Montoya v. Postal Credit Union, 79-1198

• Decision Date: 17 October 1980
• Docket Number: No. 79-1198,79-1198
• Citation: 630 F.2d 745
• Parties: Faustin and Georgia MONTOYA, Plaintiffs-Appellees, v. POSTAL CREDIT UNION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 745

630 F.2d 745

Faustin and Georgia MONTOYA, Plaintiffs-Appellees, v. POSTAL CREDIT UNION, Defendant-Appellant.

No. 79-1198.

United States Court of Appeals, Tenth Circuit.

Argued May 6, 1980.

Decided Aug. 18, 1980.

Rehearing Denied Oct. 17, 1980.

Herbert A. Delap of Shafroth & Toll, P.C., Denver, Colo., for defendant-appellant.

Peter H. Klages of Legal Aid Soc. of Albuquerque, Inc., Albuquerque, N.M. (Elena Spielman and Armando Torres, Albuquerque, N.M., with him on the brief), for plaintiffs-appellees.

Before SETH, Chief Judge, BREITENSTEIN and DOYLE, Circuit Judges.

SETH, Chief Judge.

The plaintiffs who are husband and wife brought this suit under the Consumer Credit Protection Act, 15 U.S.C. § 1601, et seq., against the Postal Credit Union. The complaint alleges that certain required disclosures were not made as to New Mexico law relating to security on after-acquired property.

The record shows that the plaintiffs had secured a loan from the Postal Credit Union some five or six years before this suit. The loan was secured by a deed of trust on plaintiffs' house. This loan was changed several times, but by reason of nonpayment the defendant brought suit against plaintiffs in a state magistrate court in Albuquerque, New Mexico to obtain possession. The Montoyas were represented by the lawyer who represents them in this action. The case was set for trial. The magistrate suggested that the matter be settled and the parties agreed on a last-minute settlement. Thus the Credit Union agreed to dismiss the suit, and the Montoyas agreed to drop their counterclaim. It was agreed that the loan would again be rewritten to include with the then principal amount the expense the Credit Union had incurred in the magistrate suit. The loan was then in default. The security was the house and some personal property.

The stipulation for dismissal and the loan papers were prepared by the Credit Union for signature on January 19th, but they were not signed by the Montoyas until January 27th. The stipulation of dismissal was filed with the magistrate on February 8th and the case was dismissed. On March 30th this suit was filed.

The asserted failure to disclose in the loan papers signed pursuant to the settlement of the magistrate court suit was of a provision in New Mexico law, derived from the Uniform Commercial Code, relating to after-acquired property. This law provides in substance that a security interest including after-acquired property covers only such property acquired by the borrower within ten days after the lender "gives value." (N.M.S.A. § 55-9-204(4)(b)).

Thus the failure to disclose asserted by the plaintiffs in this action was of this ten-day statutory limitation. The fact was disclosed that the security interest covered after-acquired property, but the state law ten-day limitation was not. The basic issue presented is whether this element of state law should have been disclosed. It is apparent that after the ten-day period the after-acquired clause is ineffective to cover newly acquired property. The disclosure statement here concerned stated, "The Security Agreement secures future advances and covers after acquired property." As to the after-acquired property clause under New Mexico law, there are other provisions than the ten-day limitation which are significant. There are also provisions in the law directed to different types of property under the clause, and some case law.

I.

It is clear that under 15 U.S.C. § 1639(a)(8) and Regulation Z (12 C.F.R. § 226.8(b)(5)) the lender must disclose the fact that the security interest covers after-acquired property. Regulation Z in part states that "(i)f after-acquired property will be subject to the security interest . . . this fact shall be clearly set forth." (12 C.F.R. § 226.8(b)(5)). The question is whether this is the extent of the obligation or whether state law variations as to the limits and effect of after-acquired property provisions under local law need also be described.

In Federal Reserve Board Letter 1053 the statement is made:

"As our previous letter indicates, a simple disclosure of the fact that after-acquired property may be subject to the security interest would be sufficient to comply with the clear language of § 226.8(b)(5), without an explanation of the various conditions and limitations on such interests which may be imposed by the applicable State law. However, the fact that the creditor need not disclose such limitations and conditions does not mean that the creditor may affirmatively misstate the scope of the security interest, in disregard of those limitations. If, in fact, the creditor discloses an interest in 'all after-acquired property,' when the interest would actually attach only to property acquired by the borrower within a certain period of time, such a disclosure would be inaccurate and misleading in violation of Regulation Z." (Emphasis supplied.)

Also in Federal Reserve Board Letter 983 the position is stated in part that:

"Staff's response indicated that the description of the security interest must accurately reflect the type of security interest that may be validly acquired under State law, in order to comply with § 226.8(b)(5). Letter 829 has been interpreted to require that the 10-day limitation on after-acquired property be included in the security interest disclosure under that section.

"Upon further consideration of that letter, staff believes that, to the extent that it would require a creditor to disclose limitations on after-acquired property, Letter 829 should be modified. In staff's opinion, it would be sufficient, in disclosing an after-acquired property clause under § 226.8(b) (5), to state simply that the security interest covered such property, without further describing the manner and conditions under which the interest attaches. We believe that this would comply with the relevant provisions in that section, which requires the creditor to clearly set forth the fact that after-acquired property will be subject to the security interest." (Emphasis supplied.)

Several cases including Johnson v. McCrackin-Sturman Ford, Inc., 527 F.2d 257 (3d Cir.), discuss the weight to be given staff letters and memos which interpret the statutes or regulations of the Board. The matter would seem to be put at rest by the Court in Ford Motor Credit Co. v.Milhollin, --- U.S. ----, 100 S.Ct. 790, 63 L.Ed.2d 22. The Court there said: "Unless demonstrably irrational, Federal Reserve Board staff opinions construing the Act or Regulation should be dispositive for several reasons." The Court then describes the several reasons why agency interpretation should be followed and in a footnote at 100 S.Ct. 797 states:

"To be sure, the administrative interpretations proffered in this case were issued by the Federal Reserve staff rather than the Board. But to the extent that deference to administrative views is bottomed on respect for agency expertise, it is unrealistic to draw a radical distinction between opinions issued under the imprimatur of the Board and those submitted as official staff memoranda. See Public Information Letter No. 444 (1969-1974 Trans. Bind.) (CCH) Cons.Cred.Guide P 30,640 (1971). At any rate, it is unnecessary to explore the Board/staff difference at length, because Congress has conferred special status upon official staff interpretations. . . . "

Generally on the Board's rule-making power, see Mourning v. Family Publications Service, Inc., 411 U.S. 356, 93 S.Ct. 1652, 36 L.Ed.2d 318. See the "new Act," Pub.L. 96-221.

It is apparent that state law controls the consequences of the after-acquired property provision as it does most, if not all, other aspects of a transaction such as this. It is not a matter of state law definition, but instead a segment of the body of state statutes and court opinions which relate to and govern credit transactions. Once a requirement is made that state law consequences of a...