ARNETT v. UNION BANK (1978)

INTRODUCTION

Plaintiffs/appellants Norman L. Arnett et al. (collectively referred to as plaintiffs and/or Arnett) in superior court case No. C 48466 sought rescission and cancellation of certain promissory notes payable to the Union Bank (hereinafter Bank) and executed by plaintiffs. Plaintiffs' second amended complaint also alleged causes of action sounding in fraud, negligence and breach of contract and named Ronald Mallut and Gordon Hein (former employees of Bank) and one Jerome Leslie Goldberg as additional defendants; Bank cross-complained against plaintiffs. In five other superior court actions (Nos. C 49218, C 49211, C 49217, C 49216 and C 49224) consolidated with case No. C 48466, plaintiff Bank in essence sought recovery on the promissory notes; defendants therein cross-complained against Bank. The loans obtained by plaintiffs from the promissory notes were used by them to invest in a tax-shelter partnership organized by defendant Goldberg.

Following a nonjury trial the court below found in favor of Bank, Mallut and Hein.¹ Plaintiffs appeal from that judgment on the grounds that their jury waiver was involuntary and obtained under duress by reason of the trial court having ordered a daily transcript prepared which they could not afford; that the provisions in Bank's promissory notes regarding accrual of interest after default were invalid; and that the trial court improperly awarded costs.

THE CASE2

The findings of fact of the trial court were substantially as follows in pertinent part and are not contested on appeal: That on February 5, 1970, the Arnetts (plaintiffs) made and delivered to Bank their promissory note in the amount of $8,479.20 which became in default on June 10, 1972, with the total amount payable thereon of $4,804.88; that had the Arnetts paid the note in full on said default date they would have been entitled to a partial refund, computed by the “Rule of 78,” of the finance charge included in the note and that the balance owing after such allowance was $4,212.19, and that Bank necessarily employed counsel to enforce the note, and is entitled to a reasonable attorney's fee of $5,101.50.

The trial court made similar findings as to other notes made by plaintiffs payable to the Bank. Notes in the amount of $21,000, $26,250, and $26,250 made by the Arnetts; a note in the amount of $42,875.40 made by the Baers; a note in the amount of $42,875.45 made by the Bakers; a note in the amount of $32,156.40 made by the Fleidermans; and a note in the amount of $26,797 made by the Parkers.

The court below also found that each of said promissory notes provided that upon default in payment of any installment all monies payable thereunder shall become immediately due and payable at option of Bank and shall accrue interest at the rate of 1 1/212 percent per month (18 percent per annum) until paid; that the notes were executed in connection with loans obtained by the makers for the purpose of investing in certain tax-shelter partnerships; that it is not true that certain representations or promises were made to plaintiffs by defendants Mallut and Hein (former employees of Bank) or Goldberg to induce plaintiffs to make said loans or for any other purpose; that it is not true that defendants Bank, Mallut, Hein, and Goldberg conspired to defraud plaintiffs by inducing them to borrow money from Bank and execute the notes; and that it is not true that Bank occupied a fiduciary relationship toward any plaintiff.

The trial court made the following conclusions of law: “Said promissory notes are in default and became in default upon the dates set forth in the foregoing Findings of Fact. Union Bank is entitled to a several judgment on each cause of action of its cross-complaint in Case No. C 48466, and upon its complaints in the remaining cases consolidated herein, upon each note against the makers thereof. The amount of each several judgment should be in accordance with the amounts of principal and interest due as reflected in Exhibit “UB-123”, and in each case should consist of (a) the balance of the promissory note as of the date it became in default after allowing a credit for unaccrued interest under the “Rule of 78”³ and (b) interest at the rate of 18% per annum on such balance from the date the note became in default through the date of judgment. The late charges of 5% of each instalment which was delinquent for ten or more days are not allowed. In addition, each several judgment should include attorneys' fees in the amounts specified in paragraphs 3 through 9 hereof.”

ISSUES

On appeal plaintiffs contend (1) that the court erred in ordering preparation of a daily transcript which “thereby” denied them their right to jury trial; (2) that the trial court erred in allowing interest on the notes after default thereon; and (3) that the trial court improperly allowed costs of certain depositions, travel expenses, and fees for preparation of the daily transcript.

DISCUSSION

I

Plaintiffs first contend that they were induced to waive jury by reason of the court ordering preparation of a daily transcript and were thereby denied their constitutional right to a jury trial.

The record shows there are extensive pleadings in these consolidated cases. Plaintiffs' second amended complaint itself (case No. C 48466) comprised 36 pages and set forth six separate “causes of action,” each of which included several “counts.”

The parties and the court were in pretrial conference for six days in order to define the issues for adjudication, apparently necessitated in part by counsel for plaintiffs' inability to delineate the issues and his attempts to expand the issues.

During the pretrial conference, the court was apparently convinced that a daily transcript was essential to a proper conduct of the trial and ordered preparation of a daily transcript. Counsel for plaintiffs said that the court could order such transcript and that it would be a taxable cost. (See Gov.Code, § 69953.) He also said that his clients could not afford to pay “up front” the costs of such transcript. The court afforded plaintiffs' counsel opportunity to produce evidence that plaintiffs were not financially able to pay; however, plaintiffs did not avail themselves of that opportunity.

Toward the end of the pretrial conference, plaintiffs' counsel said: “Your Honor, we have gone over this thoroughly… Would it be possible for us to waive the jury and have your Honor try this lawsuit as to the issues of Union Bank versus plaintiffs … and still, at least for the time being, preserve the right to the jury as to the peripheral defendants?” The court replied that it was agreeable to the court, and asked whether Bank had demanded jury trial. Counsel for Bank said that Bank, Mallut and Hein had not demanded a jury and were prepared to waive jury. Counsel for plaintiffs said that he was including Mallut and Hein in “what I said.” Waiver of jury trial as to plaintiffs and defendants Bank, Mallut and Hein was entered in the minutes; and the trial was bifurcated, and proceeded by court trial of the issues between plaintiffs and said defendants.

We conclude that the trial court was authorized to order the preparation of a daily transcript pursuant to Government Code section 69953.⁴

As described above the court, during pretrial conference, ordered preparation of a daily transcript; and plaintiffs' counsel conceded that the court might order such transcript, but argued that his clients could not afford such transcript. Subsequently, at suggestion of plaintiffs' counsel, the parties unequivocally waived jury trial. There was no indication by plaintiffs' counsel, that he made that waiver by reason of the ordered preparation of a daily transcript. In fact, plaintiffs' counsel stated that his “point in waiving the jury trial is to reduce the trial time not only by the time required for picking a jury, but also by the amount of evidence that I produce. And that is why I revised my time of trial estimate down to a matter of two or three weeks, so I would produce not all the evidence that we have but just the evidence that I would think necessary for these limited issues, and limit it this way.”

The oral jury waiver in open court conformed with the statutory requirements of Code of Civil Procedure section 631, subdivision 3, which provides in pertinent part that “Trial by jury may be waived by the several parties to an issue of fact in manner following:

“…

3. By oral consent, in open court, entered in the minutes or docket; …” (See also Ford v. Palisades Corp. (1950) 101 Cal.App.2d 491, 499, 225 P.2d 545.)

Accordingly, we hold plaintiffs were not denied their constitutional right to a jury trial by reason of the trial court ordering a daily transcript of the proceedings.

II

Plaintiffs secondly contend that the court below erred in allowing interest at the rate of 18 percent (1 1/212% per month) after the date of default on the notes. They argue that the provision in each note for such interest on default was void as a penalty, in violation of Civil Code section 1670 (hereinafter section 1670). We disagree.

Section 1670 provides: “Every contract by which the amount of damage to be paid, or other compensation to be made, for a breach of an obligation, is determined in anticipation thereof, is to that extent void, except as expressly provided in the next section.” The next section is section 1671. It provides that the parties to a contract may agree therein upon an amount which shall be presumed to be the amount of the damage sustained by a breach thereof, when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage.

In the instant case each of the promissory notes provided in part: “At the option of the holder thereof, upon default in the payment of any installment, all monies payable hereunder shall be due and immediately payable, and if not paid, shall thereafter accrue interest at the rate of 1 1/212% per month until paid.”

To the extent that plaintiffs' argument is directed to unaccrued interest, that issue is not before this court in that the trial court, in computing the amount due on the notes, allowed credit to plaintiffs under the “Rule of 78.” Thus, plaintiffs prevailed on that issue in the trial court; and defendants did not appeal. Plaintiffs' reliance on Atlas Thrift Co. v. Horan (1972) 27 Cal.App.3d 999, 104 Cal.Rptr. 315, is misplaced and clearly distinguishable. The Atlas Thrift case related to collection of unaccrued interest in a security agreement; and there was no holding therein that a provision in a promissory note for increased rate of interest on unpaid principal after default was invalid as a penalty.

In Thompson v. Gorner (1894) 104 Cal. 168, 37 P. 900, and Finger v. McCaughey (1896) 114 Cal. 64, 45 P. 1004, provisions similar to provisions in the herein notes for increased interest upon default in payment of the notes were upheld.

In Thompson, the note provided for interest at the rate of eight percent per annum on the principal, and provided further that “if said principal or interest is not paid as it becomes due it shall thereafter bear interest at the rate of one per cent per month.” The Supreme Court concluded (104 Cal. p. 170, 37 P. p. 901) that “the one per cent clause in the note was not to be treated as a penalty, but as a contract to pay one per cent per month interest upon a contingency shown to have happened” (i.e., default in payment of principal). In Finger, a similar provision for increased interest upon default was upheld.⁵

Plaintiffs' reliance on Garrett v. Coast & Southern Fed. Sav. & Loan Assn. (1973) 9 Cal.3d 731, 108 Cal.Rptr. 845, 511 P.2d 1197, is also misplaced. The Garrett court did not disapprove the holdings in Thompson (supra) and Finger (supra). It said at page 736, 108 Cal.Rptr. at page 848, 511 P.2d at page 1200: “The Thompson and Finger cases essentially involved obligations on promissory notes which included provisions that the loan was to bear one rate of interest if paid at maturity and a higher rate [i]f not paid when the obligation became due․ [¶] In Thompson we held that a clause in a promissory note providing for a higher rate of interest if the ‘principal or interest is not paid as it becomes due’ is not to be treated as a penalty, but as a contract to pay such higher rate upon and commencing with the happening of one of the contingencies specified in the note, to wit, the failure to make payment of any sum when due. [¶] In Finger the promissory note contained a provision that in the event of default at maturity a higher interest rate would apply than if the obligation had been paid when it was due… The court in Finger … rested its holding on Thompson in concluding that the amount so assessed was not a penalty within the meaning of section 1670.”

III

As to plaintiffs' final contention in respect to the allowance of costs, we hold the trial court did not err in allowing costs of preparation of the daily transcript. Plaintiffs at the pretrial conference conceded such costs were taxable. (See Gov. Code, § 69953, fn. 5, supra.) Nor did the court err in allowing costs for the travel expenses of defendants' counsel for appearance at a deposition of a potential witness (Cowles) in Kansas City, which deposition was noticed by plaintiffs. “Whether the presence of the attorney of record [at out-of-town deposition] was necessary to properly protect the rights of respondent, was a question of fact to be decided by the trial court.” (Hoge v. Lava Cap Gold Mining Corp. (1942) 55 Cal.App.2d 176, 187, 130 P.2d 470, 476.)

As to allowance of costs for duplicate originals (rather than copies) of depositions of witnesses Michael E. Graham and Brigitte and Paul Webster, former employees of Goldberg who had refused to testify (on Fifth Amendment grounds) until all litigation relating to Goldberg was dismissed and whose testimony was “crucial,” we conclude that under circumstances, it was not improper for defendants to obtain duplicate originals of their depositions.

In respect to allowance of costs for a deposition of Goldberg taken in another action, the record shows that plaintiffs used such deposition at the trial herein as though plaintiffs had taken the deposition. Goldberg was present throughout the pretrial conference herein, he was a key witness at the trial (wherein he testified for approximately two days), and both parties caused portions of said deposition to be read into evidence. We hold the costs awarded by the trial court were proper.

IV

Defendant Bank requests that it be awarded attorneys' fees on appeal. The record shows that each note provided for attorneys' fees and reasonable attorneys' fees were awarded by the trial court on each note. “A contract for reasonable attorney's fees embraces an allowance for legal services rendered for an appeal as well as during trial.” (Beverly Hills Nat. Bank v. Glynn (1968) 267 Cal.App.2d 859, 870, 73 Cal.Rptr. 808, 814.) Such determination may be made by the trial court when it determines costs. We hold Union Bank is entitled to recover reasonable attorneys' fees on appeal herein—the amount of such fees to be determined by the trial court. (Clejan v. Reisman (1970) 5 Cal.App.3d 224, 241, 84 Cal.Rptr. 897.)

DISPOSITION

The judgment is affirmed. Defendants (respondents) to recover costs and reasonable attorneys' fees on appeal and the matter is remanded to the trial court for the purpose of determining such costs and attorneys' fees.

FOOTNOTES

1.  Plaintiffs' notice of appeal was served on defendants Bank, Mallut and Hein, only.

2.  We note that plaintiffs' opening brief on appeal does not comply with rules 13 and 15, subdivision (a), of the California Rules of Court. Rule 13 provides that the opening brief shall contain a statement of the case, setting forth concisely the nature of the action, a summary of the material facts, and the judgment or ruling of the court. Rule 15, subdivision (a), provides that the statement of any matter in the record shall be by appropriate references to the record. Said rules are to be read together. (Robison v. Hanley (1955) 136 Cal.App.2d 820, 827, 289 P.2d 560.)Plaintiffs' opening brief is in the form of three “Points” with authorities. There is no statement of the case and no summary of the facts. There is some reference to facts in argument of the points; however, there is no folio reference to the record. The reporter's transcript consists of 800 pages, and the clerk's transcript consists of 500 pages. Under such circumstances, we are not obligated to make an independent search of the record. (See Kanner v. Globe Bottling Co. (1969) 273 Cal.App.2d 559, 564, 78 Cal.Rptr. 25; Fox v. Erickson (1950) 99 Cal.App.2d 740, 742, 222 P.2d 452; Robison v. Hanley, supra, 136 Cal.App.2d 820, 827, 289 P.2d 560; McColgan v. Scoble (1931) 115 Cal.App. 165, 166, 1 P.2d 36.)While the reviewing court in Du Zeff's Hollywood, Inc. v. Wald (1965) 235 Cal.App.2d 678, 682, 45 Cal.Rptr. 584, 587, declined to “plod through 1,000 pages of transcript,” when the appellant's brief failed to comply with the requirement of rule 15 that appropriate reference be made to the record, we elect to dispose of the instant case and address the three points raised by plaintiffs' appeal.

3.  The parties refer to the notes herein as “add-on” notes—i. e., the interest for the term (60 months) of such notes was computed in advance and “added on” to the principal, such total constituting the face amount of the note, which face amount was divided by 60 to determine the monthly payment thereon. The “Rule of 78” is a means of computing the unaccrued portion of the interest charge when an add-on note is paid before maturity in order to ascertain refund credit. (See Civ.Code, § 1806.3, subd. (a); Bone v. Hibernia Bank (9th Cir., 1974) 493 F.2d 135, 137; CCH, 1 Consumer Credit Guide, ¶ 530.)

4.  Government Code section 69953 provides:“In civil cases the fees for reporting and for all other transcriptions ordered by the court to be made shall be paid by the parties in equal proportion; and either party at his option may pay the whole. In either case, all amounts so paid by the party to whom costs are awarded shall be taxed as costs in the case. The fees for transcripts and copies ordered by the parties shall be paid by the party ordering them. No reporter shall perform any service in a civil action other than transcriptions until his fee for it has been deposited with the clerk of the court or with the reporter.”

5.  Section 3289 of the Civil Code provides: “Any legal rate of interest stipulated by a contract remains chargeable after a breach thereof, as before, until the contract is superseded by a verdict or other new obligation.” Section 3302 of said code provides: “The detriment caused by the breach of an obligation to pay money only, is deemed to be the amount due by the terms of the obligation, with interest thereon.” Since the bank was exempt from usury restrictions on interest rates (Cal.Const., art. XV, § 1), the parties herein could properly agree to payment of interest at the rate of 1 1/212 percent per month.

HANSON, Associate Justice.

LILLIE, Acting P. J., and FILES (Assigned by the Chairperson of the Judicial Council), J., concur.