## Facts

- Earl L. White sought real-estate financing but could not obtain it through conventional channels, so he arranged transactions structured as “assignments” or “sales” of promissory notes secured by deeds of trust.
- Two promissory notes, each secured by a deed of trust on real property, were placed into escrow under written escrow agreements dated September 4 and September 24, 1959.
- Under the escrow arrangements, defendants (through Albert Construction Co.) advanced $21,250 and $10,800 in exchange for assignments of notes with face amounts of $25,000 and $12,000.
- The notes stated a 10% interest rate (the maximum lawful rate), but because White received substantially less than face value and later paid interest and principal calculated on the face amounts, the effective rate exceeded the legal maximum.
- White operated through multiple entities (including Zeeco, Inc., Vesto, Inc., and Landco, Inc.), which the trial court found were his agents and vehicles for his business; defendants knew of these relationships.
- The trial court found the transactions were loans, not true sales of trust deed paper, and that the usurious character of the transactions was known or should have been known to all parties.
- When the notes went into default, the secured properties were foreclosed. The trial court found defendants received payment in full of all sums due on the notes by virtue of the foreclosure sale.
- White sued to recover interest paid and to obtain treble damages under California’s usury law. Defendants cross-complained to recover on written guaranties executed by White that imposed primary liability upon default.
- The trial court denied White any recovery (including interest and penalties), relying on Civil Code § 3517 (“No one can take advantage of his own wrong”), but it also denied defendants any recovery on the guaranties because the foreclosure sale satisfied the debt. Both sides appealed.

## Issues

1. When a borrower knowingly devises and participates in a usurious loan scheme, may the borrower recover (a) the usurious interest paid and (b) treble damages under California’s usury law, or does Civil Code § 3517 bar such relief?
2. After a foreclosure sale that the trier of fact finds fully satisfied the secured indebtedness, may the lender recover additional amounts from the borrower under written guaranties tied to the notes?

## Decision

- The Court of Appeal accepted the trial court’s determination that the transactions were loans in substance, not bona fide sales of notes and deeds of trust, and that the loans were usurious.
- The court reversed the portion of the judgment that denied plaintiffs any recovery at all, holding plaintiffs were entitled to recover the usurious interest they paid.
- The court held plaintiffs were not entitled to treble damages on these facts, given White’s knowing participation in and authorship of the usurious arrangement and the policy against awarding punitive statutory recoveries to a deliberate wrongdoer.
- The court affirmed the denial of defendants’ cross-complaint on the guaranties because the foreclosure sale was found to have paid defendants in full on the notes, leaving no remaining balance for the guaranties to secure.
- Disposition: affirmed in part and reversed in part, with directions to enter judgment awarding plaintiffs a refund of usurious interest paid but not treble damages.

## Legal Principles

- Usury turns on the substance and economic effect of the transaction rather than its label; an apparent “sale” or “assignment” of a note may be treated as a loan if repayment terms yield an unlawful effective rate based on the money actually advanced.
- California’s usury law allows recovery of usurious interest paid even where the borrower was not innocent, because denying any recovery would shift the financial burden of a usurious bargain onto the borrower rather than the lender.
- Civil Code § 3517 (“No one can take advantage of his own wrong”) can limit punitive remedies; a borrower who deliberately engineers a usurious scheme may be denied statutory treble damages even though the transaction is usurious.
- A guaranty does not create a right to collect more than what remains due on the underlying debt; if foreclosure proceeds fully satisfy the indebtedness, there is no deficiency to collect under the guaranty.

## Conclusion

White v. Seitzman held that the challenged trust-deed-note “assignment” transactions were usurious loans, and that while White could recover the usurious interest he paid, he could not obtain treble damages because he knowingly devised and carried out the usury scheme; the court also upheld denial of the lenders’ guaranty claim because foreclosure was found to have fully satisfied the debt.


White v. Seitzman, 230 Cal. App. 2d 756 (1964)