Morgan v. Reasor Corp.

• Decision Date: 12 December 1968
• Court: California Supreme Court
• Parties: , 447 P.2d 638 William MORGAN et al., Plaintiffs and Appellants, v. REASOR CORPORATION et al., Defendants and Appellants. Sac. 7786.

Page 398

73 Cal.Rptr. 398

69 Cal.2d 881, 447 P.2d 638

William MORGAN et al., Plaintiffs and Appellants, v. REASOR CORPORATION et al., Defendants and Appellants.

Sac. 7786.

Supreme Court of California,

In Bank.

Dec. 12, 1968.

David W. Packard, Redding, for plaintiffs and appellants.

Marvel M. Taylor, San Leandro, for defendants and appellants.

TOBRINER, Justice.

Plaintiffs, the buyers of a house to be constructed upon their land, obtained a judgment barring the assignees of the sellers of the house from collecting certain carrying charges (the so-called time price differential) because of violations of the Unruh Act (sections 1801 through 1812.10 of the Civil Code). The judgment also awarded to plaintiffs this attorney's fees and costs as well as certain incidental damages.

Recognizing the salutary purposes of the Unruh Act in requiring that consumers obtain certain specified information as to the terms of installment contracts, and in protecting against abusive provisions in such contracts, we reject defendants' appellate contentions, which defeat the statute's provisions and objectives. We therefore hold (1) that the Unruh Act applies to the contract for the construction of the residential housing involved in the instant case, (2) that the holder of a note with constructive knowledge of noncompliance with the Unruh Act is $barred from recovery of any time price differential or service charge,' (3) that the defendant assignee of that note here had both constructive and actual knowledge of the violations of the Unruh Act, (4) that the Unruh Act provides for reasonable attorney's fees and costs in a suit for a declaratory judgment, and (5) that violations of the Unruh Act cannot be corrected more than 30 days after the execution of the contract involved. The judgment should therefore be affirmed in all respects except for its provision for the defendants' collection of a time price differential accruing after June 2, 1966.

The trial court's findings of fact disclose that on or about October 14, 1962, plaintiffs agreed to purchase from the IBC Corporation (hereinafter 'IBC') a house (IBC's 'Pixley' model) to be constructed by IBC on a lot owned by plaintiffs. Plaintiffs executed a written document designated a Lien Contract and Deed of Trust' (hereinafter 'contract') by which IBC sold and plaintiffs bought the goods and services described by the trial court as 'the labor and management necessary to cause said home to be constructed; and goods, to wit: the materials, appliances, fixtures, and other personal property necessary for the construction of said home and dwelling in accordance with said documents.' The contract also contained a provision granting the lot and all improvements thereon to the Bay Counties Title & Guarantee Company to be held by Bay Counties as security until plaintiffs completed payment. ¹ In addition, plaintiffs executed at the same time in a separate document in favor of IBC a promissory note for $19,398.12, which represented the $11,844 cost of the house, plus a 'time price differential' to $7,554.12. Under the note plaintiffs agreed to pay 71 monthly installments of $116.06 each and a final installment of $11,157.86.

Within three months thereafter, IBC assigned to the Midwest Homes Acceptance Corporation (hereinafter 'Midwest') both the contract and the note. Midwest accepted the assignment with full knowledge of all of the 'terms and conditions' of the contract and the note, including knowledge that the note and contract arose simultaneously out of the same transaction. On or about March 29, 1963, IBC merged into the Reasor Corporation (hereinafter 'Reasor') and Reasor assumed all the 'liabilities, debts, obligations, and causes of action which had existed against IBC.' ²

Plaintiffs contend that the contract and note violated the Unruh Act. Although defendants urge that the act does not apply to the construction of residential housing, they admit that if it is applicable, the facts here would constitute a showing of its violation. Contrary to Civil Code section 1803.2, ³ the contract and note were not encompassed in a single document; contrary to Civil Code section 1803.1, ⁴ the note was not dated at the time it was executed by plaintiffs; and, contrary to Civil Code section 1803.4, ⁵ the contract contained blank spaces which were later filled in by either IBC or Midwest.

Section 1812.7 of the Civil Code ⁶ provides that any person failing to comply with provisions of the Unruh Act, and any person acquiring a contract with knowledge of such noncompliance, shall be barred from recovery of any time price differential. Accordingly, plaintiffs sought a declaratory judgment which would hold that they owed no obligation to pay any such time price differential.

The trial court held the Unruh Act applicable to the contract and note executed by plaintiffs and declared that plaintiffs were not obliged to pay any time price differential accruing before June 2, 1966, the date on which, pursuant to court order, defendants delivered to plaintiffs a completed and dated copy of the contract and note. The court ruled that plaintiffs were entitled to an offset against the amounts due and owing in the amount of $766 because of certain deficiencies in the work done by IBC; ⁷ it awarded plaintiffs costs and attorneys' fees pursuant to section 1811.1 of the Unruh Act. The court also held that defendants could recover the time price differential accruing after June 2, 1966.

1. The Unruh Act applies to the construction of the residential housing involved in the instant case.

Subject to certain limitations, not relevant here, the Unruh Act applies to a contract for the sale of goods except such goods as are attached or affixed to real property; the act also applies to contracts for services, whether or not those services are rendered for the improvement of real property. As we point out, the Unruh Act clearly covers the sale of goods and services involved in this case.

The applicability of the Unruh Act to the residential construction here involved turns on the act's definitions of 'goods' and 'services.' Section 1802.1 provides: "Goods' means tangible chattels bought for use primarily for personal, family or household purposes * * * 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 * * *.' (Italics added.) Section 1802.2 states: "Services' means work, labor and services, for other than a commercial or business use, including services furnished * * * In connection with the improvement of real property * * *.' (Italics added.) The essential distinction drawn by these definitions lies between goods and services acquired for personal use and those obtained for business or commercial purposes. Residential housing by definition serves personal rather than commercial ends.

Although section 1802.1 applies only to chattels, not real property, the question as to whether the property acquired is real or personal must be fixed not as of the date of te completion of the contract, but as of the date of the execution of the contract. And although 'permanent improvements to land Become as much realty as the land itself' (italics added) (Dishman v. Union Oil Company (1956) 145 Cal.App.2d 261, 266, 302 P.2d 326, 330), the goods acquired in the instant case (wood, nails, etc.) had not become realty as of October 14, 1962, when plaintiffs signed the contract.

Plaintiffs and IBC agreed to the construction of a house upon plaintiffs' real property. Whether the goods involved consisted of the miscellaneous and varied articles of building supplies that were to become part of the dwelling, or a completed dwelling to be affixed to the real property, could make no legal difference. The crucial fact is that at the time of the execution of the contract the dwelling was not attached, or affixed in any way, to the real property owned by plaintiffs. It was 'subsequently * * * to be affixed' to the real property owned by plaintiffs. Since the dwelling clearly was not real property at the date of the making of the contract the components of the house necessarily could only be, at that moment, personal property or chattels. If the act covered the separate parts of the house, the act could hardly fail to apply to the integrated whole. Hence the instant contract involved the sale of tangible goods as defined in the Unruh Act. ⁸ Section 1802.2 clearly includes All services provided for personal purposes, except for the specifically enumerated exceptions; obviously we do not assume that the Legislature intended exceptions other than those it explicitly specified. Accordingly, since the contract for a completed house necessarily involved an undertaking by IBC to provide certain services (delivering the materials to the plaintiffs' lot, etc.), the contract falls under section 1802.2 of the act.

The basic purposes of the Unruh Act support its application to the special case of construction of residential housing of the type here involved. If one seller had agreed to provide materials for the construction of a house, and a second had contracted to fashion those materials into a dwelling, both sellers would clearly supply the sorts of 'goods' and 'services' with which the act is concerned. Similarly, if IBC had contracted to provide and install an existing prefabricated building we could hardly hold that it had not sold 'goods' covered by the act. No compelling reason justifies a distinction between these situations and the instant case. The Unruh Act deals with a variety of abuses in the making and enforcement of retail contracts--alterations in contracts, excessive financing charges, unfair garnishment and repossession, etc. ⁹ The presence and impact of these abuses depend little if at all on the nature or composition of the goods sold; the act should be liberally construed so as to protect...