JESSIE KING еt al., Plaintiffs and Appellants, v. CENTRAL BANK, Defendant and Respondent.
S.F. No. 23465
Supreme Court of California
Jan. 6, 1977
18 Cal.3d 840
James R. McCall and Robert A. Goldstein for Plaintiffs and Appellants.
Raymond J. Leonardini, Armando Albert Zavala, Joseph Garcia, Richard G. Fathy, Daniel M. Luevano, Rosalyn M. Chapman, John E. McDermott, Patricia M. Tenoso, Cary S. Reisman and Toby Rothschild as Amici Curiae on behalf of Plaintiffs and Appellants.
Roy C. Zukerman, C. Robert MacKay, Severson, Werson, Berke & Melchior, James B. Werson, D. Ronald Ryland and Jan T. Chilton for Defendant and Respondent.
Feldman, Waldman & Kline, Jeffrey W. Shopoff and Jane S. Kumin as Amici Curiae on behalf of Defendant and Respondent.
OPINION
RICHARDSON, J.---We consider the application of the Unruh Act (
Plaintiffs’ complaint contains two causes of action. The first, a class action brought under the Unruh Act, alleges a violation of the act‘s finance charge limitations (
Defendants demurred generally upon the ground that neither the Unruh Act nor TILA applied to the insurance transaction. Roberts’ demurrer was overruled, and the merits of plaintiffs’ action against Roberts are not presently before us. Bank‘s demurrer was ultimately sustained without leave to amend, and judgment of dismissal was entered in Bank‘s favor. Plaintiffs have appealed. As will appear, we have concluded that the complaint against Bank properly stated causes of action under both the Unruh Act and TILA.
Traditionally, in assessing the sufficiency of plaintiffs’ complaint against a general demurrer, we treat the demurrer as admitting all material facts properly pleaded. (Scott v. City of Indian Wells (1972) 6 Cal.3d 541, 549 [99 Cal.Rptr. 745, 492 P.2d 1137]; Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713 [63 Cal. Rptr. 724, 433 P.2d 732].) Further, in reviewing an order sustaining a demurrer without leave to amend, “the allegations of the complaint must be liberally construed with a view to attaining substantial justice among the parties.” (Youngman v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240, 244-245 [74 Cal.Rptr. 398, 449 P.2d 462]; see also Scott v. City of Indian Wells, supra; MacLeod v. Tribune Publishing Co. (1959) 52 Cal.2d 536, 542 [343 P.2d 36]; Lemoge Electric v. County of San Mateo (1956) 46 Cal.2d 659, 664 [297 P.2d 638];
1. The Application of the Unruh Act
The Unruh Aсt was enacted in 1959 for the purpose of correcting various abuses incident to the rapid and widespread growth of the consumer credit industry. (Morgan v. Reasor Corp. (1968) 69 Cal.2d 881, 889, 897-898 [73 Cal.Rptr. 398, 447 P.2d 638]; Comment (1970) 58 Cal.L.Rev. 210; Report of the Subcommittee on Lending and Fiscal Agencies, 2 Appendix to Assem. J. (1959 Reg. Sess.) p. 9.) The act proscribes a variety of unfair practices such as the unauthorized
The act applies to any “retail installment contract,” which is defined as a contract for a retail installment sale betweеn “buyer” and “seller” providing for either (a) repayment in installments, subject to a finance charge or other consideration, or (b) payment in four or more installments. (
Initially, we note that a 1959 opinion of the California Attorney General had concluded that a loan to finance payment of insurance premiums was not a “service” under section 1802.2. (34 Ops.Cal.Atty. Gen. 288, 289 (1959).) While that opinion is entitled to “great respect” (Wenke v. Hitchcock (1972) 6 Cal.3d 746, 751-752 [100 Cal.Rptr. 290, 493 P.2d 1154]), it is noteworthy that the opinion did not focus upon, indeed ignored, the language of section 1802.2 which defines “services” as including, specifically,..“services furnished in connection with the providing of insurance,...” Instead, the opinion emphasized that the Unruh Act was intended to apply only to transactions involving a retail installment contract executed between retail buyers and sellers. We are persuaded, however, by reason of the act‘s interlocking definitions of “retаil installment contract,” “seller,” and “services,” mentioned above, that it is at least arguable that an agreement to finance an automobile insurance policy through installment payments constitutes a “service” transaction covered by the act. As we stated in Morgan v. Reasor Corp., supra, 69 Cal.2d 881, in rejecting an attempt to construe narrowly the act‘s definition of “services“: “Section 1802.2 clearly includеs all services
Nevertheless, we need not, and do not, decide at this time whether the Unruh Act applies to all routine insurance financing transactions, for plaintiffs have alleged additional facts from which it reasonably may be inferred that defendant Bank actually engaged in providing insurance to them, conduct which would have fallen within the act‘s scope, by reason of the definition of “services” in section 1802.2. (We note, in passing, a 1967 opinion of the Attorney Generаl which explains that the word “services” in that section would include providing the insurance policy itself, as well as providing collateral services in connection therewith. (50 Ops.Cal.Atty. Gen. 110 (1967).)) According to plaintiffs’ complaint, both Bank and Roberts are “engaged in the retail sale of insurance for credit,” and plaintiffs “purchase[d]” an insurance policy from them. Further, while the above may be conclusionary language, plaintiffs alleged in addition that Bank‘s financing activities in several significant respects were intimately linked with the insurance purchase transaction. Bank allegedly furnished broker Roberts, on a regular basis, with printed contract forms containing the terms which govern credit sales of automobile insurance. These forms bore the name and address of Bank, and among other things, provided (1) for a down payment of at least 20 percent of the cost of the insurance, a sum paid to Bank in consideration for financing the insurance premium; (2) for assignment of the policy to the Bank as security, with Bank retaining the right to cancel the policy in the event of nonpayment; and (3) for payment of installments directly to Bank, rather than tо Roberts. In addition, plaintiffs alleged that Roberts regularly used these forms in its business, that it required purchasers of automobile insurance, such as plaintiffs, to finance their purchases through Bank, that Bank exercised substantial control over Roberts in determining which policies could be purchased on credit, and in establishing the terms of the policy and credit sale, that Roberts acted as a conduit for the placing of the installment contracts with Bank, and that Bank shared the profits from these contracts with Roberts and paid it a fee for all purchases procured by Roberts which met Bank‘s requirements.
The foregoing allegations, if proven, would support a finding that defendants Roberts and Bank were jointly engaged in the business of
Bank points out that both the Morgan and Glaire cases involved a close connection between the finance company and the seller of goods. Stressing the fact that since the complaint herein failed to allege any relationship between itself and the insurer which actually issued the subject policy, Bank and its amici argue that Bank cannot thereby be deemed a “seller” of insurance. It notes that the parties to an insurance contract are the insurer and the insured only; that the complaint does not allege that Bank is the seller of the insurance; that if not a “seller” it cannot be subject to the Unruh Act; and that Bank‘s interest in the policy is that of a security holder at best. Yet, given the alleged close connection between Bank and broker Roberts, Bank‘s asserted direct role in arranging and supervising the transaction, and its alleged retention of
We do not ignore the fact that plaintiffs attаched as an exhibit to their complaint a copy of an agreement between them and Bank which agreement on its face, purports to be a loan instrument rather than an installment purchase contract. The agreement, an “Insurance Premium Financing Installment Note, Security Agreement and Disclosure Statement,” provides among other things that the “borrower” promises to pay Bank a specified sum in installments, in consideration of Bank‘s payment of the insurance premiums, and that the borrower assigns to Bank as security for that promise the policy together with all rights to cancel the policy and all proceeds or return premiums due or to become due thereunder. In determining the application of consumer protection laws tо particular transactions, we have said that “... we must look to the substance of the transaction and not allow mere form to dictate the result.” (Glaire v. La Lanne-Paris Health Spa, Inc., supra, 12 Cal.3d 915, 925; see Thomas v. Wright (1971) 21 Cal.App.3d 921, 924-925 [98 Cal.Rptr. 874] [“lease” held to be conditional sales contract].) Plaintiffs herein have alleged sufficient facts indicating that, despite the form of the transaction as a “loan” of money from Bank to plaintiffs, the substance thereof was an installment sale of automobile insurance.
Defendant Bank, however, observes that the business of insurance premium financing is independently regulated by the provisions of the Insurance Premium Financing Act (
For all of the foregoing reasons, we conclude that the allegations of plaintiffs’ complaint, taken together with those inferences reasonably
2. The Application of TILA
As indicated above, plaintiffs have also alleged, in their second сause of action, that defendant Bank violated TILA, a federal consumer protection act requiring disclosure of specified information to consumers in various commercial transactions. In particular, it is alleged that the contract between the parties failed to specify the “cash price,” “unpaid balance of cash price,” or “deferrеd payment price,” as those terms are used in the federal regulations (see
TILA distinguishes between “consumer credit sales” and “consumer loans” (see
“Credit sale” is defined by TILA as “... any sale with respect to which credit is extended or arranged by the seller....” (
In Glaire v. La Lanne-Paris Health Spa, Inc., supra, 12 Cal.3d 915, 925, we reviewed the obligations of an assignee finance company whose close relationship with the seller led us to treat it as “the extender of consumer credit which the seller has merely arranged.” (Id.) Similarly, in Stefanski v. Mainway Budget Plan, Inc. (5th Cir. 1972) 456 F.2d 211, the federal court found TILA‘s credit sales disclosure requirements applicable
Defendant Bank relies upon Manning v. Princeton Consumer Discount Co., Inc. (3d Cir. 1976) 533 F.2d 102, but that case is not persuasive. In Manning, an automobile dealer sold plaintiff a car and arranged financing with a commercial lender. The lender made the appropriate disclosures required by TILA for a “consumer loаn,” but neither the dealer nor the lender disclosed the requisite “credit sale” information. The court held that it was the dealer‘s obligation to furnish this information, and that, for the sake of avoiding multiple disclosures of identical information, the lender would be excused from this responsibility. In the present case, it does not appear from the complaint whether or not plaintiffs ever rеceived the appropriate credit sale disclosures. Furthermore, in Manning, supra, at page 106, footnote 4, no “close connection” was alleged to exist between the financing entity and the seller or the sales transaction.
The judgment is reversed.
Wright, C. J., McComb, J., Tobriner, J., Sullivan, J., and Clark, J., concurred.
MOSK, J.---I concur, and agree completely with Justice Richardson‘s opinion.
Since Bank relies on a 1959 opinion of the Attorney General, issued during my tenure in that office (34 Ops.Cal.Atty. Gen. 288), I am for a second time in the same predicament as Mr. Justice Jackson in McGrath v. Kristensen (1950) 340 U.S. 162, 176 [95 L.Ed. 173, 184-185, 71 S.Ct. 224]. (See Smith v. Anderson (1967) 67 Cal.2d 635, 646 [63 Cal.Rptr. 391, 433 P.2d 183].) Ten years before, as Attorney General of the United
“I concur in the judgment аnd opinion of the Court. But since it is contrary to an opinion which, as Attorney General, I rendered in 1940, I owe some word of explanation. 39 Op.Atty. Gen. 504. I am entitled to say of that opinion what any discriminating reader must think of it that it was as foggy as the statute the Attorney General was asked to interpret. . . . Precedent, however, is not lacking for ways by which a judge may recede from a prior оpinion that has proven untenable and perhaps misled others. See Chief Justice Taney, License Cases, 5 How. 504, recanting views he had pressed upon the Court as Attorney General of Maryland in Brown v. Maryland, 12 Wheat. 419. Baron Bramwell extricated himself from a somewhat similar embarrassment by saying, ‘The matter does not appear to me now as it appears to have appeared to me then.’ Andrews v. Styrap [Eng.] 26 L.T.R.(N.S.) 704, 706. And Mr. Justice Story, accounting for his contradiction of his own former opinion, quite properly put the matter: ‘My own error, however, can furnish no ground for its being adopted by this Court...’ United States v. Gooding, 12 Wheat. 460, 478. Perhaps Dr. Johnson really went to the heart of the matter when he explained a blunder in his dictionary---‘Ignorance, sir, ignorance.’ But an escape less self-depreciating was taken by Lord Westbury, who, it is said, rebuffed a barrister‘s reliance upon an earlier opinion of his Lordship: ‘I can only say that I am amazed that a man of my intelligence should have been guilty of giving such an opinion.’ If there are other ways of gracefully and good naturedly surrendering former views to a better considered position, I invoke them all.”
I also find appropriate the quotation employed by Mr. Justice Rutledge in Wolf v. Colorado (1949) 338 U.S. 25, 47 [93 L.Ed. 1782, 1795, 69 S.Ct. 1359]: ” ’ Wisdom too often never comes, and so one ought not to reject it merely because it comes late.’ ”