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Boerner v. Colwell Co.

Supreme Court of California

April 24, 1978

L.A. No. 30778

Opinion

 [*40]  [**202]  [***382]    Plaintiff Florentine Boerner and eight other named plaintiffs commenced this class action against defendant The Colwell  [*41]  Company (Colwell), alleging in substance that certain transactions involving its purchase of installment contracts for the construction of vacation homes constituted usurious loans to the purchasers of such homes (including [****2]  plaintiffs) and seeking appropriate equitable and monetary relief. Pursuant to stipulation of the parties the cause was bifurcated for trial, the issue of defendant's liability to be tried first to the court sitting without a jury, and certain other issues, including those relating to the class action aspects of the matter, to be reserved for any necessary subsequent proceedings. The trial court, following trial of the liability issue, entered judgment for defendant Colwell, finding and concluding in essence that the contracts constituted bona fide credit sales from the building contractors to the purchasers followed by valid assignments to Colwell and that the transactions as a whole did not constitute loans subject to the usury laws. Plaintiffs appeal from the judgment.

The evidence, which is essentially uncontradicted, established the following: Colwell is a mortgage banking firm. Since 1961 it has had an installment contract department engaged in the purchase of installment contracts for the sale of mobile homes, vacation homes, and home improvements. Transactions in the latter two categories are handled in essentially the same fashion. When contacted by a builder interested [****3]  in arranging for the purchase of its contracts, 1 and when satisfied with the builder's qualifications and general business reputation, Colwell and the builder sign an agreement detailing the conditions on which the builder's contracts will be accepted for purchase. Colwell then provides the builder with a series of forms -- an individual set of which includes a credit application, a lien contract and deed of trust, and a truth-in-lending disclosure statement. 2 It also advises the builder of the finance charge rate to be included in a contract if it is to be accepted for assignment.

 [****4]  [*42]   When a builder using the Colwell service enters into a vacation home construction contract with a landowner wishing financing, the forms provided by Colwell are filled out and executed by both parties to the contract. 3 These forms, along with the construction  [**203]   [***383]  contract and the plans and specifications, are submitted to Colwell, which then undertakes a credit check, makes a "desk appraisal" of the value of the real property including the contemplated improvements, and orders a preliminary title report. If these investigations yield results acceptable to Colwell, it informs the builder and the landowner that it has accepted the contract for purchase and records the assigned lien contract and deed of trust. The price paid is the cash price reflected in the construction contract less a small charge for the builder's use of Colwell's "voucher system," a system developed by it to avoid mechanic's liens and disputes over payment. 4 The buyer, however, at this point becomes bound to pay Colwell the deferred purchase price (cash price plus finance charge), in monthly installments as reflected in the assigned lien contract -- payment being secured by means [****5]  of the assigned trust deed.

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21 Cal. 3d 37 *; 577 P.2d 200 **; 145 Cal. Rptr. 380 ***; 1978 Cal. LEXIS 210 ****

FLORENTINE G. BOERNER et al., Plaintiffs and Appellants, v. COLWELL COMPANY, Defendant and Respondent

Subsequent History:  [****1]  Appellants' Petition for a Rehearing was Denied May 24, 1978. Mosk, J., was of the Opinion that the Petition should be Granted.

Prior History: Superior Court of Los Angeles County, No. CA 32666, Robert I. Weil, Judge.

Disposition: The judgment is affirmed.

CORE TERMS

financing, credit sale, transactions, contracts, finance charge, parties, vacation home, cash price, trust deed, real property, bona fide, trial court, deferred, buyer, loans, discount, construction contract, usurious loan, purchaser, disclosure statement, Usury Law, plaintiffs', seller, cases, contract of purchase, forbearance of money, installment contract, monthly installments, percent per annum, interest rate

Banking Law, National Banks, Interest & Usury, General Overview, Contracts Law, Defenses, Usury, Governments, State & Territorial Governments, Finance, Real Property Law, Lease Agreements, Commercial Leases, Sale Leaseback Transactions, Landlord & Tenant, Subleases, Loans, Real Estate Loans, Purchase & Sale, Business & Corporate Compliance, Sales of Goods, Remedies, Liens, Nonmortgage Liens, Securities Law, Blue Sky Laws, Offers & Sales