Sosa v. Fite
Citation | 498 F.2d 114 |
Decision Date | 29 August 1974 |
Docket Number | No. 73-3856.,73-3856. |
Parties | Genoveva R. SOSA, Plaintiff-Appellant-Cross Appellee, v. David FITE, d/b/a Specialty Sales & Service Co., et al., Defendants, Tropical Savings and Loan Association, Defendant-Appellee-Cross Appellant, Esperanza Sosa Hernandez et al., Intervenors. |
Court | United States Courts of Appeals. United States Court of Appeals (5th Circuit) |
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J. L. Covington, Edinburg, Tex., Gordon L. Briscoe, Harlingen, Tex., for plaintiff-appellant.
Ralph L. Alexander, John F. Rowin, Edinburg, Tex., for defendant-appellee.
Carlos F. Vela, Harlingen, Tex., for Esperanza Sosa Hernandez, et al.
Curtis Bonner, Harlingen, Tex., for Cabco, Inc.
Before BROWN, Chief Judge, and RIVES and DYER, Circuit Judges.
Genoveva Sosa appeals from the district court's judgment permitting her to rescind a home improvement contract violative of the Truth-in-Lending Act, 15 U.S.C.A. § 1601 et seq., but imposing an award against her for the balance owing on the invalid contract and impressing a judgment lien to secure the outstanding indebtedness. In a cross-appeal the lending institution which financed the home improvement contract, Tropical Savings and Loan, contests the court's award to Sosa of $750.00 in attorneys' fees. We affirm the granting of rescission and the award of attorneys' fees, but reverse the monetary judgment against Sosa and accompanying judgment lien on her realty.
The unnecessarily lengthy history of this litigation began unremarkably in August 1969 when David Fite, a home improvement contractor of dubious repute, entered into a contract with Mrs. Sosa to provide and install aluminum siding on her house. Included in the various contract documents, none of which Sosa grasped as she was unversed in the English language, was an instrument creating a deed of trust in favor of Tropical to secure Sosa's payment of the total sales price. The secured nature of this transaction triggered the operation of section 1635 of the Truth-in-Lending Act, which grants consumers who suffer the creation of any security interest with respect to realty used as a residence an absolute right of rescission in instances where the creditor fails to make detailed disclosures of credit terms required by the Act. Much to their subsequent dismay, neither Fite nor Tropical ever provided Sosa with the full panoply of statutorily required information, either before or after the work was undertaken.1 Despite her creditors' fatal omissions, Sosa faithfully remitted monthly payments to Tropical over a considerable period of time, until her disenchantment with Fite's shoddy craftsmanship culminated in June 1971 in her refusal to make further payments. Tropical then foreclosed against Sosa's interest in the realty under the trust deed and sold the property at a foreclosure sale to a third party. At this point Sosa invoked her statutory right of rescission with respect to the original contract by directing letters to this effect to both Fite and Tropical in 1971. When no responsive steps were taken by any of the creditors to undo the transaction, Sosa filed suit in the court below to enforce her election to rescind the contract. The court erroneously concluded at first that it lacked jurisdiction over the subject matter, but after this misimpression was corrected on appeal, Sosa v. Fite, 5 Cir. 1972, 465 F.2d 1227, the court upheld her election of rescission and accordingly invalidated the foreclosure sale, but then entered judgment in favor of the creditors for $864.862 and impressed a judgment lien on Sosa's realty interest to secure this amount. Unhappy with what she perceives as half a loaf, Sosa is before us again and strenuously argues that the court's judgment against her is at odds with the express directions of the Truth-in-Lending Act. We agree.
With rigorous regard for providing consumers with full disclosure of the terms and conditions of credit purchases, Congress fashioned an elaborate system of remedies and penalties to effectuate compliance with the Truth-in-Lending Act and to redress grievances stemming from its violation. Our concern with this detailed remedial machinery is limited, however, to the rescission device created by section 16353 of the Act. In substance, section 1635 vests a continuing power of rescission in the credit purchaser until three days following delivery of statutorily prescribed disclosures whenever as an incident of the credit transaction a security interest is acquired in the debtor's realty which he uses as his residence. The open-ended nature of the rescission right is clearly illustrated in the present case, since by the time Sosa sought to abrogate the transaction Fite had long since completed his handiwork and, indeed, Sosa's interest had been sold out from under her by the trustee upon her default. Notwithstanding this display of patience with the ill-advised transaction, Sosa was at liberty to rescind the contract at her pleasure so long as the requisite disclosures of credit terms were not forthcoming.4See, e. g., Wachtel v. West, 6 Cir. 1973, 476 F.2d 1062, 1065; Charnita, Inc. v. F.T.C., 3 Cir. 1973, 479 F.2d 684, 687; Palmer v. Wilson, N.D. Cal. 1973, 359 F.Supp. 1099, 1102. This much is generally agreed to by everyone, although Tropical lamely protests that Sosa's belated rescission, by failing to cite chapter and verse as to specific Truth-in-Lending violations, was not a "good faith" rescission.5 The difficulty arises in regard to the respective obligations of creditor and debtor when the latter invokes the ultimate consumer remedy of rescission. In the present case, the district court was of the view that Sosa, albeit entitled to rescission, was nonetheless obligated to pay the creditors an additional $864.86.
Under the provisions of section 1635(b), when the debtor exercises the rescission right, he is no longer liable for any finance or other charge, and any security interest acquired by the creditor in the debtor's residential realty becomes void. At this juncture, the creditor incurs several responsibilities. Within ten days after receipt of a rescission notice, the creditor is obligated, first, to return any downpayment or earnest money and, second, to take any appropriate steps to reflect the termination of the security interest. According to the statute, "upon the performance of the creditor's obligations" in this regard, the debtor shall tender to the obligee either the property or the reasonable value thereof if return of the property would be inequitable or impracticable. The debtor's duty to tender is not limitless, however, for the property vests in the debtor without any obligation to pay if the creditor fails to take possession of the property within ten days of tender.
In view of this statutory scheme, several facts with respect to the Sosa-Fite transaction take on particular relevance. First, included in Sosa's notice of rescission was an express offer to return the aluminum siding, an overture which elicited no response whatsoever from the creditors. Second, neither Fite nor Tropical, both of whom were statutory "creditors," see 15 U.S.C.A. § 1602(f), ever performed their statutory obligations imposed by section 1635(b) since, for one, they utterly failed to take any steps to reflect termination of the security interest in Sosa's property. The significance of Sosa's proffered return and the creditors' failure to comply with clear statutory directives is that Sosa did in fact attempt to make a tender, even though under a literal reading of the statute the creditors were unentitled to any tender at all by virtue of their failure to perform their express obligation of expurgating records of references to the invalidated security interest. See Palmer v. Wilson, supra. at 1102.
It is true that the statute contemplates an orderly progression of specific events, culminating in the debtor's tender and the creditor's recoupment, which never came to pass in this case. Specifically, section 1635(b) envisions responsive action on the creditor's part to a rescission notice, after which the debtor then becomes obligated to tender either the property or a sum reflecting its reasonable value. This precise statutory scheme was abhorted in this case due to the creditors' failure to comply with statutory requirements, hence Sosa's responsibility to make the specific statutory tender was excused by the creditors' omissions.
To hold otherwise would create a gross anomaly, for no tender in the exact scheme envisioned by the statute could ever be effected by a debtor in the most egregious of circumstances, namely when a creditor steadfastly refuses to perform his express obligations upon receiving the notice of rescission. Congress scarcely could have contemplated such a disruptive commercial stand-off. We therefore conclude that under the circumstances of this case the debtor's obligation to restore the creditor to the status quo ante was discharged by an offer accompanying notice of rescission, since the creditor within ten days of notification failed to return all monies previously paid by the debtor or to reflect dissolution of the security interest.6
Our disposition of this case is not altered by the recent decision in Ljepya v. M. L. S. C. Properties, N.D.Cal. 1973, 353 F.Supp. 866. In that case, the court permitted a borrower to rescind a tainted loan transaction violative of Truth-in-Lending on condition of repaying the principal, without interest, to the creditor within ten days of judgment. There is no indication in that case that the borrowers had ever attempted to return the proceeds of the loan, but instead the debtors were seeking simply to extricate themselves from the unwanted transaction. In that situation, it would have been consonant with the statute only for the debtors to remit to the creditor the loan proceeds in order to rescind the agreement, in as much as section 1635(b...
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