Pridegon v. Gates Credit Union
| Decision Date | 02 July 1982 |
| Docket Number | No. 81-1270,81-1270 |
| Citation | 683 F.2d 182 |
| Parties | 34 UCC Rep.Serv. 717 Shirley M. PRIDEGON, Plaintiff-Appellant, v. GATES CREDIT UNION, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Barry M. Barash, Barash, Stoerzbach & Henson, Galesburg, Ill., for plaintiff-appellant.
Douglas D. Mustain, West, Neagle & Williamson, Galesburg, Ill., for defendant-appellee.
Before CUMMINGS, Chief Judge, SPRECHER, Circuit Judge, ** and GRANT, Senior District Judge. ***
In a single count complaint filed on December 29, 1980, appellant-plaintiff Shirley M. Pridegon alleged that a loan transaction between herself and Gates Credit Union ("Gates") violated the Federal Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601 et seq., and Regulation Z promulgated thereto, 12 C.F.R. §§ 226 et seq. (1981). Specifically, she alleges in her complaint the following nine violations:
a. Creditor, in its security agreement, claimed an overbroad and unlawful security interest in consumer's after-acquired consumer goods ("... and any and all additions, accessions, attachments, accessories, repairs, replacements, substitutions and proceeds thereof, thereto or therefrom ..."), in violation of U.C.C. § 9-204(2) (Illinois Revised Statutes 1977, ch. 26, § 9-204(2) ) and thereby violated 15 U.S.C. § 1639(a)(8), and Regulation Z § 226.8(b)(5).
b. Creditor, in violation of Regulation Z § 226.8(a), failed to make all disclosures required by Regulation Z on a single document, on the same side of the page and above or adjacent to the place for the customer's signature or on one side of a separate statement which identifies the transaction.
c. Creditor, in violation of Regulation Z § 226.6(a) and 15 U.S.C. § 1639(a) (5) failed to clearly disclose to consumer the annual percentage rate.
d. Creditor, disclosed to consumer that the payments on the loan were $156.24 per month, whereas, the payments were made weekly at the rate of $58.20 per week, or.$252.18 per month, in violation of 15 U.S.C. § 1639(a)(6) and Regulation Z § 226.8(b)(3).
e. Creditor, in violation of 15 U.S.C. § 1639(a)(1) and Regulation Z § 226.8(d)(1), failed to disclose to consumer on a single document the amount of credit of which the obligor will have the actual use, or which is or will be paid to her or for her account or to another person on her behalf.
f. Creditor, on the reverse of the disclosure statement, and in in (sic) violation of Regulation Z § 226.8(a), prohibited debtor from removing the automobile from Colorado, when the loan was made in Illinois, and creditor knew that consumer resided in Illinois and would operate the car in that state, not Colorado. Creditor's attempt to impose a default in such manner, without disclosing the default to consumer on page one of the disclosure statement, violates 15 U.S.C. § 1639(a)(7) and Regulation Z § 226.8(b)(4).
g. Creditor, in the disclosure statement, failed to disclose that it had any interest in any personal property, whereas, the security agreement discloses a security interest in consumer's account at Gates Credit Union and the 1978 Buick automobile. The inconsistency and creditor's failure to make accurate disclosures violates 15 U.S.C. § 1639(a)(8) and Regulation Z § 226.8(b)(5).
h. If consumer fails to remain in the employ of the Gates Rubber Company, creditor has the right to accelerate the entire balance due on the note. In the disclosure statement, creditor failed to disclose that element of default, thereby violating 15 U.S.C. § 1639(a)(7) and Regulation Z § 226.8(b)(4).
i. Creditor, in the disclosure statement, disclosed that the security agreement "may" cover after-acquired property, whereas, the security agreement in fact covers all after-acquired property, including substitutions and replacements. The disclosure statement failed to accurately disclose the nature and extent of the underlying security agreement, thereby violating 15 U.S.C. § 1639(a)(8) and Regulation Z § 226.8(b)(5).
Gates filed an answer on January 23, 1981, denying all of Pridegon's allegations. It subsequently amended the answer on February 11, 1981, to include a "good faith conformity" defense.
On January 26, 1981, Pridegon filed a motion for summary judgment which simply cited six cases in support without any argument. On February 2, 1981, Gates filed its response to Pridegon's motion in addition to its own motion for summary judgment with a supporting memorandum. On February 12, 1981, the district court, without any accompanying memorandum, denied Pridegon's motion for summary judgment and granted Gates'. Pridegon appeals from this judgment.
Shirley M. Pridegon is a 31 year-old production worker for the Gates Rubber Company in Galesburg, Illinois. Employed there since 1972, she is paid on an hourly basis and receives a check weekly. On November 19, 1980, Pridegon borrowed $4,703.92 from Gates. The loan was secured by her 1978 Buick Regal. The $4,703.92 borrowed represented the total of the refinancing of a prior Gates loan of $3,883.53, interest on this prior loan of $20.39 and a cash payment to Pridegon of $800.00.
Pridegon requested on a November 17, 1980 "Confidential Application for Loan" document she filed with Gates that $90 be deducted from her weekly check to be applied to her two savings (share) accounts and her one loan account. She listed the purpose of the loan as "Christmas and Ref. C.U. (Refinanced Credit Union) Loan." Records of Gates, dated December 31, 1980, show that of the deducted $90, $43.75 went to share account # 429816-0, $10 went to share account # 429816-9 and $36.25 went as principal and interest payment on the loan account.
The "Promissory Note, Security Agreement and Disclosure Statement" (hereinafter "loan agreement") between Pridegon and Gates was on one double-sided document. The Disclosure Statement Section showed:
Proceeds $4,703.92
No additional insurance
or official charges -0-
---------
Amount financed $4,703.92
---------
Finance charges
Interest $902.61
-------
FINANCE CHARGE(Total) $ 902.61
Total of Payments $5,624.53
ANNUAL PERCENTAGE RATE 12%
The Promissory Note section indicated a 12% simple annual interest with 36 monthly installments of $156.24.
The Disclosure Statement also provided that the "Promissory Note is secured by the Security Agreement below" and further provided that the Security Agreement "may cover after-acquired property, except as to consumer goods unless the debtor acquires rights in them within ten (10) days after the Credit Union gives value." The Security Agreement section listed a 1978 Buick Regal and "any and all additions, accessions, attachments, accessories, repairs, replacements, substitutions, and proceeds thereof" as security. The Security Agreement also provided that the Promissory Note and other obligations were "secured by after-acquired Collateral under the Uniform Commercial Code, (and that) after-acquired property in 'consumer goods' is limited to goods acquired within ten days after the secured party gives value." All of the separate sections contained in the loan agreement and the Confidential Application were signed by Shirley M. Pridegon. There is no dispute as to the authenticity of those signatures.
On this appeal, she contends that Gates' claim to after-acquired security was overbroad and unlawful; that Gates failed to make all the disclosures in a single document as required by Regulation Z; that the annual percentage rate was not legibly written on the loan form; that Gates deducted from Pridegon's employment checks payments on the loan in excess of the disclosed monthly amount; that Gates failed in a single document to disclose the amount of credit of which she would have actual use; that the disclosure statement failed to "track" the underlying security agreement; and that the discrepancy whether the security agreement "may" or did in fact cover all after-acquired property violated TILA and Regulation Z. For the sake of completeness, we shall address each argument individually.
Overbreadth of after-acquired property clause
The Security Agreement in question provides in part that "the Debtor grants to the Secured Party a security interest in the following described property and any and all additions, accessions, attachments, accessories, repairs, replacements, substitutions and proceeds thereof ..." Pridegon argues that this clause violates § 9-204(2) of the Illinois Uniform Commercial Code (UCC) 1 by claiming after-acquired property without properly disclosing the ten-day consumer goods limitation imposed by the UCC. She claims this omission violates TILA § 1639(a)(8) 2 and Regulation Z § 226.8(b)(5). 3
Pridegon is correct in asserting that the above-quoted clause does not include the ten day limitation requirement. However, immediately following it, the Security Agreement goes on to provide that:
The Promissory Note and other Obligations previously set forth shall be secured by after-acquired Collateral Under the Uniform Commercial Code, after-acquired property in "consumer goods" is limited to goods acquired within ten days after the secured party gives value.
(emphasis added). While the ten-day limitation is not contained in the sentence which outlines the security interests but in the succeeding paragraph, we nevertheless find that the Security Agreement read in its entirety with the reference to "Obligations previously set forth," properly incorporates the ten-day limitation as to consumer goods. In Smith v. No. 2 Galesburg Crown Finance Corp., 615 F.2d 407, 420 (7th Cir. 1980), this court held that a facially valid ten-day consumer goods limitation, if poorly drafted so as to create confusion or misunderstanding on the part of a borrower, could nevertheless violate TILA. In that instance, however, the disclosure listed security interests...
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