurious. ’ ’
91 C.J.S., section 25, page 599: “Where the principal sum lent or any part thereof is put in hazard, the lender may lawfully require for the risk incurred as large a sum as may be agreed on in good faith. When, for any cause whatever, the principal sum lent or any part thereof is put in hazard, the lender may lawfully require for the risk incurred as large a sum as may be agreed on in good faith. . . . When the loan is absolutely repayable and only the security for its repayment is at hazard, an interest charge in excess of legal rates is usurious.”
This settled rule of law has been accepted and applied in this state. 49 Cal. Jur.2d, section 63, page 735: “The advancing of money as a hazardous investment in an enterprise must be distinguished from the advancing of money as a loan, and the former is outside the purview of the usury law. ’ ’ 1 Witkin, Summary of California Law (7th ed.) section 170, page 185: “(5) Principal Payment Contingent. Where the principal sum is subject to business hazards, and repayment of the loan is subject to the contingency of profits being earned, there is no usury. [Citations.]
“(6) Interest Payment Contingent. Where the payment of the full legal interest or any part of it is subject to a contingency, so that the lender’s lawful profit is wholly or partially put in hazard, the interest need not be limited to the legal rate, if the parties are contracting in good faith and without intent to evade the usury law.”
To the same effect, see Lamb v. Herndon, 97 Cal.App. 193, 201 [275 P. 503] ; Miley Petr. Corp., Ltd. v. Amerada Petr. Corp., 18 Cal.App.2d 182, 188-189 [63 P.2d 1210] ; Ambrose v. Alioto, 65 Cal.App.2d 362, 367 [150 P.2d 502] (hearing denied) ; Calimpco, Inc. v. Warden, 100 Cal.App.2d 429, 442 [224 P.2d 421] (hearing denied) ; Hersum v. Latham, 120 Cal.App.2d 325, 328 [260 P.2d 988] ; Abbot v. Stevens, 133 Cal.App.2d 242, 247 [284 P.2d 159] ; Schiff v. Pruitt, 144 Cal.App.2d 493, 498-499 [301 P.2d 446] ; Whittemore Homes. Inv. v. Fleishman, 190 Cal.App.2d 554, 557 [12 Cal.Rptr. 235] (hearing denied).
Martin v. Ajax Construction Co., 124 Cal.App.2d 425 [269 P.2d 132] (decided by this division of this court), is not opposed to these authorities, being distinguishable upon its facts.
*158It appears that the two plaintiffs had invested $250 each in the deal for purchase of the 480 acres at $115 per acre, or a total of $55,200; they were nearing a deadline on the down payment of $15,500 and had no money to meet it. Plaintiff Wooton contacted attorney John Rough, explained his predicament and offered to give to an “angel” who would furnish the down payment a cut in the deal or repayment of the $15,500 plus a share of the down payment amounting to $1,550. He told Rough that he and Sparks did not have the money to repay the $15,000 within the short time he had in mind, by January 1, 1958, and “ ‘we will put up a deed in escrow to whoever loans the money, and if we don't make a resale of this property between now and January 1st, 1958, the escrow will be instructed to record that deed, and whoever puts up the money will then get this property at what we are paying for it, $115 an acre, which he is a cinch to make—resell it at a handsome profit. ’ ” Rough knew that Coerber had money on hand and “had been looking at some property up in that area, and I knew it was at a higher price, a considerably higher price, than that, that he was looking at, so I thought that this would interest him,” said Rough in his deposition.2 He told Coerber about the matter and the latter said that it sounded interesting. Rough further testified that Coerber “had been looking at land in that area and knew that land had been selling at around $200 or better an acre up there, so on 480 acres, he figured it was going to be a pretty nice profit in it.” On the following day Wooton and Rough took defendant to see the property. On the way back Wooton asked him how he felt about it and was told “ ‘Well, I am interested, and I think maybe I’d like to have a part of the deal. ’ ” But nothing was concluded at that time, for defendant did not relish the idea of having his money tied up in a joint venture or partnership until the land had been resold and hence he finally rejected any such arrangement. Wooton testified that on the way back from the visit to the property he asked defendant if he preferred a joint venture, “but he declined, said no, he’d prefer just to make the outright loan.” So plaintiffs later offered defendant the $2,500 note which, as viewed by him, “was more a come-on so that I would enter the deal without being actually a third partner in it." And the deal was made upon the basis above outlined, namely, defendant advanced through *159escrow the $15,500 to cover the down payment, received the $17,050 note of Wooton and Sparks secured by a second trust deed on the property, and also received the $2,500 note and trust deed upon another parcel. At this point the element of hazard took over.
Wooton and Sparks had no money to complete the down payment when the original deal was made or at the time of making extensions on or about January 2, March 2, and April 2. Their signatures upon the trust deed note were worthless even if it be conceded that enforcement of same could result in a deficiency judgment, which assumption seems contrary to the terms of section 580d, Code of Civil Procedure.3 Indeed, Coerber’s remedy for nonperformance of the note, as shown by conduct of the parties, was recordation of the grant deed in his favor which was held in escrow for delivery to him, and that meant that he would get the land and the land only upon payment of all sums due and performance of other terms of the agreement which Wooton and Sparks had made for purchase of the property; and should that happen the return of his $15,500 would be contingent upon his ability to resell the land at cost to him or a better price. To repeat, the original contingency lay in the possibility of plaintiffs making a quick sale at a profit (they had had several deals to fall through), failing which defendant could acquire only the land with its attendant burdens; once that had happened, return of his money (however much it might be) was subject to the further contingency that he could sooner or later turn the property at a price which would clear his books or yield him some profit. Clearly, respondents’ money was advanced into a hazardous venture, and its repayment was subject to definite contingencies which eliminated what appeared on its face to be the definite obligation for repayment at a specified time and without condition.
I conclude that the trial judge was justified in holding (impliedly) that the deal was contingent and hazardous from the beginning, was not made in bad faith, and that the usury law is inapplicable.
For these reasons I concur in the judgment of affirmance.

 As used herein the word "defendant” or “defendants" applies to both Mr. and Mrs, Coerber.

 All depositions were received in evidence.

 Code Civ. Proc., § 580d: “No judgment shall be rendered for any deficiency upon a note secured by a deed of trust or mortgage upon real property hereafter executed in any ease in which the real property has been sold by the mortgagee or trustee under power of sale contained in such a mortgage or deed of trust....”