Sharp v. Mortgage Security Corp. of America

PRESTON, J.

The third amended complaint in this action is declared by plaintiffs and appellants to state a cause of action in equity for an accounting and for a preliminary injunction against defendants meanwhile, based upon the alleged presence of usury, fraud and unsoundness of mind of one of the plaintiffs, all respecting a certain loan transaction. Defendants demurred to the complaint on general and special grounds. The demurrer was sustained with leave to amend, but this privilege plaintiffs declined. Judgment, therefore, passed for defendants; hence this appeal.

Plaintiffs borrowed $27,500 from the defendant Mortgage Security Corporation of America, a foreign corporation, giving therefor a series of thirty promissory notes, all dated

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May 15, 1926, in amounts of $500 and $1,000, due at stated periods over the years from 1928 to 1936, inclusive, and bearing on their face interest at five per cent shown by interest coupons thereto attached. On the same day a second series of nineteen promissory notes, maturing at quarterly periods between July 15, 1926, and January 15, 1933, were also issued by plaintiffs. These notes aggregated the sum of $4,585; twelve were of the denomination of $297; two of the denomination of $130; two of $135; one of $131; one of $136 and one of $224.

Each note of both series is payable to bearer and is secured by a deed of trust in elaborate form on Los Angeles real property, executed by plaintiffs as joint tenants, naming defendant Security Title Insurance and Guaranty Company, a corporation, as local trustee, and Union Trust Company of Maryland, as foreign trustee. The provision for the payment of said promissory notes is that plaintiffs are to pay to the Mortgage Security Corporation of America, which is in turn to deposit the funds with the Union Trust Company of Maryland, the sum of $286 each month, beginning June 15, 1926, and continuing until May 15, 1936, on which last-mentioned date plaintiffs are to pay the additional and final sum of $11,000. Presumably these amounts, if paid when due, would be sufficient to retire, pay and discharge the various promissory notes executed by plaintiffs.

The cause of action attempted to be set up in count number one of the complaint here under review is predicated upon the averment that the above-mentioned transaction is usurious. Just how this occurs is not clearly set forth, but it is conceded that if the contract is lived up to by both parties according to its terms, no usury will result, provided the whole period of forbearance is taken into consideration when testing the transaction for the presence of usury. This test, however, is challenged and claim arises under the averment that inasmuch as plaintiffs made the monthly payments required, beginning June 15, 1926, and up to and including April 16, 1929, paying a total of $9,438, they paid up to that date the sum of $3,146 in interest, which is usury. How this figure is arrived at does not appear, but it is further alleged that on June 10, 1929, the Mortgage Security Corporation filed with the local trustee its declaration that, under the said written instrument, by reason of plaintiffs’