Turner v. West Memphis Federal Sav. and Loan Ass'n

• Decision Date: 24 September 1979
• Docket Number: No. 79-52,79-52
• Citation: 266 Ark. 530,588 S.W.2d 691
• Parties: Phillip M. TURNER and Mary Anne Turner et al., Appellants, v. WEST MEMPHIS FEDERAL SAVINGS AND LOAN ASSOCIATION and J. H. Spears, Trustee, Appellees.
• Court: Arkansas Supreme Court

Page 691

588 S.W.2d 691

266 Ark. 530

Phillip M. TURNER and Mary Anne Turner et al., Appellants, v. WEST MEMPHIS FEDERAL SAVINGS AND LOAN ASSOCIATION and J. H.

Spears, Trustee, Appellees.

No. 79-52.

Supreme Court of Arkansas, In Banc.

Sept. 24, 1979.

Rehearing Denied Nov. 5, 1979.

N. M. Norton, Forrest City, for appellants.

Spears, Sloan & Johnson, West Memphis, for appellees.

PURTLE, Justice.

This case involves a foreclosure action by the creditor upon a residential loan which was in default. The Turners', obligors, defense was usury and failure to timely make material disclosures as required by the Truth-in-Lending Act and by Regulation Z. The trial court found the creditor did not make a usurious charge and that there was no failure to make a material disclosure. Judgment for the creditor was granted upon the complaint and the property was ordered sold at public auction. The proceeds were applied to the loan and other judgments which were included in the decree. Obligors bring this appeal.

We are called upon to determine whether the chancellor erred in holding that the finance charges made by the creditor did not exceed the Arkansas statutory interest limit of 10% And whether the failure to include on the disclosure statement the total finance charges and the total of all payments to be made under the loan violated the Truth-in-Lending Act. We conclude the contract was not usurious but there was a failure to make material disclosures as required by the Act.

The facts are not really in dispute. September 9, 1975, Phillip M. Turner and wife, Mary Anne Turner, appellants, obtained a loan from the West Memphis Federal Savings & Loan Association, appellee, for the purpose of financing a dwelling which they owned and occupied. The loan was accomplished by execution of a note for $38,500 bearing interest at 9% And a mortgage which included waiver of dower by the wife. The disclosure statement submitted by appellee failed to disclose the total amount of finance charges or the total of all payments to be made on the loan. Appellants signed and returned the disclosure statement which revealed the creditor had made a 1% Origination fee charge of $385 as well as other charges to appellants.

The loan was completed September 9, 1975, and the first payment, in the amount of $323.10, was due on October 1, 1975 although it was not made until October 10, 1975. There were to be 300 payments in the same amount and each was due on the first of each succeeding month. Most of the payments were late with the last payment, due October 1, 1977, being made on December 9, 1977. Appellees commenced foreclosure action on May 10, 1978, at a time when the payments were considerably in default. Appellants first filed an answer that amounted to a general denial. The answer was amended and a counterclaim filed on July 6, 1978. The answer and counterclaim pleaded usury as a defense and sought customary relief in usury cases. The answer was supplemented on July 14, 1978, by appellants seeking to rescind the contract on the grounds of failure of appellees to make a material disclosure as required by 15 U.S.C. § 1635.

The court found against the appellants on both counts and entered a decree on October 16, 1978, ordering foreclosure on the loan. The property was subsequently sold at public auction and the proceeds applied to appellants' indebtedness. Several other judgments against the appellants were granted in the decree but we do not deem it necessary to deal with them in this opinion. The proceeds of the sale were insufficient to pay all judgments granted against appellants.

We first consider the defense of usury. Appellants rely upon Ryder Truck Rental v. Kramer, 263 Ark. 169, 563 S.W.2d 451 (1978), in support of the usury allegation. Ryder was an appeal from a summary judgment declaring a loan to be usurious. An admission in Ryder conclusively proved that during a period of 32 months the interest rate charged and collected exceeded 10% In each month. We have no such admission in the present case. In fact, the figures from the payment record in the present case conclusively show the interest charged and collected amounted to less than 10%. Therefore, Ryder is not applicable here.

The origination fee of 1%, or $385, was withheld from the obligors. Therefore the $38,500 loan was reduced to $38,115. We conclude that this $385 was a part of the finance charge. The contract had been in force for about 32 months when suit was filed. Appellants had paid $7,674.10 in interest plus the $385 origination fee for a total payment of $8,059.10. During this same period of time appellees could have collected $8,422.56, including the $385, without exceeding the 10% Statutory limit. By adding the $385 origination fee to the interest the rate actually charged was 9.0404%. Therefore, the contract was not usurious.

We next consider the truth in lending disclosure statement. 15 U.S.C. § 1635 reads:

(a) Except as otherwise provided in this section, in the case of any consumer credit transaction in which a security interest is retained or acquired in any real property which is used or is expected to be used as the residence of the person to whom credit is extended, the obligor shall have the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the disclosures required under this section and all other material disclosures required under this part, whichever is later, by notifying the creditor, in accordance with regulations of the Board, of his intention to do so. The creditor shall clearly and conspicuously disclose, in accordance with regulations of the Board, to any obligor in a transaction subject to this section the rights of the obligor under this section. The creditor shall also provide, in accordance with regulations of the Board, an adequate opportunity to the obligor to exercise his right to rescind any transaction subject to this section.

(b) When an obligor exercises his right to rescind under subsection (a) of this section, he is not liable for any finance or other charge, and any security interest given by the obligor becomes void upon such a rescission. Within ten days after receipt of a notice of rescission, the creditor shall return to the obligor any money or property given as earnest money, down-payment, or otherwise, and shall take any action necessary or appropriate to reflect the termination of any security interest created under the transaction. If the creditor has delivered any property to the obligor, the obligor may retain possession of it. Upon the performance of the creditor's obligations under this section, the obligor shall tender the property to the creditor, except that if return of the property in kind would be impracticable or inequitable, the obligor shall tender its reasonable value. Tender shall be made at the location of the property or at the residence of the obligor, at the option of the obligor. If the creditor does not take possession of the property within ten days after tender by the obligor, ownership of the property vests in the obligor without obligation on his part to pay for it.

(c) Notwithstanding any rule of evidence, written acknowledgment of receipt of any disclosures required under this subchapter by a person to whom a statement is required to be given pursuant to this section does no more than create a rebuttable presumption of delivery thereof.

(d) The Board may, if it finds that such action is necessary in order to permit homeowners to meet bona fide personal financial emergencies, prescribe regulations authorizing the modification or waiver of any rights created under this section to the extent and under the circumstances set forth in those regulations.

(e) This section does not apply to the creation or retention of a first lien against a dwelling to finance the acquisition of that dwelling.

If the loan had been to finance the acquisition of a dwelling the Act would have no application. The disclosure form used by appellants indicates this loan was on a dwelling then owned and occupied by appellants. Therefore, we hold the Act applicable. The disclosure form used fails to state either the total finance charges or the aggregate of all payments to be made pursuant to the contract. It is true these figures could have been obtained by using the figures stated on the form. We do not find this question to have been decided by this Court nor any United States District Court in Arkansas. Pub.L. 90-321, Title 1, § 125 (15 U.S.C. § 1635) gives the obligor up until midnight of the third business day following consummation of the transaction or the delivery of the disclosures required under this section and all other material disclosures required under this part, whichever is later, to notify the creditor of intent to rescind. Such intent was given to the creditor on July 14, 1978, almost three years after the transaction was consummated. The matter of whether a notice to rescind is timely was treated in Ljepava v. M.L.S.C. Properties, Inc., 511 F.2d 935 (9th Cir. 1975). In that case the court pointed out that the inadequacies found in the disclosure statement were never corrected; therefore, the Ljepavas had the right to rescind at any time prior to trial. See also Sosa v. Fite, 498 F.2d 114 (5th Cir. 1974). There was a timely rescission in French v. Wilson, 446 F.Supp. 216 (D.C.R.I.1978), when the loan had been made in October of 1973 and the rescission was made in May of 1975. A loan had been outstanding from August of 1973 until August of 1974 when the obligors instituted a rescission action. This, too, was held to be a timely rescission. Therefore, if the insufficiencies in the disclosure statement were material the notice in this case was timely.

The only case we have located dealing directly with the term "material disclosure" is Ivey v. United States of America Department of Housing and Urban...