Lincoln First Bank of Rochester v. Rupert

• Decision Date: 16 December 1977
• Citation: 400 N.Y.S.2d 618,60 A.D.2d 193
• Parties: LINCOLN FIRST BANK OF ROCHESTER, Respondent, v. Edward L. RUPERT, Appellant.
• Court: New York Supreme Court — Appellate Division

Page 618

400 N.Y.S.2d 618

60 A.D.2d 193

LINCOLN FIRST BANK OF ROCHESTER, Respondent, v. Edward L. RUPERT, Appellant.

Supreme Court, Appellate Division, Fourth Department.

Dec. 16, 1977.

Monroe County Legal Assistance Corp., Rochester, for appellant (Peter D. Braun, Rochester, of counsel).

Nixon, Hargrave, Devans & Doyle, Rochester, for respondent (Dennis M. Hyatt, Rochester, of counsel).

Before MOULE, CARDAMONE, SIMONS and HANCOCK, JJ.

HANCOCK, Justice.

We hold that counterclaims asserted by the debtor, based on alleged violations of the Federal Truth In Lending Act (15 U.S.C. §§ 1601 et seq) and the New York Motor Vehicle Installment Sales Act (Personal Property Law, §§ 301 et seq) were not barred by the applicable statutes of limitations even though they would have been time-barred if asserted as separate actions.

Defendant purchased a used 1971 Plymouth Duster from Webster Chrysler Plymouth in March, 1974. He financed it by means of a Retail Installment Contract with Webster Chrysler Plymouth, dated March 17, 1974, which was assigned to plaintiff, Lincoln First Bank. On April 20, 1977, the bank sued defendant to recover monies allegedly unpaid under the contract. In his counterclaims set forth in the answer, served on May 12, 1977, and amended answer, served on June 17, 1977, defendant alleges violations of the disclosure provisions of the federal and state statutes. The court below has granted plaintiff's motion to dismiss all of defendant's counterclaims as time-barred.

The questions presented are:

1) whether 15 U.S.C. § 1640, subd. e, which states "(a)ny action under this section may be brought in any United States district court, or in any other court of contempt jurisdiction, within one year from the date of the occurrence of the violation," is a bar to defendant's two counterclaims, based upon violations of the Federal Truth In Lending Act (15 U.S.C. §§ 1601 et seq) and Regulation Z thereunder (12 CFR §§ 226.1 et seq), contained in an answer served more than one year from the date of the alleged violations (the date the Retail Installment Contract was signed); and

2) whether the defendant's third counterclaim, alleging non-compliance with the disclosure provisions of Personal Property Law, § 302, subd. 5, par. (1), is saved from the operation of the three-year statute of limitations (CPLR 214, subd. 2) by the tolling provision contained in CPLR 203, subd. c.

I. The Federal Truth In Lending Act Counterclaims.

Respondent contends that, because the one-year limitation provision (15 U.S.C. § 1640, subd. e) is an integral part of the Federal Truth In Lending Act (15 U.S.C. §§ 1601 et seq), it is substantive and not procedural and that it is, therefore, a limitation on the liability created by the statute which may not be tolled or extended. We agree with the general proposition that where, as here, a statute creates a right unknown at common law, and also establishes a time period within which the right may be asserted, the time limit is a substantive provision which "qualifies" the right in effect, a condition attached to the right as distinguished from a statute of limitation which must be asserted by way of defense (Romano v. Romano, 19 N.Y.2d 444, 447, 280 N.Y.S.2d 570, 572, 227 N.E.2d 389, 391). But to ascertain whether the substantive time limitation is to be applied rigidly, without exception, as respondent asserts, or whether there are circumstances under which it may be tolled or extended, we must look to the statute itself and its purpose to determine the Congressional intent. As stated in BURNETT V. NEW YORK CENTRAL RAILROAD CO. , 380 U.S. 424, AT 426-427, 85 S.CT. 1050, AT 1053, 13 L.ED.2D 941¹:

The basic question to be answered in determining whether, under a given set of facts, a statute of limitations is to be tolled, is one "of legislative intent whether the right shall be enforceable . . . after the prescribed time." Midstate Horticultural Co. v. Pennsylvania R. Co., 320 U.S. 356, 360, 64 S.Ct. 128, 88 L.Ed. 96, 101. Classification of such a provision as "substantive" rather than "procedural" does not determine whether or under what circumstances the limitation period may be extended (footnote omitted). As this Court has expressly held, the limitation period is not totally inflexible, but, under appropriate circumstances, it may be extended beyond three years (citations omitted). These authorities indicate that the basic inquiry is whether congressional purpose is effectuated by tolling the statute of limitations in given circumstances.

In order to determine congressional intent, we must examine the purposes and policies underlying the limitation provision, the Act itself, and the remedial scheme developed for the enforcement of the rights given by the Act.

(See, also, American Pipe and Construction Co. v. Utah, 414 U.S. 538, 94 S.Ct. 756, 38 L.Ed.2d 713.) Accordingly, we turn to the question of the statute's construction.

A basic and necessary consideration in the interpretation of a statute is the general purpose and policy underlying its enactment (McKinney's Cons. Laws of N.Y., Book 1, Statutes, § 96). A court, in construing a statute, should consider the "mischief sought to be remedied" and should favor the construction which will "suppress the evil and advance the remedy." (McKinney's Cons. Laws of N.Y., Book 1, Statutes, § 95.)

From an examination of the statute itself, one readily concludes that the purpose of the Federal Truth in Lending Act is to protect the borrower by requiring a full disclosure of the terms of the credit transaction, so that he may be better able to compare the cost of credit; and that the "mischief sought to be remedied" is the very type of non-disclosure in the retail installment contract about which defendant complains.

2 ² The statute, which is designed to prevent unscrupulous creditor practices, is remedial, and must be liberally construed to effectuate the Congressional intent (Littlefield v. Walt Flanagan and Company, 10 Cir., 498 F.2d 1133, 1136; N.C. Freed Company, Inc. v. Board of Governors of the Federal Reserve System, 2 Cir., 473 F.2d 1210, 1214, cert. den. 414 U.S. 827, 94 S.Ct. 48, 38 L.Ed.2d 61

. It is apparent from the statute also that the only method of enforcing the disclosure requirements provided by Congress is the civil remedy set forth in 15 U.S.C. § 1640. Thus, the holding, urged by respondent, that a consumer should be barred by the one-year limitation from asserting a Federal Truth in Lending Act counterclaim where the creditor has not commenced suit until the one-year period has expired, would frustrate the very purpose and spirit of the legislation. It would permit an unscrupulous creditor, by the simple expedient of withholding suit against an uninformed or trusting borrower, to ignore the disclosure requirements with the assurance that the borrower's truth-in-lending claims would be barred if he should be alerted to the creditor's violations when suit is finally commenced. We reject such an anomalous and unjust construction as contrary to the very ends Congress sought to achieve by enacting the legislation.

Nothing in the statute compels a different construction. On the contrary, that the statutory time limit applies only to "actions" and omits any reference to counterclaims, set-offs or recoupments, and that the statute's language is permissive and not mandatory (i. e. "may be brought" rather than "must be brought") support the interpretation we reach ³ (see McKinney's Cons. Laws of N. Y., Book 1, Statutes, § 177, subds. a and b).

Our holding that truth-in-lending counterclaims arising out of the transaction sued on should not be barred by the one year limitation in 15 U.S.C. § 1640, subd. e, is consistent with decisions in other jurisdictions, and in New York (see, e. g. Connecticut Bank & Trust Co. v. Ossen, 5 CCH Consumer Credit Guide P 98,182 (D.Conn. April 29, 1977); Wood Acceptance Co. v. King, 18 Ill.App.3d 149, 309 N.E.2d 403; First National City Bank v. Drake, N.Y.L.J., Sept. 27, 1973, p. 17, col. 6 (Civ.Ct., N.Y.Co. 1973), CCH Consumer Credit Guide (1969-1973 Transfer Binder) P 98,929; Continental Acceptance Corp. v. Rivera, 50 Ohio App.2d 338, 363 N.E.2d 772; Stephens v. Household Finance Corp., 566 P.2d 1163 (Okl.); Bankers Guaranty Corp. v. Powell, 5 CCH Consumer Credit Guide P 98,176 (D.C.Sup.Ct., May 11, 1977)). ⁴

Nor do we discern any intent inconsistent with our holding in Congress's action in amending 15 U.S.C. § 1640, in 1974, by adding subdivision h, which provides:

A person may not take any action to offset any amount for which a creditor is potentially liable to such person under subsection (a)(2) of this section against any amount owing to such creditor by such person, unless the amount of the creditor's liability to such person has been determined by judgment of a court of competent jurisdiction in an action to which such person was a party.

This section was not intended to apply to rights asserted in judicial proceedings, but rather to efforts by the debtor to deduct unilaterally from the amount he owes in advance of any court determination, the amount of the civil penalty allegedly resulting from the Truth In Lending Act violations (see Bankers Guaranty Corp. v. Powell, 5 CCH Consumer Credit Guide P 98,176 (D.C.Sup.Ct., May 11, 1977), note 10; Brooks v. Maryville Loan & Finance Co., 5 CCH Consumer Credit Guide P 98,427 (N.D.Ga.1976); Stephens v. Household Finance Corp., supra; Powers v. Sims and Levin Realtors, (E.D.Va.1975), 396 F.Supp. 12; contra, Public Loan Company, Inc. v. Hyde, 89 Misc.2d 226, 230, 390 N.Y.S.2d 971, 974).

It was error, therefore, to dismiss the first two counterclaims.

II. The New York Motor Retail Installment Sales Act Counterclaim.

Further, we do not agree with respondent's contention that defendant's claims under section 302, subd. 5, par. (1) of the Personal Property Law are time-barred. As contrasted with the Federal Truth In Lending Act, the...