North Carolina Supreme Court 'Frees' Mack Ingram

    In the Superior Court
OF THE

State of California
IN AND FOR THE

County of Sacramento
N o . 97,130 Dept. 6

Honorable James H. Oakley, Judge.

O l iv e r  A .  M i n g ,
Plaintiff,

v s.

M il t o n  G . H o r g a n , et a l.,
Defendants.

BRIEF OF PLAINTIFF.

N athaniel  S. Collet,
621P Street, Sacramento, California,

L oren M iller,
524 South. Spring Street, Suite 311,
Los Angeles 13, California,

F ran k lin  H. W illiam s,
690 Market Street, San Francisco 4, California,

Attorneys for Plaintiff.
Claren ceB. Canson ,

515 Broadway, Sacramento, California,
George I). Carroll,

347 6th Street, Richmond, California,
C harles A. J ames,

Bank of America Building, Stockton, California,
C harles W ilson,

3305 Sacramento Street, Berkeley, California,
Of Counsel.

Pernatt-'Wa l s h  P r in ting  Co., San  F rancisco , California



Subject Index

Page
The historical background ................................................... .. 1
Statement of fa c t s .........................................................................  5
The National Housing Act and Federal Housing Administra­

tion ...............................................................................................  8
A. Housing and public interest............. ...............................  9
B. The growth of Congressional p o licy ................................ 12

1. The mortgage insurance program ............................ 13
2. The public housing program .................................... 15
3. The Home Loan Bank B oa rd .................................... 16

C. The crystallization of Congressional p o licy ...................... 16
D. Attaining the objectives ...................................................  19
E. The relationship between builder, FHA and V A ........  22

1. Under Section 203 of the A c t .................................. 22
2. Other sections of the A c t .......................................... 30

(a) Property improvement loan s............................ 30
(b) Section 8—Building ...........................................  31
(c) Section 603—Housing ........................................ 31
(d) Section 611— Construction......................    31
(e) Section 903— Homes............................................. 32
(f)  Section 207—-The project housing................... 33
(g) Section 608—H ousing........................................ 33
(h) Section 610— Special program ........................ 34
(i) Section 908—Liberal terms .............................. 34
( j)  Wherry military housing ................................ 34
(k) Section 213— Cooperative housing ................ 35

Summary ............................................................................. 35
F. FHA regulation and con tro l...........................................  36
G. The Congressional intent .................................................  45

Operative builders may not practice racial discrimination.. . .  49



11 Subject Index

Page
77The conspiracy .............................. ................................... ..

Defendants’ conduct contravenes National and State public
policy .........................................................  83

Plaintiff as a third party beneficiary.......................................... 88
The conspiracy in restraint of sa le .............................................. 90
This is a proper class action .......... ...............................................  92
Defendants are forbidden to discriminate in the ease of a

q o
de facto town .............................................................................

Federal statutes protect plaintiff’s right to purchase the
housing in question .................................................................... 98

To what relief is plaintiff entitled? .............................................  101

Conclusion .......................................................................................



In the Superior Court
OF THE

State of California
IN AND FOR THE

County of Sacramento
No. 97,130 Dept. 6

Honorable James H. Oakley, Judge.

O l iv e r  A. M in g ,

v s.

M il t o n  G . H o r g a n ,  e t  a l.,

Plaintiff,

Defendants.

BRIEF OF PLAINTIFF.

THE HISTORICAL BACKGROUND.

This is another in that long series of judicial con­
tests involving the claim of Negroes that they have 
the constitutional right to purchase and occupy real 
property, particularly urban land, on a basis of com­
plete equality with all other Americans. Such litiga­
tion is almost a half century old. In every instance 
Negroes have faced bitter, sometimes hysterical, op­
position but although relief has sometimes been de­
layed the claimed right has been vindicated in every 
instance by the Courts.



2

The issue is even older than the litigation. Congress 
sought to secure the right beyond the possibility of 
impairment in 1866—prior to the adoption of the 
Fourteenth Amendment— when it enacted what is now 
Section 1982, 42 USCA, which provides that:

“  All citizens of the United States shall have the 
same right in every state and territory, as is en­
joyed by white citizens thereof to inherit, pur­
chase, lease, sell, hold and convey real and per­
sonal property.”  (Emphasis added.)

It is ironic that this same right should be in dispute 
ninety years later.

Litigation involving purchase and occupancy of 
urban property by Negroes has been many faceted. As 
early as 1908 cities attempted to curtail Negro owner­
ship, and consequent occupancy, of real property by 
racial zoning ordinances1 which were ultimately con­
demned in Buchancm v. Warley, 245 U.S. 60 (1917). 
Undaunted, proponents of residential segregation 
turned to increased use of racial restrictive covenants 
and for almost a quarter of a century—from 1915 to 
1948—courts enforced them by equitable decrees.2 The 
Supreme Court finally interdicted judicial enforce­
ment in Shelley v. Kraemer, 334 U.S. 1 (1948). Ad­
vocates of racial covenants then sought indirect en-

iSan Francisco anticipated these ordinances with an ordinance 
segregating Chinese which was invalidated in 1890. In re Lee 
Sing, 43 Fed. 359.

2The first such case was Queensborough Land Co. v. Cazeaux, 
139 La. (1914). California followed suit in 1919, L. A. Invest­
ment Co. v. Gary, 181 Cal. 680. For complete history of covenant 
litigation, see 33 Cal. Law Review 5.



3

forceinent through damage actions by signers against 
covenantors who had sold to Negroes but the Supreme 
Court made short shift of that effort by forbidding 
judicial cognizance of such suits:3 Barrows v. Jack- 
son, 346 U.S. 249 (1953).

Meanwhile, in the early 1930’s the federal govern­
ment began augmenting the supply of housing, di­
rectly to low income families through open subsidies 
to local authorities for construction of low rent public 
housing, and indirectly to middle income families 
through the mortgage loan insurance system of the 
National Housing Act of 1934 administered through 
an arm of government, Federal Housing Administra­
tion. Racial segregation, imposed by local housing 
authorities with the consent of the federal government 
was initially approved in Favors v. Randall, 40 Fed. 
Supp. 734 (1941) and ultimately forbidden in Banks 
v. San Francisco Housing Authority, et al., 120 Cal. 
App. 2d 1 (1953); Cert. Denied: 347 H.S. 974 (1954). 
Federal Housing Administration (F H A ), as we shall 
show, has had a checkered career in this field, first 
requiring the imposition of racial covenants as a con­
dition of mortgage loan insurance, then relaxing that 
rule and finally taking a non-discriminatory position.4

Always the rationalization for restraints on the 
right of Negroes to purchase and occupy urban land 
has been the same: the claim that such ownership or

3This ease originated in California, 112 CA2d 534.
4For history of FH A’s shifting positions see: The Negro Ghetto, 

Robert Weaver, ITarcourt-Brace, 1948, particularly Chapter V, 
and Forbidden Neighbors, Charles Abrams, Harper & Bros., 1955, 
particularly Chapter XVI.



4

occupancy, in the words of the National Association 
of Real Estate Boards, would “  clearly he detrimental 
to property values.” 5 6 In every instance those who 
sought to curtail ownership and occupancy of urban 
land on the basis o f race have availed themselves of 
the “ full panoply of state power” ,8 protesting at every 
step of long drawn out litigation that the discrimina­
tion they sought to vindicate was either compatible 
with constitutional guarantees or that it was permis­
sible within that area of individual action immunized 
against constitutional interdiction by the Fourteenth 
Amendment as interpreted in early cases.7 The task 
of the courts has been that of stripping away the form 
and laying bare the substance of the constitional evil 
inherent in excluding the Negro from the free hous­
ing market.

The case at bar must be put in that historical con­
text. Seen in that perspective, it is readily apparent 
that this Court will seldom be called upon to render 
a decision fraught with greater legal significance than 
the one it will pronounce here.

5NAREB, Cannon of Ethics, prior to 1950. See Abrams, op. cit., 
150 et seq.

6Shelley v. Kraemer, 334 U.S. 1, uses this phrase.
7This theme runs through all housing cases: beginning with 

Buchanan v. Worley, 1917, and ending with Banks v. San Fran­
cisco, 1953. It will be asserted with vigor by defendants in this 
case.



5

STATEMENT OP FACTS.

At trial of this action the Court indicated that it 
had the facts well in mind, and suggested to counsel 
for the respective parties that in their briefs they ad­
dress themselves primarily to the law involved. We 
atcept the suggestion of the Court, but since on some 
major points there is substantial conflict in the evi­
dence we feel compelled to make at least passing re­
ference to considerations which seem to leave little 
doubt that the facts of the case are as plaintiff alleged 
them to 'be and as his witnesses testified.

W e must admit at the outset that we were quite 
surprised, to put the matter mildly, that practically 
every defendant who testified, denied that he had ever 
refused to sell a house or lot to a prospective pur­
chaser because of race or color, or that he had any 
racial policy with regard to sale of houses. No defend­
ant came into Court and admitted that he ever refused 
to sell certain sub-division housing to Negroes, and 
none asserted that he claimed any right to so refuse. 
In fact, several defendants admitted on cross-examin­
ation that they thought such a refusal would be un­
lawful.

When one reads the verified answers filed by these 
same defendants, our surprise at their testimony 
should become understandable. The answers of each 
of the principal defendants in this case “ admit plain­
tiff claims the right to lease or rent any home without 
reference to his race or color, and that defendants 
claim and assert that they have the constitutional 
right to refwse to sell, lease or rent property to whom­



6

soever they desire not to sell, lease or rent.”  While 
the parties deny any concert of action, their pleadings 
are almost identical in this respect.

In determining where the truth lies with respect to 
any policy of defendants in refusing to sell to Ne­
groes, the Court need only ask itself this question. Is 
it likely that a defendant who has never refused to 
sell a home to a ready, willing and able Negro pur­
chaser, and who has no policy against such sales, 
would file in Court a verified pleading setting up as 
a defense to a charge of racial discrimination an asser­
tion that he has a constitutional right to practice such 
discrimination %

In addition to the admissions set forth hy defend­
ants in their answers, we have the positive testimony 
of the plaintiff himself and many members of the race 
to which he belongs to the effect that defendants do 
in fact consistently refuse to sell new sub-division 
housing to Negroes. Coupled with this testimony is 
the fact that no such housing, with the exception of 
in one or two so-called “ open occupancy”  sub-divi­
sions, has been sold to a Negro. The testimony of 
Professor Cy Record indicates that there are many 
Negroes in Sacramento County able to buy such hous­
ing. Furthermore, defendant Fernandez admitted that 
while he had sold no unit in his Freeport Manor to 
a Negro, soon after he made the initial sales to white 
persons, Negroes purchased homes in that tract on a 
re-sale basis from the original purchasers. It is hardly 
reasonable to assume that Negroes would refuse to' 
aPIJly for original purchase when no down payment



7

was required and terms were liberal, and yet rush in 
to make such purchases at a time when they had to 
pay premiums for equities of original buyers. At 
least the evidence showed nothing which would sustain 
an inference that Negroes have a bias against new 
houses with low, or no, down payments.

It is also significant that the testimony of witnesses 
Horgan and Frye (by way of deposition) admitted 
that defendants Heraty and Gannon had a policy of 
not selling their sub-division housing to Negroes. Also, 
witness Turner, manager of defendant Larchmont 
Village, Inc., admitted that he refused to sell a house 
to a Colonel Evans, a Negro, because, as he put it, 
“ the colored people’s association is suing us.”  The 
fact that Colonel Evans was not a member of the Asso­
ciation (N AACP) made no difference to Mr. Turner. 
No matter what the Colonel belonged to or didn’t be­
long to, the fact is that he was a Negro, and hence 
was a member of a group or class to which Larch­
mont Village was not selling homes. While he denied 
excluding anyone because of race, witness Frank 
MacBride admitted that he felt that he had a moral 
obligation to the white people to whom he sold houses 
in Arden Oaks Vista to exclude Negroes. And last, 
but not least, Real Estate Board member Eugene W il­
liams denied ever having discussed the question of 
racial policy or exclusion of certain persons from 
some neighborhoods with anyone. He said he had 
never had that much interest in the problem. Little 
did he know that at that very moment we had in our 
possession a letter written by him to Real Estate



8

Board member Tom Kiernan, in which Mr. Williams 
advised Mr. Kiernan that a member of Kiernan’s 
staff had been seen showing a house in a certain com­
munity to a member of “ one of the inharmonious 
groups” , and he urged Kiernan to help keep that area 
“ free from this problem.”  It is true that Mr. W il­
liams said he did not know why he had written the 
letter, nor did he know what he meant by the term 
“ inharmonious group” , but the letter speaks for it­
self.

For these and other reasons, the findings of fact on 
the material issues in this case must be in favor of 
plaintiff.

THE NATIONAL HOUSING ACT AND FEDERAL 
HOUSING ADMINISTRATION.

There is a common content to the substance of the 
arguments that we shall make that can best be dealt 
with in a preface. Such treatment will avoid repeti­
tion and make for clarity. That common content con­
cerns the provisions of the National Housing Act, its 
objectives and its provisions, and the administrative 
agency, FH A  as it is popularly called, through which 
the legislative program is effectuated. Without an un­
derstanding of the terms of the Act and of the kind, 
character and quality of F H A ’s functioning in the 
housing market the legal problem that confronts the 
Court becomes difficult, almost impossible, of isola­
tion and solution.8

8The Housing Act of 1934 was enacted as 48 Stat. 1246. It is 
reproduced as amended at 12 United States Code Annotated (12 
USCA) Sections 1721 ff.



9

In this preface we shall advert to many different 
kinds of housing provided for in the Act and to a 
number of FI1A activities and policies in respect to 
those varying kinds of housing. However, it must be 
borne in mind that the housing constructed by the 
builder-defendants here was built for sale under Sec­
tion 203 of the Act and is all ultimately designed for 
sale to individual purchasers. The builder’s function 
in this particular phase of housing consists o f con­
structing that housing and of then putting it on the 
market.

W e shall have to include historical material for the 
light it may shed on present day practices and we 
shall have to delve into the Congressional Record for 
statements that will illuminate statutory language. 
Our inquiry will be a lengthy, sometimes tedious one, 
but, we believe, the end result will be that we will have 
put the legal problem in its proper frame of refer­
ence.

A. Housing and Public Interest.

The public concern with adequate housing for the 
American family is reflected in the Declaration of 
Rational Housing Policy written into the Housing 
Act of 1949 where it is said that “ . . . the general 
welfare and security of the Nation requires the reali­
zation as soon as feasible of the goal of a decent home 
and suitable living environment for every American 
family.”  (Title I, Bousing Act of 1949, Declaration 
of Principles.) None can doubt that by this declara­
tion, Congress intended to encompass all Americans



10

without reference to race or color, and by the same 
token it is clear that Congress, by reason of the due 
process clause of the Fifth Amendment, could not 
enact legislation of such scope without making the 
benefits open to all on a non-discriminatory basis.

However, all of us know that this goal has been 
made difficult, if not impossible of attainment, through 
what the Housing and Home Finance Administra­
tion once aptly called a “ blockade o f custom and 
code.”  (Albert Cole, Speech, Detroit, 1954.) The evi­
dence in this case well illustrates how that blockade 
works and how it has operated to deny Sacramento 
Negroes free access to the housing market on terms 
of equality with other citizens. Thus our problem 
meets us at the very threshold of the discussion. We 
will deal with its specific manifestations later.

As we have pointed out, since the early 1930’s the 
federal government, through the grant of direct sub­
sidies, credits and powers has become increasingly 
involved in the planning, marketing and managing of 
dwellings. The scope of federal participation is wide. 
It ranges from public housing, through slum clear­
ance, urban renewal and guarantee of modernization 
loans, to mortgage insurance and loan guarantees for 
new housing. The means vary and have varied from 
time to time; the goal has remained constant. But in 
no instance, for policy reasons which need not con­
cern us here, has federal assistance been granted di­
rectly to individual home seekers. Rather it has been, 
and is, made to private lenders, developers and build­
ers and to local public agencies.



11

Obviously, Congressional enactments have been in­
tended to confer benefits as inducements to private 
lenders and developers and public agencies in order 
to persuade them to participate in a program or pro­
grams that will lead to attainment of the goal of a

decent home for every American family.”
It is ironic that these lenders and developers (and 

even local public housing agencies until brought to 
book by the courts) early arrogated to themselves the 
authority—claimed by defendants in this case to be an 
absolute right—of making the decision as to whether 
or not non-whites, in our case Negroes, should be 
excluded from the beneficences of Congressional leg­
islation. They have translated their prejudices and 
their fears into a set of exclusionary rules that have 
all the force of law, even while operating under a law 
that explicitly includes “ every American family” , 
and implicitly enacts the Constitutional command 
against inequality of treatment.9 Racial discrimina­
tion in Sacramento is now effectuated by quasi-ad- 
ministrative action of builders, developers, selling 
agents and lending institutions, all under the guise of 
bona fide participation in reaching the objective of the 
Congressional goals. How and why did Congress ar­
rive at the policies it has enacted in our statutes ?

9The Housing Authority of the City of Sacramento, which ad­
ministers the public housing program which flows from the Na­
tional Housing Act is restrained by force of Banks v. San Fran­
cisco, supra, from following the administrative practices of these 
“ private”  builders. It must bestow its benefits on all applicants 
without reference to race. The thrifty Negro home seeker thus 
meets racial discrimination that is not visited on his less eco­
nomically fortunate fellow citizen.



12

B. The Growth of Congressional Policy.

In 1892, the federal government appropriated 
$20,000 for an investigation of slums in cities of more 
than 200,000 population. A  report of this investiga­
tion was made by the Commissioner of Labor and con­
tains data on four cities, noting a higher incidence 
of lawlessness in shun areas. (Federal Homing Pro­
grams Committee Print, 81st Congress, 2nd session, 
1950.)

W orld W ar I  brought new housing problems and 
congressional action resulted in construction of 9,000 
houses, 1,100 apartments, 19 dormitories and eight 
hotels for shipyard employees, and more than 5,000 
single-family dwellings in addition to apartments, 
dormitories and hotels for war workers. (Federal 
Housing Programs, supra.)

The depression years added to the housing problem 
that was accumulating as a result of increased urbani­
zation of the nation. It was believed by Congress that 
the federal government’s involvement in the provision 
of housing was necessary for the economic survival 
of the country. As a result, during the period from 
1932 to 1934 more than one million homes were saved 
through government refinancing, approximately 40,000 
units of housing were provided by direct federal ac­
tion for low and moderate income families, and more 
than eight millions of dollars in loans were made to 
corporations formed to provide housing for families 
with low incomes. (Federal Housing Programs, 
supra.) During this same period, the Federal Home 
Loan Bank Board was authorized to make advances,



13

secured by first mortgages, to member borne-financing 
institutions. As of June 30, 1949, there were eleven 
regional banks providing a credit reservoir for 3,813 
member institutions with assets totaling about thirteen 
billion dollars. In addition, under the Home Owners 
Loan Act $49,300,000 was appropriated to purchase 
shares in savings and loan associations which were 
members of the Federal Home Loan Bank. (Federal 
Housing Programs, supra.)

History, and experience in the early depression 
years, finally led Congress to establish three major 
permanent federal housing programs—the mortgage 
insurance system, public housing and the home loan 
bank system, all dedicated to the Congressional objec­
tives of that “ decent home for every American 
family” .

1. The Mortgage Insurance Program.

The mortgage insurance program was established 
in June 1934 for the purpose of insuring long-term 
mortgage loans made by private lending institutions 
to individual home seekers. The obvious intent was 
to make home building attractive to, and possible by, 
persons of limited means. Of course, incidental but 
nonetheless substantial, benefits were conferred on 
lending institutions through the minimization of the 
risk entailed in making the loans, In their proper 
turn, the builders received a boon because their market 
was enormously expanded as home seekers found it 
possible to engage in home building, and the mortgage 
insurance system guaranteed a flow of credit to 
builders.



14

Prom its inception through 1953, FHA, which was 
constituted to administer the mortgage insurance pro­
gram, has insured more than 33 billions of mortgages, 
including insurance on more than three million homes 
under the section providing for insurance on the type 
of housing involved in this action. It has insured 
millions of dollars for rental, cooperative, and pre­
fabricated housing under other sections of the Na­
tional Housing Act and has provided insurance 
against loss on approximately 17,000,000 loans financ­
ing home alterations, repairs and improvements. 
(Seventh Annual Report, Housing and Home Finance 
Agency, 1953, pp. 178-179.)

During World W ar II, mortgages were insured on
962,000 dwellings for war workers and, after the war, 
for veterans. In connection with the mortgage insur­
ance program, Congress authorized establishment of 
a National Mortgage Association to provide a second­
ary market for home mortgages, resulting in the later 
establishment of the Federal National Mortgage Asso­
ciation and the creation of the Federal Savings and 
Loan Insurance Corporation to insure up to $5,000, 
for any single individual, savings invested in savings 
and loan associations. (Federal Housing Program, 
supra.) As of June, 1949, the savings of 6,600,000 
investors were insured with a total liability of $8,- 
868,000,000. (Federal Housing Programs, supra.)

The mortgage insurance system and guarantee of 
loans devices were adopted by Congress in 1944, to 
aid former servicemen to acquire homes. As of June 
30, 1954, 3,638,676 loans had been insured or guar­



15

anteed for veterans. (Report, Administrator of Vet­
erans Affairs, 1954.)

By any standard, these figures are impressive and 
reflect a degree of government involvement in hous­
ing that would have been unthinkable when the fed­
eral government appropriated the modest sum of 
$20,000 in 1892.

2. Tlie Public Housing Program.

The public housing program had its inception in 
the National Industrial Recovery Act, providing for 
the low income units we have referred to. In 1935, 
the Emergency Relief Appropriations Act made an 
appropriation of $450,000,000 for housing. In 1937, 
the basic statute providing for loans and annual con­
tributions to local public agencies for low rent hous­
ing and slum clearance projects was enacted. Under 
this Act, as amended, from 1937 to June 1955, 490,107 
units of public housing have been, provided. (Homing 
Statistics, Housing and Home Finance Agency.) Ad­
ditionally, during W orld War II, 945,000 public war 
housing accommodations were provided under various 
statutes. After the war, Congress authorized use of 
this war housing for distressed families of service­
men, veterans and their families, and construction of 
temporary housing from available funds for this pur­
pose. Congress also authorized funds for dis-assem- 
bling, transporting, re-erecting and converting surplus 
war structures on land supplied by educational insti­
tutions, State and local bodies, and non-profit organi­
zations, for housing for veterans and their families,



16

and distressed families of servicemen. Under this 
authorization, as of June 30, 1949, 267,000 temporary 
units had been provided. (Housing Statistics, supra.)

These figures, too, bear statistical witness to the 
fact that the nation was, and is, edging toward the 
goal set by Congress.

3. The Home Loan Bank Board.

The Home Loan Bank Board’s function is to super­
vise federal programs of credit, insurance of savings 
accounts, and related aids to home-financing institu­
tions, particularly savings and loan associations. It 
is responsible for operations of the Federal Home 
Loan Bank System, Federal Savings and Loan Insur­
ance Corporation, and Home Owners’ Loan Corpora­
tion. It charters and supervises Federal savings and 
loan associations. The Federal Home Loan Bank Sys­
tem is the oldest of the permanent federal housing 
programs. It includes regional banks in eleven cities, 
composed of regional member institutions. These in­
stitutions supply approximately a third of all home- 
mortgage financing in the country and in 1949 had 
approximately $10,000,000,000 in home-mortgage loans 
outstanding. In addition to supplying a reliable source 
of credit for member institutions, the system encour­
ages sound financial and operating practices in the 
home-lending field. (Housing Statistics, supra.)

C. The Crystallization of Congressional Policy.

Faced with the serious shortage of housing for vet­
erans after World W ar II, which resulted in grossly 
inflated prices, Congress enacted the Veterans Emer­



17

gency Housing Act of 1946. The Ojffi.ce of Housing 
Expediter became statutory creature with power to 
establish ceiling prices and rents for new housing, 
and to allocate or establish priorities for delivery of 
materials or facilities for housing. (Housing Statistics, 
supra.) The Reconstruction Finance Corporation was 
authorized by this Act to make premium payments 
to producers of building materials, and to guarantee 
markets for new-type building materials and pre­
fabricated houses. The Act also amended and ex­
tended the FH A  mortgage insurance program for 
benefit of veterans and granted them preference in 
sales or rentals of new housing. (Housing Statistics, 
supra.)

Finally, in 1949, Congress articulated the goals that 
had been implicit in its theretofore patch work of 
legislation and arrived at a definitive statement of 
the housing aims of our national government. (Title I, 
Housing Act, 1949, supra.) It said in so many words 
what every student of its actions had already deduced, 
that its goal was that of a “ decent home and suitable 
living environment for every American family” . In 
addition to re-enforcing the permanent Federal hous­
ing programs that we have been discussing, Congress 
authorized a new Federal housing program of loans 
and capital grants to local communities for large 
scale slum-clearance and urban redevelopment,10 au­

10Testimony at the trial showed that Sacramento has availed 
itself of these features of the Act and proposes a large scale re­
development of a blighted section of the city. Ironically enough, 
the working of that plan will expel Negro home owners who must 
buy other housing. An official testified that 28% of the families



18

thorizing one billion dollars in loans and a half billion 
dollars in capital grants over a five-year period for 
this purpose. The Housing Act of 1954 broadened 
this program to include rehabilitation of existing 
housing in blighted, deteriorated, or deteriorating 
areas. (Title III , Section 304, Housing Act of 1954; 
68 Rev. Stat. 624, Title 42, TJSCA.) In “ so broaden­
ing the provisions of the existing slum clearance and 
urban redevelopment law . . . ”  Congress, it was made 
plain, did not change “ . . . in any way the primary 
and principal objective of this law; namely, the im­
provement of the housing conditions of American 
families. Its primary and principal objective contin­
ues to be the elimination of slums and other inade­
quate housing and an increase in supply of good 
housing.”  (Senate Report No. 1472, 83rd Cong. 2nd 
Session, U.S. Code, Cong, and Adm. News, 2757-2758. 
W e have added the emphasis.)

By the Housing Act of 1955, Congress provided 
for additional mortgage insurance, slum clearance 
and urban renewal, and public housing. While this 
Act was under consideration, Congress was compelled 
to increase by $1.5 billion the mortgage authorization 
of FHA. In this connection, the Senate committee 
considering the housing bill noted that . . the ex­
istence of FH A  mortgage insurance has made possible 
the addition of tens of billions of dollars worth of 
adequate housing for United States residents.”  (,Sen­
ate Report 33, 84th Cong., 1st Session.)

to be relocated are Negro. The Court will recall that some of 
these people testified that defendant-builders and brokers refused 
to sell tract homes to these dispossessed persons on the basis of 
raee.



19

The history we have just recited is abridged. It is 
only a partial description of congressional action 
taken to effectuate the housing goals envisioned by 
Congress. It does not include a discussion of compan­
ion executive action. However, it does serve to point 
up the profound observation of the late Senator Rob­
ert: A. Taft: “ Of course, in Congress we are faced 
with the further question of whether the Federal Gov­
ernment has any function in this program. Housing, 
like food, relief, medicine, is primarily the obligation 
of the States and local government. Even if these 
programs are the proper function of government, it 
is said that under our Constitution they do not fall 
primarily within the duties or powers of the federal 
government. It is a little late, however, for us to 
argue the place of the Federal Government in this pic­
t u r e (95, Gong. Rec. A343, 1949; emphasis added.)

D. Attaining the Objectives.

All governments, local, state, or federal, have cer­
tain governmental objectives for attainment of which 
government is pledged and which they further in 
various ways. Some of these objectives are achieved 
in. direct and obvious ways. The traditional method 
is through individuals denominated officers and agents 
of government who are employed to perform various 
tasks designed to achieve the agreed-upon govern­
mental objective.

On the other hand, there are other governmental 
objectives which governments attempt to achieve in 
an indirect manner. For policy reasons, it is some­



20

times deemed wiser to attain these objectives by 
granting substantial government aid to select private 
persons or corporations who become chosen instru­
ments of government.

In a democratic society, the legislature, as the in­
strument of the people, must make the choice be­
tween the direct and the indirect methods.

In the matter of housing, accommodations for the 
lowest economic group in our population and for mod­
erate income families is one of the objectives of our 
national government, as we have just demonstrated. 
With respect to the lowest income group, the national 
government has determined that there is no alterna­
tive for the provision of housing for this group except 
by direct governmental action and it grants direct 
subsidies to reach the end it has found desirable.

However, with respect to those families whose in­
comes are too high to qualify for low-rent housing 
but who, nevertheless, find it impossible, for economic 
reasons over which they have no control, to secure 
adequate housing without government intervention, 
the national government has determined that there 
are alternative methods of providing housing: by 
direct action as in the case of low-rent public housing, 
or by government insurance of loans made by lending 
institutions. Either method will provide housing and 
under our Constitutional system either choice is per­
missible.

Economic policy considerations dictated the choice 
of the latter alternative by Congress. (Senate Report



21

No. 1300. See also 84 Cong. Rec. 412, 1939; 87 Cong. 
Rec. 1544, 1941; 90 Cong. Rec. 6661.) But when 
World W ar I I  created a housing crisis for defense 
workers and then for returning servicemen and vet­
erans, the national government found it expedient 
to relieve the crisis by use of both methods. (90 Cong. 
Rec. 6661, 1944.)

It is plain that the FH A mortgage insurance and 
the VA loan guarantee programs were thus con­
ceived and adopted ~by Congress as methods of pro­
viding adequate housing within the financial reach 
of moderate income families. It is equally demonstra­
ble that the method has been an effective one, in pro­
viding homes for the very group for which it was 
devised, as shown by the statistics we have heretofore 
cited. (78 Cong. Rec. 12013, 1934; 80 Cong. Rec. 4680, 
1936; Senate Report 1300 supra; Sen. Rep. 1286, 81st 
Cong. 2nd Session, 1950.)

In the case of low rent public housing adminis­
tered by governmental officers, there is no question 
but that racial discrimination falls under a Constitu­
tional ban. (jBanks v. San Francisco, 120 Cal. App. 
2d 1; Van v. Toledo, 113 Fed. Supp. 210.) The con­
tention of suppliers of housing made possible under 
the mortgage insurance system that they have the 
“ right”  to discriminate rests on the claim, solemnly 
asserted and constantly reiterated, that the builder 
is a private entrepreneur receiving no benefits from 
the National Housing Act, getting no assistance from 
FHA, and free of all social and constitutional respon­
sibility except that of following his own whim and



22

caprice or bowing to Ms own fears, in the selection 
of buyers. He claims the “ right”  to make race a cri­
terion in choosing who may or may not qualify for 
federal mortgage insurance and thus purchase, or 
occupy, housing that but for the mortgage insurance 
system he would not have for sale. W e will be helped 
in deciding the validity of this contention by laying 
bare the relationship between builder and PHA.

E. The Relationship Between Builder, FHA and VA.
1. Under Section 203 of the Act.

Although we will discuss various relationships that 
necessarily arise in respect of various housing pro­
grams which are within the purview of the National 
Housing Act and of PHA, it is well to remind our­
selves at this point that the housing which is the sub­
ject matter of this litigation is that type built for 
sale under Section 203 of the Act. In the classic 
instance, the individual home seeker who was at­
tracted by the information that he could buy a home 
through the PH A  mortgage insurance program sim­
ply had plans drawn up, secured cost estimates, en­
tered into a contract with a builder of his choice 
and then took the papers to his bank or building 
and loan association. In its proper turn the lending 
institution submitted the plans and cost estimates to 
PH A  which reviewed them and indicated approval 
or disapproval. Upon approval, the home seeker ar­
ranged for the loan, PH A  made the commitment for 
mortgage insurance and the home seeker executed 
the proper mortgage papers. As building progressed, 
PH A  made detailed inspections and ultimately gave



23

final approval. The builder played a muted part in 
the transaction: he was the workman who built the 
house and ultimately received payments from the 
proceeds of the insured loan. His only contact with 
FH A was through the inspectors.

In time, the builder began to assume a more ag­
gressive function. FH A had created a market; he 
sought to avail himself of its advantages. The builder 
himself drew the plans, found the lending institution 
and then the home seeker. His acquired skill enabled 
him to guide his customer through the paper maze 
without difficulty. In reality, he was helping achieve 
the objectives of the Act through a laudable profit 
motive. He was doing more: he had become an opera­
tive builder and was availing himself of the benefits 
of the Act,11 and in order to do so he was acting in 
concert with the lending institution and with FH A 
through its proper officials. Under this arrange­
ment, government and the operative builder were 
becoming mutually dependent on each other; without 
mortgage insurance the operative builder could not 
function to attract the home seeker and without the 
operative builder government could not pursue its 
objective unless it substituted a direct subsidy.

The next step was forecast: the builder planned 
a group of homes purely for sales purposes without 
having the specific buyers in mind or, indeed, with­
out trying to secure them beforehand. I f  he could 
build houses that he knew would meet FH A specifica­

irWe shall use the term “ operative builder” to mean a builder 
who constructs homes for sales purposes.



24

tions and hence would be acceptable to the lending 
institution because federal mortgage insurance could 
be secured he could build for the market instead of 
for the individual. Building costs could be minimized. 
New problems arose at this juncture because it was 
imperative that the builder have absolute assurance 
that his product was acceptable to FH A  and hence 
eligible for mortgage insurance. That problem could 
be solved, and was, by getting prior FH A approval 
of all plans, including site selection, financing, lender- 
mortgagees, purchaser mortgagors and many other 
governmental controls and standards. It is readily 
apparent that an ever closer relationship would de­
velop between builder and FHA. The inter-depend­
ence between builder and government became ever 
closer as each needed the other more and more to 
further his, or its objective. The builder became a 
co-partnership, or a corporation with a sales force 
and public relations experts to attract the home 
seeker. And above all, the builder now built increas­
ingly for the market, as he put it, that is for the 
class of persons defined as eligible by the National 
Housing Act, and eligible for mortgage insurance. 
And as the builder built for the class, rather than for 
the individual home seeker he began to institute the 
exclusionary practices that bottom this law suit— 
and that without statutory authority which could 
never have been given because the Constitution would 
not, and will not, permit it.

The activities of the operative builder that we have 
been discussing continued the seeds of their own ex­



25

pansion. It was a step from building a small group 
of homes to that of developing an entirely new tract 
containing hundreds of homes and from that to the 
construction of great new cities, like the Levittowns 
in the east or Lakewood in Los Angeles county.12

In the matter of the operative builder-defendants 
in this case, homes which are built for sale under Sec­
tion 203 of the Act were constructed on an extensive 
scale. At the time of their construction the PH A 
Commissioner was authorized by statute to insure an 
amount equal to 95% of the first $9,000 of F H A ’s 
appraisal of the value and 75% of the amount in 
excess of $9,000; he had to require the mortgagor- 
buyer to pay at least 5%' of the Commissioner’s es­
timate of cost of acquisition in cash or its equivalent 
as a down payment; the builder was required to de­
liver to the purchaser a written statement setting 
forth the amount of the Commissioner’s appraisal 
and a warranty that the house conformed to F H A ’s 
approved plans and specifications. The Commissioner 
must approve initial charges for the mortgage, ap­
praisal and inspection fees. It is also statutory dicta­
tion that so long as the mortgage is insured by PHA, 
the dwelling may not be sold on credit terms less 
favorable to the purchaser than those required by 
PH A and the buyer may not levy a race restriction 
during the life of the loan. (64 Statutes 68; 68 Stat­
utes 591, 607, 642; Title 12 CSC A, Sections 1701, 
1709, 1715g.)

12These are complete cities, each containing thousands of dwell­
ings built to meet FHA specifications and sold under FHA mort­
gage insurance.



26

The Court will recall testimony in this case that 
operative builders who were before the Court held 
pre-application discussions with FHA. This is the 
“ land planning processing”  stage and takes the form 
of inspection and approval of the site by FH A  Land 
Planners and Subdivision Valuators. The purpose of 
these discussions is to achieve the most desirable land 
development plan, the most desirable and practical loca­
tion of streets, lot grades, storm water drainage, san­
itary sewage lines and the other incidents of sound 
community planning. A  subdivision report is then 
submitted dealing with streets, grading, landscape, 
material, lot size and similar items. Following this, 
mortgagee-lender (the financial institution that will 
finally furnish the mortgage money) files a formal 
application for a prior commitment to insure. De­
tailed plans and specifications, property descrip­
tions, plot, etc., are submitted. In order for any 
application to be approved for prior commitment, 
land planning, proposed plans and specifications, con­
struction and materials to be used must meet F H A ’s 
Minimum Property Requirements. At this stage of 
the proceedings no individual buyer has been secured. 
Potential buyers are members of the class defined as 
to eligibility by the Act without reference to race or 
color. In essence, the operative builder has now ob­
ligated himself to build houses which meet certain 
standards set by F H A ;  the lending institution has 
agreed that as individual buyers are produced it will 
lend them the necessary purchase-money funds on 
the security of their individual mortgages on indi­
vidual parcels of property (the so-called “ take out”



27

mortgages) in the tract, and FIT A has agreed that 
it tvitt insure those mortgages if the borrower meets 
its eligibility tests. The prime test is that the loan 
must be “ economically sound” .

Assuming approval of the project and subsequent 
construction, FH A inspectors take over. Their func­
tion is to make sure that construction proceeds in 
accordance with the contract documents on the basis 
of which the commitment was issued. One to four 
family dwellings are required to have at least three 
inspections. After completion of construction, the 
builder is required by statute to certify as to costs. 
I f  the house is constructed under FH A inspection, the 
builder provides the Y A  loan guaranty officer with 
the required evidence of this fact, in which case Y A  
compliance inspection becomes unnecessary. (Title 12 
U.S.C. 1715r; VA Technical Bulletin 4A-14.) I f  all 
enumerated conditions are met, the mortgage insurance 
will issue upon F H A ’s approval of the purchaser as to 
credit. (Mutual Mortgage Insurance, Administrative 
Buies and Regulations under Section 203 of the ATa- 
tional Housing Act. Revised 1952 Form 2010, p. 14.) 
Both FHA and Y A  will now process complaints re­
garding faulty construction within one year of convey­
ance or initial occupancy. (Title 12 U.S.C. 1701; VA  
Technical Bulletin 4A-127.)

It is hard to conjure up a more rigorous statutory 
scheme than that devised by the Rational Housing 
Act and administered by FHA from its approval to 
final approval of the individual mortgagor. That the 
builder submits to it is eloquent proof that it prom­



28

ises advantages for him. That the Act and FH A 
impose it is demonstrative of the fact that it promises 
attainment of the goal of a “ decent home for every 
American family” . The inter-dependence of govern­
ment and builder has reached its zenith. Now it is 
plain beyond the need of argument that the com­
plementary activities of builder and government have 
produced houses for sale to members of the class en­
visioned by the Act itself and sought by the builder. 
In the face of this rigorous statutory scheme; in 
spite of the demonstrated inter-dependence of builder 
and government in producing housing for the mass 
market and apparently unmindful of the benefits be­
stowed on the builder by government, the operative 
builder-defendants in this case maintain that they 
have complete freedom to decide who may secure 
benefits of the mortgage insurance system and thus 
buy this government-builder produced housing, and 
to discriminate on a racial basis against some mem­
bers of the very class for whom they have ostensibly 
built.

This Alice-In-Wonderland claim of the right to 
impose racial discrimination in the selection of pur­
chasers is predicated on the fact that each of the 
houses will be sold by the builder in his private 
capacity to an individual who will execute an in­
dividual mortgage with the house and land as secu­
rity to a private lending institution. All that has gone 
before—the cooperation between government and 
builder in planning the development, the rigorous re­
quirements imposed by government as a precondition



29

of the prior commitment without which not a single 
house would have been produced, the lending institu­
tion’s agreement to make the mortgage loan, condi­
tioned as it was on the certain knowledge that it could 
minimize its risk through the mortgage insurance 
program, the close cooperation between builder and 
government conforming the houses to standards set 
by government, the conformity of the subdivision to 
the overall county or city planning required by gov­
ernment, the proviso that FH A must approve the ul­
timate buyer, the requirements as to down payments 
and interest rates to be assessed against the buyer- 
mortgagor-—all these are brushed aside as matters of 
no consequence. All that will come after-—the fact that 
government credit stands behind the mortgage insur­
ance, the requirement against sale on less favorable 
credit terms, the pledge of government to process com­
plaints of faulty construction for a year after sale 
or initial occupancy—all these are relegated into the 
unimportant. The blind man has seized the elephant’s 
tail and is telling us that the animal resembles a rope.

It is also apparent that the operative builder-de­
fendants have lost sight of the objectives of the Na­
tional Housing Act. They have charmed themselves 
into the pleasant belief that the Act was passed and 
FH A was constituted to provide them a market for 
their wares, freed of all social and constitutional re­
sponsibility, and to minimize the risk of lending in­
stitutions who may finance the home construction they 
may undertake. They take it for granted that the 
power to impose residential segregation—denied by



30

the Constitution to cities, to the courts, and to local 
housing authorities—has been lodged with them by 
virtue of a statute, the National Housing Act, enacted 
pursuant to that same Constitution. Obviously, their 
claims cry out for close scrutiny. For if these opera­
tive builder-defendants have their way Congress has 
but to channel government power into private hands 
to rob Constitutional guarantees of all vitality.

2. Other Sections of the Act.

Our discussion of government-builder relationships 
has been confined to the relationship that arises under 
Section 203 of the Act because the housing involved 
in this action was built under that section. Our dis­
cussion of relationships that arise under other sec­
tions of the Act will be short and is inserted here 
simply for the purpose of illustrating the scope and 
purpose of the Act, to show how the mortgage insur­
ance system dovetails into the high public purpose 
of the legislation and to lay bare the manner in which 
FH A  functions in shaping and directing housing pol­
icy within the confines of the legislation under which 
it was established.

(a ) Property Im provem ent Loans.

The property improvement provisions of the Act 
were enacted in 1934, at least partially as an “  emer­
gency”  measure but have since come to be highly re­
garded as a means of adequate maintenance of the 
nation’s housing. Although the loan for improve­
ments is insured, no mortgage is required of the 
householder. (Property Improvement Loans, FH A



31

document FH-20, Aug. 1, 1950.) FH A  says of this 
program that “ . . . the building and allied industries, 
and the Federal Government combined to assist bor­
rowers to make eligible improvements to their prop­
erty . .

(b ) Section 8— Building.

In operation since 1950, Section 8 was devised to 
provide cheap homes in outlying areas “ where it is 
not practicable to obtain conformity with many re­
quirements essential to the insurance of housing in 
built-up areas.”  (12 USCA 1706c(a).) Some 12,000 
homes were built under the program but it has not 
been widely used.

(c )  Section 603— Housing.

During the period from 1943 through 1948 the bulk 
of home mortgages were insured under World War I I  
provisions of Section 603 of the Act, enacted in 1941 
to stimulate building for war workers and revived 
in 1946 as a program for veterans. A total of almost
700,000 homes were insured under Section 603 which 
has since expired. Typically, Section 603 homes were 
built by operative builders for ultimate sale. Vet­
erans’ preferences were enforced.

(d ) Section 611— Construction.

The government’s use of the device of mortgage 
insurance to accomplish a myriad of social objectives 
is well illustrated by the FH A  program under Section 
611 which was designed “ to encourage the applica­
tion of cost reduction techniques through large scale



32

modernized site construction” . Any project for build­
ing 25 or more single family dwellings by modern 
on-site construction methods was eligible for mortgage 
insurance on very liberal terms. Individual dwellings 
could later be released from the blanket mortgage 
and sold to individuals who in turn could avail them­
selves of the individually insured mortgage.

(e ) Section 903— Homes.

This program was devised in 1951 to relieve the 
housing situation in critical defense areas. The area 
must be designated by the president as critical. Mort­
gage insurance is issued on one or two family units. 
To be eligible for insurance a mortgage need not be 
“ economically sound”  (the requirement under Sec­
tion 203) but it is sufficient if  the proffered mortgage 
is “ an acceptable risk in view of the needs of national 
defense” .13 Credit terms are liberal. The statutory 
regulatory features of housing built under this sec­
tion is an almost complete one: Persons engaged in 
defense had priority to purchase or rent; the prop­
erty may be held for rent for such time as the Com­
missioner determines; where properties are held for 
rent the Commissioner may determine the rental and 
prescribe operating methods and even prohibit or 
restrict sale and the mortgagor may not discriminate 
against families with children on penalty of $500 fine. 
(12 USCA 1750a(d).)

13This requirement— that the mortgage be an “ acceptable 
risk”— changes the class from that defined in Section 203 where 
the loan must be “ economically sound” .



33

( f )  Section 207— The P ro ject Housing.

Housing built under Section 207, and the sections 
that we will discuss following it, is so-called project 
housing. The degree of FH A  control over this kind 
of housing is much greater than that exercised under 
the various sales-housing programs. When Congress 
set up the mutual mortgage system under Section 
203 it created a system of mortgage insurance under 
Section 207 for rental developments. Together Sec­
tion 203 and Section 207 constitute the “ permanent”  
FH A  program. There must be at least twelve dwell­
ing units; the builder must be a “ public corporation”  
or a “ private corporation publicly regulated” . The 
statute requires FH A  regulation as to “ rents or sales, 
charges, capital structure, rate and return and meth­
ods of operation . . .  to provide reasonable rentals . . . ”  
The FH A Commissioner is authorized to hold such 
stock (not to cost him more than $100) as will render 
his regulation effective. FH A prescribes the method 
and manner of bookkeeping and when there is any 
violation of the terms the Commissioner may oust di­
rectors and elect his own board. The social purpose 
is explicit: “ Mortgage insurance under this section is 
intended to facilitate rental accommodations at rea­
sonable rents suitable for family living.”

(g ) Section 608— Housing.

Four-fifths of all project mortgages insured by 
FH A  have been insured under Section 608, a fact 
traceable to its liberal terms. (Sixth Annual Report, 
Housing Agency.) As established in 1941, Section 608 
provided that “ the property shall be designed for



34

rent for residential use by war workers”  and as re­
vived in 1946 it was said to be designed to give prefer­
ence to veterans. As in Section 207, the F H A  Com­
missioner is empowered to intervene in corporate af­
fairs where there is a violation of regulations which 
are substantially the same as in Section 207.

(h ) Section 610— Special Program.

Section 610 is a special program whereby FH A  
mortgage insurance is provided to finance the sale 
of so-called Greenbelt towns, TY A  housing or Lan- 
ham Act housing. There are the usual veteran prefer­
ence provisions and power to require that the dwell­
ings be held for rental.

( i )  Section 908— Liberal Terms.

Section 908 complements Section 903 in that it was 
devised “ in view of the needs of national defense” . 
The pattern of regulation is substantially the same 
as that in Section 603 and 608, with the usual stock­
holding powers vested in the Commissioner.

( j )  W herry M ilitary  Housing.

The Wherry program originated in 1949 in order 
to relieve the housing near military installations. Un­
der this program, the military acquires the land, ap­
proves the sponsor, draws the original plans and cer­
tifies to FH A  that the installation itself will not be 
curtailed in the foreseeable future. FH A  does not 
even have to make a determination of acceptable risk. 
It insures the loan and, as in Section 908, controls 
the affairs of the corporation as to compliance with



35

its rules and regulations. Insurance is available on 
a principal amount not exceeding 90% of replace­
ment cost.

(k )  Section 213— Cooperative Housing.

Congress deliberated as to this program on the 
issue of whether to grant direct public loans or to 
provide for mortgage insurance for private loans. It 
chose the latter. Housing is of two types: sales and 
management. In the sales type, a non-profit corpora­
tion builds the homes for members who take indi­
vidual title to their homes. In the management type, 
title remains vested in the corporation and member- 
stockholders have permanent occupancy rights. FH A  
is authorized to furnish technical advice and assist­
ance in organization of the cooperatives, and in the 
planning, development, construction and operation of 
their housing projects. The loan may be amortized 
in 40 years and mortgage insurance will issue on 90% 
of replacement value. Under the 1956 amendments, 
insurance will issue for 95% of replacement value 
where 50% of member-stockholders are veterans.

Summary.

This rather detailed description of the manner in 
which F HA and the operative builder complement 
each other in the case of Section 203 housing (the 
kind involved in this case) and the thumbnail 
sketches of its functioning in other housing programs 
reveals a federal, that is governmental, agency of 
vast proportions and vast powers. Its regulatory 
powers vary as the type of housing varies but none



36

can doubt that the mortgage insurance system it oper­
ates and supervises is an important factor in the 
housing market. It is time to take a closer look at 
the scope of the agency’s power and how that power 
is exerted.

P. FHA Regulation and Control.

The National Housing Act authorized the estab­
lishment of a new agency of government in an area 
in which there was little in the way of experience 
to serve as guideposts. What Congress wanted was 
an agency that would, as Senator Fletcher put it, help 
achieve the objectives of the Act. (78 Cong. Rec. 
12013, 1934.) From his statement, it was apparent 
even then that the destiny of F H A  was to be that 
of the “ prime regulator”  of the housing market. It 
has fulfilled that destiny. FH A  has dictated “ the 
place where housing would be built, at what price and 
rent ranges, for occupancy by whom, under what 
tenure, at what standards of construction, in what 
kind of neighborhoods” . (Siegel, Shirley, The Legal 
Relationship of FH A  to Housing Aided Under Its 
Various Programs, 1953 unpublished manuscript, 
New York.) Its very name has passed into our 
idiom; the term “ F H A  housing”  has a real meaning 
in common parlance. Billboards, radio, television, 
shout the builder’s message that “ FH A housing”  
is a special kind of housing, stamped with the Great 
Seal of government approval.

F H A ’s minimum Property Requirements have in­
fluenced the location, planning and development of 
new subdivisions, and have influenced, even altered,



37

standards of construction and design for the whole 
industry. (Siegel: Legal Relationships, etc., Supra.)

In addition to fostering the single, long term, to­
tally amortized home mortgage with its low down pay­
ment and low interest rate, which has become stand­
ard, FHA, in minimizing risk of loss involved to 
government and in providing for standardization of 
mortgage instruments, has created a new liquid in­
vestment market, national in scope and operation. 
PH A  is also responsible for the trend toward develop­
ment of large suburban housing projects and toward 
use of large institutional lenders. The volume of 
new residential construction, its distribution between 
renter- and owner-occupied, have also been influenced 
by PH A. (Richards, How FH A Mortgage Insurance 
Operates, supra.) “ I f  you really want to face the facts 
about the housing market today, the FH A  itself, un­
der its present regulations, says to the private 
builder: “You must not sell to families whose income 
does not allow them to meet your scale o f payments. ’ ’ ’ 
(95 Cong. Rec. 12268, 1949.)

P H A  has managed to revolutionize our mortgage 
credit system, regulate the housing market, and set 
standards for the home building industry, not only 
as the result of its effort to achieve express objectives 
of the National Housing Act, but by enforcement of 
its Administrative Rules and Regulations and its 
Minimum Property Requirements—including its Min­
imum Construction Requirements, which operate as 
a super building code, and its Minimum Planning Re­
quirements, which operate as a super zoning code.



38

Contrary to popular belief, FH A  does not, as we 
know, lend money. It insures mortgages. The mort­
gagee pays an insurance premium of :1/i> of 1% of the 
original face amount of the mortgage. Thereafter, 
the mortgagee pays annually ^2 ° f  1% of the average 
outstanding principal. While this premium is ac­
tually paid by the mortgageee, in the long run it is 
paid by the mortgagor as a part of the cost of bor­
rowing money. The secret of FH A  power and control 
of the housing market is enfolded within this mort­
gage insurance system.

In 1934, when the National Housing Act was 
passed, the nation was still trying to recover from 
the worst economic depression in its history. Home 
construction had declined to an all-time low and mort­
gage credit was almost completely frozen. (90 Cong. 
Bee. A2984,1944.) The Act was designed to make home 
construction possible by facilitating the flow of mort­
gage credit. {Cong. Bee. 12013-12014,1934.) The device 
proved so useful that when Congress was confronted 
with the critical lack of housing for defense workers in 
W orld W ar II, it utilized the same plan. The same 
thing happened when there was a need for housing for 
veterans. (96 Cong. Bee. 3152, 1956.) With respect to 
all of these programs, Congress has clearly recognized 
and understood that without government insurance or 
guarantee, mortgage credit for construction and pur­
chase of desperately needed housing would not be 
available. (83 Cong. Bee. 1334, 1938; 87 Cong. Bee. 
1544, 1944; Hearings Before Committee on Banking 
and Currency, 78th Cong. 1st Session, 2, 7, 8, 1943;



39

90 Gong. Rec. A2985, 1947.) As one Congressman put 
it:

“ For more than a decade now the housing in­
dustry in this country has required Government 
assistance and intervention for its very existence. 
Only the tiniest fraction of the volume of housing 
which has been erected in the past 10 years would 
have actually been constructed without Govern­
ment insurance of mortgages, and without the 
massive governmental support behind the whole 
mortgage market.
“ . . . It is a glaring fact that no practical person 
can gainsay that few operative builders . . . con­
duct their businesses with what is properly called 
private capital . . . The average builder has very 
little, i f  any, risk capital involved in his busi­
ness; he works with funds which he is able to 
borrow because the Government has guaranteed 
the lender against loss . . .”  (Rep. Rodino, 95 
Gong. Rec. 12268, 1949.)

In February, 1955, the Senate Committee on Bank­
ing and Currency warned that “ to remove the sup­
port of the FH A  mortgage insurance programs from 
the carrying out of these projects would cause unfair 
and in some cases calamitous results.”  (Senate Report 
33, 84th Cong., 1st Session.)

Thus the first importance of federal assistance in 
this case is that without it the operative builders 
would not be able to obtain the necessary financing 
for developments of the size that were involved in 
this lawsuit. As one adverse witness put it in our 
case, it would be “ virtually impossible”  to build de­



40

velopments of the size involved “ without FH A  assist­
ance” .

One of the basic purposes of the National Housing 
Act was to introduce reforms in our mortgage proce­
dure (78 Gong. Bee. 11973, 1934) in order to provide 
home seekers with a mortgage credit system more 
realistically designed to meet their needs, and it is 
for that reason that F H A  in the past twenty years 
has completely revolutionized America’s mortgage 
credit system. (90 Cong. Bee. A2984-A2985, 1944.)

As a result of reforms introduced, the home owner 
today can get a fully amortized, long-term, low in­
terest rate single mortgage at the lowest cost in his­
tory. In place of the old first mortgage representing 
50 to 60 per cent of the value, with second and third 
mortgages at near-usurious interest rates, home own­
ers today can obtain one loan up to 80 or 90, and 
in some cases even 95, per cent of the FH A  property 
valuation. Parenthetically, the extent of FH A in­
volvement in builder activities inheres in the very pro­
cedures just referred to: it is FH A which sets the 
valuation. The ratio of loan to valuation— whether 80 
or 90 or 95 per cent—is determined toy FH A in accord­
ance with statutory directive and the same is true as to 
interest rates with the added feature that FH A may, 
as it has recently done, raise the interest rate, within 
statutory limits, for  a social purpose, that is to curb 
inflationary trends.

Where the traditional mortgage fell due in three 
to five or ten years with uncertain and high renewal 
fees, F H A  mortgages are payable in equal monthly



41

installments over a period up to thirty years without 
the necessity of renewal and without payment of a 
premium for this privilege. Interest rates have been 
reduced as a result of F H A  action to such an extent 
that the average home owner can pay for his prop­
erty, pay the interest, taxes and insurances, often at 
a lesser amount than he would pay for renting a com­
parable house. (90 Cong. Bee. A2985, 1944.) In short, 
“ In financing their home purchases with FH A in­
sured mortgages borrowers have the satisfaction of 
knowing that they are buying a home upon a basis 
that is within their earning power.”  (90 Cong. Bee. 
A2985, 1944.)

Thus the second importance of the federal assist­
ance in this case is that it expands an otherwise lim­
ited market into a mass market. “ The mass market 
thus created will be further augmented by the econ­
omies incident to large scale building operations en­
couraged under the bill.”  (Sen. Beport No. 1300, 75th 
Cong., 2nd Session, 4, 1937; 96 Cong. Rec. 3154, 1950.) 
The operative builder’s ability to advertise that a 
federal agency has approved his development is of 
inestimable value as an inducement to the buyer who 
can rely on the fact that the purchase of an PH A 
insured or Y A  guaranteed home meets certain high 
governmental standards.

Mortgage insurance is crucial to the operative 
builder’s ability to build for the mass market. It is 
the sine qua non for tract development.

The fact of government mortgage insurance pro­
vided by the statutory congressional scheme and ad­



42

ministered by F H A  cannot be gainsaid. It exists. It 
is there. It minimizes risk of loss by the lender and 
redounds to the builder’s advantage, as was intended, 
by supplying a ready reservoir of credit which, in 
essence, guarantees the builder that he can find a 
market for his product. The sale of mortgage insur­
ance differs from the sale of a commodity because it 
involves the assumption of risk by the purveyor. Gov­
ernment’s role as the purveyor of mortgage insur­
ance is always recognized but the argument is made 
that this does not import government involvement 
because, it is said, the system is an actuarial one in 
which the mortgagee (in reality the mortgagor-buyer 
who pays the ultimate cost) is merely purchasing a 
service at its legitimate cost. The purport of this 
argument seems to be that there is no government in­
volvement if  government so orders its affairs that 
the system is run on a sound business basis. The con­
tention is without merit in light of the social, that 
is governmental, purposes served and intended to be 
served by the mortgage insurance system. Govern­
ment is in the insurance business not to make money 
but to further the ends of the National Housing Act. 
In any event, the statement is speculative and may, or 
may not, stand the test of time.

The very idea of mortgage insurance is relatively 
new and the only body of actuarial standards that 
exists is that which has been developed by FH A itself 
since 1934. As of December 31, 1954, F H A ’s various 
funds had 26% billions of dollars of insurance in 
force and $390 million in earned surplus. {FHA



43

Statement, No. 55-57, FHA, June 18, 1955.) With re­
spect to the Mutual Mortgage Insurance Fund, the 
fund under which housing in our case is insured, a 
comparatively recent FH A  actuarial study purports 
to show that this particular fund “  attained a balance 
status”  at the end of 1954—a balance status being 
defined as the time when earned surplus is equal to 
or larger than the contingent liabilities of the fund. 
{FHA Statement, No. 55-57, FHA, June 18, 1955.) 
This means that as of that date, all estimated losses 
and expenses could have been paid out of the surplus 
in the event of “ adverse economic conditions of ap­
proximately depression magnitude were to develop 
immediately.”  (F HA  Statement, No. 55-57, FHA, 
June 18, 1955.) Even this pride-packed statement 
does not rule out the contingency, always present in 
FH A  operation of the mortgage insurance system, 
that resort might have to be made to the public treas­
ury which is the ultimate guarantor of this insurance 
system.

However, there are five mortgage insurance funds 
—low cost housing, military housing, national de­
fense housing, war housing and multi-family housing 
projects—which have not attained a balance status, 
and as to these funds the contingency of resort to the 
public treasury is ever present.

Laying aside the issue of balance status, however, 
the crucial consideration demonstrating government 
involvement is that although FH A operations are in 
the process of becoming self-sustaining and have re­
paid to the United States treasury almost all moneys



44

originally advanced by it for initial operation of each 
of the funds since the beginning of the program—a 
total of some $65 million dollars (FH A  Report, 55-57, 
FH A, June 18, 1955) the stubborn fact remains that 
the United States treasury is ultimately liable for  
repayment to the mortgagee of every penny of the 
mortgages insured by FHA.  “ . . . Under the FH A 
system, the federal government guarantees to pay 
any loss which a lender sustains on any FH A insured 
home mortgage loan. I f  an insured loan is defaulted, 
the FH A takes over the defaulted loan or property 
and gives the lender F H A  debentures in an amount 
equal to the unpaid balance of the defaulted loan. 
Those debentures are fully and unconditionally guar­
anteed, as to payment of both principal and interest, 
by the United States of America. The appropriate 
FH A  insurance fund, or reserve for losses, is pri­
marily liable for payment of the debentures, but, if  
for any reason funds sufficient for the payment of 
both principal of, and interest on, those debentures 
are not on hand, the debenture holder simply presents 
them to the treasury for payment,”  (96 Cong. Rec. 
3164, 1950.)

It is obviously Congressional intent that the risk 
of loss, the all important feature of insurance, falls 
on the national government where it must be assumed, 
and paid, by moneys gathered by the tax collector 
from all citizen-taxpayers—white, and non-white 
alike.



45

6. The Congressional Intent.

There can be no doubt that Congress conceived of 
these programs as the means whereby the federal gov­
ernment could be instrumental in providing moderate 
income families, veterans and defense workers with 
homes within their means. In 1937, the Congress 
said:

“ The slum clearance law passed at the last ses­
sion of Congress is now in active operation and 
will stimulate the construction of housing by local 
public authorities for the benefit of those fami­
lies in the lowest income groups whose housing 
needs cannot possibly be provided through profit­
able private enterprise.”
“ The present bill, on the other hand, is concerned 
with housing for the vast number of our families 
of moderate means . .  .”  (Senate Report No. 1300, 
75th Cong. 1937.)

In 1939, it was said that:
“ The primary purpose of the act is, of course, 
to aid the home owner . . .”  (84 Cong. Rec. A1432, 
1939.)

During W orld W ar II, when the FH A  mortgage 
insurance system was being used to provide housing 
in defense areas, the Housing Administrator told a 
Congressional hearing that the purpose of legislation 
under discussion “ is to get houses at a monthly cost 
these workers can pay” . (.Hearings Before Banking 
and Currency Committee on H.R. 1726, 78 Cong., 1st 
Session 14, 1943.)



46

Following the war, Congress again made it clear 
that it intended the FH A  program to be the means 
by which Veterans could obtain housing:

“ . . . Veterans are today America’s greatest asset 
and most valuable resource . . . Our system must 
provide for them an opportunity either to buy 
or rent one of the most basic and essential neces­
sities of life . . . ”  (93 Cong. Bee. 11401-11402, 
1947.)

Following enactment of the Housing Act of 1949, 
which provided for the new federal slum clearance 
and urban redevelopment program and for additional 
public housing, Congress provided for additional 
mortgage insurance with this thought in mind:

“ . . . we have enacted into law, now, slum clear­
ance and public housing legislation w7hich pro­
vides for long range housing programs for those 
in the $2000 income level and below. Since the 
year 1946, the private building industry has de­
voted its effort largely to the higher price home 
market. This level has been above the reach of 
many of those in what is known as the middle 
income group. It was the intention of this com­
mittee in reporting legislation that wre would try 
to cover that middle income bracket . . .”  (95 
Cong. Bee. 12079, 1949.)

In reporting the Housing Act of 1954, the Senate 
Committee reiterated Congress’ consistent intention 
in continually increasing F H A ’s mortgage insurance 
authorizations:

“ The bill should facilitate and encourage the 
construction of more and better homes in our 
cities, suburbs and farm areas for the moderate



47

and low income groups.”  (Senate Rep. No. 1472, 
83rd Cong. 2nd Session.)

There is clearly implied in these statements a high 
Congressional purpose: that of making homes avail­
able to all persons who fall within the class defined, 
on economic bases, by the detailed provisions of the 
Act. It is the veriest nonsense to argue, or even sug­
gest, that Congress could have intended, in a Con­
stitutional sense, to define veterans as “ white veter­
ans” , or middle income families as “ white middle in­
come families” , or low income families as “ white 
low income families” . Congress could not intend what 
the Constitution forbids.

There is no compulsion on any operative builder 
to avail himself of the provisions of the National 
Housing Act. He is free to spurn FH A mortgage 
insurance. He can build where he chooses without 
paying the slightest heed to the theories of FH A 
Land Planners and Subdivision Valuators. He can 
brush aside FH A  Minimum Construction Standards 
at will. He can insist on the traditional 30 or 40 per 
cent down payment. He can go to the private money 
market and arrange loans for his buyers at whatever 
the current interest may be. In short, he can function 
as a private builder and as such can act as his whim 
or caprice may dictate. While it is true that state 
law or policy may still interdict racial discrimination, 
no constitutional question would arise. The fact that 
the builder-defendants in our case did not assume this 
stance of the private builder was not due to accident 
or inadvertence: their decision to avail themselves of



48

the provisions of the National Housing Act and to 
use the full machinery of FH A  power was a deliber­
ate choice, designed to secure what they deemed to be, 
and what are, the advantages that accrue from the 
choice they made. Having made that choice they 
cannot escape the responsibilities that devolved on 
them. As was well said in American Communica­
tions Association v. Bouds, 39 U.S. 382, 401:

“ But power is never without responsibility. 
When authority derives in part from Govern­
ment’s thumb on the scales, the exercise of that 
power by private persons becomes closely akin, 
in some respects, to its exercise by Government 
itself. ’ ’

W e do not suppose that even the builder-defendants 
in this case or their selling agents, the real estate 
brokers, will contend that government’s thumb was 
not laid heavily on the scales in the operative builder- 
defendants’ production of housing for the mass mar­
ket in Sacramento county. W e do not suppose that 
even they will contend that the purposes of the Na­
tional Housing Act did not comprehend plaintiff and 
the class he represents equally with his white coun­
terparts.

We have now isolated the fundamental issue that 
undergirds this ease: May the operative builders who 
produce the needed housing as envisioned by, and 
which is the objective of, the National Housing Act 
and who avail themselves of the facilities of FH A 
in the production of that housing, discriminate 
against intended Congressional beneficiaries solely on



49

the basis of race, and thus frustrate the desire of the 
Negro buyer to obtain the advantages of the mortgage 
insurance system and thus, through that system, ul­
timately purchase a home offered for sale?

OPERATIVE BUILDERS MAY NOT PRACTICE 
RACIAL DISCRIMINATION.

What FIIA has called ‘ ‘ the benefits of the mortgage 
insurance system”  to the individual are so obvious 
that we will not detail them. The reverse side of that 
coin is that any person or individual who is denied 
those benefits suffers tremendous disadvantages. 
Those benefits range from the low down payment and 
low interest rate features of the mortgage loan through 
the community planning that goes into the develop­
ment of a new tract where homes are built for sale 
under Section 203 of the Act to the fact that all such 
homes are required to conform to standards that make 
them attractive and enhance their value.

Nor will we take time here to point to the social 
consequences that flow from the system of informal 
residential segregation that results from continued ex­
clusion of Negroes from the new suburban develop­
ments. A  glance at the map which is in evidence will 
show the manner in which tract development has 
grown in the Sacramento area during the past few 
years. Those developments are closed to Negro occu­
pancy. Residential segregation in its proper turn 
fosters growth of a species of segregated public facili­
ties which are provided for neighborhoods and com­
munities.



50

A Negro, situated as plaintiff was in this case, also 
suffers the disadvantage that he may he required to 
live a long distance from his employment because he 
is unable to secure a nearby home. It will be recalled 
that the original purpose of plaintiff in this case was 
to find a dwelling near McClellan Air Force Base 
where he is employed.

As we have pointed out in detail, Congress has not 
made federal assistance or subsidies available to indi­
vidual home seekers. Rather, that assistance has been 
and is granted to private lenders, developers and 
builders, and to local public housing agencies. Obvi­
ously, the objects of Congressional solicitude are not 
these private persons, or public agencies, per se; they 
are merely the instruments through which Congress 
intended to effectuate its policy of providing a ‘ ‘ decent 
home for every American family” . Whatever benefits 
are conferred on these persons— and they are consi­
derable in the case of operative builders—are inciden­
tal to the realization of the national objective and are 
held out as inducements, as the quid pro quo, to enlist 
the cooperation of these builders.

Low rent public housing built under applicable sec­
tions of the National Housing Act is designed for 
rent to individuals. With the exception of a few spe­
cial programs, the federal government resigns admin­
istration of such housing to local public housing agen­
cies. The class of persons eligible for occupancy of 
such housing is defined, without reference to race, by 
the economic attributes of individuals. Where a per­
son desires to occupy a low rent housing unit he



51

phrases his request in the form of asking the local 
housing agency to “ rent”  him such a unit. That is 
the common sense view of what he seeks but there is 
more than that involved in the realization of his objec­
tive. In a legal sense, what he asks is that the local 
agency determine his eligibility for such occupancy 
first and then rent him the unit he seeks if  he meets 
the test of eligibility. The local agency tests his eligi­
bility by the statutory standards of the Act and by 
appropriate administrative rules and regulations of 
Public Housing Administration (P H A ).

Where as in the Banks case, supra, the local public 
housing agency attempted to apply the constitution­
ally irrelevant test of race to determine eligibility, the 
applicant filed suit; alleging that the agency had re­
fused to rent her the unit because it had applied the 
racial test. In that case she prevailed. The practical 
effect of her victory was that she was able to rent the 
unit. However, what the Court did in the case was 
to require the local agency to subject Banks’ appli­
cation “ to the same rules, regulations and preferences 
applicable to other applicants, without regard to race 
or color.”  (Banks v. Housing Authority, supra.) The 
judgment was cast in that form because the applicant 
could not rent the unit unless and until he had met, 
and passed, the initial test of eligibility. Thus it is 
apparent that the Negro’s right to rent a low rent 
public housing unit was in turn dependent on his right 
to have the opportunity to be measured by the same 
eligibility standards as were applied to other mem­
bers of the class defined by the National Housing Act.



52

The “ rights,”  it is now plain, are hut reverse sides 
of the same coin.

The ultimate end sought in the Banks case was that 
of occupancy but the constitutional issue involved was 
that of whether or not race was a relevant factor 
which might be weighed by the local housing agency 
in making the initial determination of eligibility.

Inherent in the case at bar is a constitutional issue 
of the same import and magnitude. Housing built for 
sale under Section 203 of the National Housing Act 
is built for sale to individuals. When a person, situ­
ated as was the plaintiff in this case and as are those 
on whose behalf he sues, desires to secure one of the 
dwellings built under Section 203 he phrases his de­
sire in the form of requesting the operative builder, 
or the builder’s agent, to sell him the unit, just as the 
prospective tenant had asked the local public housing 
agency to rent him a public housing unit. That, too, 
is the common sense view of what the prospective 
buyer seeks.

In the case of low rent public housing, the request 
to rent is addressed to the local public housing agency; 
in the case of housing built for sale under Section 203 
of the Act the request to sell is addressed to the opera­
tive builder or his selling agent. In each instance, the 
person to whom the request is addressed is clothed 
with the power, and with the ostensible authority, to 
grant or deny the request contingent on the deter­
mination of eligibility. The effect of the Banks case 
was to strip the local housing agency of the authority



53

it had asserted to subject the applicant to a racial 
test as to his eligibility and thus thwart his intention 
to rent a housing unit.

Here the defendants assert the authority (claimed 
by them to be an absolute right) to deny plaintiff’s 
request that they sell him a housing unit under the 
mortgage insurance system. The defendants seem to 
be refusing to sell plaintiff a commodity, just as the 
innkeeper in the Civil Rights Cases, 109 U.S. 3, re­
fused to sell food to a Negro, and they assert the same 
constitutional privilege to do so. That assertion of 
authority rests on defendants’ claim that they have a 
right to choose their buyers on racial grounds, in the 
absence of statutory prohibition. W e must examine 
that claim.

As we have demonstrated, Congress has decided 
that the most effective way to achieve its objective of 
making housing available to middle income families 
is through the statutory device of mortgage insurance 
administered by an arm of federal government: Fed­
eral Housing Administration. Once that system was 
devised, the Negro home seeker who was situated as 
was the plaintiff in this case and who wanted to buy 
a home on terms of equality with other Americans 
similarly situated, could do so only if  he was afforded 
equality of opportunity to qualify for mortgage insur­
ance. Thus when plaintiff asked defendants to sell 
him a dwelling he was in reality asking that a deter­
mination be first made as to his eligibility for mort­
gage insurance which is the sine qua non for home 
purchase under his circumstances.



54

The evidence in this case shows that qualification 
for mortgage insurance as a requisite for the pur­
chase of the kind of housing involved here is a three- 
step process: (1) The prospective buyer first asks the 
operative builder to sell him a house and, in the case 
of white persons, the builder takes an application 
which contains complete credit information; (2) the 
builder then refers the application together with the 
pertinent credit information to the lender who decides 
whether or not the loan is “ economically sound”  as 
that term is used in the National Housing Act and 
interpreted by FHA and (3) the lender then passes 
the pertinent papers to the FH A  which makes its own 
independent determination as to whether or not the 
loan is “ economically sound” .

I f  the builder takes the application and submits it 
to the lender and if  the lender finds the loan is “ eco­
nomically sound”  and if  FH A also finds the loan is 
“ economically sound”  the escrow is opened and the 
sale is consummated. The builder can abort the pro­
posed sale; the lender can thwart it, or FH A can 
stymie it. The builder is now seen to be the keeper 
of the gate and unless he unlocks it the prospective 
buyer can never secure a determination as to his eli­
gibility for mortgage insurance. In other words, the 
prospective buyer’s desire for ownership of one of 
the dwellings through the device of mortgage insur­
ance can never be realized unless the builder takes the 
application and sets the machinery for determining 
eligibility in motion.

Thus in the first stage of the prospective buyer’s 
attempt to utilize the benefits of mortgage insurance



55

the defendants were clothed with the same kind of 
power as that vested in the local public housing 
agency in the Banks case: the power to frustrate the 
intention of plaintiff to secure a home they offered 
for sale through the provisions of the National Hous­
ing Act establishing the mortgage insurance system. 
Defendants in this case exercised the power momen­
tarily vested in them in the same manner and for the 
same reasons the local agency exercised comparable 
power in the Banks case. They applied a racial test, 
refused to take plaintiff’s application on that ground 
and thus foreclosed his opportunity to secure the home 
he wanted. They simply refused to apply to him “ the 
same rules, regulations and preferences applicable”  
to a white applicant who had every single one of his 
economic attributes. The evidence in this case admits 
of no interpretation other than that if plaintiff had 
been given the opportunity to qualify he would have 
met the tests imposed for eligibility for mortgage in­
surance.

The issue that emerges is that of whether or not 
the defendants had the constitutional authority to im­
pose the racial test that frustrated plaintiff at the 
outset o f his attempt to qualify for mortgage insur­
ance.

It is quite apparent now that just as the local hous­
ing agency did more than refuse to rent a housing 
unit in the Banks case so the defendants in this case 
did more than refuse to sell plaintiff a dwelling. The 
analogy between the operative builder-owner’s posi­
tion in respect of housing of the kind that concerns 
us here and the position of the innkeeper is seen to



56

be a false one. The refusal to rent in the Banks case 
and the refusal of defendants to sell a dwelling to 
plaintiff each comprehended an assertion of author­
ity to abort the rental or sale of a home, as the case 
might be, by adding a racial test to federal statutory 
and regulatory procedure designed to determine eli­
gibility of the individual to avail himself of a benefit 
extended by federal statute. This does not solve our 
problem but it does narrow our question which now 
appears in this form : Are the capacities of the build­
ers on one hand and local public housing agencies on 
the other so different, in a constitutional sense, that 
the builder may assert the authority to engage in 
racially discriminatory conduct which is denied in a 
comparable situation to the local housing agency?

As we have shown, housing built for sale under Sec­
tion 203 of the National Housing Act is constructed 
under elaborate statutory directives and administra­
tive rules and regulations prescribed to fit the con- 
cededly valid notions of federal officials as to the kind 
and type of housing that conforms to the Congres­
sional standard of a “ decent home” . W e have pointed 
out that it is if, and only if, the housing is built to 
FH A specifications that FH A will insure the loan for 
the buyer, that is extend the benefits of the Congres- 
sionally devised, and federally administered, mort­
gage insurance system to the buyer.

The class of persons eligible for this mortgage in­
surance is defined effectively, even if  indirectly, in the 
case of housing built under Section 203 of the Act14 by

14See FH A Manual.



57

the provision that the loan must be “ economically 
sound” . Those words are words of art because, in 
the parlance of the market place, they mean that the 
applicant mortgagor must have a good credit rating, 
must be able to make the down payment prescribed 
by the statute and must show ability to meet monthly 
installment payments. When he meets those qualifica­
tions he belongs to the class. The original judgment 
is made by the lender; the final decision is reserved 
for FH A which thus applies Congressional intent to 
a determination of the class. Plainly, an individual, 
and not a racial determination is required. FH A pre­
scribes such a determination:

“ Underwriting considerations shall recognize the 
right to equality of opportunity to receive the 
benefits of the mortgage insurance system in ob­
taining adequate housing accommodations irre­
spective of race, color, creed or national origin.”  
(Section 242, Underwriting Manual, Federal 
Housing Administration.)

W e do not understand defendants in this case to 
claim that they are coerced by FH A  into refusing to 
plaintiff the opportunity to avail himself of what 
FH A  describes as “ benefits of the mortgage insurance 
system”  or that it could do so. Nor do we understand 
defendants to claim that FH A would have withheld 
its approval o f mortgage insurance for plaintiff on 
the basis of race as they did.

The harsh truth is that the decision to deprive 
plaintiff of the “ benefits of the mortgage insurance 
system”  was exercised by defendants when they re­



58

fused to take the initial and indispensable step of 
accepting his application and submitting it to the 
lender. They couched that decision in the form  of 
refusing to sell housing to plaintiff because of his 
race. The substance of their action was to deny plain­
tiff the opportunity to avail himself of “ the benefits 
of the mortgage insurance system”  provided by Con­
gress to benefit the very class of which he is a mem­
ber by statutory and regulatory definition. It is only 
because defendants are intrigued by the form  in 
which their denials were cast and because they neg­
lect substance of what they did that they advance the 
sham claim that theirs was a mere exercise of a pri­
vate privilege to choose their buyers at will.

At this point, defendants seemed to interject the 
contention that the lender would not have accepted 
plaintiff as a mortgagor in any event. That conten­
tion impales them on the horns of a dilemma. Either 
they are admitting the very discrimination they denied 
so vociferously at the trial and are saying that their 
culpability must be excused because of the speculative 
dereliction of the lender or they are advancing the 
claim that concerted discrimination with the lender 
relieves them of responsibility. In  any event, Con­
gress foresaw, and forestalled, that excuse. The 
Housing Act of 1954 established the Voluntary Home 
Mortgage Credit Program (42 TT.S.C.A. 687) which 
makes credit available to members of minority 
groups where such credit is denied by discriminatory 
lenders. It is comparable to California’s assigned risk 
plan in the case of automobile insurance. Where a



59

prospective buyer is denied credit for racial reasons 
he applies to the Program which finds a lender if  the 
loan is “ economically sound” . Either the builder or 
the prospective buyer may avail himself of the Pro­
gram but where, as here, the builder refuses out of 
hand to take the application of the Negro there is no 
basis upon which an appeal to the Program can be 
made.

The question that confronts this Court has been 
narrowed still further: Does the operative builder in 
this case have the constitutional authority to clog 
plaintiff’s undisputed right to claim the benefits of 
the mortgage insurance system, and thus ultimately 
defeat plaintiff’s opportunity to buy one of the homes 
offered for sale by defendants, through a refusal to 
perform the indispensable act of taking plaintiff’s 
application for the purchase of one of those homes 
when that refusal is based solely on plaintiff’s race? 
The answer to that question dictates an inquiry into 
the reach of Constitutional restraints on discrimina­
tory conduct.

At trial, the defendants appeared to say that even 
if particular operative builders excluded plaintiff 
from the benefits of the mortgage insurance system in 
the particular instances of housing owned by them he 
was not damaged because he could secure such bene­
fits in other instances. The contention is unsound. 
Of course, plaintiff, and others similarly situated, 
could find an individual lot, secure a contractor, ar­
range a mortgage loan and ultimately get benefits of 
the mortgage insurance system provided they met eli­



60

gibility tests. Or, as appeared at the trial, he could 
make an application to one of the two or three “ inter­
racial projects”  which were adverted to.

The Constitutional infirmity in defendants’ conten­
tion is that it neglects both reality and the character 
of Constitutional guarantees. The reality is that the 
individual home seeker forced to find his owm lot will 
not get the economic advantages that flow from mass 
production techniques. ISTor will he be able to secure 
for himself the advantage of living in a new com­
munity with all of the land-planning and community­
zoning that goes into a community such as North 
Highlands, for example. Furthermore, housing is sui 
generis and selection of a home is a highly individual 
and many times whimsical act, based on the personal 
predilections of the buyer. He who wants Blackacre 
will have none of Whiteacre and will spurn Green- 
acre. North Highlands is not Glen Elder, and vice 
versa.

Of overweening importance is the fact that denial 
of a Constitutional right by A  can never be excused 
on the ground that the same right may be granted by 
B, or by A  in another instance. (Banks v. Housing 
Authority, 120 Cal. App. 2d 1, and cases cited.) In the 
Banks case the local agency did not exclude the 
plaintiff from all housing. It tried to confine his 
selection to certain developments. The right vindi­
cated there was the right to have eligibility determined 
as to all available housing without reference to race. 
Plaintiff’s right in this case is the right to have the 
benefits of the mortgage insurance system in the case



61

of housing on terms of equality with other citizens. 
That equality is lacking where he is denied access to 
any parcel on the basis of his race or color. Defend­
ants cannot escape their responsibility by the facile 
claim that other persons or builders will accord plain­
tiff the rights they deny him, or that they might do 
so in other suppositious instances.

Because the National Housing Act is federal, rather 
than state, legislation the Fifth Amendment, not the 
Fourteenth, must be looked to as the source o f our 
claim that there is a Constitutional command for 
equality of treatment under the Act. The issue is not 
difficult. As said by Chief Justice Warren in Bolling 
v. Sharpe, supra:

“ The Fifth Amendment . . . does not contain an 
equal protection clause as does the Fourteenth 
Amendment which applies only to states. But the 
concept of equal protection and due process, both 
stemming from our American ideal of fairness, 
are not mutually exclusive. The ‘ equal protec­
tion of the laws’ is a more explicit safeguard of 
prohibited unfairness than ‘ due process’ and, 
therefore, we do not imply that the two are in­
terchangeable phrases. But, as this Court has 
recognized, discrimination may be so unjustifiable 
as to be violative of due process.”

That assertion was made in the school segregation 
cases, following the application of the same doc­
trine in Hurd v. Hodge, supra, the race restric­
tion case arising in the District of Columbia. 
Its announcement in those comparable situations 
makes it clearly applicable here. A right deriving



62

from the Federal Constitution may he vindicated in 
a state court. See: Mooney v. Holohan, 294 U.S. 103; 
Betts v. Easley, 161 Kan. 460.

Of course, it has been said many times that the Con­
stitution proscribes state action rather than indi­
vidual action and that is as true under the Fifth as 
under the Fourteenth Amendment: Graham v. Broth­
erhood, 338 U.S. 232. A t the outset we want to make 
it plain that we are not here concerned with the ques­
tion of whether or not the individual property owner 
may discriminate in the choice of a buyer on racial 
grounds. However, there are distinct limitations even 
in that case. The seller, in that instance, must work 
the racial discrimination “ unsupported by State au­
thority in the shape of laws, customs or judicial or 
executive proceedings”  and without “ invoking the 
action of state officers, executive or judicial”  and with­
out dependence on “ some shield of state authority” . 
Those quotations repeat the restraints imposed in the 
Civil Rights Cases, 109 U.S. 3, 15, which is always 
pointed to by lawyers as protecting what they like to 
call the “ right”  of the private individual to discri­
minate at his own whim.

The fact of the matter is that there is no federally 
protected “ right”  to discriminate. At best it is a mere 
privilege that may be curtailed by the federal or 
state government at will. California has abolished 
the privilege in the case of innkeepers in Sections 
51 and 52 of the Civil Code and in other instances. 
Other states have done it in the case of the now fam­
iliar fair employment practices statutes and their ac­



63

tion has been upheld: Railway Mail, etc., v. Corsi, 326 
U.S. 88. President Eisenhower has done it in the case 
of contractors furnishing goods or services to govern­
ment through an executive order establishing the Con­
tracts Compliance Committee.

The concept of state action is not a static one. As 
a matter of fact, the courts have never been able to 
establish any fundamental distinction between ‘ pub­
lic ’ and ‘ private’ agencies. That which has generally 
been considered to be ‘public’ is ‘ public’ and that 
which is generally considered to be ‘private’ is ‘ pri­
vate’. (24 Oregon Law Review 227.) The interwined 
and inter-dependent activities of builders and FH A 
officials in our case is an almost classic example of 
the manner in which expanding governmental activ­
ities tend to blur the distinctions between private ac­
tion and state action. Discriminatory action under 
“ color of state law”  is forbidden and the concept of 
“ color of law”  is by no means limited to action of 
state officials, qua officials, or to persons specifically 
authorized by state law or persons acting pursuant to 
state law.

The scope of this concept includes wrongful acts 
of individuals, corporations or officials other than 
state officials which are supported in “ some way by 
the State” , or “ done under State authority”  or “ pro­
tected in these wrongful acts by some shield of State 
law or State authority” . Civil Rights Case, supra; 
Shelly v. Kraemer, 334 U.S. 1. It includes such acts 
when they are in fact a part of the state function. 
Smith v. Allwright, 321 U.S. 649; Rice v. Elmore, 165



64

Fed. 2d 387, cert, denied, 333 U.S. 875; K err v. Enoch 
Pratt Library, 149 Fed. 2d 212; or are permitted or 
condoned by the state in connection with such func­
tion. Terry v. Adams, 345 U.S. 461. It includes 
wrongful acts committed in connection with property 
merely leased from the state. Muir v. Louisville, 347 
U.S. 971, reversing 202 Fed. 2d 275; Department of 
Conservation v. Tate, 231 Fed. 2d 615. It includes 
wrongful acts coerced by the state, Barrows v. Jack- 
son, 346 U.S. 249, affirming Barrows v. Jackson, 112 
C.A. 2d 534; Truax v. Raich, 239 U.S. 33; or which 
are aided or abetted by the state, Valle v. Stengel, 176 
Fed. 2d 697, or which result from a conspiracy with 
state officials, PicLering v. Penn, 151 Fed. 2d 240; 
Condra v. Twslie & Clay Coal Co., 101 Fed. Supp. 774.

These cases demonstrate that the criterion for de­
termining governmental action is not whether the 
individual concerned—the operative builders and their 
agents in our case—is denominated a state employee 
or officer. Rather, the criterion is whether he is per­
forming a function which is clearly governmental, or 
his activities are governed and controlled by govern­
ment to such an extent that their private character, 
disappears and becomes merged with the interest of 
the state.

Government has chosen the operative builder as one 
of the instrumentalities to further the objectives of 
the National Housing Act, One of the functions he 
performs is that of accepting and submitting to the 
lender the applications for purchase of housing, the 
first step in the three-step process o f determining eli­



65

gibility for mortgage insurance. His failure to accept 
or submit such an application on the basis of the ap­
plicant’s race is a wrongful act because he thereby 
frustrates the applicant’s right to secure the benefits 
o f the mortgage insurance system. I f  he is “ protected 
in this wrongful act by some shield of State law or 
State authority”  (Civil Rights Cases, supra)  the 
Fifth Amendment is invoked because the “ shielding”  
of the act becomes, for constitutional purposes, the 
act of the state and hence interdicted. Government 
would “ shield”  that act by its authority if  it com­
pleted the discrimination which he had activated and 
thus ultimately connived at the denial of the benefits 
of the mortgage system. But the Constitutional com­
mand of equality voiced by the Fifth Amendment in­
tervenes at this point. Because he is attempting to 
use the “ shield of State law and State authority”  for 
the accomplishment of his discriminatory purpose the 
operative builder is stripped of the privilege he might 
otherwise claim to accomplish that purpose. He loses 
no personal privilege by this intervention of the Con­
stitution because, as we have pointed out, he can sim­
ply forego building activity under the National Hous­
ing Act and forswear the use of mortgage insurance 
in favor of conventional building operations where he 
will be unhampered by Constitutional restraints of the 
kind under discussion.

The application of the principles we have just enun­
ciated is sufficient to dictate a judgment in plain­
tiff’s favor. There are other considerations that are 
equally determinative.



66

As we have shown, the power of the operative 
builder to further, or frustrate, the desire of the pro­
spective buyer to avail himself o f the benefits of the 
mortgage insurance system is at full flower at the 
point where the application for purchase is made to 
the builder. It was at that point that the builder in 
our case assumed the authority to thwart plaintiff’s 
intentions by refusing to take the application. That 
power was thrust into the builder’s hands by the 
statutory scheme of the National Housing Act and 
the administrative devices of FIIA. But power is 
never without responsibility. And when that power is 
entrusted in the private individual by government its 
exercise must conform to constitutional standards. 
The individual so situated may not discriminate on 
racial grounds.

Illustrative of this Constitutional principle is the 
situation that is canvassed in American Communica­
tions Ass’n v. Douds, 339 IT.S. 382. Congress required 
a loyalty oath from officials of unions which desired 
to take advantage of the provisions of the National 
Labor Relations Act and to use the facilities of the 
National Labor Relations Board. The union, point­
ing out that it was a private organization, protested 
that Congress could not ‘ ‘ exert these pressures upon 
labor unions to deny positions of leadership to certain 
persons.”  It asserted the right to continue use of 
facilities of the Labor Board even it its officers re­
fused to take the oath. The Court pointed out that the 
use of the facilities of the Labor Board vested the 
union with certain power it would not otherwise have 
had in the area of its functioning and said:



67

••'But power is never without responsibility. 
When authority derives in part from Govern­
ment’s thumb on the scales the exercise of that 
power becomes closely akin, in some respects, to 
its exercise by Government itself.”

The Court’s ultimate holding in the case was that be­
cause of “ Government’s thumb on the scales” , that is 
because the union was availing itself of the statutory 
scheme of the Labor Act and the facilities of the 
Labor Board, it could not claim for its officers unre­
stricted freedom of speech. The Court added:

“ W e do not suggest that labor unions which 
utilize the facilities of the National Labor Rela­
tions Board become government agents as such. 
But it is plain that with powers comparable to 
those possessed by a legislative body both to 
create and restrict the rights of those whom it 
represents the public interest in the good faith 
exercise of that power is very great.”  (Italics 
ours.)

Congress, it was decided by that case, could intervene 
in the affairs of a private organization if  that organi­
zation used the facilities of a Federal administrative 
agency.

The American Communications case was followed 
by Byres v. Oil Workers Union, 350 U.S. 892 (1955). 
In  that case Negro members complained that the 
union had entered into a contract with the employer 
which discriminated against them on racial grounds. 
The district Court dismissed the complaint on the 
ground that the dispute was a mere private affair. 
The Court of Appeals affirmed the dismissal in 223



68

Fed. 2d 739. On certiorari the Supreme Court re­
versed in a per curiam opinion which relies on cases 
(to be discussed later) which hold that unions that 
“ enjoy the advantages of the Railway Labor A ct”  
are subject to Constitutional restraints against racial 
discrimination. When the American Communications 
Ass’n and the Syres cases are collated it is ap­
parent that (1) Congress may be statute intervene in 
the purely private affairs of the union which “ utilizes 
the facilities of the Rational Labor Relations Board”  
and that (2) such a union may not practice racial dis­
crimination in the context of the activities performed 
under the federal statute. These restrictions on the 
private organization are not imposed because it is a 
“ government agent as such”  but because “ the author­
ity derives in part” —not wholly but in part—from 
Government’s thumb on the scales.

It is more than apparent that Government’s thumb 
is on the scales in the case of the construction of 
homes for sale under Section 203 of the Rational 
Housing Act. LHA lays that thumb on the scales in 
its administration of the mortgage insurance system. 
The practical effect of the mortgage insurance system 
is to make credit available to the operative builder for 
initial construction. Of course, that credit is an im­
portant factor in his highly proper profit making ac­
tivity. It is well to recall here that one of the defend­
ants testified that home building activities of the kind 
involved here would be “ virtually impossible”  without 
the assistance offered through the Rational Housing 
Act and FHA. Government presses its thumb on the



69

scale throughout the planning stage through the serv­
ices of land planners and subdivision valuators. The 
mortgage insurance system makes mass production 
of homes possible with its concomitant savings, and 
similar advantages, to the operative builder. The pool 
of prospective buyers is enormously expanded by the 
low down payment and low interest rates of the mort­
gage insurance system. The pledge of government 
credit stands behind the loan until it is finally paid. 
The very fact that builders have flocked to take ad­
vantage of provisions of the National Housing Act 
and FH A services is eloquent testimony of the advan­
tages they offer them. The short of the matter is that 
from the time a particular tract is conceived until it 
goes on the market the activities of FH A redound to 
the advantage of the operative builder and he recog­
nizes, and capitalizes on, that fact by proudly an­
nouncing that he has “ F H A ”  homes for sale. The 
National Labor Relations Act and the National Labor 
Relations Board offer no more advantages to the 
union, in its sphere, than the National Housing Act 
and Federal Housing Administration offer to the 
operative builder in his functioning.

Gfovernment’s thumb on the scale advantages the 
builder and government also momentarily vests in him 
the power to make an initial determination as to 
whether or not a prospective buyer may secure the 
benefits of the mortgage insurance system. He has the 
power to accept, or reject, the application for purchase 
of a home of the kind involved in this case. I f  he ac­
cepts it the prospective buyer has the opportunity to



70

qualify for mortgage insurance; if  he rejects it the 
prospective buyer is frustrated. With that great power 
goes great responsibility. When it is exercised as the 
defendants have exercised it in Sacramento county it 
vests in them the authority to impose racial residential 
segregation—an authority denied to the legislature 
by Buchanan v. Warley, 245 U.S. 60; to the courts by 
Shelley v. Kraemer, 334 U.S. 1, and to administrative 
agencies by Banks v. Housing 'Authority, 120 Cal. 
App. 2d 1. Exercised in the manner they claim is 
proper it gives defendants the authority to create a 
non-statutory class of persons composed of plaintiff 
and those for whem he sues and exclude them from 
the benefits of the mortgage insurance system insofar 
as their particular housing is concerned. Moreover, 
authority exercised in the manner which they claim 
as their right vests in defendants the power to dis­
criminate against Negro members of the very class 
defined by Congress as eligible for mortgage insur­
ance.

Neither Congress nor the state legislature nor any 
administrative officer of local, state or federal gov­
ernment could engage in the racially discriminatory 
conduct indulged in by the defendants. And while it 
is true that defendants are not “ government agents 
as such”  it is just as evident that in the context of 
their activities in reference to home building under 
Section 203 of the National Housing Act and in refer­
ence to FH A they possess what were described in the 
American Communications case as “ powers compar­
able”  to those possessed by administrative agencies of



71

government. They possess those “ comparable powers”  
by virtue of Federal statute and by virtue of their use 
of the facilities of FHA. Situated as they are in that 
respect defendants cannot exercise their authority to 
deprive plaintiff of the benefits of the mortgage insur­
ance system. The restraint thus imposed is particu­
larly appropriate because “ Distinctions based on color 
or ancestry are utterly inconsistent with our tradi­
tions and ideals”  (Murphy, J., concurring in Hira- 
bayashi v. United States, 320 U.S. 81, 110) and be­
cause the Constitutional interdiction of discrimina­
tion is “ reduced to a concrete statutory command 
when cases involve race or color which is wanting in 
every other case of alleged discrimination.”  (Railway 
Mail Handlers v. Cor si, supra.)

The remedy sought by plaintiff in this case is also 
dictated by the holdings of the United States Supreme 
Court in a series of decisions involving the attempts 
of railroad unions and carriers to discriminate against 
Negro employees. Carriers and unions alike were sub­
ject to provisions of the Railway Labor Act and used 
the facilities of the Railway Labor Board. The first 
of these cases was Steele v. L <& N Railroad Go., 323 
U.S. 192. There the union which was the statutory 
bargaining agent for Steele, a Negro, entered into a 
contract which had the effect of excluding Negroes 
from certain jobs. He sued the carrier to restrain it 
from enforcing the contract. The Court granted re­
lief, saying:

“ W e think the Railway Labor Act imposes upon
a statutory representative of the craft at least



72

as exacting a duty to protect equally its members 
as the Constitution imposes upon a legislature to 
give equal protection to the interests of those for 
whom it legislates.”

The Court predicated its decision upon the fact that 
Congress could not have intended, in a constitutional 
sense, to give the union the privilege of discrimina­
tion. I f  Congress had so intended, the Court said, 
Constitutional questions would at once have arisen. 
In his concurrence, Justice Murphy said that the case 
invoked the protection of the Fifth Amendment.

The rationale of the Steele case is that where Con­
gress vests what amounts to legislative authority in a 
group of persons that authority must be exercised 
within the Constitutional framework of equal protec­
tion and due process. Applied to the case at bar, the 
Steele case teaches us that Congress is restrained by 
the Fifth Amendment from intending a discrimina­
tory purpose in its legislative enactments and that a 
private organization, or individual, is stripped of his 
privilege of exercising racial discrimination within the 
context of activities in which his power to act flows 
from federal statutes. In our case, the defendants are 
exercising the power to accept or reject applicants 
who seek to avail themselves of the benefits of the 
mortgage insurance system. Their power to perform 
that function flows from the National Housing Act 
and from their use of FH A facilities. Under those 
circumstances they are performing a function compar­
able to that performed by an administrative officer of 
government. The same duty not to discriminate on a



73

racial basis is levied on tliem as is exacted of the 
state officer. In the terms of our case, the defendants 
can no more impose a racial test and thus deny plain­
tiff the benefits of the mortgage insurance system 
than the local public housing agency in the Banks case 
could impose a like racial test and deny the applicant 
the benefits o f public housing legislation.

The Steele case was followed by Tunstall v. Broth­
e rh o o d 323 U.S. 210, which also involved a discrimi­
natory agreement between the union and the carrier. 
The defendant was the union itself which was also 
TunstalPs statutory bargaining agent. Essentially the 
same relief was given as in the Steele case. The Court 
added that the right claimed by Tunstall to be free 
from discrimination was a “ federal right implied 
from the statute” —in that case the Railway Labor 
Act. The case is important here because it recognizes 
and underscores the claim plaintiff makes in the case 
at bar that his right to be free from racial discrimi­
nation in seeking to secure the benefits of the mort­
gage insurance system is a “ federal right implied 
from the statute” — in his case the National Housing 
Act. Plaintiff here is entitled to the same judicial 
protection as that afforded Tunstall.

The latest in the series of railroad cases is Railway 
Trainmen v. Howard, 343 U.S. 768 (1952). The case 
differs from the prior cases because the defendant 
union was not Howard’s statutory bargaining agent 
and on the surface of the matter owed him no duty 
whatever. In fact, Howard was a member of another 
union. The carrier and the defendant brakemen’s



74

union entered into an agreement under which the jobs 
formerly held by porters were given to the brakemen 
and the porters were notified that they would be dis­
charged. Howard was a porter. He sued to enjoin 
the 'brakemen’s union from accomplishing the terms 
of the contract and relief was ordered by the Supreme 
Court which said:

“ Bargaining agents who enjoy the advantages of 
the Railway Labor Act must execute their trust 
without lawless invasion of the rights of others.”

The District Court was ordered to “ enjoin petition­
ing union from the use of contract or any other simi­
lar bargaining device to oust Negro train porters” .

Justice Minton entered a vigorous dissent in which 
he correctly pointed out that Howard had been “ dis­
criminated against by the carrier at the behest of the 
Brotherhood”  and added that he did not “ under­
stand that private parties may not discriminate on 
the grounds of race.”  His dissent points up the fact 
that the brakemen’s union was a private organiza­
tion and that it was not the statutory or voluntary 
bargaining agent of the train porters. It owed no 
duty to Howard as an individual. It was prohibited 
from discriminating against Howard and other Ne­
groes solely because it “ enjoyed the benefits of the 
Railway Labor A ct” . That enjoyment was described 
by the Court as “ a trust”  and the rationale of the 
case is that where power is thrust into the hands of 
a private person or organization that power cannot 
be used to effect a “ lawless invasion of the rights of 
others” —the lawless invasion in that case being the



75

attempt to discriminate on racial grounds against 
train porters. In the case at bar, the defendants who 
owe no duty to plaintiff as an individual but who 
“ enjoy the advantages”  of the National Housing Act 
and who use the facilities of FH A  cannot effect “ a 
lawless invasion”  of the right of plaintiff to secure 
advantages of the mortgage insurance system.

The Syres case, which we have previously discussed, 
relied on the Steele, Tunstall and Howard cases as 
authorities, and the Supreme Court thought that the 
principles enunciated in those cases were so firmly 
established that a per curiam opinion was all that was 
necessary. When these cases are read in chronological 
order and construed together it is apparent that they 
evidence a growing awareness on the part of the 
courts that (1) private organizations or individuals 
are not exempt from constitutional prohibitions 
against racial discrimination merely because they are 
private but that in each instance an inquiry must be 
made into the function they perform in relation to 
government; (2) that when a private organization 
or individual is entrusted by government with power 
“ comparable”  to that exercised by the legislative, ju­
dicial or executive branches of government the pri­
vate organization or individual can no more indulge 
in racially discriminatory conduct than the comparable 
branch of government ; (3) that whenever a private 
organization or individual “ enjoys the advantages”  
of a Federal statute he is a trustee for government 
power and must “ execute (that) trust without law­
less invasion of the rights of others” , and that indul­



76

gence in racial discrimination is “ a lawless invasion”  
of the rights of the Negro and (4) that the Courts 
will enjoin attempts of private organizations and 
individuals to impose racial discrimination under the 
conditions just set forth.

In the case of labor relations, Congress decided to 
effectuate its purposes through application of stat­
utes to labor unions and employers. Those statutes 
provided administrative facilities of the Railway La­
bor Board and the National Labor Relations Board 
which were designed to further the purposes of the 
legislation. It was motivated by what it determined 
were sound governmental objectives. The ultimate 
objects of its solicitude were the individual workmen 
and employers affected. Choice of labor unions and 
employers as the instrumentalities through which 
Congress decided to implement its policy-objectives 
was the obvious expedient in the field of employee- 
employer relations.

In the case of housing, Congress decided to effec­
tuate its purposes through application of the Na­
tional Housing Act to individual, and corporate build­
ers and local public housing agencies. That statute 
provides the administrative facilities of FHA, in the 
instance of housing designed for sale, and of P H A 
in the case of housing designed for rental to low in­
come families. Here, too, Congress was motivated 
by what it determined were sound governmental ob­
jectives, and the ultimate objects of its solicitude 
were the individuals eligible for housing. Choice of 
individual and corporate builders and local public



77

housing agencies is an expedient that was within Con­
gressional discretion in the field of housing.

Thus when the parallel of purpose between the 
labor statutes and the housing statutes is examined 
and the comparability of administrative agencies is 
noted it becomes evident that the constitutional prin­
ciples developed in the labor cases are applicable in 
this case. The conclusion is inescapable that private 
persons or organizations who “ enjoy the advantages”  
of the National Housing Act and who “ use the facili­
ties”  of FHA without bowing to the Constitutional 
mandate against racial discrimination.

THE CONSPIRACY.

The classic definition of conspiracy is that it is a 
combination or agreement by two or more persons 
to accomplish some unlawful purpose, or to accom­
plish a lawful purpose by unlawful means. 8 Holds- 
worth, History of English Law (1926) 381. The ele­
ments of an action for civil conspiracy are:

(1) The agreement or combination (formation of 
the conspiracy).

(2) An overt act (operation of the conspiracy), 
and

(3) Damage or injury to plaintiff resulting from 
acts in furtherance of the common design. Mox, Inc., 
v. Woods, 202 Cal. 675.

Once the existence of the conspiracy is established, 
each member thereof is liable for all acts done by



78

each co-conspirator in furtherance of the common 
plan, even though he commits no unlawful act per­
sonally, and in no way reaps any benefit from the 
conspiracy. Mox, Inc., v. Woods, Supra. Evidence of 
the acts and admissions of every conspirator may be 
introduced at the trial to bind the others. Mox, Inc., 
v. Woods, Supra; Zellerbach v. Allenberg, 99 Cal. 57; 
People v. Curtis, 106 Cal. App. 2d 321; People v. 
Steccone, 36 Cal. 2d 234.

It is submitted that every element of civil conspir­
acy has been proved by plaintiff. He has shown by 
the Code of Ethics of the National Association of 
Real Estate Boards, by which code all members of the 
Sacramento Real Estate Board are bound, that at 
least up until the year 1950 an agreement did in fact 
exist between Board members not to be instrumental 
in introducing certain races or nationalities into 
neighborhoods where they had not previously lived. 
The by-laws of the Board are in evidence, and in addi­
tion to showing qualifications for membership, they 
are also competent to show the nature of the associa­
tion. People v. Sacramento Butchers’ Protective As- 
sociation, 12 Cal. App. 471.

While it is true that in 1950 the language of the 
Code of Ethics of the Board was modified to eliminate 
direct reference to race or nationality, it does not fol­
low from this that the conduct of the Board or its 
members changed thereafter. In fact, the evidence is 
that the defendant Board members follow the same 
racial policy now as they did prior to 1950. None 
of them offered evidence to show any change of



79

policy. The only inference the Court can draw from 
this is that there has been no change, and that the 
modification of the language of the Code of Ethics 
represents nothing more than verbal camouflage to 
hide a still existing evil purpose. It was ineumbent 
upon defendants to show that the conspiracy or agree­
ment relative to racial exclusion which admittedly 
existed up to 1950 ceased in that year. F.T.C. v. Ce­
ment Institute, 333 U.S. 683, 704. The time at which 
a conspiracy began and the termination date are fact 
questions. People v. Kyneete, 15 Cal. 2d 731.

Proof of the existence of a conspiracy in this case 
was also shown by the fact that the evidence sup­
ports the inference that defendants followed a con­
sciously parallel course of action in their policy of 
excluding Negroes from the housing in question. It 
is true that each defendant denied that he excluded 
Negroes, or that he knew of others who did, but the 
Court does not have to accept this testimony as the 
truth. Since none of the defendants ever made initial 
sales in their subdivisions to a Negro, and since there 
were many such persons ready, willing and able to 
purchase the housing, it is not reasonable to believe 
that a policy of racial exclusion did not exist. Mil- 
gram v. Loew’s, 192 Fed. 2d 579, 583; Theater En­
terprises v. Paramount, 346 U.S. 537, 540.

Throughout the trial it seemed to be defendants’ 
theory that plaintiff had to show “ official action” , 
or that the defendants got together and drew in blue­
print form their common plan, scheme or design. This 
is obviously not the law. Conspiracies are almost uni­



80

versally proved by circumstantial evidence. People v. 
Campbell, 123 Cal. App. 2d 262.

It is submitted that proof of the existence and 
discriminatory character of the Code of Ethics of the 
Board, together with the fact that no initial sales 
of subdivision housing was made to Negroes is suffi­
cient to prove the conspiracy. When we add to this 
the letter from Board member, Eugene Williams, to 
Board member Tom Kiernan urging exclusion of 
“ inharmonious groups”  from a certain community, 
we have a specific act pursuant to the conspiracy. 
This letter, dated 1953, shows that no change of racial 
policy was made by Board members after 1950. This 
letter binds every member of the conspiracy to the 
same extent as if he had written it himself. 11 Cal. 
Jur. 2d 279.

The primary purpose of the National Housing Act, 
as heretofore indicated, is to facilitate the construc­
tion and sale of homes. How this purpose is accom­
plished has already been shown. It would seem that 
any course of conduct which would tend to frustrate 
the purposes of the Act is unlawful. Since it must be 
assumed that Congress intended that the Act should 
operate without discrimination on account of race, 
color or creed, it follows that any practice or policy 
of subdividers or builders which substantially ex­
cludes a whole racial group from the Federally as­
sisted new housing market is unlawful. This is clearly 
the rationale of the Steele case, supra. Thus when 
the defendants agreed to exclude Negroes from this 
market, they did in fact agree to do an unlawful 
act. Not only did they agree to do an unlawful act,



81

but they also chose an unlawful means to accomplish 
the unlawful purpose. They carried their plan into 
operation by refusing to sell such housing to Negroes, 
and such refusal amounts to an unlawful boycott. 
Duplex Printing Press Go. v. Peering, 254 U.S. 443; 
63 Yale Law Journal 1124, 1129-30.

The means chosen by the Board to carry out its 
purposes was unlawful for another reason. Assuming 
for purposes of argument only, that each member 
of the Sacramento Real Estate Board could, acting 
solely as an individual, refuse to make initial sales 
of new subdivision housing to Negroes, it does not 
follow that they may do this as an association. It is 
true that defendants deny that they have refused 
to sell such housing to Negroes, but the fact remains 
that under their own code of ethics any member 
selling to a Negro would become subject to expulsion 
from the Board. This means that members are not 
left free to sell to Negroes, or not as they voluntarily 
choose, but are coerced, intimidated or forced to prac­
tice discrimination by the rules of the Board. When 
the individuals who constitute the Board, through 
the coercive Code of Ethics, compel others to also 
discriminate against Negroes, the means chosen to ef­
fectuate the discrimination become illegal and the law 
affords a remedy. Boutwell v. Marr, 71 Vermont 1.

In the Boutwell case the Granite Manufacturing 
Association decided not to deal with a certain granite 
polishing company, and imposed fines upon members 
who dealt with it. The Court held that the system 
of fines and other punitive action for dealing with 
the particular company amounted to intimidation and



82

coercion of members of the association, and was hence 
actionable. The Court went on to say that the victim 
had some security in the fact that some members of 
the association, if left to their own devices, would 
probably deal with him, put that security was de­
stroyed when the association, by its rules and regula­
tions, applied pressure to bring all into line.

There can be no serious doubt on the question as to 
whether plaintiff has suffered injury and damage by 
the conduct of defendants. In addition to the damage 
which has come to plaintiff and the class he repre­
sents by reason of inability to purchase housing in 
certain areas on the liberal terms and conditions of 
equality with other citizens in federally assisted proj­
ects, plaintiff has suffered specific pecuniary damage. 
Had it not been for the refusal of defendants to sell 
plaintiff a house, he would have been building up an 
equity in a home of his own rather than collecting 
rent receipts in which there is no equity. I f  there is 
any uncertainty in plaintiff’s proof of damage, as said 
by the United States Supreme Court in Bigelow v. 
RKO Radio Pictures, Inc., 327 H.S. 251,

‘ ‘The most elementary conception of justice and 
public policy require that the wrongdoer shall 
bear the risk of the uncertainty which his wrong 
has created . . . That principle is an ancient one 
and is not limited to proof of damages in anti­
trust suits, although their character is such as fre­
quently to call for its application.”

See Speegle v. Board of Fire Underwriters, 29 Cal. 
2d 34, 46.



83

DEFENDANTS’ CONDUCT CONTRAVENES NATIONAL 
AND STATE PUBLIC POLICY.

No area of our community has the impact upon the 
structure and nature of community life and attitudes 
as that wielded by housing. The racial complexion of 
a housing area invariably dictates the racial com­
plexion of recreational, health and welfare facilities, 
educational and other public and semi-public institu­
tions. These patterns then color and shape the racial 
attitudes of our people; either toward racial under­
standing and tolerance or toward suspicion, disrespect 
and antagonism.

The public policy of this state and nation abhors 
racial discrimination. A  government’s policy upon 
such matters can be readily ascertained by reference 
to the language in its laws, its judicial decisions and 
in the policy directives issued by its executives.

That our national public policy rooted, as it is, in 
our fundamental law, frowns upon and condemns ra­
cial discrimination is beyond debate. In a statement 
commemorating National Brotherhood Week, 1951, 
President Eisenhower called racial bigotry spiritual 
treason. Mr. Justice Murphy said, concurring in 
Ilirabayashi v. U.S.:

“  Distinctions based on color and ancestry are ut­
terly inconsistent with our traditions and ideals.”  
(320 U.S. 81 (a) 110.)

Such a policy has consistently been operative in limit­
ing and controlling governmental or state action in 
relation to the public. It has been extended to Federal 
governmental activity. Bolling v. Sharpe, 347 U.S.



84

497. It has interdicted state legislative acts as in Monk 
v. Birmingham, 341 U.S. 940, and Buchanan v. War- 
ley, 245 U.S. 60, and state judicial action as in Sipes 
v. McGhee, 334 U.S. 1. Our national policy as reflected 
by the interpretation of the Fourteenth Amendment, 
has recently resulted in the destruction of concept that 
racial equality can he assured within a framework of 
enforced racial separation in education. Brown v. 
State, 347 U.S. 483, in golf, 250 U.S. 879; beach, 76 
S. Ct. 133, and swimming pool facilities 347 U.S. 971 
as well as in transportation facilities, both interstate, 
Morgan v. Virginia, 328 U.S. 373, and intrastate 77 
S. Ct. 145.

Equally with our national government, California 
has reflected a public policy condemning racial dis­
crimination through its statutes, decisions and admin­
istrative orders. As stated by Mr. Justice Frankfurter 
in Hughes v. Superior Court, 339 U.S. 460 (a) 463: 

“ California has been sensitive to these problems 
and decisions of its Supreme Court have been hos­
tile to discrimination on the basis of color.”

The determination of our legislature to have the 
consideration of race as a factor in the extension or 
withholding of opportunities is amply reflected by ref­
erence to our statutes. See: Secs. 51-54, Civil Code 
(prevents racial segregation or discrimination in 
places of public accommodation) ; Secs. 8271-8272, Edu­
cation Code (bans use of discriminatory texts and 
references by teachers) ; Sec. 14123, Education Code 
(prevents racial discrimination in employment of 
teachers by school districts); Sec. 8400, Government



85

Code (prevents racial discrimination in applications 
for public employment) ; Sec. 1735, Labor Code (pre­
vents racial discrimination by private employers on 
public works); Sec. 1777.6, Labor Code (forbids dis­
crimination in selection and training of apprentices 
on public w orks); Sec. 11628, Insurance Code (pro­
hibits racial discrimination by public liability automo­
bile insurance carriers); Sec. 130, Military and 
Veterans Code (prohibits racial segregation or dis­
crimination in the National Guard) ; Sec. 365, Penal 
Code, (makes it a crime for any hotel, inn or common 
carrier to discriminate because of race, color or 
creed); Sec. 19, W elfare and Institutions Code (bans 
discrimination on account of race or color in distribu­
tion of welfare benefits).

Similarly our Courts have consistently struck down 
racially discriminatory practices even when rising out 
of a quota or racially proportionate system. Hughes v. 
Superior Court, 32 Cal. 2d 850.

In  the Hughes case, the California Supreme Court 
condemned the objective of pieketers seeking racially 
proportionate hiring by a retail store labelling it “ an 
arbitrary discrimination upon the basis of race and 
color alone . . . they would, to the extent of the fixed 
proportion, make the right to work for Lucky de­
pendent not on fitness for the work nor an equal right 
of all, regardless of race, to compete in an open mar­
ket, but, rather, on membership in a particular race. ’ ’

This clear reflection of California policy, judicially 
enunciated, should be no less applicable to a situation 
where the opportunity to purchase a home was not



86

made dependent upon one’s ability to pay, “ nor on 
an equal right of all, regardless of race, to compete 
in an open market, but rather on membership in a 
particular race.”

The point to be remembered is that the Courts, by 
reason of public policy, will interdict racial discrim­
ination by private as well as by public agencies. This 
has been clearly indicated in the series of cases dealing 
with the right of Negroes to earn a living without un­
reasonable discrimination by labor unions or em­
ployers. The leading case in this regard is James v. 
Marinship Corp., 25 Cal. 2d 721. In the James case the 
union had a closed shop, but excluded Negroes from 
membership. The shipyard would not employ Negroes 
because they were not union members, and they could 
not become union members because they were Negroes. 
In condemning this situation the California Supreme 
Court said:

“ The discriminatory practices involved in this 
case are, moreover, contrary to the public policy 
of the United States and this state . . . Although 
the constitutional provisions have been said to 
apply to state action, they nevertheless evidence 
a definite national policy against discrimination 
because of race or color. ’ ’

In  a later case petitioners for a writ of mandate to 
compel their re-admission to a labor union alleged 
that they had been expelled because they were Ne­
groes. The Court held that if the allegation be true it 
would be actionable as violative of the public policy 
of this state. Griffin v. I.L.W.U., 109 Cal. App. 2d 823.



87

The rationale of these decisions is that the state has 
an interest in preventing use of concentrated economic 
power to deprive arbitrarily any citizen or group of 
citizens, because of race or color, of the right to em­
ployment. W e submit that the Court intervenes here 
because of the importance of employment to each citi­
zen and to society as a whole. The entire community 
would suffer if large numbers are excluded from the 
labor market because of race or color. The hordes of 
unemployed would likely become public charges. Can 
it be said that the right to shelter is not equally im­
portant as the right to a job? There appears to be no 
logical reason why public policy of the state will at 
one and the same time prohibit racial discrimination 
by combinations of laborers and employers, and allow 
such discrimination by combinations of real estate sub­
dividers and lenders. To allow either would be to con­
done the use of concentrated economic power to inflict 
mortal wounds upon minority ethnic groups, and 
eventually upon our democratic society itself.

There can be no real doubt that the defendants in 
this case represent a concentration of economic power. 
By their own testimony they have constructed most of 
the new residential housing erected in Sacramento 
County during the past ten years. That they have 
used this concentrated economic power to exclude Ne­
groes from the new housing market is also clear. In 
legal contemplation, the discriminatory code of ethics 
of the Sacramento Real Estate Board is not unlike 
the labor union by-laws and practices excluding Ne­
groes involved in James v. Marinship, supra. The



Court here should follow the enlightened path charted 
in that case.

PLAINTIFF AS A THIRD PARTY BENEFICIARY.

Since February 15, 1950, one of the rules and regu­
lations of the Federal Housing Administration (Rule 
14, Administrative Rules and Regulations under Sec­
tion 8 of the Rational Housing Act) which each person 
securing an insurance guarantee from said agency 
must agree in writing to comply, reads as follows: 

“ The mortgage shall contain a covenant by the 
mortgagor (the one securing the guarantee) that 
until the mortgage has been paid in full, or the 
contract of insurance otherwise terminated, he 
will not execute or file for record any instrument 
which imposes a restriction upon the sale or oc­
cupancy of the mortgaged property on the basis 
of race, color or creed.”

The question arises, is the plaintiff a third party 
beneficiary under this covenant? In deciding whether 
a contract inures to the benefit of a third party, the 
test is whether an intent so to benefit appears from 
the terms of the contract. LeBallister v. Redwood 
Theatres, 1 C.A. 2d 447.

The inclusion of a covenant in the contract between 
the Federal Housing Administration and the mortga­
gor clearly manifests an intent to make contractual 
benefits inure to plaintiff and the class to which he 
belongs. Plaintiff, though not a party thereto, may 
sue as a third party beneficiary to enforce his rights 
under the contract.



89

The only reasonable interpretation of Rule 14 and 
Section 8 of the Rational Housing Act, is that its pur­
pose was to make housing developed with the assist­
ance of the Federal Housing Authority available to 
members of minority groups. Any other construction 
would render this rule idle and meaningless. Since 
racial restrictive covenants were by the time of the 
adoption of the rule unenforceable, no purpose could 
be served by merely preventing their recordation. 
FH A  must have had some useful purpose in mind. 
That purpose was to make certain that plaintiff’s class 
would no longer suffer racial discrimination in the 
administration of the program. Even though the 
agreement between the F H A  and the lender is not for 
the exclusive benefit o f plaintiff it need not be exclu­
sively for his benefit in order to give him rights 
thereon. Hartman Ranch Co. v. Associated Oil Co., 10 
Cal. 2d 232; Miles v. Miles, 77 C.A. 219; LeBallister v. 
Redwood Theatres, 1 C.A. 2d 447. The agreement here 
would appear to be expressly for the benefit of plain­
tiff’s class, and a person not a party to a contract may 
sue for its enforcement where it is made expressly for 
his benefit and has not been rescinded. Civil Code, Sec. 
1559 ; Dick v. Woolson, 106 C.A. 2d 415; Bacon v. 
David, 9 C.A. 83; Woodhead Lumber Co. v. E. G. Nie­
mann Investments, 99 C.A. 456; Garrott v. Baker, 5 C. 
2d 745.

Plaintiff’s testimony and testimony of other mem­
bers of his class (Negroes) shows that they visited 
approximately every subdivision in. the County of Sac­
ramento seeking to purchase new homes. Although



90

they were willing, ready and able to purchase said 
new homes, no subdivision home in the County of 
Sacramento up to the date o f this trial, has been sold 
to a Negro by any defendant on its initial sale. This 
fact evidences a breach, on the part of the mortgagors, 
of the spirit and intent of Rule 14 under Section 8 of 
the National Housing Act. The breach of said cove­
nant has, as a result, excluded Negroes from participat­
ing in the program of Federal assistance to American 
citizens in the purchase of new homes. Plaintiff as a 
member of the class for whose protection Rule 14 and 
other non-discriminatory agreements were promul­
gated may sue for its breach.

THE CONSPIRACY IN RESTRAINT OF SALE.

Section 16720 of the California Business and P ro­
fessions Code (The Cartwright Act) provides in part 
as follows:

“ A  trust is a combination of capital, skill or acts 
by two or more persons for any of the following 
purposes:

(a) To create or carry out any restrictions in 
trade or commerce;

(b) To limit or reduce the production or in­
crease the price of merchandise or of any com­
modity ;

(c ) To prevent competition in manufacturing, 
making transportation, sale or purchase of mer­
chandise, produce or any commodity.”

The evidence shows that there are approximately
8,000 Negroes in Sacramento, California, a city of ap­



91

proximately 170,000 people. This means that Negroes 
make up roughly 5% of the total city population. It 
should become apparent at once that any plan, practice 
or policy which arbitrarily eliminates 5% of the popu­
lation from the new housing market tends to restrain 
trade, limit production of houses, increases the price 
of old houses available to the excluded group, and 
tends to prevent competition in the sale and purchase 
of new housing by Negroes.

W e submit that defendants, by their refusal to sell 
to Negroes, have formed a combination of capital, 
skill or acts to do the very things forbidden by the 
Cartwright Act, I f  the combined action is in restraint 
of trade, the law is violated, regardless of the objec­
tives of the parties. Kold Kist v. Amalgamated Meat 
Gutters, supra ; People v. Sacramento Butchers’ Pro­
tective Association, 12 Cal. App. 47; Overland Pub. 
Co. v. H. S. Crocker Co., 193 Cal, 109.

For the restraint of trade effected by the conduct of 
defendants, plaintiff is entitled to the two-fold dam­
ages provided by Section 16750 of the Business and 
Professions Code, and in addition thereto, injunctive 
relief. It is well settled in our law that whenever a 
remedy, be it statutory or otherwise, is inadequate, 
injunctive relief will be granted. Such relief is also 
available to prevent multiplicity of suits. Kold Kist 
v. Amalgamated Meat Cutters, supra. Orloff v. Los 
Angeles Turf Glut), 30 Cal. 2d 110. The Kold Kist case 
was an. action brought by a private concern under the 
Cartwright Act, and injunctive relief was granted 
even though the Act itself made no reference to in­



92

junctions. The Orloff case was an action to prevent 
continued discrimination under Section 51, et seq., of 
the Civil Code, and again an injunction was granted 
even though the statute provided for money damages 
only.

Since plaintiff’s objective is to purchase a home, no 
amount of money damages would he an adequate rem­
edy for him. He can only get meaningful relief by 
a decree of this Court enjoining defendants from re­
fusing to deal with him on a basis of equality with 
other citizens in the sale and purchase of housing con­
structed pursuant to Federal programs. Since every 
act of refusal to sell plaintiff a house gives rise to a 
new cause of action, an inj miction is needed to prevent 
a multiplicity of judicial proceedings. Sec. 526 (6) 
Code of Civil Procedure.

It  thus appears that the conduct of defendants is 
actionable under the Cartwright Act and should be 
enjoined.

THIS IS A PROPER CLASS ACTION.

The use of the class action to vindicate civil rights, 
in both state and Federal Courts, is so commonplace 
that its propriety is not open to serious doubt.

A  class action was held proper in Banks v. Housing 
Authority, 120 Cal. App. 2d 1 (1953). Plaintiffs 
sought mandate on behalf of themselves and other Ne­
groes similarly situated to compel the local public 
housing agency to rent them existing units in low-rent 
public housing. As we have pointed out the thrust of



93

the action was against the imposition of a racial test 
to determine their eligibility for such rental. It was 
argued there, as here, that disparate personal circum­
stances of individual Negroes precluded use of the 
class action. The Court summarily rejected this argu­
ment with the remark that the propriety of a class suit 
in such a situation is so well settled that the point 
did not merit further discussion. Hearing was denied 
by the State Supreme Court and certiorari was denied 
by the United States Supreme Court.

In urging the class character of this action we agree 
that the claim of plaintiff for damages does not fall 
within that category. I f  he is permitted recovery that 
recovery must be for himself alone. It may be that 
defendants had the right to ask that plaintiff separ­
ately state and number his count for damages. I f  so, 
they should have demurred specially. They cannot now 
be heard to complain. However, this Court must segre­
gate the damage issue in any judgment it may render.

Some recent examples of the use of class actions in 
civil rights cases are: Brown v. Board of Education, 
347 U.S. 483; Siveatt v. Painter, 339 U.S. 629; Mc- 
Laurin v. Board of Regents, 332 U.S. 629; Detroit 
Commission v. Lewis, 226 Fed. 2d 180; Romero v. 
Weakley, 226 Fed. 2d 399.

d e f e n d a n t s  a r e  f o r b id d e n  to  d is c r im in a t e

IN THE CASE OF A DE FACTO TOWN.

The complaint alleged, and the evidence showed, 
that North Highlands, the area in which plaintiff first



94

attempted to purchase a home, was in all respects and 
purposes like any other town or city in the state. The 
evidence showed that North Highlands contains 
schools, recreation areas and similar public facilities 
and that it has been assigned a postal designation. The 
facts are that it is not incorporated and was not in­
corporated at the time plaintiff, and others, made re­
quests to purchase homes there. With the single 
exception of lack of incorporation it does not differ 
in any degree from any other town or city of its size 
in the state.

Justice Robert H. Jackson wrote shortly before his 
death:

“  It is my basic view that whenever any organiza­
tion or combination of individuals, whether in a 
corporation, a labor union or other body obtains 
such economic control or legal advantage that it 
can control or in effect govern the lives of other 
people, it is subject to the control of Government 
. . . for the Government can suffer no rivals in 
the field of coercion. Liberty requires that coer­
cion be applied to the individual, not by other 
individuals but by the Government . . . ”  ( The 
Supreme Court in the American. System, Robert 
H. Jackson, 1955.)

An example of the application of the doctrine just 
enunciated by Justice Jackson is furnished by Marsh 
v. Alabama, 326 U.S. 501. The case went to the Su­
preme Court on the appeal of the defendant, Marsh, 
a Jehovah’s Witness, who had been convicted by the 
state of a charge of criminal trespass. The trespass 
consisted of attempting to distribute literature on the



95

sidewalks of Chickasaw, an entirely company-owned 
town, without a permit from the owners of the town. 
Alabama law required her to get a permit before go­
ing on private property.

Miss Marsh claimed that the First Amendment pro­
tected her right of free speech and that the Fourteenth 
Amendment applied to protect her against the action 
of the state in trying to prevent her from exercising 
her First Amendment freedom of speech.

The Court reversed her conviction. In reaching this 
conclusion, the Court held in essence that the Four­
teenth Amendment was applicable to the activities of 
the private company which owned the town since it 
was performing the functions of a municipality.

A reading of the opinion demonstrates that the 
gravamen of the decision is rooted in the fact that the 
company is not a “ private”  company, in a Constitu­
tional sense, but “ govern(s) a community of citizens” . 
Remove that fact from the logical structure of the 
opinion, and the conclusion will not stand. I f  the com­
pany had been within its rights in seeking to exclude 
the defendant after due warning, the state could prop­
erly have convicted her for trespassing. I f  the State 
had not been involved and the company had excluded 
Miss Marsh from the streets of the company-owned 
town, the First Amendment would still have been vio­
lated.

Indeed, as the Court saw the question in the Marsh 
case, it was from this perspective rather than that of 
state action in the ordinary sense. “ Our question,”  
wrote Justice Black for the Court, “ narrows down to



96

this: Can those people who live in or come to Chicka­
saw be denied freedom of press and religion simply 
because a single company has title to the town?”  The 
Court answered “ No.”  Since all the homeowners act­
ing together, acting through a municipal corporation, 
could not have done what the company had sought to 
do, neither could the company, acting in effect as a 
municipal corporation, bar Miss Marsh f  rom the town. 
That is the only reason given to support the conclu­
sion that the state could not convict her for violating 
a statute which by its express terms forbade trespass 
on private property.

What the Court decided in the Marsh case was that 
the rights of the private corporation—not those of the 
state—had become circumscribed by the Constitutional 
rights o f others. The decision is a logical development 
of a path first taken by the Supreme Court at a time 
when the Fourteenth Amendment was “ almost too re­
cent to be called history” . (Slaughter House Cases, 16 
Wall. 36, 71; 1873). There the Court said that the “ one 
pervading purpose found in (all of the Civil War 
Amendments), lying at the foundation of each, and 
without which none of them would have been sug­
gested”  to be ‘ The security and firm establishment”  
of the freedom of the Negro and “ the protection of 
the newly made citizen from the oppressions of those 
who had formerly exercised unlimited dominion over 
him” . As we have shown, the logic of that principle 
is not limited to discrimination by state officials, act­
ing pursuant to statute, or even to state officials vio­
lating state law, (Screws v. U. S., 325 U.S. 91), but



97

extends as well to private persons exercising govern­
ment-like powers.

It is, of course, settled that all of the people of 
North Highlands could not have enacted an ordinance 
excluding Negroes from purchasing homes in that 
town. (Buchanan v. Warley, 145 U.S. 60). Nor can the 
individual builder, whether acting by himself or in 
concert with other builders. For, as pointed out by 
Justice Black:

“ It is clear that had the people of Chickasaw 
owned all the homes, and all the stores, and all 
the streets, and all the sidewalks, all those owners 
together could not have set up a municipal or­
dinance completely barring the distribution of 
religious literature. Ownership does not always 
mean complete dominion. The more an owner, for 
his advantage, opens up his property for use by 
the public in general, the more do his rights be­
come circumscribed by the statutory and constitu­
tional rights of those who do use it.”  (Marsh v. 
Alabama, supra, 505, et seq.)

The law in this phase of the case is as simple as 
this: a community, whether it exercises that power 
through all of the owners of property within its con­
fines or through one or two owners momentarily vested 
with complete ownership, cannot exclude persons 
solely because of race or color.



98

FEDERAL STATUTES PROTECT PLAINTIFF’ S RIGHT TO 
PURCHASE THE HOUSING IN QUESTION.

Prior to the passage of the Fourteenth Amendment, 
Congress took steps to protect the right of Negroes to 
own and occupy real property. It  provided:

“ All citizens of the United States shall have the 
same right in every state and territory, as is en­
joyed by white citizens thereof, to inherit, pur­
chase, lease, sell, hold and convey real and 
personal property.”  (8 USGA 42).

Back of this statute lay the realization that no man 
is free in a free enterprise economy unless he can com­
pete in the open market for the purchase and sale of 
commodities. That is especially true of land which is, 
by its nature, a limited kind of a commodity. (Morris 
v. United States, supra.)

The statute was re-enacted after the Fourteenth 
Amendment to remove all possible doubts of its con­
stitutionality, although it seems to us that no such 
question could arise since one of the indispensable 
elements of the freedom guaranteed under the Thir­
teenth Amendment is the freedom to buy and sell in 
the open market. (.Morris v. United States, supra.)

Defendants argue that this statute is a restraint on 
the states and has no applicability to private individ­
uals. That issue need not concern us in the context 
of this case. As we have shown, the benefits of the 
National Housing Act are extended to all citizens. The 
Act does not purport to have been enacted for the 
benefit of white persons and, indeed, Congress could 
not have intended such a discriminatory purpose.



99

(.Steele v. L  Ac N Railway Go., supra). Nor does the 
Federal Housing Administration, as the administra­
tive agency set up under the Act, claim the right to 
deny “ the benefits of the mortgage insurance system”  
to Negroes. Indeed it professes the very opposite, as 
it is Constitutionally required to do.

Thus we have a situation in which private individ­
uals, acting singly or in concert in our case, seek to 
interfere with the right lodged in plaintiff to avail 
himself of the benefits of Federal legislation.

The efficacy of the statute was tested in United 
States v. Waddell, 112 U.S. 76. There individuals were 
indicted for interfering with the right of a Negro to 
purchase property under the Homestead Act, a Fed­
eral statute. The indictment was laid under what is 
now 18 USCA 241 which levied penalties in the case 
of a conspiracy to injure or oppress any citizen “ in 
the free exercise or enjoyment of any right or privi­
lege secured to him by the constitution or laws of the 
United States.”  In reversing a District Court order 
of dismissal, the Supreme Court said:

“ The right here guaranteed is not a mere right of 
protection against personal violence. This, if  the 
result of an ordinary quarrel or malice would be 
cognizable under the laws of the State and its 
courts. But it is something different from that. 
It  is the right to remain on the land in order to 
perform the requirements of the acts of Congress, 
and according to its rules, perfect incipient title 
. . . The United States can protect individuals 
against acts which prevent performance under 
such a law.”  ( United States v. Waddell, supra).



100

Of course, the prosecution in that case was a criminal 
one, but the importance of the case here is that it 
holds that “ The United States can protect individuals 
against acts which prevent”  an individual from secur­
ing the benefits of Federal legislation. This case recog­
nizes that since a Federal statute, the Homestead Act, 
gives a specific method of obtaining land, this right 
can he protected by the Federal Government against 
the acts of private individuals.

By the enactment of the National Housing Act, the 
Federal Government has shown a concern about the 
living conditions of its citizens. Since it has granted 
the privilege of mortgage insurance to purchasers, 
free from any racial restrictions, the Federal law—8 
USCA 42—protects plaintiff in the exercise of “ the 
same right . . .  as is enjoyed by white citizens . . .  to 
. . . purchase”  real property made available under 
Section 203 of the National Housing Act. That right 
to “ purchase”  cannot be secured to plaintiff without 
protection of the threshold right to obtain the benefits 
of the mortgage insurance system, just as in the Wad­
dell case the Negro had to remain on the land to per­
fect title.

It is plain, beyond all argument, that in Sacramento 
County the defendants in this case did not extend the 
“ same”  right to plaintiff, and to members of the class 
on whose behalf he sues, as they did to white pur­
chasers. Their discrimination is condemned by Fed­
eral statute, quite without reference to any question 
of state action.



101

TO WHAT RELIEF IS PLAINTIFF ENTITLED?

The final procedural question is the kind of relief 
available to plaintiff in the event he prevails.

1. As to Damages: Damages for the denial of a 
civil right, per se, are hard to fix. In the case of pub­
lic facilities, Section 52 of the Civil Code fixes the 
minimum at one hundred dollars. The Section speci­
fically empowers the Court to add to that sum what­
ever damages it may find. In comparable federal 
litigation where an amount in excess of three thousand 
dollars is always claimed in order to confer jurisdic­
tion it has been held that such a claim is permissible. 
See: McDonald v. K ey, 224 Fed. 2d 608; Holmes v. 
City of Atlanta, U. S. District Court, Northern Dis­
trict Ga., No. 4621 (reported 1 Race Relations Law 
Reporter, 1950). There are other elements of damage 
to plaintiff. He has since been required to rent a 
dwelling for himself and family at $65.00 per month, 
a sum equal to or in excess of the amount he could 
have been paying to acquire ownership in a home if 
defendants, Horgan, Frye, and Herraty and Hannon 
had not denied his request in the first instance. There 
can be no doubt that the refusal as to plaintiff was 
willful and deliberate and based on his race and color. 
Under those circumstances he is entitled to punitive 
damages. (Sec. 3294, Civil Code).

2. As to injunctive relief: Injunctive relief is ap­
propriate in cases of this kind. See: James v. Marin- 
ship, 25 Cal. 2d 721; Williams v. Boilermakers, 27 Cal. 
2d 586; Thompson v. Moore Drydock Co., 27 Cal. 2d



102

595. It is also noteworthy that injunctive relief has 
been sought in the leading cases in Federal Courts 
where vindication of civil rights has been sought. See: 
Brown v. Board of Education, supra; etc.

3. As to declaratory relief: The right to declara­
tory relief is statutory: Sections 1060, 1062, Code of 
Civil Procedure. Such relief may be sought in a class 
action: Maxwell v. Branglur, 99 Cal. App. 208, 222 
Pac. 2d 910, where it is said that the interests of the 
representatives must be identical with that of other 
members of the class. It is the general rule that in an 
action for declaratory relief the complaint is sufficient 
if  it sets forth facts showing the existence o f a con­
troversy relating to the legal rights and duties of the 
respective parties. Bennett v. Hibernia, 47 AC No. 20, 
547, 557; Anderson v. Stanbury, 38 Cal. 2d 707, 717; 
Essick v. Los Angeles, 34 Cal. 2d 614, 624. An action 
for declaratory relief may include other counts: 
Coruccini v. Lambert, 113 Cal. App. 2d 486. Nor may 
declaratory relief be denied merely because other rem­
edies are available: Columbia v. B e Toth, 26 Cal. 2d 
753. The statutes should be liberally construed: Hess 
v. Country Club Park, 213 Cal. 613. The underlying 
purpose of the statute is to provide the parties with 
a knowledge of their rights and obligations: Kessloff 
v. Pearson, 37 Cal. 2d 609. Again, it is worth observing 
that suits involving civil rights in federal Courts 
have made extensive use of declaratory relief. See: 
Lucye v. Adams, 134 Fed. Supp. 235; Frasier v. Board 
of Trustees, 134 Fed. Supp. 589; Whitmore v. Stilwell, 
227 Fed. 2d 187; Romero v. Weakley, supra. See also: 
McKinney v. Blankenship, 282 S.W. 2d 691 (Texas).



103

In the case at bar, defendants joined issue directly 
on the declaratory relief count and it is obvious that 
this issue requires adjudication.

CONCLUSION.

W e have discussed many theories which we think 
clearly indicate that judgment must be for plaintiff 
in this case. The facts and the law are in his favor. 
We have also discussed the type of relief we think 
plaintiff should receive. These are (1) Injunction, 
(2) Declaration of Rights, and (3) Damages.

W e wish to stress in conclusion, however, that we 
do not now ask, nor have we ever asked, that defend­
ants, or any of them, be enjoined specifically from 
refusing to sell plaintiff Oliver Ming, or any other 
specific person, a house. All we ask in this connection 
is that defendants be enjoined from refusing to offer 
housing referred to herein to plaintiff and other mem­
bers of the ethnic group to which he belongs, solely 
because of race or color. No defendant would be com­
pelled to sell any person a specific house, but all de­
fendants would be enjoined from using race or color 
as a test of eligibility for purchase of such housing. 
Just as in Banks v. Housing Authority, supra, race 
as a test for eligibility for rental of public housing 
was invalidated, here we seek to eliminate race as a 
test for eligibility for purchase of housing, construc­
tion of which was made possible by the mortgage in­
surance features of the National Housing Act.



104

W e submit that plaintiff is entitled under the law 
and evidence for the declaration of rights specified 
in the prayer of his complaint. Certainly a contro­
versy exists between the parties, and the Court should 
dispose of it by its Decree setting forth the respective 
rights and duties of those involved.

It is our contention that any of the causes of action, 
except perhaps the one seeking merely declaratory re­
lief, would entitle plaintiff to damages. Plaintiff is 
entitled to compensatory as well as punitive damages.

So far as we have been able to discover, this case is 
one of first impression. No case has been tried on the 
merits wherein a Court was called upon to meet 
squarely the issues presented here. Yet the conflict 
indicated by this litigation is far from being an iso­
lated encounter. It, in reality, represents another step 
by an American Negro, in a representative suit, in 
the direction of total freedom from restraints imposed 
because of race or color by Government or those act­
ing pursuant to Governmental powers, or with the 
Government’s “ thumb on the scale” .

When viewed in this context it is easy to see that 
all other steps toward freedom made by American Ne­
groes in recent years may be nullified if sub-dividers 
and builders are permitted, with Governmental par­
ticipation and assistance, to construct whole new com­
munities and exclude Negroes and other minority 
ethnic groups from them. In these racially segregated 
communities the schools will naturally be segregated 
by race or color, since children go to school in the



communities in which they live. In the now famous 
school desegregation cases the United States Supreme 
Court has declared that enforced racial segregation 
in schools may inflict injury upon children from which 
they might never recover. Could the injury be less 
if the racial segregation results from the bigotry of 
subdividers, lenders and builders rather than from the 
order of a school board or a legislative act? It is from 
the fact of legally enforced separation that the feel­
ings of inferiority and hostility springs, and the child 
will hardly know or care who enforces it. All he knows 
is that because of his race or color he is set apart from 
other children.

Not only will schools inevitably be segregated by 
race unless housing segregation is interdicted, but such 
racial segregation will follow in parks, playgrounds 
and all other public facilities.

It is true that this nation has become great, while at 
the same time harboring some racial segregation and 
discrimination. W e submit, however, that this great­
ness has come about despite rather than because of 
racial segregation. To the whole world we hold out 
the hope that mankind can live free from restraints 
based upon such arbitrary factors as race or color. 
Up to this time men throughout the world have ac­
cepted our leadership because of the essential appeal 
of our fundamental doctrines of equality of oppor­
tunity for all people, without regard to race, color or 
creed. It is imperative that we should reconcile our 
principles with our practices. W e are fully aware of 
the fact that democracy in its pure form is strong



106

medicine, but in an adulterated form it is no longer 
democracy.

Judgment should be for plaintiff as prayed.
Dated, March 20,1957.

Respectfully submitted, 
N a t h a n i e l  S . C o l l e t ,

L o r e n  M il l e r ,

F r a n k l i n  H. W i l l i a m s , 

Attorneys for Plaintiff.
C l a r e n c e  B. Ca n s o n ,

G e o r g e  D. C a r r o l l ,

C h a r l e s  A. J a m e s ,

C h a r l e s  W il s o n ,

Of Counsel.