Taylor v. Budd

California Supreme Court Jan 20, 1933 No. Docket No. S.F. 13763.Published

Before: Langdon

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Holding. The court held that a loan agreement requiring interest payments in advance at the maximum legal rate is usurious, and that a borrower's subsequent agreement to modify the note does not constitute a waiver or compromise of claims for past usurious payments absent consideration or intent.

Issues

Whether a loan requiring maximum interest paid in advance is usurious.
Whether a borrower's modification of a usurious note constitutes a waiver or compromise of past usury claims.
Whether a formal tender of a specific sum is required to maintain an equitable action for an accounting of usurious payments.

Disposition. reversed

Quotations verified verbatim against the opinion

“The original loan was usurious for two reasons. First, as admitted by all parties, the requirement of the maximum interest (twelve per cent) monthly in advance was a violation of the statute”

“No compromise or waiver of any claim for past usurious payments resulted from plaintiff Felton Taylor’s act in initialing the change in the note. As a compromise and release it was totally lacking in consideration”

“Waiver is an intentional relinquishment of a knoicn right.”

LANGDON, J.

This is an action for an accounting and other relief based upon a claim of usury in a loan from defendant Noble to plaintiffs. On May 2, 1925, plaintiffs, husband and wife, borrowed money from said defendant, executing a promissory note for one year in her favor in the amount of $11,000, secured by a deed of trust on real estate, with defendant Budd as trustee. The note contained provision for interest at twelve per cent per annum, payable monthly in advance. At the time of making the loan, $220 was deducted and paid to a real estate firm and an attorney for brokerage and legal services. At such time, also, the first month’s interest on $11,000 was deducted by the lender. Hence, plaintiffs received a total of $10,670, for which they agreed to pay and did pay interest at the rate of twelve per cent on $11,000, monthly in advance.

After the note became due, interest payments were continued and on November 2, 1926, at the demand of defendants, the loan was renewed, and plaintiffs paid to the same attorney the sum of $165 for legal services in negotiating the said renewal. The new note was for the same amount as the old, with the same interest provision, and plaintiffs continued their payments of interest in advance.

On September 2, 1927, after the decision of this court in

Haines

Commercial Mortgage Co.,

200 Cal. 609 [254 Pac. 956, 255

Pac.

805, 53 A. L. R. 725], defendant Budd sent for plaintiff Felton Taylor, and after informing him of

[265]

the holding of that case, struck out the words “in advance” from the interest provision of the renewal note, telling him that he need not pay interest monthly in advance in the future. Taylor initialed the change, and paid no further interest in advance.

Some time thereafter, in March, 1928, the plaintiffs defaulted. On June 23, 1928, the trustee instituted proceedings to sell the property under the deed of trust. On October 2, 1928, plaintiffs brought this action to declare the loan usurious and the interest provisions void; to determine the amount due from plaintiffs after credit for usurious interest paid and treble damages for usurious interest paid during the year prior to the filing of the action; and to enjoin the sale save for such sum as might be properly due. Plaintiffs offered to pay whatever sum was found by the court to be proper.

Taylor v. Budd

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LANGDON, J.

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