Sutton v. First Nat. Bank of Crossville
| Decision Date | 23 June 1981 |
| Parties | Pinkney SUTTON, Executor of the Estate of Charles A. Sutton, Deceased, and Willene B. Sutton, Plaintiffs-Appellees, v. The FIRST NATIONAL BANK OF CROSSVILLE, Defendant-Appellant. |
| Court | Tennessee Court of Appeals |
Joe M. Looney of Looney, Looney & Conner, Crossville, for defendant-appellant.
Dale Bohannon of Cameron & Madewell, Cookeville, for plaintiffs-appellees.
This is an action by Pinkney Sutton, Executor of the estate of Charles A. Sutton, deceased, and Willene B. Sutton, his widow for breach of an alleged contract to procure credit life insurance on a construction loan made by the defendant, The First National Bank of Crossville.
The trial judge sitting without the intervention of a jury found in favor of the plaintiffs, and cancelled the indebtedness owing to the defendant bank under a promissory note dated March 14, 1978, and held said note and deed of trust securing the same to be unenforceable.
In the fall of 1977, Mr. & Mrs. Charles Sutton, residents of Calhoun, Georgia, decided to build a house at Lake Tansi in Cumberland County, Tennessee. They intended to commence the construction thereof with personal funds, and after depleting the same, obtain a construction loan to complete the house. With this in mind, they went to the defendant bank at Crossville and talked to Randy Swafford, a vice-president and loan officer of the bank, about obtaining a construction loan when needed. Although the record is silent on the point, subsequent events indicate that the Suttons left with the understanding that they could get a construction loan when needed. Mrs. Sutton testified that credit life insurance was not mentioned on this occasion.
No further contact or communication was had between the parties until March 14, 1978, at which time said house was under construction. On this date, Mrs. Sutton went to the defendant bank to arrange for a construction loan. Mr. Sutton did not go in order to avoid losing a day's work. He intended to go to the bank after all loan papers had been prepared and close the loan. Mr. Swafford told Mrs. Sutton that that would not be necessary; that she could take the documents to Georgia for his signature and return them by mail. Mrs. Sutton testified that credit life insurance was not mentioned on this occasion.
While Mrs. Sutton waited, Mr. Swafford prepared a loan application, financial statement, disclosure statement, note in the amount of $15,000.00 payable six months after date, and a deed of trust.
The disclosure statement gives rise to the dispute in this case. The following information was given in block form on the disclosure statement:
Total Payments $15,712.50
Finance charge 712.50
Amount financed 15,000.00
Annual percentage rate 9.5%
Registration fees 20.50
Non-filing insurance 300.00
Search, filing, recording
legal or releasing fees 180.00
Due date of payment 09/14/78
Amount of payment 15,000.00
No entry was made in the blocks provided for credit life insurance charge, disability insurance charge, property insurance charge or taxes.
In addition, the disclosure statement contained the following language under the caption "INSURANCE":
As shown above, the typewritten date, 3/14/78, appeared under the statement "I DO NOT want Credit Life or Disability Insurance."
Mr. Swafford placed a red X at the various places on the loan documents where Mr. Sutton was to sign, including a red X on the signature line shown above, and instructed Mrs. Sutton to have her husband sign at the places indicated.
Mrs. Sutton took these documents to Georgia where they were executed, acknowledged, and returned to Mr. Swafford by mail. Mr. Sutton signed under the statement, "I desire Credit Life Insurance only."
Mr. Swafford testified that he remembered receiving the envelope containing the loan documents; that it was his normal procedure to leaf through loan documents to determine if the signatures were in the correct places; that he assumed that he leafed through the Sutton documents; and that if he had noticed Mr. Sutton's signature under the statement, "I desire Credit Life Insurance only", he would have contacted the Suttons to see if a "mistake" had been made, and if not, he would have taken the premium from the proceeds of the loan and marked it as an advance on the loan. At any rate, no credit life insurance was obtained on this loan.
The Sutton's son, Pinkney Sutton, constructed the house for his parents, and made the draws at the defendant bank on the construction loan.
After the loan of March 12, 1978, the Suttons had no further contact or communication with the defendant bank until May 12, 1978, at which time Mrs. Sutton went to the bank and requested an additional $4,000.00 to complete the house. Mr. Swafford approved, and prepared a note and disclosure statement. Mr. Swafford considered this loan to be an extension of the first, and secured by the same trust deed. Mr. Swafford "elected" to put credit life insurance on this loan even though, as in the case of the first loan, Mrs. Sutton testified that credit life insurance was not mentioned. The disclosure statement used on this occasion was on a completely different form from that used on the first loan, and showed an entry of $29.19 for credit life insurance. Mrs. Sutton took the note and disclosure statement to Georgia where they were signed and returned by mail.
Mr. Swafford had no independent recollection of his conversation with Mr. & Mrs. Sutton in the fall of 1977, or of his discussion with Mrs. Sutton on March 12, 1978, or on May 12, 1978.
Mr. Sutton became ill in the latter part of March, and died on June 18, 1978. Pinkney Sutton had advised Mr. Swafford of his father's illness prior to May 12, 1978, and Mrs. Sutton advised him of her husband's illness on that date. After Mr. Sutton's death, Mr. Swafford advised Mrs. Sutton that there was credit life insurance on the second loan, but not on the first, giving rise to this lawsuit.
The issue in this case is whether there was a contractual duty on the part of the defendant bank to procure credit life insurance. In other words, did the language pertaining to credit insurance, as embodied in the loan disclosure statement, constitute an offer by the defendant bank to procure such insurance, and if so, was there an acceptance by Charles Sutton supported by a valid consideration?
The defendant contends that the only function of the loan disclosure statement was to give notice to the Suttons of credit terms in compliance with the Consumer Credit Protection Act, 15 U.S.C. Sec. 1601, et seq., Subchapter 1 thereof being known as the Truth in Lending Act, and the regulations promulgated thereunder (Regulation Z) by the Federal Reserve Board, 12 Code of Federal Regulations, Sec. 226.1 et seq.; that the section on insurance in the disclosure statement was not intended as an offer to procure credit insurance; and that there was no mutual assent or meeting of minds between the parties.
The defendant cites Burgess v. Charlottesville Savings & Loan Association, 349 F.Supp. 133 (1972), and Peer v. First Federal Savings and Loan Association of Cumberland, 273 Md. 610, 331 A.2d 299 (1975), in support of its contentions.
In the Burgess case, supra, the plaintiff and her husband made application for a mortgage loan to purchase a house. Later, the defendant association mailed several loan documents, including a Regulation Z disclosure statement, to the plaintiff and her husband. The disclosure statement contained a similar section on credit insurance which they signed under the statement, "I desire Credit Life & Disability Income insurance coverage." Mrs. Burgess returned the disclosure statement to the defendant at the loan closure on May 12, 1971, at which time the loan proceeds were disbursed. Mr. Burgess was not present.
Virginia law required that the person to be insured make application for such insurance on a form approved by the State Corporation Commission. According to testimony on behalf of the defendant, Mrs. Burgess was advised at the loan closing on May 12, and again by telephone on May 20, that an application would have to be filled out by the Burgesses in order to obtain credit insurance. This testimony was denied by Mrs. Burgess. Further, by letter dated May 21, the defendant furnished the Burgesses with an itemized statement of their monthly payments in the total amount of $176.00, which itemization did not include any charge for credit insurance. The Burgesses made their first payment on June 2, 1971, in the amount of $176.00. They never filled out the application required by Virginia law. Mr. Burgess was killed on June 16, 1971. The defendant had not procured credit life insurance as in the instant case.
The District Court held that the purpose of...
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