Bulger v. Thorp Credit Inc. of Illinois, s. 78-2023

Citation609 F.2d 1255
Decision Date03 December 1979
Docket NumberNos. 78-2023,78-2024,s. 78-2023
PartiesRichard M. BULGER and Nancy L. Bulger, Plaintiffs-Appellees, v. THORP CREDIT INC. OF ILLINOIS, Defendant-Appellant. John BAUGHMAN and Cathy Baughman, Plaintiffs-Appellees, v. ITT THORP CORPORATION, Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

Barry M. Barash, Galesburg, Ill., for plaintiffs-appellees.

Aaron Kramer, William T. Kirby, Chicago, Ill., Barney Olson, II, Galesburg, Ill., William V. Altenberger, Peoria, Ill., for defendant-appellant.

Before SWYGERT, SPRECHER and BAUER, Circuit Judges.

SPRECHER, Circuit Judge.

Thorp Credit Inc. of Illinois appeals from two lower court judgments imposing liability for violations of the Truth in Lending Act, 15 U.S.C. § 1601 et seq. The questions presented in both appeals are identical: was the district court correct in concluding that Thorp violated the Act by failing to reveal on its disclosure statement a claimed security interest in boats and recreational vehicles even though the debtors had no interest in any such property at the time the transaction occurred? Alternatively, if such an interest did have to be disclosed, was that disclosure accomplished by language in the disclosure statement referring the reader to the terms of the security agreement? We conclude that such a disclosure must have been made, that the general referential language was not a sufficient disclosure, and that therefore the judgment of the district court must be affirmed.

I

On December 2, 1976, Richard and Nancy Bulger borrowed $3112.87 from Thorp Credit Inc. of Illinois. John and Cathy Baughman borrowed $1297.35 from Thorp on December 8, 1977, and $1495.15 on May 3, 1978. These three transactions were identical in all respects material to this appeal.

The loans were all documented by a security agreement and a disclosure statement. The security agreement used in each of the transactions granted a security interest in "(a)ll of the household goods, Boats and recreational vehicles now located in or about the Debtors premises . . . , all unearned credit insurance premiums and the following additional specific items of personal property. . . ." (Emphasis added). The agreements thereafter itemized a list of specific household goods subject to the security interest. The agreement also includes as security all "goods, personal property and chattels of the same or similar type or kind to that described above now owned or hereafter acquired, excepting only after-acquired consumer goods acquired more than 10 days after the date hereof."

In contrast to the security agreement, the disclosure statement reveals a security interest in "(H)ousehold Goods, Appliances, Furniture and all unearned credit insurance premiums" including after-acquired property and "excepting only consumer goods acquired more than 10 days after the date hereof." The disclosure statement does not reveal any security interest in "boats and recreational vehicles." It does, however, notify the reader to "(s)ee Security Agreement(s) for itemized list of property covered and the extent of the security interest granted to lender."

The district court granted summary judgment in favor of the debtor in each transaction reasoning that the failure to disclose an interest in boats and recreational vehicles on the disclosure statement violated 15 U.S.C. § 1639(a) (8) and the corresponding section of Regulation Z, 12 C.F.R. § 226.8(b)(5). We affirm.

II

Section 1639(a)(8) of the act requires in a consumer loan not under an open-end credit plan that the creditor disclose:

(8) A description of any security interest held or to be retained or acquired by the creditor in connection with the extension of credit, and a clear identification of the property to which the security interest relates.

15 U.S.C. 1639(a)(8).

Thorp argues that it did not violate the Act because it never "held" any security interest in boats or recreational vehicles and thus was not obligated to disclose that term of the agreement. The parties apparently concede that neither of the debtors owned any boats or recreational vehicles. Under Illinois law, an enforceable security interest is created only after the debtor has acquired some ownership interest, or "rights," in the named collateral. 1 Ill.Rev.Stat., ch. 26, § 9-203(1). Since the debtors did not have any "rights" in a boat or recreational vehicle, no security interest enforceable under Illinois law was ever created by the security agreement. Thorp therefore concludes that it never "held" any security interest subject to disclosure under section 1639(a)(8). In fact, Thorp argues that disclosure of a security interest in boats and recreational vehicles would have violated the Act by disclosing an unenforceable interest a result Thorp argues to be prohibited by our decision in Tinsman v. Moline Beneficial Finance Co., 531 F.2d 815 (7th Cir. 1976) (disclosure of an interest in an after-acquired consumer good, prohibited by state law, violates Truth in Lending Act).

Thorp construes section 1639(a)(8) far too narrowly. The Act does not require disclosure of only those security interests created and enforceable under state law as of the date of the disclosure statement. The language of the Act itself belies this result by requiring a creditor to disclose any "security interest held or to be retained or acquired." Requiring the disclosure of interests "to be retained or acquired" obviously contemplates the disclosure of interests that are not in existence on the date of the disclosure statement. 2

On the date the disclosure statements were issued, Thorp did not hold an enforceable security interest in any boats or recreational vehicles. Nonetheless, if the debtors had acquired an interest in a boat or recreational vehicle within ten days after the date of agreement, that interest would have been subject to a security interest in favor of Thorp. 3 Thus, by its terms, Thorp had an agreement which created a security interest upon the occurrence of this contingency. This potential interest in collateral is a security interest "to be retained or acquired" within the meaning of the act and therefore had to be disclosed.

This application of the Act is consistent with precedents in other circuits. In Ives v. W. T. Grant Corp., 522 F.2d 749 (2d Cir. 1975), Grant defended its failure to disclose a security interest claimed in a consumer credit agreement as unnecessary since no security interest was in fact retained. The court rejected the defense, stating:

Whether Grants actually retains a security interest is irrelevant. On its face, the contract provides for a security interest and for Grants to reveal later that there is none is hardly the type of disclosure Congress thought...

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12 cases
  • Valencia v. Anderson Bros. Ford
    • United States
    • U.S. Court of Appeals — Seventh Circuit
    • April 22, 1980
    ...not to determine whether an unidentified interest was indeed a security interest. This court's recent decision in Bulger v. Thorp Credit Inc., 609 F.2d 1255 (7th Cir. 1979), reveals that an interest may be a security interest for purposes of disclosure under the TILA even though it is not a......
  • Campbell v. General Finance Corp. of Virginia
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    ... ... agent for an insurer or insurers in the selling of credit insurance to its customers. The defendant has performed ... Tom Benson Chevway Rental and Leasing, Inc. v. Allen, 571 S.W.2d 346, 349 (Tex.Civ.App.1978), cert ...          Bulger v. Thorp Credit, Inc. and Baughman v. ITT Thorp Corp., ... ...
  • Associates Finance, Inc. v. Cedillo
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    ..."cannot be properly made on the disclosure statement due to the length of such identification." See also, Bulger v. Thorp Credit Inc. of Ill. (7th Cir. 1979), 609 F.2d 1255, 1258. A problem arises in the present case because conflicting disclosures were made on two separate documents. Admit......
  • Nesbitt v. Blazer Financial Services, Inc.
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    ...Ives v. W.T. Grant Company, 522 F.2d 749, 761 (2d Cir.1975) (citation and footnote omitted) (quoted in Bulger v. Thorp Credit Inc. of Illinois, 609 F.2d 1255, 1258 (7th Cir.1979)). Secondly, the definition of "security interest" promulgated by the Federal Reserve Board for purposes of discl......
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