Murphy v. BENEFICIAL FINANCE CO. OF CENT. OHIO, Civ. A. No. 75-250

• Decision Date: 12 July 1976
• Docket Number: 75-645 and 75-878.,Civ. A. No. 75-250,75-266,75-254,75-272,75-286,75-270,75-262
• Citation: 443 F. Supp. 463
• Parties: Denis J. MURPHY, Trustee, Plaintiff, v. BENEFICIAL FINANCE COMPANY OF CENTRAL OHIO, Defendant. Denis J. MURPHY, Trustee, Plaintiff, v. BENEFICIAL FINANCE CO., Defendant. Denis J. MURPHY, Trustee, Plaintiff, v. BENEFICIAL FINANCE CO. OF CENTRAL OHIO et al., Defendants. Donald M. DRAKE, Trustee, Plaintiff, v. BENEFICIAL FINANCE CO. OF COLUMBUS, Defendant. Craig M. STEWART, Trustee, Plaintiff, v. BENEFICIAL FINANCE CO. OF CENTRAL OHIO, Defendant. Denis J. MURPHY, Trustee, Plaintiff, v. PUBLIC FINANCE COMPANY, Defendant. Craig M. STEWART, Trustee, Plaintiff, v. BENEFICIAL FINANCE COMPANY OF COLUMBUS, Defendant (two cases). Craig M. STEWART, Trustee, Plaintiff, v. PUBLIC FINANCE CORPORATION, Defendant.
• Court: U.S. District Court — Southern District of Ohio

443 F. Supp. 463

Denis J. MURPHY, Trustee, Plaintiff, v. BENEFICIAL FINANCE COMPANY OF CENTRAL OHIO, Defendant.

Denis J. MURPHY, Trustee, Plaintiff, v. BENEFICIAL FINANCE CO., Defendant.

Denis J. MURPHY, Trustee, Plaintiff, v. BENEFICIAL FINANCE CO. OF CENTRAL OHIO et al., Defendants.

Donald M. DRAKE, Trustee, Plaintiff, v. BENEFICIAL FINANCE CO. OF COLUMBUS, Defendant.

Craig M. STEWART, Trustee, Plaintiff, v. BENEFICIAL FINANCE CO. OF CENTRAL OHIO, Defendant.

Denis J. MURPHY, Trustee, Plaintiff, v. PUBLIC FINANCE COMPANY, Defendant.

Craig M. STEWART, Trustee, Plaintiff, v. BENEFICIAL FINANCE COMPANY OF COLUMBUS, Defendant (two cases).

Craig M. STEWART, Trustee, Plaintiff, v. PUBLIC FINANCE CORPORATION, Defendant.

Civ. A. Nos. 75-250, 75-254, 75-262, 75-266, 75-270, 75-272, 75-286, 75-645 and 75-878.

United States District Court, S. D. Ohio, E. D.

July 12, 1976.

COPYRIGHT MATERIAL OMITTED

Denis J. Murphy, pro se.

John C. Elam, Robert W. Werth, Columbus, Ohio, for Beneficial Finance.

Craig M. Stewart, pro se.

Edward F. Lynch, Columbus, Ohio, for Public Finance.

OPINION AND ORDER

DUNCAN, District Judge.

These civil actions are instituted under Title I of the Consumer Credit Protection Act, as amended, generally known as the Truth in Lending Act, 15 U.S.C. § 1601 et seq., seeking monetary relief for alleged violations of the Act and the regulations promulgated thereunder, Regulation Z, 12 C.F.R. § 226.1 et seq. Jurisdiction of this Court is had pursuant to § 130(e) of the Act, 15 U.S.C. § 1640(e). Plaintiff in each case is a trustee in bankruptcy vested by operation of law with title to a right of action under the Truth in Lending Act. 11 U.S.C. § 110(a). See In re Dunne, 407 F.Supp. 308 (D.R.I.1976); Porter v. Household Finance Corporation, 385 F.Supp. 336 (S.D.Ohio 1974); Murphy v. Household Finance Corporation, 424 F.Supp. 176 (S.D. Ohio 1976). Each complaint alleges that defendant Beneficial Finance Company of Central Ohio, Beneficial Finance Company of Columbus, or Public Finance Corporation extended consumer credit to the respective bankrupts and in so doing violated provisions of the Truth in Lending Act and Regulation Z. The cases are before the Court upon the motion of the trustees for summary judgment. The Court finds that there is a common question presented regarding the disclosure of a security interest retained by defendants and thus believes it proper to consolidate these cases for purposes of determining whether a violation of the Act has occurred. The Court further finds, upon a review of the documents, memoranda and affidavits submitted by the parties, that there is in these cases no factual dispute concerning the nature of the transactions involved and the nature and extent of the disclosures made by the respective creditors. Since it is the law, and not the facts, which is contested in these cases, the Rule 56 procedure for summary judgment is an appropriate vehicle.

Civil Action No. 75-262 involves two separate credit advances, one a consumer credit sale not under an open end plan, see 15 U.S.C. § 1602(g) through (i) and 15 U.S.C. § 1638(a), and the other a consumer loan not under an open end plan, see 15 U.S.C. § 1602(g) through (i) and 15 U.S.C. § 1639(a). The remaining cases concern consumer loans not under an open end plan. Public Finance Corporation, Beneficial Finance Company of Central Ohio, and Beneficial Finance Company of Columbus regularly extend credit for which the payment of a finance charge is required, rendering them "creditors" under the statutory definition, 15 U.S.C. § 1602(f). Plaintiffs allege, inter alia, that the defendants have failed to disclose the security interest retained or acquired and have failed to give a clear identification of the property to which the security interest relates, in violation of 15 U.S.C. § 1639(a)(8) and Regulation Z, 12 C.F.R. § 226.8(a)(5). 15 U.S.C. § 1639(a)(8) (emphasis supplied) provides:

(a) Any creditor making a consumer loan . . . 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.

Regulation Z, 12 C.F.R. § 226.8(a) (emphasis supplied) provides, in pertinent part, as follows:

At the time disclosures are made, the creditor shall furnish the customer with a duplicate of the instrument or a statement by which the required disclosures are made and on which the creditor is identified. All of the disclosures shall be made together on either (1) the note or other instrument . . . or (2) one side of a separate statement which identifies the transaction.

12 C.F.R. § 226.8(b)(5) (emphasis supplied) concerns consumer loans and provides in pertinent part:

(b) In any transaction subject to this section, the following items, as applicable, shall be disclosed:

. . . . .

(5) A description or identification of the type 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 or, if such property is not identifiable, an explanation of the manner in which the creditor retains or may acquire a security interest in such property which the creditor is unable to identify. In any such case where a clear identification of such property cannot properly be made on the disclosure statement due to the length of such identification, the note, other instrument evidencing the obligation, or separate disclosure statement shall contain reference to a separate pledge agreement, or a financing statement, mortgage, deed of trust, or similar document evidencing the security interest, a copy of which shall be furnished to the customer by the creditor as promptly as practicable. If after-acquired property will be subject to the security interest, or if other or future indebtedness is or may be, secured by any such property, this fact shall be clearly set forth in conjunction with the description or identification of the types of security interest held, retained or acquired.

In the seven cases in which a Beneficial Finance Company is a defendant,¹ disclosure forms were used which referenced a security agreement of a particular date, and included a box with the word "Furniture" beside it, which box was checked. In the same area of the form the following language appears:

If the box alongside the word "Furniture" is checked, the Security Agreement identified by the date shown hereon covers all of the consumer goods of every kind then owned or thereafter acquired by the Borrowers in replacement thereof and then or thereafter located at the Borrowers' place of residence set forth hereon. Such Security Agreement secures future advances or loans made by Lender to Borrowers, at Lender's option, within five years of the date of such Security Agreement.

In the two cases in which Public Finance Corporation is a defendant,² Public Finance used nearly identical disclosure forms which referenced a security agreement of a particular date and included a checked box after which the following language appeared:

Consumer Goods including but not limited to household goods, furniture, appliances and personal property of all kinds and description and all additions, replacements and accessories thereto which are hereafter acquired by borrowers.

The common issue in these cases is whether such language adequately complies with the disclosure requirements of 15 U.S.C. § 1639(a)(8) and Regulation Z, 12 C.F.R. §§ 226.8(b)(5) and 226.8(a), set forth hereinabove.

These credit transactions all occurred in Ohio, which, like other Uniform Commercial Code jurisdictions, permits the acquisition of a security interest (as additional security) in after-acquired consumer goods only if the goods are "accessions" or if the borrower obtains rights to the after-acquired goods within ten days after the secured party gives value. R.C. 1309.15(D)(2).³ "Accessions" are goods which are "installed in or affixed to other goods." R.C. 1309.33(A).⁴ Defendants Beneficial and Public Finance in the instant cases disclosed the acquisition of a security interest in, inter alia, after-acquired "replacements" of consumer goods, without reference to "accessions" or to a ten-day limitation period. Under prevailing court decisions such disclosure is violative of the statute and regulations set out hereinabove.

Perhaps the most recent and most pertinent reported decision on the question of the adequacy of disclosure of security interests is Tinsman v. Moline Beneficial Finance Company, 531 F.2d 815 (7th Cir. 1976). In Tinsman Moline Beneficial used disclosure language nearly identical to that used by defendants Beneficial in the instant cases: "All of the consumer goods of every kind now owned or hereafter acquired by Debtors in replacement of said consumer goods and now owned or hereafter located in or about the place of residence of the Debtor at the address shown above." 531 F.2d at 817. The Seventh Circuit rejected Moline Beneficial's contention that replacements of collateral referred only to proceeds of collateral. The Court recognized that a security interest may properly attach to proceeds of collateral under the Uniform Commercial Code, but it found that

"replacement" is not synonymous with "proceeds" as defined by UCC § 9-306(1). Replacement goods may be financed from sources other than proceeds. Yet all replacements would be covered by defendant's security arrangement, regardless of whether they were purchased within the 10-day limitation.

531 F.2d at 818 (footnote omitted). And in Woods v. Beneficial Finance Company of Eugene, 395 F.Supp. 9, 14 (D.Ore.1975), the court stated, "Beneficial's `replacement'...