Begay v. Ziems Motor Co.

• Decision Date: 28 February 1977
• Docket Number: No. 75-1694,75-1694
• Citation: 550 F.2d 1244
• Parties: Thomas Goldtooth BEGAY, Plaintiff-Appellee, v. ZIEMS MOTOR COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1244

550 F.2d 1244

Thomas Goldtooth BEGAY, Plaintiff-Appellee, v. ZIEMS MOTOR COMPANY, Defendant-Appellant.

No. 75-1694.

United States Court of Appeals, Tenth Circuit.

Argued and Submitted May 17, 1976.

Decided Feb. 28, 1977.

Alan Taradash, Window Rock, Ariz. (Fred P. Krasner of DNA-People's Legal Services, Inc., Chinle, Ariz., on the brief), for plaintiff-appellee.

Richard L. Gerding, Farmington, N.M., (Tansey, Rosebrough, Roberts & Gerding, P.C., Farmington, N.M., on the brief), for defendant-appellant.

Before SETH and HOLLOWAY, Circuit Judges, and STANLEY, Senior District Judge. ^*

PER CURIAM.

This suit was brought under the Truth in Lending Act ¹ and Regulation Z ² to recover damages, inter alia, for alleged failure of the seller to disclose accurately and meaningfully the amount of any default, delinquency or similar charges payable in the event of late payments in connection with the plaintiff's purchase of a 1974 Ford half ton pickup truck. Our primary question is whether the acceleration provisions in the sales contract permitting the seller, on default of an instalment payment and in other events "to declare all amounts due or to become due to be immediately due and payable," and allowing the seller-creditor to retain unearned finance charges following acceleration constitute "charges" which are required to be disclosed in a manner required by the Act and the regulation.

The complaint alleged several grounds for recovery but, as the case comes to us, only the claim concerning the acceleration clause and the provision on unearned finance charges need be considered. The defendant's answer denied any violation of the Act or the regulation, while admitting the use and execution of the contract attached to the complaint. The plaintiff moved for summary judgment on the basis of an affidavit, the pleadings and a deposition on file. Defendant responded, opposing summary judgment and submitting opposing affidavits.

The trial court granted summary judgment for the plaintiff. The court's memorandum opinion found that the contract entered On the basis of the disclosure violation, judgment was entered for plaintiff for $1,000 as provided in the Act. The court said that due to the technical nature of the violation, judgment would only be given for such statutory damages and costs.

                into "contains an acceleration clause in the event of default which constitutes a charge payable on late payments.  The acceleration clause is located on the reverse side of the contract." 3  The opinion stated that no ruling was made as to other grounds for recovery claimed by the plaintiff as there appeared to be factual disputes which would require trial as to them.  The opinion concluded that "(t)he plaintiff is entitled to summary judgment on the sole ground that the form of the contract does not comply with the law and regulations."  (R. 27)
                

The contractual transaction between the parties

The facts which we feel to be material are not in dispute. They are the essentials of the transaction as alleged by the complaint and admitted by the answer.

On December 11, 1973, plaintiff Begay entered into a credit transaction with the defendant Ziems for the purchase from defendant of a new 1974 Ford half ton pickup truck. A finance charge was imposed in the transaction for the extension of credit. At the time the transaction was consummated the plaintiff was directed by an employee of the defendant to sign a document entitled "New Mexico Automobile Retail Installment Contract." The plaintiff signed the contract as directed.

On its front side, the contract provided for the purchase of the vehicle "on a deferred payment price basis . . ." for "personal" use, ⁴ "upon the terms and conditions set forth on the face and reverse sides hereof . . ." Also on the face of the contract and above plaintiff's signature there was a section entitled "DETAILS OF TRANSACTION (INCLUDING DISCLOSURES REQUIRED BY FEDERAL LAW)". ⁵ That disclosure section showed these details: a cash price of $4,327.00, with a cash down payment of $600 and a trade in of $800, making a "Total Down Payment" of $1,400; an unpaid balance on the cash price of $2,927; other charges, not including The "DETAILS OF TRANSACTION" on the front of the contract also contained provisions in paragraph 12 on "Delinquency Charges," stipulating that the buyer agreed to pay a delinquency charge of 5% or $5.00, whichever was less, on any installment in default for over 10 days, and collection expenses. Paragraph 14 on "Prepayment Rebate" provided that the buyer may prepay his obligations in full at any time prior to maturity of the final instalment and that if he does so, he shall receive a rebate of the unearned portion of the "Finance Charge." ⁶ And Paragraph 15 of the disclosures stipulated that the additional terms and conditions set forth on the reverse side were part of the contract and incorporated by reference.

any finance charges, totalled as $984.65, giving an unpaid balance and amount financed of $3,911.65; a finance charge of $951.59 and annual percentage rate of 14.55%; and a provision that the buyer agreed to pay the total of payments $4,863.24 in 35 monthly instalments of $135.09.

The relevant part of the additional terms and conditions on the reverse side of the contract, where there was no space for a buyer's signature, is paragraph 19 on "Default." ⁷ Among other things, it provided that on the occurrence of default or certain other events, the "Seller shall have the right to declare all amounts due or to become due hereunder to be immediately due and payable . . ." (Emphasis added). The paragraph further stated that the seller shall have the rights of a secured party under the Uniform Commercial Code, including the right to repossess. And it was stated that the seller has the right to retain all payments made prior to repossession "and Buyer shall remain liable for any deficiency to the extent permitted by law."

The complaint made no averment that the plaintiff was ever in default or that any assertion of the right of acceleration had been made for any reason by defendant Ziems.

The acceleration clause and the unearned finance charges

In challenging the summary judgment against it, defendant essentially argues that the trial court erred in holding that the default or acceleration provisions on the Our question concerns the requirement in the Act that in consumer credit sales not under an open end credit plan the creditor shall disclose, inter alia, "(t)he default, delinquency, or similar charges payable in the event of late payments." 15 U.S.C. § 1638(a)(9) (1970). The implementing provisions of Regulation Z further stipulate that there be disclosed ". . . (t)he amount, or method of computing the amount, of any default, delinquency, or similar charges payable in the event of late payments." 12 CFR § 226.8(b)(4) (1973). ⁸

reverse side of the contract were required disclosures. Defendant says the holding in Garza v. Chicago Health Clubs, Inc., 347 F.Supp. 955 (N.D.Ill.) and similar cases that "charges" include acceleration clauses is unsound. Defendant says that considered in the context of the phrase "default, delinquency, or similar charges," the acceleration provisions are not covered, that acceleration imposes no additional "charges" on the buyer, and thus the provisions on acceleration were not required disclosures.

In Garza v. Chicago Health Clubs Inc., supra, the court considered general definitions of the term "charges," and the purpose of the Act and the regulation to inform consumers of credit costs and terms so that they can effectively choose between sources of credit. On these considerations the court held the acceleration of the balance of the debt should be considered a "charge." Id. at 959. ⁹ The court's reasoning was not said to be grounded on the fact that the contract involved there made no provision for a partial refund of the finance charge in the event of acceleration.

Several opinions since Garza have rejected its interpretation of "charge." In Martin v. Commercial Securities Co., Inc., 539 F.2d 521 (5th Cir.), the Fifth Circuit recently reviewed the cases and interpretive materials and held an acceleration clause not to be subject to the disclosure requirements, saying there is an absence of any reference to acceleration clauses in "the Act, the Regulations, or the Official Interpretations of the Federal Reserve Board," although such clauses are a common feature of instalment notes and are traditional creditors' remedies. Id. at 524. The court disagreed with the liberal interpretations of the term "charges" in the Garza case and in Meyers v. Clearfield Dodge Sales, Inc., 384 F.Supp. 722 (E.D.La.), reversed, 539 F.2d 511, 519, based on the Congressional findings and declaration of purpose in the Act. See 15 U.S.C. § 1601 (1970).

The Third Circuit in Johnson v. McCrackin-Sturman Ford, Inc., 527 F.2d 257, also declined to hold an acceleration clause within the disclosure requirements of the Act. The court did point out that state law required a rebate immediately of the entire unearned portion of the finance charge if the time balance was liquidated before maturity by repossession and resale, or other means. Id. at 265 n.13. We do not feel this to be a significant point for our purposes, as we will discuss later.

We are persuaded that the view taken by the Fifth Circuit in Martin v. Commercial Securities Co., Inc., supra, is the proper one on the merits of the question before us. Such an acceleration provision is a universal one, as Johnson v. McCrackin-Sturman Ford, Inc., points out, supra, 527 F.2d at 264. The Federal Reserve Board has issued no regulation on the problem, despite the rather extensive litigation on the question. In these circumstances we are of the view that there is no additional "charge" in the acceleration provision. The total debt is disclosed, and this is the amount due on acceleration. (See note 5, supra,...