Powers v. Sims and Levin

• Decision Date: 01 October 1976
• Docket Number: No. 75-1768,75-1768
• Parties: Eugene Roosevelt POWERS and Lila Virginia Powers, Appellees, v. SIMS AND LEVIN, Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1216

542 F.2d 1216

Eugene Roosevelt POWERS and Lila Virginia Powers, Appellees, v. SIMS AND LEVIN, Appellant.

No. 75-1768.

United States Court of Appeals Fourth Circuit.

Argued Jan. 6, 1976.

Decided Oct. 1, 1976.

John W. Pearsall, Richmond, Va. (McCaul, Grigsby & Pearsall, Richmond, Va., on brief), for appellant.

Louis A. Sherman, Atty., Neighborhood Legal Aid Society, Inc., Richmond, Va. (John M. Levy, Richmond, Va., and Robert F. Flinn, Fairfax, Va., Attys., Neighborhood Legal Aid Society, Inc., on brief), for appellees.

Before HAYNSWORTH, Chief Judge, and WINTER and CRAVEN, Circuit Judges.

HAYNSWORTH, Chief Judge:

Under the Truth-in-Lending Act ¹ and the regulations known as Regulation Z, ² the plaintiffs, husband and wife, by this action sought the maximum civil penalties, rescission of the home improvement loan contract and vesting of the property constituting home improvements in them without further obligation on their part to repay any of the funds advanced to them or in their behalf. The district court granted summary judgment for the plaintiffs upon findings and conclusions that the defendant had violated the Act in four respects. It awarded the maximum civil penalty of $1,000 to each of the plaintiffs, declared their home improvement loan contract rescinded and title to the home improvements vested in the plaintiffs without further obligation of repayment. It also ordered the defendant to pay the plaintiffs' attorneys' fees in the amount of $1,500. Powers v. Sims and Levin Realtors, E.D.Va., 396 F.Supp. 12.

Upon a different ground, we think the Truth-in-Lending Act was violated, though we think the plaintiffs were entitled to only one civil penalty, not two. We take a different view of the matter of the rescission and vesting of the title of the home improvements in the plaintiffs.

The plaintiffs, desiring to effect improvements to their home at an estimated cost of $1250, negotiated a loan to themselves from the defendant for $5,000. The extra money was needed to repay a previous loan upon which a balance of $2,758.13 was then due to the First & Merchants National Bank and to pay delinquent fire insurance premiums and outstanding real estate taxes. Including $5.50, the fee for cancellation of the earlier mortgage, the total sum to be disbursed in satisfaction of outstanding debts of the Powers was $3,303.85.

As the first monthly installment, plaintiffs made a payment of $50, whereupon a dispute developed among the parties whether the monthly installments negotiated by the parties were to be $50 or $65. Meanwhile, the Powers had also become involved in a dispute with the contractor whom they had obtained to effect the improvements. This led them to seek legal advice.

Upon advice of counsel, Mr. Powers wrote to the defendant on September 20, 1974 giving notice of cancellation of the loan agreement upon the ground that neither he nor his wife had been furnished a disclosure statement as required by the Act. The defendant responded that its papers showed that the plaintiffs had been furnished the disclosure statement and rejected the attempted cancellation. ³ On October 1, 1974, Mr. Powers again wrote to the defendant offering to rescind the loan transaction and this time offering to return the property constituting the improvements. The defendant responded that it would not agree to a rescission unless plaintiffs returned the home improvements or their reasonable value and the amount which had been expended in satisfaction of the earlier debts. Alternatively, the defendant offered to recast the note and deed of trust to provide a longer period of repayment during which the monthly payments would be $50 rather than $65. These alternative proposals were rejected by the plaintiffs, who contended that they were not required to reimburse the defendant for the amount it had spent to discharge the earlier indebtedness.

This litigation followed.

There is an unresolved dispute as to whether the defendant furnished the plaintiffs with any disclosure statement, though the defendant produced a disclosure statement purportedly signed by the plaintiffs. The district court examined that statement and concluded that it violated the requirements of the Act in four respects:

1) It failed to identify the method of computing any unearned portion of the finance charge in the event of pre-payment of the obligation. ⁴

2) It failed to print the terms "finance charge" and the "annual percentage rate" more conspicuously than other terms. ⁵

3) It failed to clearly disclose the total number of payments for the repayment of the indebtedness. ⁶

4) It failed to use the term "finance charge." ⁷

We need not consider the correctness of any of these rulings, for there is another matter, noticed by the district court sua sponte, ⁸ which clearly supports a finding and conclusion of a violation of the disclosure requirements.

In any transaction in which a security interest is to be acquired in one's home, the Act requires that the debtor be given the right to rescind the transaction through "midnight of the third business day following the consummation of the transaction or the delivery of the disclosures required under this section . . ., whichever is later . . .." ⁹ The same section also requires the lender to give the debtor written notice of the right of rescission within the three business day period.

The Powers were notified of the right to rescind within two days, not three. The disclosure statement and the rescission notice indicate that delivery to the plaintiffs was on July 24, 1974. The rescission notice stated that they would have until July 26 to exercise the right of rescission. What the Powers might or might not have done is unknown, but the Act requires that they be given three days to think about it, and giving them only two is a clear violation of the Act's requirements. This violation of the Act supports the imposition of the statutory penalty and an award of attorneys' fees as provided in 15 U.S.C.A. § 1640.

The district court held that husband and wife were each entitled to the statutory penalty of $1,000. ¹⁰ Literally read, § 1640 does provide that when a creditor fails to disclose to any person any information required to be disclosed to that person, the creditor is liable to that person for the statutory penalty. In this home improvement loan to the husband and wife, subject to their right of rescission, the creditor was required to make disclosure to each of them. Thus the district court reasoned that each was entitled to $1,000 as the statutory penalty. But this neglects the fact that there was but one credit transaction, and the plaintiffs were joint obligors of that joint obligation. The Congress was careful to provide a maximum to the statutory penalty, and it is not to be lightly supposed that that statutory maximum is to be doubled, trebled, or quadrupled, depending upon the number of the joint obligors in a single consumer credit transaction. That we should treat husband and wife, when joint obligors, as one is indicated by the legislative history. In House Report Number 1040 it is stated:

"Any creditor failing to disclose required information would be subject to a civil suit with a penalty equal to twice the amount of the finance charge, with a minimum penalty of $100 and a maximum penalty not to exceed $1,000 on any individual credit transaction." 1968 U.S.Code Cong. and Adm.News p. 1976 (Emphasis added).

Since there was here only one credit transaction, we think only one civil penalty should have been imposed. See Rivers v. Century Finance Company, 4 CCH Con. Credit Guide, P 98,771 (N.D.Ga.1974); St. Marie v. Southland Mobile Homes, Inc., 376 F.Supp. 996 (E.D.La.1974). But see, Simmons v. American Budget Plan, Inc., 386 F.Supp. 194 (E.D.La.1974).

Under 15 U.S.C.A. § 1635 the debtors must be allowed a right of rescission within three business days following consummation of the transaction, or the delivery of the required disclosures, whichever is later. Since, as we have held, the borrowers were not given the necessary disclosure of the three day right of rescission, their right of rescission continued, but we find the attempt of the plaintiffs to rescind in September and October 1974 fatally deficient, amounting instead to an anticipatory breach of contract.

The Powers, in attempting to rescind the transaction, stated they would tender delivery of the home improvements, but that they would not reimburse the defendant for the money it had expended in satisfying the other indebtedness of the Powers. ¹¹ In demanding such reimbursement, the defendant was not imposing unwarranted preconditions on the rescission right, as the district court held, but was simply pointing out a glaring deficiency in the proposal of the Powers and insisting upon what was its legal due.

At the time the transaction was consummated, the Powers owed the First & Merchants Bank $2,758.13. They also owed delinquent fire insurance premiums and real estate taxes. The debt to the Bank was secured by a valid first mortgage. Supposedly, the unpaid taxes were a lien on the property. With its funds, the defendant satisfied the plaintiffs' debt to the Bank and cancelled that mortgage. The plaintiffs are no longer obligated to pay $2,758.13 to the Bank, the accrued taxes to public officials or the delinquent premiums to the insurance company, and there is no equitable or legal principal which relieves them of the obligation to reimburse the defendant if the plaintiffs are permitted to rescind the transaction.

Section 1635 does not require a different result. Subsection (a) of that section simply provides for the right of rescission, while subsection (b) relieves the rescinding obligor of any need to pay any "finance or other charge." It does not relieve him of any other obligation or of a duty to proffer full restoration. Indeed, it is specifically provided that if the creditor has delivered any property to...