Shell v. Schmidt

• Decision Date: 29 June 1954
• Court: California Court of Appeals Court of Appeals
• Parties: SHELL et al. v. SCHMIDT. Civ. 15541.

Page 82

272 P.2d 82

126 Cal.App.2d 279

SHELL et al. v. SCHMIDT.

Civ. 15541.

District Court of Appeal, First District, Division 1, California.

June 29, 1954.

Rehearing Denied July 26, 1954.

Hearing Denied Aug. 26, 1954.

James W. Harvey, Walter K. Olds, Dorothy E. Handy, San Francisco, for appellants.

Ropers & Majeski, Redwood City, for respondents.

PETERS, Presiding Justice.

Twelve sets of plaintiffs, each set consisting of a husband and wife, brought these actions against Max Schmidt and others for fraud, and for breach of contract. The other named defendants were granted a nonsuit, the propriety of which is not involved on this appeal. The husband plaintiffs, all veterans, and their wives, had purchased homes from Schmidt, constructed by him in San Mateo County. The first 12 counts of the complaint, which are identical except for the names of the plaintiffs, all charge Schmidt with fraud as to each sale transaction. The 13th count, in which all plaintiffs join, charges the breach of a contract between Schmidt and the United States, it being averred that plaintiffs, as veterans, were third party beneficiaries of that contract. The fraud counts and the contract count are based on the same facts, and allege but one cause of action. The fraud alleged, so far as pertinent here, is that Schmidt in applying for priority permits from the Federal Housing Authority represented to and promised ¹ that agency that he would build the houses in conformity with certain designated plans and specifications; that Schmidt failed to comply with the submitted plans and specifications in certain specified respects; that this caused damage to each set of plaintiffs, in certain particulars, in the total amount of $4,800. The breach of contract count alleges that Schmidt contracted and agreed with the F.H.A. to build the houses in conformity with the plans and specifications submitted by him in applying for the priority permits; that plaintiffs, as veterans, are third party beneficiaries of that contract; that Schmidt violated the contract by not building in conformity with the plans and specifications in exactly the same respects alleged in the fraud counts; that plaintiffs were damaged in precisely the same respects and amounts as set forth in those counts. This court, in which all 12 sets of plaintiffs join, alleges a total damage of $57,600, or $4,800 to each set of plaintiffs. Thus, each set of plaintiffs pleaded but one basic cause of action for $4,800 damages, but alleged alternative theories of recovery--fraud and breach of contract. The jury brought in verdicts for $1,250 for each set of plaintiffs on the 12 fraud counts, and awarded all of the plaintiffs $12,000 collectively on the contract count. Thus, in legal effect, each set of plaintiffs was awarded a total of $2,250. From the judgments on these verdicts Schmidt appeals.

The facts are not substantially in dispute. On April 30, 1946, Schmidt applied to the F.H.A. under Priority Regulation 33 for priorities on building materials to construct 48 dwellings for veterans. Regulation 33 had been originally issued by the Civilian Production Administration pursuant to authority granted by the Second War Powers Act of 1942, as amended, 50 U.S.C.A.Appendix, §§ 631-645b. Later the Veterans' Emergency Housing Act of 1946, 50 U.S.C.A.Appendix, § 1821 et seq. ² empowered the Housing Expediter to delegate to the Civilian Production Administration certain powers conferred upon him by certain sections of the Veterans' Emergency Housing Act of 1946. This power was exercised, and regulation 33 was continued in effect under authority of both statutes, and was admittedly in effect at all times here pertinent.

This regulation prescribes in detail the method by which a contractor desirous of building homes for veterans and who needs material priorities, shall make application to the Civilian Production Administration (The F.H.A.). Among other things, the regulation, as amended, expressly provides that a builder constructing houses under it must perform the work pursuant to the description, that is, pursuant to the plans and specifications required to be submitted by the builder to the F.H.A., before he can secure the desired priorities. Another section of the regulation provides that all houses completed after the effective date of the regulation are subject to a maximum sales price established by the F.H.A.

When Schmidt applied for his permit he was required to and did submit plans and specifications of the proposed houses he desired to build. These specifications, among other things, represented that each house was to have exterior wall sheathing of wood, two 30,000 B.T.U. gas floor furnaces, and interior wall surfacing of gypsum lath and plaster. Pursuant to this application priorities were granted, and a maximum sales price of $9,700 per unit (later on Schmidt's petition increased to $12,000) was fixed by the F.H.A.

Between May 15, 1947, and November 13, 1947, the respondents purchased from appellant, or from his agents, for $12,000 each, 12 of the 48 houses then in various stages of construction. All of the 12 houses purchased by respondents were built by appellant without compliance with and in violation of the plans and specifications submitted by him to the F.H.A. None of the 12 had an exterior sheathing of wood. The exterior walls, in fact, were made of construction paper covered with chicken wire and over this cement stucco was applied. Wood exterior wall sheathing protects a stucco house from wind and moisture, a protection not afforded by the paper type of construction used by appellant. Only one floor furnance, apparently of 30,000 B.T.U. capacity, was installed in each house, instead of the two called for by the specifications. Also in violation of the specifications, which called for interior walls of gypsum lath and plaster, sheet rock was used.

The complaint was filed February 11, 1949. In the first 12 causes of action, based on fraud, it is averred that on November 9, 1948, the plaintiffs first discovered the falsity of the representations made by appellant.

The evidence of the respondents as to the claimed misrepresentations can be summarized as follows: None of the respondents saw the plans and specifications prior to the time they purchased their homes, nor did they know what they contained. The Shells (first count) testified that they understood that the home was inspected and approved by the Veterans Administration. The Johnstons (second count) testified that they relied entirely on the government and its inspection service to see that they got a good buy, and that the selling agent represented to them that the house they ultimately purchased was to be similar to the one across the street. That house had exterior wall wood sheathing which could then be seen. This led them to believe that their house was to be similarly constructed. Substantially similar testimony was given by the Douglases (fourth count). The Brichtas (third count) testified that they never saw the plans or specifications. Teeter (fifth count) testified that although he did not see the plans and specifications he knew that they existed, and he was told that the houses were government inspected. There is no evidence of the claimed representations made to the Hexbergs (sixth count) in the record. The Thunens (seventh count) were told by the selling agent that these homes were G.I. supervised by a G.I. appraiser. The Kottas (eighth count) testified that they relied upon the representation that the homes were government inspected. The Mitchells (ninth count) testified that although they were not told that their house was government inspected they 'figured' it was. They were told that the house was being built under G.I. specifications, and it was specifically represented to them that their house was to have wood sheathing. This is the only plaintiff who directly so testified. The Rodriguezes (tenth count) and the Coccarys (twelfth count) testified that they asked to see the plans and specifications, but did not receive them. Rodriguez testified that he was told not to worry about the plans and specifications because all of the houses were being built according to specifications, and that the houses would be inspected and passed on by the government before he would be allowed to buy. Coccary was told that the plans and specifications were not available at the moment. The Schneiders (eleventh count) testified that they relied upon their house being a veteran's building for their protection.

All of the respondents who testified admitted that they had seen and inspected the houses before they purchased, and that they knew that their house contained but one gas furnace. None was aware of, asked any questions about, or paid by particular attention to the material used on the interior walls. All testified that their homes were not only underheated, but that, because of the inadequate exterior walls, they became damp and cold, and that mold and mildew grew on the back room walls. The evidence is ample and substantial to the effect that largely because of the inadequate exterior walls, and partly because of the inadequate heating equipment, the plaintiffs were made quite uncomfortable, and did not receive a house of the quality and type called for by the plans and specifications.

Testimony was given by an investigator from the office of the Housing Expediter that after the houses were purchased he visited the tract and discovered the variances from the specifications. He testified that, because of these violations, prosecution of appellant by the government was contemplated, but that the case was placed on the inactive list when it was learned that the homeowners would bring suit against him.

Appellant does not challenge the implied findings to the effect that he failed to construct the houses in accordance with the plans and specifications filed with the F.H.A., his basic contentions...