Court Opinion

ID: 9748951
Source: CourtListenerOpinion
Date Created: 2023-08-27 16:18:24.97614+00
Date Added: 2024-06-11T07:25:40.892811
License: Public Domain

TIMLIN, J., Concurring and Dissenting.
Introduction
I concur in the reasoning and result of the majority opinion regarding the applicability and nonapplicability of prejudgment interest in this case. However, I dissent from the final portion of the majority opinion which concludes that the trial court legally could not order compound interest on the compensatory damages award portion of the judgment itself.
Neither article XV, section 1 of the California Constitution, nor Code of Civil Procedure section 685.010, upon which the majority relies in concluding that compounding postjudgment interest is prohibited by law, refers to compound or simple interest; each provision simply refers to the maximum rate of interest allowed upon a judgment, and not to the manner in which that maximum rate must or may be applied to the principal sum awarded by the judgment.1
In my opinion, as explained more fully below, the legislative history related to the enactment of article XV, section 1 and the Usury Law makes it clear that while the compounding of interest has been disallowed on all manner of obligations other than judgments, a similar proscription on the compounding of interest on judgments was repealed, and judgments were then specifically excluded from the enumeration of those obligations as to which interest could not be compounded. This legislative history makes it equally clear that the maximum rate allowed on judgments, unlike the maximum rate allowed on other types of obligations, was not intended to act as an implicit bar to compounding that rate. This means, in turn, that a trial court has the power to order that interest on a judgment be compounded if, pursuant to long-established common law principles, such compounding would be equitable and in the interest of justice.
Given the nature of this case, in which it was established that the defendant took advantage of a confidential relationship with the plaintiff, *899and profited thereby at the plaintiff’s expense, I womd therefore affirm the trial court’s judgment to the extent it awarded plaintiff postjudgment compound interest.2
Discussion
It is generally accepted that prejudgment interest may be compounded “ ‘upon the theory that in the absence of evidence to the contrary, [a trustee] will be presumed to have received such profits from their use.’ ” (Guardianship of O’Connor (1938) 28 Cal.App.2d 527, 530 [83 P.2d 65], quoting Wheeler v. Bolton (1891) 92 Cal. 159, 172.) However, there is a paucity of authority on the issue of whether postjudgment interest may be compounded.
The majority opinion cites 47 Corpus Juris Secundum, Interest, section 21, for the proposition that “[As] a general rule, judgments do not bear interest as a matter of legal right, or under the common law; and, in the absence of statute, courts of chancery [i.e., equity courts] could not grant interest subsequent to the date of the decree on debts of simple contract, not bearing interest in terms.” (Maj. opn., ante, at p. 897, italics added.) Here, of course, the plaintiff’s claim was based in part not on simple contract, but on constructive fraud. The relevant inquiry, then, should be whether courts of chancery had the power to grant interest in constructive fraud cases. They did have such power and could “compound interest annually, or at longer or shorter periods, according to the delinquency of the trustee.” (90 C.J.S., Trusts, § 342, at p. 599, fn. omitted; Bogert, Trusts & Trustees (2d ed. rev. 1982) § 863 at p. 51: “ ‘Independent of contract or statute, a court of equity in its sound discretion may require one who has converted to his own use the funds of another to pay damages equal to the legal rate of interest, as compensation to the complainant for the loss of the use of his fund.’ ” (Fn. omitted, quoting Cree v. Lewis (1911) 49 Colo. 186 [112 P. 326, 328].) This power included the power to compound interest. (Bogert, supra, § 863 at pp. 55-56.)
*900There do not seem to be any California cases explicitly, as opposed to implicitly, on point as to whether the power to compound interest applied to both pre- and postjudgment interest, because generally the cases make no distinction between pre- and postjudgment interest. However, in Estate of William Stott (1877) 52 Cal. 403, an executor who commingled funds of the estate with his own business funds was found liable for the presumed profits on the commingled sums. On appeal, the executor contended that he should not have been charged with compound interest, contending, among other things, that compound interest “is expressly forbidden in all judgments by the Civil Code . . . [section 1920].” (Id. at p. 405.) Held, any trustee who uses trust property for any purpose unconnected with the trust shall be charged with “legal interest with annual rests,” i.e., with interest compounded annually. (Id. at p. 406.) Although the court did not specifically refer to whether its holding applied to postjudgment, as well as prejudgment, interest, the fact that the executor argued that compound interest was forbidden by then Civil Code section 1920, which prohibited compounding the interest on judgments, indicates that the holding applied to postjudgment interest.
In Jeanes v. Hamby (Tex.Ct.App. 1984) 685 S.W.2d 695, 700, the Texas Court of Appeals recognized that postjudgment interest could be compounded annually if equity so required, but that the trial judge who had rendered the judgment had not so concluded.
In Bobb v. Bobb (1887) 89 Mo.411 [4 S.W. 511], a seminal case relied upon by the authorities cited in Palmer v. Palmer (Mo.App. 1991) 805 S.W.2d 326, it was held that a trustee could be charged, in lieu of profits, with interest compounded annually on “balances in his hands” (id. at p. 515, italics added), the implication being that postjudgment interest on all sums not paid over to the wronged beneficiary could be compounded.
In addition to the treatises and cases noted above which indicate that at common law courts had the equitable power to compound postjudgment interest, the history of the statutes and constitutional provisions related to the compounding of interest and the award of postjudgment interest indicate that this equitable power still exists.
The relevant rule is that “Statutes abridging the jurisdiction of courts of equity are . . . strictly construed. [][] Thus[,] a court of equity may not be divested of jurisdiction by implication; and general equity powers of a court remain unimpaired except where a statute is so rigid as to inhibit the application of equitable doctrines.” (30A C.J.S., Equity, § 6(c), at p. 166, fns. omitted.) “ ‘Moreover, the comprehensiveness of this equitable jurisdiction *901is not to be denied or limited in the absence of a clear and valid legislative command. Unless a statute in so many words, or by a necessary and inescapable inference, restricts the court’s jurisdiction in equity, the full scope of that jurisdiction is to be recognized and applied. “The great principles of equity, securing complete justice, should not be yielded to light inferences, or doubtful construction.” [Citation.]’ ” (Mitchell v. De Mario Jewelry (1960) 361 U.S. 288, 291 [4 L.Ed.2d 323, 326, 80 S.Ct. 332], quoting Porter v. Warner Holding Co. (1946) 328 U.S. 395, 398 [90 L.Ed. 1332, 1337, 66 S.Ct. 1086].) Rules of statutory construction apply with equal force to constitutional provisions. (See 7 Witkin, Summary of Cal. Law (9th ed. 1988) Constitutional Law, §§ 92-101, pp. 145-153; Delaney v. Superior Court (1990) 50 Cal.3d 785, 797, fn. 5 [268 Cal.Rptr. 753, 789 P.2d 934].)
Section 2 of the Usury Law (Deering’s Ann. Uncod. Measures 1919-1 (1973 ed.) p. 40) provides, in relevant part, that “in the computation of interest upon any bond, note or other instrument or agreement, interest shall not be compounded, nor shall the interest thereon be construed to bear interest unless an agreement to that effect is clearly expressed in writing and signed by the party to be charged therewith.” By its terms, section 2’s proscription against compounding interest does not apply to judgments. As was pointed out in Big Bear Properties, Inc. v. Gherman, supra, 95 Cal.App.3d 908:
“ '[I]t has generally been held that a judgment bears interest on the whole amount thereof, although such amount is made up partly of interest on the original obligation, and even though the interest is separately stated in the judgment. This rule is not affected by statutes which prohibit the allowance of compound interest, such statutes being intended merely as regulations of interest on contracts and not interest on judgments, and designed to prevent the imposition on borrowers of the heavy exactions by compounding interest at frequent intervals. . . .’ (47 C.J.S., Interest, § 21, p. 34; italics added.)” (95 Cal.App.3d at p. 915.)
In other words, there is no .statutory or constitutional proscription per se against court-ordered compounding of postjudgment interest awarded pursuant to article XV, section 1 of the California Constitution.
My research has turned up only one case specifically holding that post-judgment interest should not be compounded. That case is Glenn v. Rice (1917) 174 Cal. 269 [162 R 1020], an action on a promissory note, which held that “[A judgment] bears interest at the rate of seven per cent per annum from its date by force of the law and not by reason of any declaration it may contain to that effect. (Civ. Code, sec. 1920; Code Civ. Proc., sec. 682.) And such interest must not be compounded. The judgment appealed from was *902erroneous in declaring that the interest thereon at seven per cent should be compounded annually. (Civ. Code, sec. 1920.)” (Id. at p. 276.)
Civil Code section 1920, in 1917, at the time Glenn v. Rice was filed, specifically prohibited compounding postjudgment interest. It provided:
“Interest is payable on judgments recovered in the Courts of this State, at the rate of seven per cent per annum, and no greater rate, but such interest must not be compounded in any manner or form.”
Civil Code section 1920 was repealed by the initiative measure enacted by the electorate at the general election held on November 5, 1918. That measure, designated as the “Usury Law,” provided, in relevant part:
“Section Í. The rate of interest upon the loan or forbearance of any money, goods or things in action or on accounts after demand or judgments rendered in any court of this state, shall be seven dollars upon the one hundred dollars for one year and at that rate for a greater or less sum or for a longer or shorter time; but it shall be competent for parties to contract for the payment and receipt of a rate of interest not exceeding twelve dollars on the one hundred dollars for one year and not exceeding that rate for a greater or less sum or for a longer or shorter time, in which case such rate exceeding seven dollars on one hundred dollars shall be clearly expressed in writing.
“Sec. 2. No person, company, association or corporation shall directly or indirectly take or receive in money, goods or things in action, or in any manner whatsoever, any greater sum or greater value for the loan or forbearance of money, goods, or things in action than at the rate of twelve dollars upon one hundred dollars for one year; and in the computation of interest upon any bond, note, or other instrument or agreement, interest shall not be compounded, nor shall the interest thereon be construed to bear interest unless an agreement to that effect is clearly expressed in writing and signed by the party to be charged therewith. . . .
“Sec. 4. Section[] . . . one thousand nine hundred twenty of the Civil Code and all acts and parts of acts in conflict with this act are hereby repealed.”
Notably, section 1 of the Usury Law (recited in Deering’s Ann. Uncod. Measures 1919-1 (1973 ed.) p. 35) defined the maximum rate allowable on *903all forms of interest-bearing obligations, including judgments, while section 2 (recited in Deering’s Ann. Uncod. Measures 1919-1, supra, p. 40) proscribed the compounding of interest on “any bond, note, or other instrument or agreement,” but did not proscribe the compounding of interest on judgments.3 Furthermore, while section 2 made it clear that the maximum interest rate could not be evaded by “directly or indirectly tak[ing] or receiv[ing] in money, goods or things in action, or in any manner whatsoever, any greater sum or greater value for the loan or forbearance of money, goods, or things in action,” no similar proviso applied to judgments.
In 1934, section 22 of article XX of the California Constitution was added. Section 22 did not repeal the Usury Law totally, but did reduce the maximum interest rate upon any loan or forbearance of money from 12 to 10 percent (French v. Mortgage Guarantee Co. (1940) 16 Cal.2d 26, 33-34 [104 P.2d 655, 130 A.L.R. 67]), and placed in the hands of the Legislature control of the interest rates allowed to be charged by certain exempted groups, such as specified building and loan associations and banks. (Penziner v. West American Finance Co. (1937) 10 Cal.2d 160, 173 [74 P.2d 252].) In 1976, article XX, section 22 of the California Constitution was repealed, and article XV, section 1, was added.
Thus, following the repeal of Civil Code section 1920, which had proscribed compounding the interest on judgments, no constitutional provision or code section was ever enacted in which there was a prohibition against compounding the interest on judgments.4 It is a basic rule of statutory interpretation that the deletion of an express provision of a statute by exercise of a legislative power is intended to be a substantial change in the law. (People v. Dillon (1983) 34 Cal.3d 441, 467 [194 Cal.Rptr. 390, 668 P.2d 697].)
Given the fact that former Civil Code section 1920 specifically prohibited compounding the interest rate allowed on judgments and that Civil Code section 1920 was then repealed at the same time as, and in connection with the adoption of, the Usury Law, which specifically prohibited compounding interest rates on all manner of obligations except judgments, and that all *904subsequent constitutional amendments and legislative enactments related to maximum interest rates and the compounding of interest rates have similarly failed to specifically prohibit the compounding of interest on judgments, or to proscribe the obtaining of more than the maximum rate of interest on a judgment through any other means, I conclude that there is no statutory or constitutional impediment to a trial court’s inherent equitable power to order that interest on a judgment be compounded, so long as such power is exercised in the interest of justice, i.e., according to those guidelines, established by case law, which set forth the circumstances under which the compounding of interest is proper. In fact, the above described legislative history indicates an implicit grant of such power.
The majority opinion also relies on Law Revision Commission comments to Code of Civil Procedure section 683.110, which section prevents renewal of a judgment more often than once every five years, as further evidence of the Legislature’s intent to prohibit compounding postjudgment interest. However, this legislation, as the comments clearly show, was intended to prevent a judgment creditor from obtaining, unfettered by any judicial intervention, compounded interest on judgments in every kind of case, whether based on simple contract, personal injury, fraud, or constructive fraud. Such authority is simply irrelevant to an analysis of whether a trial court, in cases involving the wrongful obtaining of a monetary advantage by a fiduciary over a beneficiary, has the discretion, the exercise of which is subject to judicially created standards, to award postjudgment compound interest.
In this particular case, the jury specifically found that a confidential relationship existed between defendant and plaintiff in March 1975, when defendant, as a fiduciary, breached the covenant of good faith and fair dealing implied in the will contract of August 12, 1968, and committed constructive fraud. It also found that plaintiff, as a beneficiary, had suffered monetary damages from such wrongful conduct. It is well established by case law that when one in a position of trust and confidence uses the property of another for his own purpose, a court may charge him with compound interest on the theory that in the absence of evidence to the contrary, he will be presumed to have received a profit from the use of the property, and, concomitantly, that the beneficiary has been deprived of such profit. (See, e.g., Estate ofPiercy (1914) 168 Cal. 755, 757-758 [145 P. 91]; Wheeler v. Bolton, supra, 92 Cal. 159, 172; Big Bear Properties, Inc. v. Gherman, supra, 95 Cal.App.3d 908, 913.)5 The above cited cases all involve awards of prejudgment interest, but there is no reason that the same principle, which is equitable in nature, should not apply to postjudgment *905interest, for it equally may be presumed that during the time the defendant retains the sum payable pursuant to the judgment, the defendant will receive profit from the use of the property, and that the beneficiary will be deprived of such profit.
Accordingly, in my opinion, the trial court had the equitable power to award postjudgment compound interest on the jury’s award of $500,000 compensatory damages and, further, given the jury’s findings that defendant was in a confidential relationship with plaintiff when he engaged in constructive fraud and violated the implied covenant of good faith and fair dealing of his contract with plaintiff, the court did not abuse its power in doing so.
Conclusion
I would therefore modify the judgment and affirm it as modified, in the following language:
The “Amended Judgment” is modified to provide as follows (Snapp v. State Farm Fire & Cas. Co. (1964) 60 Cal.2d 816, 822 [36 Cal.Rptr. 612, 388 P.2d 884]): At page 2, line 23, of the “Amended Judgment,” the paragraph beginning “Now, Therefore, It Is Adjudged” is stricken, as is the full paragraph beginning at page 3, line 3. In place of these two paragraphs is inserted the following language:
Now, Therefore, It Is Adjudged, Ordered and Decreed that plaintiff Robert Machris Westbrook have and recover from defendant Peter F. Fair-child the sum of $200,000 punitive damages, together with simple annual interest thereon commencing February 6, 1987, at the rate of 10 percent (10%) per annum until October 30, 1989. Plaintiff shall also have and recover from defendant the sum of $500,000 compensatory damages together with simple annual interest thereon commencing February 6, 1987, at the rate of 10 percent (10%) per annum until October 30, 1989. Postjudgment interest on the award of $200,000 punitive damages is awarded at the rate of 10 percent (10%) simple annual interest from October 30, 1989, until the full amount of the $200,000 plus interest is paid. Postjudgment interest on the award of $500,000 compensatory damages is awarded at the rate of 10 percent (10%) interest, compounded annually, from October 30, 1989, until the full amount of the $500,000 plus interest and costs is paid.
I would also order that each party should bear his own costs on appeal.

There is a clear difference between the rate of interest and the manner in which that rate is applied to the principal. (See Helland v. Helland (1991) 214 Ill.App.3d 275 [573 N.E.2d 357, 359].)

The majority opinion states that I find the equitable power to compound postjudgment interest “exists in fraud cases.” (Maj. opn., ante, at p. 896.) This is not an accurate representation of my position. I believe such power exists in cases in which, as found by the jury here, a confidential relationship existed between the plaintiff and defendant, during which relationship the defendant entered into a transaction with the plaintiff whereby the defendant’s position was improved, or the defendant otherwise obtained a favorable, beneficial or profitable opportunity to the detriment of the plaintiff, i.e., when there has been constructive fraud. (See maj. opn., ante, at pp. 892-893, 894-895.) Furthermore, State of California v. Day (1946) 76 Cal.App.2d 536 [173 P.2d 399], on which the majority relies for the implicit proposition that postjudgment compound interest may not be allowed, was not only not a constructive fraud case involving a confidential relationship, but was also not a postjudgment interest case. (See Big Bear Properties, Inc. v. Gherman (1979) 95 Cal.App.3d 908, 914-915 [157 Cal.Rptr. 443].)

The majority opinion’s analysis fails to consider the salient fact that Usury Law section 2’s prohibition against compounding does not apply to judgments. (See maj. opn., ante, at pp. 895-896.)

Contrary to the majority opinion’s representation, I do not believe that the 1918 repeal of Civil Code section 1920 “somehow prevented the voters from enacting any future constitutional provision that would prohibit compounding postjudgment interest.” (Maj. opn., ante, at p. 896.) There is no question that the voters have such power. However, I simply find no evidence that since 1918 the voters have enacted a constitutional provision prohibiting the compounding of postjudgment interest.

Because of this rationale, neither prejudgment nor postjudgment interest on punitive damages, as opposed to compensatory damages, should be compounded; compounding is intended to make sure the beneficiary receives those profits obtained from the beneficiary’s *905property by the fiduciary to the detriment of the beneficiary. It is not to punish defendant or to make an example of him. (Civ. Code, § 3294.)