*1 No. May 30795. 1978.] [L.A. al., v. McCONNELL et Plaintiffs and
JOHN A. Appellants, SMITH, INC., FENNER LYNCH, PIERCE, & MERRILL Defendant and Appellant.
Counsel Crahan, Jr.,
Marcus and Jack D. Scott for Plaintiffs and Appellants. Macdonald, Halsted & and Joel Peter Brown Doland Mark Laybourne, for Defendant and Appellant.
Opinion TOBRINER, J.Plaintiffs filed a action defendant broker- class against first, firm. that defendant com- They alleged, charged age unlawfully on the without a clear interest debit balance accounts pound written of interest agreement authorizing required customer’s section of the Law. that defendant’s Usury Finding 2, the trial court with the of section agreement complied requirements to amend. sustained defendant’s demurrer to this without leave charge interest. excessive that defendant further Plaintiffs alleged a rate of variable that defendant specifies complaint rate; in 1973 brief on the federal call based during period money from the 10 first secured before percent exemption XX, the California Constitu- 22 of article section maximum permitted by defendants tion, increases the call led charge money court, however, maximum.1 The trial excess of the passing action, the class limited class narrowly viability plaintiffs’ proposed and, who attack such interest could charges, finding persons restricted, refused to were members class as certify a class entered the suit as action. court thereupon judgment defendants, from now which plaintiffs appeal. below, our
We reasons reversing judgment explain face on its First, in our defendant’s customer’s is not opinion with and as matter law clear to section sufficiently comply Law; the thus states a cause of action unlawful charging Second, in the interest. case of variable collection compound XX, rate the under section lawfulness article *5 the full term of does interest over depend average charge upon ruled, loan, as the trial court but whether the entered upon parties in into the variable-rate faith and intent avoid without to good laws. face the therefore a On its states cause action, but the faith to issues of and intent violate the usury good possible must be at laws resolved trial. Since the trial court relied upon of law to exclude the class of from inapplicable principle 1919-1, 2 (1973 ed.) 1 Section of Law Measures 2§ Ann. Uncod. [Deering's 40; 1916, ed.) (1978 Ann. (1954 10 West's Code 137 Cum. § Civ. foll. p. p. Supp.) p. 31] a maximum of 12 was rate of interest That section in percent. superseded by specified part XX, Constitution, the enactment in 1934 of article section 22 of the California which XX, a maximum section 22 renumbered in 1976 rate of 10 Article was percent. specified XV, 1. article section XX, case that: At all times relevant article section provided to or or in “The rate of interest the loan forbearance any money, goods things upon State, action, shall any or on accounts after demand or rendered court of judgment or it shall be to loan parties any be 7 annum but competent percent per contract for a rate of or in action to things writing forbearance any money, goods annum. not exceeding interest per percent fee, bonus, association, or shall by charging any “No person, copartnership corporation commission, from a more than 10 discount other receive borrower compensation annum or forbearance of or things loan any money, goods percent per any action.” “However, shall 22 went on none of above restrictions Section to provide laws, licensed as to licensed under various including corporations corporations apply” 26,1973. Defendant first obtained such license on brokers. September personal property its of defendant’s interest who could ruling charges, complain persons also be reversed. a class action must to suit.as certify plaintiffs’ refusing court. 1. Proceedings superior established McConnell John and
Plaintiffs allege they Marguerite in 1966. customer’s account with defendant margin balance in “The debit monthly part by plaintiffs provided signed custom with usual in accordance shall be account(s) your charged, my on which include the with interest at a rate shall by you average paid balances covered such loans by respective- during period your general with a rate caused market extra charge stringency, together ly, Defendant and facilities.” cover credit service computes your each month to the at the end of It adds interest on a owing 360-day year. balance bears interest in account which of the customer’s debit balance The rate of month, thus monthly. following defendant the rate is set to pays equal “call rate”) (the loans commercial lenders money plus brokerage debit-balances over annum for from Vi service percent per charge ranging $10,000. balances under $35,000 annum for to lVz per percent rate increased the call the summer of 1973 steadily, money During 4. Plaintiffs’ on 5 and 10 September July percent reaching percent than of less a debit balance showed account this during period of 1Vi ato service $10,000 and thus became percent. charge subject period the rate of during charged plaintiffs Consequently, exceeded 5, 1973, to per percent from July September limit the 10 defendant was annum. this subject During period *6 26, however, XX, 22; section on of article lawful interest September on which broker a license as a defendant secured property personal the 10 it from ceiling. percent exempted of all California filed and on behalf of class Plaintiffs suit individually with defendant from who maintained accounts customers margin 26, 1973, 26, 1971, to and who were November charged September five Plaintiffs’ second amended asserts unlawful interest. of action action. The first and second causes causes of alleged in of section violation defendant charged compound on interest “unless Law, which prohibits charging ,”2 The third effect is to that writing... clearly expressed “No association or Law reads as follows: company, 2 of the Usury person, 2Section action, or money, goods things or take or receive directly indirectly shall corporation that defendant interest in and fourth causes of action alleged charged XX, of article of the California excess of 10 in violation section percent of action relief with Constitution. fifth cause declaratory sought and usurious interest. to the alleged compound respect payment for of interest recovery charged during Finally, plaintiffs prayed and for treble damages. period question,
When defendant demurred the second amended complaint, plain- motion, earlier, tiffs asked trial court to rule their filed upon certification of their suit a class action. The court ruled in a accordingly order both that motion and defendant’s demurrer. As to the single upon interest, of unlawful the trial held that court allegations compounding its face with customer’s complied requirements section 2 of the The court Law. therefore sustained defendant’s Usuiy demurrer without leave to amend to the first and second of action causes and that cause of fifth action respecting portion interest.
The court entered a order on the causes of action complex asserting First, excessive interest. court determined that charged the usurious character of the interest must be determined the interest over a from the of each averaging period running opening account to 1973. It therefore concluded that the September class, usurious interest were those members of only persons charged which class,” it referred to as the “court’s who accounts opened shortly 26, 1973, before at a time when interest rates were such September high, that the rate of interest from the of the account average opening 26 exceeded a 10 annual rate. The court ruled then September that as to the “court’s class” (a) common of law fact questions for the of treble class predominated (b) except question damages, action other available methods procedure surpassed adjudication but that were not members class and (c) controversy, whatsoever, or in other manner sum any greater any greater or value for loan or forbearance of money, or action than goods at twelve dollars things bond, one hundred for one dollars and in the of interest year; computation upon any note, or other instrument interest shall agreement, nor shall compounded, *7 interest thereon construed be to bear interest unless an to that effect is agreement clearly in and the expressed writing signed to be by party therewith. or Any agreement contract of nature in conflict with the any of this section provisions shall be null and void as to therein any agreement contained stipulation to and no action at law pay to recover sum shall be maintained debt and the can not be declared due until the full of 1, time it period was contracted for has As noted in footnote elapsed.” ante, the maximum percent this section was specified the superseded provisions XX, of California Constitution article section 22. it.3 to the court could not As treble (d) damages, properly represent did fall the of the class action that this issue not within declared scope based discretion would assess such the court in its because damages to each customer. and facts unique peculiar class on the
The court refused to ground certify plaintiffs’ proposed of account to from the that, if interest were opening averaged “court’s class” 26, 1973, those the smaller only persons September The court of annum. excess actually paid percent per however, class were that if declared recognized, plaintiffs’ hypothetically, into who customer’s two subclasses: those it would necessarily signed split their that New York law would that govern provided agreements clauses, those, and such as and that contained arbitration interpretation As to the who those latter provisions. plaintiffs, signed agreements lacking subclass, law fact court that common of and found (a) questions for the of treble that class (b) damages, predominated except question (c) action mode of adjudicating controversy, presented superior subclass, that were members of the and that could (d) plaintiffs plaintiffs the subclass. fairly represent a cause of on action for could stated
Concluding although class,” behalf the “court’s not members of and could were plaintiffs class, suit the court entered its order dismissing represent plaintiffs’ from the as both a class and individual action. Plaintiffs appealed dismissal; from portions judgment cross-appealed class action ruling.4 2. Section 2 Law prohibits of in to that
interest “unless clearly expressed effect and to the customer’s party charged”; writing signed with that does not its requirement. comply face which interest their account six enjoyed during 3Having plaintiffs years opened interest in excess than Thus were were less 10 percent. although plaintiffs charges by plaintiffs, the summer during average paid 26, 1973, was less than 10 of their account from opening September computed percent. class” 4The attacks the trial court’s “court’s common cross-appeal ruling means of class action is superior adjudicating questions predominate all It further attacks the court’s ruling concerning controversy. hypothetical portions who choice law and arbitration lacking the subclass of signed agreements clauses.
373 Law that “... in states Section the Usury part computation bond, note, or other instrument of interest agreement, upon nor the interest thereon shall not be shall compounded, to that effect is to bear interest unless construed clearly to be therewith. .. and signed party writing expressed does not assert that the customer’s Plaintiffs clearly provide interest, violated the and hence that defendant compounding interest. Law charging compound earlier, As we noted the customer’s agreement signed that “The debit balance in provided shall be monthly account(s) my in accordance with usual custom charged, with interest....” your Defendant first that the debit balance” argues phrase “monthly clearly denotes that will because each debit compounded monthly balance includes interest assessed in months. charges prior
To establish that interest was not illegally compounded relies on cases of Lewis v. & States Sav. Loan Co. (1934) Pacific Cal.2d 691 P.2d 439], and Ricord v. Aragon [37 Cal.App.2d 176, 178 P.2d 759], which held that the involved [251 lending agreements there did not laws; decisions, violate the however, are both in Lewis and Ricord distinguishable. Although agreements identify certain bonuses and service which the courts found “principal” charges, interest, to be a form each cases stated agreement clearly on its face that the labeled, interest, however were and charges, subject thus authorized interest. clearly charging
The courts have also in Heald Friis- v. upheld lending agreements Hansen (1959) Cal.2d 834 P.2d v. Penzner Foster (1959) [345 457] 108-109 P.2d but the in those 533], agreements cases that interest not would become provided specifically paid part and thereafter bear interest. Defendant’s customer’s principal agreement, contrast, neither identifies as a nor form unpaid principal states that interest is itself to an interest expressly unpaid subject charge. The term debit balance” could be construed to refer “monthly reasonably That balance. term does not a clear constitute only principal of interest. expression authorizing Defendant also custom,” “usual its to which it referred in argues the customer’s includes its agreement, practice charging compound
374 however, that The does not interest.5 face agreement, specify interest. embraced the of defendant’s custom charging compound at the of this weakness its position, Cognizant of a to take notice demurrer asked the trial court on the judicial hearing state “What is and of defendant’s booklet entitled monthly Margin?” of to its custom ments charging compound plaintiff proof defendant, a to In to this interest.6 according response request, court could consider which the that the ensued in parties agreed colloquy k for the demurrer as motion partial summary judgment.7 however, the a Viewed as motion for partial summary judgment, deficient, no show that is for declarations defendant’s presentation plainly “custom” in the booklet and statements fact defendant’s represented Neither do declarations show that and other members 1973. plaintiffs 5In to defendant’s contention that defendant’s usual custom included responding interest, v. 54 (1942) on Robertson Dodson rely heavily charging compound plaintiffs real 726], 661 In that case the to P.2d plaintiff agreed purchase property Cal.App.2d [129 a a Plaintiff from the defendant after deed from third lender. trust securing party it called refused to the offered the lender because for sign by note subsequently the contract interest. Defendant claimed that had breached land sale compound plaintiff note, that lender’s usual to since knew by unreasonably refusing sign plaintiff custom was to interest. charge compound In stated that in view the defendant’s Court rejecting argument, Appeal interest be in section 2 of the Law that an for Usury requirement clearly expressed compound consent to "such the court could not writing, imply held, as an interest. “Custom and the court used instrument of usage,” “may 661, (54 665.) but not be used to create contract.” Cal.App.2d may interpretation, however, case, In “usual the contract itself referred to defendant’s custom.” present contract, Evidence of custom in the case thus not to create a new but would serve 2 written Plaintiffs not contend that section of the do interpret parties’ agreement. Law at show that contractual bars admission extrinsic evidence trial to language interest. intention to clearly expressed permit compounding parties’ or other matter extrinsic to the demurrer cannot based evidence 6Ordinarily upon 215, (See, (1957) 910].) Cravens v. 154 217 P.2d e.g., Coghlan Cal.App.2d complaint. [315 however, into evidence Defendant that since the booklet had been offered by argued, (See demurrer. Able v. the court could take notice of it ruling plaintiffs, judicial 481]; (1963) v. Dixon Van Der Zee Dwan Cal.App.2d Cal.Rptr. [64 749].) Cal.Rptr. is at length is the record on The colloquy 7This part appeal. quoted colloquy and in defendant’s answer to in the Court of for petition rehearing Appeal plaintiffs’ plaintiffs’ agreed discussion indicates quoted plaintiffs petition hearing. The discussion the demurrer. was before the court on customer’s agreement properly or demurrer or the booklet “What Margin?” indicate that court agreed does not before court either by statements were defendant’s monthly properly motion summary judgment. as a motion for “The considers the demurrer minute order states that Court The court’s for defendant order counsel formal prepared summary judgment.” partial court, however, and follows the to summary makes no judgment reference signed of the complaint. based the face for a on demurrer ruling form appropriate *10 the class received the booklet were aware of the “custom” or that the intended the contractual reference to “custom” to authorize parties of interest.
Moreover, order, to the court’s counsel for preamble prepared by defendant, states that “all counsel that ... the Court expressly agreed .. could . make a determination as whether or not the subject ‘Cústomer’s alone and not in with Agreement’... standing conjunction admitted, other evidence that have been with the may previously complied 2 of the (Italics The court’s added.) requirements Usury [section Law].” followed identical thus that the court did ruling language, demonstrating not consider booklet or statements in on the demurrer. ruling
In the customer’s on face does its summary, agreement clearly that interest would The trial express understanding compounded. court therefore erred in defendant’s demurrer on basis that sustaining on face its with section of Law. That complied cannot be sustained on the that the demurrer was a motion ruling theory the trial court based its on partial summary judgment; clearly ruling the face and the record on does not establish as agreement, appeal matter law that the reference to defendant’s “usual agreement’s custom” demonstrates parties writing” “clearly expressed defendant could interest. charge compound
3. Since the to a variable-interest which could parties agreed exceed the constitutional limits under certain contingencies, on whether the contracted agreement depends parties lawfulness of and without intent to avoid the laws. goodfaith usury earlier, As we noted and defendant entered into an which for a variable interest rate. Because an increase in the provided rate, defendant, call to that money pursuant agreement, charged 5, 1973, in excess from until 1973. percent July September issue before us is laws, whether such violated the charges usury section 2 of the initiative act as modified the 10 specifically XX, limitation on interest of article section of the California Constitution.
While instant case was the Court of pending appeal, Appeal its in Arneill Ranch v. Petit opinion published of Justice Potter in Arneill Ranch Cal.Rptr. opinion 456].
elucidated the variable-interest rate principle agreement, although
it conditions for of 10 under certain excess charges provides violate the if the does not excessive interest percent, prohibition parties contracted faith and without intent to avoid the laws. Our good discussion of the issue of excessive interest in the case follows the of Justice Potter Arneill Ranch. analysis “ *11 Ranch, for interest ‘at
In the debtor note Arneill signed providing annum, at 2 or the rate the oflVi percent..., per prime plus ” increases in at Because of (64 280.) whichever greater.’ Cal.App.3d p. .is rate, the in Arneill Ranch for the the debtor period prime 1, 1, 1973, and to October 10.008 the during equalled percent, April 1, 1973, 1, 1974, October 11.46 percent. period April equalled usurious, the note was the debtor sued treble Maintaining damages. and the to be resolved in both Arneill Ranch first present question which interest would be
case was the of the over period computed length As of was usurious. instant to determine whether the rate that the character of case, the court in Ranch held usurious trial Arneill of the be over the full loan. the interest must determined period charge Ranch, over the entire Arneill Since the total interest spread charge court concluded loan, the trial did exceed percent, period for some not usurious even the interest note was charges though interim exceeded percent. periods Ranch, court, the trial in Arneill
The Court pointed reversing Appeal over the of interest which sanction original out all cases averaging total in which the loan “involved situations full compensa- period total loan on account included some to the creditor tion charges did not which, such when produce throughout period, spread period but, reason the debtor’s the maximum rate in excess of total return term, excess.” (64 did such produce shortening voluntary Guarantee Co. 277, 290; French v. Mortgage citing Cal.App.3d and cases there listed.) P.2d 130 A.L.R. 26, 29-32 Cal.2d 67] entire circumstances, over the Under such original averaging debtor, default or term serves premature purpose preventing into a transaction an innocent from transforming unfairly payment, one. usurious decisions which different from those case quite present be over the full that interest should rule
established averaged general indeed, the loan; term of in the context such rule would prove unworkable. Plaintiffs’ account a credit contemplates arrange- interest, duration, ment variable of indefinite balance. fluctuating If interest loan, were to over full term of the there would averaged be no to determine whether an credit were way existing arrangement not; lawful that issue could not be resolved until the account were closed, and either debtor or creditor moment by choosing right close the account could cause interest over the term to exceed lawful rates.
As Ranch Arneill at (see 293), when explained p. rate, for a no variable-interest total agreement provides agreed profit to the lender can over the entire loan. Under averaged period circumstances, such the interest for each of the loan term payable portion is the to the lender for his forbearance from compensation requiring *12 immediate of the sum payment principal during portion specific the term. Thus the fact the interest on a variable-rate average charge loan does not exceed the maximum rate is in not itself sufficient to establish that loan with the if the laws usury complies for a of forbearance exceeds the limit. particular period legal
That conclusion us to the whether an brings question agreement which for variable which under some provides contingencies may exceed constitutional limit is usurious. two cases Although prior 429, Inc. v. Warden 100 P.2d 450 (1950) 421]; (Calimpco, Cal.App.2d [224 v. 578, Penziner West Finance American Co. 133 590 (1933) Cal.App. [24 P.2d state that an 501]) is usurious if a not in agreement contingency interest, borrower’s control causes the excess both cases involved agree ments to evade the (See laws. Arneill Ranch v. allegedly designed usury Petit, 277, 64 On 284-285.) the other hand the supra, Cal.App.3d majority of decisions of a variable interest if the uphold legality transaction was faith consummated without intent to avoid the good Petit, 289; 277, laws. Ranch v. (Arneill 64 usury supra, Cal.App.3d 341, v. Thomassen Carr 250 (1967) 297]; 346-348 Cal.App.2d Cal.Rptr. [58 v. Wooten Coerber 213 142 (1963) 635]; v. Cal.App.2d Cal.Rptr. [28 Schiff 493, 446]; Pruitt 144 499 P.2d (1956) P. Ltd. Cal.App.2d Miley Corp., [301 182, v. Amerada P. 18 P.2d (1936) 1210]; 189 Lamb Corp. Cal.App.2d [63 193, v. Herndon 97 503]; 201 P. Jameson v. Warren (1929) Cal.App. [275 590, Rest., Contracts, P. see 372]; 527.) § Cal.App. of the recognition contract faith a right parties good rate, variable-interest even such rate at times exceed the though may maximum, finds in the constitutional weight authority only support case, In sense. but also in example, good practical lends at a that it that it borrows defendant asserts money plaintiffs rate, within the interest, set factors not rate parties’ call-money loans to that defendant’s Thus the control. parties may reasonably agree with the bear at a rate which varies unison will plaintiffs rate is at times when call rate. high Although money call-money interest, when at times more than may paying plaintiffs rate. than the maximum less rate lower legal may for the laws without consideration A strict construction usury defendant, force whenever of variable-rate loans would characteristics rates, in its to choose between confronted with calling call-money high cost, or for less than even loans advancing money though and faith without defendant entered into margin agreements good intent to avoid laws. usury
Therefore, that defendant did in at fact a rate assuming charge excess of 10 the summer of the lawfulness of that percent during turns on “whether the acted in faith without charge parties good laws,” intent avoid the the transaction as an cast merely for variable of interest “as colorable to obtain a device than was under (Arneill laws.” greater profit permissible usury] [the Petit, Ranch v. the documents 289.) supra, Although *13 faith, us the before on consistent with appeal good plaintiffs, appear below, were framed were not cálled to contest defendant’s issues upon and the did of faith court its decision on ground good good place Petit, 277, v. 64 294.) faith. Arneill Ranch (See supra, Cal.App.3d faith which thus remains matter must resolved issue good by trial court. motion
4. trial court’s ruling upon plaintiffs’ for certification be remanded the suit as a class action should further of consideration. for certification of order on motion The trial court’s complex plaintiffs’ relates to the court’s their action misapprehension inextricably were The crucial determination plaintiffs controlling legal principles. action of a who could state a cause of for excessive not members class trial court’s view that interest must rests directly upon 26, to 1973. from the account September averaged margin opening of treble of the court’s on issue With damages, exception ruling order order the court’s including challenged by portion
379 rests also on this and, mistaken in view of the above cross-appeal premise discussion, should be remanded to the court trial for reconsideration.
The trial court’s could not assert class action to ruling however, recover treble rests damages, independent ground. the trial court concluded that because the Apparently “grant of treble is a within matter the trial ing damages finding usuiy court’s discretion” v. (Burr 983, Reserve 71 Cal.2d (1969) Capital Corp. 345, 994 458 P.2d all cases such 185]), Cal.Rptr. [80 involving damages should be individuals rather than a class.8 In presented by awarding however, treble the court does not exercise an damages, abstract discretion, but must base its on the facts the transaction at issue. ruling (Cf. 274, Riskin v. Towers 24 Cal.2d (1944) P.2d 153 A.L.R. [148 442]; Troendle v. Clinch 55]; P.2d Witkin, Cal. Procedure ed. (2d 1971) 4235-4236.) pp.
If the common of a facts class of transactions so over predominate the individual differences those transactions that a class distinguishing action excels other available methods of the issues raised adjudicating the treble claim, we find no rule which damage the court from prevents a class action. Partain v. (Cf. First National certifying Bank Montgom (M.D.Ala. 1973) F.R.D. 56.)9 ery We therefore conclude that the trial court should vacate its order to this case as a class action and refusing reconsider that certify matter anew. such reconsideration, class with Upon to their plaintiffs’ respect claim for for excessive recovery interest should be defined to damages limit its to those California customers membership who maintained accounts with defendant 5, 1973, during period July 26, 1973, who, within one September year preceding filing plaintiffs’ complaint, paid charged by during with defendant other than period a variable- pursuant any agreement *14 8We have discovered no case which discusses whether class actions can to employed treble and damages recover none in areas of law which bear on usury, analogous this 226, (9th 1974) Defendant cites Kline v. Cir. Coldwell Banker & Co. 508 F.2d problem. which refused a to class action for treble under the antitrust laws. That permit damages however, rests on the of if ruling, an action for largely danger liability disproportionate defendants, treble were a class of each of whom would be damages permitted against award; and liable the whole the case no such jointly severally danger. present presents 9Defendants that in that a suit for treble must argue damages allege they plaintiffs Friis-Hansen, Law, 2; (See 52 § usurious interest. Heald v. paid Usury supra, actually 834, 839.) assert Cal.2d 14 and 23 of second amended Paragraphs plaintiffs’ complaint of in violation of that and other members their class interest” computed plaintiffs “paid Law; those are sufficient to with the that requirement allegations comply of interest. specifically plead payment illegal
380 to avoid and without intent rate entered into in faith agreement good class, of the In the of that redefinition laws.10 plaintiffs’ usury light evidence additional of law set out in this and such principles opinion, offer,11 decide whether to as the the trial court then may parties may class or as suit as a class action on behalf of the this certify palintiffs’ subclass.12 appropriate First, conclusions. defendant’s customer’s
We summarize our briefly face does not on its agreement clearly agreement express interest; to to authorize defendant charge compound plaintiffs’ parties action that defendant therefore states cause of alleging Second, the trial court’s order interest. charged unlawfully compound interest was class action excessive to alleging refusing certify plaintiffs’ that interest must be based on that court’s conclusion averaged charged 26, We from the account until 1973. reject September opening that, that the interest conclusion and hold assuming alleged 26, 1973 exceeded 10 from validity percent, July September faith contracted in and turns on whether the parties good agreement court should therefore laws. trial without intent avoid usury of this action in the certification of class reconsider light plaintiffs’ holding. have sum, and constitutional amendment
In initiative People by to be interest unless the party prohibited and have which so writing, expresses signs clearly the latter to 10 limited the rate percent; interpreting for variable hold that an courts may provide prohibition, if rate so at times exceed the parties may legal laws. an intent to avoid the contract in faith and without good terms of the intent class in 10We defendant’s defining plaintiffs’ reject suggestion as a class action. its maintenance faith of the necessarily precludes and good parties defendant, drafted the customer’s having agreement, able to show that Plaintiffs may (See of the class. bad member every same faith toward good entertained the intent 849, (1971) Cal.Rptr. & Cal.3d Sav. Loan Assn. [91 La Sala v. American 796, 484 P.2d Cal.Rptr. 4 Cal.3d 1113]; v. Court P.2d Superior Vasquez 964, 53 513].) A.L.R.3d for class on the motion to the trial court and evidence 11The arguments presented the law concerning founded misapprehension were large part certification of those the clarification light variable-rate contracts. In rates in excessive interest Petit, in the opinion, 277 and 64 Cal.App.3d Ranch v. supra, in Arneill principles the court rules on before *15 and evidence additional arguments counsel wish may of certification. the question into subclasses should be divided to whether class 12We no opinion pláintiffs’ express That in the contract. of law or absence of a choice provision based presence upon before this court. briefs or in the oral presentation issue was not argued with these clear does not an onerous Compliance requisites impose burden. instant draws outlines causes of action on complaint both of the above but must plaintiffs’ postulates,, recovery entirely depend the coloration and full of the sketch a factual picturization at trial. showing is reversed and the cause remanded for further judgment consistent with the views herein.
proceedings expressed Bird, J., Mosk, J., Richardson, C. J., Manuel, J., Newman, J., concurred.
CLARK, J. I dissent.The second amended states a cause complaint action neither for unlawful It interest nor for is usury. evident the cannot be amended to state cause of action. The of dismissal should be affirmed. judgment
Compound Interest The trial court sustained demurrer to the properly compound causes of action the second amended complaint.
Section Law interest shall not provides unless an to that effect compounded clearly expressed The second amended writing. and the complaint alleges members class executed an “The agreement providing: monthly debit balance in shall be account(s) my accordance with charged, your usual custom with interest at a rate which shall include ....” In Lewis v. States Sav. & Loan Co. 1 Cal.2d 694-695 (1934) Pacific P.2d and Ricord v. 439], 178-179 Aragon [37 P.2d 759], the stated in the loan included certain principal charges interest, which were in fact and the note on provided In to claims that interest was principal. responses being charged interest without a note, statement to that effect in the the courts held that the note itself showed that interest was to be computed upon principal amounts which included the interest charges.
Those cases make clear that the words, need not use magic but is sufficient if the of the terms used tois plain meaning import on interest. *16 shall be balance account(s) debit
The my “monthly phrase be added to will means interest with interest” ... literally charged account, account, he adds to the one the balance. When charges balance, The he adds to the debit balance. a debit only when one charges include interest is that the debit balance will construction reasonable is to be that the interest and since it is obvious computed charges, equally of the balance, reasonable construction is on the debit phrase only will on the debit balance which interest to be that it provides include charges.1 prior that the interest
Moreover, the charge agreement provided expressly custom.” The usual balance be “in accordance with the debit would your herein” that “at all times mentioned second amended alleges complaint to its California (1966-1973) charged compound that defen- account customers. inventively argue majority the court when before booklet “What is was dant’s properly Margin?” causes of action. it the demurrers to the sustained compound But booklet, custom. course, is defendant’s establishing urged amended com- established second custom is allegations No is for the citation of necessary elementary proposi- authority plaint. that, in to a tion demurrer allegations ruling complaint, are before the trial court. of action for unlawful The defects in causes plaintilfs’ since result from cannot cured amendment agreements they sued and the custom attacked. upon
A. Reus Actus interest rate loan that a variable
The trial court concluded properly of interest not unlawful when the amount charged pursuant agreement have been not exceed the amount which to the does might flat rate of 10 for a had the per agreement provided XV, 1 of the annum, section maximum rate under article permissible California Constitution. or at any not contain periodically 1The instrument does promise pay demand. the “debit balance” it contains an to pay
time insofar as except I doubt of interest if there were special payment periodically, But even provision would create an ambiguity. whether the provision *17 nature, The laws are for forfeitures obviously providing penal Cal.Jur.2d, 675-676, and treble (49 Because of the 682-684.) damages. pp. nature, laws’ both an actus reus and a mens rea should be essential penal a to establish violation of law. Mere bad intentions without excessive interest should not borrower to recover a forfeiture or charges permit treble damages.
Variable interest rate inure the benefit to of either agreements may borrower or lender. a valuable means for both borrowers They provide and lenders to interest rates to the conditions of the adjust changing (Ante, to suit their needs. There is 377-378.) immoral economy pp. nothing about such when of the variable rate illegal agreements application can and does result in interest less than the provisions charges which would have resulted charges maximum by application lawful rate to the amounts It hold, borrowed. is to manifestly unjust would that a lender must forfeit interest or treble majority permit, pay he, fact, when less than he could have damages lawfully charged.
The that a “that states rule interest should be over majority averaged the full term of the loan ... in the context ... would prove unworkable.” (Ante, out 376-377.) majority pp. points plaintiffs’ account interest, a credit of variable contemplates arrangement duration, indefinite However, balance. this furnishes no fluctuating basis for to the trial court’s refusing uphold looking approach rates; realities. The test is not it is whether averaging determining the maximum lawful interest was exceeded the interest charge charge made under the variable This a is matter. agreement. simple Computing maximum lawful interest when the balance due is is charges fluctuating The interest each hardly complex. charge computed change.
other part comparison—the charged—must actually determined in event to establish damages.
I am satisfied that before a variable interest rate—which could produce a lawful unlawful, be declared must mens charge—may only rea is, be shown but also actus reus. That the interest charged pursuant must exceed the amount interest that could have been under fixed rate lawfully agreement. from Arneill Ranch v. Petit
Apart I 456], am aware of no case—and the has cited Cal.Rptr. majority usurer, that a lender could be when labelled the interest none—holding *18 was less than the a contract with variable in accordance provision charged Rather laws. to be under maximum usury charged permitted to the where the interest involve situations the cases charged pursuant Thomassen v. Carr (See, interest. was excess e.g., agreement In such cases 341, 346-348 297].) proper Cal.Rptr. a whether variable out rule—as majority—determines pointed “was consum if the is usurious by asking intent to avoid the laws.” (Ante, 377.) faith without mated in usury p. good when the will into faith But this does not mean that we good inquire a to avoid To allow borrower was below interest charged permissible. to the when the interest his to charged pursuant obligation pay a who suffered rate than the lawful rate is variable is less person give insofar as it a I would Arneill Ranch no windfall. wrong disapprove such windfall. permits
B. Mens Rea a that the does
The own rule conclusion complaint majority’s requires not state cause action usury. “3. to a variable-interest
The rule is: Since the majority’s parties agreed the constitutional limits under certain which could exceed contingen- cies, whether the parties agreement depends lawfulness of laws.'” (Italics and without intent to avoid the contracted usury good faith ante, 375.) orig.; p. contracted crucial issue whether good being parties faith laws, a cause of action to state to avoid the without intent usury plaintiff intent to avoid the with that the contracted bad must parties allege faith lie with bad faith must The burden party laws. alleging usury cannot be stated cause of action merely by claiming Certainly usuiy. (Under rate. variable that the agreement provided alleging In irrelevant.) of interest rules, the amount light majority “in find rates that variable support recognition majority’s anomalous, best, to hold it at would sense” (ante, 378), good p. practical a variable rate is stated that a cause of action for alleging merely usury transaction. either contains no second amended allegation—in in bad defendant contracted action—that causes of class
individual laws. intent to avoid the faith with
Furthermore, it is are in no apparent position allege that the contract or contracts were entered into in bad faith with intent to avoid the laws. to the entered into usuiy According complaint, plaintiffs their contract for the variable interest rate and it was providing not until 1973 variable rate exceeded 10 percent. Nowhere has it been intimated that the lower interest rates of the during 1960’s defendant had a devious to avoid the laws and plan usuiy therefore the variable rate The class is in no better adopted system. *19 than the named because the position plaintiffs allegations make clear that defendant’s contracts were not complaint over changed but remained constant as to the interest years charge. In the absence that the contracts were any entered into allegation bad faith laws, with intent to avoid and in absence of claim that the second amended could be plaintiffs amended to allege faith, bad I conclude, to the (ante, that the 369), contrary majority p. counts excessive interest fail to state cause of charging action.
I would affirm the judgment. for a was denied petition appellants rehearing 29, 1978, June and the was modified read above. opinion printed