Grados v. Shiau

Filed 5/3/21
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION THREE
ROBERT J. GRADOS,
Plaintiff and Respondent, A160541
v.
PAUL SHIAU, (City & County of San Francisco
Defendant and Appellant. Super. Ct. No. CGC-18-570853)
Defendant Paul Shiau appeals from an order denying his motion
to set aside a default and default judgment in an action on a promissory
note. Shiau argues that the trial court abused its discretion in denying
the motion because the default judgment included “illegal” awards of a
$100,000 earn-out payment and $16,163.05 in interest on the note, and
these awards rendered the default judgment void. We conclude that
both the award of the earn-out payment, as well as the award of
interest on the earn-out payment, are contrary to law and render those
portions of the default judgment void. Accordingly, we reverse the
order on Shiau’s motion as to these two awards, and modify the default
judgment to exclude the $100,000 earn-out payment and reduce the
award of interest to $8,081.53.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff Robert J. Grados sued Shiau for breach of contract in
October 2018. Grados filed a first amended complaint in March 2019
1
(Complaint), again asserting a single cause of action for breach of
contract.
A. Complaint
The Complaint included the following allegations. In April 2017,
Grados and Shiau entered into a Demand Note and Agreement (Note),
by which Grados agreed to lend Shiau $100,000, together with interest
as well as a $100,000 earn-out payment due on the maturity date of the
Note (Earn-Out Amount). In July 2017, Grados exercised his right
under the Note to demand immediate payment of the principal,
interest, and Earn-Out Amount; Shiau failed to pay. In October 2018,
Grados sent Shiau a letter notifying him that the failure to pay
constituted a default, and thus the Note had matured. As of the filing
of the Complaint, Shiau had not made the demanded payment or
otherwise responded to the October 2018 letter. The Complaint sought
$200,000 in general damages, interest according to proof at the time of
trial, and “such other and further relief as the Court may deem just and
proper.”
B. Note
The Note was attached as an exhibit to the Complaint. It states
that Shiau “hereby promises to pay” Grados “the principal amount of
One Hundred Thousand Dollars ($100,000), together with all interest
accruing on such amount from the Issuance Date and together with the
Earn-Out Amount (as hereinafter defined), at the rates and times
provided” in the Note.
Section 1 of the Note defines the interest and Earn-Out Amount
as follows: “Subject to Sections 3 and 4, interest shall accrue on the
unpaid principal balance of this Note at a rate of twenty percent
2
(20.0%) per annum . . . commencing on the Issuance Date. In addition
to the payment of the principal amount of this Note, [Shiau] agrees
that [Grados] shall be entitled to the payment on the maturity date of
this Note of an earn-out in the aggregate amount of One Hundred
Thousand Dollars ($100,000) (“Earn-Out Amount”).” (Emphasis in
original.) It also states that any interest accruing on the Note “shall be
credited” against the Earn-Out Amount.
Section 3 defines an “Event of Default” to occur if Shiau “fails to
pay any portion of this Note in accordance with the terms of this
Note[.]” (Emphasis in original.) Section 4 provides that, upon an Event
of Default, “the entire outstanding principal balance of this Note,
together with all accrued and unpaid interest and the Earn-Out
Amount, shall accrue interest until such default is cured or waived in
writing,” at a rate of “the lesser of (a) ten percent (10.0%) per annum
above the interest rate otherwise in effect for such day or (b) the
maximum interest rate permitted under applicable law.”
Section 7 states, in relevant part: “Nothing contained in this
Note shall be construed or so operate as to require [Shiau] to pay
interest at a greater rate than is lawful or in such case to contract for,
or to make any payment, or to do any act contrary to applicable law.” It
also states that Shiau “hereby acknowledges and agrees that, the
payment of the Earn-Out Amount shall not be deemed interest on this
Note and, accordingly, [Shiau] hereby waives any and all laws
applicable to the payment of interest in connection with its payment of
the Earn-Out Amount.”
3
C. Default and Default Judgment
On June 28, 2019, Grados obtained a default against Shiau.
Grados then requested entry of a default judgment in the amount of
$217,388.58: $200,000 as demanded in the Complaint (the $100,000
principal plus the $100,000 Earn-Out Amount); $16,163.05 in interest
(calculated using the $200,000 total, 10 percent interest rate, and 295
days since alleged October 2018 default); and $1,225.53 for costs (filing
fees and service attempts). On August 5, 2019, the clerk entered the
default judgment against Shiau.
D. Motion to Set Aside Default and Default Judgment
On February 5, 2020, Shiau moved to set aside the default and
default judgment pursuant to Code of Civil Procedure section 473 on
two bases.1 First, he argued that he was never personally served with
“multiple necessary pleadings” in the matter, including the Complaint.
Second, he argued that the default judgment must be side aside
because the purported 20 percent interest rate of the Note was usurious
and violated the 10 percent maximum interest rate prescribed by
section 1 of Article XV of the California Constitution, and thus the
default judgment awarded “illegal payout amounts” to Grados.
At the hearing, the trial court stated that the motion to set aside
the default was untimely as section 473 includes a “jurisdictional
limitation” that the motion be brought within six months of the default.
Counsel for Shiau then turned to the default judgment. He argued that
the judgment wrongly enforced a usurious contract because, despite
Grados’s request for only 10 percent interest, the Note stated a
1 Unless otherwise indicated, all further section references will be
to the Code of Civil Procedure.
4
usurious 20 percent interest rate. He also argued that the enforcement
of the $100,000 Earn-Out Amount, as part of the $200,000 total,
rendered the default judgment void. The award of the Earn-Out
Amount, equivalent to 100% interest on the principal, vastly exceeded
the 10 percent maximum constitutional interest rate.
Counsel for Grados argued that the Note was not usurious, but
“even if the Court found that it was, the proper remedy wouldn’t be
vacating the default judgment entirely.” He identified the proper
remedy in that circumstance as “reducing the judgment to the principal
and statutory interest.” Counsel for Shiau responded: “That was our
feeling, as well, Your Honor. If the default must stand because of the
statutory limitation, then a judgment reducing it to the principal and
reasonable interest, legal interest, seems reasonable to us[.]” The trial
court stated: “You didn’t bring a notion [sic] to that effect. You haven’t
cited any authority to that effect.”
E. Trial Court’s Order
The trial court denied the motion in its entirety. As to the
default, the trial court found the motion untimely because it was
brought more than six months after default was entered. As to the
default judgment, the trial court identified two reasons to deny the
motion. First, the trial court determined that setting aside the default
judgment would be an “ ‘idle act’ ” because the default remained in
effect. It explained that “ ‘[i]f the judgment were vacated, it would be
the duty of the court immediately to render another judgment of like
effect, and the defendants, still being in default, could not be heard in
opposition thereto.’ ” (Howard Greer Custom Originals v. Capritti
(1950) 35 Cal.2d 886, 889 (Howard Greer).)
5
Second, the trial court determined that Shiau had not shown any
basis for relief from the judgment that was independent of the default.
It explained: “ ‘A motion to vacate a judgment only lies where the
judgment is void on its face . . . .’ ” (Ostling v. Loring (1994) 27
Cal.App.4th 1731, 1749 (Ostling).) It stated that the “only argument
that [Shiau] makes as to the validity of the judgment is service.” The
trial court then rejected the argument, finding that Shiau had not
offered any declaration or evidence to support his assertion regarding
lack of personal service, and had not offered any challenge to the
propriety of the substituted service.
Shiau timely appealed the order.
DISCUSSION
The issue raised in this appeal is a narrow one. Shiau does not
challenge the trial court’s determination that his motion to set aside
the default was untimely. Nor does he dispute the trial court’s
determination that the default judgment was not void for lack of
service. Instead, Shiau argues that the illegal terms of the Note and
awarded illegal rates of interest to Grados rendered the default
judgment void. Specifically, Shiau challenges (1) the $100,000 Earn-
Out Amount, awarded as part of the $200,000 demanded in the
Complaint; and (2) the award of $16,163.05 in interest. Shiau contends
that, by failing to find that the award of illegal interest rendered the
default judgment void, the trial court abused its discretion in denying
his motion.
I. STANDARD OF REVIEW
Section 473, subdivision (d) provides that a trial court “ ‘may, . . .
on motion of either party after notice to the other party, set aside any
6
void judgment or order.’ ” A trial court’s ruling on a motion for
discretionary relief under section 473 will not be disturbed unless there
is a clear showing that the trial court abused its discretion. (Strathvale
Holdings v. E.B.H. (2005) 126 Cal.App.4th 1241, 1249.) “The
appropriate test for abuse of discretion is whether the trial court
exceeded the bounds of reason.” (Ibid.)
A trial court’s determination that a judgment is void, however, is
subject to de novo review. (Cruz v. Fagor America, Inc. (2007) 146
Cal.App.4th 488, 496.) Here, the trial court determined that the
judgment was not void after it stated that Shiau had made “only” one
argument regarding lack of service, and then rejected that argument.
We disagree with the trial court’s limited view of Shiau’s arguments.
In his motion, Shiau argued that the default judgment must be set
aside because it awarded Grados “illegal” amounts of interest. During
oral argument, Shiau’s counsel took the position that the amounts set
forth in the default judgment must be reduced to only the principal and
“legal” interest from the Note. This was sufficient to apprise Grados
and the trial court of Shiau’s argument that the default judgment was
rendered void based on its award of the interest and Earn-Out Amount.
Moreover, even if Shiau had not raised the argument below,
“questions of jurisdiction are never waived and may be raised for the
first time on appeal.” (Falahati v. Kondo (2005) 127 Cal.App.4th 823,
831, fn. 18 [concluding trial court erred in denying motion to set aside
default, even though motion did not present arguments that judgment
was void].) Accordingly, we turn to the question of whether the award
of the $100,000 Earn-Out Amount and $16,163.05 in interest rendered
the default judgment void.
7
II. DEFAULT JUDGMENT
The question of whether a judgment is void is typically framed as
a question of whether the court rendering the judgment lacked
jurisdiction. (E.g., Carlson v. Eassa (1997) 54 Cal.App.4th 684, 691.)
In People v. American Contractors Indemnity Co. (2004) 33 Cal.4th 653,
660 (American Contractors), the California Supreme Court
distinguished between two types of jurisdictional errors and how each
type can be used to attack a judgment as void. First, “ ‘[l]ack of
jurisdiction in its most fundamental or strict sense means an entire
absence of power to hear or determine the case, an absence of authority
over the subject matter or the parties.’ ” (Ibid., quoting Abelleira v.
District Court of Appeal (1941) 17 Cal.2d 280, 287 (Abelleira).) “When a
court lacks jurisdiction in a fundamental sense, an ensuing judgment is
void and ‘thus vulnerable to direct or collateral attack at any time.’ ”
(Ibid., quoting Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d
94, 119.)
Second, lack of jurisdiction “may also ‘be applied to a case where,
though the court . . . has no “jurisdiction” (or power) to act except in a
particular manner, or to give certain kinds of relief, or to act without
the occurrence of certain procedural prerequisites.’ ” (American
Contractors, supra, 54 Cal.App.4th at p. 661, quoting Abelleira, supra,
17 Cal.2d at p. 288.) “When a court has fundamental jurisdiction, but
acts in excess of its jurisdiction, its act or judgment is merely voidable.”
(Ibid.) A “voidable” judgment is one that is valid until it is set aside as
void. (Ibid.) This type of error “should be challenged directly, for
example by motion to vacate the judgment, or on appeal, and are
generally not subject to collateral attack once the judgment is final
8
unless ‘unusual circumstances were present which prevented an earlier
and more appropriate attack.’ ” (Ibid., quoting Pacific Mut. Life Ins.
Co. v. McConnell (1955) 44 Cal.2d 715, 727.) Upon such a challenge,
the court may then determine that this second type of error rendered
the judgment void. (311 South Spring Street Co. v. Department of
General Services (2009) 178 Cal.App.4th 1009, 1017 (311 South Spring
Street).)
In sum, the distinction between the two types of error affects the
ability to attack a judgment as void: the first type of “fundamental”
jurisdictional error may be subject to direct or collateral attack at any
time, whereas the second type of jurisdictional error cannot be
collaterally attacked absent unusual circumstances. (American
Contractors, supra, 54 Cal.App.4th at pp. 660–661.) Here, Shiau’s
challenge falls into this second category, as he claims that the trial
court did not have the power to award “illegal” rates of interest and
directly attacked the default judgment by moving to set it aside.
(Sharp v. Eagle Lake Lumber Co. (1923) 60 Cal.App. 386, 391 (“It has,
indeed, been held in this state that a motion to set aside a judgment in
the court which rendered it is a direct and not a collateral attack”].)
Grados argues that this challenge to the default judgment should
be rejected for three reasons.2 First, he argues that the challenge fails
because Shiau’s motion was untimely. Second, he argues that the trial
court correctly declined to consider the challenge because it would be
an “idle” act. Third, he describes Shiau’s argument that the judgment
was rendered void based on the illegality of the $100,000 Earn-Out
2 We need not address Grados’s additional argument that the
default judgment was not void because service was proper, as Shiau
does not challenge the trial court’s finding on that issue.
9
Amount and $16,163.05 interest as an “overreach.” We address each
argument in turn.
A. Timeliness of Challenge
Grados argues that Shiau cannot challenge the default judgment
because his motion was untimely. Specifically, Grados relies on Lee v.
An (2008) 168 Cal.App.4th 558 (Lee) to argue that a “voidable”
judgment (a judgment challenged under the second category of
jurisdictional error described above) may not be set aside beyond the
six-month limitation set forth in section 473, subdivision (b). Section
473, subdivision (b) provides, in relevant part, that an application for
relief from a judgment, dismissal, order, or other proceeding based on
mistake, inadvertence, surprise, or excusable neglect “shall be made
within a reasonable time, in no case exceeding six months, after the
judgment, dismissal, order, or proceeding was taken.”
In Lee, the plaintiff moved to set aside a default judgment more
than two years after the judgment, arguing that the judgment was
“voidable” because the trial court acted in excess of its jurisdiction by
imposing terminating sanctions without adequate prior notice. (Lee,
supra, 168 Cal.App.4th at pp. 566–567.) The appellate court affirmed
the denial of the motion to set aside the default judgment. (Id. at p.
567.) It explained that a “voidable” judgment cannot be set aside
beyond the six-month time limit of section 473. (Id. at p. 563.) In other
words, the judgment becomes final after that six-month period, and
thus a subsequent motion to set aside the “voidable” judgment becomes
an improper “collateral” attack on that final judgment. (Id. at p. 564.)
Lee makes clear that the relevant time period for this inquiry is
the time between the default judgment and the filing of the motion to
10
set aside the default judgment. (Lee, supra, 168 Cal.App.4th at pp.
563–564.) Here, Shiau’s motion was filed within six months of entry of
the default judgment. Accordingly, we conclude that Shiau’s challenge
as to the default judgment does not run afoul of any timing limitation
under section 473.
B. Challenge to Default Judgment Only
Grados argues that the trial court correctly declined to consider
Shiau’s challenge to the default judgment because doing so would have
been an “idle act,” given that the default against Shiau was still in
effect. We disagree. In Howard Greer, the plaintiff moved to set aside
a default judgment entered in an action to recover certain personal
property. (Howard Greer, supra, 35 Cal.2d at p. 886.) The California
Supreme Court concluded that vacation of the default judgment would
be “abortive” as the defendant did not seek relief from the default, and
the default entitled the plaintiffs to a judgment on their complaint. (Id.
at p. 888.) Subsequent courts, however, have explained that the reason
for this rule “disappears” where the motion seeks to set aside a
judgment awarding excess relief. (E.g., Nemeth v. Trumbull (1963) 220
Cal.App.2d 788, 792.) “A default judgment fatally deficient for award of
excess relief may be set aside without vitiating the defendant’s default.”
(Jonson v. Weinstein (1967) 249 Cal.App.2d 954, 958.) For example,
when a judgment is rendered void for granting excess relief, an
appellate court may modify the judgment to the maximum amount
warranted or direct the trial court to vacate the portion of the award
that is excessive. (Ostling, supra, 27 Cal.App.4th at p. 1744; 311 South
Spring Street, supra, 178 Cal.App.4th at p. 1019.)
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Shiau has moved to set aside the default judgment because it
awards excessive relief. He does not challenge the award of the
$100,000 principal, but instead argues that two other portions of the
relief (the $100,000 Earn-Out Amount and $16,163.05 in interest) were
illegally awarded. His challenge is thus independent of the underlying
default. Accordingly, we conclude that consideration of Shiau’s motion
to set aside the default judgment is not an “idle” act.
C. Default Judgment Rendered Void
Shiau takes the position that the default judgment was rendered
void because the $100,000 Earn-Out Amount and $16,163.05 in interest
constitute “illegal rates of interest under California usury law.” He
argues these awards render the judgment “void on its face,” i.e. “the
defect is apparent upon examination of the record,” as opposed to
extrinsic evidence. (Carlson v. Eassa (1997) 54 Cal.App.4th 684, 696;
County of San Diego v. Gorham (2010) 186 Cal.App.4th 1215, 1226.)
In Michel v. Williams (1936) 13 Cal.App.2d 198, 200 (Michel), the
California Supreme Court explained the rationale for voiding a
judgment because it awards relief not allowable under the law. “ ‘The
mere fact that the court has jurisdiction of the subject-matter of an
action before it does not justify an exercise of a power not authorized by
law, or a grant of relief to one of the parties the law declares shall not
be granted.’ ” (Ibid.) “ ‘Although every exercise of power not possessed
by a court will not necessarily render its action a nullity, it is clear that
every final act, in the form of a judgment or decree, granting relief the
law declares shall not be granted, is void, even when collaterally called
in question.’ ” (Ibid.)
12
Subsequent courts have adopted this rationale from Michel to
conclude that a judgment is rendered void by an award that is contrary
to law. In 311 South Spring Street, for example, the defendant
requested to vacate a portion of a judgment awarding post-judgment
interest at a rate of 10 percent. (311 South Spring Street, supra, 178
Cal.App.4th at p. 1012.) Section 1 of Article XV of the California
Constitution provided that the plaintiff was entitled to post-judgment
interest at a seven percent rate. (Id. at p. 1018.) The appellate court
thus determined that the award “constitutes a grant of relief which the
Constitution forbids and the court had no power to grant.” (Ibid.) It
concluded that the award rendered that portion of the judgment void.
(Ibid.)
In Jones v. World Life Research Institute (1976) 60 Cal.App.3d
836, 838, the parties stipulated that plaintiffs were entitled to a
judgment in the sum of $34,506.56, with $9,178.66 in interest. The
trial court entered judgment with these stipulated amounts, but also
included an additional $3,205.84 as interest on the judgment. (Id. at p.
847.) The appellate court explained that, under the California
Constitution and Code of Civil Procedure, “[t]here can be no interest on
a judgment prior to its rendition and entry.” (Id. at p. 848.) It
concluded that the $3,205.84 award was “obviously contrary to law,
beyond the jurisdiction of the court, and void” and modified the
judgment to strike the $3,205.84 amount. (Ibid.)
Accordingly, we look at the default judgment before us to
determine whether it included relief that is contrary to law and
rendered the default judgment void on its face. As Shiau argues that
13
two portions of the awarded relief were illegal (the $100,000 Earn-Out
Amount and $16,163.05 in interest), we address each portion in turn.
1. Earn-Out Amount
As to the $100,000 Earn-Out Amount, we agree with Shiau that
the award is contrary to law because it exceeds the constitutionally
allowable maximum interest rate of 10 percent, and thus renders the
default judgment void on its face.
The California Constitution provides that parties may contract in
writing to set the interest rate on a loan or forbearance “at a rate not
exceeding 10 percent per annum[.]” (Cal. Const., art. XV, § 1, subd.
(1).) In addition, it states that no person “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.” (Id., subd.
(2).) This plain language makes clear that the stated interest plus any
additional “bonus” or “other compensation” cannot exceed the 10
percent rate.
Consistent with this language, courts have found promissory
notes to be usurious where they include a “bonus” that increases the
total interest rate over the maximum 10 percent. In Creative Ventures,
LLC v. Jim Ward & Associates (2011) 195 Cal.App.4th 1430, 1435, for
example, the borrower paid a 6 percent broker’s fee along with a 10
percent interest rate on its promissory notes with the defendant. The
appellate court concluded that there was sufficient evidence to support
the trial court’s ruling that the defendant committed usury. (Id. at p.
1436.) It explained: “For purposes of the usury law, the interest
charged is computed by adding the stated interest rate to any bonus the
14
borrower must pay in addition. If the interest rate plus the bonus
exceeds the statutory limit, the loan is usurious.” (Id. at p. 1441,
emphasis added.)
In Forte v. Nolfi (1972) 25 Cal.App.3d 656, 678–679 (Forte), the
appellate court similarly concluded that a promissory note was
usurious where it “called for the payment of a $750 bonus with interest
in addition to the maximum rate of interest on the $2,700 actually
advanced.” It explained that the bonus “ ‘must be considered as
interest’ ” and that if the interest and bonus exceed the maximum
allowable interest rate, the contract is usurious. (Id. at p. 678, quoting
Otis v. I. Eisner Co. (1935) 7 Cal.App.2d 496, 499-500.)
Here, the terms of the Note make clear that Shiau was obligated
to pay the Earn-Out Amount (after crediting any accrued interest) in
addition to the principal, and thus it falls under the category of a
“bonus” or “other compensation” that cannot exceed the 10 percent rate.
Considering the Earn-Out Amount (and any accrued interest), the
interest rate is 100 percent of the $100,000 principal—ten times above
the maximum constitutional rate. We thus conclude that the award of
the Earn-Amount was contrary to law, and thus rendered that portion
of the default judgment void.
Grados offers no response that alters our conclusion. Without
citation to any authority, he refers to Section 7 of the Note, which
states that Shiau “hereby acknowledges and agrees that, the payment
of the Earn-Out Amount shall not be deemed interest on this Note and,
accordingly [Shiau] hereby waives any and all laws applicable to the
payment of interest in connection with its payment of the Earn-Out
Amount.”
15
We do not find this waiver argument persuasive. In Hardwick v.
Wilcox (2017) 11 Cal.App.5th 975, 989 (Hardwick), the defendant made
a similar waiver argument where the borrower had signed an
agreement containing a unilateral general release of his claims. The
appellate court agreed with the trial court’s finding that construction of
the release as a waiver of usury would violate public policy. (Ibid.)
Section 1668 of the Civil Code states: “All contracts which have for
their object, directly or indirectly, to exempt any one from
responsibility for his own fraud, or willful injury to the person or
property of another, or violation of law, whether willful or negligent,
are against the policy of the law.” Hardwick concluded that the
unilateral general release in that agreement as a waiver of usury would
allow the defendant “to escape the consequences of his violation of the
law by permitting him to benefit from his illegal contract and retain the
usurious interest he extracted from Hardwick.” (Hardwick, supra, 11
Cal.App.5th at p. 989.)
So too here. Allowing Grados to benefit from the unilateral
provision in Section 7 and be awarded the illegal $100,000 Earn-Out
Amount, equivalent to the entire amount of the principal, would
“undermine the ‘theory’ of California usury law, which is ‘that society
benefits by the prohibition of loans at excessive interest rates, even
though both parties are willing to negotiate them.’ ” (Hardwick, supra,
11 Cal.App.5th at p. 989–990, quoting Stock v. Meek (1950) 35 Cal.2d
809, 817.)
In sum, we conclude that the trial court erred in failing to
determine that the default judgment was void on its face, as to the
award of the $100,000 Earn-Out Amount. Accordingly, the trial court
16
abused its discretion in denying Shiau’s motion as to that portion of the
default judgment.
2. Interest
The $16,163.05 in interest awarded in the default judgment was
calculated using a $200,000 total ($100,000 principal plus $100 Earn-
Out Amount) and 10 percent interest rate.
Shiau argues that Grados should not have been awarded any
interest, pursuant to the general rule that when a loan is usurious, the
creditor is entitled to repayment of only the principal and “no interest
whatsoever.” (Hardwick, supra, 11 Cal.App.5th at p. 979.) An
exception to this general rule applies, however, when a borrower has
defaulted on a loan and the loan becomes due. (Epstein v. Frank (1981)
125 Cal.App.3d 111, 122.) “The attempt to exact the usurious rate of
interest renders the interest provisions of a note void. [Citation.] The
usurious provisions, however, do not affect the right of the payee to
recover the principal amount of the note when due. [Citation.] The
inclusion of a usurious interest provision, therefore, results, in effect, in
a note payable at maturity without interest.” (Id. at pp. 122–123.)
Accordingly, the lender is entitled “to interest at the legal rate from the
date the note matures until the date of judgment.” (Id. at p. 123.)
Here, the Complaint alleged that Shiau defaulted on the Note in
October 2018, and thus the Note had matured at that time. Shiau does
not dispute, in his underlying motion or in his briefing on appeal, that
his failure to pay upon Grados’s demand triggered the maturity of the
Note. Accordingly, despite any usurious provision in the Note, Grados
still retained his right to recover (1) the $100,000 principal and
(2) interest on that principal at the legal 10 percent rate.
17
Grados was not, however, entitled to interest on the $200,000
amount, which included both the $100,000 principal and the $100,000
Earn-Out Amount. As explained above, the $100,000 Earn-Out
Amount must be considered as interest, not principal. (Forte, supra, 25
Cal.App.3d at p. 678.) The award of interest on the additional $100,000
Earn-Out Amount was thus contrary to law, and rendered the default
judgment void on its face, as to that additional interest. We thus
conclude that the trial court abused its discretion in denying Shiau’s
motion as to the award of interest, to the extent that the interest
exceeded the amount that had accrued on the $100,000 principal at the
constitutionally allowable maximum rate.
At oral argument, counsel for Shiau acknowledged that
modification of the default judgment to award Grados $100,000
principal and interest on that principal at a 10 percent rate was
“probably the most reasonable” outcome here. We agree. “When a
default judgment is partially void for being excessive, an appellate
court will strike the excess and affirm the valid portion.” (National
Diversified Services, Inc. v. Bernstein (1985) 168 Cal.App.3d 410, 419.)
Accordingly, we modify the default judgment to award Grados interest
in the amount of $8,081.53 (calculated using the $100,000 principal, 10
percent interest rate, and 295 days since alleged October 2018 default).
DISPOSITION
The order on Shiau’s motion is reversed as to those portions
denying the motion to set aside the default judgment based on its
award of the $100,000 Earn-Out Amount and the award of interest on
the Earn-Out Amount. The order is otherwise affirmed.
18
The default judgment shall be modified as follows:
“Section 6.a.(1) Damages: $100,000”; “Section 6.a.(2) $8,081.53”; and
“Section 6.a.(6) TOTAL: $108,081.53”.
19
_________________________
Petrou, Acting P.J.
WE CONCUR:
_________________________
Jackson, J.
_________________________
Wiseman, J.*
Grados v. Shiau/A160541
*Retired Associate Justice of the Court of Appeal, Fifth Appellate
District, assigned by the Chief Justice pursuant to article VI, section 6
of the California Constitution.
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Trial Court: San Francisco County Superior Court
Trial Judge: Hon. Ethan P. Schulman
Counsel: Keller Benvenutti Kim, Jane Kim and Dara L.
Silveira; Leader-Picone & Young, Kaipolani K.
Young, for Plaintiff and Respondent.
Wendel Rosen, Steven M. Morger and Patrick Tuck,
for Defendant and Appellant.
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