In re Gurst
| Decision Date | 20 November 1987 |
| Docket Number | 87-0277S.,Adv. No. 86-1150S,Bankruptcy No. 86-04726K |
| Parties | In re Sheldon GURST, Debtor. PHILADELPHIA CONSUMER DISCOUNT COMPANY, Plaintiff, v. Sheldon GURST, Margot Gurst, Harvey Gurst, Kimberly Gurst, Defendants. Sheldon GURST, Plaintiff, v. PHILADELPHIA CONSUMER DISCOUNT COMPANY, Defendant. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Irwin Trauss, Community Legal Services, Inc., Philadelphia, Pa., for debtor.
Martin N. Ghen, Doylestown, Pa., for Philadelphia Consumer Discount Co.
Edward Sparkman, Philadelphia, Pa., trustee.
Approximately five months ago we issued an Opinion addressing this Adversary proceeding and other related matters involving this Debtor, reported at 75 B.R. 575 (Bankr.E.D.Pa.1987). There, we attempted to set forth a logical procedural progression which would ultimately allow us to resolve all of the matters addressed therein. As we expected, the decision of this Adversary proceeding, which is undertaken herein, allows us to resolve all of these matters and to thus hopefully bring near a close the rather excessive measure of the disputes raised by the Debtor in this case and the Debtor's spouse Margot in a companion case, Bankr. No. 85-00480K, on one hand, and the Defendant in this Adversary case, PHILADELPHIA CONSUMER DISCOUNT COMPANY (hereinafter "the Creditor"), on the other.
In our recent decisions in In re Jones, Jones v. Mid-Penn Consumer Discount Co., 79 B.R. 233 (Bankr.E.D.Pa.1987); In re Melvin, 75 B.R. 952 (Bankr.E.D.Pa. 1987); and In re Tucker, 74 B.R. 923 (Bankr.E.D.Pa.1987), we directly addressed several of the parties' claims and ultimately reached results there in matters featuring, like the instant proceeding, claims by consumer-debtors that they are entitled to rescind loan transactions pursuant to the federal Truth-in-Lending Act, 15 U.S.C. § 1601, et seq. (), several of which have been inter-related with applicable state law. Similar to our conclusions there, we hold, here, as follows: (1) The Debtor does indeed have a right to rescind both transactions in issue, due to the Creditor's premature disbursements of the loan proceeds in one transaction and seriously defective disclosures of security interests taken by the Creditor in the other; (2) The Debtor's usury claim, based upon interpretation of a provision of the Pennsylvania Consumer Discount Company Act, 7 P.S. § 6201, et seq. (), as in Jones and Tucker, must be rejected; (3) The Creditor, by refusing to acknowledge the Debtor's valid rescission, not only suffers a loss of its security but, given the prayers for relief, facts, and equities present in this case, its entire Claim; and (4) The Debtor is also entitled to statutory damages in light of the Creditor's failure to acknowledge the rescission and the Creditor's failure to plead an applicable statute of limitations defense.
We refer the reader to our past Gurst family installment appearing in the Opinion at 75 B.R. 575 for the procedural history of the Adversary proceeding before us through June 30, 1987.1 True to our Order, we conducted the trial of this matter in two segments on July 8, 1987. As it developed, the parties could not attain a Stipulation of Facts, but rather expended well over an hour of court time gathering together seventy-nine Exhibits. Testimony was adduced from the Debtor, his wife Margot, their son Harvey, and, called as a witness by both parties, Lewis Peters, the Creditor's long-time office manager and presently its Vice President.
At the close of the hearing, we allowed both parties an extension of the July 24, 1987, deadline for post-trial briefing, until July 25, 1987, and August 7, 1987, for the Debtor and the Creditor, respectively. Two pleas for extensions later, we granted what we expressly stated would be a last revision of our schedule to allow the Debtor until September 30, 1987, to file an Opening Brief; the Creditor, until October 31, 1987, to file its Brief; and the Debtor until November 16, 1987, to file a Reply Brief. Nevertheless, the parties unsuccessfully attempted one further effort at extending even those deadlines.
The inability of the parties to reach a Stipulation of Facts obliges us to render our decision in the form of Findings of Fact, Conclusions of Law, and a Discussion. We shall attempt to confine ourselves to addressing only those facts relevant to the ultimately-decisive issues rather than the multitude presented in the complete record.
1. The Debtor and his wife Margot (hereinafter referred to as "the Gursts") entered into the initial potentially relevant transaction with the Creditor on August 26, 1977, at which time they paid off a loan to another loan company of $2,147.11 and borrowed an additional $1,490.24, resulting in a total indebtedness (including pre-paid-finance charges) of $6,000.00, secured by a mortgage on their residence at 11732 Millbrook Road, Philadelphia, Pennsylvania 19154 (hereinafter "the Home").
2. This initial loan was refinanced four times, the final transaction in this stream occurring on August 25, 1982. In each transaction, the Creditor took a mortgage against the Home as security.
3. On March 28, 1978, the Gursts' son Harvey made a loan from the Creditor to purchase a 1974 Chevrolet automobile in the net amount of $2,523.60. This loan, the total indebtedness in which was $3,816.00, was secured by the auto, and, having been co-signed by the Gursts, was further secured by an additional mortgage on the Home.
4. This loan was refinanced on two occasions, the final transaction in this stream occurring on August 23, 1982. In the first refinancing transaction, Harvey's wife Kimberly was a co-borrower, the Gursts were co-signers, and security was taken in the 1974 Chevrolet, a 1977 Ford automobile titled to Kimberly's father but utilized by her, and the Home.
5. The Security Agreement executed in the last transaction in this stream, in which Kimberly and the Gursts were also parties, recited that the only security taken was a mortgage in the Home. But see Finding of Fact 13 infra. However, the Creditor retained encumbrances on both autos until the Creditor's assignee gave Harvey the title to the Chevrolet immediately prior to its being junked subsequent to this loan. The encumbrance remains on the Ford to this day.
6. The benefit, use, and advantage of the proceeds of each of the loans involving Harvey were derived solely by Harvey and/or his wife and not by the Gursts, and the Creditor had no reason to know that the Gursts would receive any benefit, use, or advantage therefrom.
7. Since a security interest was taken in the Home in each of the eight transactions in both streams, the Creditor was obliged to give the borrowers a notice of their right to rescind each transaction.
8. On August 23, 1982, the same date of the last transaction including them, Harvey and Kimberly were given two checks, one in the amount of the balance on the prior loan, $4,526.38, which they endorsed and was negotiated the next day, prior to the rescission date, August 26, 1982; and the other in the amount of new proceeds in this loan, $313.87, which was not negotiated until August 30, 1987.
9. On August 25, 1982, the same date as the last transaction in the stream involving them alone, the Gursts were given a check in the amount of the new proceeds given to them in the loan, $762.54, which they endorsed and negotiated the same day, prior to the rescission date, August 30, 1982. Furthermore, the Mortgage itself includes stampings indicating that it was filed at 9:25 A.M. on August 30, 1982, prior to the expiration of the rescission period.
10. Given the documentary support for same, we totally credit the testimony of Margot Gurst that, in the transaction involving them alone, the loan proceeds were disbursed to the Gursts immediately. We find that the documents rebut any denials of Mr. Peters on this score.
11. However, the documentary support in the transaction involving Harvey is ambiguous —the new proceeds were not disbursed until after the rescission date. The testimony of Mrs. Gurst does not appear to relate to this loan, and, in light of Mr. Peters' testimony to the contrary, we do not find that the loan proceeds were disbursed prematurely in this transaction.
12. The Combination Promissory Note, Security Agreement and Disclosures Required by Federal Law (hereinafter "the Combo form") utilized in the August 25, 1982, transaction indicated, by the checking of three boxes in the portion disclosing SECURITY, that the loan is secured by credit insurance proceeds, the Gursts' residence, and the Security Agreement. The SECURITY AGREEMENT portion, while not having any applicable boxes checked, has typed in a reference to security in the Home.
13. The Combo form utilized in the August 23, 1982, transaction, meanwhile, has only one box checked in the portion disclosing SECURITY in credit insurance proceeds. The SECURITY AGREEMENT portion is filed exactly as in the Combo form provided in the August 25, 1982, loan.
14. Mr. Peters conceded that "mistakes" were made in completion of the August 23, 1982, Combo form, particularly in failing to make any reference in the disclosure portion of the form to the security taken in the Home in SECURITY AGREEMENT portion of the Combo form. We find Mr. Peters' candor refreshingly accurate.
15. The "proceeds of loan(s) available to debtor(s)" in these transactions were $4,840.25 (August 23, 1982, loan) and $4,694.88 (August 25, 1982, loan).
16. The payments, as best we can ascertain from records of the Creditor which are of doubtful legibility, totalled $4,311.67 on the August 25, 1982, loan, and $799.02 on the August 23, 1982, loan.2
17. On August 22, 1985, the Gursts, by their counsel, had hand-delivered to the Creditor (...
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