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Hardwick v. Wilcox

California Court of Appeals, First District, Fourth Division

May 22, 2017

JAMES N. HARDWICK, Plaintiff, Cross-Defendant and Respondent,
v.
ALBERT P. WILCOX, Defendant, Cross-Complainant and Appellant.

         Trial Court: Alameda County Superior Court No. RG13676258 Hon. Ioana Petrou Trial Judge.

          Counsel for Appellant: Berokim & Duel, Kousha Berokim

          Counsel for Respondent: Law Office of Richard van't Rood, Richard van't Rood.

          RUVOLO, P. J.

         I. INTRODUCTION

         Between 1999 and 2010, Albert Wilcox made a series of loans to James Hardwick. In 2013, Hardwick filed this action to recover usurious interest and prevent Wilcox from foreclosing on property securing his loans. Wilcox countersued for breach of contract and judicial foreclosure. The trial court entered judgment in favor of Hardwick, finding, among other things, that usurious interest payments made over the course of the relationship offset the principal debt, and that Hardwick could recover $227, 235.83 in interest payments he made during the two years prior to the filing of this lawsuit.

         On appeal, Wilcox contends the judgment must be reversed because (1) Hardwick waived his usury claim with respect to any loan payment he made prior to April 2012; and (2) the statute of limitations bars Hardwick's claim with respect to any loan that was paid off more than two years before this lawsuit was filed. We affirm the judgment.

         II. CALIFORNIA USURY LAW

         “ ‘Usury is the exacting, taking or receiving of a greater rate than is allowed by law, for the use or loan of money.' [Citation.] A transaction is usurious if there is a loan at greater than the legal rate of interest or an exaction at more than the legal rate for the forbearance of a debt or sum of money due. [Citation.]” (O'Connor v. Televideo System, Inc. (1990) 218 Cal.App.3d 709, 713.)

         “California Constitution, article XV, section 1 limits the interest rate for a ‘loan or forbearance' of money not primarily for personal, family or household purposes, to the higher of: (1) 10 percent per annum or (2) 5 percent plus the rate of interest prevailing on the 25th day of the month preceding the earlier of the date of the extension of the contract to make the loan or forbearance or the date of making the loan or forbearance, established by the Federal Reserve Bank of San Francisco on advances to member banks under sections 13 and 13(1) of the Federal Reserve Act. [Citation.]” (DCM Partners v. Smith (1991) 228 Cal.App.3d 729, 733; see also Southwest Concrete Products v. Gosh Construction Corp. (1990) 51 Cal.3d 701, 705 [“The law of usury in California is based upon California Constitution article XV, section 1, which limits the interest payable ‘[f]or any loan or forbearance of any money.' ” (Fn. omitted.)].)

         “ ‘When a loan is usurious, the creditor is entitled to repayment of the principal sum only. He is entitled to no interest whatsoever. [Citations.]' [Citation.]” (Gibbo v. Berger (2004) 123 Cal.App.4th 396, 403.) “The attempt to exact the usurious rate of interest renders the interest provisions of a note void. [Citations.]” (Epstein v. Frank (1981) 125 Cal.App.3d 111, 122-123.) Furthermore, interest payments that were made at the usurious rate should be credited against the principal balance in any action to collect on the note. (Westman v. Dye (1931) 214 Cal. 28, 31-38 (Westman); District Bond Co. v. Haley (1935) 2 Cal.2d 308, 311; Paillet v. Vroman (1942) 52 Cal.App.2d 297, 306-308; Shirley v. Britt (1957) 152 Cal.App.2d 666, 670 (Shirley).)

         III. STATEMENT OF FACTS

         A. Background

         As noted, Wilcox made several loans to Hardwick over a 10-year period. Some of these loans were made by Wilcox in his individual capacity and others were made by “Pensco fbo Wilcox, ” a corporation that Wilcox used as a custodian for his self-directed Individual Retirement Account (IRA). In the trial court Wilcox conceded that he is the real party in interest with respect to all of these loans.

         All of the loans were evidenced by promissory notes or amendments to promissory notes and secured by deeds of trust to one or more of the following assets: (1) a commercial property consisting of six condominium units in San Leandro, referred to as the San Leandro property; (2) a retail shopping center in Fremont, referred to as the Cabrillo Center; and (3) a commercial property in Fremont, referred to as the Cabrillo Market.

         In the lower court, the parties stipulated to a reference system which identified nine promissory notes by number (note #1 through note #9), and then used lower case letters to identify amendments to some of those notes (e.g., note #2a, note #2b, etc.). For clarity and convenience, we will continue to use this reference system.

         Note #1, executed December 7, 1999, was a $500, 000 loan from Pensco fbo Wilcox to Hardwick. Note #1 charged interest at a rate of 12.0 percent per annum, required interest only monthly payments to Wilcox, matured on November 10, 2004, and was secured by deeds of trust on the San Leandro property and the Cabrillo Center.

         Note #2, executed June 15, 2001, was a $200, 000 loan from Wilcox individually to Hardwick. Note # 2 charged interest at a rate of 12.0 percent per annum, required interest only monthly payments to Wilcox, matured on September 25, 2001, and was secured by a deed of trust on the Cabrillo Market.

         Note #3, executed October 11, 2001, was a $120, 000 loan from Wilcox individually to Hardwick. Note #3 charged interest at a rate of 12.0 percent per annum, required interest only monthly payments to Wilcox, matured on December 31, 2001, and was secured by a deed of trust on the Cabrillo Center.

         On May 14, 2002, Wilcox and Hardwick agreed to convert $42, 000 of accrued unpaid interest and late fees on outstanding notes to principal debt. That day, they executed note #2a, which increased the amount of the note #2 principal to $242, 000. Note #2a and note #3a, which was also executed on May 14, changed the maturity date for note #2 and note #3 to May 1, 2003.

         On November 19, 2002, Wilcox loaned Hardwick an additional $100, 000. This loan was evidenced by note #2b, which increased the principal amount of note #2a to $342, 000, and changed the maturity date to November 1, 2003.

         On January 8, 2003, Wilcox and Hardwick agreed to roll over note #2b ($342, 000) and note #3a ($120, 000) into note #2c, which established a principal debt of $462, 000. As part of this agreement, Wilcox released the deed of trust on the Cabrillo Center that secured the note #3a loan.

         Note #4, executed December 31, 2003, was a $500, 000 loan from Pensco fbo Wilcox to Hardwick. Note #4 charged interest at a rate of 11.0 percent per annum, required interest only monthly payments to Wilcox, matured on December 31, 2008, and was secured by a deed of trust on the Cabrillo Center.

         The parties agreed to use the $500, 000 principal loan evidenced by note #4 to pay off note #1. Accordingly, in connection with this transaction, Wilcox released the deed of trust on the San Leandro property that secured note #1.

         Note #5, executed on November 8, 2004, was a $55, 000 loan from Pensco fbo Wilcox to Hardwick. Note #5 charged interest at a rate of 12.0 percent per annum, required interest only monthly payments to Wilcox, matured on November 8, 2009, and was secured by a deed of trust on the Cabrillo Center.

         On March 28, 2005, Wilcox loaned Hardwick $200, 000, which was evidenced by note #2d. Note #2d amended note #2c by increasing the amount of the principal debt to $662, 000 and changing the maturity date to March 25, 2009.

         Note #6, executed September 15, 2008, was a $45, 000 loan from Pensco fbo Wilcox to Hardwick. Note #6 charged interest at a rate of 12.0 percent per annum, required interest only monthly payments to Wilcox, matured on September 15, 2013, and was secured by a deed of trust on the Cabrillo Center.

         On March 21, 2009, the parties executed note #4a, which changed the maturity date of note #4 to March 31, 2012.

         Note #7, executed March 23, 2009, was a $150, 000 loan from Pensco fbo Wilcox to Hardwick. Note #7 charged interest at a rate of 12.0 percent per annum, required interest only monthly payments to Wilcox, matured on April 1, 2012, and was secured by a deed of trust on the Cabrillo Center.

         The parties agreed to use the principal loan evidenced by note #7 to: (1) rollover and effectively pay off note #5 ($55, 000); (2) rollover and effectively pay off note #6 ($45, 000); and (3) provide additional funding to Hardwick ($27, 184). The parties also agreed to convert accrued unpaid interest and late fees on outstanding notes ($22, 816) to principal debt evidenced by note #7. In connection with the execution of note #7, Wilcox released the deed of trust on the Cabrillo Center that secured note #5.

         Note #8, executed March 23, 2009, was a $662, 000 loan from Wilcox individually to Hardwick. Note #8 charged interest at a rate of 12.0 percent per annum, required interest only monthly payments to Wilcox, matured on February 24, 2012, and was ...


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