Hersum v. Latham

MUSSELL, J.

Plaintiffs appeal from a judgment against them on the first cause of action in a complaint in which they alleged that defendants had extracted interest from them in excess of 12 per cent for the loan of money.

Plaintiffs were the owners of and operated a wholesale and retail lumber and supply business in Chula Vista. Prior to August 6, 1951, they became involved in financial difficulties and to secure cash for working capital and to meet their financial obligations, they procured a loan from the San Diego Wholesale Credit Men’s Association and executed a promissory note therefor in the sum of $24,000. The note was secured by a deed of trust covering their home and other real property. Plaintiffs were unable to pay the note and it became apparent that their creditors would foreclose the trust deed and enforce their claims. Mrs. Hersum then, on or about June 1, 1951, approached defendant George Latham (who was manager of defendant American A-One Investment Company and who, with his wife, owned controlling interest therein) for the purpose of securing a loan. Mr. Latham testified that he informed her that he was not in the loan

business;

that two or three weeks later she again called upon him and asked for a loan and it was refused; subsequently the agreements, which are the subject of this controversy, were executed by the parties.

In the first of these agreements, dated August 6, 1951, between American A-One Investment Company and the plaintiffs, American agreed to purchase the $24,000 note held by the "San Diego Wholesale Credit Men’s Association, and to extend the note and trust deed for a period of two years, if

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the interest and other payments were made on it. Plaintiffs agreed to execute a chattel mortgage on their personal property as additional security. They agreed to form a corporation to take over and operate the lumber business and agreed to transfer all their assets, except clothing and personal effects, to the corporation. It was agreed that the new corporation should issue 5,000 shares of' stock, of which American was to receive 2,750 shares, and that these shares would be released to plaintiffs when the said $24,000 note had been reduced to $10,000. American agreed to give plaintiffs a 10 per cent discount on the $24,000 note if paid within two years. Detailed arrangements for the operation of the business by the parties were then set forth in the agreement. On September 6, 1951, an amendment to this contract was executed by the parties in which American agreed to advance an additional $10,000, secured by a trust deed and chattel mortgage and the number of shares of the new corporation to be given to American was reduced to 2,450.