Wachtel v. West, 72-1800.
Decision Date | 11 April 1973 |
Docket Number | No. 72-1800.,72-1800. |
Citation | 476 F.2d 1062 |
Parties | Siegfried WACHTEL and Wife, Roberta S. Wachtel, Plaintiffs-Appellants, v. Bryce WEST and Wife, Frances West, Defendants-Appellees. |
Court | U.S. Court of Appeals — Sixth Circuit |
Thomas E. Watts, Jr., Nashville, Tenn., for plaintiffs-appellants.
J. Stanley Rogers, Garrett, Shields, Rogers & Parsons, Manchester, Tenn., for defendants-appellees.
Before PHILLIPS, Chief Judge, LIVELY, Circuit Judge, and YOUNG, District Judge.*
This case concerns the Truth in Lending Act of 1968, 82 Stat. 146, 15 U.S.C. § 1601 et seq. More specifically involved is a portion of the Act codified as 15 U.S.C. § 1640, which provides civil liability for failure to make any of the disclosures required by the Act. Subsection (e) of Section 1640 is as follows:
(e) Any action under this section may be brought in any United States district court, or in any other court of competent jurisdiction, within one year from the date of the occurrence of the violation.
Appellants filed this action in the district court, asserting that jurisdiction was based on Title 15 U.S.C., Section 1640. The complaint alleged that the plaintiffs had borrowed money from the defendants on October 28, 1970, giving a second mortgage on their residence as security. It further alleged that the defendants failed to make the disclosures to them that are required by 15 U.S.C. § 1631.1 In a separate paragraph the plaintiffs stated that they had notified the defendants of their intention to rescind the mortgage transaction for failure to make the required disclosures but that the defendants had taken actions inconsistent with rescission. The prayer for relief was three-fold:
The complaint was filed on April 25, 1972, and the defendants filed a timely motion to dismiss for failure to bring the action within one year of the accrual of the claim stated. The district court granted the motion and entered a judgment dismissing the action on its merits. The opinion of Judge Neese appears at 344 F.Supp. 680 (E.D.Tenn.1972).
The narrow question presented on appeal is whether a violation of the duty to disclose information to a borrower occurs at the time such disclosure is first required to be made, or whether it is a continuing violation until such time as the disclosure is actually made. In order to decide this question we must examine the overall purpose of the Act as well as the particular sections referred to in the complaint.
The purpose of Congress in enacting the Truth in Lending Act is set forth in 15 U.S.C. § 1601 as follows:
§ 1601. Congressional findings and declaration of purpose
The Congress finds that economic stabilization would be enhanced and the competition among the various financial institutions and other firms engaged in the extension of consumer credit would be strengthened by the informed use of credit. The informed use of credit results from an awareness of the cost thereof by consumers. It is the purpose of this subchapter to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit.
Pursuant to § 1604 the Board of Governors of the Federal Reserve System issued its Regulation Z (12 CFR § 226 (1969)) which provides, in part, as follows:
The purpose of disclosure is clearly to give the borrower an opportunity to do some comparative shopping for credit terms. In the words of Congressman Helstoski, the Act affords the consumer an opportunity to ascertain which offer (of credit terms) "... is best in terms of dollars and to obtain a better `buy.'" 114 Congressional Record 1614 (Permanent Ed. Jan. 31, 1968). See Ratner v. Chemical Bank New York Trust Co., 329 F.Supp. 270, 276 (S.D.N.Y.1971); Bissette v. Colonial Mortgage Corporation, 340 F.Supp. 1191 (D.D.C.1972).
Though the Act is primarily concerned with sales of personal property involving consumer financing, credit card purchases and open-end credit, it also applies to real estate transactions, and special consideration is given to a very limited type of real estate credit transaction. Under 15 U.S.C. § 1635 a right of rescission is given to a borrower to whom credit is extended in a transaction where a security interest (other than a first lien to finance acquisition) is created or retained on real estate used or expected to be used as the principal residence of the obligor. This right does not depend on any wrongdoing by the lender, but may be exercised by the borrower for any reason so long as he acts within the prescribed time and follows the prescribed procedure. He (the borrower) may rescind this type transaction at any time until midnight of the third business day following consummation of the transaction, or the delivery of the required disclosures, "whichever is later." Section 226.9 of Regulation Z contains detailed rules which are designed to compel notification to the borrower of his right to rescind and which require a delay in closing the credit transaction until the rescission period has passed.
Taking the allegations of the complaint as true, it appears that the appellees have violated the provisions of the Act and of Regulation Z. Because the right of rescission exists until the end of the third business day, or until disclosure, whichever is later, and it is alleged that no disclosure has ever been made, it may be that this remedy is still available to the appellants. The Act does not contain a statute of limitations for enforcement of the right to rescind. However, since rescission is an equitable remedy, presumably the defenses of laches or estoppel could be interposed to prevent a borrower from enjoying the benefit of the credit for a long period of time and then succeeding in having the transaction avoided to the detriment of the lender. It should be noted that the Act does not specifically provide that federal courts have jurisdiction of actions for rescission.
The appellant has attempted to engraft the "whichever is later" provision of § 1635 onto this action for damages under § 1640. However, this case is not concerned with the right of rescission, and at least one court has held that the two remedies are inconsistent, so that the election to proceed under one theory constitutes an abandonment of the other. Bostwick v. Cohen, 319 F.Supp. 875 (N. D.Ohio 1970). Here the complaint premised jurisdiction on § 1640, which provides for damages for failure to disclose the information set forth in the Act and...
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