Rea v. Wichita Mortg. Corp., 82-1301

• Decision Date: 19 October 1984
• Docket Number: No. 82-1301,82-1301
• Citation: 747 F.2d 567
• Parties: Phillip T. REA and Judy Rea, Plaintiffs-Appellees, v. WICHITA MORTGAGE CORPORATION and Wichita Falls Savings Association, Defendants- Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 567

747 F.2d 567

Phillip T. REA and Judy Rea, Plaintiffs-Appellees, v. WICHITA MORTGAGE CORPORATION and Wichita Falls Savings

Association, Defendants- Appellants.

No. 82-1301.

United States Court of Appeals, Tenth Circuit.

Oct. 19, 1984.

Jack Banner of Wichita Falls, Tex., for defendants-appellants.

Kenneth I. Jones, Jr., Oklahoma City, Okl. (James S. Matthes, Jr., with him on brief) of Eagleton, Nicholson, Jones & Blaney, Oklahoma City, Okl., for plaintiffs-appellees.

Before McKAY, McWILLIAMS and SEYMOUR, Circuit Judges.

SEYMOUR, Circuit Judge.

Wichita Mortgage Corporation (Wichita Mortgage) and Wichita Falls Savings Association (Wichita Savings) appeal from summary judgment granted in favor of plaintiffs, Phillip and Judy Rea. The Reas sued under section 5-202(2) of Oklahoma's version of the Uniform Consumer Credit Code (UCCC), Okla.Stat. tit. 14A, Secs. 1-101 et seq. (1981 & Supp.1983), seeking to render void a loan to the Reas made by Wichita Mortgage. Defendants responded with a variety of defenses, including that they were entitled to the bona fide error defense found in section 5-202(7) of the statute. In granting summary judgment for the Reas, the district court failed to address the bona fide error defense. In view of this defense, we conclude that the district court improperly granted summary judgment. Accordingly, we reverse.

I. BACKGROUND

Wichita Savings is chartered in Texas and is both state and federally regulated. Wichita Mortgage, also a Texas corporation, is a wholly-owned subsidiary of Wichita Savings. Until the end of 1978, Wichita Mortgage was licensed in Oklahoma to make, hold, sell, and assign first lien mortgages and notes on residential dwellings. It maintained one Oklahoma office staffed by a manager, two loan processors, and occasionally some clerical help. From 1969 to September 1978, Wichita Mortgage made over 18 million dollars worth of loans secured by residential real estate to individuals in Oklahoma.

Judy Rea was one of the two loan processors in the Oklahoma office. Her duties were to take loan applications, verify information in the applications, calculate interest rates, prepare documents, and perform other loan-related activities. During late 1977, Rea and her husband wanted to purchase a home under construction in Oklahoma City, and they sought a first mortgage loan from Wichita Mortgage. A loan application and other necessary papers were prepared and filed, and in May 1978, the parties entered into a loan agreement. Wichita Mortgage subsequently assigned the Reas' note and mortgage to Wichita Savings. Within a few months of signing the agreement, Judy Rea quit her job with Wichita Mortgage and began work at another financial institution. After she became delinquent on the loan note, she and her husband filed this suit demanding that all monthly payments be returned, that the loan be declared void, and that her interest and attorneys fees be paid, all based on the proposition that the loan violated Oklahoma's UCCC.

The Wichita loan agreement carries a contractual interest rate of 9.75 percent, but the actual interest rate on the loan was something in excess of ten percent. Under section 3-502 of the Oklahoma UCCC,

"[u]nless a person is a supervised financial organization or has first obtained a license from the Administrator authorizing him to make supervised loans, he shall not engage in the business of

(1) making supervised loans ...."

Okla.Stat. tit. 14A, Sec. 3-502. A supervised loan is

"a consumer loan in which the rate of the loan finance charge exceeds ten percent (10%) per year as determined according to the provisions on loan finance charge for consumer loans (Section 3-201)."

Id. Sec. 3-501(1). Under the consumer remedies part of the UCCC,

"[i]f a creditor has violated the provisions of this act applying to authority to make supervised loans (Section 3-502), the loan is void and the debtor is not Id. Sec. 5-202(2). The Reas contend they are entitled to the section 5-202(2) remedies because Wichita Mortgage was not a supervised lender entitled to charge an effective interest rate in excess of ten percent.

obligated to pay either the principal or loan finance charge. If he has paid any part of the principal or of the loan finance charge, he has a right to recover the payment from the person violating this act or from an assignee of that person's rights who undertakes direct collection of payments or enforcement of rights arising from the debt."

On cross-motions for summary judgment, the district court granted the Reas' motion and denied defendants'. On appeal, defendants argue that the UCCC does not apply to traditional first mortgage home loan transactions like this one, and that if it does, they are exempt from the supervised loan provisions of the UCCC. Alternatively, if they are governed by the supervised lender provisions, defendants assert that the district court improperly rejected their defense of estoppel, and that they are entitled to a bona fide error defense.

II.

EXEMPTIONS

Defendants argue that the UCCC does not, and was never intended to, apply to the "traditional first mortgage home loan transaction." Brief of Appellants at 32. They rely on an amendment to Okla.Stat. tit. 14A, Sec. 1-202, which delineates the exclusions from the UCCC. In 1980, the Oklahoma legislature added an exclusion for

"loans made to enable the debtor to build or purchase a residence or to refinance such loan when made by a lender whose loans are supervised by an agency of the United States or made by a Federal Housing Administration approved mortgagee unless the loan is made subject to this act by agreement ...."

Id. Sec. 1-202(5).

Prior to the 1980 amendment, these kinds of loans were clearly covered by Oklahoma's UCCC unless the interest rate was below ten percent. ¹ See Comment to Okla.Stat.Ann. tit. 14A, Sec. 1-202. In Oklahoma, statutes are considered to have prospective operation only unless the legislative intent to the contrary is clearly expressed or necessarily implied from the language used. State Board of Registration for Professional Engineers & Land Surveyors v. Engineered Coatings, Inc., 542 P.2d 508, 509 (Okla.1975); Lincoln National Life Insurance Co. v. Read, 194 Okla. 542, 156 P.2d 368, 378 (1944), aff'd, 325 U.S. 673, 65 S.Ct. 1220, 89 L.Ed. 1861 (1945); Swatek Construction Co. v. Williams, 177 Okla. 305, 58 P.2d 585, 587 (1935); Good v. Keel, 29 Okla. 325, 116 P. 777, 777 (1911). The Oklahoma legislature can clearly express its intent to make a statute or an amendment retroactive when it chooses to do so. See, e.g., Okla.Stat. tit. 10, Sec. 60.18(2) (1981). We can discern no such intent in section 1-202(5) of the UCCC.

Defendants also argue that another Oklahoma statute exempts them from the supervised loan provisions of the UCCC. They rely on what they contend is a conflict between sections 3-502 of the UCCC and section 65 of the Oklahoma Savings and Loan Code of 1970, Okla.Stat. tit. 18, Secs. 381.1 et seq. (1981). ²

Section 381.65 provides:

"1. A foreign association which does not now have a certificate of authority from the Commissioner, or a federal association which does not have permission from the Federal Home Loan Bank Board to operate in this state, shall not be deemed to be transacting or engaging in business in this state, for the purposes of this act, by reason of the purchase or acquisition, holding or sale of loans secured by mortgages on Oklahoma real estate, or participating interests therein, or the foreclosure thereof and acquiring of title to such mortgaged real estate in satisfaction of the mortgage indebtedness."

Id. Section 3-502 of the UCCC provides:

"Unless a person is a supervised financial organization or has first obtained a license from the Administrator authorizing him to make supervised loans, he shall not engage in the business of

(1) making supervised loans; or

(2) taking assignments and undertaking direct collection of payments from or enforcement of rights against debtors arising from supervised loans."

Defendants essentially argue that if their actions are not in violation of the Savings and Loan Code, they cannot be in violation of the UCCC. We disagree. The fact that certain activities are not prohibited under one statute does not imply that the same actions may not violate other state statutes. The Savings and Loan Code and the UCCC are two separate and distinct statutes, enacted in furtherance of different legislative policies and objectives. Section 381.65 expressly provides that the actions delineated there will not be "deemed to be transacting or engaging in business ... for the purposes of this act." (Emphasis added). To the extent that defendants are absolved from any wrongdoing, it is clear that such absolution extends only to liability under the Savings and Loan Code.

III. COMPLIANCE WITH THE ACT

Defendants also contend the district court erred in finding that Wichita Mortgage was not a supervised financial organization. ³ The court based its decision on a finding that Wichita Mortgage "does not receive deposits in Oklahoma under authority of the laws of either Oklahoma or the United States," within the meaning of Sec. 1-301(17). Rec., vol. II, at 441. Defendants argue that this is a finding of "fact," that a genuine factual dispute exists over this question, and that the district court committed reversible error in granting summary judgment in favor of the Reas.

This argument misconstrues the nature of the district court's finding, which focused not on the issue of whether deposits were received but on the source of authority for such receipt by Wichita Mortgage. Defendants claimed that their compliance with domestication requirements of the Oklahoma Business Corporation Act, Okla.Stat. tit. 18, Secs. 1.1 et seq. (1981), constituted sufficient authorization to receive deposits within the meaning of section 1-301(17) of the UCCC. After reviewing the relevant statutes...