Hughes v. Nashua Mfg. Co.

• Decision Date: 11 January 1968
• Citation: 257 Cal.App.2d 778,65 Cal.Rptr. 380
• Court: California Court of Appeals Court of Appeals
• Parties: Harold HUGHES and Eloise L. Hughes, Plaintiffs and Respondents, v. NASHUA MFG. CO. et al., Defendants and Appellants. CALIFORNIA DUAL HOMES, INC., et al., Cross-Complainants and Appellants, v. NASHUA MFG. CO. et al., Cross-Defendants and Respondents. Civ. 830.

Page 380

65 Cal.Rptr. 380

257 Cal.App.2d 778

Harold HUGHES and Eloise L. Hughes, Plaintiffs and Respondents, v. NASHUA MFG. CO. et al., Defendants and Appellants.

CALIFORNIA DUAL HOMES, INC., et al., Cross-Complainants and Appellants, v. NASHUA MFG. CO. et al., Cross-Defendants and Respondents.

Civ. 830.

Court of Appeal, Fifth District, California.

Jan. 11, 1968.

[257 Cal.App.2d 780] Dormeyer, Simmons, Hughes & Shade, and Richard S. Simmons, Sacramento, for defendants, cross-complainants and appellants.

Guthrie, Joynt & Zimmer and Jerry L. Guthrie, Sacramento, for plaintiffs.

McLaughlin, Russell, McCarthy & Kaelin and Edward L. McCarthy, Sacramento, for Nashua Mfg. Co.

OPINION

GARGANO, Associate Justice.

This is a judgment roll appeal by defendants California Dual Homes, Inc. and Standard Financial Corporation from an adverse judgment in favor of plaintiffs Harold Hughes and Eloise L. Hughes, and cross-defendant Nashua Manufacturing Company. The facts, as gleaned from the limited record, are essentially as follows. In June 1963 plaintiffs purchased a house trailer manufactured by the Nashua Manufacturing Company from the seller, California Dual Homes, Inc. for the total purchase price of $5,984.80. Plaintiffs purchased the trailer under a conditional sale contract which provides for a down payment of $1,503.08 with the balance (including insurance and a finance charge of $2,040.60) payable in 84 installments of $82.15. California Dual Homes assigned the conditional sale contract to Standard Financial Corporation, but the record does not disclose when the assignment took place.

After the sale was consummated (the record does not show when) plaintiffs discovered that the trailer was infested with powder-post beetles and was unfit for human habitation. Plaintiffs had expended $500 on the trailer when they discovered the defect. Plaintiffs then gave timely notice of the breach of the implied warranty of fitness to the manufacturer, the seller and the seller's assignee. When the latter three parties denied liability plaintiffs instituted this action against them to rescind the conditional sale contract. Plaintiffs also sought restitution and compensatory damages. The seller and its assignee cross-complained against the manufacturer seeking indemnity for any judgment which plaintiffs secured against them. After issue was joined on the complaint and cross-complaint the cause was tried by the court sitting without a jury. The court granted judgment to the plaintiffs rescinding the conditional sale contract. The court also awarded plaintiffs judgment against the seller and the seller's asignee for the restitution of the full purchase price of the trailer and consequential damages in the amount of $500. The court, however, awarded judgment in favor of the manufacturer on both the complaint and cross-complaint.

Defendants raise three main contentions for reversal: first, the judgment reimburses plaintiffs for the full purchase price of the trailer which they never paid; second, defendant Standard Financial Corporation was not obligated to make restitution to plaintiffs, nor was it liable for compensatory damages; third, the trial judge committed prejudicial error when he made findings on the cross-complaint. We shall consider each contention separately.

I

It is patent that the amount awarded by the court to plaintiffs by way of restitution is excessive. The court ordered the restitution of the full purchase price of the trailer even though it is clear from the skimpy record that they did not pay this amount. In fact, plaintiffs concede that they made a down payment of $1,503.08 and not more than 30 installment payments of $82.15. Thus, $3,967.58 is the very most that plaintiffs should have been awarded by the court.

Moreover, the court's findings of fact are incomplete and its conclusions of law are erroneous. The court found that plaintiffs made a down payment of $1,503.08 but did not state whether it was made to the seller or its assignee. In addition, the court erroneously concluded that both defendants were equally liable for the restitution of the entire consideration. Under similar circumstances the California Supreme Court stated:

'Furthermore, the judgment is erroneous, in that it makes both defendants liable for the return of the entire consideration, although only a part of it had gone to each of them. Studebaker Bros. Company had received (in addition to plaintiff's note) the $300, and Dresbach the shares of stock worth $1,100. Upon a rescission, which contemplates that the parties are to be placed In statu quo, neither defendant should be required to return anything more than that which was obtained by him. If the action had been one for damages for deceit, the two defendants, if jointly connected with the alleged wrong, would both have been liable for the full amount of all damages. But, as we have said, the action was not of that character. * * *' (Conlin v. Studebaker Brothers, 175 Cal. 395, 398, 165 P. 1009, 1010.)

II

Defendant Standard Financial Corporation contends that it was not obligated to refund any of the payments that it received from the plaintiffs because the plaintiffs waived their right of recoupment against the seller's assignee. The conditional sale contract that plaintiffs signed provides:

'All of the benefits hereof accruing to Seller shall accrue to Seller's assignee, or any subsequent assignee, and Purchaser waives as against any such assignee all rights of recoupment, set off, counterclaim, or rights of enforcement which Purchaser may have or might claim against Seller, and as to all parties. Purchaser hereby waives all statutes of limitation in any way affecting the time in which Seller may enforce his rights hereunder or plead such rights in defense. * * *'

Significantly, Civil Code, section 2983.5, which is applicable to a conditional sale contract for the sale of a house trailer and which was in effect in 1963 when the plaintiffs' conditional sale contract was assigned to defendant Standard Financial Corporation, provides:

'No right of action or defense arising out of a conditional sale contract which the buyer has against the seller, and Which would be cut off by assignment shall be cut off by assignment to any third party whether or not he acquires the contract in good faith and for value unless the assignee gives notice of the assignment to the buyer as provided in this section and within 15 days of the mailing of notice receives no written notice of the facts giving rise to the claim or defense of the buyer. A notice of assignment shall be in writing addressed to the buyer at the address shown on the contract and shall identify the contract and inform the buyer that he must, within 15 days of the date of mailing of the notice, notify the assignee in writing of any facts giving rise to a claim or defense which he may have. The notice of assignment shall state the name of the seller and buyer, a description of the motor vehicle, the contract balance and the number and amount of the installments. * * *' (Emphasis added.)

Thus, it is clear that defendant's contention ignores section 2983.5, and is without substantial merit. Defendant did not allege in its answer (by way of affirmative defense or otherwise) that it gave plaintiffs the notice required by the section, nor was such a defense to plaintiffs' right of recoupment placed in issue by the pretrial order. Manifestly, compliance with the notice requirement of section 2983.5 by the assignee of a conditional sale contract, as a defense against the conditional vendee's claim for recoupment, is new matter and hence an affirmative defense. An affirmative defense must be raised in the answer or else it is waived under well established rules of pleading. In addition, the record does not indicate that defendant actually gave plaintiffs the required notice, and under these circumstances we must presume in favor of the judgment aside from any question raised by the pleadings. ¹

Plaintiffs cite American National Bank of San Francisco v. A. G. Sommerville, Inc., 191 Cal. 364, 216 P. 376, in support of their position that the waiver clause contained in the conditional sale contract that they signed is invalid. Defendant, on the other hand, argues that the instant case is distinguishable. In American National Bank the assignee of a conditional sale contract brought an action against the conditional vendee to enforce the contract. The vendee urged failure of consideration as a defense notwithstanding a provision in the contract that he would be precluded from attacking its validity for failure of consideration if the contract was assigned in good faith. The Supreme Court in declaring the clause invalid stated that to give countenance to such clauses would 'in effect, be permitting parties to contracts to create a new form of negotiable instruments.' Thus, it is arguable, as defendant asserts, that the court's decision does not invalidate 'waiver of the right of recoupment' clauses because such clauses do not create negotiable instruments. They do not bar a legitimate defense against enforceability of the contract but simply prevent the vendee from seeking restitution against an innocent assignee. We do not, however, find it necessary to answer this question in this appeal because section 2983.5 makes no such...