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Court of Appeal, First District, Division 5, California.

Edward T. GHIRARDO, et al., Plaintiffs, Cross–Defendants and Respondents, v. Ronald F. ANTONIOLI, et al., Defendants, Cross–Complainants and Appellants.

No. A053887.

Decided: March 17, 1993

Richard A. Hirsch, Novato, for defendants and appellants. Steven E. Schon, Laurence F. Pulgram, Howard, Rice, Nemerovski, Canady, Robertson & Falk, San Francisco, for plaintiffs and respondents.

 The principal issue before this court is whether the holder of a secured purchase money note is subject to the proscription of the usury law when the holder agrees (on default of the note and prior to completion of foreclosure proceedings) to cancel the note and reconvey the beneficial interest under the deed of trust upon the agreement of the subsequent owner of the real property (having taken subject to the existing trust deed), to execute a new secured note and to pay as consideration a “bonus,” which together with interest on the new note exceeds that allowed by the usury law.

We hold the usury law does apply in the circumstances before us and consequently affirm the judgment of the trial court.


In August 1984, respondents (Ghirardo) 1 purchased a 20–acre parcel of undeveloped real property in Novato from Gay Associates (hereafter Gay) for $2,350,000.   As consideration, respondents paid $650,000 in cash, executed a secured note in the principal sum of $200,000 and took “subject to” a preexisting debt secured by a deed of trust executed by Gay to appellants (Antonioli) 2 in the original principal sum of $1,745,000.

Appellants had purchased the property from McPhail's, Inc., (McPhail) in December 1981, executing, as part of the transaction, a secured promissory note in the principal sum of $618,919.   In July 1984, appellants sold the property to Gay, taking an “all-inclusive” note secured by deed of trust in the principal sum of $1,745,000 (the Gay note).   Prior to the closing of this sale Gay contracted with Ghirardo to resell the property to them for $2,350,000.

The Gay note, being a purchase money secured note, was nonrecourse by operation of law (Code Civ.Proc., § 580b).   On default, appellants' remedy was to initiate foreclosure proceedings on the Gay deed of trust.   In 1984 and 1985, respondents paid several hundred thousand dollars to appellants to reduce the amount of obligation secured by the Gay deed of trust.3

In 1986, a dispute arose between respondents and appellants regarding payments assertedly owing on the Gay note.4  Appellants gave notice of default to respondents for sums they claimed were due on the Gay note and commenced nonjudicial foreclosure proceedings.   Respondents brought an action to enjoin the foreclosure and obtained a temporary restraining order.   Following hearing in the trial court on the preliminary injunction and prior to decision, the parties reached a settlement agreement which resulted in restructuring the debt and dismissing the pending action.

By the express terms of the settlement agreement, appellants agreed to cancel the Gay note and reconvey their security interest under the existing deed of trust.   In exchange, respondents agreed to execute two new secured notes in favor of appellants in the principal sums of $1,072,867.47 and $57,500, and to pay $342,500 in cash.   As part of the consideration for the transaction respondents agreed to pay a fee of $100,000, which was added to and included within the principal amount of the large note.   The small note bears interest at 13 percent and the large note bears interest at a stated face amount of 10 percent;  however, with the $100,000 fee included in the principal sum, the rate of interest is 17.46 percent.   At the time of execution of the two new notes, the maximum legal rate of interest was 10.5 percent.   Lastly, respondents agreed to reimburse appellants for their attorney fees in connection with the litigation and the restructuring of the debt in the total sum of $45,000.

After paying off both notes in full, respondents filed this action, claiming that the settlement transaction and the resultant notes were usurious.   They sought damages requesting treble the amount of interest paid, prejudgment interest and attorney fees.   Appellants cross-complained for the balance allegedly due on the two new notes.   They claimed that immediately after reconveying the Gay deed of trust, they discovered that the total amount due on the large note had been miscalculated understating the amount due in the sum of $151,566.82.   Following trial the court held that the transaction restructuring the debt was usurious and awarded respondents $98,700.26 in interest paid on the notes, $31,260.96 in prejudgment interest, and $76,350.00 as attorney fees (declining to award treble damages).   Antonioli timely appeals.


Appellants (Antonioli) contend that the transaction entered into, out of which the new notes were generated, was not usurious because (1) there was no “loan or forbearance” as required by the usury law, (2) the transaction was exempt as a “bona fide sale” of real property, (3) the “voluntary act” of respondents could not render the transaction usurious, and (4) for policy reasons the usury law should not be applied.

They reason that “ ‘[a] loan of money is a “contract by which one delivers a sum of money to another, [which] the latter agrees to return at a future time” ’ ” (citing O'Connor v. Televideo System, Inc. (1990) 218 Cal.App.3d 709, 713, 267 Cal.Rptr. 237);  that since appellants never delivered any sum of money to respondents there was no loan.

They argue further that “forbearance” is the act by which a creditor waits for the payment of a debt due him by the debtor;  that since the appellants and respondents were not in a creditor/debtor relationship there can be no forbearance.   Citing DCM Partners v. Smith (1991) 228 Cal.App.3d 729, 735, 278 Cal.Rptr. 778 (hereafter DCM ), appellants argue that the manifest purpose of the Legislature, in adding the term “forbearance” to “loan,” was to preclude a creditor from charging usurious interest when the debt matures.   But both terms presuppose a debtor/creditor relationship between the parties with an actual delivery of money and a promise to repay it at a specified time.   They claim no such relationship existed in this case, stating Antonioli never advanced any money to Ghirardo nor did they have a contractual relationship with them.   They conclude that because Ghirardo never owed Antonioli any money, Antonioli could not “forbear” from enforcing any claim, note, or obligation against Ghirardo.   Finally, since the transaction between Antonioli and Ghirardo involved neither a loan nor a forbearance of money, as a matter of law, the transaction did not come within the proscription of the usury law.

Secondly, appellants argue that the transaction falls within the exception to the usury law under the “bona fide sale” doctrine.   They claim that by “transferring” the right of foreclosure under the Gay deed of trust, they were in fact engaging in a sale of real property to the respondents, thus they are exempt.

Additionally, appellants assert that they fall within an exception to the usury law under the principle that a debtor by voluntary act cannot render an otherwise valid transaction usurious;  that a debtor cannot bring his creditor to the penalties of the usury law by his voluntary default in respect to the obligation involved where no violation of law is present at the inception of the contract.

Lastly (with respect to usury), appellants assert that the policy underlying the usury laws precludes its application to transactions like these because respondents are not the kind of persons the usury laws were designed to protect, since they were sophisticated, familiar with the world of land transactions and knowledgeable with respect to financial dealings.

In addition to their arguments concerning the inapplicability of the usury laws, appellants claim that the trial court erred in denying relief on the cross-complaint seeking reimbursement for sums allegedly owing because of a mistaken calculation relating to the payoff of the Gay note, and they contend that the court's award of attorney fees was excessive.



The California Constitution imposes limits upon the interest charged for a loan or forbearance of money.   It provides:  “No person, association, copartnership, or corporation shall by charging any fee, bonus, commission, discount or other compensation receive from a borrower more than the interest authorized by this section upon any loan or forbearance of any money, goods or things in action.”  (Cal. Const., art. XV, § 1.)   In addition, the usury statute provides:  “Every person, company, association or corporation, who for any loan or forbearance of money, goods or things in action shall have paid or delivered any greater sum or value than is allowed to be received ․ may either in person or [by] his or its personal representative, recover in an action at law against the person ․ who shall have taken or received the same ․ treble the amount of the money so paid․”  (Deering's Ann. Uncod. Measures 1919–1 (1973 ed.) § 3, subd. (a).)

 Whether a loan or forbearance is usurious depends on the nature of the transaction.  (DCM, supra, 228 Cal.App.3d at p. 733, 278 Cal.Rptr. 778.)   In determining whether a transaction constitutes a loan or forbearance, we look to the substance rather than the form of the transaction.  “In all such cases the issue is whether or not the bargain of the parties, assessed in light of all the circumstances and with a view to substance rather than form, has as its true object the hire of money at an excessive rate of interest.”  (Boerner v. Colwell Co. (1978) 21 Cal.3d 37, 44, 145 Cal.Rptr. 380, 577 P.2d 200.)   The courts, being sensitive to the ingenuity and creativity to those entrepreneurs willing to engage in legal brinkmanship to maximize profits, have carefully scrutinized the form of seemingly innocuous commercial transactions to determine whether the substance amounts to a usurious arrangement.  (Id., at pp. 44–45, 145 Cal.Rptr. 380, 577 P.2d 200;  see also Southwest Concrete Products v. Gosh Construction Corp. (1990) 51 Cal.3d 701, 705, 274 Cal.Rptr. 404, 798 P.2d 1247.)


 Whether the transaction should be categorized as a loan (and thus usurious) depends upon a determination, from the substance of the transaction, as to whether the true object is the hiring of money.   This determination normally is a question of fact.  (West Pico Furniture Co. v. Pacific Finance Loans (1970) 2 Cal.3d 594, 603, 86 Cal.Rptr. 793, 469 P.2d 665.)   As stated therein, “ ‘All of the negotiations, circumstances, and conduct of the parties surrounding and connected with their contracts may be material in determining whether [a violation has occurred].’ ”  (Ibid.)

 Contrary to appellants' assertion, our review is limited by the substantial evidence doctrine.  “ ‘In usury cases the trier of fact is vested with the power to resolve many issues attending and including the ultimate question of whether a particular transaction is usurious.’  ․ [The reviewing court's] task on appeal is merely to view all factual matters in favor of the prevailing party and in support of the judgment, disregarding evidence to the contrary, and decide whether there is any substantial evidence, contradicted or uncontradicted, to support the findings and conclusions of the trier of fact.”  (Del Mar v. Caspe (1990) 222 Cal.App.3d 1316, 1323, 272 Cal.Rptr. 446.)

Based upon the evidence before it, the trial court found and concluded “that the bargain of these parties had as its true object the hire of money and the extension of credit at a rate of interest in excess of the legal limit.”

 The existence of the requisite intent is always a question of fact, and the intent here is the hiring of money at an excessive rate of interest as the true object of the parties.   Intent is material in determining the true nature of the transaction;  but a conscious attempt to evade the usury law is not necessary.  (Burr v. Capital Reserve Corp. (1969) 71 Cal.2d 983, 989, 80 Cal.Rptr. 345, 458 P.2d 185.)

 In concluding that the transaction was a usurious loan, the trial court found that “[b]y delivery of the Large and Small Notes to [appellants], [appellants] loaned and [respondents] borrowed over $1.1 million in funds, which were used to retire the Gay Note and [deed of trust].  [Respondents] gave these Notes as promises to repay [appellants'] loans.”   Appellants claim that no sum of money was delivered to respondents, as is required to establish a loan of money.  (See O'Connor v. Televideo System, Inc., supra, 218 Cal.App.3d at p. 713, 267 Cal.Rptr. 237.)   Obviously, the trial court found otherwise, based on the constructive transfer of funds from appellants to retire the earlier notes.5  Also, there is no requirement that cash be physically delivered.  (See Milana v. Credit Discount Co. (1945) 27 Cal.2d 335, 339–341, 163 P.2d 869.)

 The trial court expressly found that, not only had appellants engaged in usurious lending, they had also extracted a usurious extension fee as the price of forbearance from foreclosure, and concluded that “the bargain of [the] parties had as its true object the ․ extension of credit at a rate of interest in excess of the legal limit.”   The trial court stated, “[Appellants] demanded and obtained the terms of the Small Note and the Large Note in exchange for [appellants'] forbearance to foreclose on [respondents'] property and forbearance to collect on the prior [deed of trust].”  The court concluded from the evidence that “$100,000 was, in fact, demanded and agreed to as compensation for [appellants'] agreements not to foreclose and to give [respondents] more time to pay off the amounts sought by foreclosure under the [deed of trust].”  The court determined the $100,000 charge was a “fee, bonus, commission or other compensation for forbearance and extension of credit” and, added to the large note, increased the interest rate above the maximum legal rate.   There is substantial evidence on the record to support this finding and conclusion.

 Regarding their contention that no “forbearance” exists with respect to the transaction as a matter of law, appellants assert they were not creditors of respondents;  in other words, respondents did not directly owe a debt to appellants nor, they argue, did the parties have a contractual relationship that would allow appellants to sue respondents in the event of a default.   Respondents point out, however, as owners of the property they were directly at risk in the event of foreclosure by appellants.   Respondents insist that this leverage lies at the heart of the usury law regardless of direct, first party debtor/creditor status.   Consequently, respondents claim, parties injured by a transaction in question may assert usury claims even if not original signatories to the loan itself.  (See, e.g., Roesch v. De Mota (1944) 24 Cal.2d 563, 574, 150 P.2d 422 [junior lienholder permitted to enjoin foreclosure where he would be injured by usurious note];  see also 4 Miller & Starr, Cal.Real Estate (2d ed. 1989) Usury, § 10:26, 753–754.)   We agree with respondents.

The evidence on the record supports the trial court's finding that the parties agreed to the $100,000 serving as consideration for forbearance.   The verified cross-complaint states the fee was “consideration for the extended term.”   Respondents' deposition and trial testimony is equally clear.   Lastly, the documents themselves (new notes and deeds of trust which effected an extension of the debt) specifically recite they were made and executed in consideration of the “additional sum of $100,000.”

The Supreme Court observed in Boerner v. Colwell Co., supra, 21 Cal.3d at page 44, 145 Cal.Rptr. 380, 577 P.2d 200, “Although the constitutional and statutory provisions dealing with usury speak only in terms of a ‘loan’ or a ‘forbearance’ of money or other things of value, the courts, alert to the resourcefulness of some lenders in fashioning transactions designed to evade the usury law, have looked to the substance rather than the form of such transactions in assessing their effect and validity, and in many cases have struck down as usurious arrangements bearing little facial resemblance to what is normally thought of as a ‘loan’ or a ‘forbearance’ of money.  [Citations.]   In all such cases the issue is whether or not the bargain of the parties, assessed in light of all the circumstances and with a view to substance rather than form, has as its true object the hire of money at an excessive rate of interest.  [Citation.]   The existence of the requisite intent is always a question of fact.  [Citation.]”  (Fns. omitted.)   We find no error in the trial court's conclusion that there was a “loan” or “forbearance,” and thus the transaction was subject to the usury law.


 Next, appellants argue that the essence of the agreement restructuring the debt was a transfer of their right of foreclosure under the Gay deed of trust (a real property right) in consideration of respondents paying a sum of cash together with the execution of new secured notes.   They conclude that since the transaction fits within their definition of a sale (that is, the transfer of real property rights), the usury law has no application.

As is quite often the case, the rule is easy to state but difficult to apply.   The traditional approach in determining the issue of usury, in this context, is to categorize the transaction either as a “sale” or a “loan.”   The courts reason that a transaction which is a bona fide purchase and sale of property is both in form and substance not a loan, and thus not subject to the usury law.   In drawing the distinction the courts note the two types of transactions are different in their nature and distinct with respect to the relationship between the parties.  (4 Miller & Starr, Cal. Real Estate, supra, Usury, § 10:4, at p. 655 [and cases cited therein].)

Appellants, citing Boerner, supra, assert that a sale is a transfer of property in a thing for a price in money (“The transfer of the property in the thing sold for a price is the essence of the transaction․”).   They argue that the substance of the transaction here, being the transfer of their right of foreclosure, is the equivalent of a sale.   This argument however ignores the substance of the transaction.   Nothing was “transferred” by appellants to respondents.   They simply reconveyed their existing right of foreclosure, effectively relinquishing their security interest in the real property in exchange for a new obligation on the respondents' part, evidenced by a new promissory note secured by a new deed of trust.

 A better approach in deciding whether the transaction falls within the bona fide sale exemption is to determine whether the conclusion (as to usury) is consistent with the reason for the limitation in the first instance.

The rationale underlying the “sale” exclusion is perhaps best stated by the court in Verbeck v. Clymer (1927) 202 Cal. 557, 563, 261 P. 1017, “ ‘On principle and authority, the owner of property, whether real or personal, has a perfect right to name the price on which he is willing to sell, and to refuse to accede to any other.   He may offer to sell at a designated price for cash or at a much higher price on credit, and a credit sale will not constitute usury however great the difference between the two prices, unless the buying and selling was a mere pretense;  and it has been held that it is not material that the agreement for the purchase price in the future, instead of specifying the whole sum then to be paid, names a particular sum as principal, and declares that it shall draw interest at a rate which, were the transaction a borrowing and lending, would clearly be usurious․' ”   The court reasoned that where the parties are unfettered, deal with each other at arm's length and in apparent good faith, the transaction should be exempt from the usury law.   (Verbeck, supra, at p. 563, 261 P. 1017.)

It is well established that the usury limitation was designed to protect the necessitous, impecunious borrower who is unable to acquire credit from the usual sources and is forced by his economic circumstances to resort to excessively costly funds to meet his financial needs.  (Buck v. Dahlgren (1972) 23 Cal.App.3d 779, 787, 100 Cal.Rptr. 462.)   Since the usury law was designed to protect the borrower who acts under economic compulsion, there is no reason to place any limitation upon the amount charged in those situations where the parties are negotiating at arm's length, in apparent good faith, and have nothing to lose but a better bargain.

Applying this rationale to our facts, the conclusion is inescapable that the usury limitation should apply.   Here, the parties were not bargaining at arm's length, as respondents were under the economic compulsion of a threatened foreclosure in agreeing to restructure the debt by paying an additional amount in consideration over and above the amount then due on the debt.

As stated by Miller & Starr, the “bona fide sale” exception is logical under the judicial reasoning of the courts.  “Since a sale of property is not a ‘loan or forbearance,’ the parties can negotiate any terms they wish.   Also, the buyer is not the impecunious borrower who has the need to borrow money and can be importuned.   On the other hand, when the purchase-money loan becomes due, the property owner now needs to borrow money to pay the purchase-money loan.   At that point in time he becomes the necessitous, impecunious borrower the law intends to protect, and the policy applies whether the payee of the note that is due is the original lender or a new third-party lender.”  (4 Miller & Starr, Cal. Real Estate, supra, Usury, § 10:4, at pp. 658–659.)

Nevertheless, appellants claim that the decision of the court in DCM, supra, 228 Cal.App.3d 729, 278 Cal.Rptr. 778,6 supports their conclusion that the loan is not usurious.   In that case, plaintiff DCM Partners bought property from defendant Smith partially for cash with the balance in the form of a secured promissory note on the property.   Several years later, when the note became due, DCM was unable to pay and requested an extension.   Smith agreed to extend the debt if the note was modified to reflect an increase in the interest rate to the current market rate (from 10 percent to 15 percent).   After paying off the modified note, DCM brought an action asserting the usurious nature of the transaction and the trial court agreed.   The Court of Appeal reversed, holding that the usury law does not apply to a modified purchase money secured note initially created in an exempt transaction (the bona fide sale and purchase of real property) where the modification, done at the request of the trustor, consisted solely of increasing the rate of interest to reflect market conditions in consideration for extending the due date of the note.  (DCM, supra, at p. 732, 278 Cal.Rptr. 778.)

DCM is readily distinguishable.   First, DCM involved an extension of credit between the original contracting parties which, the court emphasized, was fundamentally fair and equitable.   The DCM court stated, “We frankly admit that absent legislative direction or persuasive precedent a factor underlying our conclusion that this transaction was not usurious is the discomforting unfairness if we were to conclude otherwise.”  (228 Cal.App.3d at p. 735, 278 Cal.Rptr. 778.)   The court commented further, “We wish to emphasize that Smith did not receive any additional charges, fees or consideration other than to increase the interest rate to reflect market conditions.”  (DCM, supra, at p. 737, fn. 5, 278 Cal.Rptr. 778.)   The fairness in DCM was founded on the agreement between the original parties to the transaction, adjusting the interest rate on the note to reflect present market conditions (on maturity of the note) in turn for an extension in payment of the original debt.   In refusing to follow, and distinguishing the cases of In re Pillon–Davey & Associates (Bankr.N.D.Cal.1985) 52 B.R. 455, and Clarke v. Horany (1963) 212 Cal.App.2d 307, 27 Cal.Rptr. 901, the court noted that “[i]n each of the cited cases the beneficiary of the secured note extracted a substantial cash premium as part of the consideration for the modification.”  (DCM, supra, 228 Cal.App.3d at p. 738, 278 Cal.Rptr. 778.)

Here, the trial court specifically found that (in addition to an increase in the interest rate above that allowable) there was a substantial sum ($100,000) extracted by appellants in exchange for their agreement to extend credit to respondents, thus postponing the time for payment of the original debt.7

The court in DCM reasoned that because the original transaction was exempt from the usury laws, it retained its exempt status when the note was modified.   The court observed that the seller could have lawfully avoided the usury laws by buying the property at a foreclosure sale or taking a deed in lieu of foreclosure, and reselling to the debtor with a rate in excess of that set by the usury laws, thus, there was no reason to preclude the parties from achieving the same result by agreement.

The difficulty with this reasoning is that the seller (appellants) would not necessarily have been the buyer at the foreclosure sale and thus be in a position to resell the property to the respondents.   Clearly, there was substantial equity in the property which would have encouraged third parties in increasing the bid well beyond the amounts due under the Gay note at the foreclosure sale.   The debt due appellants may have been simply paid off as a result of a sale to a third party, with appellants not retaining any ownership interest, thus preventing them from restructuring the debt with respondents.   The result being the loss by respondents of their fee interest in the property.

The suggestion that taking a deed in lieu of foreclosure and reselling to the debtor would avoid the applicability of the usury limitation places form over substance.8

 Although appellants had the absolute right to foreclose under the deed of trust, they had no right to use the leverage of a threat of foreclosure to exact a “bonus” or other consideration over and above the amounts then due on the note.   The Clymer rationale is based upon the right of the owner to fix a price for the sale in an arm's length transaction.  (Verbeck v. Clymer, supra, 202 Cal. at p. 563, 261 P. 1017.)   Here, appellants had no right to fix the price, but only to receive the amount due under the note secured by deed of trust and no more.   Appellants used the threat of foreclosure to exact more than they were entitled to.

We hold that the decision in DCM should be confined to its unique set of facts.   It should not be extended to the case where usurious interest is exacted by way of a “bonus” given under economic compulsion as distinguished from an adjustment of the interest rate to meet current market conditions between the parties to the original bargain.


 Appellants rely on language used by the Supreme Court in Southwest Concrete Products to support their further claim that respondents' voluntary acts “cannot render an otherwise valid transaction usurious.  ‘[A] debtor cannot bring his creditor to the penalties of the Usury Law by his voluntary default in respect to the obligation involved where no violation of law is present at the inception of the contract.’ ”  (Southwest Concrete Products, supra, 51 Cal.3d at p. 706, 274 Cal.Rptr. 404, 798 P.2d 1247.)   Appellants assert that respondents voluntarily declined to pay the Gay note, took judicial action to “obstruct [appellants'] independent rights ․ to foreclose,” and then “induce[d] [appellants] to part with their foreclosure rights by mutual agreement.”   Respondents note that appellants failed to raise this argument at trial or request any findings of fact.

 The voluntary act exception to the usury laws arises in the context of prepayment penalties or increased finance charges, and provides that a “transaction that was not usurious at its inception cannot become usurious by virtue of the debtor's voluntary default.”  (Southwest Concrete Products, supra, 51 Cal.3d at p. 708, 274 Cal.Rptr. 404, 798 P.2d 1247.)   At issue in Southwest Concrete Products were interest charges on commercial sales contracts and charge accounts, with the court concluding that interest payments on overdue commercial accounts are not subject to the usury law.   (Id., at p. 704, 274 Cal.Rptr. 404, 798 P.2d 1247.)  (See French v. Mortgage Guarantee Co. (1940) 16 Cal.2d 26, 31, 104 P.2d 655 [where nonusurious contract includes prepayment penalty, debtor's election to pay early cannot convert contract into usurious one];  Gutzi Associates v. Switzer (1989) 215 Cal.App.3d 1636, 1644, 264 Cal.Rptr. 538 [same];  see also Imperial Thrift & Loan v. Ferguson (1957) 155 Cal.App.2d Supp. 866, 867–869, 318 P.2d 566 [where borrower defaults on installment contract, prepayment of loan on shortened term does not render interest usurious].)  This differs from the case at hand.   Moreover, here, the usurious interest applied to a new and different contract, not the contract respondents allegedly defaulted on.   Respondents made no assertion that the original note was usurious.

Appellants also rely on the discussion in DCM wherein the court reasoned that the debtor's default and request for more time was in essence a voluntary act which avoided the time, risk, and expense of the more complicated process of reacquisition and sale, and thus should be subject to the exception to the usury law by which a debtor's voluntary act cannot make a nonusurious transaction into a usurious one.  (DCM, supra, 228 Cal.App.3d at p. 736, 278 Cal.Rptr. 778.)   But we have already distinguished DCM and the transaction at issue there.   Moreover, the DCM court's application of the voluntary act doctrine is questioned by Miller & Starr:  “The court correctly finds that the agreement to extend the loan was a forbearance, but the analysis that the transaction was not usurious because the parties could have accomplished the same result in a different way through foreclosure (which raises questions if the agreement was made before the foreclosure) is disturbing and opens a new potential defense to usury because that reasoning might well excuse numerous types of transactions that would otherwise have been considered usurious.”  (4 Miller & Starr, Cal.Real Estate (2d ed. 1991 Supp.) Usury, § 10:3, p. 53.)   Clearly, answering the question of voluntariness of the transaction does not solve the issue of its usurious nature.


 Lastly, appellants argue that for policy reasons the usury law should not be applied to sophisticated borrowers, familiar with the world of land transactions and knowledgeable with respect to financial dealings.   We see no reason, however, to treat this class of borrowers any differently based solely on their asserted wealth, intelligence, or degree of business sophistication, since the rationale of the usury law is founded in economic compulsion.


Appellants also contend that the trial court erred in denying relief on their cross-complaint seeking damages in the sum of $151,566.82.   Appellants claim the amount due on the large note was miscalculated, and, based upon this mistake, demanded and received from escrow the sum of $1,162,999.71 rather than the actual amount owing of $1,310,361.33 (leaving a balance due of $151,566.82).   The trial court, however, concluded that appellants had been paid the total sum of $1,167,205.56 on the large note, which amount exceeded the principal then due ($1,072,867.47) by the sum of $94,338.09.   The court found that appellants had not met their burden of proof that the sum claimed by the cross-complaint ($151,566.82) was indeed principal then owing on the note and, to the contrary, found that it was usurious interest.   Based upon the factual finding that the amount claimed to be due was usurious interest, the court concluded that the appellants were not entitled to recovery on their cross-complaint.   This conclusion is supported by substantial evidence.

Since we hold that the transaction was indeed usurious, the finding of the trial court must be affirmed.9


 Finally, appellants insist the trial court's award of $76,350 in attorney fees and costs is excessive.   Respondents submitted a request for fees and costs in the amount of $94,068.40, accompanied by itemized billing statements and a sworn declaration as to the reasonableness of the request.   The trial court reduced the request by about 19 percent.

“ ‘The matter of reasonableness of attorney's fees is within the sound discretion of the trial judge.  [Citations.]’ ”  (Stokus v. Marsh (1990) 217 Cal.App.3d 647, 656, 266 Cal.Rptr. 90.)  “In determining what constitutes a reasonable compensation for an attorney who has rendered services in connection with a legal proceeding, the court may and should consider ‘the nature of the litigation, its difficulty, the amount involved, the skill required and the skill employed in handling the litigation, the attention given, the success of the attorney's efforts, his learning, his age, and his experience in the particular type of work demanded ․;   the intricacies and importance of the litigation, the labor and necessity for skilled legal training and ability in trying the cause, and the time consumed.’  [Citations.]”  (Hadley v. Krepel (1985) 167 Cal.App.3d 677, 682, 214 Cal.Rptr. 461;  see also 1 Witkin, Cal. Procedure (3d ed. 1985) Attorneys, §§ 162–164, pp. 188–192.)

In the court below, appellants' objections to respondents' request for fees were general and failed to dispute specific items.   On appeal, appellants claim the litigation was not complex or protracted and thus the fees were unreasonable.

Respondents point out the complexity of the issues, the vigorous defense, and extensive trial-related briefing.   In addition, they note that some $400,000 was at issue in the cross-action.10  On this record, we cannot say the trial court abused its discretion in awarding $76,350 in fees and costs.

Respondents are also entitled to an allowance for legal services rendered on appeal.  (Hadley v. Krepel, supra, 167 Cal.App.3d at p. 687, 214 Cal.Rptr. 461;  Leaf v. Phil Rauch, Inc. (1975) 47 Cal.App.3d 371, 379, 120 Cal.Rptr. 749.)  “Although an appellate court may make this determination, ․ the trial court on remand will be in a better position to do so.”  (Hadley, supra, 167 Cal.App.3d at p. 687, 214 Cal.Rptr. 461.)

The judgment is affirmed and the matter is remanded to the trial court to resolve the issue of attorney fees on appeal.



1.   Respondents are Edward T. Ghirardo, Priscilla L. Ghirardo, David G. Kenyon, Karen L. Kenyon, David G. Smith and Sahara Mobile Village (collectively Ghirardo).

2.   Appellants are Ronald F. Antonioli and Pamela Antonioli (collectively Antonioli).

3.   The downpayment of $279,000 received by Gay was paid from escrow to appellants for the first installment due on the Gay note.

4.   Under the terms of the Gay note, Gay (and later respondents) paid appellants who in turn paid McPhail.   When a large final payment became due in December 1984, McPhail and appellants modified the loan arrangements to extend the due date to December 1985.   In 1985, respondents objected, claiming they had paid the requisite funds to appellants for payment on the Antonioli note to McPhail, but appellants had not retired the senior note and had left an encumbrance on the property without respondents' agreement.   Appellants refused respondents' demand to pay off the Antonioli note, so respondents paid McPhail directly.   Then when respondents' payment to appellants under the Gay note became due, they claimed a “double credit” under the terms of the note and refused further payment.

5.   When Gay demanded payment in cash for the balance on the note respondents had given him, appellants reduced the amount of cash required from respondents for settlement and accepted the small note, which in effect loaned respondents that amount of cash.

6.   The DCM case arises out of the Fourth District and was filed in March 1991, shortly before the trial court rendered its decision in the present case.

7.   Respondents also paid $45,000 in reimbursement of appellants' attorney fees incurred in restructuring the debt and in defending the injunctive action.

8.   Clearly, if the parties had agreed prior to the completion of foreclosure to resell the property with a rate in excess of the amount allowed, the transaction would be usurious.  (Clarke v. Horany, supra, 212 Cal.App.2d 307, 27 Cal.Rptr. 901.)

9.   It is not necessary to analyze the argument made by respondents concerning the impact of Code of Civil Procedure section 726 (the one form of action rule) in light of our affirmance of the trial court's ruling on the usury issue.

10.   Respondents also remind appellants that they demanded $45,000 in fees for the earlier settlement agreement.

WALKER, Associate Justice *. FN* Judge of the Napa County Superior Court sitting under assignment by the Chairperson of the Judicial Council.

KING, Acting P.J., and HANING, J., concur.