Brown v. Providence Gas Co.

• Decision Date: 06 December 1976
• Docket Number: Civ. A. No. 75-0256.
• Citation: 445 F. Supp. 459
• Parties: King BROWN v. PROVIDENCE GAS CO.
• Court: U.S. District Court — District of Rhode Island

445 F. Supp. 459

King BROWN v. PROVIDENCE GAS CO.

Civ. A. No. 75-0256.

United States District Court, D. Rhode Island.

December 6, 1976.

COPYRIGHT MATERIAL OMITTED

Alden C. Harrington, R. I. Legal Services, Providence, R. I., for plaintiff.

Thomas R. Courage, Providence, R. I., for defendant.

MEMORANDUM AND ORDER

PETTINE, Chief Judge.

This case, before the Court on cross-motions for summary judgment, requires determination of whether certain provisions of the Consumer Credit Protection Act, 15 U.S.C. § 1601 et seq. (1970) (Truth-In-Lending Act) and regulations of the Federal Reserve Board issued thereunder, Regulation Z, 12 C.F.R. § 226.8 (1976), were violated by a credit sale contract prepared by defendant and signed by plaintiff. Also to be decided is the question of whether the limitations provision contained in the Act, 15 U.S.C. § 1640(e), bars certain claims contained in plaintiff's amended complaint.

The facts in this case are simple and undisputed. On August 27, 1974, plaintiff purchased a water heater on credit from defendant Providence Gas Company, executing a "Conditional Sales Contract". (Appendix "A"). On August 25, 1975, plaintiff filed a complaint in this Court, alleging that the contract departed in certain particulars, detailed below, from the requirements of the applicable Federal Reserve Board regulations, as illustrated in the Board's model Retail Installment Contract, CCH Consumer Credit Guide par. 3853 (Appendix "B"). The complaint sought damages of $100, costs, and attorney's fees.

A. Count I

Plaintiff contends that the contract failed to identify the method of computing unearned interest to be rebated to him in the event that he paid his debt to the Gas Company in advance of its maturity date. Plaintiff contends that the language in the contract describing how the rebate would be calculated fails to satisfy the requirements of Regulation Z, 12 C.F.R. § 226.8(b)(7), adopted pursuant to 15 U.S.C. § 1604 (1970).

The contract provides that in the event of prepayment in full "the finance charge will be partially refunded on the assumption that the finance charge is paid in equal monthly installments over the term of this contract". Plaintiff contends that this language is insufficient because it fails explicitly to state that the rebate computation method used is the "Pro-Rata" method.

The Court finds this claim without merit. Courts have disagreed over whether a full explanation of the rebate method must be included in the contract or whether a shorthand designation (such as "Pro-Rata") is sufficient. Compare Bone v. Hibernia Bank, 493 F.2d 135 (9th Cir. 1974) with Johnson v. Associates Finance, Inc., 369 F.Supp. 1121 (S.D.Ill.1974). But no court has held that a full explanation of the rebate method is less satisfactory than a mere short-hand identification. Regulation Z does require the use of "magic words" such as "finance charge" or "annual percentage rate" 12 C.F.R. §§ 226.8(c)(3), (b)(2); see Powers v. Sims and Levin Realtors, 396 F.Supp. 12, 19 (E.D.Va.1975), but no such requirement is imposed for rebate computations. Absent such a requirement or any evidence that a full explanation of the rebate method is somehow less understandable than a cryptic abbreviation, the Court grants summary judgment to defendant on this count. See Woods v. Beneficial Finance Co., 395 F.Supp. 9, 12 (D.Or.1975).

B. Count II

Plaintiff next contends that the contract failed properly to identify the item of property in which defendant took a security interest, as required by Regulation Z, 12 C.F.R. § 226.8(b)(5). The contract grants defendant a security interest in 1 A. O. Smith (make) PGD 40 (model) W. H. (item). Plaintiff insists that it was necessary for the contract to spell out "water heater" rather than use the abbreviated form.

Section 226.8(b)(5) requires "a clear identification of the property to which the security interest relates". This language has been interpreted to mean "that the goods must be identified so as to preclude any reasonable question regarding the goods to which the security interest attaches", Kenney v. Landis Financial Group, Inc., 349 F.Supp. 939, 945 (N.D.Iowa 1972). The description in the present contract meets this test. In view of the fact that the contract consummated the sale of the very water heater identified therein and the fact that the make and model of the water heater were precisely listed, it cannot be seriously maintained that the abbreviation "W.H." was susceptible of misunderstanding or confusion. Thus, because the identification of goods in the contract meets the requirements of Regulation Z, summary judgment in favor of defendant must be granted on this count.

C. The Statute of Limitations

Defendant takes the position that the remainder of the alleged violations of Regulation Z in the August 27, 1974 contract are barred by the relevant statute of limitations, 15 U.S.C. § 1640(e) (1970). The question arises because, although the original complaint in this action was filed within the one-year period provided by the statute, plaintiff also seeks judgment on certain further claimed Truth-In-Lending violations in the 1974 contract, not included in the original complaint but added in an amended complaint filed after the limitations period had expired.¹

In arguing that the limitations statute does not bar his amended complaint, plaintiff relies on Rule 15(c). F.R.Civ.P., which provides that a claim arising out of "the conduct, transaction, or occurrence . . set forth in the original pleading" relates back to the time the first pleading is filed and thus tolls the statute of limitations. Plaintiff contends that because all of his counts deal with the legal sufficiency of various provisions of a single contract, the rule should apply and take his amended complaint out of the limitations provisions of the Truth-In-Lending Act.

The Court agrees. The purpose of Rule 15(c) is to ameliorate the harsher aspects of limitations periods when this can be done without surprise or prejudice to the opposing party. See 6 C. Wright & A. Miller, Federal Practice and Procedure § 1497 at 499. Such a requirement is generally met where, as here, the amended pleading arises out of the same occurrence as the original complaint. As one court has said:

When a suit is filed in a federal court under the Rules, the defendant knows that the whole transaction described in it will be fully sifted, by amendment if need be, and that the form of the action or the relief prayed or the law relied on will not be confined to their first statement.

Barthel v. Stamm, 145 F.2d 487, 491 (5th Cir.), cert. denied, 324 U.S. 878, 65 S.Ct. 1026, 89 L.Ed. 1430 (1944) (emphasis added).

In the present case, all of the claims raised in the original complaint arise from the same contract; the amount of damages are tied to the finance charge and do not vary according to the number of violations; and defendants make no claim of prejudice. Under these circumstances the Court holds that the statute of limitations does not prevent plaintiff from raising the claims presented in his amended complaint.²

D. Count III

Plaintiff next contends that the contract failed to disclose the number of payments due, in violation of Regulation Z, 12 C.F.R. § 226.8(b)(3). The contract provides for "23 monthly installments of $12.00 each with a final monthly payment of $17.24". Plaintiff argues that, under the Act, the consumer cannot be expected to make the calculation necessary to arrive at the final total of 24 monthly payments. In support of this position, they cite the case of Powers v. Sims and Levin Realtors, supra, in which Judge Merhige holds that in the interest of furthering the Congressional policy of full disclosure, the Act and Regulation Z must be strictly construed to require the creditor to give the total number of payments.

The Court is much persuaded by the rationale advanced by Judge Merhige and would be inclined to follow the Powers case but for two distinguishing features. In the first place, the language used by the creditor in Powers made no mention of a "final payment" but spoke of a "balance due" after a stated number of monthly payments. Such language would arguably tend to mislead the unwary or inexperienced buyer. The "final payment" language of the present contract, on the other hand, calls attention to the fact that after the 23 payments have been made another payment is due. This phraseology meets the requirements of § 226.8(b)(3).

In addition to the distinguishing facts of the Powers case, the Court notes that the language used in the contract in the present case is almost exactly the same as that used in the model form promulgated by the Board of Governors of the Federal Reserve Board, CCH Consumer Credit Guide par. 3853 (appendix "B"). Section 130(f) of the Act, 25 U.S.C. § 1640(f) (1970) shields creditors from liability for good faith actions done pursuant to the Board's interpretations of the Act and this provision would clearly appear to cover the present case, where the Board's form invites conflict with the Act's provisions as judicially construed. In adopting section 130(f) Congress encouraged creditors to rely on the Board's interpretations and it would ill serve that policy if the Court were to impose liability in the present case. Accordingly, defendant's motion for summary judgment on this count is granted.

E. Count IV

The final claim pressed by plaintiff is a claimed violation of Regulation Z, 12 C.F.R. § 226.8(c)(5), in that the contract fails to use the term "unpaid balance".

In order to assess the merits of this claim, it will be helpful to quote section 226.8(c) in its entirety:

(c) Credit sales. In the case of a credit sale, in addition to the items required to be disclosed under paragraph (b) of this section, the following items, as applicable, shall be disclosed:

(1) The cash price of the property or service purchased, using the term "cash price".

(2) The

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