Jones v. Fitch

• Decision Date: 11 January 1982
• Docket Number: No. 80-3448,80-3448
• Citation: 665 F.2d 586
• Parties: Gifton JONES, Jr., and Gracie Jones, Plaintiffs-Appellants, v. W. O. FITCH, Trustee, et al., Defendants-Appellees. . Unit A *
• Court: U.S. Court of Appeals — Fifth Circuit

Page 586

665 F.2d 586

Gifton JONES, Jr., and Gracie Jones, Plaintiffs-Appellants, v. W. O. FITCH, Trustee, et al., Defendants-Appellees.

No. 80-3448.

United States Court of Appeals Fifth Circuit.

Unit A ^*

Jan. 11, 1982.

Willie L. Rose, Lexington, Miss., for plaintiffs-appellants.

William C. Spencer, Eugene D. Brown, Jr., Holly Springs, Miss., for defendants-appellees.

Appeal from the United States District Court for the Northern District of Mississippi.

Before REAVLEY, RANDALL and SAM D. JOHNSON, Circuit Judges.

RANDALL, Circuit Judge:

This appeal involves an action to rescind a loan agreement, for material nondisclosures, under the Truth-In-Lending Act, 15 U.S.C. §§ 1601 et seq. (TILA), and for violations of the Mississippi Small Loan Regulatory Law, Miss.Code Ann. §§ 75-67-101, et seq. Petitioners are Gifton Jones, Jr. and Gracie Jones; respondents are National Loans, Inc. d/b/a First Mississippi Loans of Holly Springs, Mississippi, Inc. (National), W. O. Fitch, Trustee, and Clydean Fitch. Petitioners claimed that they had a right of rescission under 15 U.S.C. § 1635(a) and that the agreement was void under Mississippi law. The district court held that petitioners were not entitled to rescission under the TILA and dismissed without prejudice petitioners' claims under the Mississippi statute. We affirm.

On June 4, 1976, petitioners entered into a loan agreement with National, executing a promissory note, a security agreement and a separate deed of trust on their home. Petitioners subsequently became delinquent in their payments on this loan and entered into another loan agreement with National refinancing the previous loan. In connection with this refinancing, petitioners executed a promissory note, security agreement, separate deed of trust on their home and a waiver of rescission. National also at that time sold petitioners single credit life and credit disability insurance for Mr. Jones and dual interest property insurance on their household goods. Petitioners defaulted on this refinancing note also.

In January 1980, National instituted foreclosure proceedings. Respondent W. O. Fitch caused publication of the statutory "Notice of Trustee's Sale of Lands" beginning on January 17, 1980. In response to this notice, petitioners filed the instant lawsuit on February 1, 1980, seeking among other things, rescission of the loan agreement and cancellation of the deed of trust. ¹ The case was heard in the District Court for the Northern District of Mississippi on May 8, 1980. The court took the case under advisement and ordered memoranda on petitioners' asserted state law claims. On May 14, 1980, the court ruled that there was no violation of the TILA and no right to rescind under 15 U.S.C. § 1635(a) and the court refused to assert pendent jurisdiction over the state law claims. Final judgment was entered on May 27, 1980, ordering that petitioners take nothing and that their state law claims be dismissed without prejudice in order to permit petitioners to pursue those claims in state court. Petitioners appeal that judgment on three grounds: (1) they claim a continued right to rescind the loan agreement because of National's failure to identify in the disclosure statement the real property securing the loan; (2) they claim a continued right to rescind because of National's failure to include the cost of credit life and credit disability insurance in the "finance charge" portion of the disclosure statement; and (3) they claim the district court's dismissal of their state claims was an abuse of discretion.

I. Identification of Real Property.

Among other things, the disclosure statement executed by petitioners indicated that the loan was secured by a Deed of Trust on real property, but did not identify the property. The disclosure statement was marked with an "X" in the box next to the sentence: "This Loan is also secured by a Deed of Trust on real property identified as follows: ________." There was no further description of the property in the space following the sentence. Petitioners contend that the failure to identify in the disclosure statement the real property securing the loan was a material nondisclosure resulting in a continued right of rescission under the TILA.

At the time of this suit, § 1635(a) provided in pertinent part:

Except as otherwise provided in this section, in the case of any consumer credit transaction in which a security interest, including any such interest arising by operation of law, is or will be retained or acquired in any real property which is used or is expected to be used as the residence of the person to whom credit is extended, the obligor shall have the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the disclosures required under this section and all other material disclosures required under this part, whichever is later, by notifying the creditor, in accordance with regulations of the Board, of his intention to do so.

(emphasis added). See also 15 U.S.C. § 1635(f) (limiting the time for exercise of the right of rescission to three years after consummation of the transaction). Petitioners' right of rescission, therefore, depends on whether National "failed to make 'all other material disclosures' so that the three day period did not run." Bustamente v. First Federal Savings and Loan Assoc., 619 F.2d 360, 363 (5th Cir. 1980).

"(I)n order for a nondisclosure to be material for rescission purposes under § 1635," this court has acknowledged, "the plaintiff must show at the least that the nondisclosure of which he complains was that 'which a reasonable consumer would view as significantly altering the "total mix" of information made available. That is, the omission need not be so important that a reasonable consumer would probably change creditors. However, the information must be of some significance to a reasonable consumer under the circumstances in his " comparison shopping" for credit.' " Davis v. Federal Deposit Ins. Corp., 620 F.2d 489, 492 (5th Cir. 1980) (quoting Ivey v. United States Department of Housing and Urban Development, 428 F.Supp. 1337 (N.D.Ga.1977)). We agree with petitioners that the test for "materiality" is an objective, rather than subjective, test, "based on what a reasonable consumer would find significant in deciding whether to use credit." Bustamente, 619 F.2d at 364. Nonetheless, we do not believe that under the circumstances of this case, the failure to identify in the disclosure statement the real property securing the loan constitutes a failure to make a "material disclosure" for purposes of § 1635(a). Here, the disclosure statement disclosed that the loan was secured by a deed of trust on real property, the deed of trust was executed as a part of the single transaction and there is no suggestion that petitioners did not know of the security interest being taken in their home. In such circumstances, we do not believe that the omission of a legal description of the property from the disclosure statement would be viewed by a reasonable consumer as significantly altering the total mix of information made available.

Petitioners rely on 15 U.S.C. § 1639(a)(8) in support of their argument that a description of the property on the disclosure statement was a material disclosure within the meaning of § 1635(a). Section 1639(a)(8) provides that:

(a) Any creditor making a consumer loan or otherwise extending consumer credit in a transaction which is neither a consumer credit sale nor under an open end consumer credit plan shall disclose each of the following items, to the extent applicable:

....

(8) A description of any security interest held or to be retained or acquired by the creditor in connection with the extension of credit, and a clear identification of the property to which the security interest relates.

Petitioners present a long list of cases allegedly supporting the proposition that a failure to adequately describe the property which is the subject of a security interest constitutes a violation of the TILA and thus continues the right of rescission under § 1635(a). These cases, however, involved actions for statutory damages under § 1640, not actions for rescission under § 1635(a). Although relief under §§ 1635(a) and 1640 is not mutually exclusive, ² we explained in Bustamente that "(u)nlike the general civil liability section of the Truth-in-Lending Act, 15 U.S.C. § 1640, which provides for liability for any nondisclosure, the rescission provisions under 15 U.S.C. § 1635 require that the nondisclosure be material...." 619 F.2d at 363. In Davis we stated:

We have no doubt that, by conditioning the continuing availability of rescission upon instances of material nondisclosure, Congress intended that rescission would not be appropriate in every case in which penalties would be. As a member of this Panel has earlier concluded, "(t)he Congress wisely prescribed a limited civil penalty for even 'technical' violations of the statute but circumscribed the more harsh rescission remedy by requiring that liability therefor depend on a 'material' violation."

620 F.2d at 492 (citation omitted). Whether or not the identification of the property in the deed of trust rather than in the disclosure statement was a technical violation of § 1639(a)(8), therefore, entitling petitioners to relief under § 1640, is not dispositive of petitioners' right of rescission under § 1635(a). ³

In Davis, we held that the making of certain disclosures in separate statements would not result in material non-disclosures for purposes of § 1635(a), stating:

The failure to break down the $25 "other charges" figure into its component charges did not prevent them from making an otherwise fully-informed credit choice, especially inasmuch as the itemized charges were supplied on a separate statement. And the alleged failure adequately to describe on the face of the disclosure...