Summary
In Morris v. Chevrolet Motor Division, (4th Dist. Div. 1, Civ. No. 12803, June 19, 1974), cited by both parties, it was held that an action for rescission of a motor vehicle conditional sale contract was an action "on a contract" within the meaning of Civil Code sections 1717 and 2983.4, thus entitling the successful plaintiff to attorneys' fees.
Summary of this case from Leaf v. Phil Rauch, Inc.Opinion
[114 Cal.Rptr. 748]Pain, Moody & Pippin, and David H. R. Pain, San Diego, for plaintiff, appellant.
Opinions on pages 900-925 omitted.
REHEARINGS GRANTED
Richard T. Hilman, Jr., Los Angeles, for respondent Guaranty Chevrolet.
Gray, Cary, Ames & Frye, and Robert W. Bell, Jr., San Diego, for respondent and cross-appellant Chevrolet Div. of Gen. Motors Corp.
OPINION
COLOGNE, Associate Justice.
Plaintiff William T. Morris brought an action against Guaranty Chevrolet (Guaranty), Chevrolet Division of General Motors Company (Chevrolet), and General Motors Acceptance Corporation (GMAC) seeking relief from an installment contract by way of rescission and damages for breach of warranty and negligence, including storage charges, loss of use and attorney's fees. GMAC, as assignee of the installment contract, cross-complained against Morris for amounts due on the contract plus interest, attorney's fees and costs, and against Guaranty under the recourse provisions undertaken by Guaranty. Guaranty cross-complained against Chevrolet for indemnity. The case was tried without jury and judgment was rendered in favor of Morris and GMAC against Guaranty, and in favor of Guaranty against Chevrolet by way of indemnity.
Morris appeals contending the judgment should have included attorney's fees as part of the judgment; Chevrolet appeals contending the judgment was in excess of the limitations provided in the warranty.
Guaranty abandoned its cross-appeal. GMAC did not appeal.
On October 15, 1969, Morris purchased from Guaranty a 1969 Chevrolet Camaro [114 Cal.Rptr. 749] Z28 Coupe for $3,784 and executed an installment contract for the purchase price. Accompanying the sale was a New Vehicle Warranty and Owner Protection Plan by Chevrolet which warranted the engine against all defects in workmanship and materials for a period of five years or 50,000 miles, whichever occurred sooner. The installment contract was assigned by Guaranty to GMAC.
Morris began experiencing repeated difficulties primarily with the vehicle's engine soon after taking delivery. These problems were remedied by dealers other than Guaranty. In November 1971, within the warranty period and before the vehicle traveled 50,000 miles, the engine failed and sustained damage beyond repair.
Morris returned the vehicle to Guaranty and demanded the engine be replaced. In compliance with Chevrolet's instruction, Guaranty refused to repair or replace the engine contending the engine had been abused. Morris placed the vehicle in storage which cost $20 a month. At the time of failure, the vehicle, if operable, had a reasonable market value of $2,325.
The trial court determined the engine failure was the fault of a defective valve; the defect was within the five-year warranty period; and Morris was entitled to relief by way of rescission and a judgment against defendants Guaranty and Chevrolet for $1,180 as reimbursement for sums paid by Morris under the contract including interest, plus storage charges in the amount of $310. The trial court also found Guaranty was entitled to indemnification from Chevrolet for Guaranty's liability to Morris and GMAC on the sales contract, together with $53 for services rendered on the warranty and $2,994.90 attorney's fees in the defense of this action.
Morris complains that since the installment contract provided for attorney's fees for the seller in the event of delinquency, Civil Code section 1717 requires attorney's fees be paid too him as the prevailing party. Alternatively, he argues, Civil Code section 2983.4 provides specifically for payment of attorney's fees in an action on a contract subject to the provisions of the Rees-Levering Motor Vehicle Sales and Finance Act (Civ.Code § 2981 et seq.). When this was argued below the trial court stated:
The contract provided: '. . . In the event of delinquency, buyer agrees to pay reasonable collection costs, including attorney's fees and legal expenses incurred by seller.'
'The thrust of the action in question has to do with rescission for the breach of an express warranty. The express warranty derives from a contract in which Chevrolet is the contracting party. It is true that the installment sales contract of which GMAC is the holder provides for the payment of attorney's fees in an action to enforce the terms thereof. The installment sales contract is not however the basis of the action in question. It could not be contended that had the sale in question been by cash, attorney's fees would in any way be involved. The new vehicle warranty which serves as the basis for the action is completely silent with regard to the payment of attorney's fees and since the contract in question is the warranty rather than the installment sales contract, which by reason of the breach of warranty becomes invalid, the Court is of the opinion that Section 1717 is inapplicable and that attorney's fees are not allowable.'
We do not agree.
The action subject of this suit stems from and is based on the contract of sale of this vehicle. Morris seeks to rescind his liability for installments due under that contract and recover consequential damages to make him whole. The installment sales contract is the agreement of sale between the parties describing the method of payment of the unpaid balance due on that sale. The manufacturer's warranty is referred [114 Cal.Rptr. 750] to in the contract (as an exception to a warranty disclaimer provision) and is a collateral agreement by the manufacturer delivered to Morris by the seller. It is an integral part of the whole transaction being reviewed by the court.
The opening line of the Installment Sale Contract reads: 'The seller hereby sells and the buyer . . . hereby purchases, subject to the terms set forth below, and upon the reverse side hereof . . ..' etc. Additional terms on the reverse side of the contract deal with exclusion or limitations on implied and express warranties, liability and physical damage insurance, manner of holding title, transfer of interests, etc., as well as matters dealing with the installment payment program.
In Heidt v. Miller Heating & Air Conditioning Co., 271 Cal.App.2d 135, 136, 74 Cal.Rptr, 695, the contract provided "[s]hould legal action be necessary to enforce or interpret any phase of this contract the losing party therein shall pay to the prevailing party reasonable attorney's fees." The trial court in that case denied recovery for attorney's fees in the breach of contract action, presumably on the basis that an action for damages was not an action to enforce or interpret the contract. The reviewing court said an 'interpretation' was required to ascertain liability. It concluded, 'this was a suit to enforce the contract [and was] not affected by the fact that the damages sought and proved were for consequential damages to plaintiff's building, caused by defendant's poor workmanship in performing the contract.' (Heidt v. Miller Heating & Air Conditioning Co., supra, 271 Cal.App.2d 135, 138, 74 Cal.Rptr. 695, 697.) The court went further to say recovery of attorney's fees for an action arising out of the contract should be allowed even though a plaintiff's suit might be characterized as ex delicto, rather than ex contractu. The true question is whether the provision for attorney's fees should apply to a cause of action which the parties treated as one for the enforcement and vindication of a right to damages arising out of the contract (Heidt v. Miller Heating & Air Conditioning Co., supra, 271 Cal.App.2d 135, 139, 74 Cal.Rptr. 695).
In the instant case the contract provides that in the event of 'delinquency' buyer shall pay to the seller reasonable collection costs including attorney's fees. Guaranty's liability for attorney's fees, however, arises not by virtue of the agreement as in Heidt but by virtue of Civil Code section 1717 which provides reciprocal liability for such fees in any action on a contract. That statutory liability is broader in application than the language of the Heidt contract, supra.
Section 1717 provides:
'In any action on a contract, where such contract specifically provides that attorney's fees and costs, which are incurred to enforce the provisions of such contract, shall be awarded to one of the parties, the prevailing party, whether he is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to costs and necessary disbursements.' (Emphasis added.)
The language of the contract covers collection costs in event of delinquency which can only be interpreted as costs to 'enforce' the contract and hence is within the provisions of this section. The only issue is whether a suit for rescission is an action 'on a contract.' Morris here sought a determination of rights under the contract, i. e., that the contract be declared rescinded and that no liability existed for further payment of installments due. Additionally, the complaint sough a determination of consequential damages for injury arising by reason of the breach of warranty given with and as a part of the sales contract. If a rescission is allowed, the terms of the agreement are held canceled and no longer exist. Morris' request for attorney's fees, however, is not dependent on the continued enforceability of the terms of the contract but rather on the statutory language requiring his initial action to be 'on a contract.' As used in section 1717 'any action on a contract' simply means an action 'based on' or 'arising out of' a contract and the action for rescission meets this test.
If there was any doubt in the instant case as to the nature of Morris' action being 'on a contract,' it was resolved by [114 Cal.Rptr. 751] the cross-complaint of GMAC seeking judgment for sums due on the contract. The cross-complaint specifically relied on the provision and sought attorney's fees which the installment sales contract required the buyer to pay to the seller in the event of delinquency. There is no doubt that had GMAC initiated the suit, Morris as the prevailing party would have been entitled to attorney's fees pursuant to Civil Code section 1717. It would be ridiculous to deny Morris benefits he would have otherwise received had he simply waited for GMAC to initiate the action.
Section 1717 attempts to put the parties in a position of equality as it applies to attorney's fees where the action involves a contract providing attorney's fees for only one party. To apply the section and allow fees only where a party initiates an action 'on a contract' would frustrate the legislative effort to put these parties in a position of parity.
Additionally, the Rees-Levering Motor Vehicle Sales and Finance Act contains language similar to that found in section 1717 and must be held applicable to allow recovery of attorney's fees on similar reasoning.
Unlike Civil Code section 1717 the Rees-Levering Motor Vehicle Sales and Finance Act (Civ.Code § 2981 et seq.) does not require a provision in the contract giving one party a right to such fees before the right accrues to the other party. Attorney's fees are available to any prevailing party. (Civ.Code § 2983.4.) We cannot accept Chevrolet's argument that attorney's fees are appropriate only when dealing with the financing aspect of the contract. While the chapter deals with financing, the section of the code is not so narrowly drafted. This was a contract subject to the provisions of the chapter and we need look no further to apply section 2983.4.
Section 2983.4 of the Civil Code provides as follows:
'Reasonable attorney's fees and costs shall be awarded to the prevailing party in any action on a conditional sale contract subject to the provisions of this chapter regardless of whether the action is instituted by the seller, holder or buyer. . . .'
We are obviously faced with the same legislative intent to put the parties in a position of equality. A similar interpretation of the language 'on a . . . contract' is required and our conclusion is the same.
See 10 U.C.L.A. 125, 154.
Under any interpretation Morris is entitled to attorney's fees and costs under both Civil Code sections 1717 and 2983.4 as the prevailing party. The breach of warranty and rescission is so inherently a part of his defense to that action on the contract set out in the cross-complaint, it would be fruitless to attempt to distinguish the two aspects of the case. As the prevailing party, Morris should have his attorney's fees and costs.
Attorney's fees are an additional item of damage, a consequence of Chevrolet's breach of warranty. While it results from the contract not executed by Chevrolet it is a damage which Chevrolet caused by the breach of warranty and Chevrolet should indemnify Guaranty for this loss.
In its cross-appeal asserting excessive damages Chevrolet argues the warranty it executed provides for limited liability and that limitation should be upheld.
The Manufacturer's Obligation' provides as follows: 'Chevrolet's obligation under this warranty is limited to repairing or replacing, at its option, any part or parts which are returned to an authorized Chevrolet dealer at such dealer's place of business and which examination shall disclose to Chevrolet's reasonable satisfaction to have been defective in material or workmanship.'
Civil Code section 1692 provides, among other things, the aggrieved party in an action for rescission 'shall be awarded complete relief,' and the court 'may otherwise in its judgment adjust the equities between the parties.' This language permits, if not requires, the trial court to award consequential damages to the plaintiff in an action for rescission (Runyan v. Pacific Air Industries, Inc., 2 Cal.3d 304, 310-311, 318, 85 Cal.Rptr. 138, 466 P.2d 682). The [114 Cal.Rptr. 752] ordinary measure of damages for a breach of warranty includes incidental and consequential damages resulting from the breach (Com.Code §§ 2714 and 2715).
The limitation under consideration here defines Chevrolet's duty to perform under the warranty. Chevrolet's liability, however, flows from its failure to perform according to the agreement, and absent any clear limitation in the agreement on those damages, the measure of damages prescribed by statute shall apply. (Com.Code §§ 2714, 2715; Rose v. Chrysler Motors Corp., 212 Cal.App.2d 755, 761-762, 28 Cal.Rptr. 185; see also Seely v. White Motor Co., 63 Cal.2d 9, 13-14, 45 Cal.Rptr. 17, 403 P.2d 145; Kaiser Cement & Gypsum Corp. v. Allis-Chalmers Mfg. Co., 35 Cal.App.3d948, 959, 111 Cal.Rptr. 210). The agreement does not purport to specify the measure of damages in a situation where, as here, Chevrolet breaches the warranty, an integral part of the contract, and where the contract is rescinded. In these circumstances, provisions such as Commercial Code section 2719(3) authorizing appropriate exclusions or limitations of consequential damages have no application. Chevrolet, through Guaranty, refused to recognize any obligation under the warranty language.
Section 2719(3) of the California Commercial Code provides: '(3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is invalid unless it is proved that the limitation is not unconscionable. Limitation of consequential damages where the loss is commercial is valid unless it is proved that the limitation is unconscionable.' (Emphasis added.)
Even assuming the warranty language is subject to application of Commercial Code section 2719(3), however, there is serious doubt the language could be enforced as against a charge it is unconscionable. In its memorandum decision the trial court found that limiting the loss of the manufacturer to repair or replacement of the defective part would place undue burdens on the automobile buyer and it refused to recognize the limitation. There is substantial evidence to support the trial court's conclusion.
In the memorandum opinion the trial judge made the following statement: 'It has been argued by Chevrolet that the new vehicle warranty limits recovery to the extent of the cost of repairs that might be involved. This argument the Court must reject. Sitting as a court of equity, the Court recognizes the burdens placed upon those seeking redress by reason of the breach of warranty. As indicated by the instant case, a refusal on the part of the warrantor would compel extensive litigation, extensive costs, as well as the costs of repair which in many cases may be beyond the reach of the automobile buyer.'
Attorney's fees, in this case, like other consequential damages, should be borne by Chevrolet without regard to the limitation.
Morris is entitled to attorney's fees and costs as against Guaranty and GMAC and the amount thereof should be added to the amount Guaranty is required to reimburse GMAC under the recourse provisions of their contract. Guaranty, in turn, should have judgment against Chevrolet for that additional sum by way of indemnity. Inasmuch as the trial court is in a better position to ascertain the factual question of the reasonable value of attorney's fees both at the trial level as well as those incurred in this appeal, the matter is remanded to it for such determination. (Cirimele v. Shinazy, 124 Cal.App.2d 46, 53, 268 P.2d 210.)
Judgment is reversed with directions that the trial court determine the reasonable value of attorney's fees as a part of plaintiff's damages.
GERALD BROWN, P. J., and WHELAN, J., concur.
This could reasonably be viewed as the equivalent of finding the limitation would be unconscionable.