577 F.2d 291 (5th Cir. 1978), 76-3773, Edmondson v. Allen-Russell Ford, Inc.
|Citation:||577 F.2d 291|
|Party Name:||Catherine EDMONDSON, Plaintiff-Appellee, v. ALLEN-RUSSELL FORD, INC., Defendant, Ford Motor Credit Company, Defendant-Appellant.|
|Case Date:||July 28, 1978|
|Court:||United States Courts of Appeals, Court of Appeals for the Fifth Circuit|
Morton P. Levine, James R. Beach, Jr., Atlanta, Ga., for Ford Motor credit co.
Jay E. Loeb, Atlanta, Ga., for plaintiff-appellee.
Appeal from the United States District Court for the Northern District of Georgia.
Before WISDOM, GOLDBERG and RUBIN, Circuit Judges.
GOLDBERG, Circuit Judge:
This case, like Shanks v. Greenbriar Dodge, Inc., 577 F.2d 296, (5th Cir. 1978), also decided today, requires us to determine whether an assignment of returned or unearned premiums of physical damage insurance must be disclosed as a security interest under the Truth-In-Lending Act ("the Act"), 15 U.S.C.A. § 1638(a)(10) (1974), 1 and Regulation Z, 12 C.F.R. § 226.8(b)(5). 2 We hold that such assignments do constitute security interests for purposes of Regulation Z and must be disclosed. We further hold that the disclosure here was inadequate to meet the requirements of Regulation Z and the Act.
The facts in this case are straightforward. On April 24, 1975, plaintiff-appellee Catherine T. Edmondson entered into an "Automobile Retail Instalment Contract" with defendant Allen-Russell Ford, Inc. ("Allen-Russell") for the purchase of a used 1970 MG Midget automobile. The contract was subsequently assigned by Allen-Russell to defendant-appellant Ford Motor Credit Co. ("Ford"). The contract included on its face a disclosure statement as required by the Truth-In-Lending Act. Plaintiff brought suit on May 19, 1975 alleging that defendants 3 had failed to comply with the disclosure requirements of the Act and Regulation Z in several respects. Following cross-motions for summary judgment, the case was referred to Bankruptcy Judge Ezra Cohen, sitting as special master. The special master made recommendations on four issues. The district court, "find(-ing) itself in agreement with the special master's conclusion that the defendant failed to disclose the fact that it asserted a security interest in returned or unearned premiums of the automobile insurance" in violation of 12 C.F.R. § 226.8(b)(5), adopted the special master's recommendation on that issue and
awarded the plaintiff judgment in the amount of $1000 and $900 in reasonable attorney's fees against defendant Ford. It is from this order of final judgment, founded solely on the returned or unearned insurance premium issue, that Ford now appeals.
Two provisions from the combined disclosure statement and installment contract are important in the resolution of this case. Paragraph 13 on the face of the disclosure statement provides as follows:
(13) Security Interest: Seller shall have a security interest under the Uniform Commercial Code in the Property (described above) ( 4 and in the proceeds thereof to secure the payment in cash of the Total of Payments and all other amounts due or to become due hereunder.
The reverse side of the document, headed "Additional Terms and Conditions," provides in paragraph 18 5 that
Buyer hereby assigns to seller any monies payable under such insurance, by whomever obtained, including returned or unearned premiums . . . . The proceeds from such insurance, by whomever obtained, shall be applied toward replacement of the Property or payment of the indebtedness hereunder in the sole discretion of Seller.
Appellant contends, primarily, that the assignment created by paragraph 18 does not constitute a security interest and therefore need not be disclosed and, secondarily, that if the assignment is held to constitute a security interest, it is adequately disclosed in paragraph 13 on the face of the contract. We reject both contentions.
I. Creation of a Security Interest
Appellant's first argument seems to be that because the returned or unearned insurance premiums are "assigned," they cannot be the subject of a security interest. Appellant further devotes considerable effort to an analysis of the Uniform Commercial Code as enacted in Georgia to establish that assignments of proceeds of insurance are excluded from treatment as "security interests" under Georgia law.
Fortunately we need not tarry long over the complexities of Georgia's commercial law, for appellant's argument has been anticipated by a recent decision of this court. In Elzea v. National Bank of Georgia, 570 F.2d 1248 (5th Cir. 1978), we considered whether an assignment of homestead and exemption rights constituted a security interest for purposes of Regulation Z. Our discussion in Elzea is precisely apposite here:
The Truth-in-Lending Act requires a creditor to disclose a "description of any security interest held or to be retained or acquired by the creditor in connection with the extension of credit." 15 U.S.C. § 1639(a)(8). Regulation Z, promulgated by the Federal Reserve Board pursuant to authority granted in the Act, defines "security interest" and "security" to "mean any interest in property which secures payment or performance of an obligation." 12 C.F.R. § 226.2(gg). The definition also lists some interests in property that are security interests. The assignment in this case, although not specifically listed, is a security interest because it is an interest in property which secures payment of an obligation.
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