Anthony v. Community Loan & Inv. Corp.

• Decision Date: 03 October 1977
• Docket Number: No. 75-3023,75-3023
• Parties: 22 UCC Rep.Serv. 1215 Lena Mae ANTHONY, Plaintiff-Appellant, v. COMMUNITY LOAN & INVESTMENT CORPORATION d/b/a Blazer Financial Services, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1363

559 F.2d 1363

22 UCC Rep.Serv. 1215

Lena Mae ANTHONY, Plaintiff-Appellant, v. COMMUNITY LOAN & INVESTMENT CORPORATION d/b/a Blazer

Financial Services, Defendant-Appellee.

No. 75-3023.

United States Court of Appeals,

Fifth Circuit.

Oct. 3, 1977.

Rehearing and Rehearing En Banc Denied Nov. 14, 1977.

E. Lundy Baety, Joseph H. King, Jr., Atlanta, Ga., for plaintiff-appellant.

Arthur Gregory, Richard F. Williamson, Atlanta, Ga., Michael C. Lynch, Aristar Management, Inc., Miami, Fla., for defendant-appellee.

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

Before WISDOM, CLARK and RONEY, Circuit Judges.

RONEY, Circuit Judge:

In this Truth-in-Lending action plaintiff-borrower, Ms. Lena Mae Anthony, appeals from the district court's summary judgment in favor of defendant-lender, Community Loan & Investment Corporation of Georgia. We affirm. The disclosure statement Ms. Anthony signed properly described the security interest created, the property covered by the security interest, the charges for credit life and disability insurance, and the rebate method for any unearned finance charges.

In Truth-in-Lending parlance, the present transaction is a "closed-end, nonsale credit transaction." Section 1639 of the Truth-in-Lending Act, 15 U.S.C.A. §§ 1601 et seq., governs what information a lender must disclose to each borrower. Section 1639(a)(8) provides in part that a lender must set forth "(a) description of any security interest held or to be retained or acquired by (them) in connection with the extension of credit . . . ." Acting pursuant to its authority under section 1604, the Federal Reserve Board has adopted regulations pertinent to whether a lender has complied with section 1639(a)(8). See generally 12 C.F.R. §§ 226.1 et seq. (1976) ("Regulation Z"). Two sections have principal relevance to this case. ¹

Section 226.2(gg) of Regulation Z defines "security interest" to include "any interest in property which secures payment or performance of an obligation" and sets forth a nonexhaustive list of examples which fall within this general definition: "security interests under the Uniform Commercial Code, real property mortgages, . . . and other consensual or confessed liens whether or not recorded, mechanic's, materialmen's, artisan's, and other similar liens, . . . (and) any lien on property arising by operation of law. . . ." ² The security interests recognized by the Federal Reserve Board can be divided into three classes or categories: consensual security interests, confessed security interests, and security interests arising by operation of law. As a means of prescribing more explicitly what section 1639(a)(8) requires, section 226.8(b)(5) provides that each lender must describe or identify

the type of any security interest held or to be retained or acquired by the creditor (i. e., the lender) in connection with the extension of credit, and a clear identification of the property to which the security interest relates or, if such property is not identifiable, an explanation of the manner in which the creditor retains or may acquire a security interest in such property which the creditor is unable to identify. . . . If after-acquired property will be subject to the security interest, or if other or future indebtedness is or may be secured by any such property, this fact shall be clearly set forth in conjunction with the description or identification of the type of security interest held, retained or acquired.

Under this regulation, a lender must make these disclosures as to the security agreement: (1) the type of security interest held, retained, or acquired; (2) the property of the borrower which serves or will serve as the collateral; and (3) whether any future obligations which the borrower may incur to the lender will be secured by any such property.

I. The Description of Defendant's Security Interest

Contrary to the plaintiff's argument, the description of the security interest contained in the security agreement was sufficient to meet the requirements of 12 C.F.R. § 226.8(b)(5). The security agreement provided that the "Debtor grants a security interest to the Secured Party in the following described personal property: . . ." ³ and that, in case of default, the secured party "may exercise any rights and remedies granted a Secured Party by the Uniform Commercial Code." Plaintiff argues that these phrases should be read separately and, so read, do not adequately disclose that the agreement is limited to a consensual security interest as defined in the UCC. We discern no such ambiguity.

The term "security interest" is specifically defined by Georgia law as "an interest in personal property or fixtures which secures payment or performance of an obligation. . . ." Ga.Code Ann. § 109A-1-201(37). The law governing a security interest in personal property is provided by the UCC. Ga.Code Ann. § 109A-9-102(1)(a); Brown v. Jenkins, 135 Ga.App. 694, 218 S.E.2d 690 (1975).

One major advantage of the UCC over pre-Code law was that it introduced a single device called a "security interest" to replace the plethora of devices that had previously existed, each with its own terminology and body of law. White and Summers, Uniform Commercial Code § 22-1 at 756 (1972). To require a secured party to specify some type of security interest in personal property other than one governed by the UCC serves no meaningful function, except to reintroduce the variety of terms Georgia has sought to encompass within a single term and a single body of law. See Ga.Code Ann. § 109A-1-102.

Further, the agreement here specifically refers to the UCC. It is suggested that the provision referring to the UCC remedies of the secured party would be redundant if only a UCC interest had been created by the words "security interest." Such a reading is improbable, and the explicit reference to rights and remedies under the UCC is clear evidence that a UCC security interest was intended by the parties.

The Federal Reserve Board has interpreted a reference to a "security interest under the Uniform Commercial Code" to be a sufficient description of a type of security interest as required by 12 C.F.R. § 226.8(b)(5). FRB Official Staff Interpretation Letter of Nov. 22, 1976, 1976 CCH CONS.CRED. GUIDE P 31,491. This interpretation is entitled to great weight. Philbeck v. Timmers Chevrolet, Inc., 499 F.2d 971, 976 (5th Cir. 1974). The Code reference fully defines the legal rights of the parties. The agreement here, which mentions both the UCC and the personal property secured, stands in marked contrast to ambiguous language which the FRB letter finds inappropriate, such as "a security interest established by our contract" or "a security interest through our agreement."

The Truth-in-Lending Act was adopted in order to give the consumer as much information as possible about his or her credit transaction. The inclusion of a term such as "chattel mortgage" would be misleading as to the nature of the security, the transaction by its terms being controlled by UCC law, rather than any other state law which might specifically apply to chattel mortgages. The consumer has received all the information necessary about this security interest.

The conclusion that the description of the security agreement in this case satisfies the Act is not contrary to the cases cited by the plaintiff. In Pennino v. Morris Kirschman & Co., 526 F.2d 367 (5th Cir. 1976), this Court held that in an open-ended transaction a disclosure that the creditor was "granted a security interest in the merchandise purchased . . . in accordance with existing state laws" was insufficient to satisfy section 226.7(a)(7), the portion of Regulation Z which applies to open-ended transactions. This transaction, however, was not open-ended, and is not governed by section 226.7(a)(7). See 15 U.S.C.A. §§ 1637, 1639. Also, Pennino held only that language similar to that in the instant case was insufficient to create a vendor's privilege under Louisiana law, a state which has not adopted the UCC. It did not hold that the security agreement did not describe a "type" of security interest.

Similarly, Starks v. Orleans Motors, Inc., 372 F.Supp. 928 (E.D.La.1974), aff'd without opinion, 500 F.2d 1182 (5th Cir. 1975), discussed the question of whether the transactions between the parties gave rise to a vendor's privilege under Louisiana law. Once the court determined such an interest had been created, it held that under section 226.8(b)(5), as a statutory lien, it must be disclosed. In contrast, there is no claim in the instant case that more than a UCC security interest was obtained by the creditor. The issue is whether the description of such a security interest was sufficient.

Pollock v. General Finance Corp., 535 F.2d 295 (5th Cir. 1976), rehearing denied, 552 F.2d 1142 (5th Cir. 1977), dealt with whether a conditionally worded after-acquired property clause met the requirement of the third portion of section 226.8(b)(5) that security interests in after-acquired property be clearly set forth. It did not discuss the description of a "type" of security interest.

Accordingly, we hold that reference to a security interest in personal property and to rights and remedies under the UCC was sufficient to apprise the borrower of the "type of security interest" created by the security agreement in this case.

II. The Description of the Property of Plaintiff

The security agreement created a security interest in lender's favor in the following property of borrower:

(1) All furniture, appliances and other household goods and chattels located in or about Debtor's residence . . . .

(4) All accessions to, substitutions for, replacements of and proceeds from the described collateral.

(I)f this Security Agreement includes other personal property, Debtor(s) covenant(s) they will not remove such other personal property from their residence, without the written consent of the...