527 F.2d 257 (3rd Cir. 1975), 75--1659, Johnson v. McCrackin-Sturman Ford, Inc.

Docket Nº:75--1659, 75--1661.
Citation:527 F.2d 257
Party Name:William JOHNSON and Joan Johnson, his wife, Appellants and Cross-Appellees, v. McCRACKIN--STURMAN FORD, INC., and Ford Motor Credit Company, Inc., Appellees and Cross-Appellants.
Case Date:December 16, 1975
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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527 F.2d 257 (3rd Cir. 1975)

William JOHNSON and Joan Johnson, his wife, Appellants and



McCRACKIN--STURMAN FORD, INC., and Ford Motor Credit

Company, Inc., Appellees and Cross-Appellants.

Nos. 75--1659, 75--1661.

United States Court of Appeals, Third Circuit

December 16, 1975

Argued Oct. 3, 1975.

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Lewis M. Taffer, Pittsburgh, Pa., for appellants and cross-appellees.

Gilbert J. Helwig, Joseph Van Buskirk, Reed, Smith, Shaw & McClay, Alexander C. Sherrard, Campbell, Thomas & Burke, Henry W. Fulton, Jr., Kenney, Stevens, Clark & Semple, Pittsburgh, Pa., for appellee, McCrackin-Sturman Ford, Inc.

Edwin L. Klett, Robert W. Doty, Eckert, Seamans, Cherin & Mellott, Pittsburgh, Pa., for Ford Motor Credit Co.

Before VAN DUSEN, MARIS and HUNTER, Circuit Judges.


JAMES HUNTER, III, Circuit Judge:

This appeal presents a question of great importance to consumers and to persons and institutions extending consumer credit in the United States. We are called upon to determine whether the Truth in Lending Act 1 and Regulation Z 2 thereunder require a creditor to disclose an acceleration clause where state law provides that the creditor must rebate the unearned portion of the finance charge. 3


On January 20, 1973, William and Joan Johnson (hereinafter 'plaintiffs') purchased a used Ford automobile from McCrackin-Sturman Ford, Inc., (hereinafter 'McCrackin-Sturman'). In order to finance the purchase of the automobile, plaintiffs entered into a retail installment contract with McCrackin-Sturman under which plaintiffs were required to pay the purchase price of the vehicle, less a down payment, and finance and other charges in 30 monthly installments. A copy of the contract and

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a disclosure statement setting forth certain of the terms of the contract were delivered to the Johnsons at the time of sale.

The contract, but not the disclosure statement, contained the following provision concerning McCrackin-Sturman's right to accelerate payment:


Time is of the essence of this contract. In the event Buyer defaults in any payment, or fails to obtain or maintain the insurance required hereunder, or fails to comply with any other provision hereof, or a proceeding in bankruptcy, receivership or insolvency shall be instituted by or against Buyer or his property, or Seller deems the Property in danger of misuse of confiscation, Seller shall have the right to declare all amounts due or to become due hereunder to be immediately due and payable and Seller shall have all the rights and remedies of a Secured party under the Uniform Commercial Code, including the right to repossess the Property wherever the same may be found with free right of entry, and to recondition and sell the same at public or private sale. Upon request, Buyer shall deliver the Property to Seller at a place designated by Seller. Seller shall have the right to retain all payments made prior to repossession and Buyer shall remain liable for any deficiency. Any personalty in or attached to the Property when repossessed may be held by Seller without liability and Buyer shall be deemed to have waived any claim thereto unless written demand by certified mail is made upon Seller within 24 hours after repossession. Buyer agrees to pay reasonable attorneys' fees (15% if permitted by law) and other expenses incurred by Seller in effecting collection, repossession or resale hereunder. Seller's remedies hereunder are in addition to any given by law and may be enforced successively or concurrently. Waiver by Seller of any default shall not be deemed a waiver of any other default. App. at 9a (emphasis added).

The disclosure statement contained a provision delineating the charges that would be assessed against plaintiffs in the event of late payment of an installment, but this provision did not treat the remedies provided in paragraph 20, supra, as charges payable in the event of late payment. 4 The disclosure statement also set forth the method for computing the portion of the finance charge that would be rebated if plaintiffs prepaid their obligation. 5

After acceptance of the contract, it was assigned by McCrackin-Sturman to the Ford Motor Credit Company (hereinafter 'Ford Motor Credit'). Plaintiffs made none of the payments required under the contract, and the automobile was ultimately repossessed by Ford Motor Credit in accordance with its rights under paragraph 20, supra.

In June 1973, plaintiffs instituted this action in the United States District Court for the Western District of Pennsylvania. The complaint alleged that the disclosure statement delivered to the plaintiffs did not comply with the Truth in Lending Act and Regulation Z thereunder, and sought statutory damages for the inadequate credit disclosures. All

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parties moved for partial summary judgment.

On May 23, 1974, the district court granted plaintiffs' motion for summary judgment against McCrackin-Sturman. 381 F.Supp. 153, 156 (W.D.Pa. 1974). The court held that McCrackin-Sturman's failure to set forth the acceleration provision in the disclosure statement was a violation of section 128(a)(9) of the Truth in Lending Act, 15 U.S.C. § 1638(a)(9) (1970), and of section 226.8(b)(4) of Regulation Z, 12 C.F.R. § 226.8(b)(4) (1975). Because of its holding concerning disclosure of the acceleration clause, the court found it unnecessary to consider the other alleged violations of the Act. Plaintiffs' motion for summary judgment against Ford Motor Credit was denied without prejudice. McCrackin-Sturman's and Ford Motor Credit's motions for summary judgment were denied.

On June 21, 1974, McCrackin-Sturman and Ford Motor Credit appealed from the district court's order of May 23, 1974 and, thereafter, plaintiffs cross-appealed from the denial of summary judgment against Ford Motor Credit. On March 4, 1975, this court dismissed the appeals for lack of an appealable order, without prejudice to the rights of the parties to apply to the district court for a determination and direction under Federal Rule of Civil Procedure 54(b). The district court, on April 16, 1975, amended its earlier order of May 23, 1974 by adding a further paragraph 4 as follows:

4. Because there is no just reason for delay, it is directed that the judgment entered against McCrackin-Sturman Ford, Inc. pursuant to this Order be a final judgment.

Thereafter, all parties appealed from the district court's amended May 23, 1974, order. Because only the grant of summary judgment against McCrackin-Sturman was certified as a final judgment under rule 54(b), we must dismiss the appeals from the other rulings contained in the May 23, 1974, order for lack of an appealable order. Fed.R.Civ.P. 54(b). As to the district court's order granting summary judgment against McCrackin-Sturman, we reverse.


The Truth in Lending Act provides for full disclosure of credit terms rather than regulation of the terms or conditions under which credit may be extended. H.R.Rep.No.1040, 90th Cong., 2d Sess. (1968). Enacted because of the divergent, and often fraudulent, practices by which credit customers were apprised of the terms of the credit extended to them, 6 the Act's avowed purpose is to assure credit customers a meaningful disclosure of credit terms, thus enabling these consumers to compare more readily the various available credit terms and thereby to avoid the uninformed use of credit. 15 U.S.C. § 1601 (1970); see Mourning v. Family Publications Serv., Inc., 411 U.S. 356, 93 S.Ct. 1652, 36 L.Ed.2d 318 (1973); Philbeck v. Timmers Chevrolet, Inc.,499 F.2d 971 (5th Cir. 1974). The Act is a remedial statute that should be construed liberally to ensure achievement of these goals. N. C. Freed Co. v. Board of Governors of Fed. Reserve Sys., 473 F.2d 1210, 1214 (2d Cir.), cert. denied, 414 U.S. 827, 94 S.Ct. 48, 38 L.Ed.2d 61 (1973).

Disclosure is a term of art under the Truth in Lending Act. The Act and Regulation Z provide that as an incident to the extension of credit, the creditor must, in most instances, furnish the credit customer with a separate disclosure statement. 7 This separate statement must set forth, in a straightforward manner and in a meaningful sequence, certain of the terms under which

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the credit is extended. It is hoped that the credit customer, armed with a list of the credit terms considered most important by Congress, will be well equipped to choose the credit contract that best fits his needs and his ability to repay the loan.

Section 128(a) 8 of the Act and section 226.8(b) 9 of Regulation Z govern disclosure of credit terms in connection with a consumer credit sale not under an open credit plan, the context in which the plaintiffs received credit from McCrackin-Sturman. No provision of either of the sections specifically requires disclosure of a creditor's right to accelerate payment upon default. However, plaintiffs argue, and the district court held, that the failure of McCrackin-Sturman to refer to the acceleration clause in the disclosure statement violated section 128(a)(9) of the Act, which requires disclosure of 'default, delinquency, or similar charges payable in the event of late payments,' and section 226.8(b)(4) of Regulation Z, which provides for disclosure of 'the amount, or method of computing the amount, of any default, delinquency, or similar charges payable in the event of late payments.'

The district court concluded that acceleration of the loan was a 'charge' within the meaning of sections 128(a)(9) and 226.8(b)(4). 381 F.Supp. at 156. In reaching that conclusion, the court relied on Garza v. Chicago Health Clubs, Inc., 347 F.Supp. 955...

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