Smith v. Chapman
| Decision Date | 28 April 1977 |
| Docket Number | Civ. A. No. A-75-CA-110. |
| Citation | 436 F. Supp. 58 |
| Parties | Mary S. SMITH, Plaintiff, v. Don CHAPMAN, d/b/a Don Chapman Motor Sales, Defendant. |
| Court | U.S. District Court — Western District of Texas |
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James G. Boyle, Austin, Tex., for plaintiff.
William R. Travis, Austin, Tex., for defendant.
ORDER and MEMORANDUM GRANTING SUMMARY JUDGMENT
Came on this day for consideration by the Court Motions for Summary Judgment which have been filed by both parties. After thorough review of the record, it is the opinion of this Court that Plaintiff's Motion should be granted and Defendant's Motion denied. It is further the decision of the Court that the Recommendation of the Special Master should be adopted as the opinion of this Court.
On October 8, 1974, a retail installment transaction entered into between Plaintiff and Defendant for the purchase of a 1969 Mercury was consummated. This credit transaction is evidenced by a "Motor Vehicle Contract" which obligated Plaintiff to pay the sum of One Thousand Four Hundred Fifty-Five and 40/100 Dollars ($1,455.40) in one (1) payment of One Hundred Dollars ($100.00) followed by eighteen (18) consecutive equal monthly payments of Seventy-Five and 30/100 Dollars ($75.30). At the time this transaction was consummated Defendant regularly extended credit for personal, family or household use.
On the Contract Defendant disclosed the "Cash Price (Including Sales Tax)" as One Thousand Four Hundred Dollars ($1,400.00) and the "Official Fees" as Fifty-Six Dollars ($56.00) when the "Cash Price" did not include the sales tax. The sales tax was disclosed as "Official Fees."
Plaintiff filed suit on July 9, 1975, alleging that the Contract, consisting of one (1) sheet of paper with terms and conditions of the agreement on both sides of the paper, violates the provisions of both the Truth in Lending Act, 15 U.S.C. § 1601, et seq., and Regulations promulgated thereunder at 12 C.F.R. § 226 et seq., referred to as Regulation Z, and the provisions of the Texas Consumer Credit Code, Tex.Civ.Stat.Ann. art. 5069-7.01 et seq., hereinafter referred to as the Credit Code. Both the Act and the Credit Code have as their primary purpose facilitating the informed use of credit by consumers. On January 5, 1977, a hearing was held before the Special Master on the Plaintiff's and Defendant's Motions for Summary Judgment.
Defendant contends that he is entitled to Summary Judgment because Plaintiff admitted in her deposition that she used the 1969 Mercury in connection with her business. Business or governmental credit is exempted from the Act. 15 U.S.C. § 1603(1).
The Act is aimed at providing consumers with information in order to be able to intelligently shop for credit. 15 U.S.C. § 1601, Mourning v. Family Publications Service, Inc., 411 U.S. 356, 93 S.Ct. 1652, 36 L.Ed.2d 318 (1973). A "consumer credit" transaction is one in which the credit is given "primarily for personal, family or household purposes." (emphasis added) 15 U.S.C. § 1602(h); 12 C.F.R. § 226.2(p). The term "business credit" is not defined but since the purpose of the Act is to provide information in "consumer credit" transactions, then it must be clear that business credit is something other than credit given primarily for personal, family or household purposes.
It stands to reason that the business credit exemption arises whenever the credit is given primarily for a business purpose and not just when the credit is given entirely for a business purpose. On the other hand the Act applies when the credit is given primarily for a personal, family or household use and not just when it is given entirely for a personal, family or household use.
Paragraph V of the Complaint alleges that Plaintiff purchased the 1969 Mercury for her personal use. Defendant in his Answer admitted the allegations contained in Paragraph V are true. It is a settled rule of law that what the Defendant admits in his answer is binding on him. Freedom National Bank v. Northern Illinois Corp., 202 F.2d 601, 605 (7th Cir. 1953).
Even if Defendant had not admitted the transaction made the subject of this lawsuit was a consumer credit transaction, the deposition of Mary Smith clearly supports the view that she purchased the automobile primarily for her personal use. Plaintiff admitted she used the motor vehicle to run errands in connection with her work (Mary Smith Deposition, p. 5, lines 7-25). The use of the motor vehicle to run errands was only an incidental use of the motor vehicle. (Mary Smith Deposition, p. 63, line 25 to p. 64, line 3). The 1969 Mercury was Plaintiff's only automobile. (Mary Smith Deposition, p. 5, lines 12-16). Plaintiff was unequivocal in her deposition that the primary use of the motor vehicle was for her personal use. (Mary Smith Deposition, p. 51, lines 7-12).
As a matter of law, this transaction is a "consumer credit" transaction. Defendant's Motion For Summary Judgment is denied.
Plaintiff alleges that Defendant failed to make proper credit disclosures under the Truth in Lending Act and under the Texas Consumer Credit Code. This Court has jurisdiction over the Credit Code claims as a result of its pendent jurisdiction over facts which are identical to the facts necessary to prove the federal claim. Hurn v. Oursler, 289 U.S. 238, 53 S.Ct. 586, 77 L.Ed. 1148 (1933); United Mine Worker's v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966).
Plaintiff contends that Defendant has committed six (6) different violations of the Truth in Lending Act, set forth as follows:
The Truth in Lending Act sets forth required disclosures for transactions which are "other than open-end." The latter transactions are commonly referred to as "closed-end" transactions. Section 226.8 of Regulation Z sets forth the disclosures which must be made in a closed-end transaction. All required disclosures which are made, whether the transaction is open-end or closed-end, under the Act must be made "clearly, conspicuously and in a meaningful sequence". 12 C.F.R. § 226.6(a).
Plaintiff and Defendant by executing the "MOTOR VEHICLE CONTRACT" entered into a closed-end transaction. All of the required disclosures must be made on the same side of the page as the note evidencing the obligation or they can be made on one side of a separate statement which identifies the transaction. 12 C.F.R. § 226.8(a). In the case at bar the Defendant chose to make his disclosures on the Contract.
Plaintiff's first three contentions relate to the location of required disclosures. The description of security interest reserved by Defendant is found in paragraph number one (1) on the reverse side of the Contract. The security interest description is a required disclosure. 12 C.F.R. § 226.8(b)(5). Delinquency charges must also be disclosed. 12 C.F.R. § 226.8(b)(4).
As far as delinquency charges are concerned Defendant does indicate that a delinquency charge may be imposed on each installment "in default for a period of more than ten days in an amount not to exceed 5% of each installment or $5.00, whichever is less, or, in lieu thereof, interest after maturity on each such installment not to exceed the highest lawful contract." (Emphasis added). This disclosure is made on the front of the Contract. On the reverse side of the Contract in paragraph number ten (10), Defendant discloses that "After maturity, this Texas Motor Vehicle Contract shall bear interest at the rate of 10% per annum."
Under Texas law had the Contract been silent Defendant could have received six percent (6%) interest after maturity. Tex. Civ.Stat.Ann. art. 5069-1.03. By reserving a higher rate Defendant imposed a delinquency charge. Paer v. Aetna Finance Company, (N.D.Ga.1976) C.C.H. Consumer Credit Guide, par. 98,353.
The disclosure on the front of the Contract that interest after maturity would be at the "highest lawful contract rate" did not fulfill the requirement of a "clear" disclosure as required by Section 226.6(a) of Regulation Z. To the average consumer the "highest lawful contract rate" has little or no meaning. The disclosure which satisfies Section 226.6(a) is contained in Paragraph number ten (10) on the reverse side of the Contract.
Defendant claims that he does not need to make the required disclosures on the front side of the Contract because of Interpretation 226.801 of the Federal Reserve Board. This Interpretation allows creditors to make required disclosures on both sides of a combination contract and security agreement under certain very limited circumstances. This Interpretation is applicable only when all the disclosures cannot be put on one side because the form will not accommodate all the disclosures because it...
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