Harris v. Tower Loan of Mississippi, Inc., 77-3280
| Citation | 609 F.2d 120 |
| Decision Date | 02 January 1980 |
| Docket Number | No. 77-3280,77-3280 |
| Parties | Bessie Lee HARRIS, Plaintiff-Appellee, v. TOWER LOAN OF MISSISSIPPI, INC., Defendant-Appellant. |
| Court | United States Courts of Appeals. United States Court of Appeals (5th Circuit) |
Robert R. Marshall, Pat H. Scanlon, Jackson, Miss., for defendant-appellant.
Barry H. Powell, Jackson, Miss., for plaintiff-appellee.
Appeal from the United States District Court of the Southern District of Mississippi.
Before WISDOM, TJOFLAT and REAVLEY, Circuit Judges.
Appellee, Bessie Harris, filed this suit in the district court alleging a violation of the Truth-in-Lending Act in a loan transaction. The lower court granted Harris' motion for summary judgment. The judgment cancelled the note and a deed of trust securing the obligation, ordered that appellant, Tower Loan of Mississippi, Inc. ("Tower Loan"), return $1182.00 which Harris had previously paid on the note, allowed Harris to retain the loan proceeds in her possession, and awarded her a $1000 statutory penalty and $300 attorney's fees. On this appeal, Tower Loan argues that it made all material disclosures required. Alternatively, it argues that Harris is not entitled to a cancellation of the note; rescission, if allowed, should be conditioned on restitution; and that Harris is not entitled to an award of attorney's fees. We remand the cause for determination and offset of the amount which Tower Loan owes to Harris.
Tower Loan advanced $1056.34 to Harris for which she agreed to repay $2125.00 over two years. The loan was secured by a deed of trust on her home, household furniture, and an automobile. The $1056.34 figure was arrived at by deducting various fees, including the finance charge, insurance, and a recording fee, from the scheduled total of payments of $2125.00.
One fee was for fire insurance on Harris' dwelling, which was written through Tower Loan. A check for $67.96 was written in favor of Harris and Jack Lee for the premium on the policy. Jack Lee is president of Tower Loan, which was the sole beneficiary under the terms of the policy. The only disclosure of the deduction and its purpose on the disclosure statement is under "Authorized Disbursements." The entry reads "Bessie Harris Jack Lee $67.96." The check disbursing this portion of the loan proceeds indicated that it was for dwelling insurance. The insurance policy showed on its face that the prepaid premium was $67.96.
Harris subsequently had difficulty meeting the payment terms of the loan. She enlisted the aid of Central Mississippi Legal Services ("Legal Services"), a legal services program funded by the Legal Services Corporation ("Corporation"), to negotiate more favorable repayment terms. When negotiations proved unfruitful, Harris gave notice of rescission and later filed this suit. The trial judge granted Harris' motion for summary judgment because he found a material nondisclosure which caused the finance charge to be understated.
The premium for dwelling insurance was not included in the finance charge. It should have been disclosed as part of the finance charge unless Harris was furnished a written statement which clearly, conspicuously, and specifically set forth the cost of the insurance, and her option of choosing the insurer. 15 U.S.C. § 1605(c) (1976); 12 C.F.R. § 226.4(a)(6). The disclosure of the property insurance under "Authorized Disbursements" is insufficient to meet this standard. Thus, the finance charge was understated. See Woods v. Beneficial Finance Co. of Eugene, 395 F.Supp. 9, 13 (D.Ore. 1975). Even if the combined disclosures on the disclosure statement, the check, and the insurance policy were sufficient to meet this standard, they were not made on the same side of a single page. 12 C.F.R. § 226.8(a); Edmondson v. Allen-Russell Ford, Inc., 577 F.2d 291, 295 note 9 (5th Cir. 1978).
Since the finance charge was understated, Harris was not given an accurate disclosure of the amount of the finance charge as required by 15 U.S.C. § 1639(a)(4) (1976). Pursuant to 15 U.S.C. § 1635(a) (1976) she properly exercised her right to rescind the transaction.
Section 1635(b) 1 of Title 15 controls the mechanics of rescission. It requires the creditor to return all funds or property advanced by the borrower within 10 days of receiving notice of rescission. The creditor is also required to take any action necessary to reflect the termination of any security interest created under the transaction. A failure to perform these duties within the 10 day period may result in the creditor incurring statutory damages under 15 U.S.C. § 1640(a) (1976) in addition to the rescission remedy. Gerasta v. Hibernia Nat'l Bank, 575 F.2d 580, 583-84 (5th Cir. 1978). Once the creditor has completed his obligations, it is incumbent upon the obligor to return any value received from the creditor.
Nothing in section 1635(b) prevents the creditor from offsetting the value owed to it by the obligor from the sum it initially tenders to the obligor. Such an arrangement prevents a perfunctory exchange of funds and protects the lender from a dissipation of the money while it is in the hands of the obligor. We believe this to be an acceptable course because it is the only means to insure the accomplishment of the congressional purpose of restoring the parties to the status quo ante while affording the statutory remedies to the obligor.
We recognize that the statutory language and language from Sosa v. Fite, 498 F.2d 114 (5th Cir. 1974) and Gerasta, 575 F.2d at 584, can be read as envisaging performance of obligations by the creditor followed in time by tender of the loan proceeds by the obligor. Gerasta also foreclosed an argument that the creditor's duties are Conditioned upon tender by the obligor. Id. at 585. Nevertheless, this procedure for offsetting does not conflict with the spirit of those decisions. It will accelerate complete rescission while protecting creditors in appropriate cases. Our approval of offsetting does not conflict with Gerasta 's disapproval of conditional rescission in that we do not permit a creditor to refuse to perform unless or until the obligor tenders payment. The creditor must perform but is permitted to minimize losses from those borrowers who would eventually fail to tender the loan proceeds. We reaffirm the statutory language and the holding in Sosa that the creditor loses any rights in property unaccepted ten days after tender by the obligor.
Tower Loan claims that an award of attorney's fees was improper because Harris was represented by a legal services attorney and was not obligated to pay the attorney. Sellers v. Wollman, 510 F.2d 119 123 (5th Cir. 1975), forecloses this argument. ...
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