In re Celona
| Decision Date | 28 September 1988 |
| Docket Number | Bankruptcy No. 87-02452S,Adv. No. 88-0437S. |
| Parties | In re John R. CELONA, Jr. and Marion M. Celona, Debtors. John R. CELONA, Jr. and Marion M. Celona, Plaintiffs, v. EQUITABLE NATIONAL BANK, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
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Richard J. Friedman, Community Legal Services, Philadelphia, Pa., for plaintiffs/debtors.
Edward Sparkman, Philadelphia, Pa., Chapter 13 Trustee.
Howard Greenberg, Lawrence Phelan, Philadelphia, Pa., for defendant/creditor.
The matters presently before the court require us to revisit our line of cases which consider whether consumer-debtors have a right to rescind a consumer financing transaction pursuant to § 125 of the federal Truth-in-Lending Act, 15 U.S.C. § 1601, et seq. (), and what the consequences of such a rescission are. See In re Gurst, 79 B.R. 969 (Bankr.E.D.Pa.1987), appeals dismissed, C.A. No. 87-8351 (E.D.Pa. June 22, 1988); and C.A. No. 88-2902 (E.D.Pa. August 9, 1988); In re Jones, 79 B.R. 233 (Bankr.E.D. Pa.1987), appeal dismissed, C.A. No. 87-7630 ; In re Melvin, 75 B.R. 952, appeal pending, C.A. No. 87-5712 (E.D.Pa.); and In re Tucker, 74 B.R. 923, 932 (Bankr.E.D.Pa.1987), appeal dismissed, C.A. No. 87-4456 . We hold, consistently with the results in those cases, that material violations of the TILA have occurred in the transaction in issue. In particular, the lender (1) Failed to disclose, as part of the finance charge in the transaction, fees paid to its counsel to review the Debtors' documents, which we hold are not within the narrow scope of charges in connection with transactions secured by realty pursuant to 15 U.S.C. § 1605(e) which may be excluded from the finance charge; and (2) Allowed the loan proceeds to be disbursed prior to the three-day "cooling off" period, in violation of 12 C.F.R. § 226.23(c). The consequences, as in the foregoing cases, are rather severe: the lender loses its security interest; its remaining, unsecured claim is reduced to the net proceeds of the loan, less the payments made by the Debtors, less a $1,000.00 recoupment penalty; and it is obliged to remit a $1,000.00 statutory penalty plus attorney's fees and costs to the Debtors' counsel. As a further consequence, the lender's motion for relief from the automatic stay, premised on the presence of a valid mortgage against the Debtors' realty, must be denied.
The Debtors, husband and wife who are the parents of seven children, commenced the instant joint Chapter 13 bankruptcy case on May 19, 1987. On March 1, 1988, EQUITABLE NATIONAL BANK (referred to hereinafter as "the Creditor"), filed a motion seeking relief from the automatic stay pursuant to 11 U.S.C. § 362(d) to pursue a mortgage foreclosure action against the Debtors. The Debtors filed an answer to this motion on March 22, 1988, the most prominent defense being the assertion that, since the Debtors had validly rescinded the underlying loan contract, the mortgage was invalid and the basis of the motion was undercut.
Meanwhile, on March 23, 1988, the Debtors filed the instant adversarial proceeding, affirmatively asserting the contention that they had validly rescinded the loan and that the Creditor's proof of claim was accordingly subject to attack. The § 362(d) motion was, by agreement of the parties, continued to May 11, 1988, where it was consolidated with the date set for the trial of the adversary proceeding and the fourth continued listing of the confirmation hearing in the Debtors' case.
On May 11, 1988, the parties requested a further continuance of all of these matters until June 14, 1988. We concurred, but entered an Order that the matter must be tried on June 14, 1988. Nevertheless, on June 14, 1988, the parties came before us and requested a further continuance. With some reluctance and only upon the entry of a Pre-trial Order which not only rescheduled the hearing on July 13, 1988, but also set forth a post-trial briefing schedule contemplating completed submission of briefs on the contested matters by August 10, 1988, we agreed.
This Order accomplished its purpose of assuring that the trial was conducted on July 13, 1988. Thereafter, we reaffirmed the briefing schedule set forth in our prior Order, although allowing the Debtors an additional period until August 17, 1988, to file a Reply Brief, and scheduling the confirmation hearing, presumably for the last time, on September 8, 1988. On August 16, 1988, the Debtors advised that they wished to eschew the opportunity to file a Reply Brief.
Because the matters before us involve some issues concerning which we must make determinations of credibility and include an adversary proceeding, which is subject to the dictates of Bankruptcy Rule (hereinafter "B.Rule") 52 and Federal Rule of Civil Procedure (hereinafter "F.R.Civ. P.") 52(a), we are preparing this Opinion by setting forth specifically-numbered Findings of Fact and Conclusions of Law. We shall embrace discussion of the credibility issues in extended Findings of Fact and of any significant legal points in extended Conclusions of Law.
1. On Tuesday, July 23, 1985, JOHN AND MARION CELONA, the Debtors (hereinafter "the Debtors"), agreed to purchase a used Jeep Wagoneer motor vehicle (hereinafter "the Jeep") from Victory AMC/Jeep, Inc. (hereinafter "Victory"), an automotive retailer, for a price of $4,903.34.
2. The Victory salesman who handled the transaction, identified phonetically as "Gary Guzzi" (hereinafter "Guzzi"), assured the Debtors, who indicated that they needed financing, that he would obtain financing with "someone he knew."
3. Guzzi later advised the Debtors to return the following day to sign the necessary papers, which they did. Among the papers executed at the time were a Secondary Mortgage Loan contract, a Mortgage, and a TILA disclosure statement reflecting that the Debtors received a net sum of $5,197.50 in a direct loan transaction with the Creditor. The Debtors received this sum in the form of two checks made out to them and endorsed by them at that time in the sums of $5,145.59 and $51.91. The disclosure statement included, inter alia, the following entry: "Amount paid to Meltzer & Schiffrin, Esq. for attorney's fees . . . $200.00." Since the transaction resulted in a mortgage of their residential realty, the Debtors were required by 15 U.S.C. § 1635 of the TILA, to receive, and did receive and execute, a notice of their right to rescind the loan transaction on or before midnight of July 27, 1985.
4. The Debtors both testified that only Guzzi and themselves were present on July 24, 1985. The Creditor's loan officer, Louis Leone, originally testified that he was present on that date also. However, Mr. Leone first conceded that he only vaguely remembered the transaction; then admitted that he had no recollection at all and just remembered it by the way it was handled; and near the end of his testimony stated that he was only at Victory one time and definitely was there on July 29, 1985. We find the Debtor's consistent recollections concerning the events of July 24, 1985, as in all of the instances of conflict in their testimony with that of Mr. Leone, to be far more credible. The Debtors had numerous small personal recollections of the events; Mr. Leone ultimately conceded that he had none except doubtful records and equally doubtful "established procedures" that he claimed to have followed.
5. The Debtors testified that, on Friday, July 26, 1985, Guzzi called them and told them that they could pick up the Jeep that evening. The Debtors testified that they did get the Jeep that evening after an encounter with Guzzi and an insurance agent who sold them insurance at Victory's place of business, and that they used the Jeep that evening to take their large family to visit the Husband-Debtor's parents in York, Pennsylvania. It seems apparent, and the parties appear to agree, that, if this recitation were true, the Creditor must have distributed the loan proceeds to Victory prior to midnight of July 27, 1985, because Victory would have been most unlikely to have allowed the Debtors to take the Jeep before the loan proceeds were paid to it.
6. Mr. Leone, realizing this, based his defense on this issue on his contention that the Debtors came to Victory on Monday, July 29, 1985, to consummate the transaction. This recitation was supported by the fact that the checks were dated July 29, 1985; the production of a "Certification of Confirmation" that the Debtors did not wish to cancel the transaction dated July 29, 1985; and a notation on the Creditor's file jacket that the checks were drawn on July 29, 1985. However, the Debtors were adamant that they had not signed any documents in the transaction on July 29, 1985. Mr. Leone conceded that he had no actual recollection of the transaction and could, in contrast to the Debtors, recite no details of the transaction. The check dates could obviously have been typed in at any time; the handwriting of the dates on the Certification was not that of the Debtors; and the dates on the file jacket appear to have originally been 7-26-84 and subsequently written over as 7-29-85. We therefore totally reject the Creditor's contention that its position is supported by documentation rather than mere testimony, in purported contrast to the position of the Debtors, and thus should be accepted where conflicts exist. As a business institution, the Creditor would be more apt to have access to documentary evidence to support its position than the Debtors. The documentary evidence produced casts more doubts upon the Creditor's version of the facts than it tends to resolve in its favor.
7. The Debtors' recitation of the facts concerning the final execution of the papers...
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