Boncyk v. Cavanaugh Motors

• Decision Date: 22 March 1982
• Docket Number: 77-2866 and 77-3075,Nos. 77-2965,s. 77-2965
• Citation: 673 F.2d 256
• Parties: John BONCYK, Plaintiff-Appellee, v. CAVANAUGH MOTORS, a partnership, and Bank of America, a corporation, Defendants, Cavanaugh Motors, Defendant-Appellant. Sherry HUGHES, Plaintiff-Appellee, v. WALT MARTIN MOTORS, INC., and Bank of America, a corporation, Defendants, Walt Martin Motors, Inc., Defendant-Appellant. John BONCYK, Plaintiff-Appellee, v. CAVANAUGH MOTORS, a partnership, and Bank of America, a corporation, Defendants, Bank of America, a corporation, Defendant-Appellant. Sherry HUGHES, Plaintiff-Appellee, v. WALT MARTIN MOTORS, INC., and Bank of America, a corporation, Defendants, Bank of America, a corporation, Defendant-Appellant. John BONCYK, Plaintiff-Appellant, v. CAVANAUGH MOTORS, a partnership, and Bank of America, a corporation, Defendants-Appellees. Sherry HUGHES, Plaintiff-Appellant, v. WALT MARTIN MOTORS, INC., and Bank of America, a corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 256

673 F.2d 256

John BONCYK, Plaintiff-Appellee, v. CAVANAUGH MOTORS, a partnership, and Bank of America, a

corporation, Defendants,

Cavanaugh Motors, Defendant-Appellant.

Sherry HUGHES, Plaintiff-Appellee, v. WALT MARTIN MOTORS, INC., and Bank of America, a

corporation, Defendants,

Walt Martin Motors, Inc., Defendant-Appellant.

John BONCYK, Plaintiff-Appellee, v. CAVANAUGH MOTORS, a partnership, and Bank of America, a

corporation, Defendants,

Bank of America, a corporation, Defendant-Appellant.

Sherry HUGHES, Plaintiff-Appellee, v. WALT MARTIN MOTORS, INC., and Bank of America, a

corporation, Defendants,

Bank of America, a corporation, Defendant-Appellant.

John BONCYK, Plaintiff-Appellant, v. CAVANAUGH MOTORS, a partnership, and Bank of America, a

corporation, Defendants-Appellees.

Sherry HUGHES, Plaintiff-Appellant, v. WALT MARTIN MOTORS, INC., and Bank of America, a

corporation, Defendants-Appellees.

Nos. 77-2965, 77-2866 and 77-3075.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 10, 1980.

Decided Sept. 28, 1981.

Rehearing and Rehearing En Banc Denied March 22, 1982.

Robert A. Goldstein, Oakland, Cal., for Boncyk.

Ernest S. Pierucci, San Mateo, Cal., argued, for Cavanaugh Motors; Harold C. Wright, San Mateo, Cal., on brief.

Joseph S. King, San Francisco, Cal., argued, for Bank of America; Joseph Thornhill, San Francisco, Cal., on brief.

Appeal from the United States District Court for the Northern District of California.

Before HUG and TANG, Circuit Judges, and MURRAY ^*, Senior District judge.

HUG, Circuit Judge:

This appeal involves two consolidated cases in which purchasers of used cars brought actions against the car dealers and the financing bank as creditors for violations of the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601-1693. Plaintiff Sherry Hughes agreed on June 19, 1974, to purchase a used car from defendant Walt Martin Motors ("Martin"). Plaintiff John Boncyk agreed on July 26, 1974 to purchase a used car from defendant Cavanaugh Motors ("Cavanaugh"). Hughes and Boncyk each received and signed identical contracts entitled: "Security Agreement (Purchase Money): Motor Vehicle (Incorporating Federal Truth in Lending Disclosures)." This agreement and disclosure statement was prepared by and furnished to Martin and Cavanaugh by defendant Bank of America (the "Bank").

The case presents the following issues: (1) Is the Bank a creditor for purposes of the TILA? (2) If so, was its status as creditor properly identified? (3) Did failure to disclose the dealer differential as an element of the finance charge violate the Act? (4) Did failure to disclose insurance charges as part of the credit agreement violate the Act? (5) Did failure to disclose the existence of an acceleration clause constitute a violation? (6) If any of these substantive violations occurred, what was each creditor's liability to make the disclosure? (7) Was the award of attorneys' fees to plaintiffs proper?

The district court found that Cavanaugh and Martin were credit arrangers as defined by 15 U.S.C. § 1602(f) and 12 C.F.R. § 226.2(h) and (s). It found that the Bank was a credit extender under 15 U.S.C. § 1602(f) and Regulation Z, 12 C.F.R. § 226.2(s). Whether creditor status was adequately identified, and whether such a failure creates liability under the TILA, were not considered. The court found no violation of the TILA with respect to disclosure of the elements of the finance charge and of insurance charges. It concluded that failure to disclose the acceleration clause did violate the TILA. The dealers and the Bank were held jointly and severally liable for that violation. The district court awarded damages of twice the finance charge, as well as costs and attorneys' fees, to the plaintiffs.

I

The Bank contends it has no liability for claimed violations of the TILA because it is not a creditor. ¹ Regulation Z defines a creditor as "a person who in the ordinary course of business regularly extends or arranges for the extension of consumer credit." 12 C.F.R. § 226.2(s). The Bank claims that it is not covered by this definition because it merely accepted the assignment of a completed credit agreement between the buyers and the dealers. ²

The district court, in its detailed findings of fact, found that at the time of the transactions in question, there was in effect an Automobile Dealer Agreement between both dealers and the Bank. In this agreement the Bank required each dealer to submit evidence of insurance coverage for the vehicle or of the buyer's agreement to furnish insurance. As a result of this clause, Cavanaugh and Martin required Boncyk and Hughes, respectively, to purchase insurance before driving their cars off the dealers' lots.

The district court also found that neither dealer, when making a credit sale of an automobile, ever intended to carry the paper itself. During 1974, both dealers assigned to financial institutions all their automobile credit sales contracts. The Bank was Martin's first choice for the assignment of contracts it believed the Bank would purchase. In 1974, 218 or 219 of the 403 contracts assigned by Martin were assigned to the Bank. Cavanaugh assigned to the Bank 73 of the 74 contracts for vehicles it sold on credit. The Bank accepted every contract offered it in 1974 by Martin and Cavanaugh. Even before it received any documents concerning the transaction, the Bank advised Martin that the Hughes contract met the Bank's standards for assignment. The Bank assumed that contracts written on the forms prepared and supplied by it would be assigned to it. Both contracts were assigned to the Bank on the same day the transactions took place: June 19, 1974 for the Hughes purchase, and July 26, 1974 for the Boncyk purchase.

Other circuits, when confronted with facts similar to these, have held that both the seller and the financial institution are creditors for purposes of the TILA. The rationale for finding creditor status has been expressed in two ways. First, as developed in Meyers v. Clearview Dodge Sales, Inc., 539 F.2d 511, 515 (5th Cir. 1976), cert. denied, 431 U.S. 929, 97 S.Ct. 2633, 53 L.Ed.2d 245 (1977), is the theory that there are multiple original creditors, a credit extender and a credit arranger. Second, as set forth in Joseph v. Norman's Health Club, Inc., 532 F.2d 86, 91-92 (8th Cir. 1976), is the theory that the seller acts as a "conduit" for the finance company. In reality, these two theories seem to be different ways of stating the same proposition-that in transactions such as the one in the present case, both the seller and the finance company are creditors for purposes of the TILA.

The Supreme Court recently addressed this issue in a case involving an automobile dealer and Ford Motor Credit Company, to whom sales contracts were assigned in circumstances virtually the same as in the instant case. The Court stated:

Regulation Z, promulgated pursuant to the Act, defines the term consistently with the above: " 'Creditor' means a person who in the ordinary course of business regularly extends or arranges for the extension of consumer credit ...." 12 CFR § 226.2(s). On the facts of this case, the above definition easily encompasses both the dealers and FMCC. Each dealer arranged for the extension of credit but FMCC actually extended the credit. (footnote omitted)

Ford Motor Credit Company v. Cenance, 452 U.S. 155, 101 S.Ct. 2239, 2241, 68 L.Ed.2d 744 (1981). See also Price v. Franklin Investment Co., Inc., 574 F.2d 594, 601 (D.C.Cir.1978); Hinkle v. Rock Springs National Bank, 538 F.2d 295, 297 (10th Cir. 1976); Mirabal v. General Motors Acceptance Corp., 537 F.2d 871, 874 n.1 (7th Cir. 1976).

The position of the Bank in this case is virtually identical to that of FMCC in the Cenance case. We therefore conclude that the Bank is a creditor.

II

We next consider whether the TILA was violated by a failure to identify the Bank as a creditor. Regulation Z, 12 C.F.R. § 226.6(d) requires in part:

If there is more than one creditor or lessor in a transaction, each creditor or lessor shall be clearly identified ....

In Milhollin v. Ford Motor Credit Co., 9 Cir., 588 F.2d 753 at 757, we held that the following statement was sufficient to disclose Ford Motor Credit's exact role in the transaction:

The foregoing contract hereby is accepted by the Seller and assigned to Ford Motor Credit Company in accordance with the terms of the assignment set forth on the reverse side hereof.

Seller ___

By ____________ Title ___

The use of the word "creditor" was held not to be required. Id.; accord, Sharp v. Ford Motor Credit Co., 615 F.2d 423, 426 (7th Cir. 1980); Augusta v. Marshall Motor Co., 614 F.2d 1085, 1086 (6th Cir. 1979). The Supreme Court in Ford Motor Credit Company v. Cenance, 101 S.Ct. at 2241-42, held that a statement notifying the buyer of an assignment to Ford Motor Credit Company was sufficient disclosure.

In the present case, however, the only identification of the Bank on the face of the contracts was the Bank's logo and name in the upper left corner and the provision under the "Terms of Agreement" that stated:

A. PAYMENT: Buyer promises to pay Seller at the ________ Branch of Bank of America National Trust and Savings at ________, California, the Total of Payments in the manner specified in Item 11.

This statement was not a sufficient revelation of the Bank's role in the transaction. There is no indication that the contract was to be assigned to the Bank, or of any participation by the Bank, other than as a place where the seller was to be paid. We conclude that the statement was insufficient to identify clearly the Bank as a creditor and therefore did not comply with 12 C.F.R. § 226.6(d). It is implicit in the opinion of the Court in Cenance that a failure to clearly identify each creditor is a failure to disclose which imposes liability under the TILA.

III

Hughes and Boncyk contend that there was a failure to disclose under 12...