In re Crotzer
| Decision Date | 10 November 1992 |
| Docket Number | Bankruptcy No. 91-73325. |
| Citation | 147 BR 252 |
| Parties | In re Neal L. CROTZER, Jr., Mary L. Crotzer, Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Alabama |
Steven D. King, Birmingham, Ala., for debtors.
Finis E. St. John, Cullman, Ala., for creditor — Walker Builders, Inc.
C. Michael Stilson, Tuscaloosa, Ala., Chapter 13 Standing Trustee.
This matter came before the Court on motion of Plaintiff/Debtor Neal L. Crotzer, Jr. to dismiss the claim filed by defendant/creditor Walker Builders, Inc. The court has reviewed the evidence and arguments presented by both parties. The debtors' objection is due to be sustained in part and overruled in part.
On July 20, 1981, the debtor and creditor entered into a mortgage agreement. The mortgage agreement provided the debtor with $35,000 to pay for supplies and labor to build a home. In return, the agreement provided the creditor a note secured by a mortgage on the debtor's property in Walker County as described in the mortgage. The agreement provided for a 16 percent interest rate and a payment schedule of 240 monthly installments of $486.94, beginning on September 20, 1992. (Doc. 8) The Crotzers contend in their objection to claim that the mortgage agreement between them and Walker violates the consumer finance section (Chapter 19 of Title 5) of the Alabama Code, also known as the Mini-Code.
Ala.Code § 5-19-6 (1975)1 requires a cautionary statement to appear immediately above the space for the borrower's signature. Ala.Code § 5-19-42 limits the amount of charges on late payments to five percent of the scheduled payment or 50 cents, whichever is greater.
The copy of the Crotzers-Walker Builders, Inc. ("WBI") mortgage agreement provided to the court does not contain any cautionary statement as set out in the Mini-Code at Section 5-19-6. (Doc. 8). In the March 19, 1992 court proceedings on this motion, WBI's representative conceded that the mortgage agreement did not include a cautionary statement.
The Crotzers provided records showing that WBI charged late fees of more than five percent of the payment or 50 cents on 31 of the 45 times the late fees were charged. (See Doc. 13, Exhibit C). According to the court's computation, payment records indicate that the Crotzers paid between 10 and 13-percent-of-payment late charges between May of 1982 and November of 1988. These late charges total $1,608.89. Beginning with a late payment in February of 1990, the late charge drops back to $25.60 per payment, or five percent of the payment due. WBI also conceded these charges were as the debtor contended at hearing March 19, 1992.
The creditor, however, argued that Crotzer had not proven WBI was a creditor as defined in the Mini-Code, Section 5-19-1(3)3, as of July, 1981. It contended the Mini-Code did not apply.
To counter this argument, the Crotzers introduced into the record certified copies of 26 mortgages listing WBI as mortgagee recorded in Cullman County, Alabama, in 1980; and copies of 24 such mortgages recorded in Cullman County in 1981. All these mortgages provided for a finance charge. (Doc. 14).
January 2, 1992, Crotzer filed a voluntary Chapter Thirteen bankruptcy petition. WBI filed proofs of claim Nos. 1 and 2 for the regular obligation and arrearage on January 21, 1992. Claim No. 1 was for $63,957.06 in principal, interest and finance charges and additional charges; claim No. 2, $4,597.24 in arrearage.
The Crotzers filed an objection to WBI's proofs of claim on February 4, 1992. (Doc. 8). That objection contended that WBI violated the sections of the Mini-Code on late charges and cautionary statement.
The objection to claim asked that the court disallow the claim of WBI; declare its note and mortgage void because of the Mini-Code violation; order WBI to repay the Crotzers all sums received under the note and mortgage; and award costs, including attorneys fees, to the Crotzers.
WBI, in oral argument and written pleading, contended that Ala.Code § 5-19-11(b)4, added to the Mini-Code in 1990, should apply to limit any damages awarded in this case.
This court held a hearing on the objection March 19, 1992, taking the issue under advisement after the record was finalized July 30, 1992.
Neal L. and Mary L. Crotzer, Jr. have demonstrated that Walker Builders, Inc., was a "creditor" under the Alabama Mini-Code in 1981 when this promissory note/mortgage transaction was executed. The Crotzers have also shown that WBI violated two sections of the Mini-Code, with WBI conceding the validity of the facts that constitute those violations.
So the major issue in this case is the remedy. Application of Alabama statute to the facts shows that these violations do not cause WBI's mortgage to become unenforceable, but do require a reduction of WBI's claim against the Crotzers.
The Mini-Code only applies to those creditors who regularly extend or arrange for the extension of credit for which payment of a finance charge is required.
The definition of "creditor" as one "who regularly extends" credit in Ala. Code § 5-19-1(3) is central to determining application of the Mini-Code. However, Mini-Code itself never defines "regularly". The court, in construing a statute, must look to the language of the statute, the purpose and object of the enactment, and to other related statutes. See Sand Mountain Bank v. Albertville Nat. Bank, 442 So.2d 13, 18 (Ala.1983); Board of Dental Examiners v. King, 364 So.2d 311, 314 (Ala.Civ.App.1977); State v. Morrow, 162 So.2d 480, 482 (Ala.1964); and State v. AAA Motor Lines, 155 So.2d 509, 511 (Ala. 1963).
The intent of the Alabama Legislature in enacting the Mini-Code was to protect individual debtors from lenders with a substantial share of the market (creditors who "regularly" extend credit). That protection was not provided against individuals and entities which did not "regularly" extend credit. See Centennial Associates LTD v. Clark, 384 So.2d 616, 618 (Ala.1980).
The federal Truth In Lending Act, 15 U.S.C. § 1601 et seq. (1982) is closely related in policy goals to the Alabama act. Section 226.2(a)(17) of Regulation Z defines creditor and "a person who regularly extends credit." It is a useful measure of how model consumer protection legislation would view WBI's credit activities in the early 1980s. Footnote three of Section 226.2(a) states:
A person regularly extends consumer credit only if it is extended more than 25 times (or more than 5 times for transactions secured by a dwelling) in the preceding calendar year . . . (emphasis added)
The debtor proved that WBI extended credit secured by real estate mortgages 26 times in 1980, and 24 times in 1981 in one Alabama county. WBI was "regularly" extending credit for a finance charge in the early 1980s.
The court finds that Walker Buildings, Inc., was a "creditor" under Ala.Code § 5-19-1(3) in the summer of 1981 and subject to all provisions of the Alabama Mini-Code.
Section 5-19-11(b) of the Mini-Code limits Crotzer's remedy against WBI.
The Crotzers cite the general rule that new statutes should apply prospectively and argue that Section 5-19-11(b) should not apply in this case. In Alabama, statutes are applied prospectively unless there is an express statutory provision or clear legislative intent that the statute should apply retroactively. See Jones v. Casey, 445 So.2d 873, 875 (Ala.1983); Kittrell v. Benjamin, 396 So.2d 93, 94 (Ala. 1981), citing City of Brewton v. White's Auto Store, Inc., 362 So.2d 226 (Ala.1978).
However, statutes decreeing civil remedies are viewed differently. Remedial statutes such as Section 5-19-11(b) are applied retroactively in a sense, absent clear legislative intent to the contrary. See Jones v. Casey, 445 So.2d 873, 875 (Ala.1983); and Williams v. State, 504 So.2d 282, 284 (Ala. Civ.App.1986).
Prior to 1990, the thrust of Section 5-19-11 was much different than the amended version. It was a pro-consumer section which required a creditor to file an affidavit that it had not been in violation of any of the provisions of the Mini-Code before it could sue a debtor to collect. The creditor also had to file an affidavit attesting that the debtor was a resident of the county where the suit was filed.
"If such violation exists or if the debtor is not a resident of the county in which such action is filed, the action shall be abated," the old section read.
In 1990, the legislature amended the section. Section 5-19-11 now requires only that the creditor attest that it has the license required by the Mini-Code in order to sue. A sworn affidavit attesting compliance with Mini-Code is no longer a prerequisite to collection suit.
Additionally, the revised Section 5-19-11 at subsection (b) limits damages for violation of the Mini-Code "to the extent, but only to the extent, of the violation." Thus if a creditor violates the Mini-Code by failure to include the cautionary statement or by charging excessive late charges, the remedy of voiding the entire transaction is ruled out.
Damages would be limited to "actual damages." The amended section would not apply to Mini-Code sections where specific violation remedies are provided. However, neither of the sections involved in this case, Sections 5-19-4 or 5-19-6, provide for specific remedies.
Amended Section 5-19-11(b) is effective for remedies entered in cases filed on or after its effective date, April 17, 1990, even if the cause of action involves Mini-Code violations prior to the amendment.5 This effective date would be stayed only if the present litigation was already pending on the effective date.
The Crotzers' motion to deny WBI's claim, was filed ...
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