Ex parte Fletcher
Decision Date | 29 October 1982 |
Citation | 429 So.2d 1041 |
Parties | Ex parte Willie D. FLETCHER. (Re Willie D. FLETCHER v. PUBLIC FINANCE COMPANY OF ALABAMA). 81-435. |
Court | Alabama Supreme Court |
Thomas G. Keith of Legal Services of North-Central Alabama, Huntsville, for petitioner.
Currun C. Humphrey of Humphrey & Smith, Huntsville, for respondent.
Robert J. Varley, David S. Yen and J. Allen Sydnor, Jr. of Legal Services Corp. of Ala., Montgomery, amicus curiae.
On May 3, 1973, Willie D. Fletcher borrowed $1,458.87 from Public Finance Company with interest at 19.71%, payable in 36 monthly installments of $54.00. The first payment was due on June 3. The finance charge computed by Public Finance was $485.13. A portion of the note contained this language:
"DESCRIPTION AND IDENTIFICATION OF SECURITY INTEREST: This loan and any extension or renewal thereof or future advance is secured by a security agreement dated 5-3-73 on the following described property: Consumer Goods including but not limited to household goods, furniture, appliances and personal property, of all kinds, additions, replacements and accessories thereto which are hereafter acquired by borrowers."
Fletcher made intermittent payments on the loan from June 3, 1973 to June 30, 1974. As a matter of fact, only $300.00 was repaid by him, and some of those payments were late, and for an amount less than $54.00.
On October 29, 1974, Public Finance, under the optional acceleration clause of the note, declared the entire unpaid amount due, and brought suit against Fletcher for $1,657.50. Public Finance alleged in its complaint that the default occurred on July 31, 1974, Public Finance's default judgment, taken on December 17, 1974, was set aside on April 15, 1976, because of insufficient service of process.
After proper service, Fletcher filed an answer of general denial, and later amended specifically to deny the default occurred on July 31, 1974. Next, he filed a counterclaim against Public Finance, alleging that it violated the Truth-In-Lending Act, 15 U.S.C. 1640. Public Finance moved to dismiss the counterclaim on the ground that the one-year statute of limitations under the Truth-In-Lending Act (TILA), 15 U.S.C. 1640(e) had expired. 1
The district court entered judgment for Public Finance for $2,249.22 and denied the counterclaim. Fletcher appealed, asking for a de novo trial in the circuit court.
Public Finance filed an answer to Fletcher's counterclaim, admitting the allegations contained in it, but asserted the statute of limitations as a defense. The circuit court found that Public Finance had, indeed, violated the TILA, but denied recovery on the ground that the statute of limitations had expired. Fletcher appealed that judgment to the Court of Civil Appeals, 429 So.2d 1039.
On appeal to the Court of Civil Appeals, Fletcher contended that Public Finance's cause of action for his default arose prior to June 3, 1974. Thus, he argued, his counterclaim for violating the TILA related back to the first instance of default, under Rule 13(c), ARCP, and § 6-8-84, Code 1975. The Court disagreed with him by holding that his cause of action derived from 15 U.S.C. 1640(e) expired one year after the execution of the note--May 3, 1974; that his cause of action did not accrue until Public Finance accelerated the note, and that was more than one year after the execution of the note, and therefore, his counterclaim did not relate back.
We disagree with the decision of the Court of Civil Appeals and reverse.
This is the typical case for a money lender to assert the statute of limitations in a Truth-In-Lending Act violation. The lender and the borrower enter into a loan transaction. Proper TILA disclosures are not made. Being unknowledgeable of TILA and Regulation Z, the borrower does nothing about his potential claim. He defaults. The lender, being aware of the limitations provision of TILA, waits until more than a year after the execution of the note, and then files suit to collect the entire amount due on the note. It is at this point that the borrower seeks legal advice. A counterclaim is then filed in the original suit. The lender yells
The issue to be decided in this case has been before the Court of Civil Appeals in Darrow v. Beneficial Finance Company, 370 So.2d 1001 (Ala.Civ.App.), cert. denied Ex parte Darrow, 370 So.2d 1005 (Ala.1979). The Court stated:
In Hewlett v. John Blue Employees Federal Credit Union, 344 So.2d 505 (Ala.Civ.App.1976), the Court of Civil Appeals explained the difference between setoff and recoupment by relying on a Georgia Court of Appeals case, Hodges v. Community Loan & Investment Corp., 133 Ga.App. 336, 210 S.E.2d 826 (1974), which held:
This Court denied certiorari in Hewlett, as shown by the Darrow quote hereinabove.
In retrospect, it appears that too much emphasis has been given § 6-8-84, Code 1975, and its "legal subsisting claim" provision, and not enough emphasis on Rule 13(a) and (c), ARCP. The Committee Comments to Rule 13 state:
In Hewlett, the Court of Civil Appeals held that disclosure violations of the TILA are in the nature of setoffs--not recoupments. This holding was grounded on the theory that the TILA violation is independent of the lender's contractual obligation. Thus, that court held, the TILA disclosure and the contract are separate transactions, and there can be no "relation back" for statute of limitations purposes.
While this Court denied certiorari in Hewlett and Darrow without opinion, it has since recognized that a Truth-In-Lending counterclaim is in fact in the nature of a recoupment--i.e., a compulsory counterclaim. Brooks v. Peoples National Bank of Huntsville, 414 So.2d 917 (Ala.1982). Brooks, following the Committee Comments to Rule 13, held...
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