Homami v. Iranzadi

260 Cal.Rptr. 6 (1989)

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Nature of the Case

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Facts

Homami (P) loaned $250,000 to Iranzadi (D) under a note that contained no interest in order for D to purchase two properties in the U.S. The loan was evidenced by two identical promissory notes in the amount of $125,000 each due in two years. P and D were brothers-in-law. Secretly the notes had 12 percent interest. The idea was to avoid payment of taxes on the interest. P had power of attorney for D and P drew $2,500 monthly interest on the notes from Iranzadi's accounts more or less on a monthly basis for approximately a year. For the first few months, P signed the checks. The last six checks were signed by Iranzadi's son. The total amount paid to Homami from Iranzadi, including the initial payment of $2,104.68, was $39,324.68. They modified the written terms in March 1985, and two more $2,500 payments were made but none thereafter. The interest was verbally agreed to be 12 percent per year. On August 14, 1985, P filed notices of default on the ground that Iranzadi had failed to pay the monthly installment of interest due July 22, 1985. Foreclosures were commenced on both properties. D found a buyer for one of the properties and escrow closed at the end of January 1986. P was paid through that escrow the full principal balance of $125,000 on the one note, plus interest at 18 percent from June 22, 1985, as per the modification agreement, and foreclosure fees; however, D expressly reserved the right to claim a credit for approximately $40,000, plus fees and costs, against the second note. The second property sold in June 1986. P claimed the full $125,000 plus interest on that amount from June 22, 1985, and foreclosure fees. D claimed he had paid $39,324.68 on the principal balance between March 1984 and June 1985, claimed a credit in that amount. The sum of $43,500 was held out of the proceeds and delivered to Albert Ham, a stakeholder, pending resolution of the dispute. P sued claiming that the money paid represented interest only and that the no interest provision was for purposes of not reporting the interest income for state and federal tax purposes. The trial court granted judgment for P and D appealed.