MORGAN v. Bay Counties Title Guaranty Co., a California Corporation et al., Defendants.

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Court of Appeal, Third District, California.

William MORGAN and Virginia R. Morgan, his wife, Plaintiffs, Respondents and Appellants, v. The REASOR CORPORATION and Midwest Homes Acceptance Corporation, Defendants, Appellants and Respondents, Bay Counties Title Guaranty Co., a California Corporation et al., Defendants.

Civ. 11548.

Decided: April 17, 1968

Marvel M. Taylor, San Leandro, for defendants-appellants-respondents. David W. Packard, Redding, for plaintiffs-respondents-appellants.

For Opinion on Hearing, see 73 Cal.Rptr. 398, 447 P.2d 638.

This is an appeal from a judgment for the plaintiffs, in an action for declaratory relief wherein a contract in writing providing for the construction of a house by defendant The Reasor Corporation on land owned by the plaintiffs was held to be regulated by Division 3, part 4, title II of the Civil Code, section 1801 et seq., governing retail installment sales (The Unruh Act).

The case was submitted to this court on an agreed statement of facts which reads, in pertinent part, as follows:

“Appellant, THE REASOR CORPORATION, and Cross–Appellants, WILLIAM R. MORGAN and VIRGINIA R. MORGAN, herein submit and agreed statement on appeal on the above entitled case.

“The appeal presents a question of the applicability of Chapter 1, title II, Part Four, Division III of the civil Code (Sections 1801–1812.9, commonly known as the ‘Unruh Act’ pertaining to Retail Installment Sales) to a contract between plaintiffs and defendants, and the extent of penalties thereto.

“The jurisdiction of the reviewing Court arises as follows:  Judgment was entered in the Superior Court of the State of California, County of Shasta, on July 7, 1966, upon a complaint for Declaratory Relief.   Defendant filed its Notice of Appeal in said Court on August 11, 1966, in accordance with Rule 1A.   The facts necessary to determination on appeal are as follows:

“1. At all times mentioned in plaintiffs' complaint herein, plaintiffs, WILLIAM R. MORGAN and VIRGINIA R. MORGAN were, and now are, husband and wife.

“2. At all times mentioned in plaintiffs' complaint herein, defendants MIDWEST HOMES ACCEPTANCE CORPORATION, and THE REASOR CORPORATION, were,and now are, corporations duly organized and existing under and by virtue of the laws of the State of Illinois, and defendant THE REASOR CORPORATION was, at the time of filing the complaint herein, authorized to do business in the State of California.   Prior to the filing of the complaint herein, IBC CORPORATION was a corporation duly organized and existing under and by virtue of the laws of the State of Illinois and was authorized to do business in California.   On or about March 29, 1963, the said IBC CORPORATION merged into THE REASOR CORPORATION, and the said REASOR CORPORATION assumed all the liabilities, debts, obligations and causes of action which had existed against the said IBC CORPORATION.

“3. On or about the 14th day of October, 1963, plaintiffs executed a written document, the same being designated a ‘lien contract and deed of trust,’ and a copy of which is attached to plaintiffs' complaint on file herein, marked Exhibit ‘A’ and by reference incorporated into said complaint.   Said document, as originally executed by plaintiffs is plaintiffs' Exhibit ‘1’ in evidence herein.   The original of said document executed by IBC CORPORATION is defendants' Exhibit ‘A’ in evidence herein.

“4. At the time of executing said lien contract and deed of trust IBC CORPORATION submitted to, and plaintiffs herein executed a promissory note in the principal sum of $19,398.12, a copy of which is attached to plaintiffs' complaint on file herein and marked Exhibit ‘B’.   Said promissory note was executed by plaintiffs at the request of IBC CORPORATION in connection with and as a part of the aforesaid ‘lien contract and deed of trust.’   Said promissory note is executed by plaintiffs' Exhibit ‘2’ in evidence herein.   The original of said promissory note is defendants' Exhibit ‘B’ of evidence herein.

“5. Said lien contract and deed of trust and said promissory note were executed by plaintiffs for the purchasing and acquiring from IBC CORPORATION of an IBC model home, Model designated ‘Pixley,’ and in accordance therewith the said IBC CORPORATION was to cause to be constructed upon real property described in said deed of trust said home and dwelling.   The written specification Riders and Construction Agreement Forms are defendants' Exhibits C and D1, D2, D3, D4, D5 and D6 in evidence herein.

“6. Thereafter, but prior to the filing of the complaint on file herein, said IBC CORPORATION assigned said ‘lien contract and deed of trust’ and said promissory note to MIDWEST HOMES ACCEPTANCE CORPORATION, a corporation.   The said MIDWEST HOMES ACCEPTANCE CORPORATION accepted said assignment with full knowledge of all of the terms and conditions of said lien contract and deed of trust and said promissory note, and without limiting the foregoing, with full knowledge that said lien contract and deed of trust and said promissory note were executed simultaneously by plaintiffs herein and that they arose out of the same transaction.

“7. Said lien contract and deed of trust was dated at the time it was executed by plaintiffs herein.   The promissory note was not dated at the time it was executed by plaintiffs herein.   The lien contract and deed of trust and said promissory note are not encompassed in a single document.   Said lien contract and deed of trust, at the time they were executed by plaintiffs herein, contained blank spaces, which were later filled in by either IBC CORPORATION or MIDWEST HOMES ACCEPTANCE CORPORATION, but said blank spaces were not filled in with any intent on the part of the said MIDWEST HOMES ACCEPTANCE CORPORATION or IBC CORPORATION to defraud or otherwise damage plaintiffs.   Said lien contract and deed of trust and said promissory note do not provide for service charge in excess of that permitted by the terms of the Unruh Act.

“8. An actual controversy exists between plaintiffs and defendant as to whether plaintiffs are required to pay the carrying charges (time price differential) designated in said lien contract and deed of trust, and the amount thereof to be paid, if any.

“The question to be determined on appeal arose in the following manner:  The issue of applicability of the Unruh Act to the contract was argued to and ruled upon in the affirmative by the Honorable Richard Abbe, Judge of the Superior Court, as part of the Pre-trial Order.   Defendants Motion for Modification of the Pre-trial Order was denied by both the pre-trial judge and the trial judge.   Trial on other issues of the violation of the Unruh Act by defendant was had, and judgment was entered thereon in favor of plaintiffs, from which defendant appeals.   Defendant (sic, Plaintiff] cross-appeals from said judgment awarding carrying charges from and after June 3, 1966.   Defendant further appeals upon the award of attorney's fees to plaintiffs in said judgment.”  (Italics ours.)

We hold the transaction, which constitutes a retail installment sale, is subject to the requirements of the Unruh Act.

The contract executed by the parties and designated as Lien Contract And Deed of Trust calls for defendants as sellers to sell to plaintiffs as buyers “the goods and services herein described” and subject to the terms an conditions, as follows:

IBC Home Model “Pixley” (with garage).   The specifications called for a basic house including foundation, basement piers, floor construction, interior and exterior wall framing, roof, millwork, insulation, interior trim package, doors, plumbing fixture package, wiring package, electrical fixture package, kitchen cabinet package, painting, plumbing, etc.

The contract provided further that the buyers buy and accept the goods and services subject to the terms and conditions which included

payable in 71 successive monthly installments of $116.06, and a final installment of $11,157.86.   Buyers also executed the promissory note as a part of the transaction.

The pertinent sections of the Civil Code read as follows:

“1802.6. ‘Retail installment contract’ or ‘contract’ means any contract for a retail installment sale between a buyer and seller, entered into or performed in this State, which provides for repayment in installments, whether or not such contract contains a title retention provision, and in which a time price differential is computed upon and added to the unpaid balance at the time of sale or where no time price differential is added but the goods or serves are available at a lesser price if paid by cash * * *.”

“1802.10. ‘Time price differential’ or ‘service charge’ means the amount however denominated or expressed which the retail buyer contracts to pay or pays for the privilege of purchasing goods or services to be paid for by the buyer in installments;  it does not include the amounts, if any, charged for insurance premiums, delinquency charges, attorney's fees, court costs, collection expenses or official fees.   Wherever either of such terms is required to be used under the provisions of this chapter the other may be used interchangeably.”

“1802.1 ‘Goods' means tangible chattels bought for use primarily for personal, family or household purposes, including certificates or coupons exchangeable for such goods, and including goods which, at the time of the sale or subsequently are to be so affixed to real property as to become a part of such real property whether or not severable therefrom * * *.”

“1802.2 ‘Services' means work, labor and services, for other than a commercial or business use, including services furnished in connection with the sale or repair of goods as defined in Section 1802.1 or furnished in connection with the repair of motor vehicles or in connection with the improvement of real property or the providing of insurance * * *.”

 The basic definition of goods under the Act is “tangible chattels bought for use primarily for personal, family or household purposes * * *.”  (Civ.Code, sec. 1802.1)  The property listed in the contract in question falls within this definition.   That the definition of services in the act sets out several specific coverages is no limitation, being merely illustrative and not exclusive.   Also, the work and labor performed in the construction of the house for the buyer falls within the definition of services as stated in section 1802.2 of the Civil Code.   Defendant contractor, when he contracted for and did furnish the property and services which ultimately became a house was a seller, as defined in section 1802.3 of the Civil Code, who sold to a retail buyer which latter designation applies to plaintiff who purchased the goods and services pursuant to the contract.   (Civ.Code, sec. 1802.4.)

 The Lien Contract and Deed of Trust clearly falls within the language of Civil Code section 1802.6 defining a retail installment contract which contains a cash sale price, a time sale price, a time price differential (service charge) as well as a security device.

 We hold that the construction of a residence under the factual situation before us is a retail installment sale under the provisions of the Unruh Act (see 67 Ops.Cal. Atty. Gen. 168) and further that the term “improvement of real property” as used in the Act (1902.2, Civ.Code) includes the construction of a residence.

The contract was subject to the Unruh Act and was in violation of the Act, for it was admitted in the agreed statement that:  (1) the lien contract and deed of trust and promissory note are not encompassed in a single document (Civ.Code, sec. 1803.2, which requires that except as provided in sections 1803.9 (cash sale of $50 or less) and 2808.3 (add-on sales) every retail installment contract shall be contained in a single document which must contain, among other provisions, the entire agreement of the parties, costs and terms of payment for the goods and services, promissory notes, promises made as an inducement to buyer, etc.);  (2) the lien contract and deed of trust, at the time of execution by plaintiffs, contained blank spaces, which were later filled in by either IBC Corporation or Midwest Homes Acceptance Corporation (Civ.Code, sec. 1803.4, which provides the seller shall not obtain the signature of the buyer to a contract when it contains blank spaces to be filled in after it has been signed);  and (3) the promissory note was not dated at the time it was executed by plaintiffs.  (Civ.Code, sec. 1803.1, which provides the retail installment contract shall be dated and in writing.) 1

In this respect section 1812.7 of the Civil Code provides:

“In case of failure by any person to comply with the provisions of this chapter, such person or any person who acquires a contract or installment account with knowledge of such noncompliance is barred from recovery of any time price differential or service charge or of any delinquency, collection, extension, deferral or refinance charge imposed in connection with such contract or installment account and the buyer shall have the right to recover from such person an amount equal to any of such charges paid by the buyer.”

The trial court found plaintiff had duly performed according to the contract and had paid a total of $4,526.34 thereon as of June 2, 1966.   The language of the judgment of the trial court recites:

“2. The clerk of the above-entitled court is directed, as of June 2, 1966, to cancell [sic] and annul the aforesaid promissory note.

“3. Plaintiffs shall receive a credit of $4,526.34 on the unpaid balance as set forth on the aforesaid Lien Contract and Deed of Trust and defendants shall not recover any time price differential thereon up to and including June 2, 1966.   Commencing June 3, 1966 the owner and holder of said Lien Contract and Deed of Trust is entitled to charge a time price differential or service charge on the remainder of the unpaid balance, that is on the sum of $7,317.66, said time price differential to be at same effective rate provided for in said Lien Contract and Deed of Trust.

“4. Plaintiffs shall receive an additional credit against the amount due and owing under said Lien Contract and Deed of Trust in the sum of $766, and an additional sum of $14 unless the window shutters required by said Lien Contract and Deed of Trust be delivered to plaintiffs within ten days from June 2, 1966, said credits to be applied as of the date of judgment herein.

“5. That plaintiffs have judgment against defendants THE REASOR CORPORATION, a corporation and MIDWEST HOMES ACCEPTANCE CORPORATION, a corporation in the sum of $400.00 for their attorneys fees herein and for their costs of suit herein taxed at $67.00.”

We have concluded that as between William Morgan and Virginia R. Morgan, buyers, and I B C Corporation, the seller, there has been a violation of the terms of the act which would bar the seller from recovery of any time-price differential or service charge, in that seller has failed to comply with the terms thereof.   This brings us to the question, not decided in the trial court, whether Midwest Homes Acceptance Corporation as assignee from I B C Corporation of the lien contract and deed of trust and promissory note and the present holder thereof is a person who has acquired the contract (between buyer and seller) with knowledge of noncompliance with the provisions of the act so as to bar its recovery of any time-price differential or service charge.  (See Civ.Code, sec. 1812.7;  Fresno Loan & Thrift v. Roberts, 207 Cal.App.2d Supp. 899, 25 Cal.Rptr. 624.)

 Since this precise question was not considered by the parties or the trial court, the judgment in this case must be reversed in order that the parties may introduce evidence on the question of whether the assignee was a person who acquired the contract with knowledge of noncompliance.   In this connection, we note the language of the court in the Fresno case, supra (at p. 901, 25 Cal.Rptr. at p. 625):

“Section 1818.7, C.C., provides that penalties for violation of the Unruh Act are imposed only against a ‘person who acquires a contract or installment account with knowledge of’ noncompliance with its provisions.   No penalty, whatsoever, is imposed upon the innocent assignee.”

 We also hold that the trial court erred in denying collection of the time-price differential occurring to June 2, 1966, and permitting it thereafter, for there is no legal basis in the statute for “correction” of the noncompliance on JUne 2, 1966.  (See Civ.Code, sec. 1812.8.)  Section 1812.7 either permits or prohibits collection of the entire time-price differential.2  Thus, if the court upon a reexamination of this case considers the assignee still to be in violation of the act, the assignee (or seller) is barred from recovery of any time-price differential and buyer has the right to recover an amount equal to the sum of all of such charges already paid.

 Finally, we hold that the trial court erred in awarding attorney's fees to the prevailing party.   Section 1811.1 of the act provides that fees must be awarded to the prevailing party “in any action on a contract or installment account subject to the provisions of this chapter.”   The present action , however, is essentially one for declaratory relief to determine whether or not the contract is subject to the act.   we, therefore, hold that section 1811.1 is not applicable to this case.

The judgment is reversed for further proceedings in the trial court in accordance with the holding set forth herein;  the parties to pay their own costs on appeal.

FOOTNOTES

1.   The agreed statement also points out that the lien contract and deed of trust and promissory note do not provide for a service charge in excess of that permitted by the terms of the Unruh Act.

2.   Section 1812.8 of the Civil Code gives the holder (of the contract paper) an opportunity to correct a failure to comply with the penalty provisions of the Unruh Act.   If a violation is so corrected neither the seller nor the holder shall be subject to any penalty.   However, the time during which the correction shall be made is limited to that period within thirty days of the execution of the original contract by the buyer.   No such correction was attempted nor made by the the buyer or the contract holder.   The action by the trial court orders a correction not allowed by the Unruh Act.