Davis v. Werne

• Decision Date: 22 April 1982
• Docket Number: No. 81-4298,81-4298
• Citation: 673 F.2d 866
• Parties: Lorene DAVIS, Plaintiff-Appellant, v. Bill WERNE, d/b/a Metalcraft Industries, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 866

673 F.2d 866

Lorene DAVIS, Plaintiff-Appellant, v. Bill WERNE, d/b/a Metalcraft Industries, Defendant-Appellee.

No. 81-4298.

United States Court of Appeals, Fifth Circuit.

April 22, 1982.

Charles H. Ramberg, Jackson, Miss., for plaintiff-appellant.

Thomas W. Sanford, Jackson, Miss., for defendant-appellee.

Appeal from the United States District Court for the Southern District of Mississippi.

Before WISDOM, POLITZ and TATE, Circuit Judges.

TATE, Circuit Judge:

The plaintiff, Lorene Davis, brought this action under the Truth-in-Lending Act ("TILA"), 15 U.S.C. §§ 1601 et seq., and TILA's implementing Regulation Z, 12 C.F.R. §§ 226.1 et seq., against the defendant, Bill Werne, d/b/a Metalcraft Industries ("Metalcraft"). Davis alleged that she and Metalcraft had consummated a consumer credit transaction, and that Metalcraft had failed to make the disclosures required by TILA and Regulation Z. Davis therefore claimed entitlement to the statutory penalty for nondisclosure provided by 15 U.S.C. § 1640.

The district court found for Metalcraft, based on the conclusion that no consumer credit transaction had been consummated within the meaning of TILA. Davis appealed. Although we find that Davis and Metalcraft had "consummated" a consumer credit transaction, we also find that Metalcraft did not fail to make any of the required disclosures. We therefore pretermit decision of the issue of whether TILA nondisclosure penalties may be imposed where after a credit transaction has been consummated within the meaning of the Act, it is mutually rescinded before any transaction has occurred, and therefore no credit is actually extended. Accordingly, we affirm the judgment of the district court.

I. The Factual Background

The material facts are not disputed. On October 3, 1979, Ms. Davis entered into a contract (the "October contract") with Metalcraft for the purchase and installation of storm door and window guards on her home. The contract called for payment of the purchase price in forty-eight equal monthly installments, including a total finance charge of $919.01. In connection with this contract, Metalcraft provided Davis with a disclosure statement, the sufficiency of which is challenged by this lawsuit.

Metalcraft subsequently attempted to assign its financing agreement with Davis to a finance company. However, the finance company declined to purchase the contract. After learning of this, Metalcraft informed Davis the lender to whom Metalcraft had intended to assign the contract would not lend the money.

Ms. Davis then procured financing from another source, Mutual Mortgage Service, to whom she was referred by Metalcraft, as a possible source of funds. She contacted Mutual, and it loaned her sufficient funds to pay Metalcraft in cash, furnishing her disclosure statements not here attacked. (Unfortunately for Davis, her contract with Mutual obligated her to pay $364.80 more in finance charges than did her original contract with Metalcraft.) After Davis procured financing from Mutual, Metalcraft performed the work on Davis' home and received full cash payment for the work.

Davis then filed this TILA action, based on alleged nondisclosures in the October contract with Metalcraft. By agreement of the parties, the case was tried before a magistrate. After a bench trial, the court found that, because Metalcraft had not extended credit to Davis pursuant to the October contract, no actionable consumer credit transaction had been "consummated" within the meaning of TILA. Therefore, without reaching the merits of the plaintiff's nondisclosure claims, the court held for Metalcraft. We affirm on other grounds.

II. The Statutory Background

Congress passed TILA to enhance "economic stabilization" and to strengthen "competition among the various ... firms engaged in the extension of consumer credit" by requiring "a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit." 15 U.S.C. § 1601. To effectuate these purposes, TILA must be construed liberally in favor of the consumer. Cody v. Community Loan Corp., 606 F.2d 499, 505 (5th Cir. 1979), cert. denied, 446 U.S. 988, 100 S.Ct. 2973, 64 L.Ed.2d 846 (1980); Sellers v. Wollman, 510 F.2d 119, 122 (5th Cir. 1975).

TILA is a prophylactic measure that creates a system of "private attorneys general" to aid its enforcement. McGowan v. King, 569 F.2d 845, 848-49 (5th Cir. 1978). See 15 U.S.C. § 1640. In order to penalize noncomplying creditors and to deter future violations, these private attorneys general may recover the statutory penalties even if they have not sustained any actual damages, or even if the creditors are guilty of only minute deviations from the requirements of TILA and implementing Regulation Z. Dryden v. Lou Budke's Arrow Finance Co., 630 F.2d 641, 647 (8th Cir. 1980); Charles v. Krauss Co., Ltd., 572 F.2d 544, 546 (5th Cir. 1978).

III. Did Davis and Metalcraft "Consummate" a Consumer Credit Transaction ?

Regulation Z obliges creditors ¹ to make the statutorily-mandated disclosures "before the transaction is consummated." 12 C.F.R. § 226.8(a). A transaction is "considered consummated at the time a contractual relationship is created between a creditor and a customer ... irrespective of the time of performance of either party." Id. § 226.2(kk) (emphasis added).

In the present case, Metalcraft and Davis undisputedly entered into a contractual relationship pursuant to which Metalcraft was required to extend, and Davis was obliged to accept, consumer credit within the meaning of TILA. Thus, the October contract clearly was "consummated" for TILA purposes.

The district court, however, apparently was of the opinion that, because Metalcraft never did extend credit as agreed, the subsequent abandonment of the contract somehow "unconsummated" the agreement for TILA purposes. This is not so. "The Truth in Lending Act is a 'disclosure' law.... It is the obligation to disclose, not the duty of subsequent performance, towards which the Act is directed." Burgess v. Charlottesville Savings & Loan Ass'n, 477 F.2d 40, 44-45 (4th Cir. 1973) (footnote omitted; emphasis in original). "(A) bandonment of the transaction ... is not a basis for relief from liability...." Dryden, supra, 630 F.2d at 647.

In Dryden, the plaintiff Dryden purchased a "lemon" automobile, with financing provided by the defendant creditor. The plaintiff returned the car, and the creditor refunded the plaintiff her down payment. The Eighth Circuit held that the creditor was nevertheless liable for any TILA violations in connection with the financing agreement:

The statutory damages are explicitly a bonus to the successful TILA plaintiff, designed to encourage private enforcement of the Act, and a penalty against the defendant, designed to deter future violations. See Williams v. Public Finance Corp., supra; Hinkle v. Rock Springs Nat. Bank, 538 F.2d 295 (10th Cir. 1976). As to the fact that the transaction was abandoned by both parties and Dryden's money was returned, it is sufficient to note that recovery of statutory damages by a successful TILA plaintiff is not inconsistent with other remedies the plaintiff may have in connection with the same transaction, such as rescission of the loan contract, see Sellers v. Wollman, 510 F.2d 119 (5th Cir. 1975), or even forfeiture to the plaintiff, under state usury laws, of the unpaid balance of the loan, see Williams v. Public Finance Corp., (598 F.2d 349 (5th Cir. 1979) ). If Dryden proved that the disclosure provisions of the Act and Regulation Z were violated in connection with the January 26 transaction, (the creditor) is liable for statutory damages.

630 F.2d at 647 (footnote omitted).

In Madewell v. Marietta Dodge, Inc., 506 F.Supp. 286 (N.D.Ga.1980), the plaintiffs purchased a car on credit and made a down payment. One week later, the plaintiffs returned the car and the dealer-creditor returned the down payment. As in Dryden, the court held that the creditor could not escape TILA liability due to the abandonment of the contract:

(B)efore plaintiffs signed the contract and obligated themselves to the credit terms set forth in it, they were entitled to the disclosures required by truth-in-lending law. 15 U.S.C. § 1638. The Court finds this to be true even though the transaction contemplated when plaintiffs signed the contract was not consummated. The parties took action that would have been subject to truth-in-lending law had the transaction continued as contemplated, and defendant should have made the disclosures required by truth-in-lending law. Defendant was not entitled to rely on the possibility of an after-the-fact determination that the transaction would not go forward, and this Court will not allow defendant to escape its responsibilities under truth-in-lending law on the basis of developments after the time at which disclosures, if required at all, were to be made.... The fact that a credit transaction is subsequently rescinded does not preclude recovery under truth-in-lending law. Sellers v. Wollman, 510 F.2d 119 (5th Cir. 1975).

506 F.Supp. at 288-89 (emphasis added; footnotes omitted).

Thus, post-consummation abandonment of a financing agreement generally will have no effect upon a creditor's TILA liability. See also Poirrier v. Charlie's Chevrolet, 442 F.Supp. 894, 896 (E.D.Mo.1978); Copley v. Rona Enterprises, Inc., 423 F.Supp. 979, 982-83 (S.D.Ohio 1976). Ms. Davis through her able counsel consequently makes an extremely forceful argument that, because of the punitive-prophylactic purposes of the nondisclosure penalties, the creditor here is liable for these penalties despite the circumstance that the financing arrangements were cancelled before credit could be extended. Indeed, in the sparse decisional law relating to the issue, cited above, the courts have uniformly allowed such penalties as to "consummate...