Glenn v. Trust Co. of Columbus

• Decision Date: 14 November 1979
• Docket Number: No. 58450,58450
• Parties: , 28 UCC Rep.Serv. 551 GLENN v. TRUST COMPANY OF COLUMBUS.
• Court: Georgia Court of Appeals

Page 590

262 S.E.2d 590

152 Ga.App. 314, 28 UCC Rep.Serv. 551

GLENN v. TRUST COMPANY OF COLUMBUS.

No. 58450.

Court of Appeals of Georgia.

Submitted Sept. 5, 1979.

Decided Nov. 14, 1979.

James A. Elkins, Jr., Columbus, for appellant.

Thomas L. Thompson, Jr., Columbus, for appellee.

CARLEY, Judge.

The Trust Company filed a petition for a writ of possession to recover an automobile from Glenn which had been pledged as security for a loan made to him by the Trust Company. Glenn filed an answer denying Trust Company's right to relief and a counterclaim alleging violations of certain provisions of the Truth-in-Lending Act (15 U.S.C.A. § 1601 et seq.) and seeking the statutory recovery of double the finance charge and attorney fees. A motion for summary judgment filed by Glenn was denied by the trial judge who determined that an issue of fact existed. At the trial of the case before the court without the intervention of a jury, the parties stipulated that the lender was entitled to a writ of possession (see First Citizens Bank etc., Co. v. Owings, 151 Ga.App. 389, 259 S.E.2d 747 (1979) and the trial court found for the Trust Company, ruling that "the contract is very clear and does not violate the Federal Truth-In-Lending provisions of the Federal Consumer Credit Protection Act." Glenn appeals from that order.

1. The first alleged violation of the Truth-in-Lending provisions pertains to the lender's security interest in the automobile under the note, which recites in this regard: "To secure the obligation of the undersigned to pay this note, and all other obligations of undersigned to Holder, its successors and assigns, however created, arising or evidenced, whether direct or indirect, absolute or contingent, or now or hereafter existing, or due or to become due (hereafter called 'Liabilities'), undersigned conveys and hereby grants to Holder security title to and a security interest in the following property and All accessories, parts and equipment now or hereafter affixed thereto or used in connection therewith (hereafter collectively called 'Goods') . . ." (Emphasis supplied.)

Regulation Z of the Federal Reserve Board, as promulgated to effectuate the Federal Truth-in-Lending Act (12 CFR § 226.8(b)(5)), requires that notice that after-acquired property is subject to a security interest "be clearly set forth in conjunction with the description or identification of the type of security interest held, retained or acquired." However, as pointed out by the Fifth Circuit Court of Appeals, the Uniform Commercial Code as adopted in Georgia (Code Ann. § 109A-9-204 governs the determination whether after-acquired property is subject to a lender's security interest. Pollock v. General Finance Corp., 535 F.2d 295, 299 (5th Cir. 1976). While that section of our Uniform Commercial Code was amended in 1978 after Pollock was decided, the revision "retains the former restriction on after-acquired consumer goods (except accessions) to those acquired within ten days after the secured party gives value." Ga. Revisers' Comments, Code.Ann. § 109A-9 204 (Ga.L.1978, pp. 1081, 1098). Thus under both the present and former sections, "(n)o security interest attaches under an after-acquired property clause to consumer goods Other than accessions (section 109A-9 314) when given as additional security unless the debtor acquires rights in them within 10 days after the secured party gives value." Code Ann. § 109A-9 204(2). (Emphasis supplied.)

In Pollock, the after-acquired goods involved were household articles, not accessions, and the appeal was from a decision of the United States District Court for the Northern District of Georgia construing § 226.8(b)(5) of Regulation Z to require lenders to fully explain the 10-day limitation set forth by the Georgia UCC. The disclosure statement there provided that the security agreement "may cover after-acquired property" and the Court of Appeals held that "the disclosure statement, although perhaps not false, fails to make a complete disclosure concerning the security interest retained in after-acquired goods, and therefore it did not comply with the further requirement of the regulation that notice that after-acquired property will be subject to the security interest 'shall be clearly set forth in conjunction with the description or identification of the type of the security interest held . . .' We believe that this portion of the regulation requires a lender to explain the 10 day limitation of UCC 9-204(4)(b) (present § 109A-9 204(2)) so that the borrower is informed that any consumer goods that he may acquire within 10 days of the loan transaction are subject to the security interest and that any consumer goods acquired after that date are not. Since the lender failed to disclose the nature of the security interest retained in after-acquired property, we determine that General Finance violated § 226.8(b)(5)." Pollock, supra, at p. 299. See also Tinsman v. Moline Beneficial Finance Co., 531 F.2d 815 (7th Cir. 1976), reaching the same conclusion, and cits.

Before these cases become pertinent here, however, we must first determine whether the "accessories, parts and equipment now or hereafter affixed thereto or used in connection" with the secured automobile as contemplated by the security agreement are limited by definition to "accessions" and thereby exempt from the 10-day disclosure under Code § 109A-9 204(2).

The Uniform Commercial Code defines "accessions" as "goods which . . . are installed in or affixed to other goods . . ." Code Ann. § 109A-9 314(1). The Trust Company argues that tires, spark plugs, shock absorbers and other parts which become worn and must be replaced during the life of an average automobile would be accessions under the UCC definition. If so, even such non-essentials as stereo speakers or tape decks if "installed in or affixed to" the automobile might qualify. While this is a question of first impression in this court, other courts in considering whether placement of certain goods upon vehicles changed their status so that they became "automobile accessories" for various tax purposes have generally been more restrictive. E. g., United States v. King Trailer Co., 350 F.2d 947 (9th Cir. 1965) ("pickup coaches" designed to convert pickup trucks to campers do not fall within the classification of "automobile truck bodies" or "automobile accessories"); Smith v. McDonald, 214 F.2d 920 (3rd Cir. 1954) (electric signs attached to roof by suction cups not "automobile accessories"); but see Wooden v. Michigan Nat. Bank, 117 Ga.App. 852, 162 S.E.2d 222 (1968) (dicta indicating that furnaces installed in mobile homes would be "accessions" under the UCC); Aran v. United States, 259 F.2d 757 (9th Cir. 1958) (baby bottle warmer which could only be used by being plugged into an automobile cigarette lighter was an "automobile accessory"); see generally, Annot., 43 ALR2d 815 (1955).

The security description here also specifically included goods to be used "in connection with" the automobile and this, in our view, causes it to transcend the UCC contemplation of "accessions." To hold otherwise would be contrary to prior established Georgia law declaring accessions to be goods of such a nature as to form an "integral part" of the automobile "and are so attached to it, that (they) are one and the same thing under the accession rule." Passieu v. B. F. Goodrich Co., 58 Ga.App. 691, 692, 199 S.E. 775, 776 (1938); Ivey's Inc. v. Southern Auto Stores, 59 Ga.App. 336, 1 S.E.2d 35 (1939) (holding tires and inner tubes not to be accessions as against the conditional seller of the goods under a duly recorded contract retaining title).

This view is also in accord with federal court interpretations of the UCC, which have held that "(n)either the term 'replacements' nor the term 'additions' can be construed as necessarily referring only to accessions or proceeds." Jacklitch v. Redstone Fed. Credit Union, 463 F.Supp. 1134, 1137 (N.D.Ala.1979); Gilbert v. Southern Discount Co., No. 74-1417A (N.D.Ga., filed July 23, 1975). Nevertheless, as noted in the Gilbert case, supra, the fact that the clause may be construed as referring to accessions rather than after-acquired property does not compel a finding that the language is not confusing or misleading to the consumer. While arguably an "addition" may be sufficiently affixed to the described secured property to be considered an "accession" as defined by the UCC, if the lender had intended to limit its security interest to accessions, it could have used this exact term. And the clause must be construed most strictly against the drafter since "(t)he Truth in Lending Act reflects a transition in congressional policy from a philosophy of 'Let the buyer beware' to one of 'Let the seller disclose'. By erecting a barrier between the seller and the prospective purchaser in the form of hard facts, Congress expressly sought 'to . . . avoid the uninformed use of credit.' 15 USC § 1601 (15 U.S.C.S. § 1601)." Mourning v. Family Publications Service, 411 U.S. 356, 377, 93 S.Ct. 1652, 1664, 36 L.Ed.2d 318, 334 (1973). We, therefore, conclude that the Trust Company failed to fully disclose the nature of the security interest retained in after-acquired property other than accessions by not explaining the 10 day limitation of Code Ann. § 109A-9 204(2), thereby violating § 226.8(b)(5) of Regulation Z of the Federal Consumer Protection Act.

2. Glenn also asserts that a violation of Regulation Z occurred with the assignment of the homestead exemption in the note and security agreement. In the note, seven paragraphs below the security disclosure paragraph the following clause appears: "Undersigned transfers, assigns and conveys to the Holder a sufficient amount of homestead and exemption which undersigned or undersigned's family may have under or by virtue of the Constitution or laws of Georgia or any other State of the United States as against liabilities and...