Smith v. Chapman

Decision Date31 March 1980
Docket NumberNo. 77-3001,77-3001
Citation614 F.2d 968
PartiesMary S. SMITH, Plaintiff-Appellee, v. Don CHAPMAN, d/b/a Don Chapman Motor Sales, Defendant-Appellant.
CourtU.S. Court of Appeals — Fifth Circuit

Page 968

614 F.2d 968
Mary S. SMITH, Plaintiff-Appellee,
v.
Don CHAPMAN, d/b/a Don Chapman Motor Sales, Defendant-Appellant.
No. 77-3001.
United States Court of Appeals,
Fifth Circuit.
March 31, 1980.

Page 970

William R. Travis, Austin, Tex., for defendant-appellant.

James G. Boyle, Austin, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Western District of Texas.

Before JONES, BROWN and RUBIN, Circuit Judges.

JOHN R. BROWN, Circuit Judge:

On October 8, 1974, the Appellee, Mary Smith (Smith), entered into a retail installment sales contract with the Appellant Don Chapman, d/b/a Don Chapman Motor Sales (Chapman), for the purchase of a 1969 Mercury. As part of the purchase agreement Smith carried insurance on the car. Several months after the purchase, the automobile was wrecked. The insurance proceeds paid off the sum still owed to Chapman and the amount representing Smith's equity in the automobile. Smith then asked Chapman

Page 971

to provide her with a new automobile at no other charge than the continuation of her monthly payments. When Chapman refused, Smith filed this suit on July 9, 1975, alleging violations of the Truth in Lending Act, 15 U.S.C.A. § 1601, et seq. (1974 & Supp.1979) (TILA), regulations promulgated thereunder, 12 CFR § 226.1, et seq. (1979) (Regulation Z), and the Texas Consumer Credit Code, Tex.Civ.Stat.Ann. art. 5069-7.01, et seq. (1971 & Supp.1979) (TCCC). Both parties filed Motions for Summary Judgment. Following recommendations made by a Special Master, the District Court denied Chapman's Motion for Summary Judgment but granted Smith's Motion, finding that Chapman had violated three provisions of Regulation Z and two provisions of the TCCC. 1 Statutory penalties of twice the amount of the finance charges in connection with the transaction, plus attorney's fees, were imposed for violation of the federal laws and for violation of the state regulations, the entire penalty totalling four times the finance charge. 2 15 U.S.C.A. § 1640(a); Tex.Civ.Stat.Ann. art. 5069-8.01. We affirm.

I. The Purpose Of TILA And The Standard Of Compliance

The foundation of Chapman's argument is that, although he did not specifically comply with the terms of TILA and Regulation Z, he is in substantial compliance and that, since all of the terms of a contract in question were explained to and understood by Smith, Chapman has achieved the purpose of TILA and should not be penalized. The Appellant misconceives both the applicable standard for compliance with TILA, as well as the purpose of the Act.

First, the purpose of TILA is to promote the "informed use of credit . . . (and) an awareness of the cost thereof by consumers" by assuring "a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him . . .." 15 U.S.C.A. § 1601.

It is now well-settled that an objective standard is used in determining violations of TILA. It is not necessary that the plaintiff-consumer actually have been deceived in order for there to be a violation. McGowan v. King, Inc., 569 F.2d 845, 849 (5th Cir. 1978). TILA is primarily enforced through lawsuits filed by consumers acting as "private attorneys general." McGowan v. King, supra, 569 F.2d at 848-49; McGowan v. Credit Center of North Jackson, Inc., 546 F.2d 73, 77 (5th Cir. 1977); Sosa v. Fite, 498 F.2d 114, 121 (5th Cir. 1974); Thomas v. Myers-Dickson Furniture Company, 479 F.2d 740, 748 (5th Cir. 1973). In fact, consumers who are aware of the true terms of a contract are more able to see that these terms are not clearly and conspicuously disclosed on the installment sales contract form. Thus, the purpose of the Act is more readily served by allowing lawsuits by these consumers who are less easily deceived.

The remedial scheme in the TIL Act is designed to deter generally illegalities which are only rarely uncovered and punished, and not just to compensate borrowers for their actual injuries in any particular case.

Williams v. Public Finance Corp., 598 F.2d 349, 356 (5th Cir. 1979).

Second, the applicable standard is strict compliance with the technical requirements of the Act. Only adherence to a strict compliance standard will promote the standardization of terms which will permit consumers readily to make meaningful comparisons of available credit alternatives. 15 U.S.C.A. § 1601; Pennino v. Morris Kirschman and Co., Inc., 526 F.2d 367, 370 (5th Cir. 1976); Houston v. Atlanta Federal Savings & Loan Association, 414 F.Supp. 851, 855 (N.D.Ga.1976); Powers v. Sims & Levin Realtors, 396 F.Supp. 12, 20 (E.D.Va.1975).

Page 972

Strict compliance does not necessarily mean punctilious compliance if, with minor deviations from the language described in the Act, there is still a substantial, clear disclosure of the fact or information demanded by the applicable statute or regulation. This is what this Court meant in Dixon v. D. H. Holmes Company, Ltd., 566 F.2d 571 (5th Cir. 1978). In that case, we affirmed a summary judgment in favor of a defendant creditor by adopting the District Court's oral reasons for finding compliance with TILA. The District Court Judge stated that "substantial and not sacramental compliance is what is necessary," id. at 571, and that "(t)he question is not whether something is capable of semantic improvement but whether it contains a substantial and accurate disclosure . . .," id. at 573 (emphasis added). Chapman contends this opinion creates a substantial compliance standard which is in conflict with other strict compliance cases within the Circuit. We do not see any conflict of that sort. The District Court Judge in Dixon was merely saying it is not necessary to "flyspeck" the language of credit disclosures. He was not saying it is unnecessary to make the disclosure in the proper technical form and in the proper locations on the contract, as mandated by the requirements of TILA and Regulation Z.

Moreover, the Dixon case imposes an objective standard the District Court Judge looked at the provisions in question objectively and concluded that they were clearly stated. Chapman would have us hold, not only that the applicable standard of compliance is less than strict, but also that it is achieved when the debtor in question understood the terms of the contract. We reject Chapman's proposed standard of review. This brings us to each of the contract provisions at issue to determine if they are in accordance with TILA and the TCCC.

II. The "One-Sided" Requirement Of Regulation Z

The "Motor Vehicle Contract" that Smith entered into with Chapman Motors was a one-page document with terms printed on both sides of the page. The front of this document did not mention...

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